Alternative Energy & Power 2021

Last Updated July 20, 2021

Portugal

Law and Practice

Authors



TELLES is a full-service law firm with national coverage and a local presence in the two main cities of Portugal: Lisbon and Porto. The firm is represented by a range of departments that work in many areas of expertise, namely, finance, projects, corporate and M&A, tax, energy and natural resources, real estate and litigation. The finance, projects and capital markets team is comprised of eight members: one partner, four associates and three trainees. In addition, other practice areas covered are blockchain, digital, privacy and cybersecurity; tax; and litigation/arbitration. In the last couple of years, the firm has built on its sustained growth and has established itself as a presence in international markets. It has also gained the necessary expertise to provide services regarding new technologies and business models.

The responsibility for preparation of the main power/energy policy and legislation in Portugal lies with the Ministry of Environment and Climate Action, with other specific public entities, such as the Energy Services Regulatory Authority (ERSE) and the General Directorate for Energy and Geology (DGEG), responsible for the regulation of several related matters.

The Portuguese power industry activities (generation, transmission, distribution and supply) are heavily regulated, subject to mandatory unbundling and in most cases, subject to a licensing procedure. 

Operation and management of the national transmission and distribution grids is awarded by means of utility concession agreements entered into with the Portuguese state, granting the concessionaires the exclusive right to manage the grids for periods of 50 and 35 years, respectively. 

The full liberalisation of these sectors is due to happen in 2025, with the extinction of regulated end-user energy supply tariffs, shifting the consumers to the liberalised markets, in compliance with EU policies and directives.

The principal investor-owned entities are currently:

  • Energias de Portugal, SA (EDP) in the electricity sector;
  • GALP Energia, SA (GALP) in the natural gas sector; and
  • Redes Energéticas Nacionais, SGPS, SA (REN), as the transmission grid/system operator until 2057, under the unbundling regime.

In spite of being investor-owned entities, they have a public interest function, thus having certain privileges set out by law.

The sole principal state-owned entity is Efacec Power Solutions, SGPS, SA (EFACEC), following the public appropriation of a 71.73% shareholding through the approval of Decree-Law No 33-A/2020. 

Decree-Law No 138/2014 sets forth certain restrictions to foreign direct investments in strategic infrastructures and services, notably those related to energy, communications, transportation, national security and defence (public services), if these are made by entities from outside the EU and the European Economic Area.

Any decision opposing a transaction needs to be grounded on clear and objective criteria to determine if there is a real and substantial threat, such as to the physical integrity and safety of the strategic asset, its permanent availability and operational readiness, as well as to its capability for punctual performance of the legal obligations of the person or legal entity that controls it, such as, continuity, regularity and quality of service, among other things. 

Nevertheless, this regime is not commonly enforced and, in general, foreign investors receive equal treatment to that afforded to nationals.

The main laws governing the sale of power industry assets are:

  • Decree-Law No 172/2006, as amended from time to time, most recently in 2019 by Decree-Law No 76/2019;
  • ERSE Regulation No 620/2017, on Access to Grids and Interconnections;
  • ERSE Regulation No 1129/2020, on Trading Relationships; and
  • Law No 19/2012 (the "Competition Law").

During the liberalisation of the energy sector, the supply activity was opened up to market agents who meet the necessary requirements. Previously, all the supplying activity was carried out by the Last Resort Supplier (CUR).

Consumers may choose their supplier and switch, free of charge, whenever they find offers more suitable to their type of consumption, while suppliers need to have a licence and be registered by the DGEG to present commercial offers freely. They buy electricity from producers on the wholesale market and sell it to customers, paying the respective operators the regulated grid access tariffs, defined by ERSE.

Under the terms of Ministerial Order No 83/2020, domestic consumers still supplied by the CUR have until 31 December 2025 to secure a supply of electricity from a market supplier.

On another level, the transfers of any resources related to activities approved through concession agreements must obtain prior authorisation from the competent ministry. 

Furthermore, the sale and purchase of production licences is strictly forbidden under Decree-Law No 76/2019 and the control of the company holding such licence cannot change prior to the granting of the operation licence. 

Also see 2.4 Principal Laws Governing Market Concentration Limits.

The Portuguese regulatory authority for electricity, natural gas, liquefied petroleum gas in all categories and the fuel sectors is ERSE, a public entity with administrative and financial autonomy, which is also responsible for regulating the national electric mobility plan. 

ERSE's mission is to adequately protect customer interests, promote competition between market agents, contribute to the progressive improvement of environmental and economic conditions concerning the sector, and arbitrate some disputes.

ERSE also has the power to issue regulations intended to govern the organisation, operation and compensation of the energy sector, from generation to supply and trading. Some of the most relevant of these are the Regulation on Self-Consumption, Regulation on Trade Relations, the Tariffs Regulation, the Regulation on Smart Grids, and the Regulation on the Management of the Electric Mobility Network Operations.

