The role of imbalance settlement mechanisms in electricity markets: A comparative analysis between UK and Brazil

The present work aims to analyze UK's and Brazil's wholesale electricity trading models. UK's model, also known as New Electricity Trading Arrangements (NETA), can be considered a reference for the present day electricity markets. Recently UK has implemented a market reform that, while maintaining UK's market structure, introduced several strong regulatory economic signals in order to foster new investments, both in thermal and in low carbon emission electricity generation. Brazil's wholesale market model is also noteworthy as it managed to promote large scale investments in low carbon generation in a liberalized market environment. However, Brazil's regulatory framework design proved fragile during a recent long draught period when short term financial obligations related to imbalance settlements soared and led to financial stress and, eventually to a market halt.