Energy call options auctions for generation adequacy in Brazil

This paper discusses the implementation of auctions of long-term energy call options in Brazil as part of the instruments adopted in the country to ensure supply adequacy. We address the problem of comparing call options with different strikes, quantities and premium and describe the solution adopted in Brazil. We then address the bidding strategies of Gencos to set the optimal strike price and option premium for a thermal plant taking into account uncertainty in fuel supply. Case studies are provided to illustrate the approach