Brazil’s first battery-only auction in 2026 faces regulatory ambiguity, competing capacity needs

The first Capacity Reserve Auction (LRCAP) dedicated exclusively to battery energy storage systems (BESS), scheduled for April 2026, is generating great expectations in the market, as well as a high degree of uncertainty. According to lawyer Alexandre Leite, energy partner at Dias Carneiro Advogados, the auction can be seen as an “appetizer” for the introduction of batteries into the operation of the Brazilian system, but it still runs into legal, regulatory, and operational doubts and may not bring the demand expected by the sector.

At the same time, stakeholders are worried about the real possibility that the previous LRCAP, set for March 2026, and aimed at thermal and hydroelectric plants, will end up absorbing most of the power demand which, in practice, should be divided between the two auctions.

Risk of the first LRCAP consuming all demand

For Leite, there is a real chance that the thermal and hydroelectric auction will “take a good part of the demand.” The event is expected to attract strong competition, especially for flexibility solutions, which are more urgent today than additional energy.

The sector even advocated for a joint auction, with batteries competing directly with thermal plants, following the principle of technological neutrality. But, without a mature regulatory framework for storage, the Ministry of Mines and Energy (MME), the National Electric System Operator (ONS), and the National Electric Energy Agency (Aneel) opted to separate the events, preventing batteries from competing without completely defined rules.

Even so, the indirect effect exists: the greater the contracting in the thermal and hydroelectric auction, the smaller the space may be for the 2 GW of power expected for the battery auction.

The estimated contracting of around 2 GW / 8 GWh is considered possible, but depends on how much the first thermal auction will absorb.

Leite points out that the potential of batteries in the country is not yet fully known and that the market should evolve quickly with the arrival of data centers and new applications in distributed generation.

Despite the uncertainties, Leite sees strong interest from stakeholders: “The expectation is very high. We have funds, electric sector companies, electrification players, and battery suppliers prepared.”

Fragmented Regulation

The expectation and mobilization of projects to participate in the auction face, on the other hand, a still undefined regulatory scenario for storage, with fragmented discussion fronts. According to Leite, the law overrode discussions that were underway at the MME and Aneel—and now everything that was being discussed needs to be fitted into the text approved by Congress. He sees a risk of judicialization, especially because the electric sector already operates at the limit of regulatory complexity.

One of the main points of attention of the new legal framework of the electric sector for the battery storage segment is the provision that determines that the cost of reserve energy supplied by batteries will be prorated exclusively among generators—something that does not apply to thermal and hydroelectric plants.

For Leite, the logic stems from a mistaken reading that storage serves mainly to reduce renewable generation curtailment. “Reserve energy from batteries is not contracted to resolve curtailment, but to provide power. The entire system benefits.”

The measure, he says, arose in a political context of effort to avoid tariff increases, but creates distortions and is expected to generate intense debates in the coming months, in an election year.

Another point brought by Law 15.269 that impacts storage projects but still depends on regulatory definitions is the inclusion of batteries in REIDI (Special Incentive Regime for Infrastructure Development) and import tax exemption, subject to regulation by the Federal Revenue Service. Leite assesses that the tax benefits may be validated in time for the auction, although the electoral period makes everything more unpredictable.

Since Brazil collects practically nothing today from batteries, the exemption does not imply fiscal loss, only market stimulus.

Grid Access and Location Signal

At Aneel, the ongoing regulatory discussion includes a point that the lawyer considers decisive for the viability of projects intending to compete in the auction: the definition of how batteries will pay for grid usage—whether as a consumer, as a generator, or both.

“The solution proposed today, of charging as a generator and as a consumer depending on the case, is bad. Storage is a distinct activity,” he states. For him, this is a topic that can make projects unviable, even more so than specific auction rules.

Law 15.269, however, paves the way by allowing Aneel to regulate storage as its own activity, something that previously had no clear legal basis. This change should unlock part of the paralyzed discussions at the agency.

Another relevant rule is the locational signal, which bonuses projects installed in critical areas of the system, regions with generation curtailment, excess supply, or transmission constraints. Batteries in locations without bottlenecks tend to receive a smaller Performance Payment (PID).

Precisely because of the current difficulty in accessing the grid, the tendency is for most proposals in the auction to be associated with existing plants, especially renewable ones, because these projects already have a grid connection, Leite assesses. Stand-alone systems, on the other hand, will face greater difficulty in competing for grid access.

An auction that will be “the first step”

For the lawyer, the first battery LRCAP should be understood as the beginning of the Brazilian electric sector’s learning curve with storage. At the same time, the auction’s performance and attractiveness will depend directly on the government’s and regulators’ ability to unlock the most urgent pending issues.

Among them are the grid pricing model, post-Law 15.269 regulation, the definition of ancillary revenues, coordination between MME, ONS, and Aneel, clarity on cost allocation, and legal stability. “Storage is one of those topics that show the complexity of the Brazilian electric sector,” he summarizes.

The result of this equation, and the impact of the thermal auction on demand, will define the real space for batteries in the competition scheduled for April 2026, he assesses.

From pv magazine Brazil.