An Overview of the Brazilian Electricity Industry - Câmara de Comercialização de Energia Elétrica - Brazilian Market Operator - Roberto Castro - Administration Board

1. An Overview of the
Brazilian Electricity Industry
Câmara de Comercialização de Energia Elétrica
Brazilian Market Operator
Roberto Castro
Administration Board

2. Agenda
1 – CCEE´s Role in the Brazilian Electricity Industry
2 – Highlights of Brazilian Economy and Electricity Industry
3 – Governance of the Brazilian Electricity Industry
4 – Brazilian Regulated Market
5 – Brazilian Free Market
6 - Conclusions

3. CCEE´s Role in the Brazilian
Electricity Industry

4. CCEE´s role as Brazilan Market Operator
• Created in 1999, CCEE is a nonprofit private legal
entity, regulated and supervised by ANEEL
• CCEE´s mission is to promote the electricity
commercialization activities in Brazil, including
ensuring the smooth market functioning and
fostering discussions about the evolution of the
power sector market
Accounting and
settlement
Tecnology and systems to
improve market operation
Divulgation of
information and results
Training for agents and
institutions
Registering of the power
contracts
Metering (generation and
consumption)
Main atributions

5. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
58 95 126 146 194
662
826
915 935
1007
1403
1645
2300
2625
2891
Class [%]
Generation 1,2%
Self Producer 1,7%
Distribution 1,7%
Trading 5,4%
Independent Producer 25,7%
Special Consumer 42,3%
Free Consumer 22,1%
Total 100,0%
Share
CCEE´s Associated Members
• Players of generation, distribution and traders are obligated to become CCEE members, as
well as free consumers
• Regulated consumers and transmission players are not CCEE agents

6. Spot Market Settlement (shallow pool)
Requirements
Resources
Spot
Market
• Each month, CCEE calculates and compares, for every associated company (everyone of the
generators, distribution companies and free customers), power availability and
requirements, considering consumption, production, power purchases or sales.
• The differences between requirements and availabilities are settled in the spot market by
the Price for Settlement of Differences - PLD
Spot market balance Spot market settlement
Exposure
X PLD
(R$ / MWh)
Spot Price

7. CCEE operations in 2014
7
• Operations held by CCEE accounts US$ 15,1 billion in 2014 (January – November)
US$ 13,7 bi
US$ 676 mi
US$ 650 mi
US$ 78,4 mi
US$ 85 mi
Short-Term
Market “Old” hydro
quotas
Nuclear Energy
Quotas
MCSD
Reserve
Energy

8. Highlights of Brazilian Economy
and Electricity Industry

9. Main figures of the Brazilian power sector
Brazil
 Area 8,514,876 km²
 Population 194 million
 GDP 2013 US$ 1.86 trillion
 GDP per capita S$ 9,255
 IDH (2013) 0,730 (High)
Electricity Industry
 Transmission lines 103,362 km
 Installed capacity 132 GW
Hydro 66%
Thermal 28%
Wind 3%
Nuclear 1,5%
 Consumption (2011) 532 TWh x 520 TWh (S. Korea)
Regulated Market 75 %
Free Market 25 %
Source: IBGE/WorldBank, EPE, ONS/ANEEL
* Exchange rate: US$ 1 = R$ 2.60
South Korea
 Area 100,210 km²
 Population 50.2 million
 GDP 2013 US$ 1.30 trillion
 GDP per capita S$ 25,976
 IDH (2013) 0,904 (Very high)

10. National Interconnected System - How big is it?
10
Source: ONS
SIN
x
Europe
• Long distances
• Regional characteristics
• Electric restrictions
(Technical and stability limits)
• Hydrothermal System

11. Market Expansion – Investment opportunities
Electricity consumption in Brazil
5.6 % average growth
5 years ≈ 16 Gwmed
Argentina, 2013
Average demand ≈ 14 GWmed
Capacity ≈ 31 GW
Brazil will require an Argentina every five years in order to support the
consumption growth over the next decades

12. Brazil Expectations as in 2023- Investment opportunities
85
GW
2
GW
10
GW
0
GW
2
GW
11
GW
3
GW
5
GW
119
GW
22
GW
14
GW
4
GW
3
GW
20
GW
3
GW
4
GW
40%
967%
42%
3500%
74%
89%
0%
-10%
-500
0
500
1000
1500
2000
2500
3000
3500
4000
0
20
40
60
80
100
120
140
Hydro Wind Biomass Solar Nuclear Gas Coal Oil
1500
2000
2500
3000
3500
4000
2013
2023
1000
1500
2000
2500
3000
3500
4000
2013
2023
Growth (%)1500
2000
2500
3000
3500
4000
2013
2023
Growth (%)
* PDE 2023 (EPE)
Exchange rate: US$ 1 = R$ 2.60
Expected investments (2013 – 2023)
Generation - US$ 115,7 billion
Transmission - US$ 86 billion
Installed capacity – Expected growth of 60%
2013 – 118 GW
2023 – 189 GW

