Energy contracting in Brazil and electricity prices

Abstract

Purpose

To investigate the extent to which the contracting mechanisms instituted by the 2004 reform, in particular power auctions, have solved the investment hurdles created by the first reform.

Design/methodology/approach

The paper analyses the characteristics of Brazilian contracting and the experience so far with power auctions, concerning investments in generation and electricity prices.

Findings

Auctions have been moderately successful, in the sense that they have attracted a fair number of bidders and electric companies have increased their value in the stock exchange, while keeping prices moderate. However, a number of other hurdles to investment – in particular clear and feasible criteria for environmental licensing – have to be solved in order to achieve the reform goals.

Research limitations/implications

The format of power auctions is still going through a learning process; also, the experience has been limited so far, which severely hinders the use of quantitative tools. This could be the object of future research, after more data are available. Of particular interest will be the follow‐up of free bilateral contracting, which has grown significantly.

Practical implications

This could be a useful reference for scholars interested in the recent developments in the Brazilian Electricity Supply Industry.

Originality/value

As far as is known, this is the first paper to systematically analyse the performance of power auctions in the Brazilian market. Its value lies in that it allows an objective evaluation of one central point of the 2004 reform.

Citation

Lizardo R. Hermes de Araújo, J., de Aragão da Costa, A.M., Correia, T. and Melo, E. (2008), "Energy contracting in Brazil and electricity prices", International Journal of Energy Sector Management, Vol. 2 No. 1, pp. 36-51. https://doi.org/10.1108/17506220810859088