At least 18 GW of batteries await Brazil’s planned auction

ABSAE estimates Brazil already has between 700 MWh and 800 MWh of battery energy storage capacity.

With the nation still awaiting details of an energy storage-dedicated grid capacity reserve auction (LRCAP) planned by the National Electric System Operator (ONS), however, at least 18 GW of developed battery projects are waiting for the green light on the national procurement exercise. As ABSAE president Markus Vlasits points out below, commissioning just 2 GW of that backlog would drive around BRL 10 billion ($1.8 billion) of investment.

Of the planned LRCAP auction, Vlasits says, “Our perception is that there are no longer any fundamental technical doubts [over the auction]. There are choices to be made in the design of the guidelines , in the design of the rules of the regulatory framework.”

Pointing to the clear popularity of batteries, Vlasits highlighted applications by commercial and industrial energy users in rural areas who pay higher rates for grid electricity during peak demand hours. Some of those energy users could shave 35% off their bills by installing batteries, he says.

pv magazine: We have heard that the official responsible for the public consultation exercise held about the energy storage LRCAP left office without presenting the results to the board. What are Absae’s expectations for the conclusion of this process? Has the association had the opportunity to speak with the new rapporteur, Daniel Danna?

Markus Vlasits: The urgency for us to have this [energy storage] power for our own use is increasingly greater. The ONS cited some very dramatic data at an event at the MME [Ministry of Mines and Energy] last week. They mentioned that they had to effectively, for a few hours during the day, shut down 98% of the dispatchable power they had at their disposal. So we now face two risks of blackout: one due to the deficit at night and the other due to the likely over-generation of energy during the day. So in my opinion, the situation is, in fact, a little more urgent than the general perception suggests and any change in the inflow of energy [into the grid] could lead us to a very critical situation. 

That said, our perception is that there are no longer any fundamental technical doubts [about the LRCAP exercise]. There are choices to be made in the design of the guidelines, in the design of the rules of the regulatory framework, but there are no longer any fundamental doubts. 

And when we talk specifically about [Brazilian Electricity Regulatory Agency] ANEEL’s regulatory framework, we did have a series of meetings, over the last few weeks, with the main officials that contribute to this [energy] storage [auction] resolution. 

And we realize that the discussion is very mature, quite consolidated, there are few points that are still, let’s say, being debated and reviewed, including the issue of the methodology for battery TUST [the tariff applied by electricity transmission companies for wheeling: use of the grid infrastructure to transmit electricity between two parties which have signed a private supply agreement], which is still open. 

The new rapporteur will certainly review the process but our expectation is that we will certainly not go back to square one and that there will be continuity. 

We cannot speak for the agency but what I can say is that the discussions we are having with them are very constructive and are very advanced, very mature. I do not see any impediment to this regulation happening quickly. 

The regulation, important as it is, is not … critical [to] the auction. That is, no one can reasonably argue that the auction cannot take place because the resolution has not been published. That makes no sense. 

The former Secretary of Planning and Energy Transition of the MME, who was monitoring developments in the LRCAP involving batteries, has also left the ministry. What are the discussions on this topic like in the ministry now? 

On our side, when you look at the work of the agents and companies, we will certainly have a very large supply of projects for the auction, which will take place at the end of this year or at the beginning of next year, without a doubt. We conducted an internal survey and the volume of projects is in the range of 18 GW of capacity, which will request registration as soon as this is possible.  

What is really … critical … is the publication of the ordinance with guidelines for this auction. It is natural that, with a new secretary – who, by the way, has an excellent reputation in the market as a highly qualified and highly technical person – he has to familiarize himself with all the details and continue the legacy that [Thiago] Barral left. How this will develop is not yet clear; it is still very early. 

As delicate as this change of command may be at such a crucial moment – because in addition to the LRCAP, there are other very sensitive issues that were being dealt with by this secretariat, for example, the implementation of the first batch of CGPAL projects [for energy cost reduction in the Amazon] – on our side, we will work with Gustavo [Ataide] in the same way as we worked with Thiago. 

