the reform process in the electricity sector of any country has as main objective the design of a power market capable to induce a reliable and efficient energy supply, translated into adequate tariffs. Brazil started its reform process in 1996, inspired by similar schemes in the electricity sector of more developed countries.However, the existence of particularities in the country's hydroelectric energy market, such as weak spot price signals for system expansion and difficulties to determine benchmark prices, avoided a smooth transition to a fully deregulated market. In 2004, a revisited power sector model was launched, aiming at alleviating the difficulties of the first model. The core of the new proposals lies on the use of contract obligation and energy supply auctions as the backbone for the efficient contracting and supply adequacy. Supply auctions were held in 2004-2005, with a volume of about 20,000 average MW contracted involving about 60 billion USD in financial transactions. This work discusses the implementation of auctions of energy contracts and call options in Brazil as part of the mechanisms to ensure supply adequacy adopted in the second stage of its power sector reform.Index Terms--Power system economics, power system planning, supply adequacy.

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this paper discusses the implementation of auctions of long-term energy call options in Brazil as part of the instruments adopted in the country to ensure supply adequacy. We address the problem of comparing call options with different strikes, quantities and premium and describe the solution adopted in Brazil. We then address the bidding strategies of Gencos to set the optimal strike price and option premium for a thermal plant taking into account uncertainty in fuel supply. Case studies are provided to illustrate the approach.Index Terms--Power system economics, power system planning, call options.

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