Brazil’s Delta Energia planning growth in power generation and biofuels

As it completes the construction of 20 distributed solar generation plants, Brazil’s Delta Energia is preparing to participate in the upcoming backup capacity auction.

In this email interview, Max Xavier Lins, who became CEO in December, talks to BNamericas about these plans and other projects, such as increasing biofuel production to meet growing domestic demand.

BNamericas: What are the company's plans and projects for 2025?

Lins: There are several significant investments underway. In distributed solar generation, we’re in the process of building 20 plants across Brazil, with 16 solar farms already completed or in operation, and four more under construction, totaling 110MWp of installed capacity. This investment will boost the operations of LUZ, our digital platform for retail energy trading. 

Last year, LUZ expanded into several states, particularly in Rio de Janeiro, Mato Grosso do Sul and São Paulo in distributed generation, as well as into the free power market. This year, we’ll focus on continuing to expand LUZ’s portfolio of clients and products, designed to serve the future full opening of Brazil's regulated energy market, enabling all types of customers, including residential and low-voltage consumers, to become free consumers.

We also plan to invest in gas thermal generation. We intend to participate in the upcoming backup capacity tender this year to increase our natural gas generation capacity, which currently stands at 190MW of installed capacity. We’re preparing to enter the auction competitively.

We also have a project to expand our operations in the biofuels sector. This is highly relevant as it aligns with the growing demand for sustainable practices, especially with the recent fuel of the future legislation, which increases the biodiesel content in diesel fuel, as set by the Brazilian government.

BNamericas: What challenges are you anticipating?

Lins: On the macroeconomic front, there’s some uncertainty regarding inflation, interest rates and Brazil’s fiscal policy, which could affect business and energy demand.

GDP growth, which exceeded expectations in recent years, is positive as it drives energy consumption, essential for the country's development. If an economic slowdown occurs due to the macroeconomic environment, it should be gradual. Regardless, we believe Brazil will continue on a positive trajectory, maintaining fiscal responsibility, inflation control and sustainable, predictable growth.

We expect improvements in the legal and regulatory frameworks for the energy sector. Until 20 years ago, the energy sector was primarily served by two sources: hydro and thermal power, and the entire sector model was built on these premises. Since then, new sources of energy production, such as wind and solar, have been incorporated into the matrix and now compete with traditional sources.

Additionally, new technologies have emerged related to the final use of energy, such as electric mobility, more efficient equipment, the prosumer (someone who is both a consumer and a producer of their own energy), energy storage (stationary batteries), and grid automation (smart, interactive grids, and intelligent metering). These technologies affect the form, intensity and seasonality of both energy production and final consumption, requiring updates and improvements to the legal and regulatory framework. 

With new regulatory guidelines, we also hope for further liberalization of the energy market, allowing end consumers, such as residential customers, to choose their providers, similar to the successful liberalization seen in the telecommunications sector. This ability to choose increases competition and contributes to greater efficiency in the sector.

BNamericas: What are your expectations regarding energy prices and consumption behavior in 2025?

Lins: Brazil's energy matrix is still largely hydroelectric, which means it depends on rainfall, an unpredictable variable, especially with climate change. In 2022 and 2023, the hydrological conditions were favorable, resulting in low prices in the first half of 2024. However, in the second half of last year, energy prices rose due to uncertainties about rainfall, which led to the activation of thermal plants.

We expect rainfall to remain favorable in the coming months, replenishing reservoirs and ensuring an adequate energy supply.

It’s important to note that energy demand, which has been growing consistently, may be affected by macroeconomic factors, such as rising interest rates. This could result in a lower GDP in 2025 and, consequently, a reduction in energy consumption.

The combination of a favorable energy supply with potentially lower demand could lead to lower prices. In short, caution is needed when considering energy consumption patterns and price expectations, given our energy matrix and the macroeconomic context.

BNamericas: Are we still in a situation of energy surplus? Does this hinder the development of new renewable generation projects?

Lins: We’re currently in a period of energy surplus, with good production capacity and reservoirs recovering due to favorable rainfall. However, over the medium and long term, the expansion of installed capacity in Brazil needs to be addressed.

The recent rapid growth of intermittent sources such as solar and wind is excellent in many ways, but they cannot meet instantaneous energy demand, which primarily depends on the power and inertia provided by hydropower and thermal plants (synchronous sources). While stationary batteries may help mitigate this problem in the future, they’re still costly and don't fully solve the issue of instantaneous power variation and system frequency, which operates on alternating current.

Generation expansion must be balanced to ensure not only energy security but also electrical security, as we’re dealing with an electric power system. This requires continuous attention from the government and planning, regulatory, and operational agencies [such as the mines and energy ministry, federal research company EPE, Aneel, grid operator ONS], as well as all stakeholders in the energy sector.

In a nutshell, Brazil's energy system needs a balanced mix of intermittent sources, like wind and solar, and dispatchable synchronous sources, such as hydro and thermal plants, to ensure operational reliability and adequate expansion of a sector essential to the country's development.