Affiliation: | aInstitute for Applied Economic Research of the Brazilian Government-IPEA, Av. Presidente Antônio Carlos 51-15a andar, Castelo, 20020-010 Rio de Janeiro, Brazil bPontifical Catholic University of Rio de Janeiro-PUC-Rio, Industrial Engineering Department, Rua Marquês de São Vicente, 225, Gávea, 22453-900 Rio de Janeiro, Brazil cÅbo Akademi University-Institute for Advanced Management Systems Research, Turku Centre for Computer Science-TUCS, Lemminkäinengatan 14 B, 20520 Turku, Finland |
Abstract: | The new Brazilian Electric Sector Regulation of 2004 introduced two negotiation markets: the regulated pool and the free market. Competition in the pool is enforced via energy auctions, where the winning generator has to sign long-term power purchase agreements simultaneously with all distributors at the bidding-price. To estimate the appropriate credit risk spread of the pool, we implement a clustering methodology to rank and rate the distributors. The results show an average spread between 5.75% and 8.5%, which corresponds to a credit rating of B− according to the spreads available in Reuters 2004. This estimation is at least 208 basis points higher than the credit rating Ba1/BB+ assigned to the distributors by the National Electric Energy Agency (ANEEL) in the periodic tariff revisions. Distributors with higher risk/spread are located in the South–Southeast, compared to the low risk/spread ones concentrated in the North–Northeast. We estimate the opportunity cost of capital in real terms in the range of 13–16% to account for the credit risk of the pool. Essential to determine the bidding price at the auctions, this estimation is higher than the 11.26% opportunity cost estimated by ANEEL. The pool's credit risk has to be taken into consideration, especially for compensating new private capital investments in Brazilian power generation. |