One of the main questions in electricity market deregulation is the aptitude of private capital for investments in power generation. This is especially important in Brazil, whose load has a strong growth trend (approximate to 6% per year). Thermopower is an attractive alternative for expanding generation, as it is complementary in many aspects to hydropower, which supplies most Brazil's power at a very low price most of the time, but makes the system vulnerable to seasonal water variations. This paper studies the competitiveness of thermopower generation in Brazil under current regulations; assesses under the real options theory approach the conditions for investments in thermopower generation, and finally presents and discusses a hydropower generation schedule model. (C) 2002 Elsevier Ltd. All rights reserved.