Bruno Salzano

With Raphael Furtado, senior associate at Tauil & Chequer Advogados associated with Mayer Brown. On December 2nd and 4th, 2026, Brazil will hold the first LRCAPS (Long-Term Reserved Capacity Auctions in the form of power dedicated to battery energy storage systems (BESS)), where the winner will be chosen based on the lowest price and will receive a fixed revenue over 15 years, in exchange for making capacity available in the form of power. In an extremely competitive auction, with dozens of interested parties and projects of varying sizes, tax optimization, which should be reflected in the financial modeling, directly affects the implementation cost, the capital structure, and the price that the entrepreneur can offer in the bid. The proximity of the auction and the interaction between tax and regulatory norms in the energy sector make it likely that investors will approach the bidding process with a certain level of uncertainty, resulting from a situation that combines aspects of the tax reform pending regulation with sectoral uncertainties. Starting in January 2027, the CBS (Contribution on Goods and Services) will be levied to replace the PIS and Cofins taxes, which will be phased out. In 2029, the collection of IBS (Tax on Goods and Services) will begin, gradually replacing ICMS and ISS. Therefore, although the bids for BESS's LRCap were submitted before the new tax system came into effect, these bids should already reflect the impacts of the new rules. According to item 10.9 of the auction notice, the bidder, when defining the revenue value to be presented in the bid, "must include all costs necessary for the provision of the service and implementation of the SAE, including taxes, except for CBS and IBS which, under the terms of the tax reform, are not included in the sale prices of the service". This clause is important for financial modeling purposes. The bidder may disregard the IBS and CBS taxes on the revenue presented in the bid, but must consider and price in the financial effect of recovering the IBS and CBS taxes levied on its acquisitions. This presupposes an understanding of two relevant legal issues: (i) the form of exemption from IBS and CBS on acquisitions (CAPEX) of the project itself; and (ii) the taxation, or deferral of taxation, of IBS and CBS on revenue received in exchange for making capacity available in the form of power. Regarding the first question, it is necessary to consider that Law No. 15.269/2025 expressly included storage systems among the projects eligible for the REIDI of PIS and Cofins, limiting the tax waiver to R$ 1 billion per year, between 2026 and 2030, in addition to conditioning it on its inclusion in the LOA (Annual Budget Law). It is often stated that REIDI, created by Law No. 11.488/2007, reduces the total cost of the project by up to 11,75%, although the actual value of the reduction depends on the composition between services, national goods, and imported goods. The limit established by Law No. 15.269/2025 was never effectively applied and is surrounded by controversy regarding the method of calculation. In fact, since PIS and Cofins will be replaced by CBS starting in January 2027, and article... Article 106 of Complementary Law (LC) No. 214/2025 created a REIDI for CBS purposes, so the legally relevant question became a different one. It remains to be seen whether the R$1 billion limit and the requirement for budget forecasting in the Budget Law will continue to apply to the new CBS regime, or whether they were restrictions specific to PIS and Cofins that do not survive the new tax system. The doubt arises because the CBS capital goods tax exemption regime is very different from the PIS and Cofins regime in its constitutional archetype. In the case of PIS and Cofins, the tax exemption was provided for in ordinary law and has always been understood by case law as a tax benefit, so the restrictions and conditions created for its enjoyment were valid. In the case of CBS and IBS, the Constitution itself, in article... Article 156-A, § 5, item V, establishes the exemption for the acquisition of capital goods, which can be implemented through full and immediate credit, deferral, or a 100% reduction in tax rates. This creates a certain interpretative clash between the old tax regime of PIS and Cofins and the new tax regime of IBS and CBS. How can one accept the validity of a R$ 1 billion limit for REIDI (Special Regime for Infrastructure Development) when the Constitution itself already guarantees the immediate recovery, deferral, or exemption of IBS (Tax on Goods and Services) and CBS (Contribution on Goods and Services)? And how can one argue that the budgetary forecasting requirement guarantees the tax exemption, if the government itself, in the 2027 Annual Budget Law Project, estimates zero tax expenditure on REIDI? Regarding the second question, Congress had already created a deferral for the electricity sector