Portugal: Energy Boost

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updated on 15 May 2020 | reading time approx. 6,5 minutes

 

 

 

Portugal Renewable Energy Boost

However, the truth is that the publication of  the Decree-Law no. 76/2019 clearly changed the whole paradigm of the energy market in Portugal, and the access to the industry can now be achieved through the following ways:

  1. Through Competition, which can take the form of an auction;
  2. Through Contractual.


According to this new contractual system, the operator proposing to produce electricity should not be looking for the attribution of a simple energy production license, but instead, should be looking for the attribution and recognition of a reserve of injection capacity in the Public Electrical Network.
 
The reserve of injection capacity in the Public Electrical Network is now the primary assumption of access to the power generation industry. This inversion of the system was designed to prevent producers from obtaining a power generation license without having previous injection capacity into the grid, seeking to solve a recurring problem in the Portuguese energy market and in order to avoid a speculative trend related to the purchase and sale of licenses.
 
Therefore, one of the new paths of the process focuses on a strictly contractual route, which in its essence is a Power Purchase Agreement (PPA), agreed between the power producer and its buyer/distributor, in which the terms and conditions of the injection of the electricity produced are defined in the first place by the Public Electrical Network.
 
The contractual approach is still subject to the rules of competition and recognition of injection capacity into the grid, since this approach seeks to ensure that individuals, when proposing to build power generation plants, demonstrate to public entities their technical and logistical capacity for this same production where the Public Electrical Network needs this input.
 
The demonstration of this capacity follows a certification process that begins with the registration of the producing company in the electronic portal of the Energy General Directorate of Energy (DGEG), the authority responsible for the energy market, where it registers itself as an energy producer and where it submits its request for recognition of reserve injection capacity in the Public Electrical Network, accompanied by all the elements required for appraisal of its project.
 

The elements that should be instructed with the application are the following:

  1. Project Description;
  2. Term of responsibility signed by a qualified technician, confirming that the project is in accordance with the Municipal and Intermunicipal Plans;
  3. Prior information issued by the Municipalities with territorial jurisdiction;
  4. Proof of the right to use the land where the electric generator center is to be established and the infrastructures connecting to the Public Electrical Network (for example, through a lease contract).


After submission of the application, it is graded according to a points system, which takes into account a certain set of factors, such as:

  • Complete Application Submission;
  • Safety and Reliability Criteria;
  • Utilization of pre-existing structures;
  • Sustainability criteria of territorial and environmental nature.


Once the submission of the elements mentioned above, has been concluded that the project will be sent to the network operator, who will analyze it and may also request additional documentation and clarifications from the candidate energy producer.  After this analysis, the decision of the network operator is communicated to the private party and to the licensing entity regarding the conclusion or not of the agreement.
 
This allocation of injection capacity in the Public Electrical Network is not a transferable position, only the subsequent allocation of production license.
 
The requests for reservation of injection capacity in the Public Electrical Network must be submitted taking into consideration the following points:(a) Applications submitted within 40 days of the approval date of the Terms of Reference (02/17/2020) would receive a priority benefit; (b) Applications submitted within 140 days of the date of approval of the Terms of Reference (17/02/2020) will enter into a general appraisal.
 
The distinction between these two deadlines is quite straightforward: applications submitted within the deadline referred to in recital (a) are given a degree of priority in terms of assessment by the DGEG compared to applications submitted within the deadline set out in recital (b). Initially, these deadlines were of a different composition, the deadline in recital (a) being 20 days and the deadline in recital (b) 120 days, corresponding to 18 March 2020 and 11 August 2020 respectively.
 
It should be noted that both deadlines have been extended, and the DGEG has decided to extend them to a further 20 working days, thus extending the deadlines to 40 and 140 days.
 
Nevertheless, due to the exceptional situation of the Pandemic covid-19, the DGEG determined the suspension of procedural deadlines, including the deadlines to request the allocation of reserve power injection capacity in the Network, and therefore, strictly speaking, these deadlines are suspended, estimating that they will be back to June.
 
Along with the procedural launch of auctions recently confirmed by the Portuguese Government for June and July, this year promises to be intense in terms of renewable energies in Portugal.

