On the Regulatory and Economic Incentives for Renewable Hybrid Power Plants in Brazil

Alexandre Street, Pedro Prescott, "On the Regulatory and Economic Incentives for Renewable Hybrid Power Plants in Brazil", Energy Economics, December 2024 [Download] [Download manuscrito PDF]

Abstract: The complementarity between renewable generation profiles has been widely explored in the literature. Notwithstanding, complex interactions between regulatory and economic frameworks add interesting challenges and opportunities for hybrid power plant investors, regulators, and planners. Focusing on the Brazilian power market, we study the alignment of incentives between the economically-optimized strategy of hybrid power plant investors and the efficient utilization of the transmission resources. To do that, we propose a decision model that co-optimizes the risk-adjusted strategy of a hybrid power plant owner comprising (i) the forward-market involvement, (ii) the contracted amount of network access, and (iii) the share of renewable sources composing the hybrid power plant. We also propose adjusting the current regulatory framework to consider a unified calculation for the Firm Energy Certificates of non-controllable renewable power plants, including hybrid units. Based on that, we ensure a non-discriminatory regulatory framework for renewables acknowledging the diversity of generation profiles that hybrid units may have due to their optimal hybridization shares and network-access contracting strategies. A case study using realistic data from the northeastern region of the Brazilian power system showcases strong economic incentives for hybridization with reduced transmission resource utilization.

Conclusions:

Within the limitations of the presented case study, which include all assumptions of the proposed model and the specific data, the results and analyses carried out in this work allow us to convey the following concluding remarks:

The risk-averse co-optimization of the hybrid power plant shares with the NAC and forward contracting strategies can yield significant economic gains.
The reduction in the NAC with respect to the benchmark value (total installed capacity) is responsible for most of the monetary benefit, whereas the curtailed energy surplus is relatively low, thereby justifying the reduction in NAC and fixed expenditures.
Based on typical values of CAPEX (4000 R$/installed-kW for the wind and 3200 R$/installed-kW for the solar) and generation profiles of wind and solar power in the Northeastern region of Brazil, hybridization is the best economical option for the generation investor.
In the aforementioned CAPEX configuration, the best joint strategy for the NAC, forward involvement, and source composition is, respectively, $M^{*} = 0.5968, Q^{*} = 0.3367, x^{*} = 0.3388$ . It is important to highlight that, in this case, the transmission utilization is reduced to approximately 60% of the utilization imposed by the previous regulation.
Results also indicate a consistent and robust alignment between the generator’s best strategy and reducing the system’s transmission resource utilization. We show that in all analyzed cases, including different values of CAPEX and source compositions, the best strategy is to reduce the NAC.
Alternatively, although not explicitly calculated in this paper, results suggest that the inclusion of solar panels to complement existing wind power projects in a hybrid generation scheme (following the proportion given by the proposed model) may not require the purchase of the additional installed capacity in NACs.
Finally, results demonstrate that the proposed TEV-FEC is capable of capturing the benefits of renewable generation complementarity and the effect of reducing the transmission access amount in a coherent and non-discriminatory manner among non-controllable renewables.