IEEE Power & Energy Magazine - September/October 2017 - 75

In Chile, the absence of ancillary services markets
has led to a situation in which competition
is based only on energy prices.
The Case of Brazil
Large Reservoirs of Hydropower Plants as the
Historically Predominant Storage Technology
The significant participation of hydropower in the Brazilian generation mix is explained not only by the country's
natural endowments (with several river basins providing
complementary hydrological behavior) but also by macroeconomic factors. Oil price shocks in the 1970s strengthened
both the country's eagerness to develop local hydro generation and the availability of capital, because oil-rich countries
directed their funds to private banks, which perceived sovereign debt-including that of state-owned electricity utilities developing hydro projects-as high-quality investments.
These investments resulted in the consolidation of business
models and technical competence and allowed hydropower
development to continue into the 1980s (albeit at a slower
pace due to economic crises and after reforms of the electric
power industry starting in the 1990s).
Several hydropower plants built in Brazil in those decades
were granted large water reservoirs, not only to cope with
the variability in water inflows but also to allow for other
applications such as flood control and regular supply of water
for irrigation and human consumption. Another implication
of hydrological variability concerns the optimal engineering
design of hydropower plants, the installed generation capacity
of which is, in general, significantly higher than that required
to turbine average inflows; this fact allowed the country to
take advantage of particularly wet periods and provided the
ability to easily modulate load supply. Figure 6 illustrates the
variability of yearly water inflows in terms of the aggregated
energy inflows to hydropower plants in the Brazilian grid's

250
200

South
Southeast

North
Northeast

150
100

0

1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014

50
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014

Energy Inflow to Reservoirs
(% Long-Term Average)

provision is ensured by the idle capacity in its battery storage plant (the conventional generator and battery plant are
located at the same substation and share the same owner).
Although this can clearly add value to market participants
(and the overall system), it is important to point out that the
absence of an appropriate reserve market significantly limits
the deployment of battery plants (below the necessary levels)
because, apart from the obvious lack of service remuneration, only the beneficiaries of storage services (rather than
any market participant, including new entrants) will be willing to invest in battery plants. In fact, new battery plants
allow generators to optimize their own asset portfolio without having the possibility of selling reserve services.
In Chile, the absence of ancillary services markets has led
to a situation in which competition is based only on energy
prices, in particular those bid in auctions to obtain regulated,
long-term contracts meant to supply demand from distribution companies. This is particularly problematic for two main
reasons: 1) the best bid prices to supply energy at low costs
come from inflexible-and even uncontrollable-generation
(e.g., solar power generation); 2) in the absence of appropriate
remuneration for reserves and flexibility services, bid energy
prices from hydropower plants (and, in particular, pumped
storage hydropower) become higher so as to appropriately
cover investment and operating costs (note that if the market
were appropriately designed, costs should be recovered by
an array of revenue streams, including those from reserves
services). This situation clearly increases the need for flexibility, as per the first reason just outlined, and at the same
time impedes the investments needed to provide the kind of
flexibility that facilitates the optimal operation and development of the future power system, as per the second reason.

figure 6. The energy inflow to Brazilian reservoirs per subsystem: 1950-2015. [Data source: Operador Nacional do
Sistema Elétrico (ONS).]
september/october 2017	

ieee power & energy magazine 	

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Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - September/October 2017

IEEE Power & Energy Magazine - September/October 2017 - Cover1
IEEE Power & Energy Magazine - September/October 2017 - Cover2
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IEEE Power & Energy Magazine - September/October 2017 - Cover3
IEEE Power & Energy Magazine - September/October 2017 - Cover4
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