Brazil has an extensive track record in renewable energy generation and has, more recently, attracted international attention by its rapidly growing solar sector. In 2019 2 GW of new PV capacity have been connected to the grid and for coming years the outlook continues to be bright.
Energy storage, by contrast, still is in its infancy and has so far been mostly restricted to off-grid and R&D applications. However, thanks to falling equipment and raising electricity prices, energy storage applications have become economically feasible, especially for C&I consumers
Brazil is the third-largest consumer of electric energy with an annual consumption of 600 TWh in 2018. For a long time, energy generation has relied upon renewable resources – approximately 65% of total electric energy is generated by hydropower plants, with wind power accounting for about 10%. Brazil has been late to enter the solar stage, but has achieved both impressive growth rates and very competitive pricing for solar. In 2019 2 GW of new capacity were added, of which 1,4 GW were small and medium-scale installations operating under a net-metering framework. Despite this impressive growth, solar only accounts for 1% of total electricity generation.
So far, energy storage has been mostly used for small-scale off-grid applications, however, things are about to change. Brazilian customers, like those in other countries, are taking advantage of the increasing competitiveness of energy storage equipment, which is mainly due to rapidly falling battery prices. It’s worth remembering that prices for Li-Ion batteries have declined by nearly 90% between 2010 and 2019 and are likely to fall even further. This decrease has, for the very first time, put energy storage in the realm of economic viability for Brazilian consumers. Thanks to this gain in competitiveness, the first commercial behind-the-meter systems have been implemented throughout 2018 and 2019.
Behind-the-meter energy storage systems can address a wide variety of purposes. Peak shaving (reducing peak demand in kW) and time-of-use optimization (shifting consumption of kWh from expensive peak-time to less-expensive off-peak time) are among the most frequent applications of such systems. In addition, when combined with a PV system, they can also avoid injection of energy into the grid, thus ensuring 100% self-consumption. And the very same systems can also serve as backup energy sources in case of a blackout and provide ancillary services to the grid, in case local regulations allow such services.
In order to assess the relevance of these applications for Brazilian energy consumers, we first need to adopt a proper customer segmentation. Customers can be classified by voltage level (low-voltage vs. medium-voltage) and whether they acquire electric energy from their local utilities or can purchase from the free market. All low-voltage consumers and medium-voltage consumers up to a contracted demand of 500 kW can only purchase electricity from their utility. Above 500 kW consumers have the choice to either remain with their utilities or purchase electricity in the free market.
Low-voltage consumers, which account for roughly 50% of total electricity consumption, are charged flat volumetric rates with no distinction between peak and off-peak rates and with no demand charges. However, they can opt for a peak/off-peak scheme, called ‘tarifa branca’ (‘white tariff’) if they wish to do so. Given the fact that peak rates are always charged in the evening ours, ‘tarifa branca’ could make sense for certain types of commercial users, but most probably not for residential users. While adoption of ‘tarifa branca’ is voluntary, it is expected that in the foreseeable future most, if not all, low-voltage-users will have to switch to a pricing scheme composed by peak and off-peak rates and demand charges. This new pricing regime is called ‘tarifa binômia’ and might be implemented as soon as 2021 or 2022.
Under the current flat volumetric pricing regime energy storage is not that attractive to low-voltage users, except in regions where consumers face very frequent power outages and are willing to invest in a system that protects them from such events.
For medium-voltage consumers the situation is quite different. All medium-voltage consumers pay volumetric peak and off-peak rates (called ‘ponta’ and ‘fora-ponta’ in Portuguese), in addition to demand charges (‘demanda’), which are calculated on a per-kW basis. Given the size and diversity of Brazil, it’s probably not surprising to encounter vast differences both with respect to medium-voltage volumetric rates and demand charges. Therefore, in certain regions of Brazil energy storage is about to become economically viable to reduce both demand peaks and shift consumption out of peak-times.
One of the things that visitors coming to Brazil can experience quite frequently are power outages. In most cases, they only last for a couple of minutes, but are annoying nonetheless. And needless to say that hospitals, factories or even office buildings cannot tolerate power outages at all. Therefore, Diesel backup generators are commonplace. Every commercial building, factory and even larger-scale condos have their Diesel gensets ready to be fired up whenever the grid goes down. Overall, Brazil has more than 8 GW of small and medium-scale Diesel gen-sets connected to the grid. Most of them serve a dual purpose – provide backup power in case of outages and reduce energy cost during peak times. Generation cost varies widely, depending on location and frequency of usage and could be anywhere between BRL 800 – 2.000/MWh. Given the ubiquity of Diesel-powered gen-sets across the entire country, the litmus-test for energy storage, combined with solar or without, will be to break-even with the cost of Diesel generation. We might not have reached that point, but given the continuous decreases in battery cost, it’s more likely a question of ‘when’ and not of ‘whether’.
It’s worth noting the current net-metering rules will likely change at some point in the future. Currently, energy purchased from the grid can be entirely compensated by the PV energy injected into the grid, regardless of timing of consumption and generation. There is no curtailment, and PV systems are exempt from transmission and distribution charges (systems connected in medium-voltage need to pay demand charges, though, as if they were energy consumers). However, the rules for net-metering might change at some point in the future. As a matter of fact, ANEEL, the regulatory agency of the Brazilian electricity sector, is expected to publish a revision of the regulations governing net-metering in the very near future. Depending on the outcome, users of PV systems might find it attractive to add energy storage to their solar generators or invest in hybrid systems right away.
Last, but not least, it should also be mentioned that developing energy storage projects in Brazil comes with its unique set of challenges. Batteries and related components face extremely high import tariffs, there are no rules for grid-connected energy storage systems and technical norms are focused on off-grid systems using lead-acing batteries and do not yet take into account grid-connected systems based upon Li-Ion or other electrochemical storage processes. However, given the size of the country, its growing demand for electric energy and the level of energy prices, we certainly believe that going after project opportunities in energy storage is worthwhile.
 “A Behind the Scenes Take on Lithium-ion Battery Prices | BloombergNEF.” [Online]. Available: about.bnef.com/blog/behind-scenes-take-lithium-ion-battery-prices/ . [Accessed: 20-Feb-2020].
 Aneel, “BIG - Banco de Informações de Geração.” [Online]. Available: www2.aneel.gov.br/aplicacoes/capacidadebrasil/capacidadebrasil.cfm . [Accessed: 20-Feb-2020].
 Aneel, “BIG - Banco de Informação de Geração.” [Online]. Available: www2.aneel.gov.br/scg/gd/VerGD.asp . [Accessed: 20-Feb-2020].
About the authors:
Markus Vlasits is managing director and partner of NewCharge Energy, a consultancy and project development firm focused on energy storage, based in São Paulo.
Rodolfo Castro is an analyst with Greener, the leading market research firm for the Brazilian PV market, also based in São Paulo.
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