Portugal: The challenge of ENE 2020

Author: | Published: 1 Sep 2010
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The Portuguese government has made one of its main aims to establish the country as one of the leaders "of the energy revolution", specifically its intention is "to ensure Portugal's position amongst the five European leaders regarding renewable energy targets for 2020" (according to the government program).

In accordance with this bold purpose, a new National Energy Strategy for 2020 (commonly known as ENE 2020) was recently enacted – as Resolution of the Council of Ministers 29/2010 of April 15. This strategy is strongly based and focused on the renewable energy sector.

ENE 2020 was preceded by the National Energy Strategy of 2005 which implemented extensive restructuring of the organisation and functioning of the three most important areas of the Portuguese energy industry – electricity, natural gas and petroleum – implementing the EU Directives on electricity and natural gas.

This restructuring had its basic legal framework based around the following acts: (i) Decree-Law 29/2006 of February 15 (which established the general principles governing the organisation and functioning of the National Electricity System including the generation, transmission, distribution and commercialisation of electricity and the organisation of the electricity national system (SEN). It also incorporated into national law the principles of Directive 2003/54/EC of the European Parliament and of the Council of June 26, which lays out common rules for the internal market in electricity and revokes the Directive 96/92/EC of the European Parliament and of the Council); (ii) Decree-Law 30/2006 of February 15 (which establishes the general principles governing the organisation and functioning of the National Gas System (SGN) and reception, storage, transmission, distribution and commercialisation of natural gas, as well as the organisation of natural gas markets, partly incorporating in national law the Directive 2003/55/EC of the European Parliament and of the Council of June 26, which lays out common rules for the internal market in natural gas and revokes the Directive 98/30/EC of the European Parliament and the Council); and (iii) Decree-Law 31/2006 of February 15 (which establishes the general principles governing the organisation and functioning of the National Petroleum System (SPN), and the storage, transportation, distribution, refining and commercialisation, as well as the organisation of the markets, for crude oil and petroleum products).

One of the main changes brought by this restructuring was the unbundling of the sector: the activities of transport and distribution for both natural gas and electricity were separated from the activities of commercialisation, in order to promote competitiveness and transparency. These activities were assigned to independent firms.

The 2005 Strategy has also supported a diversification of primary energy sources and the reduction of the environmental impact of the energy process. The goal of reducing dependency on external sources was also taken into account. As a result, the support provided for the use of renewable energy sources was reinstated, specifically through the extension of the aims established by the Resolution of the Council of Ministers 63/2003 of April 28 for renewable energy sources, mostly, wind energy, bio-fuels, hydro-energy, bio-mass, solar energy, ocean waves and tides.

As a result, Portugal has a regime for the electricity network that gives priority to renewable energy sources, both when planning and developing the network, and in terms of daily management. In addition, over recent years, we have seen the creation of a variety of forms of financial and tax support for investment in renewable energies. These have mainly been driven by the creation of differentiated tariffs for electricity produced in renewable power plants – feed-in-tariffs – depending on the degree of maturity of the various technologies available in the national market.

Pursuant to the report made available by the Portuguese Directorate General for Energy and Geology (DGEG) in June 25 of this year, the installed capacity in the country for electricity production from renewable sources was 9.275 megawatts (MW) at the end of April 2010.

According to the figures published in the recent Eurostat News Release, Portugal had the fourth highest share of renewable energy in total and final energy consumption in 2008 – 23.2%.

ENE 2020

ENE 2020 has adapted and updated the previous national strategy as a result of the EU demands and previous national developments (like the ones mentioned above regarding renewable energy), based on the following key points:

  • The decrease in energy dependence on foreign countries to 74% by 2020, aiming towards the progressive independence of the country in terms of fossil fuels;
  • The fulfilment of the obligations assumed by Portugal within the context of the European policies against climate change, in order that by 2020 60% of the electricity produced and 31% of the final energy consumption will come from renewable sources, implying also a reduction of 20% in final energy consumption;
  • Wealth creation and the consolidation of an energy cluster in the renewable energy sector, creating more 100,000 jobs (adding to the 35,000 already in existence);
  • The development of an industrial cluster associated with the promotion of energy efficiency, ensuring the creation of 21,000 annual jobs.

