Generation cap may lead to more emissions

Brazil's decision to limit the dispatch of additional thermoelectric generation during 2022 could encourage the use of more polluting fuels, such as coal, and calls into question the efficiency of the nation's computational power price model.

The Brazilian power sector monitoring committee's (CMSE) decision to curb additional thermal generation to an average 15,000 MW and cap operating costs (CVU) at R1,000/MWh ($185/MWh), limits price offers, making cheaper but more emissions-intensive options become more attractive.

"Coal-based thermal plants operate from a national coal source and, therefore, are not indexed to the dollar, with an average cost well below R1,000/MWh CVU," Brazilian coal industry association ABCM's president Fernando Zancan said.

Grid operator ONS frequently overlooks Brazil's power price computational model that determines the spot price of energy based on data from water reservoirs, deeming it too optimistic for the sector, said Alexandre Street, associate professor at the electrical engineering department of the Pontifical Catholic University of Rio de Janeiro.

Street questions how the 15,000 MW and R1,000/MW caps were arrived at and warns that "making the mistake of making [these numbers] too high is a waste of money and making them too low is a huge cost."

"The operator does not trust their own model, since this [decision] forces dispatches to operate outside of the model," Street said.

Updating the current model to make it jibe with the reality of the power grid is one of many structural issues exposed by Brazil's hydropower crisis, as a lack of rain last year forced plants to run at full generation, including more costly thermal plants. Street believes migrating fully to a model where trading would define the energy price would be the solution.

A similar decision limiting the CVU of plants participating in Brazil's first thermal capacity auction last December to R600/MWh led to litigation and was eventually overturned by the court, allowing costlier generators to participate in the tender.

By Rebecca Gompertz