An overview of Brazil's electricity market: Planning, dispatch models, pricing, and modernization

Abstract

The Brazilian electricity market is a highly complex system that operates under a centralized dispatch model, where generation is optimized based on cost-minimization principles. This structure has historically ensured energy security and ensured coordination of hydrothermal resources. However, as the electricity matrix evolves with increasing shares of variable renewable energy, new challenges emerge concerning operational flexibility, system balancing, and market efficiency. Unlike deregulated markets where short-term price signals and locational pricing mechanisms guide dispatch decisions, the Brazilian model remains heavily cost-driven and centrally coordinated, raising discussions about its long-term adaptability. This paper provides a comprehensive overview of the Brazilian electricity sector, focusing on dispatch optimization, system operation, and long-term planning frameworks as structured in 2025. The research condenses key aspects of the NEWAVE, DECOMP, and DESSEM models, detailing their role in hydrothermal scheduling and their limitations in accommodating a more dynamic and decentralized energy landscape. By consolidating fragmented discussions from the existing literature, this work bridges the knowledge gap on how Brazil's market operates and compares to more advanced market designs. Incorporating lessons learned from international experiences, the study aims to identify market mechanisms and regulatory frameworks that can enhance Brazil's pricing models, flexibility resources, and real-time system coordination. Ultimately, this study serves as a reference for the international energy community, presenting a comprehensive and structured analysis of the Brazilian electricity market. It explores potential avenues for modernization, informed by global best practices, the evolution of contemporary market paradigms, and the ongoing energy transition.