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Law 75/2020 of november 27

A set of exceptional and temporary measures for the recovery of companies in difficult economic situation due to the COVID-19 pandemic has been introduced by Law 75/2020 of November 27.
The said Law:

1. Establishes an exceptional and temporary regime, extending the deadline to conclude negotiations to approve a recovery plan or a payment agreement, and also adapting the insolvency proposal;
2. Extends general privileges over movable property provided in the Insolvency and Corporate Recovery Code (CIRE) to partners, shareholders or any other specially related persons who finance the company's activity during the Special Revitalization Procedure (‘PER’);
3. Provides for the application of the Extrajudicial Regime for the Recovery of Companies (‘RERE’) to companies that are currently in a situation of insolvency caused by the pandemic; and
4. Creates the Extraordinary Viability Process for Companies (‘PEVE’) affected by the economic crisis resulting from the pandemic.

Extraordinary viability process for companies 

PEVE is a process that seeks the judicial homologation of an extrajudicial agreement to ensure the viability of a company, established (out of court) between the company and its creditors.
PEVE is applicable:

1. To companies in a difficult economic situation or in imminent or current insolvency, provided that: (i) they are still viable, (ii) their assets exceed their liabilities as of December 31, 2019 and (iii) they are not under PER or insolvency proceedings;
2. To micro or small enterprises that: (i) are not in a pending PER or insolvency proceeding, (ii) have received rescue aid that has not yet been repaid, or are in a restructuring plan under the State aid measures (even if on December 31, 2019 their assets were not in greater number than their liabilities).
3. To companies that have managed to regularize their insolvency situation through RERE and filed the restructuring agreement in due time, while not having more assets than liabilities on December 31, 2019.

Differences between PER and PEVE 

In comparison with PER (directed to the judicial homologation of a recovery agreement between a company and its creditors), the distinctive notes of PEVE are essentially two:

1. Its application to situations of current insolvency of companies (contrary to PER, which is reserved to companies in a pre-insolvency situation);
2. Its application only to companies in difficult economic situation or imminent or current insolvency caused by the COVID-19 pandemic.

In what concerns the procedure, PEVE has many similarities with PER, with some differences justified by its own purpose - to avoid mass insolvencies caused by the COVID-19 pandemic - and by its exceptional and temporary nature.
PEVE is an urgent proceeding, with priority over other pre-insolvency and insolvency urgent proceedings, including PER and insolvency proceedings.
The proceedings begin with the filing of an application in court to declare the company’s insolvency. The application must be accompanied by the viability agreement (signed by the company and by creditors representing at least the majorities of votes provided for in Article 17-F, paragraph 5 of ‘CIRE’) and by a set of documents that are intended to prove the company's economic situation, including the list of the company's creditors and a declaration by the management body attesting that its situation was caused by the crisis brought by the COVID -19 pandemic and that it meets the necessary conditions for viability.
After filing of the application, the company can request the joinder of other PEVE's filed by companies in a parent-subsidiary or group relationship, as long as their proceedings are also at the preliminary stage. This possibility is not contemplated in PER’s regime.

EFFECTS

Once the application is received, the judge issues an order appointing the provisional judicial administrator. This order has the following effects as well:

1. It prevents the filing of judicial actions for debt collection and suspends pending actions with the same purpose. All these actions are extinguished if the viability agreement is homologated by the court;
2. The company is no longer allowed to perform acts of special relevance without prior authorization of the judicial administrator;
3. Suspends pending insolvency procedures, which are extinguished with the judicial homologation of the viability agreement;
4. Suspends all prescription and limitation periods until the judicial homologation or refusal of the viability agreement;
5. Prevents the suspension of essential public services, such as water, electricity, natural gas, or electronic communications supply.

Relevant proceedings 

PEVE includes a phase to challenge creditors and request the rejection of the viability agreement (within 15 days), on the basis of undue inclusion or exclusion of claims, incorrectness of their amounts or incorrect legal qualification of the recognized claims.
Upon receipt of the oppositions, the judge decides within 10 days: (i) on the objections made; (ii) on the rejection or homologation of the agreement, considering the creditors’ statements and the (non-binding) opinion of the provisional administrator.
The agreement must be homologated by the judge only if, cumulatively: (i) it complies with the majorities provided for in CIRE; (ii) presents reasonable prospects of ensuring the viability of the company; (iii) there are no other circumstances that justify a rejection.
The homologation decision is binding for the company, subscribing creditors and creditors included in the definitive list of creditors, even if the latter did not take part in the negotiations, regarding the credits constituted prior to the appointment of the provisional administrator.
Any creditor not included in the definitive list of creditors has 30 days to accede to the homologated agreement. The company is notified and has five days to accept or reject the inclusion of the creditor, the silence corresponding to non-acceptance.
If the court rejects the agreement, PEVE and all its effects are extinguished. This means that all actions against the company may be resumed, including actions that were suspended with the order appointing the provisional administrator. Contrary to what happens in PER, the rejection of the agreement cannot, in any situation, be equivalent to insolvency proceedings application by the company.
Differently from PER, the rejection of the agreement is not subject to appeal.