In addition to these, ENE 2020 has five main action lines:

1) ENE 2020 as an agenda for energy and financial competitiveness, as well as for the growth and independence of the country with the following key points:

  • A predicted global investment in the Portuguese energy sector of more than €31 million up to 2020;
  • The consolidation of the bet on the renewable energy sector;
  • Innovation in energy efficiency;
  • The introduction of electric vehicles;
  • Regulatory harmonisation within the Iberian Electric Market (the Mibel);
  • The creation and development of the Iberian Gas Market (the Mibgas);
  • The progressive suppression of the regulated tariffs.

2) The bet on renewable energies.

This is the most discussed action line of ENE 2020 and the one that has raised debate and controversy among important players in the energy sector.

The key points are as follows:

  • the goal of a 31% share in final energy consumption from renewable sources;
  • The diversification of the portfolio of renewable energies, covering not only mature technologies which can have a more immediate impact in the electric production system, but also the research and development of new technologies and projects in the testing and demonstration phases that show their potential for value creation to the Portuguese economy;
  • the simplification and speeding up of the procedures aiming for the allocation of power to demonstration projects using new technologies.

There are also more specific targets in each sector if renewable energy:

Hydropower

The development of the National Plan for High Potential Hydroelectric dams, launched in 2007, increasing hydropower capacity.

Wind power

This has experienced strong growth in recent years, with an installed power capacity of 537 MW in 2004 and over 3500 MW in 2009. By 2012, an additional 2000 MW will be installed as a result of the power capacity allocated in 2008 and 2009 through tender proceedings. The installation of additional 400 MW is also expected as a result of the exploitation of the potential for over-equipment of the existent wind farms. Also, possible installation of another 3000 MW, also by means of public tenders, depending from several conditions, specifically the evolution of demand for electricity, the use of electric vehicles, the ability to shift consumption from peak periods to periods of low use and also the technical feasibility and costs of off-shore wind technologies, as well as the associated environmental impact.

Solar energy

A target of 1500 MW of installed capacity by 2020 was established. The development of such capacity should follow the technological advances, the efficiency gains and the costs reduction associated with these technologies, specifically solar thermoelectric and the photovoltaic concentration.

Solar energy (micro-generation)

The success of this technology as well as its impact on society has justified the setting-up of more ambitious goals and the introduction of a mini-generation program aimed at projects designed to provide power up to 150 kilowatts (kW) or 250kW, depending on the technology in use.

Biomass

Several measures will be adopted for the complete implementation of the already allocated capacity of 250 MW, including the promotion of the production of forest biomass and of sustainable forest management certification and evaluation, amongst others.

Biofuels

The EU Directive's requirements will be followed, particularly in terms of defining the criteria for sustainability and ensuring the maintenance of the highest quality standards in vehicle operation

Geothermal energy

Expected to gain significance in the national energy mix by 2020, given the potential that the country enjoys (the strong investment in Azores). A capacity of 250 MW is envisaged by 2020

Wave energy

Given the great potential of the Portuguese coast the intention is to grant a concession of a pilot area for testing, in order to provide 250 MW for the energy mix by 2020

Hydrogen

The potential of hydrogen as energy carrier with a capacity of energy storage will be evaluated as a mean of enabling its use on a large scale and to promote innovative solutions in the transport sector.

3) ENE 2020 also encourages the promotion of energy efficiency, highlighting the need for the country to make its energy consumption more efficient and sustainable, especially in terms of the consumption of petroleum products. This can be achieved through the following methods:

  • the replacement of vehicles with electric combustion engines by electric vehicles, in order to achieve the transfer of 10% of final energy consumption associated with road transport fossil fuels to electricity consumption.
  • the creation of a charging network nationwide for electric vehicles, within the MOBI.E Program, in connection with the creation of systems of advanced intelligent charging and network management, enabling users to be both consumers and producers of energy given the storage by the vehicles of renewable energy produced at night.
  • the introduction of smart electricity grids for the integrated and efficient monitoring, tracking and managing of production, distribution, storage and energy consumption;
  • the maintenance of the effort to promote measures to develop new transport solutions and promote the shift towards public modes of transportation;
  • for buildings, the enhancement of the penetration of renewable energy production (solar thermal, solar photovoltaic and micro-wind) and of the use of the energy certification process;
  • the development of pilot "smart cities", for the implementation of intelligent networks and new systems of public lighting; and
  • the development of a sector of energy saving companies (ESCO's).

