By Brazil Stock Guide – Brazil’s electricity regulator suspended approval of a thermal power auction won by groups linked to the Batista brothers, André Esteves and Petrobras (B3: PETR3, PETR4; NYSE: PBR), delaying the signing of 15-year contracts while a federal court reviews a legal challenge.
The decision by Aneel, Brazil’s power regulator, was reported by Estadão. The formal confirmation of the auction results, which would allow contracts to be signed, was scheduled to begin on Thursday (21).
Fernando Mosna, the Aneel director overseeing the case, told fellow board members he will not submit the matter to the regulator’s meeting scheduled for Tuesday (19). He cited legal uncertainty after the auction was challenged in court.
The lawsuit was filed by Abraenergia, an association linked to the renewable-energy industry, which is seeking to annul the auction. Federal prosecutors have backed the suspension of contracting until the merits of the case are examined.
A court declined to immediately halt the auction but requested explanations from the government. The federal government and Aneel were expected to respond in the case on Wednesday (13). If a ruling is issued before the regulator’s meeting, the issue may return to the agenda or the timetable may be revised.
Critics say the government contracted more power capacity than needed, at inflated prices, while concentrating awards among large economic groups and sidelining renewable-energy sources they argue would be cheaper and better suited to Brazil’s current power-system needs.
Supporters of the auction say it was held five years late, creating a backlog in demand for firm capacity that can only be supplied by thermal and hydroelectric plants. They also argue that global plant costs have risen sharply, particularly turbine and equipment prices, as demand linked to data centers increases.
Brazil’s Mines and Energy Minister Alexandre Silveira defended the auction when it was held. “I can say this will give us energy security for the next decade,” he said.
The dispute also involves battery storage, a technology excluded from the auction and targeted by investments from Casa dos Ventos, a private Brazilian renewable-energy company. Battery systems can store solar and wind power that is currently wasted, but specialists cited in the debate say the technology still lacks scale, lasts about four hours and depends on intermittent sources such as sun and wind to provide power to the grid.
President Luiz Inácio Lula da Silva’s government says it needs to move quickly to contract the winning plants and meet system demand. Technicians are concerned about the risk of a blackout in the second half of this year.
On May 11, the Mines and Energy Ministry informed Aneel that it had consulted winning companies about bringing forward plant contracting. Projects originally expected to be activated in 2027 and 2028 could be contracted from August 2026. The move would require approval from the Electricity Sector Monitoring Committee and could further increase costs for consumers.
In his communication to other Aneel directors, Mosna cited the “materiality of the regulatory effects involved and the temporal sensitivity inherent to the formalization of the respective contractual instruments.”
“In this context, there is legal uncertainty regarding the matter, as the judicial controversy remains pending review in a request for urgent relief, with potential direct repercussions on ongoing regulatory acts,” Mosna said.
Mosna said he will wait for a court decision to “safeguard the effects of the resulting regulatory action.” He also noted that a ruling could come “at any moment,” since the deadline for responses in the lawsuit ends on Wednesday (13).
The case is being heard by the 6th Federal Civil Court of the Federal District, under Judge Manuel Pedro Martins de Castro Filho.