The different characteristics of real options in contracts of wind power in Brazil

Delapedra-Silva, Vanderson Aparecido

doi:10.1590/1806-9649-2021v28e5652

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Sumário

ORIGINAL ARTICLE • Gest. Prod. 28 (4) • 2021 • https://doi.org/10.1590/1806-9649-2021v28e5652 copy

The different characteristics of real options in contracts of wind power in Brazil

As diferentes características de opções reais em contratos de energia eólica no Brasil

Authorship SCIMAGO INSTITUTIONS RANKINGS

Abstract:

This paper investigates the existence of uncertainties in different wind power commercialization contracts in Brazil and their correlation with the Real Options associated with unmitigated risks in the Back up Energy and New Energy contracts. From a documentary review of existing contracts from 2009 to 2018, it was found that the Real Options on New Energy contracts are more susceptible to market uncertainties related to energy price in the short-term market. The Real Options associated with risks not mitigated in Back up Energy contracts are more linked to uncertainties regarding the power generation efficiency and the project plant expansion capacity in order to generate the anticipation of its supply.

Keywords:
Renewable energy; Real options; Project Finance; Wind power

Sequence	Objective	Procedure	Expected Results
1^st	To Build a base of documents of interest for research	Selection and obtaining of Contracts for the Commercialization of Wind Energy in Brazil	General set of documents of interest for research
2^nd	To Categorize documents	Identify and separate specific types of contracts	Three sets of contracts:
			a) New Energy;
			b) Backup Energy; and
			c) Alternative Sources
3^rd	To Map Common clauses in equal groups	Analytical reading of each contract separately by group in order to select common clauses	Common clauses within each set of analyzed contracts
4^th	To Map different clauses in equal sets	Analytical reading of each contract separately by group in order to select the differences between the clauses	Different clauses within each set of analyzed contracts
5^th	To Map common clauses in contracts of different sets	Analytical reading of each contract separately by clause in order to identify common contracts in different groups	Common clauses within different sets of contracts analyzed
6^th	To Map Different clauses in different sets of contracts	Analytical reading of each contract separately by clause in order to identify differences between groups	Different clauses in different sets of contracts analyzed
7^th	To Track differences across contract timelines	To Create a timeline containing important differences in clauses and the group of ownership responsible for the differences	Clause detail map considering different groups of contracts over the period of interest

Modality	Contracts	Exclusive contracts
Backup Energy	6	2
Alternative sources	2	0
New Energy	12	1
Total	20	3

Year	Type of Contract	C	F	L	M	O	Total
2009	LER	1	1	2	2	5	11
2010	FA	1	1	2	2	2	8
2010	LER	1	1	2	3	5	12
2011	A-3	1	1	2	3	1	8
2011	A-5	1	1	2	3	1	8
2011	LER	1	1	2	3	5	12
2012	A-5	1	1	2	3	1	8
2013	A-3	1	1	2	3	1	8
2013	A-5	1	1	2	3	1	8
2013	LER	1	1	1	3	5	11
2014	A-3	1	1	2	3	1	8
2014	A-5	1	1	2	3	1	8
2014	LER	1	1	1	3	5	11
2015	A-3	1	1	2	3	1	8
2015	FA	1	1	2	2	2	8
2015	LER	1	1	1	3	5	11
2017	A-4	1	1	2	3	1	8
2017	A-6	1	1	2	3	1	8
2018	A-4	1	1	2	3	1	8
2018	A-6	1	1	2	3	1	8
Total		20	20	37	57	46	180
Average		1	1	1,85	2,85	2,3	9

Types of Risks
*Completion*
Delay in plant start-up
Financial
Inflation
Legal
Transmission system tariff and tax charges
Bankruptcy
Market
Use of not new generators or with previous use
Wind turbines unavailable at a higher level than the benchmark performance indexes
Use of generators with rated power below 1,500 kW
Operational
Destination of surplus energy generated - Transfer, Settlement or Assignment
Annual generation below 90% of the contracted energy (6% higher reimbursement from 2013)
Anticipation of energy supply based on variable revenue
Surplus energy production above the tolerance range
Surplus energy production within the tolerance range
Destino do excedente de energia gerado - Repasse, Liquidação ou Cessão

Type of Contract	Type of Risk	Uncertainty	Real Options
Backup Energy	Operational	Amount of Energy Generated	Time for Construction
Backup Energy	Operational	Amount of Energy Generated	Changing of the Operational Scale.
Backup Energy	Market	Energy Assignment	Switch Options.

Types of Risks
*Completion*
Delay in plant start-up
Financeiro
Inflation
Legal
Transmission system tariff and tax charges
Bankruptcy
Market
The use of generators not new and with previous use
Wind turbines unavailable at a higher level than the benchmark performance indexes.
Use of generators with rated power below 1,500 kW
Auction Sale Price lower than the Free Market Price
Fixed revenue lower than the Free Market Price (“by availability”)
Operational
Annual generation below 90% of the contracted energy

Type of Contract	Risk	Managerial Flexibility	Real Options
New Energy	Operational	Variable Energy Anticipation Revenue	Changing the operational scale
New Energy	Operational	Amount to be traded in the ACR	Switch

Universidade Federal de São Carlos Departamento de Engenharia de Produção , Caixa Postal 676 , 13.565-905 São Carlos SP Brazil, Tel.: +55 16 3351 8471 - São Carlos - SP - Brazil
E-mail: gp@dep.ufscar.br

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[1] C=Completion; F= Financial; L=Legal; M= Market; O= Operational.