How many of these projects are linked to renewable energy generation plants? 

Of these 18 GW that we have identified — and I believe that this number will continue to grow — there are three types of projects. We will certainly have projects coupled with innovative plants, whether wind, solar, or associated complexes. This group represents at least 40% of the projects, perhaps more. Second, battery projects coupled with thermoelectric substations. There are situations in which there is room for flow in these substations, including thermoelectric projects that are preparing for the thermal LRCAP, and many agents that already operate on one side will find it interesting to take advantage of this opportunity. And the third are genuinely autonomous, standalone projects. What the mix will be like, frankly, is a little difficult to know. As always, we may have surprises; who knows? Someone might present a project coupled with a hydroelectric plant. 

Is there an estimate of the potential for attracting investment in energy storage once the regulation is published? And for projects in a possible auction? 

Currently, for 1 megawatt-hour of BESS [battery energy storage system] capacity, we are talking about an investment in the range of BRL 1.2 million to BRL 1.5 million. If we imagine an auction that would contract 2 GW of power – 8 GWh of capacity – we are talking about an investment volume of at least BRL 10 billion. 

How does ABSAE evaluate the result of the call for projects for decarbonization of the Amazon? 

We estimate that this batch of selected projects will provide approximately 150 MWh of BESS installation within a complex of hybrid solutions. The goal has always been to add solar generation and BESS to existing thermoelectric generation. In these projects, the BESS basically acts as what we call a synthetic spinning reserve, that is, it compensates for the intermittency of solar photovoltaic generation. 

The projects that were not selected include a bit of everything, from smaller hybridization projects to projects involving the use of green hydrogen. The agents that were not selected will now certainly present their applications and the ministry will evaluate them, and then we will see what will be the final call. One thing that must be recognized is that this call was organized based on very transparent criteria. We know that the current consumption of fossil fuels was a preponderant factor in the ranking of locations. 

Beyond political and regulatory uncertainties, what is the current energy storage market in Brazil? Which applications are already resulting in business? Does ABSAE have an updated estimate of the installed storage capacity in the country? 

This estimate exists and will be published during the Smarter [E South America] conference in São Paulo. These are works that are already well advanced and that we are now in the process of updating but, at a teaser level, what we can say is that today we have around 700 MWh, 800 MWh of BESS projects installed in Brazil. 

A significant part of this volume is still rural electrification projects. We certainly saw very interesting growth in commercial and industrial projects over the last year, that is, behind-the-meter projects. In these situations, batteries are an energy efficiency measure that helps consumers reduce their electricity bills. And we know that this energy at the end of the line, especially in the northeast and the north of Brazil, has a very significant cost. 

In some states, and this also depends a little on the consumption profile, electricity paid, at the end, represents the largest share among all energy cost blocks, especially for commercial customers. 

These projects are now viable and, depending on the [electricity supply] concessionaire and the consumption profile, are capable of generating total savings on the electricity bill in the range of 30% to 35%, even for free consumers [on a market which enables them to select their energy supplier]. 

So certainly, the northeast and north are priority regions for this and the measures proposed in MP 1300 [legislation which restricts eligibility to be considered and electricity self producer, expands free-market access for low-voltage electricity users, and exempts low-income citizens from grid tariffs] would be relevant for this market segment.

Can you flesh out the details of MP 1300 please? 

On the one hand, MP 1300 extended the expansion of the social [electricity] tariff [for low-income households] … The counterpart proposed in that MP [provisional measure] is the end of the subsidy on energy incentivized for the consumer [meaning users will pay higher grid-use charges, incentivizing BESS installation]. And I think it is important to remember that, currently, all of us consumers in the captive [energy] market [with no choice about electricity supplier] are effectively paying for a subsidy for the benefit of large [electricity] consumers.