in the original version of Supplementary Law No. 214/2025. The collection was concentrated at the distributor level, in the captive market; at the seller level, in the free contracting environment; and at the purchaser level, in multilateral transactions. It was a solution sensitive to the specific characteristics of the sector, which reduces the risks of credit loss throughout the supply chain. Subsequently, LC No. 226 amended article... Article 28 of Supplementary Law No. 214/2025 established a specific deferral rule for operations involving electricity, or rights related to it, that involve importation, generation, commercialization, distribution, and transmission. The BESS contracted through LRCap hardly fits into those traditional categories. Although the system consumes (during battery charging) and injects energy (during battery discharge), the focus of the tender is the availability of capacity and power. This activity is remunerated by a fixed revenue, and the operation is entirely under the control of the ONS (National Electric System Operator). Although it benefits the entire system, the availability of capacity does not appear, at least explicitly, in any of the traditional categories of the deferral rule (import, generation, marketing, distribution or transmission). The uncertainty has a direct effect on cash flow, because the capacity revenue framework defines how long the financial cost of the accumulated credits from the implementation phase will last in operation. If the deferral does not achieve this revenue target, the project may immediately absorb its own credits. If the deferral does not achieve this revenue target, the taxpayer will accumulate CBS credits, and it will be necessary to model the financial impact of their recovery. The absence of regulation does not preclude consistent modeling, based on financial and contractual modeling assumptions that take into account the uncertainties and ambiguities. The first step is to treat REIDI as a variable in the model, with CAPEX projected in at least two scenarios: one in which eligibility for the regime eliminates consumption taxes levied on equipment and services, and another in which the project pays the CBS during implementation and recovers it as a credit. Although all scenarios ultimately result in the "recovery" of the CBS and IBS taxes levied, the format and timing of this recovery are different, which affects the project's cash flow and the financial cost of waiting for tax recovery. Contract structuring is equally relevant, as it must outline the obligations and rights of suppliers in each of these scenarios. The future qualification for REIDI (Special Regime for Infrastructure Development) tends to be a complex process, which depends on the cooperation of suppliers: they are the ones who issue the tax documents without highlighting the tax, provide the information required for qualification, and adjust their prices to the tax exemption. Supply and construction contracts should be drafted from the outset to operate under any of the possible tax relief mechanisms: suspension under REIDI (Special Regime for Infrastructure Development), full and immediate credit, deferral, or reduction of tax rates to zero. In practice, this means predicting the price with and without the benefit, with automatic transfer of the tax exemption to the project; establishing the supplier's obligation to collaborate with the qualification process and the correct issuance of tax documents; defining who bears the tax burden in case of error or disqualification; and allowing the assignment of the contract to the special purpose entity that holds the qualification. Advance payments to suppliers, a common practice in the equipment sector, deserve special attention. Since Law No. 214/2025, unlike the current regime, applies IBS and CBS to advance payments made before supply, which is common in high-value contracts, advances made before qualification for REIDI may generate tax that would not subsequently be covered by the regime. When the manufacturing schedule allows, linking payments to milestones after qualification reduces this exposure. In the LRCap for batteries, the legal risks described in this article and their probabilities can be reasonably priced in. An overly conservative stance, which treats all uncertainties as certain losses, removes competitiveness from the bidding process. An overly aggressive stance, which assumes the most favorable solution on all points, could compromise the project's profitability over the 15-year contract period, given unforeseen adverse tax effects. The key is to assign a well-founded probability to each scenario and reflect it both in the financial model and in the clauses of contracts with suppliers.

Bruno Salzano

Published articles

LRCAP for Batteries: financial modeling with aspects of the tax reform pending regulation.

Self-production under review: new limitations to the benefits?