Written by: Islam El-Saka
An international consultancy study has shown that Brazil faces the risk of losing approximately two-thirds of announced data center projects due to regulatory constraints and energy infrastructure obstacles. Rystad Energy has lowered its estimates of viable projects from 21 GW to approximately 7 GW, representing a decline of 67%, after applying risk assessment criteria.
Details of the Rystad Energy Study
The analysis was conducted by researcher Marina Dominguez, head of new energy research in the United States at Rystad Energy, and was published on November 3, 2026. The reduction does not mean the official cancellation of projects, but rather reflects an assessment of risks that may delay or prevent their implementation, most notably difficulties in accessing the electrical grid, complex tax rules, and uncertainties regarding natural gas supplies.
Electrical Grid Bottlenecks Threaten Expansion
The availability of reliable electricity is the greatest challenge, as data centers require continuous operation with a high degree of reliability, and any interruption harms services and causes operational losses. These facilities require guaranteed connection capacity, supply contracts, and emergency systems; however, the expansion of the Brazilian grid is not keeping pace with the speed of investment announcements. Building transmission lines and substations takes longer than investors' schedules, creating ambiguity regarding actual operation dates.
Tax Incentives Conditioned on the "Redata" Program
The federal government launched the "Special Tax Regime for Data Center Services" (Redata) under Law No. 15.504 issued on September 15, 2026, granting tax exemptions on equipment and technological components. However, the benefits are not automatic; they require commitments to sustainability, water consumption efficiency, investing 2% of the value of the granted products into research and development, providing at least 10% of capacity to the Brazilian market, and meeting contracted demand from renewable or low-emission sources. The law also grants additional 20% reductions for projects in the North, Northeast, and Midwest regions.
Natural Gas as a Critical Point for New Projects
The study highlighted the role of natural gas as a controllable supplementary source when solar and wind generation decreases. However, the regulatory framework has not yet specified the conditions under which gas-fired electricity is classified as "low-emission energy" to meet Redata requirements, which hinders cost calculations, site selection, and investment feasibility.
Battery Storage Legislation and Aneel Auctions
Congress is discussing Bill 3.716/2026, which proposes redistributing the costs of battery storage systems among electrical system users instead of loading them solely onto energy producers. The Chamber of Deputies approved urgency measures in October, and the National Electric Energy Agency (Aneel) is scheduled to launch two auctions for battery storage on December 2 and 4, 2026, with 15-year contracts and supply starting in August 2028. The cost distribution rules will directly affect the feasibility of these projects.
The Brazilian Market Remains Attractive Despite Challenges
Despite the constraints, Brazil maintains competitive advantages: a large consumer market, abundance of renewable sources, an internationally connected telecommunications infrastructure, and increasing demand for data processing for artificial intelligence and financial services. A survey by JLL showed market growth and São Paulo's leadership in concentrated capacity, with Fortaleza emerging as a rising hub thanks to major projects and international connections.
The Northeast May Gain a Share of Investments
Redata incentives for less concentrated regions provide an opportunity to distribute investments geographically. The Northeast is characterized by extensive wind and solar energy projects, but the availability of renewable energy alone does not guarantee immediate connection capacity for large facilities, and requires the expansion of generation to align with investments in transmission, stability, and communications.
Upcoming Decisions to Determine the Sector's Path
Rystad Energy's assessments coincide with a political transition, as a new Congress takes up its duties in February 2027. While the executive branch and federal agencies can push clean energy policies, the development of data centers depends on the coordination between tax decisions, energy regulations, and legislative initiatives. Brazil's primary challenge remains aligning the progress of artificial intelligence with the infrastructure necessary to sustain a new generation of data processing centers.
