An Alternative Approach to Contracting Power: Lessons from the Brazilian Electricity Procurement Auctions Experience

Abstract

An innovative methodology to contract capacity employs an index designed to allow comparison among the expected generation costs of electricity from different types of fuel sources. An analysis shows, however, that the methodology presents distortions that favor the competitiveness of power plants with higher variable costs, and also that it is subject to endogenous choices of the auctioneer, with huge differences between auction numbers and performed numbers.