Brazil's power market grapples with renewable curtailment risks and costly gas‑fired plant expansion

Investors in Brazil’s renewable energy sector are confronting higher financing risks after the system operator (ONS) imposed curtailments on wind and solar plants. According to Anderson Brito of UBS BB, “the discount rate level for solar and wind is increasing compared with hydro plants,” raising the cost of capital and pressuring company valuations. The cumulative losses from curtailed generation exceed R$ 4 billion, and firms are seeking government compensation through the System Services Charge (ESS), which would ultimately be passed to energy consumers.

At the same time, the growing share of intermittent renewables has heightened the need for firm, controllable capacity, prompting a surge in gas‑fired thermal projects across Latin America. Deploying such plants involves substantial capital—Porto de Sergipe I, a combined power plant and LNG regasification terminal in Brazil, cost about R$ 6.5 billion—and complex gas‑supply logistics, from Argentina’s Vaca Muerta fields to imported LNG. Brazil’s recent capacity‑reserve auction awarded roughly 15 GW of gas‑fired capacity, underscoring the sector’s reliance on clear, long‑term revenue mechanisms to attract investment.