Data center expansion hits power transmission bottleneck
The expansion of cloud computing and artificial intelligence (AI) has widened the gap between the pace of growth in the data center sector and the electricity supply capacity needed to support it. Despite Brazil’s abundant power generation, the concentration of wind and solar farms in regions far from consumption centers requires additional transmission infrastructure. While data center projects can be completed in 18 months to two years, transmission projects take about seven years.
The Information and Communication Technology and Digital Technology Companies Association (Brasscom) estimates that the sector’s energy demand will double between 2026 and 2031, when its share of national electricity consumption will rise from 2% to between 4% and 5%. “It is rapid growth in a market accustomed to expanding in line with GDP,” Brasscom Executive President Affonso Nina said.
Created in 2025, the National Transmission System Access Policy (PNAST) aims to optimize system planning by replacing the first-come, first-served queue for connection requests with access rounds for the backbone grid of the National Interconnected System (SIN), requiring projects to be at a more advanced stage. In the first 2026 round, data centers accounted for 38 of the 43 applications selected by the National Electric System Operator (ONS), totaling 7,040 megawatts and an estimated R$159 billion in investment. Overall, investor interest in Brazilian data center projects has reached 38 gigawatts, based on requests for grid-access assessments.
“Five years ago, there wasn’t even an AI market for 100 MW data centers,” said Marcela Martins, Ascenty’s energy management director. The company’s strategy to secure electricity includes incentivized power purchase agreements (PPAs) in the free market and a self-generation agreement signed with Casa dos Ventos early this year for about R$2.5 billion, covering an average supply of 110 MW. Ascenty will hold equity stakes in two projects scheduled for 2027 with more than 1.5 GW of installed capacity. It is also investing R$200 million in transmission, including the construction of a 35-kilometer line from Santa Bárbara d’Oeste to Sumaré, São Paulo, where its new AI data center has already secured 90 MW and is expected to reach up to 180 MW. The line is scheduled to begin operating in 2027 and will subsequently be transferred to CPFL.
“The challenge is to incorporate the scale and demand of data centers into the power sector by anticipating development hubs and devising regional solutions,” said Mauricio Amadeu, energy manager at Scala, which operates 13 data centers and is planning AI City in Eldorado do Sul, Rio Grande do Sul. The project calls for an initial investment of R$3 billion for 54 MW, with the potential to expand to as much as 4,750 MW.
Unsurprisingly, the sector is targeting cities with large power substations and available connection points for new, energy-intensive companies. According to Thomas Brancati, CEO of real estate developer Allrea, five companies sought sites for data centers between June and July in cities including Sorocaba and Araraquara, São Paulo; Rio de Janeiro, Nova Iguaçu and Queimados, Rio de Janeiro; Ponta Grossa, Paraná; and Joinville, Santa Catarina. “Availability reduces risk,” he said.
Another trend is the development of projects near power generation sites. Casa dos Ventos is encouraging the shift through initiatives such as a data center developed in partnership with Omnia and ByteDance, TikTok’s owner, in Caucaia, Ceará, with an initial planned capacity of 200 MW. Two additional megaprojects are reportedly being planned in the city, although they remain at a preliminary stage. In a statement, the company said it aims to attract large, energy-intensive loads to the region to improve grid efficiency and reduce generation cuts caused by transmission constraints, known as curtailment.
Renova followed the same path with a data center offering capacity of up to 85 MW in Igaporã, Bahia, near the 432.6 MW Alto Sertão III wind complex. “We are using electricity that would otherwise be curtailed,” CEO Sergio Brasil said. The project required R$900 million in investment and received expedited approval to access the backbone grid as a power consumer. The company now aims to deploy data centers at its other planned generation facilities and develop projects for other power generators affected by curtailment.
Rafael Martins de Souza, a researcher at the Getulio Vargas Foundation’s Center for Regulation and Infrastructure Studies (FGV-CERI) and a professor at Rio de Janeiro State University (UERJ), said the mismatch between data center development and electricity supply could be addressed through measures such as reducing red tape for transmission projects.
Another option would be to encourage facilities near generation sites by offering lower rates. The question, however, is how the costs should be allocated. “Transmission expansion to serve data centers is paid for by all consumers. Perhaps data centers should contribute to the specific grid expansion they require,” said Djalma Falcão, professor emeritus at Coppe-UFRJ. “Self-generation receives subsidies and tariff discounts that are paid for by all consumers,” added Lourenço Moretto, coordinator of the Energy and Sustainability Program at the Brazilian Consumer Defense Institute (Idec).
Translation: Todd Harkin