I think there’s an economic logic that suggests that these subsidies could in fact be retired without harming these [large] consumers. As I said, it doesn’t directly affect … generation. 

In pv magazine Brazil’s special report on battery suppliers, we have frequently seen mention of plans to bring the assembly or manufacture of energy storage systems to the country. How can Brazil attract this production chain and under what conditions could it be competitive? What is ABSAE’s position on an industrial policy for energy storage in the country? 

My perception is that there is a technological convergence in the market. In fact, most stationary [energy] storage projects are being carried out with lithium iron phosphate [LFP] cell batteries. We know that there are other technologies but for stationary applications, LFP is establishing itself as the predominant technology. 

We know that sodium cells could be interesting at some point but, today, when we look at the equation of lowest cost per kilowatt-hour of capacity over the lifetime, LFP cells are ahead. 

And this is a very globalized and very competitive supply chain. 

It is worth remembering that today we have an oversupply of lithium-ion cell manufacturing capacity, especially LFP, at a global level. So both the electric mobility and stationary [energy storage] segments, although they are both growing a lot, are unable to absorb what the manufacturing parks can produce. 

And, especially, the battery packs have become a commodity. Of course, they are high-tech products but we see a great deal of standardization. For large-scale applications, everyone offers solutions, starting with LFPs in 20- or 30-foot containers, with a capacity of between 6 [MWh] and 15 MWh. All of them are liquid-cooled, meaning that all of the technical characteristics are quite homogeneous. 

And then we ask ourselves what it would be like to create a production chain that involves adding value in Brazil but based on economic rationality and competitiveness criteria. And these opportunities undoubtedly exist. Because the [energy] storage system is much more than a battery block. 

Although the battery part represents about 60% of the cost, we have all the power electronics components, the inverters, converters. We have the auxiliary systems that ensure the safe operation of these BESS. 

What is already happening today is that national manufacturers such as WEG and Moura are integrating the component system that, in some cases, comes from abroad. 

This has advantages in terms of flexibility, which allows you to meet market demand, especially for behind-the-meter applications. We need highly modular solutions because each project is different. 

So there is a logic to doing these last integration steps here, for reasons of logistics, inventory management, and preparing systems for use in a tropical climate. 

The first step is systems integration. A second step would be the actual assembly of battery cabinets from cells. 

In other words, we bring cells from outside, from that highly competitive global [supply] chain, and we also assemble our own battery modules and cabinets locally. This is already happening today for electric mobility. 

If you visit the WEG and Moura factories, you will find the assembly line for battery modules for electric mobility in buses and trucks. And this same logic can be expanded to the manufacture of stationary [energy storage] solutions. 

If there is demand, the market will organize itself. We have also defended this in meetings with the MDIC [Ministry of Development, Industry, and Foreign Trade]. 

How can we encourage this demand? 

We stimulate the demand for these solutions through public service contracts. Of course, with economic and technical merit, no one wants a subsidized auction. This will be another study that we will publish soon, because the overall cost, compared to thermal power, is significantly lower. 

And the other point to encourage demand is energy tariffs that reflect the real scarcity or abundance [of electricity] for the end-consumer. 

We can see that in all markets that currently use this technology, the use of such tariffs has always been based on economic or technical rationality. Texas, for example, has very high price variations that justify the insertion of [energy] storage. 

California has established requirements, in the face of increasing intermittent variable generation, for this [energy storage] technology, for energy security reasons. This automatically drives the market. The local chain will stabilize and will be structured to meet this demand. 

Would you like to add any comments on these topics? 

The main message is that the competitiveness of technology is becoming increasingly evident. We are not talking about the inclusion of [energy] storage based on subsidies, we are talking about criteria of technical and economic rationality. I think that is the first point. 

Second point: In no country did the introduction of this technology happen out of nowhere, you always need specific conditions. And one of two things: either you create an economic signal or you have specific public policies that lead to energy storage.

From pv magazine Brasil.