How optimistic inflow forecasts distort dispatch, prices, and contracts in hydro-dominated power systems: evidence from Brazil
When water forecasts are too optimistic, electricity systems pay the price
When Brazil's power planners overestimate how much water will flow into hydroelectric reservoirs, they release too much water too early and delay building up thermal backup power — creating sharper electricity price spikes, higher operating costs, and greater blackout risk. The bias also makes hydropower producers reluctant to sign long-term contracts because the distorted prices make their revenues less predictable.
Brazil's electricity system relies heavily on hydropower, and biased forecasts cascade from planning decisions into actual market prices and grid reliability. The researchers show these distortions are not just statistical mistakes but structural problems that push the entire system toward inefficiency and instability. The same mechanism likely affects other countries with large hydroelectric systems—meaning fixing forecast accuracy could reduce electricity costs and improve reliability across multiple continents.