Besides ERSE, the DGEG is a state-administered entity whose mission is to contribute to the planning, promotion and development of the state’s policies regarding energy matters and the exploitation of natural resources. The DGEG’s nature and missions are set out in Decree-Law No 130/2014, as amended by Decree-Law No 69/2018.

The DGEG is frequently the competent entity for granting licences and other administrative authorisations concerning energy-related activities, such as production, establishment or exploration. 

In summary, whereas ERSE is the independent regulatory authority, the DGEG is the body that represents the state in respect of energy issues, granting licences and receiving the corresponding submissions.

The Portuguese Environment Agency (APA) is the Portuguese regulatory authority on hydric resources, waste and dam safety, having broad powers in relation to other environmental matters, the most important being as the entity responsible for conducting environmental assessments of projects related to the energy market. Having important powers in licensing and policy matters, the APA has authority to carry out its duties, namely, to ensure the safety of public domain assets under its administration, prevent and control infringements, and enforce sanctions for illegal activities. 

Besides Decree-Law No 76/2019, which amended the framework applicable to the energy sector from 2019, namely, regarding the attribution of grid capacity for the generation of electricity, there were two main material changes in law and regulation concerning this industry in 2020:

  • Decree-Law No 62/2020, which reviewed the organisation and operation of the national gas system, with the inclusion of the possibility of generating renewable gases (ie, green hydrogen), in accordance with Directive (EU) 2019/692 of the European Parliament and of the Council, regarding the common rules for the internal market in natural gas; and
  • Regulation No 373/2021 of ERSE, which amended the previous regulation applicable to self-consumption and renewable energy communities, introducing the right of storage, rules for the sharing of energy and, among other things, the possibility of presenting pilot projects, by promoters, which could bypass some of the rules applicable to self-consumption subject to authorisation.

The transposition of the following EU Directives to the Portuguese legal framework is expected to be completed soon and to cause material changes to the current legal framework:

  • Directive (EU) 2018/2001 of the European Parliament and of the Council, on the promotion of the use of energy from renewable sources; and
  • Directive (EU) 2019/944 of the European Parliament and of the Council, on the common rules for the internal marketing of electricity.

Furthermore, the Portuguese government has been promoting the transition to a carbon neutral society, a decentralised energy market and commitment to invest in the hydrogen economy. These flagship moves could mean material changes in the power industry in the next couple of months and years.

The following aspects of the power industry in Portugal are worth noting:

  • none of Portugal's energy is generated by nuclear sources;
  • the transition of the traditional fossil fuel-driven energy market to a renewable energy market is a hot topic;
  • more than 50% of the energy generated in Portugal is from renewable sources;
  • the main way to inject energy into the public grid is by means of the public auctions launched by the government in 2019; and
  • there are excellent environmental conditions for the generation of energy from renewable sources.

The Iberian Electricity Market

The Iberian Electricity Market, MIBEL, resulted from co-operation between the Portuguese and Spanish governments with the aim of promoting the integration of both countries’ electrical systems. This played a significant role in establishing an electricity market at the Iberian level but also at the European level, and contributing to the development of the internal energy market.

The operation of the wholesale market at any given time is determined by the mix of production structure, import capacity, the imperfect meshing of the grid, the inelasticity of demand and the system reserve margin. 

One important aspect of MIBEL is the principle of reciprocal recognition of agents: if an agent is granted the status of producer or supplier by one country, it is automatically recognised by the other, and therefore has equal rights and obligations. 

The management of the Iberian spot electricity market is the responsibility of OMEL, the Spanish division of the Iberian Energy Market Operator. 

In the spot electricity market, transactions are executed by the participation of agents on the daily and intraday market that aggregates the Spanish and Portuguese areas of MIBEL. Trading on the daily market is based on a daily auction, with settlement of energy at every hour of the following day. 

There are various intraday sessions subsequent to the daily market auction in which agents can trade electrical power for the various hours of the day covered by that market. Trading is also done by auction. 

OMIP is the operator of the Portuguese division of MIBEL and is responsible for the management of the derivatives trading market. On the OMIP trading platform, all features of the futures agreements are standardised. Therefore, when an agent opens a position, it only needs to choose the agreement it will trade, the relevant quantity and the price (except if it is a market offer). These contracts are marked to market each day. 

The operations carried out by OMIP are registered in trading accounts and simultaneously registered in clearing accounts through which the financial settlement of the agreements is assured.

The Iberian Natural Gas Market

The Iberian natural gas market, MIBGAS, offers its users the possibility of trading within-day, day-ahead, balance of month, and month-ahead products at the Iberian level. Yet, only recently, trading of natural gas through MIBGAS started with physical delivery in Portugal, in the Virtual Trading Point (VTP). At the end of October 2020, MIBGAS and the Portuguese TSO (REN Gasodutos, SA) published a joint schedule of activities for the implementation of the organised gas market in Portugal, which was concluded in March 2021.

