Brazil’s Energy Research Office (EPE) has published the methodology it will use to calculate the Reference Marginal Cost (CMR), which will inform price caps for the country’s 2026 power capacity reserve auctions for battery energy storage systems (BESS).
The technical document outlines the criteria for estimating project costs and financing conditions but does not disclose final parameter values or calculation worksheets.
Technical Note EPE-DEE-RE-081/2026 describes how EPE will estimate capital expenditure, operating costs and financial assumptions. The agency said publishing the detailed values in advance could allow participants to infer maximum auction prices and influence their bids.
The CMR supports the setting of price caps but does not determine the final contracted price. EPE prepares the estimates and recommends values to the Ministry of Mines and Energy (MME), which sets the auction price limits.
The methodology uses a discounted cash flow (DCF) model to compare expected investments, expenses and revenues over the contract period. EPE uses the model to calculate the break-even tariff (TEQ), representing the fixed revenue required for a project’s net present value to equal zero.
The model accounts for initial and intermediate investments, operations and maintenance, grid-use charges, insurance, taxes, levies and financing conditions. EPE will compare its estimates with independent technical and economic benchmarks and conduct consistency checks.
The calculation distinguishes contracted power capacity from the storage capacity that must be installed to meet delivery requirements. System sizing accounts for electrical losses, auxiliary consumption, charge and discharge efficiency, and operating margins.
Ministerial Ordinance No. 136/2026 sets a minimum installed capacity of 30 MW, requires maximum power delivery for four hours per full cycle, permits up to two cycles per day and caps annual operation at 366 cycles. It also requires a full recharge within six hours and a minimum round-trip efficiency (RTE) of 85% throughout the contract.
The methodology also accounts for battery degradation and augmentation strategies, which involve adding or restoring capacity during operation. These factors affect the investment needed to maintain contractual performance.
The auctions cover two products: Power Storage 2028 A, for systems meeting minimum domestic-content requirements, and Power Storage 2028 B, which has no such requirement.
For the domestic-content product, EPE will assess costs associated with local content and potentially differentiated financing available through Brazil’s National Bank for Economic and Social Development (BNDES). For the general product, it will consider credit conditions appropriate to the investment and equipment eligibility.
EPE does not assume that domestic content will necessarily increase or reduce prices. The assessment may also account for tax incentives, including the Special Incentive Regime for Infrastructure Development (Reidi), subject to applicable legislation.
The two capacity reserve auctions are scheduled for Dec. 2 and Dec. 4, 2026. Supply is due to begin on Aug. 1, 2028, under 15-year contracts. The contract term will serve as the time horizon for the financial model.
EPE will not include revenues beyond the contract period or residual asset value at the end of the term. It may update assumptions in response to verifiable information or relevant regulatory, economic, technological or tax changes.
After consolidating its estimates, EPE will recommend CMR values to the MME, which will set the price caps for the auctions.
From pv magazine Brazil
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