IEEE Power & Energy Magazine - September/October 2017 - 76

350

Heavy

Intermediary

Light

300
250
200
150
100
50
0
2007 Jan.-W1
Apr.-W3
Aug.-W1
Nov.-W3
2008 Feb.-W5
June-W2
Sept.-W4
2009 Jan.-W2
Apr.-W4
Aug.-W1
Nov.-W3
2010 Mar.-W1
June-W3
Oct.-W1
2011 Jan.-W2
Apr.-W5
Aug.-W2
Nov.-W4
2012 Mar.-W1
June-W4
Oct.-W1
2013 Jan.-W3
May-W1
Aug.-W3
Nov.-W5
2014 Mar.-W2
June-W4
Oct.-W2
2015 Jan.-W4
May-W1
Aug.-W2
Nov.-W4
2016 Mar.-W2
June-W4
Sept.-W5

Wholesale Energy Price, Southeast
(Nominal US$/MWh)

400

figure 7. The weekly wholesale energy prices for three load blocks: southeast, 2007-2016. [Data source: Câmara de
-Comercialização de Energia Elétrica (CCEE).]

four subsystems between 1950 and 2015; the figure clearly
demonstrates the occurrence of significantly wet periods.
Such large water storage capacity and the surplus of generation capacity greatly influenced the operating conditions
and regulation of the Brazilian power system. A unique
wholesale energy pricing scheme (still in use today) was
adopted, whereby prices are determined weekly and for three
sets of noncontiguous hours (termed load blocks), representing periods of heavy, intermediary, and light loading in the
power system. For instance, during any given week, the spot
price calculated ex ante for the heavy loading block of hours
applies for all hours between 6:00 and 9:00 p.m. on weekdays and Saturday, and the demand forecast for these hours is
aggregated for purposes of the dispatch simulation employed
in pricing. While this results in prices not reflecting variations among operating conditions within load blocks, the
storage capability and surplus generation capacity available
in Brazil at the time this pricing strategy was introduced were
seen as reasonable justifications. In fact, prices did not even
vary significantly across these three blocks of hours. This is
illustrated in Figure 7, which shows the weekly spot prices
applicable to the southeastern price zone (one of the four
pricing zones in Brazil) for each of the previously mentioned
load blocks.
The significant water storage capacity in Brazil also led
to prices being less volatile in the short term. Price volatility
manifested much more in the medium term than in the short
term, due to seasonal and supraseasonal hydrologic variability, as indicated in Figure 7.
The fact that the Brazilian electricity system was much
more subject to energy constraints due to hydrologic variability
than to short-term capacity constraints also affected the basic
mechanism for ensuring the country's resource adequacy. In
76	

ieee power & energy magazine	

fact, the reliability product acquired via long-term contracts in
Brazil refers to "firm energy" rather than "firm capacity."
All of this demonstrates that hydropower plants with
large reservoirs have been able to provide the services of
temporal energy arbitrage and capacity at low costs, which
deeply influenced the regulatory and commercial framework employed in Brazil. The rationale for relying on these
assets for the provision of ancillary services-notably, primary and secondary reserves and frequency control-also
merits discussion.
Hydropower plants are indeed flexible assets since their
power outputs can be adjusted quickly and at very low incremental costs. Moreover, the water consumption required to
keep the machinery spinning is relatively low. The opportunity costs associated with mobilizing generation capacity to
provide reserves is also low for hydropower plants with large
reservoirs because 1) reservoirs allow storing the water not
used for energy production and 2) in a context where energy
prices have low short-term variability, the energy not generated due to mobilizing capacity in a given instant can be produced at a later point in the near future, when the value of a
megawatt-hour for the system is expected to be nearly equal.
Moreover, surplus capacity due to the previously discussed
optimal engineering design is often available, reducing the
expectation of water spillage due to such operation. Several
hydro plants with large reservoirs in all regions of the country
enabled the coordinated provision of reserves and frequency
control at low costs.
These features influenced the regulatory framework ap--
plicable to the selection and remuneration of assets providing secondary frequency control and associated reserves in
Brazil. (Currently, primary frequency control is, for the most
part, provided by generators as a mandatory grid connection
september/october 2017



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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