Electricity Market Operation: Transitioning from a Free Market to a Single Buyer structure: An econometric analysis of the Brazilian case using a Two-State Markov Switching Model

Toby Daglish, Gabriel de Braganca, Sally Owen and Teresa Romano

No 19257, Working Paper Series from Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation

Abstract: We examine electricity market reform in Brazil: from the 1990s till 2004 the largely hydro-powered market cleared using a market mechanism, and in March 2004 reformed to a single buyer structure. We model day-ahead returns using a Two-State Markov Switching Model with dummy variable analysis, allowing water storage and natural inflows to affect returns and volatility. Our results indicate the single buyer structure decreased volatility during stable periods but worsened energy crises. Post-reform, we find a more forgiving environment for the allocation of stored energy given natural water inflows, however sub-optimal water management leads to energy crises developing.

Keywords: Electricty markets; Single buyer; Markov switching; Brazil (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:vuw:vuwcsr:19257

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