Authors: Felipe Van de Sande Araujo, Cristina Pimenta de Mello Spineti Luz, Leonardo Lima Gomes, Luiz Eduardo Teixeira Brandão

Abstract: Despite its continental size and integrated electrical system, Brazil does not have an exchange for trading forward and futures contracts for electricity. Thus, price information for long-term contracts is often obtained through market research and expert opinions. This article proposes a simple yet efficient approach to estimate the forward price of electricity in the Brazilian energy market. The model is based on the equilibrium between two representative agents negotiating bilateral contracts where the agents’ risk aversion is derived from the utility functions related to the Generalized Extended Conditional Value-at-Risk Preference. This model is comprehensive and can be applied to all agents participating in the electricity futures transaction independent of whether they are directly involved in the production chain or simply carry speculative positions. Our results indicate that the model’s forecasted prices, which are based on the participants' expected behavior, can be used as an indicator for the forward price of electricity, providing more transparency and security for the participants in this market.

The files provided here are the calculations for the paper. They are organized in the following way: Data - contain datasets used by the authors and loaded by the R scripts. Rcode - contain the scripts that can be executed provided the data is organized in the same structure as this repository.

In the main level the calculations are saved in HTML files created by R Notebooks which show the executed commands and their results, along with plots. The sensitivity analysis uses an interactive plotly widget that can take a while to fully load.

Navigate code with HTML guide files: https://felipevdsaraujo.github.io/Estimating-The-Forward-Electricity-Curve-In-Brazil/