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

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.

The Brazilian electricity system: an evaluation of the thermoelectric plants under the Eletrobras privatization law

“…According to PSR (2023) this operation makes no economic sense, as it prioritizes more expensive thermoelectric generation and spills water from the reservoirs, restricting the possibility of cheaper, renewable hydroelectric generation. Furthermore, as determined by Werlang et al (2021) the expansion of NG-fired TPPs distributed throughout the territory, as determined by the law, would result in operating and investment costs 16% higher than in a scenario with TPPs concentrated in the Southern region of Brazil.…”

Variable Renewable Energy: How the Energy Markets Rules Could Improve Electrical System Reliability

“…The determination of the required reserve is carried out through reliability studies [18][19][20] that result in reliability indices (e.g., energy not supply) associated with insufficient generation for different values of power reserve. Based on the results, the cost of the reserve and the cost of the quality of service are determined.…”

Directional Spillover of Fossil Fuels Prices on a Hydrothermal Power Generation Market

“…Therefore, this electricity market is defined as a hydrothermal market, which is characterized by significant differences in the marginal costs of the generation sector, a heavy dependency on weather factors and fossil fuel prices, and a small renewable generation capacity (Fernández-Blanco et al, 2017;Mosquera-López et al, 2017). According to Werlang et al (2021) and Wang et al (2013), fuel prices are a driver of electricity prices because their shocks impact the opportunity costs of hydropower plants and increase the uncertainty of operation in the electricity system.…”