Evaluating regulatory strategies for mitigating hydrological risk in Brazil through diversification of its electricity mix

TY - JOUR

T1 - Evaluating regulatory strategies for mitigating hydrological risk in Brazil through diversification of its electricity mix

AU - Paim, Maria-Augusta

AU - Damarco, Arthur R.

AU - Yang, Chung-Han

AU - Salas, Pablo

AU - Lindner, Soren

AU - Mercure, Jean-François

AU - Guerra, José Baltazar Salgueirinho Osório de Andrade

AU - Derani, Cristiane

AU - Bruce da Silva, Tatiana

AU - Viñuales, Jorge E.

PY - 2019/5

Y1 - 2019/5

N2 - Hydroelectricity provides approximately 65% of Brazil's power generating capacity, making the country vulnerable to droughts, which are becoming increasingly frequent. Current energy law and policy responses to the problem rely on a sectorial approach and prioritise energy security and market regulation. Brazil has opted to increase energy security levels during periods of hydrological variability with national grid interconnection and thermal plants backup. Additionally, Brazil has created the Energy Reallocation Mechanism (MRE) to manage the generators’ financial impacts in times of insufficient water. This policy, however, was unable to avoid the high financial exposure of generators in the spot market during the severe droughts experienced in the period 2012–2016. To explore how a more diversified electricity matrix can contribute to reducing hydrological risk, this article uses Integrated Assessment Modelling (IAM) techniques to analyse future macroeconomic and energy scenarios for Brazil in a global context, aligned with the Brazilian Nationally Determined Contributions (NDC) under the 2015 Paris Agreement on Climate Change. We show that the addition of non-hydro renewables is an advantage from the integrated Water-Energy-Food nexus perspective because it reduces trade-offs amongst the water and energy sectors. Our conclusions suggest that a nexus perspective can provide useful insights on how to design energy laws and policies.

AB - Hydroelectricity provides approximately 65% of Brazil's power generating capacity, making the country vulnerable to droughts, which are becoming increasingly frequent. Current energy law and policy responses to the problem rely on a sectorial approach and prioritise energy security and market regulation. Brazil has opted to increase energy security levels during periods of hydrological variability with national grid interconnection and thermal plants backup. Additionally, Brazil has created the Energy Reallocation Mechanism (MRE) to manage the generators’ financial impacts in times of insufficient water. This policy, however, was unable to avoid the high financial exposure of generators in the spot market during the severe droughts experienced in the period 2012–2016. To explore how a more diversified electricity matrix can contribute to reducing hydrological risk, this article uses Integrated Assessment Modelling (IAM) techniques to analyse future macroeconomic and energy scenarios for Brazil in a global context, aligned with the Brazilian Nationally Determined Contributions (NDC) under the 2015 Paris Agreement on Climate Change. We show that the addition of non-hydro renewables is an advantage from the integrated Water-Energy-Food nexus perspective because it reduces trade-offs amongst the water and energy sectors. Our conclusions suggest that a nexus perspective can provide useful insights on how to design energy laws and policies.

KW - Hydropower

KW - Hydrological risk

KW - Electricity mix

KW - Water-Energy-Food Nexus

KW - Brazilian law and regulation

KW - Integrated Assessment Modelling (IAM)

U2 - 10.1016/j.enpol.2018.12.064

DO - 10.1016/j.enpol.2018.12.064

M3 - Article

SN - 0301-4215

VL - 128

SP - 393

EP - 401

JO - Energy Policy

JF - Energy Policy

ER -