Commercialization risks in the Brazilian market

This paper describes the main characteristics of the Brazilian electrical sector and the main features of the its restructuring process. It is highlighted that the trading arrangements will be based around a tight pool scheme, i.e., a central optimization system dispatch procedure in which the spot price will be based on the short run marginal cost. As the Brazilian system is hydro dominated, these spot prices present an intrinsic volatility due to the uncertainties associated to future inflows to the reservoirs. In this way, the hydrological risk provokes commercialization risks for which possible mitigation mechanisms are discussed. Finally, a case study considering the risk aspects of inserting a new thermal power plant in the Brazilian hydrothermal system is discussed as well as the impact of a long term contract to reduce the exposure to the spot prices.