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Systemic value of electricity sources – What we can learn from the Brazilian experience?

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  • Romeiro, Diogo Lisbona
  • Almeida, Edmar Luiz Fagundes de
  • Losekann, Luciano

Abstract

The competitiveness of electricity sources is traditionally estimated by levelized cost of electricity (LCOE) compared to the average electricity price. However, the introduction of variable renewable energy sources (VREs) in power systems has evidenced that time, location and availability, are essential to set the marginal value of electricity sources. Overcoming the narrow view of costs for a broad value approach, the literature recognizes that the source comparison must consider the expected marginal value of each alternative, which evolves over time due to sources penetration and system development, changing static and dynamic integration costs. The paper presents the Brazilian experience as forerunner case study for the literature on systemic value, as the country has established a pioneering benefit-cost index (BCI) to compare different sources in centralized expansion auctions, which contracted 100 GW of installed capacity. The BCI analysis is based on hydro predominance, recognizing only static integration costs (backward-looking approach). Nevertheless, the Brazilian system is evolving towards higher short-term variability due to the loss of regularization of hydro reservoirs, limitations to hydropower expansion and VREs penetration. The expansion and operation of the power system are not sensitive to ongoing changes, neglecting dynamic integration costs, which must be incorporated in a forward-looking perspective.

Suggested Citation

  • Romeiro, Diogo Lisbona & Almeida, Edmar Luiz Fagundes de & Losekann, Luciano, 2020. "Systemic value of electricity sources – What we can learn from the Brazilian experience?," Energy Policy, Elsevier, vol. 138(C).
    • Handle: RePEc:eee:enepol:v:138:y:2020:i:c:s0301421520300094
    DOI: 10.1016/j.enpol.2020.111247
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