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.

Recent profound reform of the power sector was enacted through Decree-Law No 15/2022, of 14 January, which set the organisation and functioning of the National Power System.

The Portuguese power industry activities (generation, transmission, distribution, aggregation 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. Transmission system operators (TSOs) and distribution system operators (DSOs) are, therefore, private investor-owned companies with public service obligations stemming from their concession contracts.

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:

• the Energias de Portugal (EDP) group in the power sector;
• the GALP Energia (GALP) group in the gas sector; and
• the Redes Energéticas Nacionais (REN) group, as the transmission grid and system operator for both the power and gas sectors.

In spite of being investor-owned entities, some of the companies within the group provide a public interest function, thus having certain privileges and obligations as set out by law.

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 EEA.

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. 

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 15/2022;
• ERSE Regulation No 560/2014, as amended, 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 as 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. 

Change of control of power generators (be it through assignment of licences or ownership, or through a share deal) is generally admissible, but an increase in guarantees is required.

See also 2.4 Law 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;
• the 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.

The Central Storage entity, which is responsible, on the one hand, for the constitution, management and maintenance of national reserves of oil and petroleum products and, on the other hand, for the supervision and oversight of all areas of the energy sector, is the National Entity for the Energy Sector (ENSE). The nature of the ENSE and its areas of responsibility are defined in Decree-Law No 339-D/2001, amended by Decree-Law No 69/2018. Finally, in co-ordination with ERSE, the Competition Authority (AdC) ensures compliance with the rules regarding the promotion and protection of competition and the promotion of competition in a liberalised and free market.

Apart from the major changes in 2022 regarding the approval of Decree-Law No 15/2022, which fully reformed the power system, and of Decree-Law No 30-A/2022, which temporarily simplified the power system and renewable gas generation technical and environmental licensing as a response to the energy crisis generated by the ongoing military conflict in Ukraine, a recent notable legislative change is the approval of Decree-Law No 11/2023. This Decree-Law simplifies various licensing and administrative procedures in environmental matters, including, for instance, the elimination of a mandatory Environmental Impact Evaluation for PV plants with an area not greater than 100 ha.

Recently announced policy initiatives which bring impacting changes for the power industry include the recent announcement of a public tender for Offshore Wind, with a goal of awarding up to 10 GW in installed capacity until 2030, starting this November.

Moreover, the government has announced that a proposal for a voluntary carbon market, similar to the EU ETS but of voluntary participation, is in the works and expected to be approved soon.

Finally, it is also worth noting that, in accordance with Decree-Law No 15/2022, of 14 January, ERSE carried out a survey of the rules provided for therein which determine the production of regulations by this Regulatory Entity. In this regard, a public consultation is currently underway – until 15 May 2023 – with proposals for the revision and reformulation of various regulations in the electricity sector, extending to the gas and LPG sectors. The proposed regulations submitted by ERSE shall be binding on all persons intervening in the electricity sector and, in matters having an impact, all those intervening in the gas and piped LPG sectors. These changes, if they occur, will have relevant impact, adjusted to the current reality of the sectors.

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, with coal-fired power plants having been fully offline and decommissioned since November 2021;
• more than 70% 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.

The Iberian peninsula is a de facto energy island, with limited connection to the central European markets. Although legally permitted to trade with other countries, the gross majority of international electricity trading is done with Spain.

As the Iberian power market is fully integrated (see 2.1 The Wholesale Electricity Market), marginal prices are the same across the Iberian Peninsula; market decoupling (and therefore different prices being set for each national market) only occurs when international interlinks are fully saturated, which is an uncommon event.

Pricing is set through wholesale marginal markets. Cross-border PPAs are also allowed, and pricing is freely set between parties.

Of the 46.4 TWh consumed in the Portuguese market in 2022, 52% originated from renewable energy sources.

Conventional generation from natural gas had a market share quota of 31%. The remaining 17% was supplied through import.

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

After being notified, the decision should be issued within 30 to 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 Law Governing the Sale of Power Industry Assets.

