In 2022, Brazil invested around USD 5.5 billion in transmission and distribution, marking a one-third decrease from the 2017‑2021 annual average investment. Investment doubles by the early 2030s in STEPS – reaching an annual average of USD 10 billion over 2030‑2035 – close to the USD 11 billion in the APS for 2030‑2035, though still falling short for requirements in the Net Zero Emissions by 2050 (NZE) Scenario.

Brazil’s energy sector already has active participation from the private sector, fostered by concessions and independent power transmission (IPT) projects. Electrobras – the largest electric utility in the country, and where the state owns about a third of the shares – has been experiencing a gradual decrease of public ownership in transmission since 2004.

Transmission projects in Brazil are initiated through concessions obtained in public auctions overseen by two key entities: the Ministry of Mines and Energy (MME) and the regulatory agency Agencia Nacional de Energia Eléctrica (ANEEL).

Common financing structures for these transactions include commercial lending, multilateral lending, and bonds from local capital markets and equity. The Brazilian Development Bank's (BNDES) share of capital structure for transmission and distribution projects has been declining over the years according to ANEEL, which is a clear sign of the market becoming more attractive and sustainable. However, BNDES continues to play a significant role in mobilising private capital. In 2022, it financed Neoenergia with a USD 270 million contribution for a 1 100 kilometre (km) project in Brazil, as a certified Green Loan, the first of its kind in the country.

The MME together with ANEEL plan the construction of new transmission lines and the renovation of existing ones, and the revenue for transmission and distribution projects is regulated.

Regulated tariffs in Brazil are shaped by a revenue cap and can occur through two distinct mechanisms: concessions and IPTs. In the case of concessions, the revenue is obtained through a tariff review process that is updated every five years, taking into consideration the operational efficiency observed in the sector’s best practices, based on operational performance, investment costs and a fair return on investment. This revenue is based on a weighted average cost of capital (WACC) calculated and adjusted by ANEEL periodically. This approach is used for both transmission and distribution.

Under the IPT model, which is also tendered, the efficient revenue cap is defined by the lowest value offered in a competitive auction process. The starting estimated revenue is calculated by ANEEL, also based on its WACC estimations. This approach is used only for transmission projects, due to their nature of geographic monopolies. Unlike exclusive rights over a specific geographical area, the efficient revenue cap for IPTs is based on the availability of the transmission line rather than the volume of electricity it transports, mitigating electricity demand risk for the developer.

ANEEL calculates the revenue cap by factoring in operational and maintenance regulatory expenses, gross investment, and investment remuneration, which is derived from ANEEL's own estimates of a WACC. This WACC determines the rate of the investment return, and so it is the key parameter for the companies to determine how worthy the project is regarding their own internal cost of capital.

In recent years, the auction market for IPTs has experienced a transformation, characterised by a more stable and attractive WACC that ultimately translates into a higher discount rate. This shift towards a more competitive landscape is evident in the successful negotiations of all auctioned lots post‑2017.

Over the past two decades, the sector has witnessed the participation of 250 different companies, resulting in 350 successful IPT projects.

The Brazilian regulatory framework has proven to be quite robust, with periodic reviews in order to adjust to the macroeconomic context. Grupo Equatorial Energia, which operates 470 000 km of distribution lines in Brazil, managed to overcome its profitability challenges in concessions, such as the 90 000 km Piauí lines. The company navigated through debt negotiations, had its revenue adjusted according to ANEEL’s reviews, and increased investments and efficiency, which was also incentivised by the regulator. It reported that the gross profit of the project reached approximately 20% last year, highlighting the success of these initiatives. This is more likely to be achieved in a regulatory framework that is sustainable yet adaptable. If investors trust that the regulatory framework stays current with revenue regulation and incentive schemes, the perceived regulatory risk is likely to decrease.

The active participation of the private sector through concessions and IPTs in Brazil has been a driving force for investment. The gradual decrease in public ownership of transmission assets, coupled with a shift towards a more competitive market, reflects a maturing and sustainable energy sector.

A transparent and well-designed regulatory framework can mobilise capital into projects by generating trust over the years. A predictable and reliable remuneration system reduces risk, ultimately attracting more private capital. Consistency in revenue calculation is crucial for companies to assess project worthiness against their internal cost of capital, thereby mitigating investment risk. Business models such as the IPTs in Brazil have proven to attract more players and considerable investment, and ultimately drive the cost down through a competitive process.

In essence, Brazil's grids sector presents a case of progress and adaptability, driven by a regulatory framework that balances sustainability with the flexibility needed to navigate evolving market dynamics. Lessons highlight the importance of regulatory foresight, private sector involvement and financial innovation in building a resilient and efficient energy infrastructure.