Reliability Metrics for Generation Planning and the Role of Regulation in the Energy Transition: Case Studies of Brazil and Mexico

Ana Werlang, Gabriel Cunha, João Bastos, Juliana Serra, Bruno Barbosa and Luiz Barroso
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Ana Werlang: PSR Energy Consulting & Analytics, Rio de Janeiro 22250-040, Brazil
Gabriel Cunha: PSR Energy Consulting & Analytics, Rio de Janeiro 22250-040, Brazil
João Bastos: PSR Energy Consulting & Analytics, Rio de Janeiro 22250-040, Brazil
Juliana Serra: PSR Energy Consulting & Analytics, Rio de Janeiro 22250-040, Brazil
Bruno Barbosa: PSR Energy Consulting & Analytics, Rio de Janeiro 22250-040, Brazil
Luiz Barroso: Instituto de Investigación Tecnológica, Escuela Técnica Superior de Ingeniería (ICAI), Universidad Pontificia Comillas, 28015 Madrid, Spain

Energies, 2021, vol. 14, issue 21, 1-27

Abstract: In recent years electricity sectors worldwide have undergone major transformations, referred to as the “energy transition”. This has required energy planning to quickly adapt to provide useful inputs to the regulation activity so that a cost-effective electricity market emerges to facilitate the integration of renewables. This paper analyzes the role of system planning and regulations on two specific elements in the energy market design: the concept of firm capacity and the presence of distributed energy resources, both of which can be influenced by regulation. We assess the total cost of different regulatory mechanisms in the Brazilian and Mexican systems using optimization tools to determine optimal long-term expansion for a given regulatory framework. In particular, we quantitatively analyze the role of the current regulation in the total cost of these two electricity systems when compared to a reference “efficient” energy planning scenario that adopts standard cost-minimization principles and that is well suited to the most relevant features of the new energy transformation scenario. We show that two very common features of regulatory designs that can lead to distortions are: (i) renewables commonly having a lower “perceived cost” under the current regulations, either due to direct incentives such as tax breaks or due to indirect access to more attractive contracts or financing conditions; and (ii) requirements for reliability are often defined more conservatively than they should be, overstating the hardships imposed by renewable generation on the existing system and underestimating their potential to form portfolios.

Keywords: regulation; energy transition; Brazil; Mexico; renewables; reliability; generation system expansion; efficient energy planning (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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