Incentives to invest in the recovery of companies

Some of PEVE's incentives to invest in the company's recovery are particularly interesting:

1. Transactions provided for in the agreement to raise the company’s credit availability are not subject to resolution in favor of the insolvent estate, in case the company is declared insolvent after PEVE; and
2. Creditors, partners, shareholders or any other persons especially related to the debtor who, in the extraordinary viability process, finance the company's activity shall enjoy a general privilege over movable property, ranked before the general privilege over movable property granted to employees.

Entry into force and duration

Law No. 75/2020 of November 27, 2020 entered into force on November 28, 2020 and will remain in force until December 31, 2021.
Considering the temporary nature of the aforementioned measures, an increase in pre-insolvency and insolvency situations in the Portuguese business sector is expected at the end of 2021 and at the beginning of 2022. When this time approaches, it may be particularly important to extend the duration of PEVE regime.

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Overview

Portugal and Spain are strongly committed to the decarbonization goals set by the Paris Agreement. After a significative downtime, mainly due to the 2008-2012 economic crisis, there have been significant changes in recent years with strategy refocusing on the development of solar energy comes along, as both countries have two of the highest solar irradiation levels in Europe.
This is a market with high growth potential where, until the end of 2030, Portugal intends on reaching 9 GW of solar photovoltaic ("PV") installed capacity, and Spain has set the objective of reaching 37 GW, against a current installed capacity of, respectively, 1,030 MW and 11,547 MW.
In this article, we have looked into how both countries are addressing the challenges arising of how to combine limited the low availability of network capacity with a high demand from market players. Both countries have launched public tenders for PV capacity and to these challenges have added a political priority of reducing tariffs to final costumers.

The Iberian auction experiences 

The Portuguese National Plan for Energy and Climate 2030 (“PNEC 2030”) established a set of ambitious goals for renewable energy to be met until 2030. According to this plan, renewable energies should represent 47% of national electricity consumption in 2030, with an increase in installed capacity up to 28.8 GW. Particularly in solar, there has been a significant reduction of costs associated with PV technology since 2017 which, alongside with the high level of predictability of solar resources, has led to an increase of the number of requests for energy production licenses in Portugal. Such demand proved to be higher than the installed capacity of the Public Grid (“RESP”).
To deal with a reduced grid capacity, in 2019 the Portuguese Government changed the legal framework of the electricity sector reviewing the whole procedure for allocating power generation licenses. The licensing process was reversed, requiring the promoter to request the granting of a grid capacity title (“RESP Title”) before applying for a power plant production license. Under the 2019 regulatory framework, the RESP Title can be obtained: (i) by request directly to the Portuguese Energy Directorate (“DGEG”) if there is any available network capacity; (ii) by entering into a capacity agreement with the grid operator if there is no available network capacity, where the promoter bears the costs of the grid capacity extension; or (iii) by award in an auction organized by DGEG, where the title is granted after a tendering procedure for the allocation of reserve capacity.
The first Portuguese auction under this new regime, in August 2019, awarded 1150 MW, distributed by 22 projects. Bids were submitted by two different pricing schemes: the guaranteed remuneration tariff where the average result has been of €22,22 p/MWh; and the market scheme, with an average tariff offered of €18.36 p/MWh. This auction was a huge success, with demand outstripping nine times the supply and the lowest ever solar power electricity price bid of €14.8 p/MW. A total of 64 companies participated, including major players in the energy sector, such as EDPR, Galp, Iberdrola, Voltalia, EDF and Finerge. By country, Spain was the big winner country of the auction with the largest lot awarded to JB Capital Markets, with 110 MW. Iberdrola won five lots, corresponding to 149 MW, and Solaria won four lots, with 49 MW.
A subsequent auction of 700 MW held in August 2020 awarded 670 MW composed of 12 lots in Alentejo and Algarve, with an average bid of €0.020/kWh. A total of 35 bidders participated, with demand once again largely outstripping the offer. The big winner was the South Korea's company Hanwha Q-Cells, awarded with 315 MW, while Tag Energy obtained 20 MW. Iberdrola and Endesa gained 69 MW and 99 MW respectively. This second auction was perceived by the Portuguese Government as an even greater success than the one of 2019, with a gain of about 833 thousand Euros for each MW awarded, an increase of about 80% compared with 2019. The Portuguese Government came into this auction expecting to obtain 33.5 thousand euros per MWh, but the winners ended up paying to 37.1 thousand euros per MWh to the system. Also, the World record for the lowest output price was broken once again with a bid of €0.0112/kWh.
In Spain, the development of solar energy started earlier. At the beginning of the new millennium, the country started stimulating the solar energy market with attractive remuneration schemes and subsidies which led to its early development. In 2008, Spain had 2,718 MW of installed solar capacity but the outbreak of the financial crisis, an unexpected increase of PV installations, and the Spanish Government move to contain costs by reducing the sector’s subsidies lead to a severe market contraction. In 2009, requests for injection were in the reduced number of 44 MW.
The turning point came with the Paris Agreement and with Spain’s national action plans to meet new decarbonizations goals. Economic conditions allowed the decline of the PV technology implementation costs, boosting investment in this segment of the energy market, and, as in Portugal, resulting in an increase of requests for energy production licenses exceeding the available grid reception capacity.
Spain launched its first 700 MW renewable energy auction in January 2016 exclusively for wind and biomass technology. In May 2017, a new bigger auction was held: 3,000 MW were awarded. In both Forestalia took the biggest share, with in excess of 1,500 MW of wind and biomass capacity in Aragón.
In the second auction of 2017 (which also comprised solar), 5,037 MW were granted to 40 different companies. The largest share was granted to the Spanish industrial group ACS with 1.55 GW of assigned projects, followed by X-Elio (455 MW), Endesa (338 MW), Forestalia (316 MW), Gas Natural Fenosa (250 MW) and Solaria Energía (250 MW).
In 2020, Spain announced ambitious targets for the development of renewable energy under its proposed Integrated National Energy and Climate Plan (“PNIEC”) 2021-2030, which comprises the installation of around 5,000 MW of new renewable energy capacity per year over the next decade. To achieve these goals and increase competitiveness process, a new remuneration scheme for renewable energy facilities was established through the New Economic Regime for Renewable Energy (“REER”) setting up a long-term guaranteed remuneration price for awarded bidders in an auction.
On January 26, 2021, Spain held the first auction of installed power capacity under the REER, where 84 companies offered bids, and represented a total of 9,700 MW of capacity. There were 32 winning bids, representing a total of 3,034MW of energy capacity awarded: 2,036 MW of solar PV and 998 MW of wind energy. The average price for solar was set at 0.02447/kWh and the lowest bid at €0.01498. The most successful bidder has been X-Elio Energy with 315 MW of PV capacity, followed by Iberdrola subsidiary Iberenova Promociones (243 MW) and Spanish utility Naturgy (196 MW).

