Energy sector in Portugal
EDP is Portugal's main investor and one of the driving forces of the country's economy and development
Generation is the first activity in the energy sector's value chain. We are present in this activity through EDP Produção, which operates an extended portfolio, with a particular focus on hydroelectric energy, coal energy and natural gas combined cycle. The generation of electricity in Portugal is carried out in two ways: ordinary and special regime
Generation activities that are based on thermal-origin sources or large hydro plants are considered to be ordinary regime electricity generation. In this generation regime, for which a permit is required, there is an incentive for the use of endogenous and renewable resources or the combined production of heat and electricity. The connection to the producer's grid must comply with the requirements set out by the regulations on generation facilities.
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.
The markets comprised in MIBEL are managed by the Iberian Energy Market Operator - Portuguese Center (OMIP), which is responsible for managing the forward market.
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:
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.
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 2016, Iberia consumption increased nearly 3%, boosted by Portugal’s power sector consumption (+39% in relation to 2015) and by conventional consumption in Spain (+3% in relation to 2015).
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.