Supply adequacy in electricity markets based on hydro systems—the Brazilian case

This article examines the practical perspective for introducing the deregulation model in systems with a strong predominance of hydroelectric generation, such as the Brazilian electricity system. In order to do this, the article describes the process of establishing short-term prices in systems with such characteristics, concluding that this economic signal is inefficient for stimulating a sustained generation expansion. As a result of this analysis, the article proposes, as a regulatory policy, a competitive process of energy contracting that favors the making of decisions with long-term horizons, ensuring the adequacy of supply, and, additionally, permitting a satisfactory management of market risk by generation and distribution companies.