Different approaches to auctions

In its auction procedures, Portugal had more restrictive approach than Spain, as only new PV installations were allowed to participate, while in Spain new facilities and enlargements or modifications of existing facilities were eligible.
The application process in Portugal is very simple. Promoters sign up their application through an online platform and provided basic information regarding their company and their bidding capacity intentions. In Spain, it there is more bureaucracy. First, promoters have to be pre-qualified, by submitting a high detailed set of documentation regarding their commercial information electronically. After being pre-qualified, bidders are entitled to participate in the auction for a certain power previous declared. In both countries, promoters must provide a bid bond: 10,000€ p/MW in Portugal and 60,000€ p/MW in Spain.
In the Portuguese bidding stage, promoters submit several bids through an online platform, applying for one of the following remuneration schemes already mentioned above: (i) market scheme without storage where promoters bid for a contribution to be paid to the National Electrical System (“NES”); (ii) a fixed guaranteed tariff structure for a 15-year period, where the bids expressed a discount to the reference feed; and (iii) a market scheme for plants incorporating a storage system, where the bids expressed a discount to an annual fee. The storage mechanism was a new feature compared to the auction held in 2019. This modality has two advantages: since renewable energy production is intermittent, it is essential to increase this storage capacity in order to obtain energy autonomously. On the other hand, concerning price fluctuations, storage ensures that the price of electricity injected into the grid never exceeds a particular value.
In Spain, the capacity is awarded through a competitive sealed-bid auction whereby the awarded bid corresponds to an awarded price. As such, Producers are bound to sell all their energy at their bidding price, with small adjustments concerning wholesale market pricing. In the last auction, promoters were granted a 12-year offtake agreement that could vary in future auctions between 10 and 15 years. The specific remuneration under the ERRE is obtained from its auction price, the remuneration parameters of the technology, the characteristics of each facility and its participation in the energy market. For the 2021 auction, the remuneration parameters included: a minimum number of annual operating hours; a maximum number of annual operating hours; and market adjustment percentages. This auction offered the possibility for bidders to include energy storage in their offers. Although, no winning bids featured such technology. This can be justified by the fact that the storage market in Spain is currently underdeveloped, limited to pilot projects or research facilities and by the fact that the profitability of this model depends exclusively on market prices.
The Portuguese bidding phase is much more competitive than the Spanish one since promoters are entitled to make several bids competing directly and simultaneously with other promoters, and thus, it is no surprise that output price has been breaking records. The Spanish bidding phase is less competitive among the promoters since promoters are only allowed to make one offer (by closed letter), and without knowing the bid offers of the other promoters. On one hand, prices in Spain may not be as low as in Portugal, but on the other hand, winning an auction in Spain is much more uncertain than in Portugal since promoters have a much lesser active role.
In both countries, operators with an awarded bid must provide a performance bond of 60,000€ p/MW and are subject to a strict schedule and the compliance of certain millstones, starting with obtaining the necessary construction licenses and permits. Failure to comply with these obligations would result in the loss of the bond provided after the awarding. The Spanish auction granted, on average, longer deadlines for the compliance of these obligations.
Summarizing the differences between the two countries in relation to solar auctions:

