Abstract
The electricity market in Brazil is basically organized under two parts: the regulated market, where energy is traded through auctions, and the free market, where market participants freely negotiate the price and quantity of electricity. Although revenues obtained in the regulated market tend to be lower than in the free market, the auctions’ results show that investors still value the lesser degree of uncertainty associated with the regulated market. However, a growing interest in the free market by investors is recognized since the price of electricity tends to be higher. Therefore, this study investigates four free market price scenarios to assess the expected return for investors, using the traditional discounted cash flow approach complemented with Monte Carlo simulation to address market uncertainty. The study breaks new ground by capturing the weekly price fluctuations and including the price elasticity of demand of the free market. The results seem to indicate that the disclosure of the ceiling and floor price limits for the spot price can signal important information about the agents’ price expectation in the free market and can be used for investment project evaluation.
Highlights
72% of the world’s energy supply comes from non-renewable sources [1].The environmental consequences of this exploitation have led to a steady growth in the use of renewable energy sources (RES) over the last years [2,3]
To identify the values that could help to justify this viability, four reference price scenarios for the ACL Market were outlined: (a) minimum PLD values allowed by agency for the electricity sector (ANEEL); (b) maximum PLD values allowed by ANEEL; (c) average values of these limits; and (d) PLD
The results indicated that Scenario C produced a higher probability of the return rates being greater than the Weighted Average Cost of Capital (WACC)
Summary
72% of the world’s energy supply comes from non-renewable sources [1]. The environmental consequences of this exploitation have led to a steady growth in the use of renewable energy sources (RES) over the last years [2,3]. The pressure to reduce carbon dioxide emissions in the electricity generation process, caused mainly by burning coal, may hasten the replacement of non-renewable energy sources by RES in the coming years [3,4]. Brazil still has enormous potential to generate energy from other renewable sources, which needs to be explored. Significant regulatory and technological innovations are needed
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