The Brazilian electricity sector is facing a crisis that unfolds on multiple fronts and has a common origin. This is the accelerated and disorderly expansion, fueled by subsidies, of Distributed Generation (DG) - a model for producing renewable electricity (mainly solar) near or at the point of consumption, such as on the rooftops of homes or businesses.
After triggering curtailment — forced cuts in the production of centralized renewable energy plants — distributed generation (DG) is now at the center of a new imbalance: the financial collapse of solar farms, a byproduct created by the very explosion of the model, following a regulatory change that came into effect this year.
The deterioration of this market has opened the door to an unprecedented phenomenon in the sector: the emergence of a startup specializing in brokering mergers and acquisitions of indebted solar farms, attempting to salvage assets that until recently were considered "solar gold."
This roadmap helps explain why the electrical system is currently experiencing the effects of an oversupply of renewable energy, which is driving down revenues, paralyzing investments, distorting prices in the free market, causing bankruptcies among energy suppliers, and putting pressure on consumers' electricity bills.
In this turbulent environment, distributed generation (DG) plays a central role. The model — famous for encouraging the installation of solar panels on rooftops — has grown explosively in recent years, driven by generous subsidies and sectoral governance that was slow to react to signs of imbalance.
The result is a paradox: Brazil has surplus renewable energy, insufficient demand during peak hours, and, to complete the picture, high tariffs. Distributed generation (DG) helped create this scenario by injecting increasing volumes of energy into the grid without any coordination with the National System Operator (ONS), which is responsible for balancing generation and transmission.
This imbalance led to curtailment — with average cuts of 20% in the production of centralized solar and wind power plants — because, unable to control distributed generation (DG), which is supervised by state distributors, the National System Operator (ONS) is forced to shut down the plants it can control. By 2025, the accumulated losses from 1,500 plants reached R$ 6.5 billion.
Now, a second shock caused by distributed generation (DG) is beginning to materialize. The regulatory change of 2022 determined that, starting in 2023, DG2 projects—those connected after January of that year—would lose some of their benefits.
Now, in 2026, they will start paying 60% of the Fio B tariff, the fee for using the distribution network. The measure reduced margins, increased costs, and made the solar farm model less attractive – many of which had achieved double-digit rates of return – and which prospered precisely because of the incentives that are now being withdrawn.
Contradiction
Experts interviewed by NeoFeed highlight the major contradiction currently surrounding MMGD (micro and mini distributed generation), a technical classification created by Aneel (the sector's regulatory agency) that divides distributed generation projects by size and power.
On one hand, the trend is for more and more people to install solar panels on their rooftops – known as microgeneration projects (up to 75 kilowatts or kW) – because even with reduced benefits, the tariff in the regulated market is growing above inflation. In other words, the continued expansion should increase the curtailment rate.
On the other hand, solar farms , whose capacity range falls under "mini-generation" (between 75 kW and 5 megawatts), have become less attractive in a scenario of transition towards the end of discounts on electricity grid usage tariffs.
In addition to the reduction in discounts given to the segment, the scenario of reverse flow – when the surplus energy generated is returned to the utility's grid – has also made it difficult for distributors to approve new power plants, so as not to compromise the grid. And existing solar farms, with excess generation, have not been able to find customers to offset the investment costs, which have increased in recent years with interest rates in the range of 15%.
“Back in 2012, when the regulatory standard that allowed the explosion of distributed generation (DG) in Brazil was created, a fantastic incentive policy was implemented – so much so that solar is already the second largest source of electricity in the country,” says João Carlos de Oliveira Mello, CEO of Thymos Energia , a consulting firm in the sector. “But this whole DG thing is a death foretold: we knew the public policy was going to work and nobody realized it?”
The Thymos expert points out that on the recent Father's Day, the ONS (National System Operator) admitted that a blackout was near due to the excess of distributed generation (DG) energy injected into the grid. "In other words, neither the ONS nor the distributors have control over the second largest source of electricity in Brazil," he says. "This cannot continue; there is a lack of initiative."
Mello advocates for the implementation of distributed generation (DG) control systems. He cites two possibilities. One is to open a competitive process, through which the National System Operator (ONS) can offer to pay the distributed generation plant, which would authorize the cut-off – a voluntary, remunerated curtailment , without mandatory cut-off.
Another option is to implement a solution adopted in other countries with the same problem of excess distributed generation, called DSO (Distribution System Operator), a kind of manager for distributed generation.