13. Governance of the Brazilian
Electricity Industry

14. Power sector governance in Brazil
14
CNPE: Definition of energy policies, with focus on ensuring adequate supply
MME: Planning, management and development of energy sectors legislation; supervision and
control of energy policies execution; responsibilities also over the mining sector
EPE: Planning of generation and transmission expansion; technical support of energy auctions
CMSE: Monitoring of the power system, in order to ensure adequate supply
ANEEL: Regulates and supervises generation, transmission, distribution and commercialization of
electricity. Regulated tariffs setting.
ONS: Optimized operation of the National Interconnected System, with focus on ensuring
adequate supply at reasonable costs
CCEE: Operation of the Brazilian power market and, by delegation of ANEEL, execution of
regulated power auctions

15. Brazilian Regulated Market

16. Energy Auctions
16
• DISCOs are obligated to contract 100% of their load in pool, through public auctions
• Ceiling prices are defined by the Ministry of Mines and Energy
• Investors compete for concessions/ selling energy in long-term contracts
Regulated consumers
Auction
Competition amongst generation investors
DISCO DISCO DISCO DISCO
Auction model
emulates a
Single Buyer

17. Energy Auctions
17
“A-1”“A-3”“A-5”
Existing Energy Auctions
1 - 15 years contracts
New Energy Auctions
20 - 30 years contracts
“A”
“Adjust”
Alternative Sources Auctions Reserve Energy Auctions
Year A: Delivery year
Sellers: Generators technically approved by EPE or ANEEL
• Hydro: Contracts of 30 years
• Thermal, Wind, PV and Biomass: Contracts of 20 or 25 years

18. Energy Auctions
18
• Quantity: It is a standard financial forward contract,
where generators bid an energy price of R$/MWh
for their FECs. In this case, the risk of physical
delivery led by ONS’s central dispatch is assumed by
generator.
• Availability: It is a typical call option. Generators
receive an option premium in R$/year (paid in 12
monthly installments) to remain available to the
dispatch and receive an operational cost every time
it is dispatched. This operational cost is called Custo
Variável Unitário (CVU) and works as an energy
strike price.
The auctions result in two kinds of PPAs:
Sources: Hydro
Sources: Thermal,
biomass, wind

19. New Energy Auctions – Average selling price (US$/MWh)
19
69,55
73,13
71,36
75,37
74,01
69,91
42,37
37,27
80,04
66,62
71,04 71,19 72,16
36,94
46,92
61,35
63,88
30,91
44,88
43,80
44,05
37,17
43,63
49,34
48,12
42,28
48,53
0,00
10,00
20,00
30,00
40,00
50,00
60,00
70,00
80,00
90,00
Preçomédio por leilão (R$/MWh)
2005 2008 2010 2011 2013 2014
•Exchange rate: US$ 1 = R$ 2.60
• Prices as in oct/14

20. Auctions – Average price by technology (US$/MWh)
20
• 31/10/2014 – First solar projects contracted during the 6th Reserve Auction
•Exchange rate: US$ 1 = R$ 2.60
• Prices as in oct/14

21. 15,9%
5,6%
41,4%
13,7%
20,8%
1,6%1,0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Hidro Derivados
Petróleo
Carvão Nuclear Gás Biomassa Outros
84,0%
3,1% 2,3% 2,8% 3,5% 0,4%
3,9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Hidro Derivados
Petróleo
Carvão Nuclear Gás Biomassa Outros
Brazilian Electriciy Matrix
21
World
6,3%
1,8%
48,7%
19,2% 21,0%
1,7%1,1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Hidro Derivados
Petróleo
Carvão Nuclear Gás Biomassa Outros
USA
Brazil
Hydro Oil Coal Gas Biomass Others
Hydro Oil Coal Gas Biomass Others
Hydro Coal Gas Biomass OthersOil
63,4%
1,7%
14,5%
11,5%
7,1%
1,8%
0,0%
10,0%
20,0%
30,0%
40,0%
50,0%
60,0%
70,0%
Hydro Nuclear Thermal Wind Biomass Solar
S
Brazil 2023
Generation investment
- US$ 115,7 billion

22. Auctions – Results
22
Results of new capacity auctions by technology,
Dec-2005 to Sep-2014
Solar-PV
202
1%
Hydro
12399
40%
Wind
5685
18%
Biomass
1747
5%
Natural
Gas
2877
9%
Coal
1752
6%
NLG
968
3%
Diesel
543
2%
Combustible Oil
4911
16%
Thermal
11051
36%
FEC – Firm Energy Certificates in average MW

23. Brazilian Free Market

24. Brazilian Free Market
• The Brazilian Free Contracting Environment is an OTC Market
• Contracts are bilateral and CCEE knows only its amount and length
Generators
Self-Producers
Independent
Producers
Traders
Free Consumers
Special Consumers
Buyers
Sellers
Bilateral negotiations
Electronic Platforms
• Since June, 2014 (Portaria 185/13), Free and Special consumers are allowed to negotiate
energy ammounts with other consumers and Free Market agentes (energy cessions)

25. Brazilian Free Market
• All contracts and cessions need to be registered in CCEE´s platform (CliqCCEE)
• CCEE is responsible for the accounting and settlement of the differences
between contracts and generation/consumption
• These settlement process includes also the regulated contracts
Settlement

26. Conclusions

27. Conclusions
• Brazilian needs of electriticy are a huge
opportunity for investors
• Auctions in the regulated market
reduce risks of investors
• The electricity industry is a low-risk
environment in Brazil
• Brazilian power generation is changing
into a hydrothermal matrix

28. Thank you
Roberto Castro
Administration Board