1. The Spanish auction system allows existing installations to participate, while the Portuguese system only new ones.
2. The Portuguese auctions contain various types of remuneration, which allow investors to tailor proposals according to the preferable business model, whereas the Spanish system only permits a fixed guaranteed tariff structure. Also, the Portuguese fixed remuneration scheme offers a 15-year period and the Spanish 12-year period only.
3. The energy storage appears to be more attractive in Portugal than in Spain since the storage bids are granted a capacity payment in exchange for hedging the Portuguese electricity system against high market prices. This capacity payment has been a real advantage for storage bids since the storage system itself was almost free of constraints to operate on the different markets.
4. The Portuguese bidding phase is more competitive than the Spanish closed offer system, since it allows promoters to make several bids competing directly and simultaneously with other promoters. Even though bid prices in Spain are higher than in Portugal, Portuguese Promoters have a more active role and influence the auction prices.

What next?

To achieve decarbonization goals, promotion of renewable energies is paramount. Given the privileged geography and the investment in solar energy of these two countries, we can only expect that new solar auctions follow this year and in the upcoming years taking into account that the auction system ensures for a number of advantages, namely: (i) limitation of investor’s risk (ii) economic efficiency of the winning projects, and (iii) achievement of energy policy goals.
In Portugal, the Government intends to continue to hold solar auctions in the coming years, but there are still no dates for the new solar tenders in 2021. Even so, according to the goals outlined in the PNEC, the country aims to achieve a solar installed capacity of 6,6 GW in 2025, and 9 GW in 2030. In a scenario of strong demand for production licenses and shortage of reception capacity in the grid, auctions will be the main way to meet this demand and to speed investment in new capacity.
The next Portuguese solar auction this year will include floating power plants on reservoirs to circumvent availability of land limitations as well as to reduce costs related to land rights’ acquisition.
In parallel, the Portuguese Government has already announced that it will move forward with the first green hydrogen auctions in 2021, which will not be targeted to producers, but to potential and future consumers of green hydrogen. The outline presentation of the green hydrogen auctions will be made public in the first week of April. Auctions for offshore wind energy in Portugal are also expected to be launched in the near future.
As for Spain, the auction schedule appears to be substantially more solid, with the Spanish government committing to launching one auction per year in the next four years: 4,600 MW in 2022; 6,400 MW in 2023; 8,200 MW in 2024; and 10,000 MW in 2025.

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Earlier in February, the Spanish Government approved an entirely new Energy Storage Strategy (Estrategia de Almacenamiento Energético), which is seen as key to the security of supply, the decrease of energy prices and the transition to an emission-neutral economy. The Strategy sets ten lines of action and 66 measures including storage in the energy system, circular economy, energy communities and ways for citizens to participate, green hydrogen promotion, creation of new business models with the intent of recycling and getting a second life out of batteries, plus policies to remove administrative barriers to facilitate new projects.
Currently, the storage available in Spain comes largely from pumped hydrogen and concentrated solar power (CSP) plants, that the Spanish Government intends to replace with large-scale batteries (at least 400 MW by 2030). The Strategy includes making the most of using the energy available from electric vehicles (26 GWh per year by 2030), additional storage capacity behind the meter as well as utility-scale storage provided by CSP plants. The Strategy predicts the storage capacity will increase from the current 8.3GW level to 20GW by 2030 and to 30GW by 2050 (including both utility-scale and distributed storage). These storage levels were set considering the decarbonization objectives established in the Spanish national energy and climate plan 2021-2030 (Plan Nacional Integrado de Energía y Clima or ’PNIEC’), which sets the share of renewable energy in energy consumption at 42% by the end of the decade. The Strategy follows the obligations taken on under the Paris Agreement as well, and pursues the  design modernizing goals of electricity markets, that the European Commission has been developing under the Clean Energy Package for all Europeans (CEP).
But how ambitious is this Strategy and how advanced is Spain in implementing an energy storage policy when compared to Portugal and other EU countries?
The Portuguese National Energy and Climate Plan 2030 (Plano Nacional de Energia e Clima or ‘PNEC’) envisages an increase in storage capacity, first through hydro pumps and, towards 2030, with the contribution of hydrogen and batteries. Presently, the most developed and promising electric energy storage technology is the use of reversible pumping in hydroelectric plants, with efficiency ratios around 70-80%. However, in the Portuguese 2020 solar auction, 8 of the 12 lots awarded, have already included storage, representing 483 MW, almost 75% of the granted capacity (670 MW).
But, like Portugal, Spain has not yet introduced specific connection rules and tariffs to storage projects. France has recently included a proper definition of energy storage in its regulatory framework to address the issue of connection rules for storage in the near future and a specific target has been defined for the development of pumped hydrogen storage: the expansion of 1 to 2 GW in 2025-2030.
Currently, the European market for Batteries and Energy Storage Systems (BESS) is led by Germany, where energy storage facilities have been near renewable energy-based power plants, as this combination leads to an advantage concerning market premium for the installations plus improved profitability.

