Economic Policy Evaluation for the Deployment of Alternative Energy Sources in Brazil Nicholas Chang, Christian A. Oberst and Reinhard Madlener 15 th IAEE European Conference 2017 Vienna, Austria, September 3-6, 2017
Presentation Outline 1. Research Aim and Scope 2. The Brazilian electricity supply 3. The Brazilian electricity market 4. Modeling of the electricity market 5. Conclusion Market Penetration of Alternative Energy Sources in Brazil | Chang N., C.A. Oberst, R. Madlener | FCN | Institute for Future Energy Consumer Needs and Behavior
1. Research Aim and Scope 1. Provide a comprehensive overview of the Brazilian electric system and electricity market for interested researchers 2. Derive policy recommendations for an efficient electricity market design that supports the deployment of alternative sources for power generation in Brazil • More specifically, we model the Brazilian regulated electricity market (ACR) for the period 2015-2019 • We simulate several scenarios in order to investigate Strong increase in electricity demand Cost trends of and differences in power generation (new hydro, alternative sources) Capacity and bottlenecks for alternative sources Horizontal integration of companies or extension of general business models Energy policies and dchanges in the market or auction design Potential market power Market Penetration of Alternative Energy Sources in Brazil | Chang N., C.A. Oberst, R. Madlener | FCN | Institute for Future Energy Consumer Needs and Behavior
Presentation Outline 1. Research Aim and Scope 2. The Brazilian electricity supply 3. The Brazilian electricity market 4. Modeling of the electricity market 5. Conclusion Market Penetration of Alternative Energy Sources in Brazil | Chang N., C.A. Oberst, R. Madlener | FCN | Institute for Future Energy Consumer Needs and Behavior
2. Brazilian Electricity Supply System: Energy vs. Power Issue POWER ENERGY • Controllable primary energy inflow • Non-controllable primary energy (e.g. supply contracts of gas) inflow (e.g. renewable sources) • Synchrony between primary energy • No synchrony between primary inflow and demand energy inflow and demand • Meeting demand depends on sufficient • Meeting demand depends on storing installed capacity (power) primary energy when availability is higher then demand • Main question: enough GW ? • Main question: enough stored GWh ? • Example: Germany (fossil fueled • Example: Brazil (hydropower based) based) Market Penetration of Alternative Energy Sources in Brazil | Chang N., C.A. Oberst, R. Madlener | FCN | Institute for Future Energy Consumer Needs and Behavior
2. Brazilian Electricity Supply System: Monopolistic Features in Brazil • System characteristics: 91 GW hydropower (~67% of installed capacity) Large hydropower plants with reservoirs 21 GW fossil-fueled thermal power plants as back-up (~15% of installed capacity) • Coordinated operation of power plants, reservoirs, and transmission network results in synergetic gains of around 25% of energy availability • Positive externalities justify centralized (monopolistic) system operation • Long-term view on system operation requires centralized capacity expansion planning Market Penetration of Alternative Energy Sources in Brazil | Chang N., C.A. Oberst, R. Madlener | FCN | Institute for Future Energy Consumer Needs and Behavior
2. Brazilian Electricity Supply System: Alternative Energy Sources • Limits of hydropower Depletion in 10-15 years Increasing costs Almost no new reservoir built in the last 20 years shortage risks • Alternative sources: Wind, solar, biomass and small hydropower • Complementary seasonal patterns EVOLUTION OF INSTALLED CAPACITY • Due to immense storage capacity in Brazil, projection historical 200 intermittency/oscillations are not an issue 150 GW • Great opportunity for green capacity 100 expansion 50 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 • Planned expansion from 13% (2014) to UHE EOL BIO PCH UTE UNE 21% (2022) Market Penetration of Alternative Energy Sources in Brazil | Chang N., C.A. Oberst, R. Madlener | FCN | Institute for Future Energy Consumer Needs and Behavior
Presentation Outline 1. Research Aim and Scope 2. The Brazilian electricity supply 3. The Brazilian electricity market 4. Modeling of the electricity market 5. Conclusion Market Penetration of Alternative Energy Sources in Brazil | Chang N., C.A. Oberst, R. Madlener | FCN | Institute for Future Energy Consumer Needs and Behavior
