Brazil: Top 5 significant legislative changes, regulatory developments or trends affecting the construction industry

Brazil’s first dedicated battery auction — launched through Public Consultation No. 202/2025 and expected to be implemented in the 2026 Capacity Reserve Auction for Storage (LRCAP – Storage) — is set to create a new pipeline of storage projects and accelerate the hybridisation of renewable assets. For the construction sector, the move shifts the focus from energy-only expansion to capacity-driven infrastructure, with project delivery increasingly tied to grid connection, performance testing and long-term availability obligations. This will be the first time that Battery Energy Storage Systems (BESS) are eligible to participate in a Brazilian power auction and marks a significant step in the modernisation of the power sector’s regulatory framework. Final rules are expected in time for the 2026 LRCAP.

The auction is designed to procure firm capacity, in megawatts (MW), from new large-scale storage projects under an availability-based remuneration model, whereby contracted assets are paid to remain ready to dispatch electricity during periods of peak demand or generation shortfall. This is intended to enhance system reliability, facilitate further integration of intermittent renewable generation and strengthen security of supply.

The initiative aligns Brazil with a broader global trend toward treating storage as a capacity and flexibility resource. Markets such as the United States, the United Kingdom and Chile have already incorporated storage into capacity mechanisms or equivalent schemes to address the operational challenges associated with high renewable penetration, reinforcing Brazil’s position as a key energy transition market in Latin America.

Initial market response has been positive, with strong interest from developers, suppliers and financial investors. The auction is expected to establish storage as a new investable asset class and accelerate project pipelines — including hybridisation with renewable plants — although bankability will depend on the final design of the product, particularly revenue certainty, contract duration, performance and availability requirements, penalty regimes and grid connection rules.

For developers, contractors and lenders, early engagement with the regulatory process and integrated project structuring will be critical. The new framework is expected to create strategic opportunities, including the optimisation of existing grid capacity, hybridisation with renewable assets and positioning for future ancillary services and other flexibility markets as the regulatory regime evolves.

Brazil is experiencing a rapid expansion in data centre development, creating a significant new pipeline for complex and energy-intensive construction projects. A key regulatory milestone in this context is Bill No. 2,338/2023 — approved by the Federal Senate on 10 December 2024 and currently pending enactment — which establishes the legal framework for the development and use of artificial intelligence in Brazil and is expected to shape data governance, infrastructure requirements and compliance standards for operators. Although not construction-specific, the bill provides greater legal certainty for a sector that depends on large-scale, highly specialised facilities with long-term power and connectivity solutions.

This growth mirrors a broader global trend in which data centres are treated as core infrastructure and as a distinct real estate and digital asset class. Market estimates indicate investments of approximately USD1.5 billion in 2026, with major operators already announcing expansion projects. Market response has been strong across developers, contractors, energy suppliers and private capital, although project delivery will depend on power availability, grid connection timelines, environmental licensing and supply chain constraints for critical equipment.

Early integration of land acquisition, energy procurement and permitting strategies will be essential to avoid programme delays and cost overruns. Contractual structures should address interface risk in multi-package delivery models, high availability and performance requirements and tight completion schedules, as well as long-term power supply and ESG commitments. More broadly, the sector is accelerating the adoption of modular construction, build-to-suit and powered-land models, reinforcing the convergence between the construction, energy and real estate industries and positioning data centres as one of the most dynamic sources of new projects in Brazil.

The growing use of dispute boards in Brazilian construction and infrastructure projects reflects a shift toward real-time dispute avoidance and more collaborative contract management. Initially introduced in landmark projects such as São Paulo’s Metro Line 4 (Yellow) and later adopted in major 2014 FIFA World Cup stadium developments, the mechanism is now increasingly embedded in PPP and concession contracts, supported by the express recognition of dispute prevention and resolution tools under Law No. 14,133/2021. For long-term and complex projects, particularly in the transport, energy and water and sanitation sectors, dispute boards are becoming a key element of delivery strategy, with a direct impact on cash flow, programme certainty and lender confidence.

