Why battery storage will be key for Brazil's booming datacenter sector

The need to manage intermittency, lower curtailment risks and costs, together with the first battery storage tender on the horizon, create a good investment opportunity for energy storage in Brazil and for round-the-clock renewable solar and wind power supply for datacenters.

This is one of the main assessments of a Brazil-focused study by global consulting firm Oliver Wyman, shared with BNamericas.

The case for energy being not only renewable and cheap, but constant, is critical amid growing demand for long-term PPAs and self-supply deals by hyperscale companies, fueled by power-hungry cloud and AI datacenter projects.

“When we talk about datacenters, it is known that energy supply is one of the main items for the projects. And this energy has some characteristics. It is locational, its supply needs to be constant, stable, very reliable and, at the same time, competitive and renewable,” Rodrigo Borges, engagement manager at Oliver Wyman Brasil for the energy and natural resources sectors, and an author of the study, told BNamericas.

Brazil is well positioned in the renewable and cost-competitive aspects mentioned by Borges but needs to improve supply constancy, especially as intermittent sources make up an increasing share of its power mix.

Despite Brazil’s substantial hydro capacity, the intermittency of solar and wind has impacted grid stability, accelerating the demand for battery storage to balance supply and demand and to reduce curtailments.

“We talk a lot about solar and wind for datacenter projects. But despite being very competitive, they are intermittent by nature. Complementing them with batteries is very important to allow the investor to have certainty when making investments,” said Borges.

The government is planning to launch a battery energy storage tender, the terms of which are currently in public consultation.

Oliver Wyman estimates US$450mn in investments tied to the auction, provided that demand exceeds 10 projects, with companies in the renewable and utilities sectors eager to participate, said Borges.  

The consultancy found that 63% of the projected investment is attributed to lithium-ion battery packs, whose prices are decreasing.

From a hardware price perspective, Chinese overcapacity in battery manufacturing has led to a drop in lithium-ion battery prices, boosting the competitiveness of BESS (battery energy storage systems).

Datacenter capacity

Oliver Wyman estimates new datacenter demand for power grid connection in Brazil will reach 4.8GW in 2030 and 9GW in 2035. These projections are based on requests for new projects filed with the mining and energy ministry.

These figures likely underestimate future demand as connection requests continue to accumulate.

A separate global study by Synergy Research Group indicates that hyperscale datacenters that will be launched in the next four years will have, on average, almost double the capacity of current ones.

Likewise, in a November article, White & Case said that because the new datacenters are notably resource-intensive, requiring large amounts of power, water and land, more off-site space close to urban centers – as well as reliable water and power supply – is needed than ever before to support the large amount of computing and processing capabilities for AI and 5G technology.

“This unprecedented, rapid growth has necessitated careful infrastructure and financial planning from governments and private investors,” wrote the global law firm.

Given that many rural areas in Latin America have limited power access, datacenters are increasingly being built near large cities with stable power sources.

In Brazil, although the national grid is more interconnected than in other markets, several wind and solar projects are located in regions with limited transmission infrastructure.

“As datacenters expand to other areas, they will have to not only secure energy, but also connect to the grid and work on transmission needs,” White & Case wrote.

The group sees the datacenter market in Latin America growing from US$5-6bn in 2023 to US$8-10bn by 2029.

Brazilian law firm Pinheiro Neto also addressed the topic of renewable energy and datacenters in a recent report.

“The country has a significant surplus of energy production, allowing the compatibility of interests between energy distributors, who seek growth in their consumer market, and datacenter developers, who depend on the abundant resource to carry out their activities.”

Battery investments

Different datacenter companies are analyzing investments and partnerships in battery energy storage, in addition to PPPs and self-supply renewable projects, BNamericas has learned. Some are combining these strategies.

Odata, for example, is looking into new renewable sources, as well as models and types of supply and storage, including batteries, CEO Ricardo Alário told BNamericas.

Brazilian energy consultancy Thymos Energia, for its part, engaged with datacenter companies for energy storage projects.

The projects are for off-grid supply, which is when a datacenter is not directly connected via the power utility to the main power grid and requires a combination of battery storage, renewable sources and others, BNamericas was told recently.

Chinese solar tracker manufacturer Trina Solar is also weighing in.

“Several of our clients, including in Brazil, have signed PPAs for their plants with datacenters,” Trina’s Latin America president, Álvaro García-Maltrás, told BNamericas last year, in reference to solar energy traders.

The company manufactures its own lithium cells and designs and consolidated storage solutions. The equipment is imported from China.

“We believe that incorporating storage into these types of projects also helps to ensure that the energy can be of higher quality, can have a regular flow. And, honestly, these datacenters enjoy much better margins,” García-Maltrás said.

Oliver Wyman's Borges said favorable BESS pricing and strong investor interest in the tender indicate that all the pieces are coming together for energy storage in the datacenter sector.

“We are very optimistic about the development of this sector in the coming months,” he said.