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The discussion about taxation over VOD platforms, including so well-known Netflix, HBO and Disney + first started when Portugal transposed the new European Audiovisual Media Services Directive (“Directive”) into National Law by enacting Law no. 74/2020 (“Law 74/2020”). These platforms became subject to an obligation of either acquiring independent European productions’ rights, originally in Portuguese, remastering or single-handedly producing locally.

Other notorious platforms, such as YouTube and Facebook, as video-sharing providers, are now subject to an ad fee of 4%, the same fee movie theaters’ advertising and commercials broadcasted on TV were already subject to.

But the hot topic is VOD platforms being levied on 1% of their relevant income in the previous year, i.e. those arising from audiovisual commercial communications, or subscriptions for conditional access television operators, as well as other types of income.

Law 74/2020 does not define its own concept of “relevant income” and how it will be assessed, collected or paid. There are certain situations, however, that are specifically not included in the definition.

This made it is impossible to determine the relevant income of those who (i) do not have to report it in Portugal, but in other Member States – the elements made available in those countries do not discriminate the income by geographical origin, which does not allow the part of the income obtained in Portugal to be determined; or in cases of (ii) non-disclosure of the legal documents required to enable the correct assessment of ‘relevant income’.

In this short article, we will analyze the challenges resulting from the non-determination of this concept and the effectiveness of charging streaming services this way.

First, is this charge legal?

It should be noted that levies or charges (taxas) are based on the provision of a public service, use of a public space or removal of a legal obstacle to the individuals, which appears not to be the case.

This makes us question if this charge is, in fact, a real tax rather than a levy, since it is based, essentially, on the ability of VOD platforms to pay, through their net worth.

The creation of taxes obeys certain legal principles that appear to not have been respected when this charge was established. One of these principles is the principle of legality that determines that taxes can only be created by law, which must determine who and what is taxed, the rate, and tax benefits for taxpayers. 

Since this charge does not establish specific terms for the settlement and collection of the charge, nor does it specify what “relevant income” means, it is probably going to be challenged by VOD operators.

The Directive itself does not seem to provide a definition of the object of the assessment, simply mentioning that Member States can require media service providers under their jurisdiction to contribute financially to the production of European works, by direct investment in its content and through contributions to national funds.

The vagueness of this concept in Law 74/2020 may cause many uncertainties at the time of determining the tax that is meant to be collected. For example, if the obligation is determined and based on number of subscribers, how will that number be assessed if the operator has had subscriptions interrupted during the year? A more detailed definition of the concept of "relevant income" would help avoid uncertainty in this type of situation.

VOD operators would be penalized and subject to the payment of a charge for an income that has not been obtained by them.

France and Spain, which are planning to introduce an identical charge, intend to calculate it through the turnover of streaming companies and not on the "relevant income".

This way, if the same criterion was applied in Portugal, VOD operators would have a much more realistic estimation of how much they would pay, and they would be effectively taxed for the full value of the services actually provided and not by mere assumptions.

And is this charge a reasonable solution?

We wonder if levying streaming services is the most effective way to promote Portuguese cinema as it is. Since the cinema industry is not highly demanded in the country, maybe it is not wise to increase supply exponentially without there being any demand, instead of promoting consumption first. This considering, of course, the fact that this fee penalizes VOD platforms.

It is understandable to consider whether taxing popular streaming services will significantly reduce the operators’ investment capacity, jeopardize competition within the sector in Portugal and ultimately affect the provision of these kinds of services.

Both from a Competition, Media, or Tax perspective, financially targeting streaming services providers that currently have over two million subscribers in Portugal and which could pose a unique opportunity for an organic development of the media industry within Portuguese territory, is a risky play, especially if we consider that Europe’s main economies had already overloaded digital services with taxes in those jurisdictions. For all that matters, taxing streaming services in hopes of developing local cinema is an opening move for the Portuguese digital services taxation as bold as a Queen’s Gambit in chess.

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A tax wind from Spain

It all started in 2013 when Spain published Ley 15/2012, of 27 December (later amended by Law 9/2013, of 13 July), with a special tax of 7% charged to electricity producers, and the Portuguese Decree-Law no. 74/2013, of June 4 (the “Clawback Law”)) created a mechanism to correct imbalances between electricity producers, caused by distortions resulting from external events or measures taking place in other Member States of the European Union.

