A financial analysis conducted by Eduardo Tobias, founder and director of Watt CapitalIt points out that the financing conditions of the Climate Fund, operated by BNDES (National Bank for Economic and Social Development), guarantee ample competitiveness for battery-based energy storage systems (BESS) manufactured in Brazil.
According to the financial modeling carried out by the consulting firm, a domestically produced BESS (Build-Energy Service) with Finame (Financing of Machinery and Equipment) certification can have an acquisition cost up to 20% higher than that of a competitor imported from China, and still generate the same rate of return for the investor in the next LRCAP (Capacity Reserve Auction).
According to Tobias, the modeling analyzed the LCOS (Levelized Cost of Storage) and mapped how credit variables, tariff charges, contract terms, and tax incentives impact the Fixed Revenue (RAP) required by the projects.
Watt Capital's analysis considered a structured baseline scenario with high financial leverage, in which more than 70% of the project's total Capex is financed through debt.
The technical simulation compared the current water intake structure with access to environmental funding lines:
- Current Credit Reality: Currently, storage systems in Brazil do not have access to incentivized debentures, forcing developers to resort to ordinary (non-incentivized) debentures;
- Migration to the Climate Fund: By structuring the financing with 70% participation from the BNDES Climate Fund and 30% from FINEM, the project manages to achieve the same Internal Rate of Return (IRR) while requiring 11,5% less Fixed Revenue in the bidding process;
- Equivalence in Global Capex: From a feasibility perspective, this 11,5% reduction in required revenue equates to a 16% reduction in the project's overall capital expenditure (Capex).
Since the battery pack (BESS, inverters/PCS and medium voltage substation) accounts for between 70% and 80% of the total Capex of a storage plant, the overall savings of 16% is directly reflected in the price tolerance of the equipment.
In practice, the domestically produced Finame product gains a margin to cost up to 20% more on the invoice compared to its imported competitor without losing competitiveness.
The consultancy emphasizes that the sector should intensify its search for incentivized debentures for storage, to reduce its dependence on the Climate Fund and to lower the... gap competitiveness of imported solutions, nationalization of BNDES, which will become more stringent over the years.
Risk mitigation and assurance engineering
The structuring of robust supply contracts, such as full turnkey EPC and long-term maintenance contracts (LTSA), is identified as a key factor in reducing the minimum acceptable rate of return (MARR) required by the investor.
- Trade-off between Capex and O&M: Excessive cost savings in initial capital expenditure (Capex) often result in high operating costs (Opex) in future operation and maintenance (O&M) due to performance losses and accelerated degradation.
- Reducing the perception of risk: The presence of long-term technological guarantees (15 to 20 years) provides performance predictability which, if combined with an extension of the reservation contract term to 15 years, would allow the investor to accept a lower MARR (Minimum Acceptable Rate of Return), thus reducing the bid price at auction;
- Adjustment of the insurance market: The study highlights the need for prior work with national insurance companies, which have little experience in insuring battery projects, to prevent high insurance costs from hindering the competitiveness of the projects.
Regulatory influence: deadlines and tariffs (TUST/TUSD)
The sensitivity study assessed the impact of regulatory decisions on the revenue needed to make the bids viable:
- Contract terms of 10 to 15 years: Based on the initially planned 10-year contracts for LRCAP, extending the term to 12 years reduces the required revenue by 4% to 5%. If the term is set at 15 years, the efficiency gain ranges from 7% to 22%, as it dilutes the asset's tail risk and extends the amortization period of the bank debt;
- Transmission charges (demand-based TUST): if ANEEL Determine the simultaneous charging of TUST/TUSD for generation and load (demand); the projects will require an additional revenue premium of between 11% and 14% to absorb the tariff cost, the combination of which varies according to geographic location.
Feasibility of behind-the-meter systems
Watt Capital has identified a structural shift in the economic viability of BESS systems installed alongside centralized power plants (wind and solar) to mitigate energy waste due to grid constraints (curtailment).
According to data compiled by Bloomberg and compiled by the consulting firm, the cost of stationary batteries fell by 45% in dollar terms year-on-year, a level favored by the contraction of the exchange rate in the domestic market.
Simultaneously, the tightening of flow restrictions imposed by the ONS (National Electric System Operator) and the volatility of the hourly PLD (Price of Settlement of Differences) have inflated the costs for generators, who are forced to repurchase energy on the Free Energy Market to fulfill signed contracts.
The analysis concludes that the economic optimization of these hybrid systems does not lie in sizing the batteries to eliminate curtailment, but rather in calculating the optimal point that maximizes the cyclical use of the battery and protects the plant's revenue against hourly price volatility.
The feasibility should be enhanced by the possibility of reducing the MUST (Municipal Tax on Urban Services) by up to 30% without additional costs, as discussed in Public Consultation 39/2023.
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