Capacity auctions are the clearest near-term route to long-term contracted revenues for grid-scale batteries in Brazil. December’s first battery auctions offer 15-year, inflation-indexed contracts, and the government’s energy planner (EPE) now includes 7.2 GW of batteries in its plan to 2036, nine times the capacity envisaged two years ago.

The government has signalled at least 2 GW of four-hour batteries in December, and industry estimates run up to 6 GW. Winners receive a fixed payment for making capacity available, with supply starting in August 2028.

Growing solar generation and a continuing shortage of firm capacity support demand for more batteries. December could therefore be the first of several opportunities to secure long-term revenues. Further auctions are scheduled for 2027–2029, subject to annual assessments of need, although batteries will face competition from gas and other technologies.

For questions on this research, reach out to santiago@modoenergy.com.

Key takeaways

• The government has signalled at least 2 GW for December, with estimates up to 6 GW. Later rounds could buy more, depending on annual need assessments and competition from gas.
• Solar is widening the gap between cheap midday power and the evening peak, increasing the system’s need for batteries to shift energy between them.
• The system operator projects a 43% risk of a supply shortfall in 2030, despite March’s capacity purchases. That continuing need supports further auction opportunities through 2029.
• EPE’s scenarios point to a potential battery market of up to 69 GW by 2055. The near-term plan is already closer to the faster pathways. Auction volumes will help determine how quickly that potential translates into contracted projects.

EPE now plans nine times more batteries than two years ago

EPE first considered batteries in Brazil’s capacity mix in PDE 2034, at 800 MW. The next edition, PDE 2035, raised that to 6.6 GW from 2028, and PDE 2036, open for consultation until 6 November, holds 7.2 GW. At the planner’s reference costs, that is about R$40 billion of investment.

Most of the increase came with PDE 2035, even though the planner’s battery cost per kW barely changed. The main change was in the modelling: batteries could enter from 2028, three years earlier, as four-hour systems matched to the evening ramps the planner tracks. Meanwhile, gas turbine costs rose across the supply chain, partly because of demand from data centres.

December’s capacity auctions, known as LRCAPs, are the first chance to build that plan. If December buys at least 2 GW, as the government has signalled, and up to 6 GW, as industry estimates suggest, at least 1.2 GW of the 2036 plan would remain for later rounds. The regulator approved the final auction rules on 27 October without a volume; the energy ministry sets it before each auction opens.

Appetite is not the constraint: developers registered 296.8 GW of batteries before qualification (EPE, August 2026).

Solar growth is increasing the need for batteries to shift energy into the evening

Brazil’s wholesale market has four regional pricing zones, known as submarkets, each with its own hourly spot price. The chart below follows the Southeast/Centre-West zone (SE/CO), where prices sat at the regulatory floor for most hours until 2023. From 2024, midday became the cheapest time of day. Installed solar capacity in the zone more than tripled between 2022 and 2026, reaching 39 GW, most of it rooftop and small-scale generation.

As midday prices fell, the gap between the average day’s highest and lowest hourly prices more than quadrupled between 2024 and 2026. Prices now bottom out at midday and peak after sunset. EPE describes the same problem: daytime surpluses alongside an early-evening need for power and flexibility. Batteries can help meet that need by storing daytime surpluses for use during the evening peak.

Widening spreads show the system’s need for flexibility, but our estimate suggests trading alone would not cover the full cost of a new battery. Annualising 2026 prices to date, a four-hour battery cycling once a day with perfect foresight, after accounting for charging costs and losses at 85% round-trip efficiency, would earn about R$300k/MW a year in the SE/CO zone. That is at or below a battery’s annual operating costs, taxes and grid charges on EPE’s reference costs, leaving nothing towards the cost of building it.

Under the auction rules, winners instead earn a fixed capacity payment, while the gains and losses from charging and discharging flow to the system’s capacity reserve account. Investors bidding into the auctions must therefore base their business case on the fixed capacity payment.

A reliability shortfall underpins annual capacity auctions to 2029

March’s two capacity auctions contracted 19.5 GW, mostly gas, and it was not enough. The system operator’s latest operating plan still puts the risk of a supply shortfall at about 20% in 2027 and 43% in 2030, against a 5% limit.

December’s batteries only start supplying in August 2028, so they cannot close the 2027 gap. The projected shortfall persists even though peak demand in 2025 came in below the planner’s forecast.

EPE’s ten-year plan adds a further 19.6 GW of capacity by 2036, including storage. To meet that need, the government has scheduled a capacity auction in the second half of each year from 2027 to 2029 under Portaria Normativa 143/2026. Each depends on an annual need assessment by the planner and the system operator.

With December, these rounds are the main route to market for grid-scale batteries through 2029. The only other route is case-by-case tendering of batteries as grid assets.

The later rounds are technology-neutral, but batteries start ahead. EPE’s least-cost plan picks 7.2 GW of batteries against 4.8 GW of thermal, and pumped hydro only arrives in 2035. Until 2029, the main competitor is gas.

Wind and solar show the path auctions could open for storage

Brazil has used auctions to jump-start new technologies before. Wind won its first auction contracts in 2009 and utility-scale solar in 2014. By 2022, regulated auctions had contracted 19.6 GW of wind and 5.6 GW of solar.

Once those technologies were established, growth moved to the free market as distributors’ demand dried up. Today, under a quarter of Brazil’s utility-scale solar has a regulated-auction contract.

Capacity auctions could now play the same launching role for storage, with a capacity contract rather than an energy one.

In EPE’s scenarios, the long-run market could reach 10 times the 2036 plan, mostly after 2040

EPE's National Energy Plan (PNE 2055) put batteries at 29.6 GW by 2055 in the slowest case and 69.0 GW in the fastest, which reaches net zero by 2050. Substantial growth appears across all three scenarios, although most comes after 2040.

The latest ten-year plan raises the question of whether more of that growth could arrive before 2040. Its 6.4 GW by 2035 is closer to the two faster scenarios, at 8.2–8.4 GW, compared with 2.2 GW in the slowest. But converting that planning ambition into a near-term investment pipeline depends heavily on how much capacity the government procures.

Batteries will also face competition. The long-term scenarios include at least 9 GW of pumped hydro by 2055, offering another way to meet the system’s storage needs.

For investors, the scenarios indicate the potential scale beyond the first auction rounds. Annual need assessments and auction volumes will provide a firmer guide to when that opportunity becomes available, while the development of other revenue routes could broaden it.

The investment case starts with the capacity contract

For investors, December is where Brazil’s battery market opens. The capacity contract is the revenue a project can plan around, and continuing capacity needs support a pipeline of possible auctions through 2029. Later rounds will expose batteries to competition from other technologies.

Other routes could develop through energy trading and ancillary services, alongside case-by-case procurement of batteries as grid assets. Their investment potential depends on the revenues available and the rules governing participation and revenue stacking.

For investors entering through the capacity auctions, the decisive question is the contract price. The investment decision depends on securing a contract at a price that covers construction, operation and delivery obligations.

Part 2 examines those commitments; Part 3 considers how low bidders can go.