The Spanish energy tax has been controversial. The Spanish Supreme Court argued the illegality of this mechanism considering that this tax would not be exclusively an environmental tax, since it would tax all energy producers indiscriminately. Also, it created a possible double taxation issue with the Tax on Economic Activities that energy production was already subject to. Nevertheless, the Spanish Constitutional Court rejected this understanding and decided for the adequacy of the energy tax to the Spanish Constitution.

In 2018, the Spanish authorities decided to suspend the energy tax for six months with the purpose of reducing the electricity prices for costumers. This decision was temporary, and the energy tax was re-enacted in 2019. Again, Spanish electricity companies increased their wholesale prices. This influenced the market price at OMIE (the MIBEL daily market) and allegedly benefited the Portuguese producers integrated in the same market and were not paying the Spanish tax, thus receiving windfall profits.

Lead to a long list of regulations in Portugal

In Portugal, the Government imposed a charge on energy production (the “Clawback Charge”) of EUR 6.5/MWh, through Order no.11566-A/2015, of 3 October, that Order no. 9955/2017, would decrease to EUR 4.75/MWh. This was done under the cover of the Clawback Law, with the above argument that Portuguese producers were receiving windfall profits. Subsequently, the Portuguese Energy Secretary of State suspended the Clawback Charge in the period corresponding to the suspension of the energy tax in Spain, from 1 October 2018 until 31 March 2019.

Decree-Law no. 104/2019, of 9 August, amended the Clawback Law to allow a pre-payment to temporarily mitigate the time lag between the verification of the external event (in this case, the verification that the Spanish energy tax remains in place) and the respective compensation (i.e. the Portuguese Clawback Charge). It also allowed to adjust the external event to the electricity production technology on which it is focused, to avoid distortions of undifferentiated application to different energy production sources. Important to note that new Article 1.º-A of the Clawback Law expressly established that the clawback charges apply to electricity producers.

ERSE, the Portuguese Energy market regulator, was requested by Decree no. 282/2019, of 30 July, to submit, on a yearly basis, a report on the impact on the formation of the average price of electricity in the Portuguese wholesale market for measures and events recorded in the European Union. ERSE published its first report in September 2019, where it considered that the re-enactment of the Spanish energy tax was an event that could cause a market imbalance requiring compensation through the clawback mechanism.

As a consequence, the Clawback Charge on Portuguese producers in respect of the energy output was set at the value at EUR 6.27/MWh for 2018 and at EUR 4.18/MWh for 2019, by Order no. 8521/2019, of 26 September.

The pre-payment for 2020 was adjusted to EUR 2.24/MWh by Order no. 6740/2020 of June 30 to internalize local events that affected the Electric National System (“SEN”) such as the taxation of petroleum products and energy; the extraordinary contribution on the energy sector and; the social tariff for electricity.

Followed by more than simples rulings and clarifications

All this complex regulatory output raised many doubts among producers, first on how the clawback mechanisms would work, as the initial version of the Clawback Law was missing the tools to calculate the amount that would charge to producers. Subsequently, on to whom would the clawback charge apply to.

The Portuguese Energy Secretary of State issued on December 16, 2019 a ruling (the “Ruling”) stating, firstly, that the triggering of the Clawback Law mechanism is limited to external events to the SEN with effects on the formation of wholesale prices in OMIE; in second place that all electricity producers selling electricity at a price by reference to OMIE, regardless of the primary source used by the respective power plants, would be covered by this regime.

On the other hand, electric producers that operate power plants with remuneration not depending directly on the MIBEL daily market are not covered by this mechanism, even if they participate in OMIE, provided that the income obtained by the respective power plants is predetermined in the respective off-taking contracts, and does not change according to the evolution of prices in the MIBEL daily market.

The same understanding should apply to power purchase agreements between electricity producers that do not benefit from any fixed remuneration mechanism and final customers/suppliers, for the physical delivery of electricity at a specific point, at a specific price, since it will not generate any windfall profit.

But if they generate any windfall profit, even though Article 1.º-A of the Clawback Law only established that this charge is to be applied to electricity producers, the Ruling extend the Clawback to electricity suppliers as well.

In an additional clarification, dated of July 27, 2020 (the Clarification”), the Portuguese Energy Secretary of State determined that in the case where the supplier acquires electricity from a producer under a fixed price PPA to sell it at OMIE, receiving the respective marginal price as return, there will be an increase in gain with the nature of a windfall profit in the sphere of the supplier, which must be subject to the Clawback Law mechanism. In these cases, the supplier should pay the Clawback Charge amount to the producer, being the latter responsible for delivering it to the REN (which, as the transport network operator, has been chosen as responsible for the collection of the Clawback Charge).