MIBGAS is already a solid price reference in the Spanish market and the objective is to make it a reference at an Iberian level, providing transparency to the natural gas prices negotiated in the Iberian Peninsula, making them known to all interested parties and thus contributing to fostering competition in the natural gas sector.

With the start of trading in Portugal, the Iberian dimension of MIBGAS is completed, a decisive step towards its consolidation as a reference hub in southwest Europe.

Imports

In 2020, in comparison to 2019, there was a significant reduction in the importation of all energy products, except for biomass imports, which increased by 48.4%. Fundamental to the overall reduction was the decline in coal imports by 99.4%, due to the shutdown of thermoelectric power plants.

The reduction in consumption at a national and international level, related to the impact of the COVID-19 pandemic, led to the temporary suspension of production at refineries.

According to the latest publicly available data, the main imports of fossil fuel are from Russia, Kazakhstan, Azerbaijan, Saudi Arabia, Angola, Algeria and Brazil.

Exports

On the other hand, the average value of energy product exports decreased by 32.4%, in euros.

Regarding the quantities exported, although there was a generalised reduction of the same, especially coal (51.6%), biofuel (19.1%), biomass and others (15.7%), there was a significant increase in the export of some energy products, such as electricity exports (35.9%) and natural gas (re)exports (30.2%).

The Portuguese electricity mix is split into conventional generation (coal and natural gas), which contributed approximately 41% of electricity generation in 2020 (enabling the base load of the system), and renewables (wind, solar, hydro and biomass), which contributed the remaining 58%.

Concentration operations that meet some predetermined requisites must be notified to the Portuguese Competition Authority (the "AdC") and are subject to its prior approval. 

After being notified, the decision should be issued within 30to 90 days, depending on whether a thorough examination of the concentration operation is required and if any additional information or opinion was required by the AdC from the company or any other competent entity, respectively.

See 1.4 Principal Laws Governing the Sale of Power Industry Assets.

See 1.4 Principal Laws Governing the Sale of Power Industry Assets and 2.4 Principal Laws Governing Market Concentration Limits.

Portugal’s current policy for the energy sector is set out in the National Plan for Energy and Climate 2020–2030 (the "PNEC 2030"). The aim of the approach set out in the PNEC 2030 is to establish the means required to achieve the EU goals and commitments assumed by Portugal to increase the amount of energy generated by renewable sources, improve energy efficiency, and reduce energy prices for consumers, without losing sight of the economic rationale.

The renewables sector finally woke up in 2019, and 2020 confirmed this tendency, in spite of the COVID-19 pandemic. Carbon emissions dropped by almost 7%  in 2020, an all-time record. Portugal has become known worldwide for its leading role in the promotion of renewable energy, thanks to significant developments and investments in wind and solar projects, and more recently, due to its National Hydrogen Strategy and the subsequent amendment to the Portuguese Gas Law.

The shutdown of Portugal's two coal-fired power plants has been planned since the publication of the PNEC 2030 and the EU goals aimed at achieving carbon neutrality.

The coal-fired power plant in Sines has already been shut down (early 2021), whereas the Pego coal-fired power plant is expected to shut down by late 2021.

Decree-Law No 76/2019 was an important step towards the generation of electricity from renewable sources owing to the new public tenders instituted to attribute grid capacity to energy from renewable sources. Moreover, the new and more simplified regime for self-consumption and prosumers is also likely to boost this sector in the years to come, as the interest manifested by players during 2020 raised several issues that are currently being reworked by the Portuguese government. 

The year 2020 also saw the expression of interest in participating in the hydrogen Important Project of Common European Interest (IPCEI). 

Concerning the hydrogen strategy, three phases are foreseen:

  • the first, to take place between 2020 and 2023, aims to develop the legislative and regulatory landscape for the implementation of the first projects of variable scales and several sectors;
  • the second, to be carried out between 2024 and 2030, is geared towards the consolidation of the national framework, the strengthening of competencies in the sector, as well as the roll-out of projects at national level; and
  • the third, to take place between 2030 and 2050, seeks to achieve full development of the Portuguese hydrogen market, including export and international dimension.

In December 2020, applications were opened for a competitive procedure for accessing public financing in the amount of EUR40 million. This is to support the production of green hydrogen and other renewable gases, through the development and testing of new technologies, self-consumption and/or injection into the grid. Overall, the main incentives behind government policy relate to renewables and new technologies, and systems capable of contributing to accomplishing the goals set by Portugal itself and the EU.

The principal law governing all aspects of the construction and operation of generation facilities is Decree-Law No 76/2019.

The principal law governing all aspects of the construction and operation of generation facilities is Decree-Law No 76/2019.