See 1.4 Law Governing the Sale of Power Industry Assets and 2.4 Law 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 (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.

Auction schemes for the award of grid injection capacity – a scarce resource in the national power system – have shown to be an effective and economically efficient means of assigning rights to project promoters. The Portuguese government has announced a public tender for Offshore Wind, with a goal of awarding up to 10 GW in installed capacity until 2030, starting this November.

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.

In November 2021, the last coal-fired power plant was shut down. All coal-fired power generation was decommissioned by autonomous decision of the operator and/or through expiry of licences. No compensation was issued.

PNEC 2030 sets the policy goals to be reached by Portugal on its path to carbon neutrality in 2050.

Several support and incentive schemes are in place. On one hand, the auction mechanism for the award of grid injection capacity provides for additional bankability of projects, as it ensures a stable cash flow through a contract for differences scheme.

On another hand, the Portuguese government has launched two CAPEX support programmes for green hydrogen generation, with two more being expected in 2022 and 2023 (with approximately EUR60 million per year).

OPEX support for green hydrogen consumers, targeted at lowering or eliminating the cost-differential between natural gas and green hydrogen, is also under design.

Decree-Law No 15/2022, of 15 January, is the principal law that governs the construction and operation of generation facilities.

To build and operate a generation facility in the Portuguese market one must obtain (apart from general construction licensing):

• a grid capacity injection title;
• power sector licensing; and
• when applicable, environmental licensing.

Grid capacity injection may be obtained either on request, whenever grid injection capacity is idle and not reserved (which is non-existent at the present and is not expected to exist in the near future), through auctions launched by the Portuguese government, with the rules and regulations of said auctions being set by the tender documents themselves, or through direct agreements with the TSO or DSO to build new infrastructure (or reinforce existing infrastructure).

Generation facilities with peak capacity above 1 MW require a production licence (issued by DGEG) to be built; during the licensing procedure, compliance with general terms and conditions, with environmental conditions (when applicable) and good and proper design (from a system safety point-of-view) will be subject to administrative control. After construction but before commercial operation, an operational licence must be requested from DGEG.

Environmental licensing is necessary whenever the peak generation capacity is greater than 50 MW (20 MW when in environmentally sensitive areas) and follows the European Environmental Impact Assessment procedure, originated from an environmental impact study prepared by the generator.

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.

Under Decree-Law No 15/2022, all developers have a right to request expropriation and/or wayleaves for the construction of the interconnection lines from the generation facility to the public grid.

Those who hold a grid injection capacity title originated in an auction proceeding further have expropriation and wayleave rights for the generation facility itself under the same rules and regulations as if they were a concession holder (see below 5.4 Eminent Domain, Condemnation and Expropriation Rights).

Under Decree-Law No 15/2022, a decommissioning plan must be included in the environmental impact study and evaluated under the environmental impact assessment, whenever applicable. If the project is not subject to environmental licensing, the decommissioning plan must be approved by DGEG under the production licensing procedure.

Best available practices must be employed, and the plan must include:

• reuse or recycle maximisation;
• state-eminent domain over infrastructure or equipment installed over public domain;
• specific and detailed planning for complex generation facilities.

DGEG may require an update to the decommissioning plan at any time.

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, plus the support, measurement, protection and testing systems of that 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 rules and regulations set forth in Decree-Law No 15/2022.

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 market 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 5.2 Obtaining Approvals for the Construction and Operation of Transmission Lines and Associated Facilities.

See 5.3 Terms and Conditions Imposed in Approvals for the Construction and Operation of a Transmission Line and Associated Facilities.

See 5.4 Eminent Domain, Condemnation and Expropriation Rights.

See 5.2 Obtaining Approvals for the Construction and Operation of Transmission Lines and Associated Facilities.

The principal law governing all aspects of the provision of distribution services is Decree-Law No 15/2022, 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 an ERSE decision is limited to the general means to challenge administrative regulations and orders.