That disrupted the energy market and the trust in regulators

When it created the Clawback Charge using the Clawback Law for that purpose, the Portuguese Government (and ERSE) assumed that a variation in the Spanish taxation of energy creates an extra-market advantage in Portugal that has to be counter balanced through the Clawback Law mechanism.

This assumption is arguable, to say the least. The Clawback Law intent was to protect the electricity market by the correction distortions not originated by the market itself. But, by their nature, we cannot include in such distortions those caused by any voluntary action of the Iberian Governments, particularly if those actions take the form of a tax. The differences between the Portuguese and Spanish taxes are not eligible to be balanced by the simple clawback mechanism created by the Clawback Law: the lower VAT rates applicable in Spain, are a good example, as they have not yet caused and should not cause the Portuguese Government to provide any incentive to Portuguese energy producers to counterbalance the higher Portuguese VAT rate.

Any charge imposed upon Portuguese energy producers or suppliers to balance a new tax on energy in Spain is in substance a new tax in Portugal, a charge generally imposed by the Portuguese State on a specific type of transactions: in our case, the sale of energy when it is sold at OMIE or at an OMIE related price. In Spain there were never doubts about the tax nature of the substantially identical contribution (even if with a broader scope) that energy producers have been called to pay pursuant to the Spanish energy tax law.

Article 165.º et seq. of the Portuguese Constitution establish that all new taxes, any changes to the scope of a tax or to the tax subjects and tax rates require the enactment of a formal law from the Portuguese Parliament. Consequently, any charge created under the cover of the Clawback Law (which, by the way, is a Decree-law enacted by the Portuguese Government within its legislative powers, and not by the Parliament) that materially corresponds to a new tax, as it happens with the Clawback Charge, violates the Portuguese Constitution.

To make it worse, the Ruling and the Clarification modified the Clawback Charge and extended it to electric energy suppliers, overriding article 1.º-A of the Clawback Law, which clearly states that only the producers are subject to the clawback mechanism, with no reference to suppliers. The Ruling and the Clarification were enacted within the executive powers of the Portuguese Energy Secretary of State, adding a second layer of Constitution issues and legal problems: the Portuguese Energy Secretary of State does not have the legal power to rule on the scope and on the taxable subject of the Clawback Charge, this power belongs to the Portuguese Parliament; nor has he the power to amend a decree-law issued by the Government.

This long succession of events, that we tried to summarise in this article, lead our country to a situation where the Portuguese electricity market competitiveness is being penalised by a random tax which, one day applies only to producers and to a certain kind of transactions but the next day can apply to different transaction types and to other market agents, with variable and unforeseeable tax rates, all by decision of one member of the Government. The Clawback Charge not only undermines the creation of a market for financial PPAs in Portugal, depriving all market agents from its benefits; but it adds, at a time Portugal is putting an enormous effort to foster the national solar photovoltaic production, a high degree of concern, particularly amongst the renewables’ market players who do not know anymore what to expect from the Portuguese decision makers on the taxation of energy.

More importantly, the Clawback Charge has been put in place in a manner which, in our view, disregarded the boundaries for the protection of all taxpayers set up in the Portuguese Constitution. This, of course, creates another kind of concern being felt throughout the World these days, even in places where we still take the principle of separation of powers for granted.

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Published on ECO News.

Portugal is committed to promoting the transition to the digital economy.

More than having a Ministry specifically dedicated to this topic, the Ministry of Economy and Digital Transition, Portugal recently approved the Action Plan for the Digital Transition, through the Resolution of the Council of Ministers No. 30/2020, 21st of April.

Moreover, we have an amazing broadband network, which covers the entire national territory, excellent road structures, security, and a national and universal health system that – at least so far – has been able to respond to the pandemic of Covid-19 disease. But we have more. We have a huge Atlantic coast, villages and cities in rural areas willing to receive new residents, and a World Surf Reserve (Ericeira village) that is a factor of attraction for thousands of digital nomads.

Digital nomads are mainly young (and less young) literate and with financial autonomy, who work under telework and who do so from different parts of the Globe, alternating the countries where they temporarily set themselves. This is an increasingly marked trend that has been encouraged and supported by several global companies, especially technology corporations. Unlike traditional tourism, digital nomads are based in certain countries for prolonged periods, adapting to local culture. They bring knowledge, intelligence, a new way of being, and – of course – they enhance internal consumption. They rent houses, encourage local commerce, occupy co-working spaces, and have the financial capacity to do so. They are working and have financial independence; being paid by the international companies they work for.

Ericeira is an example – at the moment, hundreds of nomads from various parts of the globe, who by force of the pandemic began to work remotely, are living and working from this surf village for different companies and countries, taking advantage of the climate, the ocean, surfing and local products. But they do so informally, without any governmental framework. I do not even know if the Portuguese Government is aware of this movement.

There are several countries that are aware of this trend and are working with professionalism to attract digital nomads.

