Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/176066 
Year of Publication: 
2010
Series/Report no.: 
Texto para discussão No. 583
Publisher: 
Pontifícia Universidade Católica do Rio de Janeiro (PUC-Rio), Departamento de Economia, Rio de Janeiro
Abstract: 
In 2004, in the beginning of the first president Lula mandate, a complete regulatory reform of electricity was launched. In 2008, four years after, Brazilian Congress started an investigation of the causes of Brazilian relatively high electricity tariffs. The results of the investigation pointed out numerous reasons, but failed to identify generation costs as one of the main causes. In this paper the analysis done by Congress is broadened addressing the trend in electricity production costs. The main conclusions are that the implementation of auctions together with subsidies from state enterprises did not reduce future acquisition costs as much as expected, but successfully reduced the rhythm of price increases. The long run marginal expansion cost is increasing very fast because new hydro plants are ever more distant of consumption centers and environmental costs are difficult to mitigate. Thermal plants and other technologies, though increasing in importance, still have much higher prices. In case prices reflected marginal incremental costs, electricity prices would have been much higher. The fact that consumers do not see such high incremental costs, allow them to take wrong consumption decisions. As consumers are able to buy at prices lower than marginal cost, consumption levels go too far. Demand increases amplify the electricity market gap and reinforce the necessity of new investments.
Subjects: 
Electricity
regulatory reform
energy auctions and generation costs. JEL Codes: L43
JEL: 
L43
Document Type: 
Working Paper

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