3. Brazilian Electricity Market: A Hybrid Market Structure • ACL (free market): full retail competition • ACR (regulated market): price pool /single-buyer system Energy auctions (competition in the wholesales level) Organized centrally by the regulation agency. Market of certificates (decoupling from monopolistic system operation) Future market (usually 5 to 2 years ahead of supply) Tightly regulated long-term energy contracts (at least 10 Source: Own representation based on MME (2003). Modelo Institucional do Setor Elétrico. Brasília: Ministério de Minas e Energia. years); Market Penetration of Alternative Energy Sources in Brazil | Chang N., C.A. Oberst, R. Madlener | FCN | Institute for Future Energy Consumer Needs and Behavior
Presentation Outline 1. Research Aim and Scope 2. The Brazilian electricity supply 3. The Brazilian electricity market 4. Modeling of the electricity market 5. Conclusion Market Penetration of Alternative Energy Sources in Brazil | Chang N., C.A. Oberst, R. Madlener | FCN | Institute for Future Energy Consumer Needs and Behavior
4. Modeling: Methodology • Microeconomic models from industrial organization theory Present model Future model • • Auction results 2009-2014 Forecast for auctions 2015-2019 • • Calibration of model parameters Derivation of energy policy (i.e. demand and cost functions) recommendations • Longevity of PPAs Market dynamics very slow Observed period aggregated into one “super - auction” Demand in “super - auction” is not inelastic (different to usual auction analysis) Energy auction for demand expansion (additional energy) Market Penetration of Alternative Energy Sources in Brazil | Chang N., C.A. Oberst, R. Madlener | FCN | Institute for Future Energy Consumer Needs and Behavior
4. Modeling: Electricity Demand Function • Power function Present model Future model 𝑧 𝐸 𝑞 = 𝐿 ∙ 𝑞 𝛾 Contracted energy Forecasted demand Output 𝑧 𝐸 in energy auctions expansion • Parameterization Highest price in Assumed same as Price 𝑞 energy auctions present model known point (price; output) curvature (price elasticity) Price elasticity 𝛾 Literature Literature DEMAND CURVE IN ENERGY AUCTIONS 300 Present market model Contracted energy in auctions 2009-2014 250 Future market model p_future = p_present Auction price [R$/MWh] Expected contracted energy in auctions 2015-2019 (auction results) 200 150 100 50 y_future y_present (official demand projection) (auction results) 0 0 50000 100000 150000 200000 250000 Contracted Energy [GWh] Market Penetration of Alternative Energy Sources in Brazil | Chang N., C.A. Oberst, R. Madlener | FCN | Institute for Future Energy Consumer Needs and Behavior
4. Modeling: Marginal Costs (large hydropower) • Assumption of increasing costs (decreasing marginal productivity) best locations become exploited distance to consumer centers increases environmental legislation becomes more restrictive opportunity costs of water rise LARGE HYDROPOWER: MARGINAL COSTS OF EXPANSION Present model Future model 250,00 Energy price in 2013 values (R$/MWh) 200,00 150,00 y = 0,0006x + 77,342 R² = 0,7773 100,00 Observed prices (2010-2014) 50,00 Projection as of 2015 Long-term trend 0,00 0 20000 40000 60000 80000 100000 120000 Cumulated contracted energy (GWh/a) Market Penetration of Alternative Energy Sources in Brazil | Chang N., C.A. Oberst, R. Madlener | FCN | Institute for Future Energy Consumer Needs and Behavior
4. Modeling: Marginal Costs (alternative sources) ALTERNATIVE SOURCES: MARGINAL COSTS OF EXPANSION (LONG-TERM) • Long-term component 250,00 Energy price in 2013 values (R$/MWh) Decreasing (learning curve effects) 200,00 150,00 • Short-term component Observed prices: 2009- 2014 Increasing (decreasing marginal 100,00 Estimated long-term component productivity of supply-chain) 50,00 y = 13264x -0,481 0,00 0 50000 100000 Cumulated contracted energy (GWh/a) ALTERNATIVE SOURCES: MARGINAL COSTS ALTERNATIVE SOURCES: MARGINAL COSTS OF EXPANSION (SHORT-TERM) OF EXPANSION 120,00 250 Energy price in 2013 values (R$/MWh) Energy price in 2013 values (R$/MWh) 100,00 Observed prices: 2009- 200 Idealized marginal costs 2014 of expansion: 2009-2014 80,00 150 y = 0,001x Projection: from 2015 Projection from 2015 60,00 R² = 0,7376 (supply-chain stagnation) (supply-chain stagnation) 100 40,00 Projection: from 2015 Projection from 2015 (supply-chain expansion) (supply-chain expansion) 50 20,00 Idealized short-term Estimated long-term 0,00 component in 2009-2014 0 component 0 50000 100000 0 50000 100000 Cumulated contracted energy (GWh/a) Cumulated contracted energy (GWh/a) Market Penetration of Alternative Energy Sources in Brazil | Chang N., C.A. Oberst, R. Madlener | FCN | Institute for Future Energy Consumer Needs and Behavior
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