Are you thinking about augmentation the right way?

Augmentation is not just a future purchase. It is also future construction work, inside an operating plant, under a contract that penalizes every hour of non-delivery. Treating it only as an equipment cost leaves out the layout, the logistics and the unavailability it inevitably brings.

This article raises a simple question worth asking before closing the bid: are you thinking about augmentation the way it should be thought about?

What augmentation is and why it is needed

Augmentation is the planned addition of battery capacity over the life of the project, to offset degradation and keep the energy the contract requires.

Every lithium-ion battery loses capacity from day one. This loss has two sources: calendar aging, which happens even when the system is idle, and cycle aging, which depends on how many cycles, at what depth and at what temperature the battery operates. In hot climates, such as Brazil's Northeast, both accelerate.

One alternative is oversizing: installing more energy than needed at the start, so the surplus covers degradation. In a 15-year contract, however, this does not solve the problem on its own:

• The surplus ages too. Calendar degradation affects every installed cell, including idle ones. The extra capacity bought in year 1 fades along with the rest.
• The required volume would be huge. Covering 15 years of degradation through oversizing alone would require installing capacity far above the contracted amount, tying up capital for years and weighing on the bid.
• Injectable power is capped. More batteries at the start require more conversion and connection infrastructure, which must fit within the registered power.

That is why, in long-term projects, augmentation is not optional: it is a necessary part of the strategy. The real question is not whether there will be augmentation, but how much to oversize at the start and how many augmentations to carry out, in which years and at what volume.

The regulator itself works from this assumption. Portaria MME No. 136/2026 requires the Fixed Revenue to cover the costs of maintaining, throughout the contract, the availability of the contracted power and the RTE, "including possible reinvestments to replace battery modules and acquire new compatible inverters" (Art. 9, § 4, item II, letter j). In other words, augmentation is already inside the bid price. The question is not whether it will happen, but how much, when and how.

This combination depends on the cost of capital, on financing and, above all, on a reliable degradation curve. If the curve is wrong, the augmentation program will be compromised: in timing, volume and cost.

Why this is decisive in the LRCAP 2026

In the LRCAP 2026, augmentation stops being an optimization and becomes a condition for receiving the contracted revenue. The rules set by Ministry of Mines and Energy Ordinance (Portaria MME) No. 136/2026 make this clear:

Source (in Portuguese): Portaria Normativa MME No. 136, of June 1, 2026 (Official Gazette, June 3, 2026).

In short: the bid is placed today, in reais, for 15 years of delivery. Augmentation is what keeps that promise standing, and any mistake in it shows up precisely in the years when there is no room left to renegotiate.

Equipment cost alone is already a major unknown

Most financial models treat augmentation as a cost per MWh, applied in the year capacity falls below the threshold. The problem is that this number carries at least three uncertainties at once.

• Battery prices: the usual assumption is that batteries will keep getting cheaper. That may happen, but nothing guarantees the trend will hold five or ten years from now, or that a battery model compatible with the installed system will still be available.
• Exchange rate: LRCAP revenue is in reais, indexed to IPCA, while batteries are mostly priced in US dollars. No one knows what the exchange rate will be in the augmentation year, and the contract offers no protection against this mismatch.
• Taxes and local content: the tax treatment of imports and local content requirements may change over 15 years, altering the final cost of each MWh added.

In other words, even the item everyone already includes in the spreadsheet deserves a sensitivity analysis, not a single value. But it is not the only item. Augmentation has at least three dimensions that rarely appear in the model: space, logistics and unavailability.

Physical space: augmentation must fit in the layout from day one

If space for augmentation is not reserved in the original design, it may simply not exist when it is needed. And in the LRCAP there is no option to place the additional capacity elsewhere: the Portaria does not allow changes to the connection point or the declared total injectable power (Art. 11, §§ 2 and 3).

Reserving space is not just leaving empty land. The layout must account for:

• Area for the new containers, respecting fire safety clearances between units, which tend to become stricter, not looser, over the years.
• Foundations and pads, or at least a plan for where and how they will be built without interfering with operating units.
• Cable routes and electrical infrastructure: trays, trenches, transformer and PCS capacity, or space for new conversion units.
• Auxiliary services: cooling and auxiliary power sized for future capacity, not just the initial one. In a project we followed in Europe, the auxiliary services transformer alone cost close to 1 million euros.
• Internal access so trucks and cranes can reach the augmentation area without passing over, or next to, energized equipment.

