Brazil: Upcoming auction may see battery storage priced significantly cheaper than thermal plants

The revision of price ceilings for Brazil’s capacity reserve auctions has reinforced the argument that battery energy storage systems (BESS) could serve demand for firm capacity at a significantly lower total cost than thermal generation.

In terms of recent important events, Brazil’s electricity regulator Aneel approved higher price caps for its upcoming Capacity Reserve Auctions (The 2026 Capacity Reserve Auction in the form of Power or “LRCAP” 2026) on February 13, during an Extraordinary Public Meeting of its board. The auctions, scheduled for March 18–20, 2026, will contract capacity from natural gas and coal-fired thermal plants and hydropower plants under LRCAP No. 2, and from oil and biodiesel thermal plants under LRCAP No. 3. (Editor’s note: While these capacity reserve auctions are focused on thermal and hydropower capacity under LRCAP, Brazil has also been developing a separate capacity reserve auction specifically for battery energy storage systems (BESS) scheduled for April 2026, reflecting ongoing regulatory efforts to integrate utility-scale storage into the grid.)

The decision to raise the price caps followed communication from the Ministry of Mines and Energy indicating the need to revise the values.

For LRCAP No. 2, the price caps for thermal plants were set between $430,000 and $555,000 per MW installed per year (R$ 2.25 million to R$ 2.9 million per MW/year), depending on commissioning deadlines between 2026 and 2029 and whether projects are new or existing. Previously, the range had been $214,000 to $306,000 per MW/year (R$ 1.12 million to R$ 1.6 million per MW/year). For hydropower plants, the cap remains $268,000 per MW/year (R$ 1.4 million per MW/year).

For LRCAP No. 3, price caps increased from $176,000 to $189,000 per MW/year (R$ 920,000 to R$ 990,000 per MW/year) to between $306,000 and $335,000 per MW/year (R$ 1.6 million to R$ 1.75 million per MW/year).

These caps represent fixed annual remuneration for making generation capacity available to be dispatched by Brazil’s national system operator. Thermal plants must also declare a Variable Unit Cost per MWh generated, reflecting fuel costs.

Markus Vlasits, president of the Brazilian Association of Energy Storage Solutions, said the revised caps strengthen the case for battery energy storage systems in capacity markets.

He added that, assuming a fuel cost of $115/MWh (R$ 600/MWh) and four hours of daily dispatch, additional annual generation costs would reach $168 million per GW (R$ 876 million/GW), compared with zero variable cost for BESS. Even if fuel costs fell to $57/MWh (R$ 300/MWh), the additional cost would still be $84 million (R$ 438 million).

“There is no scenario in which thermal matches battery in this usage profile, the difference remains high,” Vlasits said. He also noted that thermal plants often need to run longer than four hours due to ramping and minimum operating requirements, which can increase renewable curtailment. Batteries, by contrast, could absorb excess renewable generation during periods of lower net demand.

“With these new price caps, the message is consolidated that, for capacity reserve and meeting the night-time power deficit, batteries are the lowest overall cost solution, with reductions of up to 50%, depending on the scenario,” he said.

Vlasits acknowledged that thermal generation remains necessary in scenarios such as prolonged droughts that require longer dispatch durations. However, he argued that authorizing large volumes of new, higher-cost thermal capacity would require strong policy justification, particularly given the potential impact on consumer electricity tariffs.

From pv magazine Brazil