Electricity spot price model and feasibility of generation expansion in Brazil

The self-financed expansion of the power generation capacity is, perhaps, the most controversial and critical aspect of the open energy markets. On one hand, the power generation utilities´ revenue shall he enough to make the investments in power generation feasible and attractive and, hut, on the other hand, electricity, shall have the least cost to consumers. This paper reports a study on the conditions of the Brazilian electrical energy market model to comply with these conflicting objectives. We argue that the existing spot price model is inadequate, since it neither induces nor supports investments for the expansion of power generation capacity, and we propose corrections to the existing model.