Curtailment in Brazil: from operational constraint to market redesign

April 2026  |  SPECIAL REPORT: INFRASTRUCTURE & PROJECT FINANCE

Financier Worldwide Magazine

April 2026 Issue

Within the current framework of the Brazilian power sector, curtailment events have ceased to be viewed as mere operational contingencies and have become one of the most significant structural risks affecting renewable generation assets. What was once treated as a routine system-management instrument has evolved into a phenomenon with profound financial, regulatory and institutional implications.

Originally, curtailment functioned as a technical balancing tool within the operation of the national interconnected system (SIN). In large interconnected systems such as Brazil’s, the national system operator (ONS) must continuously ensure real-time equilibrium between generation and load while preserving system security margins.

In this context, curtailment – defined as the reduction or interruption of generation ordered by the ONS – was historically understood as an exceptional measure to address temporary transmission bottlenecks, reliability constraints or operational contingencies. It was not considered a recurring structural limitation capable of materially affecting project bankability.

Over the past years, however, this assumption has fundamentally changed. The accelerated expansion of wind and solar capacity, combined with delays in grid reinforcement and the rapid growth of distributed generation, has transformed curtailment into a persistent feature of system operation.

Recent estimates indicate cumulative losses approaching BRL3bn, with certain market participants experiencing generation reductions exceeding 40 percent, according to data disclosed by the Brazilian National Agency of Electric Energy (ANEEL) and other market agents. These figures have directly affected both new and operational projects, altering the assumptions underlying financing models, asset valuations and perceptions of regulatory stability in Brazil’s renewable energy market.

Against this backdrop, the response of ANEEL and the Ministry of Mines and Energy (MME), alongside other competent authorities, to curtailment events is actively reshaping the architecture of Brazil’s power market.

Ongoing discussions regarding compensation mechanisms, the structuring of capacity reserve auctions (LRCAP) and the integration of battery energy storage systems (BESS) demonstrate that curtailment can no longer be treated merely as a regulatory matter; it has become a catalyst for broader structural transformation within the sector.

From transmission constraint to structural imbalance

Brazil has experienced one of the most dynamic renewable energy growth cycles globally. The accelerated deployment of renewable sources, particularly wind and solar generation, has substantially reshaped the country’s generation matrix, strengthening its decarbonisation trajectory and attracting significant foreign investment.

However, transmission expansion and system flexibility mechanisms have not advanced at the same pace. As a result, curtailment events have intensified over the years under three primary classifications defined by ANEEL’s regulatory framework.

First, external unavailability, which is typically associated with transmission constraints or infrastructure delays external to the generating facility.

Second, electrical reliability requirements, which reflects operational security measures imposed to preserve system integrity.

And third, energy-related constraints, which corresponds to periods in which aggregate generation exceeds system demand.

Under the regulatory regime that prevailed until 2025, compensation to generators, borne through the system service charges, was strictly limited. Only certain external unavailability events exceeding predefined annual thresholds qualified for reimbursement, while curtailment events resulting from reliability requirements or energy surplus were largely allocated to generators as commercial risk.

This allocation model became increasingly controversial as generation constraints intensified. What may have been economically manageable in a system with limited concentration of variable renewable generation became materially destabilising once large clusters of wind and solar projects began consistently exceeding local transmission capacity.

Conversion of provisional measures

The conversion of Provisional Measure No. 1,304/2025 into Law No. 15,269/2025 marked a decisive turning point in the regulatory treatment of compensation for curtailment events within the Brazilian power sector.

The new legislation, enacted in December 2025, introduced article 1-B into Law No. 10,848/2004, formally recognising the right of wind and solar generators connected to the SIN to receive financial compensation for curtailment events classified as resulting from external unavailability or electrical reliability requirements, covering the period from 1 September 2023 to 25 November 2025.

For the first time at the legislative level, Brazilian authorities acknowledged that a portion of the curtailment burden derives from systemic infrastructure and operational constraints rather than solely from market dynamics. Law No. 15,269/2025 also drew an explicit boundary: curtailment resulting from energy surplus – defined as scenarios in which aggregate generation exceeds system load – remains non-compensable and is categorised as market risk.

Within this framework, the MME was entrusted with defining objective criteria for identifying such oversupply conditions, including the development of mathematical methodologies currently under public consultation.

