The impact of hourly pricing for renewable generation projects in Brazil
2022
Marchetti, Isabella | Rego, Erik Eduardo
The hourly price of the Brazilian electricity market came into operation in 2021, changing the previous pricing policy that worked in a weekly basis. The impact that this change has on wind and solar generators' business may be a cause for attention, since in an hourly price scenario with collateral and daily financial settlements, wind and solar power generators may be subject to a large financial exposure into the short-term market. Thus, the present article has as its main goal the evaluation of the impact caused on the intrinsic value of wind and solar power projects with the adoption of the new hourly pricing policy in the electricity sector compared to the old weekly pricing policy. To this end, a financial economic model was developed for generic and hypothetical wind and solar farms in the Brazilian electricity sector to find its fair value operating under two different pricing scenarios. The value of these farms was also sensitized through Monte Carlo simulations, after assigning probability distributions for certain model inputs. As a result of this work, wind power projects presented a negative impact on their values and solar power plants tend to present positive results, varying according to region. However, it is also discussed that this variation caused by hourly prices is a correction to the inefficient allocation of risks that previously existed.
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