Brazilian energy storage hampered by technical challenges and lack of regulation

The Brazilian electricity sector is experiencing a paradox: while the need for flexibility in the grid is growing – pressured by the expansion of renewables such as solar and wind – the advancement of energy storage continues to be hampered by regulatory uncertainties. The delay in regulating a planned capacity reserve auction focused on batteries is worrying manufacturers, investors, and experts, especially given the escalation in curtailment bills (for forced reduction of generation), which already exceed BRL 4 billion ($729 million).

“Brazil has a successful history of stimulating new technologies through auctions, as we saw with wind energy in 2009 and solar energy in 2014, but with batteries, we remain stuck,” said Greener CEO Marcio Takata during a panel on the topic at the seventh edition of the Greener Summit.

The Agência Nacional de Energia Elétrica’s (ANEEL) Public Consultation 39, which specifically addresses storage, will complete two years without concrete progress in October. Consulta Pública 7 of the Ministry of the Environment, which proposes essential regulations for the sector, has also remained undefined since September 2023. The result is a regulatory vacuum that inhibits investment and leaves Brazil behind countries such as Chile and Spain, which have already faced challenges and learned from the technology.

Private sector

While awaiting federal definitions, the private market is moving. Data from Greener indicate that installed storage capacity in Brazil more than tripled between 2023 and 2024. It is a modest jump in absolute numbers – below 1 GWh – but reveals a growing appetite, especially among commercial and industrial consumers.

Much of this expansion is concentrated in isolated systems, which account for 70% of installed capacity. Commercial, industrial, and residential segments still represent a small share (7.5% each) but with immense growth potential. Demand is driven by different motivations:

• Energy reliability, especially in critical operations;
• Decarbonization;
• Improved energy quality, essential for industry and agribusiness;
• Reduction of diesel costs via battery and solar microgrids;
• Savings on tariffs, via load shifting and peak shaving;
• Expansion of electrical capacity without depending on the grid.

Despite the potential, there are still significant barriers: the high initial capital cost, the technical and operational complexity of systems, and a high tax burden. Brazilian batteries can cost up to 76% more than imported systems and Brazilian cells can be 79% more expensive.

Batteries as a service

Faced with these obstacles, leasing-based energy-storage-as-a-service has been gaining traction. In this model, the end customer does not make the initial investment; they pay a monthly fee to have access to the stored energy, with the equipment provider assuming technical and financial risk.

As-a-service models have three typical formats with customers paying for battery access regardless of usage; or sharing the profit from reduced electricity bills with the equipment provider; or paying fixed or variable fees in a hybrid model offering reliable, cheaper electricity.

Brazilian regions with high tariffs, such as Pará, Bahia and Tocantins, make batteries particularly attractive. In one shopping mall in Pará, which had a monthly electricity bill of BRL 400,000, a battery offered a payback period of 2.4 years in the regulated electricity market. In the free market, the payback period was almost half that time, thanks to the difference in the tariff structure.

While as-a-service customers save on energy bills and enjoy more reliable electricity supply, equipment providers scale their business, earn revenue predictability, and diversify their business model.

Legal uncertainty

The technical and economic viability of batteries is being driven by a drop in the cost of equipment, with prices having fallen around 45% in the last five years and a further 35% reduction expected by 2030, according to Greener. Huawei Chief Technology Officer Roberto Valer said Brazil is already technically mature enough to move forward as long as it has clear rules.

“What is missing is legal certainty,” said Auren Energia Executive Manager Alexandre Oliveira. “Regulation needs to come, even if with subsequent adjustments. Without it, it is impossible to plan long-term investments.” He added, though, solar became viable in its early days in Brazil despite imperfect regulation and said the same could happen with batteries.

Thiago Prado, president of the Energy Research Company (EPE), said design of Brazil’s planned energy storage auction will be set by ANEEL, with EPE to provide technical support. Key points under discussion include a connection fee, which must be defined in advance; whether battery location will be a selection criterion; and the deadline for project delivery.

Prado said making the location of batteries part of the selection process could offer more value but would raise investment risk. If the priority of the auction is solely to provide capacity reserve, he added, location becomes less of an issue and thus gives investors more flexibility.

Auction date?

Regulatory uncertainty also affects the monetization of projects. Sunco Capital Managing Director Márcio Trannin has suggested a model that combines remuneration for capacity, ancillary services, and energy arbitrage, to ensure financial viability. He also pointed to the uncertainty surrounding the Provisional Measure for the electricity sector, and hourly pricing, as factors that are holding back the sector.

The expectation, shared by panelists at the Greener summit, is that the auction will take place in 2026, after a wait that could cost the country dearly in terms of energy security and opportunities for technological and industrial development. As Greener’s Takata said, “The problem has already been posed. The solution, batteries, already exists. What is missing is the courage to unlock the market.”

From pv magazine Brasil.