A layout optimized only for year 1 is usually the cheapest at bid time and the most expensive in the augmentation year.

Logistics: bringing the batteries in the right year is a project in itself

Year-zero logistics are usually well planned, because they sit on the construction critical path. Augmentation logistics, which will repeat all of this years later, almost never are.

And they are not trivial. Battery containers are heavy and classified as hazardous cargo, requiring specific trailers, special permits, large cranes and compatible site access. We experienced this firsthand in Portugal: battery transport required drivers certified for hazardous cargo, there were few qualified professionals, and this directly affected the delivery schedule.

For augmentation, the questions that need answers before the bid are:

1. Lead time: how far ahead of the target year must the order be placed, considering manufacturing, ocean freight and customs clearance?
2. Compatibility: does the supplier contractually guarantee the availability of a product compatible with the installed system, or will a new battery generation have to be integrated with an older PCS and EMS?
3. Site access: can the roads, bridges and plant entrance handle heavy containers while the plant is operating?
4. Internal handling: is there room to position the crane safely, without interfering with energized units?
5. Commissioning: who tests and integrates the new capacity, and how is this done without compromising the system already delivering to the grid operator?

The timing of augmentation is set by the degradation curve. If logistics do not keep up with that date, capacity arrives late and the gap shows up as unavailability.

Augmentation is scheduled unavailability

Installing and integrating new capacity in an operating plant requires shutting down, at least partially, parts of the system. Electrical connection work, PCS adjustments, EMS updates and integration tests are rarely done with everything energized.

The Portaria states that scheduled outages must take place in periods previously agreed with the grid operator, ONS (Art. 9, § 5, item II). The draft capacity contract (CRCAP), presented in ANEEL's Joint Technical Note No. 10/2026-SEL-SGM/ANEEL (case 48500.015992/2026-11, clause 5.7), details how this should work:

• Annual schedule, hour by hour: by December 15 of each year, the seller submits to ONS the scheduled outage plan for the following year, broken down by hour.
• Exemption in those periods: during the declared windows, the seller is exempt from delivering power and the penalties of clause 9 do not apply.
• Fixed schedule: the schedule cannot be changed, except for system needs, at ONS's discretion and with justification to ANEEL.
• Reimbursements still apply: the reimbursements of clause 8, such as charging energy and losses, remain due even during the scheduled outage.

In practice, the augmentation window must be declared, hour by hour, in December of the previous year. Anything beyond that window becomes forced unavailability. Therefore:

• The declared timeframe must be realistic. A delayed equipment delivery, an integration issue or a test that must be repeated can extend the outage beyond the window, with no room to adjust.
• Phased execution reduces risk. Splitting augmentation into blocks, keeping part of the plant available while another part is connected, lowers exposure in each window.
• The window matters. Choosing periods of lower system power demand reduces the impact and makes planning with ONS easier.

In the end, the cost of augmentation is not just the price of the MWh added. It includes the outage hours, the reimbursements that remain due and the risk that the outage runs beyond the declared window.

Note: the clause cited comes from a draft under public consultation, not a signed contract. The final auction notice is expected around the end of October 2026.

Before closing the bid

A well-designed augmentation program answers six questions before the bid:

1. Has the degradation curve that sets the augmentation dates been independently validated, considering the project's actual temperature and operating profile?
2. Has the augmentation cost been modeled with price and exchange-rate scenarios, rather than a single value?
3. Does the layout reserve space, foundations, cable routes and auxiliary services for future capacity?
4. Is there a logistics plan for the augmentation year, covering order lead time, transport and site access?
5. Does the supply contract guarantee the availability of a compatible product and its integration with the installed system?
6. Does the augmentation outage fit within the annual scheduled outage plan declared to ONS, with a realistic timeframe and phased execution?

The LRCAP 2026 will reward those who can offer a competitive price while sustaining delivery for 15 years. Augmentation sits exactly where these two goals meet. Treated only as a cost, it makes the bid look better on paper. Treated as construction, logistics and operations, it makes the project viable in practice.

At Kyklios, we help developers and investors independently model degradation and the augmentation program, before the bid and throughout the life of the project.