Market response has been positive among sophisticated employers, contractors and lenders, with dispute boards increasingly viewed as a tool to preserve cash flow, avoid the accumulation of claims and support on-time project delivery. Early experience in Brazil indicates faster resolution of technical and commercial issues and fewer referrals to arbitration, although challenges remain, including cultural resistance in some public entities, the limited availability of experienced board members and the need for careful drafting to define the binding effect and enforceability of decisions.

The effective use of dispute boards depends on early integration into the contractual framework. Clear provisions on jurisdiction, procedural rules, cost allocation, referral timing and the interface with arbitration are essential to ensure that board decisions support project delivery rather than becoming a further source of dispute. When implemented from the outset, dispute boards can significantly enhance bankability, improve contract administration and reduce overall dispute costs, reinforcing a broader market move in Brazil toward dispute prevention rather than dispute resolution as a core project management tool.

Law No. 15,042/2024 established the Brazilian Emissions Trading System (SBCE), creating the country’s first regulated carbon market, with phased implementation over the coming years. The framework introduces mandatory emissions monitoring, reporting and verification (MRV) and a cap-and-trade mechanism for sectors with significant greenhouse gas emissions. Although the construction sector is not directly regulated, the measure is highly relevant as it directly affects carbon-intensive inputs such as cement and steel and is expected to influence procurement strategies, project cost structures and ESG requirements in large-scale projects.

This reform aligns Brazil with a broader global trend toward carbon pricing mechanisms, already in place in jurisdictions such as the European Union and increasingly shaping international supply chains and project finance. Brazil is also one of the target countries of UNIDO’s industrial decarbonisation initiatives, including the Industrial Deep Decarbonisation Initiative (IDDI), which are expected to accelerate the market for low-carbon steel, cement and concrete through green public procurement and access to concessional and private finance. For the construction sector, these programmes act as a demand signal for green materials and are likely to influence tender criteria, long-term supply arrangements and the bankability of projects.

Market response is likely to include closer scrutiny of the carbon footprint of construction materials, the incorporation of emissions-related metrics into tender processes and financing conditions and the growing use of contractual mechanisms to allocate carbon cost risk across the supply chain, with a direct impact on procurement strategies, pricing and long-term supply arrangements.

The new framework will require enhanced emissions data management, the early integration of carbon considerations into project planning and procurement, and the review of change-in-law, price adjustment and pass-through provisions to address potential carbon cost volatility. In the medium term, the framework is also expected to accelerate the adoption of low-carbon construction solutions, green materials and innovative project structures aligned with sustainability-linked financing.

Environmental permitting has long been the principal driver of programme risk for construction and infrastructure projects in Brazil. Published in August 2025 and coming into force in February 2026, Law No. 15,190/2025 establishes Brazil’s first comprehensive national framework for environmental licensing, standardising procedures, timelines and the allocation of responsibilities among federal, state and municipal authorities. For projects in the energy, transport, mining, water and sanitation and large-scale real estate sectors, the reform is expected to improve delivery certainty by providing clearer licensing pathways and more predictable review periods, directly affecting conditions precedent, longstop dates and financing timetables.

This reform aligns with a broader global trend toward streamlining permitting processes while maintaining environmental safeguards, particularly in jurisdictions seeking to accelerate infrastructure delivery and the energy transition. Market response is likely to include a reassessment of permitting strategies, project schedules and risk pricing, especially in relation to conditions precedent, longstop dates and delay allocation in EPC and concession agreements. While greater procedural clarity should reduce certain timing uncertainties, the transition to the new regime may generate short-term challenges, including the need to adapt ongoing projects, the interpretation of new licensing categories and potential judicial review of administrative acts.

The new framework reinforces the importance of early-stage permitting strategy and integrated project structuring. Contractual arrangements should clearly address licensing risk — including relief events, extensions of time and change-in-law provisions — and ensure alignment between environmental obligations and construction milestones. Enhanced document management systems, stakeholder engagement and compliance controls will also be critical to mitigate the risk of project suspension and associated disputes. More broadly, the law has the potential to improve bankability by reducing one of the most significant sources of uncertainty in the Brazilian construction market.