PORTUGAL: An Introduction to Energy & Natural Resources

Investment in the Portuguese Energy Sector 

After a substantial recovery, the prospects for the Portuguese economy over the next few years are not quite as favourable, with an increase in inflation and falling economic growth anticipated. In our view, these factors will not have a significant impact on the energy sector nor on the legal services provided in this particular area in Portugal.

None of (i) the goals of achieving the energy transition and the decarbonisation of the economy by the end of 2050, (ii) the need to ramp-up the growth of renewable installed capacity and to find further suitable alternatives and instruments to optimise and take full advantage of such capacity, and (iii) the need to find appropriate alternatives for gas supply to Europe are likely to stop or be postponed, and for that reason, investments in the energy area in Portugal will continue to occur.

Portugal is a country deeply committed to these goals and is currently on track to achieve them. More important than the economic situation, is the stability of the legal and regulatory framework, which Portugal has always avoided jeopardising.

A global economic recession will evidently have an impact on investment in general, including the energy sector, and Portugal is not an exception to those external factors, but this is something we do not see happening in the near future. Investment in the energy sector in Portugal will continue to be stable and most likely grow.

The Electricity Market 

In the electricity market, on top of periodic M&A transactions allowing important assets to change owners, co-location projects are starting and will be implemented in full in the near future.

Storage, repowering, overpowering and hybridisation of existing renewable projects will play a crucial role within the energy transition and also as one relevant to dealing with the increase in energy prices in the wholesale markets that has been witnessed across Europe, contributing to the proper integration of renewable energy production through its full utilisation.

Investment in self-consumption schemes will continue to grow, with the implementation of significant energy communities or collective self-consumption schemes to the detriment of individual self-consumption, which will create win-win situations for all players: for the investors/operators that will achieve larger scales and consequently a growth of their revenues and for self-consumers that can attain better economic conditions and reduce their energy expenditure.

Offshore wind 

Offshore wind projects are one of the main approaches of the Portuguese government to expanding the electric market. It has announced an auction for 2023 for rights to install wind-power projects on the open sea; however, the deadline for bids has not yet been revealed. These projects will constitute an important step in dealing with the envisaged increase in the national demand for renewable electricity, notably the need to supply the electrolysers for green hydrogen production.

The government very recently launched a public hearing to formulate suggestions and collect comments and contributions on the preliminary proposal for the spatialised areas and connection points to the National Electricity Transport Network elaborated by the working group for the planning and operation of power generation centres based on the origins of renewable energy sources or ocean location.

Finally, based on the public consultation launched during January regarding the redesign of the electricity market, among other aspects, our expectation is that long term supply agreements, notably power purchase agreements (PPAs) and corporate PPAs, and contracts for difference (CfDs) will be a more present and a valid way to contract for energy supply.

The Gas Market 

In the gas market, our perspective is that the first projects for green hydrogen production will start their construction in the near future. Linked to these projects will be the implementation of gas pipelines necessary to connect those green hydrogen production assets to the gas public service grid.

The above are good reasons to believe that the energy market will continue to be live and active, with excellent prospects for the next couple of years.

New and Forthcoming Legislation 

Context: plans recently approved  

Portugal has approved/published several plans to provide context and regulation within the energy sector. Among others, reference shall be made to the National Energy and Climate Plan (PNEC) which was approved by Resolution of Council of Ministers No 53/2020 of 10 July and which defined the strategy for 2030, settling ambitious targets for reduction of gas emissions and investment in renewable energy and energy efficiency. In addition, reference shall be made to the Roadmap for Carbon Neutrality 2050 (approved by Resolution of Council of Ministers No 107/2019 of 1 July), which aims also to put Portugal on the path to meeting the European goals and which calls for a reduction of gas emissions of 85-90% by 2050 (versus 2005 levels) and entails action on the decarbonisation of electricity generation and transport, and carbon sequestration.

Finally, reference shall be made to the National Hydrogen Strategy (approved by Resolution of Council of Ministers No 63/2020 of 14 August) which sets a goal for hydrogen produced from renewable energy to cover 1.5-2.0% of Portugal’s energy demand by 2030, with use in industry, domestic maritime shipping, road transport and for injection into the natural gas network.

The goals foreseen under this Plan were recently revised as per Decree Law No 84/2022 of 9 December aligned with EU guidelines and directives (eg, REPOWER EU approved in May following the energy crises deriving from the Russian-Ukraine conflict).

Recent approved legislation  

The former legal framework for the electricity sector – under which capacity reservation certificates (TRCs), prior registrations and production licences were issued – was Decree Law No 29/2006, of 15 February, Decree Law No 172/2006, of 23 August, as amended. This legal framework was subject to a profound revision in 2022 through Decree Law No 15/2022, of 14 January which revoked the above-mentioned legislation and assured clarity in some relevant areas such as repowering, overpowering, hybridisation, storage and self-consumption schemes.

In addition to such legal framework and in line with European guidelines and directives (including the above mentioned REPOWER EU), the government has additionally enacted Decree Law No 30-A/2022, of 18 April and also Decree Law No 72/2022 of 19 October which approve exceptional measures for simplifying the procedures for the production of energy from renewable sources.

Among other measures, this legislation foresees the possibility of starting operations after communication by the network operator to the Directorate General for Energy and Geology (DGEG), and within three years obtaining an operation licence. This simplifies the procedure towards the municipality, it now being possible to implement a project only following a prior communication (without requiring the issuance of a construction licence) and also includes specific deadlines for certain opinions from public entities to be issued.

Upcoming legislation 

Following public consultation between August and September 2022, the government will enact new legislation which aims of setting out measures to reduce the burden and simplify administrative procedures for promoters within the environmental area. Although the final version of such legislation is still unknown – and the extent of the contributions that were made by promoters and other interested entities – the initial proposed legislation focused on promoting the elimination of licences, authorisations, acts and procedures in environmental matters considered unnecessary. Further, the proposed law shifts the procedure to one more based on a monitoring, co-responsibility and self-regulation.

On a different note, it is expected that during 2023, tender documents related to offshore wind auctions are to be published. In this regard please note that a public consultation (up to 30 days) on the preliminary proposal of the spatialised areas and connection points to the National Electricity Transmission Network is being elaborated by the working group for the planning and operation of power generation centres based on renewable energy sources of origin or ocean location.

Potential Hurdles 

Although some aspects have been duly resolved as per the above-mentioned recently enacted legislation, Portugal still faces several obstacles related to licensing procedures, which may take, in a standard project, from one to two years to be duly licensed. For this purpose, simplifying measures, such as the ones mentioned above, shall be implemented along with the enhancement of the human resources of such public licensing entities and the use of platforms and mechanisms which enables the speeding up of the procedures.