Energy sector
Energy sector in Portugal

The production of energy in Portugal takes place through eolic generation (through the company EDP Renewables) and hydric and thermal generation (through the company EDP Produção).

The generation of hydric and thermal electricity is carried out in two ways: ordinary and special regime.

Generation ordinary regime

The generation ordinary regimen applies to electricity generation based in traditional and non-renewable sources and in large hydro-plants.

The ordinary regime has been operating on a competition basis since 2007, after the implementation of MIBEL (Iberian Electricity Market). Since then, generation activities were liberalized and plants began to offer their energy on a common, integrated Iberian energy platform.

The plants' remuneration has also undergone some changes, and Power Purchase Agreements (PPA) gave way to Contractual Balance Maintenance Costs (CBMC). As for the plants' operation decision, it ceased to be centrally operated by REN and was transferred to a decentralized order scheme managed by the different operators.

Before the implementation of MIBEL, plant remuneration was based on Power Purchase Agreements (PPA) and the plants' operation decision was centrally operated by REN. With MIBEL there was a transition to a decentralized order system managed by the operators themselves, as well as the early termination of all PPAs, which gave way to Contractual Balance Maintenance Costs (CBMC) for EDP Group plants - instruments that provided profitability rates in line with previous PPAs. Additionally, with the growing importance of production from renewable sources in the electricity system, the availability and investment in backup technologies have been encouraged by the Power Guarantee mechanism. This mechanism is now suspended until the conducting of an auction that will determine its assignment.

The markets comprised in MIBEL are managed by the Iberian Energy Market Operator. The Portuguese Center (OMIP) is responsible for managing the forward market.

Special regime generation

Special regime generation is the generation activity subject to special legal schemes, such as electricity production through cogeneration and endogenous resources, renewable and non-renewable sources, microproduction, miniproduction, and production with no network power injection.

In Portugal, special regime generation includes electricity generation operations through mini hydro plants, cogeneration and biomass. Special regime generation has been encouraged by EU policies, with the definition of the technical conditions for distribution network connections and purchase guarantees for all energy transferred into the network, in compliance with the remuneration processes set out in various legal documents.

The regime includes:

  • Electricity generation from renewable energy sources and industrial or municipal waste;
  • Generation of electricity in cogeneration (heat and electricity);
  • Microproducers (applicable in BT);
  • Miniproducers (applicable in MT and BT);
  • Small Generation Unit (SPU) (applicable in MT and BT);
  • Private Consumption Generation Unit (PCPU) (applicable in AT, MT and BT);

This activity has a specific legal framework, particularly with regards to the commercialization of generated electricity and the remuneration of its operators, with the aim of fostering the development of renewable energy. In Portugal, special scheme electricity enjoys priority dispatching privileges.

The Last Resort Supplier (LRS) has the legal obligation to purchase all special scheme production from producers who wish to do so, at regulated, administratively fixed prices for each technology (feed-in-tariffs) - subsidized scheme -, which does not hinder the possibility of special scheme producers selling their energy to other electricity suppliers operating in the market.

Basic industry laws were recently amended to allow the renumeration of SSP under the market scheme, which means that producers sell their energy directly on the market under similar conditions to the PRO, with the possibility of using the services of an aggregation agent.

It can be expected that, as SSP technologies mature and increase their competitiveness, special scheme producers will also be able to sell their energy on the market, under similar conditions to those that apply to normal scheme producers.

Data on the Iberian Energy Market
Iberian Data 2018

Market liberalization

At retail level, the sector’s liberalization continues. In 2015, the liberalized market represented nearly 92% of the total volume of commercialized electricity in Portugal and 88% in Spain. The final price for households continue to be above the European average both in Portugal and Spain. In Portugal this holds true since the increase in VAT from 6% to 23% in October 2011. For industrial customers, prices in Portugal have remained below the EU average.

Natural gas consumption can be broken down into two main uses: conventional consumption (household and industrial consumption, including for cogeneration units) and power sector consumption. In 2017, a big increase in the demand from the CCTG power plants has contributed to an increase of 11% in the gas demand in Iberian Peninsula, compared to 2016.

Although demand increased, contracted volumes continue to exceed demand, raising the need to deviate high volumes of natural gas to international markets. However, the spreads on gas prices do not enable the deviation of Iberian gas to Europe and Asia, leading to gas-fired power generation to become the most profitable use of natural gas.

A new government took office in November 2015, and its program includes relevant goals in terms of energy, such as a renewed interest in promoting renewables, boosting energy efficiency, expanding electric mobility and developing an energy technology cluster. A set of regulatory developments linked to the government’s political action should be highlighted:

Change in the legal regime for the social tariff

Law n. 7-A/2016, of March 30, which approved the State Budget for 2016, changed the legal regime for social support to energy consumption, looking to create a single model and an automatic entitlement to gas and electricity social tariffs. In parallel, the same Law revoked the existing extraordinary social support to consumers, with the corresponding discount being integrated in the social tariff and, therefore, leading to the financing of the measure by ordinary regime producers, in case of electricity, and by all consumers, in the case of natural gas. As a result of these changes, which came into effect on July 1, 2016, the number of economically vulnerable customers that benefited from a 33.8% discount in the electricity bill rose to about 800,000.

Reevaluation of the National Plan for Dams

As mentioned in the government’s program, the government reevaluated the National Plan for Dams and in April it announced the decision to cancel the construction of the Alvito (EDP) and Girabolhos (Endesa) dams, to suspend the construction of the Fridão (EDP) dam for three years and to maintain the construction of the Tâmega (Iberdrola) dam.

Rehabilitation of Electric Mobility

In the program for its mandate, the government committed to providing a new impulse to electric mobility, foreseeing the expansion of the charging network in 2016 and 2017. Consequently, in 2016, the government concluded the first phase of the pilot network MOBI.E, installing 124 normal charging stations and 50 fast charging stations. It also launched the second phase of the pilot composed by 404 normal charging stations to be installed until 2018. The growth of the MOBI.E network will be financed by the PO SEUR incentive program under the Portugal 2020 funds, using European community funds, with the national component funded by the Environmental Fund.

Re-allocation of the Low Voltage (LV) electricity distribution concessions

The municipal concessions for the exploration of LV electricity networks, granted by mainland Portugal’s 278 municipalities, end between 2016 and 2026. Due to this fact, the government submitted a Law Proposal to the Parliament relative to the organization of public tenders to be launched to reallocate the concessions. The model chosen by the Government has an undelying logic of aggregating municipalities and concentrating the tenders in a pre-established common date.

Rationalization of National Electricity System (NES) Costs

In October’s tariff exercise for 2017, a set of diplomas which aim at mitigating costs of the NES were published:

  • Retroactive reimbursement of public support to renewable energy benefiting from Feed-in Tariffs

On October 13, Ordinance n. 268-B/2016 was published, determining the reimbursement of 140 M€ to the NES relative to values received in an allegedly wrongful way by special regime generators who accumulated guaranteed remuneration under the form of Feed-in-Tariffs and public support for the promotion and development of renewable energy. The mechanism to reimburse the excess amounts will be defined in a separate Ordinance to be issued by the government.

  • Revision of the interruptibility service model

Ordinance n. 268-A/2016, of October 13, establishes that, during 2017, the current interruptibility service model of the NES will be reviewed and replaced by a competitive mechanism.

  • Revision of the Capacity Payment mechanism

Dispatch n. 12378-A/2016, of October 13 launches the revision process of the capacity payment remuneration model to create a market mechanism that exclusively remunerates the availability services provided by electricity producers, in line with the guidance provided by the European Commission in 2016 for capacity remuneration mechanisms.