“The DSO would be responsible for managing the distributor's market,” he says. “To avoid conflicts of interest, it would have a governance structure separate from the distributor, which owns the asset,” he adds, emphasizing that the ONS and distributors should invest in technology, as solutions already exist internationally.
Victor Hugo Iocca , director of Electrical Energy at Abrace Energia – an association representing large consumers of electricity and natural gas – adds to the list of suggestions to mitigate the problems caused by distributed generation (DG). He suggests a medium-term solution: replacing current meters with smart meters, which would allow distributors to remotely control rooftop generation.
“Another crucial measure is changing the logic of energy compensation, moving from a 'one-to-one' system to a financial system, in which the energy injected at midday, which is surplus, is worth less than that consumed at night,” he states.
Iocca also warns about the lack of oversight of illegal generation, which, according to him, is already on the order of gigawatts (GW). "Many consumers have installed more panels than the project approved by the distributor, especially to take advantage of old rules; stricter oversight could limit this fraud and help balance the system."
Another viable initiative includes energy storage, especially through batteries. However, the expert points out that the main current obstacle is not the cost, but the lack of regulatory clarity. "Aneel [the Brazilian Electricity Regulatory Agency] has not yet defined how batteries will be charged for their use of the grid – as a generator, consumer, or both – which makes many projects unfeasible," he laments.
Iocca also cites renewable hydrogen as an emerging alternative. “Green hydrogen pilot projects are starting to move from the planning stage to implementation, such as a White Martins plant and another 5 MW plant from a partner,” he states, noting that, initially focused on self-consumption, these projects are modular and can be scaled for sale. “The future regulation of the hydrogen law, with significant tax incentives, should further boost this technology.”
Sale of assets
According to Clayton Souza, partner responsible for industry and infrastructure at LEK Consulting, there are two ways to mitigate the bottlenecks caused by distributed generation. One is the expansion of transmission auctions. The other is what he calls an efficiency agenda, mainly focused on solar farms.
“Projects originally designed with a specific rate of return perspective have become problematic, so this efficiency agenda seeks to close some of that gap,” he says, suggesting that solar farms could offer solutions for making better use of this installed capacity.
“Brazil’s positioning, for example, in supplying clean energy to data centers, is a recurring discussion among some solar farm clients,” adds Souza, noting that large companies operating in the segment also consider the consolidation of distributed generation assets from solar farms as an interesting investment option.
This, incidentally, was the path chosen by André Figueiredo, CEO of Draives - a startup founded just over a year ago that offers an operating system that streamlines all stages of due diligence for energy companies and is also focused on M&A operations exclusively in the distributed generation (DG) segment.
Figueiredo created a business model based on his experience with projects at Elis Energia , a Pátria group investment in distributed generation. In 2022, with the regulatory change, Pátria became interested in M&As, but Figueiredo realized that there were too many opportunists in the solar farm market.
"The sellers of these solar farms were often individual investors with poorly structured assets, lacking proper governance documentation, and with poorly mapped regulatory, environmental, or land tenure liabilities," he says.
Today, the startup operates with a team of seven people, six of whom are dedicated to technology – in addition to Figueiredo. The platform organizes data, structures data rooms, and automates due diligence or asset sale steps, generally for medium or small-sized solar farms – large farms usually resort to the services of M&A boutiques.
“We connect these plants either with investors who want to buy these assets or with distributed generation (DG) trading companies that intend to sell this energy,” reveals Figueiredo. “In our portfolio, 95% of the plants are DG, almost 150 projects, totaling 420 MW of power.”
According to him, the M&A business involving solar farms is promising, especially in states where there is an oversupply of generation and low consumption, such as Mato Grosso. "The market is heavily selling assets; if the asset isn't prepared for sale, with proper documentation, the seller will lose money on the price," he warns.
Figueiredo claims to have closed four M&A deals last year, involving four sugar mills. This year, there are already seven deals underway, some in the final stages of contract signing, others just beginning.
The most surprising thing, he warns, is the new clients that are emerging – all outside the scope of the sector. “These are companies seeking to reduce energy costs: highway and sanitation concessionaires, which consume a large amount of energy at low voltage,” he reveals. “There are also people in agriculture, who didn't have the opportunity to implement distributed generation and now, with cheaper power plants, are starting to analyze it,” he adds.
Another deal in progress is an operation for a home appliance retail chain in Goiás. "This type of client, which only has low-voltage units and therefore cannot go to the free market for now, is what interests us."
