Thermal power auctions in Brazil - Part II: why the current gas pricing framework fails
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Report summary
Table of contents
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Executive summary
- The methodology to set the fuel price in auctions enables choosing fuel benchmarks
- Fuel price formula parameters don’t need to be related to actual contract
- Inflexibility during the dry season enables higher fixed revenue for players that choose JKM and NBP indexation
- Associated pre-salt gas players can take advantage of fixed parameters to hedge gas supply
- Counterbalancing Argentinian and Brazilian demand is the best choice for players looking into Bolivian gas
- Why EPE fails both in the methodology to obtain price forecasts and the timeframe
- Uncertainties in EPE’s natural gas reference prices
- Reference price is misaligned with plant life and neglects seasonal effects
- 5 more item(s)...
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Appendix I
- Fuel price component of CVU
- Fuel price component of fixed revenue
- Reference prices are used to evaluate prices in the auction
- Coefficients are locked for the life of the PPA, but actual prices vary
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Appendix II
- Long-term PPA total cost assessment
Tables and charts
This report includes the following images and tables:
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Illustrative figures of a 500-MW power plant with dry season-declared inflexibility and JKM indexationJKM and NBP assumed by EPE for the latest power auctionsHistorical spread between TTF and JKM prices
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Timeframe of the PPA vs the timeframe used by EPE to calculate reference price for the A-6 2019 auctionTotal PPA cost for different indices between 2025 and 2040 for the same fuel price in the auctionFuel price indexation formulaEPE reference price formulaWhere:Dimensionless coefficients calculation for equivalent fuel price for the auction based on EPE reference pricesWood Mackenzie year-average price forecastExpected PPA prices based on Wood Mackenzie price forecasts
What's included
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