It is also worth noting that the legislative conversion of Provisional Measure No. 1,304/2025 into Law No. 15,269/2025 included significant presidential vetoes that removed provisions which would have extended compensation broadly to all external curtailment events, without differentiation.

During the sanction process, the federal government argued that such an expansion could result in substantial tariff impacts, potentially transferring the burden of billions of Brazilian reais to consumers, while also weakening market discipline by diluting signals related to locational risk and system constraints.

In essence, the law neither insulates generators from all operational exposure nor leaves them entirely uncompensated. It redefines the boundary between structural system failure and entrepreneurial risk.

Infrastructure restructuring as a response to system constraints

In parallel, the federal government has moved forward with new LRCAPs, including the 2026 edition scheduled for March 2026. The registration phase attracted unprecedented interest, with more than 125GW of projects submitted – predominantly thermoelectric plants – demonstrating the market’s responsiveness to adequacy and reliability signals. These auctions are designed to secure dispatchable capacity and preserve adequacy margins in the SIN.

Within this evolving architecture, BESS are also emerging as a strategic layer of flexibility, currently attracting the attention of the world’s most prominent market players. When properly embedded in market design, BESS can absorb excess generation during periods of low demand, shift energy to peak hours, provide ancillary services, improve ramping capability and reduce reliance on thermal dispatch during periods of system stress. In doing so, BESS functions not merely as a tool to reduce energy-related curtailment, but as an integral component of adequacy planning and system resilience.

Accordingly, LRCAP design and BESS integration should be analysed as interdependent components of a broader structural recalibration of the Brazilian power market. Without accelerated expansion of transmission corridors and reinforcement of substations in renewable-intensive regions, structural curtailment is likely to persist regardless of compensation mechanisms.

Nevertheless, the pace at which BESS will scale in Brazil depends fundamentally on regulatory clarity regarding financial models, participation in capacity auctions, access to ancillary service markets and integration into both the regulated and free contracting environments.

Additional transmission auctions are also scheduled for 2026, with the expectation of over BRL5.1bn in investments aimed at further expanding Brazil’s transmission grid and, consequently, mitigating certain curtailment effects currently experienced by generators.

Risk reallocation and the next investment cycle

Addressing curtailment events is not simply a matter of compensating for past losses, but of aligning regulatory instruments, infrastructure investment and adequacy mechanisms to sustain renewable growth under conditions of systemic reliability.

Rather than representing regulatory fragility, legislative intervention through Law No. 15,269/2025, the ongoing MME regulations and the parallel advancement of capacity reserve auctions reveal a process of regulatory recalibration under real market pressure.

For investors, the critical question is not whether operational constraints will persist, but how such constraints are governed, quantified and economically allocated. The ongoing reforms seek to clarify the distinction between structural transmission constraints and market-driven oversupply, establish mechanisms to address historical exposure, and align capacity auctions and storage integration with system adequacy and flexibility objectives.

This evolving architecture represents an intended shift from an expansion-led cycle of renewable growth toward a coordination-oriented phase. For this transition to succeed, transmission planning, flexibility assets, capacity mechanisms and compensation regimes must function in an integrated and coherent manner.

Within this coordination-oriented phase, transmission reinforcement, storage deployment and adequacy mechanisms assume a structural role alongside the revised compensation framework, which would also create new investment opportunities in Brazil’s renewable energy sector. Curtailment, while likely to remain an operational feature of the system, should cease to represent unmanaged structural uncertainty and instead become integrated into a more predictable and disciplined risk environment.

Achieving this outcome will be critical to sustaining Brazil’s next cycle of renewable investment with greater stability and institutional clarity.

 

Fabiano Gallo is a partner and Breno Cintra and Guilherme Silla are associates at Campos Mello Advogados. Mr Gallo can be contacted on +55 (11) 3077 3500 or by email: fabiano.gallo@cmalaw.com. Mr Cintra can be contacted on +55 (11) 3077 3500 or by email: breno.cintra@cmalaw.com. Mr Silla can be contacted on +55 (11) 3077 3500 or by email: guilherme.monroy@cmalaw.com.

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Fabiano Gallo, Breno Cintra and Guilherme Silla

Campos Mello Advogados

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