Capacity reserve auctions originally scheduled for 2026 have faced delays and revisions. The Ministry of Mines and Energy (MME) recently doubled price caps for existing gas and coal plants, raising limits from R$1.12 million to R$2.25 million per MW-year, and boosted caps for new gas plants by 81%, to R$2.9 million per MW-year, following strong market pushback citing underpriced caps that threatened auction viability. Price ceilings for hydropower remain unchanged at R$1.4 million/MW-year. Separate auctions for oil and biodiesel thermal plants also saw price increases of around 75%. The MME justified adjustments citing rising global equipment and financing costs alongside operational and legal risks from underinvestment in plant upkeep.
The National System Operator (ONS) warns of power supply challenges during peak hours over the next five years without renewals of capacity contracts, recommending flexible thermal dispatch, potential reintroduction of daylight savings, and optimized use of major hydro assets like Itaipu. Scheduled capacity auctions are pivotal for securing the required reserve margin to mitigate risks of supply shortfalls intensified by increased penetration of non-dispatchable renewables. The enhanced flexibility requirements reshape Brazil’s generation mix, favoring thermal plants capable of rapid ramping.
Transmission infrastructure investments amounting to R$116.9 billion are planned to support this expansion, focusing primarily on 500 kV lines and concentrated in Southeast and Northeast regions, ensuring integration with the increasingly diverse generation portfolio and regional demand growth. The evolving regulatory and market frameworks highlight the critical balance between ensuring price competitiveness and incentivizing new capacity investments vital for Brazil’s power system stability through 2035.
This article was curated and published as part of our South American energy market coverage.