Some of the terms and conditions imposed in the approvals are:

  • contribution towards the achievement of the energy policy and environmental policy objectives;
  • contribution towards local development and wealth creation in the area where the facility will be or is installed;
  • compliance with the regulations applicable to soil occupation and location, use of public domain, and the protection of public health and safety of the population;
  • attainment of a favourable environmental impact assessment, or the due authorisation of the municipality where the facility will be or is installed; and
  • provision of a monetary bond to the DGEG, designed to ensure compliance with the obligations during the procedure.

In Portugal, a private party does not have the authority to take land by eminent domain. Moreover, the Portuguese government can only implement an expropriation order in limited and exceptional cases on the grounds of public interest.

The lands required for the development of a project are usually purchased, or the respective rights obtained, by a developer through amicable negotiations with the owner.

There is no law on decommissioning facilities, nor any specific requirements in relation to that.

However, the operator must take all necessary precautions to avoid danger or disturbance to the life and health of it and its neighbours, and to the property of its neighbours. 

Apart from this, specific municipal building rules may apply, relating for example to urban planning and how to deal with contaminated land.

The main legal instrument that governs the transmission grid is the Regulation on the Transmission Grid, approved by Ordinance No 596/2010.

This regulation specifies the constitution and characterisation of the transmission grid and establishes the conditions for its operation, namely regarding control and management, including the relationship with the entities connected to it, the execution of operations and the respective maintenance.

Moreover, this regulation establishes the general and particular technical conditions applicable to the connection of installations connected to the grid, as well as to the support, measurement, protection and testing systems of said grid and those same installations, as well as the conditions and limitations to the reactive power injection, arising from the need to ensure the grid’s reliability and security.

Both transmission and distribution are awarded by means of utility concession agreements entered into with the Portuguese state, granting the concessionaires the exclusive right to explore the grids for periods of 50 and 35 years, respectively. 

There are also municipal distribution grids, mainly composed of low-voltage power lines and substations. The right to explore these grids is also granted through concession agreements, but these are awarded by the respective municipalities and are valid for 20 years. Most of these concession agreements will soon come to term and the Portuguese government is already preparing a tender for the bidding for these concessions. The details of such procedure are still unknown.

The operation of the national transmission and distribution grids, of LNG terminals and LNG storage facilities is also granted by means of concession agreements, offering the exclusive right to develop these activities for 40 years within a certain geographical area. 

Additionally, there are some local natural gas distribution grids with no physical connection to the national transmission or distribution grid, which may be operated by obtaining a licence, valid for 20 years. The request for attribution should be delivered to the DGEG office.

The concession activities are exercised on an exclusive basis, which does not prejudice third parties' right of access to the grid, in accordance with the Access to Grids and Interconnections Regulation of ERSE.

The concession activities are performed in accordance with the principles established in Decree-Law No 29/2006, as amended, Decree-Law No 76/2019, the applicable regulations and the concession bases.

Under Portuguese law, in spite of being a private party, a concessionaire of a public service has the right to expropriate land under the same conditions as the State, as it is providing a service considered to be of public utility.

The operation of the Portuguese Transmission Grid is awarded by means of a public concession.

The TSO of the electricity and natural gas sectors is subject to full ownership under the unbundling regime that Portugal adopted. Currently, REN is the Portuguese TSO, owning that concession until 2057.

Within this framework, no entity may hold an equity participation greater than 25 % of the share capital of the TSO. Also, the TSO or the companies that control it may not, directly or indirectly, exercise control or any rights over companies dedicated to the generation or supply of electricity or natural gas. Equally, according to Decree-Law No 112/2012, companies dedicated to the generation or supply of electricity or natural gas, or the entities that control them, directly or indirectly, cannot exercise control or any rights over the TSO.

The TSO is also strictly forbidden from acquiring electricity or natural gas for selling purposes.

Remuneration for the services of transmission and distribution of electricity and natural gas are determined by ERSE and regulated in accordance with its Tariffs Regulation. 

ERSE also determines the issues that must essentially be included in the grid usage agreement. These are better defined in the Grid and Interconnections Access Regulation and include duration, interruption of service conditions, payment methods and terms of resolution, which vary depending on the contracting parties (generators, suppliers, grid operators or consumers). The general terms of the grid usage agreement are submitted to ERSE for prior approval. 

The Portuguese tariff system is set up in such a way that for each regulated activity there is an associated regulated tariff, and the tariff applicable to each consumer is made up of the sum of the various activity tariffs. 

Tariffs for the use of regulated infrastructure are based on the provider’s cost plus a rate of return, which will determine the operator’s permitted revenue. The rate of return is also established by ERSE for a certain period. 

The allowed revenue and the provider’s cost for the transmission and distribution of electricity is determined in accordance with the Electricity Tariffs Regulation.

