The widespread adoption of battery energy storage systems (BESS) could transform the Brazilian electricity market, according to a report released by Aurora Energy Research.
The study indicates that if BESS systems account for 40% of the contracted capacity in the next LRCAP (Capacity Reserve Auctions), solar curtailment could be reduced by up to 46%, solar energy capture prices could rise by more than R$ 20/MWh, and the average daily price spread could fall by around R$ 40/MWh by 2040 — resulting in a more stable, efficient, and renewable system.
Furthermore, in this same scenario, capacity costs could fall by 14% and CO₂ emissions would be reduced by 37%, making the auctions more advantageous both economically and environmentally.
“Brazil, one of the world’s largest energy markets, is at a turning point. With record renewable generation and increasing grid congestion, curtailment has become a daily operational challenge,” assesses Rodrigo Borges, Market Leader in Brazil at Aurora Energy Research.
According to him, BESS is consolidating itself as the most viable short-term solution to reduce generation cuts, stabilize prices and increase the system's flexibility.
“Our studies show that if 40% of the capacity contracted in the next LRCAPs came from batteries, we could reduce capacity payments by 14% and mitigate emissions by 37%. This report presents recommendations to improve the regulation and design of capacity auctions, as well as exploring market dynamics and risk implications,” added Borges.
Regulatory adjustments and competitiveness
According to the study, the lack of clarity regarding where BESS projects should be installed is one of the main challenges. Currently, the rules favor regions with lower network prices and tariffs, without prioritizing the most critical areas in terms of capacity.
Another obstacle is the tax burden on storage systems, which can be up to 30% higher than that applied to other components of the sector, reducing the attractiveness of investments.
Pedro Luz, senior analyst at Aurora, highlights the need to improve investment signals and review the tax and tariff structure of the electricity sector in order to create a more competitive regulatory environment that is favorable to the advancement of BESS (Brazilian Electricity Sector Energy).
Aurora also recommends that auctions should consider not only the cost of the energy sources, but also their carbon footprint, promoting a more sustainable environment aligned with the global energy transition.
Renewable energy cuts hit a record high in October, reaching 37%.
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