Liquidity in the Brazilian electricity market

Abstract

Since 1987, many countries have decided on their electricity market liberalization, increasing their degree of maturity, efficiency and, finally, liquidity. This paper aims at presenting the main concepts of liquidity and its importance for the satisfactory functioning of electricity markets. Likewise, it assesses the Brazilian electricity market liquidity by presenting the perspective of the electricity contracts traded in Brazil, focusing on the free market, exploring further the contribution of various classes of agents in the liquidity of these products. For instance, it portrays the current liquidity scenario by presenting the churn rates of conventional and special energy short and long term contracts and the liquidity relative rates which are an innovative adaptation from the stock market to calculate the liquidity of the referred products. Finally, this paper lists some actions that could be implemented by the Brazilian electricity market in order to improve its liquidity level.