The formula used to calculate the TSO’s permitted revenue includes the application of efficiency factors to the provider’s costs, to reward efficient spending and investment, with incentives for the maintenance and operation of equipment that is at the end of its life. 

In the transmission and distribution of natural gas, the formula applied to determine the permitted revenue of the service provider is set out in the Natural Gas Tariffs Regulation. Although not specifically determined in this regulation, it is established therein that the cost of the TSO’s activity will be subject to efficiency incentives to be determined by ERSE.

To ensure equal market conditions for all market players, the concessionaires of transmission and distribution activities in the electricity and natural gas sectors must comply with specific public obligations to guarantee equal access conditions to all markets participants and to refrain from adopting any discriminatory behaviour or practices. 

The safeguarding of equal conditions for all market players for access to and use of infrastructure is envisaged to create efficient and effective market conditions, promoting healthy competition and thus enhancing consumers’ experience in these markets.

The main legal instrument that governs the distribution grid is the Regulation on the Distribution Grid, approved by Ordinance No 596/2010.

Like the Regulation on the Transmission Grid, it specifies the constitution and characterisation of the distribution grid and establishes the conditions for its operation, namely with respect to control and management, including the relationship with the entities connected to it, the execution of operations and the execution of works, and respective maintenance.

The regulation also establishes the general and particular technical conditions applicable to the connection of facilities to the distribution grid, as well as to the support, measurement, protection and testing systems of the distribution network and of these same facilities, and the conditions and limitations to the injection of reactive power arising from the need to ensure network reliability, security and quality of service.

See 5.1.2 Regulatory Process for Obtaining Approvals to Construct and Operate Transmission Facilities.

See 5.1.3 Terms and Conditions Imposed in Approvals to Construct and Operate Transmission Facilities.

See 5.1.4 Proponent's Eminent Domain, Condemnation or Expropriation Rights.

See 5.1.2 Regulatory Process for Obtaining Approvals to Construct and Operate Transmission Facilities.

The principal law governing all aspects of the provision of distribution services is also Decree-Law No 76/2019, while the charges and terms of service are annually defined by ERSE.

Among other criteria, when establishing the charges and terms of service, ERSE considers the inflation rate, interest rates and spreads, and the cost of purchasing energy for the Last Resort Supplier. A challenge to ERSE decision is limited to the general means to challenge administrative regulations and orders.

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Trends and Developments


Authors



TELLES is a full-service law firm with national coverage and a local presence in the two main cities of Portugal: Lisbon and Porto. The firm is represented by a range of departments that work in many areas of expertise, namely, finance, projects, corporate and M&A, tax, energy and natural resources, real estate and litigation. The finance, projects and capital markets team is comprised of eight members: one partner, four associates and three trainees. In addition, other practice areas covered include blockchain, digital, privacy and cybersecurity; tax; and litigation/arbitration. In the last couple of years, the firm has built on its sustained growth and has established itself as a presence in international markets. It has also gained the necessary expertise to provide services regarding new technologies and business models.

The Road to Carbon Neutrality

The Portuguese market, legislation and regulation of the energy sector have been experiencing remarkable changes in line with the EU policy and directives related to the energy sector and its internal market, which aim to achieve carbon neutrality by 2050.

As of today, the Portuguese government’s policy for the energy sector is set out in the National Plan for Energy and Climate 2020–2030 (the "PNEC 2030").  It aims to establish the means to achieve the EU goals and commitments assumed by Portugal regarding the increase of energy generated by renewable sources, achieving greater energy efficiency, and decreasing the level of energy prices for the consumer, without losing sight of the economic rationale.  

Overall, after a significant standstill mostly due to the economic crisis of 2012 resulting from the IMF/ECB/EU intervention, and in spite of the COVID-19 pandemic, the power industry in Portugal has been prospering. 

The country’s strategy continues to focus on:

  • energy generated from renewable sources, mainly through the promotion of public auctions to attribute capacity to inject energy into the public grid; 
  • investment in R&D;
  • incorporation and promotion of a new player market the prosumer, either individual or by energy communities with new regulation; 
  • massive electrification of consumption, including for mobility; 
  • fostering and investment in green hydrogen, with the publication of the National Hydrogen Plan and the enactment of the new Gas Law; and 
  • liberalisation of the market. 

Over the last couple of years, Portugal has assisted new players to enter the market.

Renewables

Portugal’s current electricity framework is characterised by a predominance of renewable sources with the set goal of achieving carbon neutrality by 2050. 

The Portuguese deputy minister of energy stated that “in the next ten years the country aims to reach 80% in electricity production from renewable sources. More than realistic, these are necessary goals. I would say that we have no alternative. It is also a scenario that creates more wealth and more jobs in the country.”

