18OCT

Brazil auctions its grid to data centres

3 min read

13:11UTC

Brazil's grid operator gave all 228 MW on offer at four São Paulo connection points to three data-centre projects, against 451 MW of qualified demand.

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Key takeaway

Brazil's first grid-access round gave 228 MW to three data-centre projects and left the rest waiting.

The Operador Nacional do Sistema Elétrico (ONS), Brazil's grid operator, ran the first competitive allocation under Brazil's new national transmission-access policy on 6 and 7 October. The policy allocates connection capacity through competitive rounds where requests exceed what a connection point can take. Three data-centre projects took all 228 MW on offer at four São Paulo connection points, against 451 MW of qualified demand from seven qualified projects⁠¹.

Pahlavan, the developer behind three data-centre projects at Paulínia, in São Paulo state, won with two of the three winning projects, and Digital DC Brasil took the third. The other qualified projects left the round with no capacity at those points. Where demand outruns a connection point, the round now decides who connects.

Alexandre Silveira, the Mines and Energy Minister, said the new policy gives developers "more predictability"⁠². Brazil spent September courting this load: President Lula signed the Redata programme of federal tax breaks for data-centre builds into law. The round shows the limit of that courtship, because a tax break does not add a megawatt of wire. Pahlavan, the round's biggest winner, had gone to court the day the round opened, over capacity it held under the old rules.

Deep Analysis

In plain English

To run, a data centre needs a connection to the high-voltage grid at a substation, a big switching station. Around São Paulo, Brazil's largest city, more companies want connections than the substations can handle. Brazil's grid operator used to hand out capacity roughly in the order companies applied. Now, where there is not enough to go round, it runs a contest. The first contest offered 228 MW, and three data-centre projects took all of it.

Deep Analysis

Root Causes

Data-centre demand in Brazil clusters around São Paulo, where submarine-cable landings, fibre routes and corporate customers sit. A few substations therefore carry requests far beyond their transformer capacity while grid elsewhere has headroom.

Under the earlier rules, an access opinion and a signed transmission-use contract secured capacity years ahead of use. That let early filers hold capacity at the nodes closest to São Paulo customers, which is the queue the new policy is designed to clear.

What could happen next?

Precedent
The first round sets the template for allocating capacity at other congested Brazilian substations.
Short term · Assessed
Consequence
Losing developers may move to less congested regions such as Rio Grande do Sul or the Northeast.
Medium term · Suggested
Risk
Developers holding contracts under the earlier rules may litigate, as Pahlavan already has.
Immediate · Reported

Source Landscape

This story draws on neutral-leaning sources

Primary parallel: Spain's Royal Decree 1183/2020 replaced first-come access at saturated grid nodes with capacity tenders, scoring bids on technical and socio-economic criteria. It was written for generation queues swollen by speculative permits, the same failure mode Brazil's policy targets on the demand side.

Counter-parallel: India allocated 2G mobile spectrum on a first-come, first-served basis in 2008. In 2012 its Supreme Court cancelled 122 of those licences, ruling that a scarce public resource must be allocated by a fair and transparent method such as an auction.

Qualified demand of 451 MW chased 228 MW, so roughly half the requested load at these nodes leaves without a connection. Losing projects must either wait for a later round, pay for network reinforcement, or move to a less congested node with weaker fibre and longer latency to São Paulo customers.

The tax incentives Brazil signed into law in September lower the cost of equipment but do nothing for grid scarcity. A developer can now hold a tax break it cannot use at the site it wanted.

Consensus view: Brazil's Ministry of Mines and Energy presents competitive rounds as the cure for first-come queues, where an early application could hold capacity a better-prepared project needed. A contest forces each developer to show readiness at the moment of allocation rather than at the moment of filing.

Counter-view: The Agência Nacional de Energia Elétrica's authorisation of Scala Data Centers' 120 MW AI City connection in Rio Grande do Sul, granted without a contest, points to a narrower problem. Scarcity sits at a handful of São Paulo substations, not across the national grid, so the round rations location rather than power.

Key tension: Whether contests at saturated São Paulo nodes push developers towards regions with spare capacity, or simply raise the price of building where fibre and customers already are.

Sources:Cenário Energia

Mentions:Operador Nacional do Sistema Elétrico →Pahlavan →Digital DC Brasil →PNAST →Alexandre Silveira →São Paulo state →Brazil →Redata →Scala Data Centers →Scala AI City →Marcio Rea →Lula →Paulínia →India →Rio Grande do Sul →Spain →Agencia Nacional de Energia Eletrica (ANEEL) →Supreme Court of India →

First Reported In

Update #16 · Malaysia bills data centres for idle grid

Cenário Energia· 18 Oct 2026

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Causes and effects

This Event

Brazil auctions its grid to data centres

Brazil now rations scarce grid connections among data centres by competitive round, weeks after cutting their taxes to attract them.

Led to

Brazil judge freezes Replan grid awards

Pahlavan's court challenge targets capacity that the first competitive access round left uncommitted to its projects.

Occurred 6 Oct 2026

Read story →

Different Perspectives

Nexus Core Systems

Hired FiveNines Group, in a deal announced on 8 October, for early design, feasibility and permit work on a 20 MW AI data centre near Casablanca. It is the first named site of a planned 180 MW programme, still at concept design.

MC Digital Realty

Began building the 24 MW KIX15 data centre in Osaka Prefecture on 7 October, due to open in the fourth quarter of 2028. The joint venture of Digital Realty and Mitsubishi Corporation says it will then run 10 data centres in Japan with about 220 MW of IT capacity.

KT Cloud

Said on 7 October that it and Hyundai Engineering will build a 50 MW AI data centre at Cheongna, Incheon, from the fourth quarter of 2026. Completion is due in the first quarter of 2030, part of KT Cloud's target of more than 1 GW of AI capacity by 2031.

Town of Trebbin

Said on 7 October that work has begun on two data-centre buildings and a substation under building permits already granted. The operating permit under the Federal Immission Control Act is still with Brandenburg's environment agency, so the town postponed its public presentation.

Óscar López, Digital Transformation minister

Said in Madrid on 8 October that he hopes to approve the data-centre royal decree shortly, with urgent processing to reach the cabinet before the 29 November election. He said the final text will take the more than 600 submissions into account, without saying what changes.

Hydro-Québec

Defended its proposed Tarif CD before the Régie de l'énergie du Québec from 1 to 9 October, a rate for data centres of 5 MW or more that adds a premium when peak demand stays below 60% of forecast. Industrial consumers filed their own wording for the clause on who the rate covers.

Written with AI from Lowdown's published reporting. Not individually reviewed by an editor. Editorial standards.