Integrating Risks, Externalities and System Value of Energy Technologies in the Electricity Mix Planning Process: The Case for Brazil : A Study of the Cost Valuation of Electricity Generation Technologies as part of an Optimally Integrated Power System

Abstract

This thesis analyses how electricity generation portfolios are affected by different risks, externalities and the system value of each generation technology, factors which are not considered in traditional energy valuation methods. The overarching goal of this paper is to inform policymakers about the energy expansion objectives that should be set in order to build towards a power system that maximizes social welfare. To that end, this thesis presents a risks and externalities accounting cost valuation method for power generation technologies, followed by a discussion of the system features that can further affect the value of each technology within a power system. The methodology put forth in this paper is then applied to analyse the Brazilian power sector and define a possible energy planning scenario for the expansion of the country’s electricity mix. This case study complements the theoretical analysis of this paper, and confirms a key finding of the research, which is that the internalization of environmental costs, market risks and technology risks, not considered in commonly used valuation methods, is merely but the first step in order to identify the socially optimal electricity mix for a given nation. This study uncovers the importance of understanding and utilizing the complementarities between different technologies constituting a power system in order to maximize the system value of each technology and infer the most informed and accurate recommendations to help a policymaker build towards a reliable, sustainable and economic power system that maximizes social welfare. In the case of Brazil, the thesis finds that by using its large potential for storable and dispatchable hydropower and bioelectricity as a balancing power, rather than as the base load, as it is currently the case, Brazil could be a true leader of the energy transition and implement a high share of VREs in its generation portfolio.