The aforementioned PNEC 2030, together with other sectoral policies and strategies, translate the EU commitments by setting a target of 47% renewable energy and a 35% reduction in primary energy consumption. Moreover, it highlights the importance of promoting sustainable mobility through the decarbonisation of public transport and maintaining a safe and reliable supply system by optimising all energy infrastructures.

All these efforts and initiatives represent Portugal's remarkable achievements within the global energy market, and the outstanding outcome it has achieved by introducing public auctions to attribute capacity to inject energy into the public grid.

Another remarkable trend that has emerged in Portugal is the promotion of decentralised production and self-consumption of energy generated from renewable sources. The year 2020 marked the growth of such projects, allowing the emergence of prosumers. 

The promotion of the renewable energy sector has been one of the flagships of the Portuguese government, which intends to set Portugal up as a key booster of the carbon neutrality target of the EU.

Auctions

Since 2019, the procedure for the attribution of connection points and licensing of new projects now includes a competitive electronic auction process, through which interested players may bid on lots for the granting of grid capacity.

The first solar auction took place in July 2019 and gathered not only considerable interest but also remarkable media coverage due to the fact that it resulted in a new world record in terms of price per MWh – being one of the lowest to date and representing a 67% discount compared to the base value for bidding.

Considering the success of the first auction, the second auction was launched in August of 2020, confirming that these auctions will be the main way of granting grid capacity. In spite of the detrimental effects the COVID-19 pandemic has had on the worldwide economic markets, the public procedure was a success and resulted in another world record in terms of price per MWh, with new market players entering the market.

A third auction has already been announced for the last semester of this year, regarding attribution of capacity for energy generated by floating solar photovoltaic plants.

Overall, Portugal sets out very favourable regulatory conditions for investors, with a special incentive for the creation of infrastructures with a longer lifetime, incentivising participants to adopt a long-term view with regards to their ROI.

Guarantees of Origin/Green Certificates

In February 2020, through Ordinance No 53/2020, Portugal adopted the necessary legal steps in the creation of a mechanism to issue green certificates. Envisaged in Portuguese legislation since 2010, the legal framework for these certificates has been the subject of several amendments regarding the entities empowered to issue them. With the publication of this ordinance regarding the amounts to be charged by the entity issuing these certificates for the services rendered, the piece of the puzzle that was missing has been found and there are currently conditions in Portugal to issue Guarantees of Origin. 

The main purpose of these certificates is to provide evidence to the final consumer of the share or amount of energy from renewable sources in the energy mix of a given supplier, not only encouraging the consumer to make a more environmentally conscious decision, but also allowing market players an easy promotion of their services.

Self-Consumption and Renewable Energy Communities

The legal framework applicable to decentralised production units secured the required conditions for the emergence of prosumers: industry, services and resident consumers became, directly or indirectly, producers that generate electricity for self-consumption and sell the surplus.  This is currently possible due to the emergence of smart metering systems, as well as the increase in the development of smart grid systems around the country.

With the enactment of the self-consumption legal framework, multiple organisations have been engaging in such activities. More importantly, self-consumers and other participants in renewable energy projects are allowed to agree on joint ventures and incorporate a legal entity (SPV – Renewable Energy Communities or RECs) for the production, consumption, sharing, storage and sale of renewable energy.

These self-consumption projects are able to trade the surplus of energy produced: 

  • through a market participant, with the role of aggregator; 
  • through a market facilitator; and 
  • in an organised market or through bilateral contracts.

The RECs were created to allow centralised operational management of the respective projects, while also allowing the participation of players that have better financing and know-how to carry out the projects, since the development of this kind of project would be highly unlikely without this type of support.

This framework will push market players to think of new strategies, and business models to carry them out, as well as bringing new players onto the scene. 

The creation of these mechanisms is allowing citizens as well as public or private entities to produce, consume, share, store and trade the energy produced, thus, actively participating in the country’s energy transition. 

Moreover, it brought a new regulation regarding self-consumption into force, amending the previous regulation applicable to self-consumption and renewable energy communities, and introducing the right of storage, rules for the share of energy and, among other things, the possibility of presenting pilot projects, by promoters, that can bypass some of the rules applicable to self-consumption, subject to authorisation.

It is also worth mentioning that the Portuguese government is currently transposing into the legal framework, Directive (EU) 2019/944 of the European Parliament and of the Council, on the common rules for the internal marketing of electricity, which will result in material changes in the current law, namely regarding large-scale industrial self-consumption.

Energy Efficiency

In December 2018, the revised Energy Efficiency Directive (EU Directive 2018/2002 of the European Parliament and of the Council of 11 December 2018) came into force, setting a European energy-efficiency target for 2030 of at least 32.5%.

