The cost of canceling the 2026 capacity reserve auction

The LRCap (Capacity Reserve Auction) 2026 has been in the spotlight of electricity sector news for weeks. Movements in the National Congress and actions in the Judiciary on the eve of the approval of the event contribute to a scenario of instability whose consequences are unlikely to be positive.

The starting point of the discussion cannot be ignored. Since the first LRCAP, in December 2021, Brazil has gone more than four years without a capacity auction. During this period, the matrix grew, demand expanded and contracts for a relevant portion of existing thermoelectric plants approached their expiration date. The ONS, in its Energy Operation Plan (PEN 2025), indicated the violation of supply guarantee criteria from 2025 onwards, with violations deepening in subsequent scenarios. EPE, in the draft PDE 2035, presented that the need for additional power begins in 2026 and grows throughout the study horizon.

In addition to the studies, the ONS has repeatedly warned about the existence of a supply risk in the medium-term horizon, including expressing itself in the context of questions carried out by the TCU. In short, the electrical system needs additional dispatchable capacity, especially to face the intermittency of renewable sources, which have been expanding significantly in the country in recent years.

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Once the need to expand the energy supply was indicated, still in 2024, the MME began the discussion on the design of the second edition of the Capacity Reserve Auction. Among the proposed changes was the improvement to value the flexibility of the projects and ensure that the winning plants met the requirements that the system effectively needs, reducing the risk of energy surplus.

In April 2025, after specific legal questions, the MME opted to cancel the original version of the auction and restart the cycle from the beginning: in August of the same year, Public Consultations No. edition of MME Normative Ordinances No. 118 and No. 119, of October 23, 2025. Subsequently, ANEEL initiated public consultations No. 35/2025 and No. 36/2025 to obtain input regarding the draft Notice, a document that also includes the requirements for the legal and financial qualification of the winning bidders. In other words, there is no need to talk about a lack of transparency or institutional illegitimacy.

There is also an element that is often underestimated in current debates about LRCAP 2026: the value of legal certainty. Brazil's image and reputation as a destination for energy investments ultimately depend on the consistency between what the State announces and what it actually delivers. When the government establishes guidelines, conducts public consultations, defines parameters with technical support and carries out the event within the expected schedule - as occurred with LRCAP 2026 - it is building the type of credibility that attracts long-term capital. Suspending, canceling or reforming the event a posteriori would weaken the credibility of the Brazilian regulatory environment for national and international investors, with consequences that transcend the immediate horizon.

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Another development that has been little explored and that deserves questioning is what will actually happen if LRCAP 2026 is cancelled. It will hardly be the comfort of inaction, given that there is a relevant power deficit for 2028.

We would be heading towards the almost inevitability of an emergency auction in the coming years, with all the disadvantages that this instrument carries: contracts made under deadline pressure, without the time necessary to structure adequate competition, calibrate methodologies or allow broad market participation.

It is naive to assume that it is feasible to re-discuss an entire regulatory framework and restructure a new auction within the legal minimum deadlines, obtaining a lower contracting price without compromising already very tight schedules for project implementation. It is worth remembering that the event held this year has been discussed since 2024.

Finally, the objective is not to question whether the ongoing debate has value. Discussions about ceiling price methodology, flexibility criteria, participation of new technologies and the competitive efficiency of bidding are conversations that the sector needs to have - and which should fuel the improvement of future auctions. The Storage LRCAP, future capacity competitions and regulatory evolution of the sector will be better if learnings are incorporated seriously.

But there is a fundamental distinction that cannot be lost sight of: improving the future does not mean compromising the present. Using technical debate as an instrument to question, paralyze or reverse a contest already held - within the rules and with full institutional participation - is to confuse constructive criticism with obstruction. LRCAP 2026 fulfilled its role.

* Eduardo Faria is director of regulation and market intelligence at Mercurio Partners

The articles published by CNN Infra seek to stimulate debate, reflection and shed light on views on the main challenges, problems and solutions faced by Brazil and other countries around the world. The texts published in this space do not necessarily reflect the opinion of CNN Brasil.

Source: CNN