Can the regulated market help foster a free market for wind energy in Brazil?

Marta Corrêa Dalbem, Luiz Eduardo Teixeira Brandão and Leonardo Lima Gomes

Energy Policy, 2014, vol. 66, issue C, 303-311

Abstract: Wind energy has been negotiated in Brazil's regulated market through auctions organized by the government. Bilateral negotiations in the free market have been scarce. In 2011 wind farms were allowed to bid in ‘A minus 5 (A−5)' auctions, for energy with first delivery date 5 years ahead. This new design was expected to stimulate negotiations in the free market, as the 20-year contract in the regulated market eases financing while the 5-year grace period grants wind farms the option to sell whatever energy is generated beforehand in the free market. We modeled bidders' price decision in A−5 auctions as Real Options and concluded that given the low prices averaging USD 50/MWh, winners are tempted to defer investment, expecting more favorable equipment and energy prices, or a better knowledge of the wind site. Construction is likely to begin in 2–3 years, with little time left for the free market. Bidders that consider the option of eventually abandoning the project are more price competitive, increasing chances that some wind farms will never materialize. Therefore, this attempt to foster the free market may not pay-off and, moreover, it may have the unfavorable effect of turning Brazil's energy expansion planning a more difficult task.

Keywords: Real options; Wind energy; Investment decision (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0301421513011269
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:66:y:2014:i:c:p:303-311

DOI: 10.1016/j.enpol.2013.11.019

Access Statistics for this article

Energy Policy is currently edited by N. France

More articles in Energy Policy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().