One of the primary goals of the PNEC 2030 is to prioritise and boost the development of energy-efficiency projects.  The government has undertaken the following measures, among others, to set this up in the next couple of years:

  • to ensure the improvement of efficiency of energy consumption in the various economic fields;
  • to review the legal framework for energy management and efficiency and strengthen the monitoring systems;
  • to promote the rational use of energy among end-users;
  • to equip the energy sector with qualified professionals in the area of energy efficiency;
  • to simplify procedures and reorientate and strengthen funds and funding programmes;
  • to encourage R&D in the energy efficiency field; and
  • to promote increased penetration of more efficient equipment and products through the renewal of existing ones.

The promotion of energy efficiency measures is achieved by various instruments. Since 2006, the Regulatory Authority for Energy Services (ERSE) has been implementing the Consumption Efficiency Promotion Plan (PPEC) in the electricity sector, which is a competitive mechanism to support measures that make a real contribution to reducing consumption. 

Under the PPEC, incentives are awarded for improving efficiency in electricity consumption through measures carried out by suppliers, operators and organisations that promote and protect the interests of electricity consumers in Portugal.  The actions result from specific measures proposed, subject to a selection process, the criteria of which are defined in the Rules for the Consumption Efficiency Promotion Plan.  This process allows the selection of the most promising measures for energy efficiency to be implemented by the promoters, considering the amount available in the PPEC annual budget, which is approved at the start of the regulation period each year. 

The measures approved by the PPEC 2017–2018 were implemented until the end of 2019.  The 75 measures supported by that edition were selected through a competitive procedure, from the total of 224 measures that were submitted. 

The implementation of energy efficiency in buildings promises to be one of the major developments in the years to come.

Hybridisation

Hybridisation has also been a significant recent development. Facilities may now produce electricity from different primary sources in the same infrastructure and connection point of the grid.  This allows an increase in generation and a greater energy mix (however, different technologies remain subject to different licensing). Combining wind and solar has already caught the eye of major players in the industry and the first project to do this was recently announced by a market player. 

This allows projects to maximise output and efficiency given the different availability of the sources, without requiring more costs to be incurred by the grid operator regarding infrastructure investments.

In the context of capacity attributed by means of auction, the possibility of hybrid electricity generation remains available as long as the obligations arising from that auction are strictly complied with.

Hydrogen

The Portuguese government has announced its strong commitment to maximising the renewable capacity by developing large-scale projects for the production of hydrogen, which also benefit from certain already existing infrastructure, notably pipelines.  

In 2020, the National Hydrogen Strategy was published. The strategy considers three phases:

  • the first, to take place between 2020 and 2023, aims to develop the legislative and regulatory landscape for the implementation of the first projects of variable scale in several sectors;
  • the second, to be carried out between 2024 and 2030, is geared towards the consolidation of the national framework, the strengthening of competencies in the sector, as well as the roll-out of projects at national level; and
  • the third, to take place between 2030 and 2050, seeks to achieve full development of the Portuguese hydrogen market, including export and international dimension. 

The Portuguese Gas Law has already been amended to foresee the licensing of activities related to green gases (ie, hydrogen).

Portugal has favourable conditions to develop a hydrogen economy ecosystem, namely the existence of a modern natural gas infrastructure, competitive renewable electricity production prices, and an excellent geographical location with regard to exports. 

The government strategy includes the promotion of an industrial policy surrounding hydrogen based on the definition of public policies that guide, co-ordinate and mobilise public and private investment in projects in the areas of production, storage, transmission and consumption of renewable gases in Portugal. 

The main project planned to be carried out in Portugal is the Sines Project, following the decommissioning of the coal-fired power plant, which is now intended for the installation of an industrial unit for the production of green hydrogen. The industrial project in Sines will be construed as a "hydrogen cluster" to produce green hydrogen and export it through the port of Sines. It is also intended that this hub will act as Portugal’s flagship, with capacity to integrate, at the same time, the scale of industrial production, processing, storage and transmission, guaranteeing both internal and external consumption needs. It is envisaged that there will be a total installed capacity in electrolysers of at least 1 GW by 2030 and that the project will be solely powered by electricity from renewable sources, namely solar and wind, with an estimated total investment of around EUR7 billion.

Lastly, it is worth mentioning that the Portuguese Republic recently entered into a Memorandum of Understanding with the Kingdom of the Netherlands for the supply of hydrogen for the foreseeable future. Hydrogen will certainly play a major role in the renewable sector in Portugal in the coming years, and the hydrogen cluster envisaged will play an important part in it.

Storage

There have also been amendments to Portuguese law with the purpose of enabling a new market niche in this sector: storage of electricity. It was through Decree-Law No 76/2019 that storage was better developed in the Portuguese legal system. Even though further legislation needs to be implemented, which is expected to come into force soon to the advantage of those market players which make use of it, it sets a new paradigm, opening the market to energy storage options which, until recently, were nearly impossible. 

