Brazil is the world’s ninth largest economy. While the country’s recent economic development has been experiencing its ups and downs, Brazil’s electricity sector is definitely worth a closer look.
The country consumes around 520 Th of electricity per year, which puts its right after Canada and the USA as the third largest consumer of electricity in the Americas and first in LATAM. More interestingly, the yearly per capita electricity consumption is close to 2.500 kWh, roughly one fifth of the consumption in the USA. Even in China, per capita consumption is nearly twice as high as in Brazil. Brazilian electricity consumption has been growing steadily since the 1990’s with an average yearly growth rate of nearly 3%. It’s also worth mentioning that after a wave of liberalization in the early years of the new millennium most of the country’s power sector is now privatized, offering valuable opportunities for large corporations, developers and innovative startups alike.
One of the main characteristics that differentiates the Brazilian power sector from most countries is its high share of renewable energy. Hydropower has traditionally been the backbone of Brazilian electricity generation. Despite the fact that during the last 15 years the share of hydropower has dropped steadily – large scale project development could not keep up with growing demand, raising environmental standards and social pressure – hydropower still accounts for more than 60% of total electricity supply.
But Brazil has also proven to be well positioned to use other renewable energy sources – the country has the world’s eighth largest wind power capacity with more than 15 GW installed and operational. Biomass power plants have also played a relevant role for electricity generation, often taking advantage of byproducts from large-scale sugar and ethanol production from sugar cane plantations. More recently, during the last three years, solar PV has finally started to shine in the country, showing robust growth both in utility-scale and distributed generation. Currently, the country has more than 2.1 GW of utility-scale and more than 0.9 GW of distributed generation solar PV projects operational.
In Brazil, reverse electricity auctions have been the main instrument to contract utility-scale renewable power projects and have attracted both domestic and international project developers and investors. For smaller projects, a robust nation-wide net-metering regulation and increasingly high electricity prices have made small to medium-scale distributed generation very attractive.
Energy storage, however, especially in the form of batteries, still is a very recent topic in Brazil. In 2016, the Brazilian Electricity Regulatory Agency (ANEEL) launched a specific R&D program for grid-connected energy storage projects, the first generation of which has been recently implemented. Most of these projects focus on understanding the interaction between medium to large-scale batteries and local distribution grids, as well as on the development of tools for storage-based energy management, such as peak shaving or demand management. For example, in 2018 AES Tietê commissioned the first energy storage project connected to the Brazilian National Interconnected System (SIN). Fig. 1
Old practices in the electricity sector would suggest that Brazil does not need energy storage projects, because the country operates hydroelectric power plants with large reservoirs and because the share of variable renewable sources, such as wind and solar still is small. That logic, however, is quickly becoming outdated. Effective storage capacity of hydroelectric reservoirs (maximum capacity versus elecricity demand) has been diminishing since 2001, mainly due to a combination of growing demand, strong reduction on average precipitation levels and possibly long-term changes to the local, regional and national climates. Consequently, the storage capacity of the country’s hydroelectric reservoirs, the so-called Brazilian “hydro-batteries”, has been gradually reduced. In parallel solar PV and wind power generation have been growing significantly in recent years. Fig. 2
The aforementioned changes in the climate and rainfall patterns have made it increasingly difficult to replenish reservoirs during the rainy season. Especially, hydroelectric power plants in the Northeastern region of Brazil have been struggling with lack of rainfalls and, in some extreme cases, had to reduce generation capacity or even halt operations entirely.
The price reduction of energy storage systems of more than 85% during the last decade, according to reports from Bloomberg New Energy Finance (BNEF) and particularly the strong progress observed on lithium-ion technology have created new opportunities that were previously out of reach. Fig. 3
Thanks to these improvements, “behind-the-meter” applications such as peak-shaving and demand response are starting to become economically feasible for some groups of Brazilian consumers. Brazil has significant regional differences in peak and off-peak electricity tariffs. The delta between peak and off-peak tariffs is particularly high for commercial and industrial consumers in the Northeastern region. Conveniently, this region also boasts excellent solar resources. So much so, that rooftop PV systems located in urban areas can easily surpass yields of 1.600 kWh/kWp, making “hybrid PV systems” (solar PV + energy storage) increasingly attractive for commercial and industrial users. Fig. 4
Currently there more than 3.000 small-scale thermoelectric power plants in Brazil, totaling more than 40 GW of installed capacity. A significant portion of these systems – roughly 20% – is powered by diesel and other petroleum-based fuels. Some of these power plants are located in remote areas of Northern Brazil and operated under 24/7 regime by electric utilities, providing basic electricity to small consumers. The majority, however, are owned and operated by commercial and industrial consumers, located throughout the country and are mostly used during peak-hours, when electricity prices are at their highest, and eventually in the case of power outages. Thanks to the significant price reductions of energy storage and renewable energy technologies, their combined cost is about to become competitive with diesel generators. Therefore, this can be considered the beginning of a “tipping pointing” in favor of renewables + energy storage in Brazil.
Commercial energy storage projects in Brazil currently focus on behind-the-meter applications for commercial and industrial users, with peak-shaving being the main service provided. So far, large-scale front-of-the-meter projects seem to be out of reach, since Brazil still lacks an appropriate regulatory and legal framework to enable such projects. This does not mean that there is no demand for such projects. A recent study from EPE, concluded that “lack of access to grid connection” is the single most frequent reason for project disqualification in the run-up to electricity auctions. Another study from ePowerBay, concluded that states offering good conditions for large-scale wind and solar PV, namely Bahia and Rio Grande do Norte, are those where a project is most likely to face grid connection challenges. Therefore, access to grid connection has become a primary concern among developers. Hybrid projects combining large-scale renewable energy with large-scale energy storage could help solve this problem with less investments than reinforcing transmission lines in sparsely populated areas of Brazil. Fig. 5
Developing energy storage projects in Brazil currently entails a unique set of challenges. First and foremost, the cost of energy storage systems is significantly higher than in other countries, due to high import taxes. For instance, lithium-ion cells face import duties as high as 80%, despite the fact that there is no local production of them. The lack of specific, energy storage-related regulation and legislation makes all, but behind-the-meter projects, uncompetitive. However, such situation shall not persist for long. Energy storage has undoubtedly become one of the “hottest” topics of country’s energy sector and, as it has been the case with solar PV, regulations and other prerequisites will be developed.
To support the evolution of the Brazilian electricity matrix, regulation, legislation, taxation and the development of new business models, the Brazilian Photovoltaic Solar Energy Association (ABSOLAR) has established a new Work Group on Energy Storage, following similar successful initiatives spearheaded by solar PV entities in the USA, such as in California and Washington D.C. Serving as a gathering point, hub and meeting ground for both solar PV and energy storage initiatives, ABSOLAR has its doors open to help energy storage companies and entrepreneurs to establish, develop and explore opportunities in Brazil.
Managing Director at Tayo Energia
Coordinator of the Energy Storage Working Group at the Brazilian Photovoltaic Solar Energy Association (ABSOLAR)
Engineering Specialist at AES Brazil
Vice-Coordinator at ABSOLAR’s Energy Storage Working Group
Chief Executive Officer