Brazil’s Energy Storage Push: Braga Proposes Billion-Real Tax Breaks for Batteries Amid First National BESS Auction Plans

Senator Eduardo Braga’s report on MP 1304/2025 introduces unprecedented tax incentives for battery storage systems — but the R$1 billion tax cap could become a bottleneck for the country’s emerging energy storage market.

Crédito: Roque de Sá/Agência Senado | Braga propõe isenção bilionária para baterias e reacende debate sobre limite fiscal e viabilidade do primeiro leilão de armazenamento

Brazil is taking a decisive step toward large-scale energy storage. Senator Eduardo Braga (MDB/AM) presented on Tuesday (Oct. 28) his report on Provisional Measure 1304/2025, which introduces unprecedented tax incentives for battery energy storage systems (BESS) — a key technology for balancing the intermittency of renewable sources and improving the stability of the national grid.

The proposal arrives just as the government prepares the country’s first-ever capacity auction including batteries, expected for the second half of 2025, effectively anticipating the federal government’s long-term energy storage strategy.

Tax incentives to unlock Brazil’s BESS market

Braga’s report proposes full exemption from IPI, PIS/Cofins, and PIS/Cofins-import taxes for batteries used in the power sector. It also authorizes the government to reduce import duties to zero for BESS components and equipment.

The measure aims to fix what Braga calls a “structural distortion”: currently, energy storage systems are taxed as information technology equipment, resulting in a total tax burden of around 71%, which has made most large-scale projects financially unfeasible.

“This proposal anticipates the effects of the upcoming tax reform and creates the right conditions for Brazil to enter the global energy storage market competitively,” Braga said during his presentation. The incentives would take effect immediately and remain valid until the tax reform in 2027.

The fiscal cap dilemma

Despite the optimism, the report limits the total fiscal waiver to R$1 billion, a figure that experts warn may be too low to support the expected market expansion.

According to EnergyChannel’s analysis, assuming standard projects of 30 MW / 150 MWh with installation costs around US$90–95 per kWh, each system would require an investment of US$13.5–14.2 million (R$73–77 million). Under these conditions, the R$1 billion cap could be reached with just 20 installations, potentially within a single year.

Moreover, since all equipment is priced in U.S. dollars, analysts argue that the incentive cap should also be denominated in USD, to ensure consistency and avoid exchange-rate distortions.

“If the storage auction proceeds as planned, this fiscal limit could become a serious bottleneck for the sector,” an energy analyst told EnergyChannel.

First national BESS auction on the horizon

The Ministry of Mines and Energy (MME) has already confirmed that the LRCAP 12/25 auction will contract 2 GW of capacity with 5-hour storage duration, representing an import demand of roughly 11–13 GWh between the fourth quarter of 2026 and the second quarter of 2028.

With an implementation window of 18 to 24 months, the program would make Brazil one of the first emerging economies to adopt grid-scale energy storage.

Energy Minister Alexandre Silveira recently led a government mission to China, meeting with major industry players including Huawei Digital Power, BYD, CATL, Envision, Sungrow, HyperStrong, and Hithium Energy Storage, to attract investment ahead of the auction.

Industry reaction

The initiative was welcomed by the Brazilian Energy Storage Solutions Association (Absae). According to its executive director Fábio Lima, the tax cuts will boost investment in 2026 and pave the way for BESS to compete directly in the capacity market.

“The storage sector needs clear rules and a level playing field. It’s crucial that batteries can compete on equal terms with other generation technologies,” Lima said.

Still, the association is reviewing the full proposal to ensure it doesn’t affect the upcoming auction schedule: “We’re analyzing the report item by item to make sure there’s no unintended consequence for the storage tender, which has already been delayed,” Lima added.

Energy security and peak-hour pricing

Beyond tax incentives, Braga’s report also introduces a competitive mechanism for peak-hour generation, financed through the capacity reserve charge, aiming to value energy storage and reduce pressure on short-term market prices.

According to Braga, the measure seeks to “allocate energy security costs more evenly” and prevent them from falling solely on consumers.

A milestone for Brazil’s energy transition

If approved, the incentive package could accelerate Brazil’s entry into the global energy storage era, creating a strategic market that complements renewable generation and strengthens grid reliability.

However, with a tight fiscal cap and ambitious implementation timelines, the policy’s success will depend on careful coordination between government, Congress, and investors — and on whether Brazil can define a coherent long-term plan for financing its clean, flexible energy future.

Brazil’s Energy Storage Push: Braga Proposes Billion-Real Tax Breaks for Batteries Amid First National BESS Auction Plans