Market Liberalisation

The full transition to a liberalised market is still a work in progress.  Its starting point was the publication of EU Directive 2003/55/CE, which established the ground rules for the internal energy market, and which has consequently allowed the market to open up, giving all customers the right to choose a supplier. After several delays, the process of phasing out end-user regulated tariffs is still under way.  Decree-Law No 75/2012 approved the timetable for the gradual phasing out of such tariffs for normal low-voltage electricity consumers. The predicted date for the end of all regulated tariffs is now set to the end of 2025.

With the goal of liberalisation in mind, PNEC 2030 already predicts new challenges that might arise in this context, stating that given the existence of several significant changes, the responsibility for ensuring security of supply is shared by the various players, and the role of each will therefore have to be redefined. In this new model, all agents, including producers, operators, suppliers, customers, and political and regulatory institutions are key elements in the process of ensuring supply efficiency and security.

As such, the Portuguese electricity sector focuses its efforts on the end consumer, making sure that all relevant information is available and that there is effectively a free choice available, safeguarding the possibility to change supplier whenever it sees fit. 

The legal framework applicable to self-consumption already envisages the passage to a fully liberalised market, setting the general standard of free determination of price by each supplier and not by the ERSE.

Although the Feed-in Tariff scheme was reintroduced, it was under special conditions, at significantly lower prices, and it provided that such remuneration is either secured through a public auction or in the context of overpowering, or for projects using hybrid production to combine a different primary energy source to an existing power plant.

Electric Mobility

The topic of electric mobility – green transportation – is highlighted in the media worldwide and, as such, its relevance in Portugal’s goals of energy development should come as no surprise. Given that the transportation sector is one of the most important in terms of GHG emissions (due to its size and necessity), Portugal’s energy horizon is filled with concrete measures to progressively eliminate fossil fuels in this context.

The Electric Mobility Network, an integrated network linking more than one thousand charging stations, managed by MOBI.E, enables electric cars to recharge, using a mere card. The Portuguese government has been covering some of the costs associated with the use of electricity grids for electric mobility and even providing a very competitive framework of incentives for the purchase of electric vehicles, as well as exemptions from vehicle tax, autonomous taxation and any remaining applicable taxes.

Considering the overall tendency towards sustainable and shared transportation, the focus on electric mobility and advanced biofuels should constitute the more cost-effective decarbonisation option in transport, but other low-carbon mobility alternatives will emerge, such as hydrogen-powered vehicles.

In the transport of goods, Portugal’s path to decarbonisation encompasses not only the use of alternative fuel sources (such as electricity and hydrogen) but also the optimisation of routes for both small and large vehicles. On a maritime level, investments will be directed towards new forms of energy while simultaneously prioritising short-distance transportation and reinforcing inter-operability with commercial ports.

Additionally, given the existing urban congestion, investment in a quality and energy-efficient public transport sector is seen as one of the essential steps towards not only achieving environmental targets but also improving the quality of life of a large part of the population. Thus, in order to promote the growth of the high-capacity public transport network and to maintain the trend of expansion of these systems, Portugal has already started to work on numerous initiatives, such as: the expansion of Lisbon and Porto’s metro infrastructures, reinforcing the charging networks in both public and private buildings, as well as the creation of a charging network for electric buses, for night shipments and complementary shipments at terminal stops or parking areas, covering public transport and tourism services. 

As of today, renewable sources amount to 10% of the total energy utilised in Portugal’s transportation. The PNEC 2030 has, however, set the ambitious goal of doubling this percentage by this time next year. 

TELLES Advogados

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Lisbon
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+351 21 030 88 30

+351 21 030 88 39

telles@telles.pt www.telles.pt
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Law and Practice

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TELLES is a full-service law firm with national coverage and a local presence in the two main cities of Portugal: Lisbon and Porto. The firm is represented by a range of departments that work in many areas of expertise, namely, finance, projects, corporate and M&A, tax, energy and natural resources, real estate and litigation. The finance, projects and capital markets team is comprised of eight members: one partner, four associates and three trainees. In addition, other practice areas covered are blockchain, digital, privacy and cybersecurity; tax; and litigation/arbitration. In the last couple of years, the firm has built on its sustained growth and has established itself as a presence in international markets. It has also gained the necessary expertise to provide services regarding new technologies and business models.

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TELLES is a full-service law firm with national coverage and a local presence in the two main cities of Portugal: Lisbon and Porto. The firm is represented by a range of departments that work in many areas of expertise, namely, finance, projects, corporate and M&A, tax, energy and natural resources, real estate and litigation. The finance, projects and capital markets team is comprised of eight members: one partner, four associates and three trainees. In addition, other practice areas covered include blockchain, digital, privacy and cybersecurity; tax; and litigation/arbitration. In the last couple of years, the firm has built on its sustained growth and has established itself as a presence in international markets. It has also gained the necessary expertise to provide services regarding new technologies and business models.

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