Analysis of compensation for energy cession in Itaipu Binational applying Game Theory

For the year 2023, the revision of Annex C of ITAIPU Binacional Hydroelectric Power Plant Treaty is agreed. One of the topics much discussed lately is related to the electrical energy that Paraguay does not use, due to the demand of its electricity market, and is transferred to the neighboring country, Brazil, due to the conditions of the Binational Treaty. Currently, Brazil pays Paraguay a compensation for said energy cession and has an approximate value of 9.96 USD/MWh. However, in the following years the debt of the binational power plant is expected to be repaid, which would mean a decrease of approximately 63% in the Electricity Service Costs. In this context, this work analyzes the variables involved in the negotiation process of a possible new Itaipu Electricity Tariff, using the decision tool called Game Theory, in search of the solution of a negotiation problem between both countries. Therefore, a tariff reduction scenario is proposed, from 43.8 USD/MWh to 16.23 USD/MWh, due to the amortization of the debt. With the proposed methodology, it is possible to express a portfolio of possible rational alternatives, the outcome of which will depend mainly on the risk attitude of the negotiators and also the options external to the 2023 negotiation. Finally, depending on the strategies of both countries, the compensation for energy cession could range from 9.96 USD/MWh (status quo value) to 37.53 USD/MWh. This would mean that the price of Paraguayan energy would range between 26.19 USD/MWh (status quo value) and 53.76 USD/MWh. Around the discussion, it is found that the energy values obtained are competitive in relation to the values of the Brazilian electricity market.