 

Solar Auction

Since Portugal carried out the cheapest solar lots auction to date in 2019, the Portuguese government had planned two more solar auctions in the course of 2020. However, it seems that the covid-19 pandemic has changed the timetable originally envisaged by the government.
 
As stated by the Portuguese Secretary of State for Energy, Mr. João Galamba, “There are no conditions for the launching of a second auction until the end of the year”. Nevertheless, to reassure the market and investors, Galamba has already revealed that the lots of the auction of 700 MW of power will be known on June 8, although the bidding will only take place on August 24 and 25.
 
Opposed to 2019, where auctioned lots were spread throughout the country, the 700 MW of capacity available will be concentrated only in the Alentejo and Algarve regions, as explained by the Directorate General for Energy and Geology.
 
This geographic difference as already convinced the President of the Renewable Energy Association, Pedro Amaral Jorge, who stated that this auction can be an “even great success” when comparing to 2019 and that “the demand will exceed the supply”.
 
In short, each lot will have its own capacity (between 10 and 100 MW) and the promoters can bid for all of that capacity or choose only part of it: a minimum of 10 MW at the points of connection to the grid through the distribution grid (EDP Distribuição); or 50 MW if it is through the transmission grid (REN). Up front is the payment of a deposit of 10 thousand euros for each MWh (bid), plus the respective reinforcement up to a value of 60 thousand euros per MWh, for the winners to guarantee the execution of the project.
 
The 2019 auction had two types of proposals: solar plants with fixed tariffs and solar plants with market tariffs. In 2020 there will also be solar plants with storage capacity. In this last proposal, the producer shall be entitled to receive an annual fixed payment and shall protect the system against price increases. That is, whenever the market price exceeds a value (to be defined) it will be the promoter who will compensate the system with the difference. The intention in this auction is that each promoter will offer the highest possible discount in relation to the fixed premium per MW/year that will be stipulated.
 
Despite the current pandemic, this auction will be an unprecedented opportunity, and the last one in 2020, to ensure a highly profitable and long-lasting position in the Portuguese energy production market.

 

Hydrogen the fuel of the future

In February 2020 the Portuguese Environment Minister, addressing the Parliament, declared the green hydrogen production as a main national economic driver, and a mean to boost solar and wind energy production, highlighting that the Portuguese solar energy as one of the cheapest in the world.
 
The environmental clean capabilities of hydrogen establishes this gas as the prime contender to help humanity with the last mile of the decarburization of the economy, while providing an unprecedented opportunity for Portugal’s and Europe’s energy independence.
 
Through the evermore efficient technology of electrolysis, the production of hydrogen can rely exclusively on electricity and water as its raw materials. Electricity that can come from renewable sources of energy, as previously stated, and water that can be found all over the 943 km of the Portuguese coast, and several dams or lakes in the interior.
 
These characteristics of the hydrogen production, cheap solar power, natural characteristics of the territory and affordable qualified labor force, makes Portugal the perfect candidate to establish a hydrogen production sit. In addition, the export of hydrogen will be facilitated by the easy access to central Europe and the strategical placed Portuguese seaports.
 
Hydrogen is also being seen by the government as a way to convert the surplus of renewable energy, which production often peaks during low consumption hours, in a stable and affordable form of energy storage.
Already in 2020, the Portuguese company EDP in an international consortium headed by the Italian company RINA started a 12,5 million euros project, co-financed by the European Union, to produce hydrogen though electrolysis. Also the mega industrial unit that the Portuguese government is designing for Sines, Portugal's largest seaport, and a second project in Setubal, another major seaport, will have the production of hydrogen as one of their possibilities of implementation, which shows the government's commitment in promoting this new technology.
 
With regard to the construction and licensing of green hydrogen production sites using solar energy, the most common form of production, the current procedure in Portugal is divided between the production of electricity and the construction of the hydrogen production and storage facility. The first is under the supervision of the Directorate-General for Energy and Geology, and the second is under the supervision of the Institute for Support to Small and Medium-Sized Enterprises and Innovation.

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