4) The security of energy supply – a crucial element for economic development and the reduction of the dependence on energy from abroad, can be achieved through:

  • diversification of the energy mix, in terms of either sources or origins;
  • the integrated management of hydro and wind production;
  • the enhancement of strong infrastructures suitable to the needs of the country, both in the energy supply and transportation sectors;
  • the development of new connections with Spain for the transportation of electricity and natural gas;
  • the increase in the storage capacity of natural gas, to ensure security of supply in compliance with European directives;

5) Sustainable energy strategy

Plans are underway for the creation of a tariff balance fund to manage the impact of renewable production on tariffs, and the suppression of the tariffs on the sale to the final consumer, under European directives through a gradually implemented procedure. In conjunction with markets dynamics, this should safeguard the competitiveness of the national industry and implement a regulated social tariff for the most vulnerable households.

The ENE 2020 strategy was welcomed by the Portuguese Renewable Energy Association, a private association that represents the interests of entities involved in the renewable energy sector.

However, ENE 2020 has reopened a public debate on what types of energy are suitable for the market and the costs and financial benefits of the priorities set up under this strategy. The old debate on nuclear power has also arisen again. Nevertheless, the government has restated the priority of the renewable sector.

The impact of the international crisis

Clearly reflecting the strong commitment of the Portuguese government to the development of the energy sector, and specifically of renewable energies, ENE 2020, although essentially programmatic (non-regulatory) in nature, establishes ambitious goals and will require the adoption of a large range of decisions, measures and regulations.

New tenders for the allocation of power should take place, new entities should be created, licences should be granted, and discussions and debates should take place. All this should occur within the next 10 years and will start in the middle of an international economic and financial crisis.

The effects of this crisis and the internal measures taken to face it have already impacted plans for the implementation of some of the measures envisaged in ENE 2020.

The Portuguese National Renewable Energy Plan (the National Plan), prepared pursuant to Directive 2009/28/EC of the European Parliament and of the Council of April 23 2009 on the promotion of the use of energy from renewable sources, was already subject to public consultation so that the relevant entities could give their contribution to it.

Although there is no definitive version of the National Plan available, the version made public is expressly based on a more conservative view of the economic growth of the country over coming years, showing some deviation from ENE 2020, specifically in terms of the sector goals to 2020. For instance, the envisaged power targets for wind power are reduced to 6950 MW in the National Plan (instead of the 8500 MW mentioned on ENE 2020).

One of the most obvious and immediate effects of the crisis in the effective implementation of the measures envisaged by ENE 2020 is financing difficulties.

Energy projects have traditionally been funded on a project finance basis, with loans syndicated by several banks, which is now much harder to achieve. The willingness of the banks to undertake long-term commitments has also been reduced, which may mean that some projects already in course, and others at a less advanced stage, need to be put on hold or suffer some delays. Some alternatives to the traditional project finance model are being suggested, and in some cases effectively tested, specifically through the issuance of bonds.

Ultimately, while the crisis lasts, the projects will be less well supported by the financing entities, which will imply the input of equity investors.

Other challenges

Despite this situation, one of the challenges lies in the ability to develop new and existing sites, as many of the of the sites considered best for wind and solar sites have already been taken.

Regulatory delays and the complexity of the legal framework, namely of the regulation regarding the licensing of projects, are also another challenge that needs to be overcome.

The predicted changes to the feed-in production tariffs in the renewable sector, already mentioned in the National Plan, may also cause some concern. The feed-in tariffs were established in 1999 and further amended in 2001 and 2005, and have been stable since that date. Although no effective decision has already been made, a reduction in the tariffs is expected. This has already caused a reaction from renewable energy producers, who believe that a drop in the feed-in-tariffs should only affect new projects, as the ones already approved benefit from a stable tariff for a 15-year period.

Recent measures

Despite these difficulties and challenges, the energy sector, and particularly the renewable one, is of crucial interest for the country's development. ENE 2020 is therefore being gradually implemented, as we can see from the following legal diplomas already approved since April 2010:

  • Decree-Law 39/2010 of 26 April – regulates the organization, access and operation of electric mobility and proceeds to establish a pilot-network for electrical mobility and the regulation of incentives for the use of electric vehicles;
  • Decree-Law 50/2010 of 20 May – establishes the Energy Efficiency Fund, aimed at financing the programs and measures set out in the Portuguese National Plan for Energy Efficiency (2008);
  • Decree-Law 51/2010 of 20 May, which maintains the possibility of over-equipment of wind farms of up to 20% of the respective capacity, in order to increase installed capacity with less impact on the environment and territory; it establishes the obligation for the installation in all wind turbines of equipment aimed to bear voltage dips and to supply reactive energy during these periods as well as a simplified procedure for the over-equipment;
  • Decree-Law that will change the legal regime applicable to the electricity micro-generation. This was already approved by the Council of Ministers of July 8 2010 but is still to be published and brought into force;
  • Council of Ministers Resolution of July 8 2010 approves measures for the implementation of" mini-production units of electricity, which is still to be published and brought into force;
  • Decree-Law that will establish the sustainability criteria for the production and use of biofuel and bioliquids, defining the limits of mandatory incorporation of biofuel for the period between 2011 and 2020. This includes the transposition of articles 17 to 19 and Appendix V of EU Directive 2009/28/EC of the Council and of the European Parliament of April 23 2010, and is already approved by the Council of Ministers of July 8 2010 but still to be published and brought into force;
  • Decree-Law establishing the procedure for the extinction as from January 11 2011 of the regulated tariffs of electricity sale to final consumers with consumptions of Very High Voltage, High Voltage and Special Low Voltage, which is also to be published and brought into force.

In conclusion, notwithstanding the adverse economic international environment, the Portuguese energy sector is a real national priority and, provided that the main challenges and obstacles are overcome, many developments and changes are expected to occur in order to meet the goals of 2020.

With collaboration of the other partners of GPA Energy Team: Sofia Gouveia Pereira and Margarida Lino Santos

About the author

Leonor Sarsfield Costa Freitas has a law degree received at the Faculdade de Direito da Universidade Católica Portuguesa de Lisboa, 1992. She became a member of the Portuguese Bar Association (Ordem dos Advogados Portugueses) in 1994. Her other qualifications include a postgraduate degree in Information Society Law - Internet, Copyright and Electronic Commerce, from the Faculdade de Direito da Universidade de Lisboa in 2001. Specialist lawyer in Financial Law recognized by the Portuguese Bar Association.

Costa Freitas was a founding partner of the law firm Costa Freitas & Associados Sociedade de Advogados from 1995 to 1998, and also worked as a lawyer in the legal department (loans and special agreements area), at Banco de Fomento e Exterior, now called Banco BPI, from 1994 to 1999.

From 1999 to 2003 she was a legal advisor in the major corporate department of Banco Espírito Santo (BES). In 2003 she was a founding partner of the law firm Nobre Guedes Costa Freitas & Associados Sociedade de Advogados, and has been a partner at Gouveia Pereira Costa Freitas & Associados Sociedade de Advogados since 2008.

Costa Freitas has had articles published in economic newspapers with national coverage concerning energy issues, namely wind energy and energy efficiency. She was a lecturer in Energy Infrastructures and Renewable Energies on the course The Law and Business of Energy, organised by IIR – Lisbon in 2010.
Contact information

Leonor Sarsfield Costa Freitas
Gouveia Pereira, Costa Freitas & Associados

Palácio Sottomayor
Rua Sousa Martins, 1-6º Dto
1050-217 Lisbon
Portugal
Tel:  +351 21 312 1550
Fax: +351 21 312 1551
Email:gpa@gpasa.pt
Web: www.gpasa.pt

About the author

Patrícia Vinagre E Silva has been a partner at Gouveia Pereira & Associados since June 2008. She joined the firm as a senior associate from Vieira de Almeida & Associados in 2007.

Vinagre E Silva studied for a law degree at the Faculdade de Direito da Universidade Católica Portuguesa de Lisboa, graduating in 1997. She became a member of the Portuguese Bar Association (Ordem dos Advogados Portugueses) in 1999, and received an LLM in Public Contracts at the Faculdade de Direito da Universidade de Lisboa in 2004.

From 2002 to 2006 she lectured in real estate law in the Real Estate Post-graduation Course of the Instituto Superior de Economia e Gestão (ISEG). She has also been a collaborator in various conferences on public contracts and litigation before the administrative courts, organised by Vieira de Almeida & Associados.

Since 2006 she has been recognised as a specialist lawyer in Public Law by the Portuguese Bar Association

Contact information

Patrícia Vinagre E Silva
Gouveia Pereira, Costa Freitas & Associados

Palácio Sottomayor
Rua Sousa Martins, 1-6º Dto
1050-217 Lisbon
Portugal
Tel:  +351 21 312 1550
Fax: +351 21 312 1551
Email:gpa@gpasa.pt
Web: www.gpasa.pt