disclosure of the projects to be built in advance, it would be possible to achieve greater coordination and economic efficiency by centrally coordinating the planning effort in this manner<sup>11</sup> .

Other design elements of the first Brazilian wind power auction were borrowed from earlier regular new energy auctions for other technologies – among them, the hybrid price discovery mechanism (descending clock phase followed by a pay-as-bid phase), escalation clauses linked to the Brazilian consumer price index (CPI), the periodic nature of the regular energy auctions, and the role of the Brazilian Development Bank (BNDES) as a financier and enforcer of domestic content. While the Brazilian auction design is generally more complex than most other worldwide implementations, the fact that those auctions play such an important role in the country’s regulatory framework can help justify this greater complexity.

# _Mechanism revisions_

As wind technology matured, and in part due to fiscal and financial benefits offered to the technology, wind power has become competitive in the regular new energy auctions as well – as wind power plants started to compete directly with conventional sources this way, it is implied that wind power is sufficiently reliable to contribute to security of supply, since they are displacing other generation sources in the system expansion.

Despite this important distinction, the core mechanism introduced in the 2009 reserve auction was maintained for several years with only minor adaptations : as long as the participation of wind power in total system capacity was small, concerns with wind plants’ contribution to security of supply were not as important, which allowed the authorities to offer a similar attractive product for wind plants in the regular new energy auctions. In particular, the unique settlement mechanism with yearly and 4-year settlements was maintained; and the 2010 regular auction cemented the representation of wind plant’s FECs as being proportional to their expected generation, without taking into account how its power injections would affect the system as a whole (hydro and thermal plants, in contrast, used more sophisticated methodologies). On the other hand, sellers in new energy auctions were allowed to sell their surplus electricity in the free market (rather than having it automatically allocated to the contract); and they were liable to contribute with FECs. This introduced some co-responsibility in case of delays in the transmission system – even though the generators would receive their contract revenue as normal, they would need to procure compensatory FECs (at market prices) in order to honor the contract.

These core elements were adopted in several reserve and regular auctions organized over the following years, only making minor adjustments in the ceiling price and in the candidate technologies that were allowed to compete with wind power in each auction. The first major revisions to this basic scheme have been carried out in 2013 – when the government decided that it was necessary to reduce some of the generous benefits that had been offered to the bidders in the first few auctions.

The first important change has been a revision in the calculation of the maximum amount of energy that wind plants can offer in the auction (and their FECs, in case of the regular auctions). Originally, wind farms’ maximum contribution was equal to their _mean_ (P50) certified wind production, calculated by an independent company based on historical wind measurements; but starting in 2013, wind farms could only offer in the auction the _P90_ of their wind certification. Under this revised methodology, wind farms’

> 11 See Rudnick, Barroso et al, 2012 for more information on this proposed scheme.

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