In 2004 Brazil reformed its electricity sector (adoption of Laws 10.847 and 10.848) and started utilising energy auction system to procure electricity. The procurement system was based on load forecast. Existing and new generators are allowed to participate in the auction. Short, medium and long term electricity procurement contracts are awarded through auction process.
There are two types of auctions: new energy auctions and reserve energy auctions.
New energy auctions (alternative energy auctions) contract new capacity needed to meet growing electricity demand. Contracted generators have to start delivering electricity within three (marked A-3) or five years (A-5) from the auction. Usually held once a year. Contracts are awarded for period of 20 to 30 years, depending on the technology. Hydropower plants receive contract for 30 years. Wind and biomass projects receive PPAs for period of 20 years.
Reserve energy auctions are used to contract additional capacity on order to increase capacity reserve. This type of auction is technology specific.