In a recent Washington Post report, we may find that some countries have created special rules to attract digital nomads from the United States during the pandemic period.

Antigua and Barbuda, for example, launched the “Nomad Digital Residence Program“, which grants visas for up to 2 years to nomads with an income of a minimum of $50,000 USD per year. The cost of issuing this special visa amounts to $1,500 USD per person, $2,000 USD per couple and $3,000USD per family of three or more. Based on this visa, nomads can enter and leave the country as many times as they wish, on condition that they remain resident in this country and present negative tests of Covid-19 disease.

In the same vein, the small island Aruba launched in September the “One Happy Workation“, which creates a “remote work visa”. The visa lasts for 90 days and nomads must guarantee, during this period, accommodation in residences or hotels. The Government promotes packages of accommodation in condominiums or residences, equipped with Wi-Fi, common areas and associated tourist and sports programs (diving, sailing, yogga, etc).

In Europe, the first visa for digital nomads was approved in Estonia. At the height of the pandemic, Estonia launched the new Digital Nomad Visa. Under this new visa, the Government assigns residence permits up to 1 year, requiring nomads to have a monthly minimum wage of €3,000. The new visa was created in June and, according to the Estonian Government, the country has since then received thousands of visa applications from the United States, Canada, Russia, and Asia.

Also in Europe, Georgia launched in July a special program (“Remotely from Georgia“) to attract digital nomads from 95 countries, for periods equal to or greater than 180 days. To this end, they are required to have minimum monthly incomes of €2,000.

Portugal, for the time being, has done nothing in this sense, at least in a structured and integrated way.

But the country should do it.

If we see the digital transition as one of the essential tools of the country’s development strategy and if we want to be a benchmark in this topic, we must retain all those who have come to our country in recent years to attend the Web Summit.

The pandemic is an enemy of tourism and short-term travel, but it can enhance the fixation of all those who started working remotely on a global scale.

Since the focus on domestic consumption is a measure to combat the upcoming economic crisis, why not try (also) this measure?

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EN-H2, the Portuguese Hydrogen National Plan

Recently, the Portuguese Government approved a National Hydrogen Plan (Plano Nacional do Hidrogénio) also known as “EN-H2”. Council of Ministers’ resolution on August 14, has set the agenda for the incorporation of hydrogen technology in different sectors and markets of the Portuguese economy.

EN-H2 is now an element of the national strategy to fight climate change and enhance the decarbonization of the economy, together with the European Green Pact, the European Commission and the Portuguese Energy and National Plan for the Climate (Plano Nacional de Energia e Clima - “PNEC”).

PNEC had already established the following goals for 2030: (i) reduction of the greenhouse gases’ emissions up to 55% (compared to 2005), (ii) increase of energy efficiency by 35%, (iii) increase of renewables’ weight in energy consumption up to 47%, and (iv) increase the number of green vehicles to 20% of total vehicles.

Portugal remains very dependent on imports, even though energy dependence has reduced in the last decades (from 88,8% in 2005 to 77,9% in 2018) as a result of the investments made in renewables, mostly wind and solar plants.

With EN-H2, hydrogen will help reaching the PNEC goals and to correct the current Portuguese energy deficit: it is expected it may lead to a reduction in natural gas imports from 300 to 600 million euros. At the same time, it will promote energy transition and sustainable mobility.

It appears that the moment could not be better. The Portuguese Government has announced that of the assistance from the European Union, 2.7 billion euros will be allocated to climate transition, of which 800 million euros will be used to fund the hydrogen strategy.

The green hydrogen value chain

The production of green hydrogen, which is hydrogen produced by water electrolysis using exclusively renewable energies is the main focus of EN-H2, establishing a hydrogen value chain, is composed of three phases:

(i) Production;
(ii) Storage, distribution, supply; and
(iii) End-use.

Production can be carried out in a large scale (centralized) or in a small scale (decentralized). Although EN-H2 fosters and encourages hydrogen production through a combination of industrial scale centralized projects, and decentralized processes closer to consumption sites, massive investments in infrastructures are being made in centralized production at the Projeto Industrial de Sines or “Sines Project” (see below).

Hydrogen distribution is made by road and sea transport. Hydrogen can also be injected into the current natural gas distribution grid, used for both industrial and domestic purposes. Hydrogen fueling process can take several combinations, namely:

(i) Hydrogen distribution by road in the form of liquefied/compressed gas, ending with a liquid to liquid (L2L) refueling process for liquid to gaseous cryogenic hydrogen (L2G) and gas to gas (G2G) storage systems at various scales;
(ii) Hydrogen distribution by vessels in the form of liquid hydrogen, including delivery for end-use with pipelines and road transport;
(iii) Hydrogen gas distribution through a pipeline system; or
(iv) Hydrogen mixture with natural gas in the current natural gas infrastructure.

Since hydrogen can be transformed into electricity or synthetic fuels, which can then be used for domestic, commercial, industrial or mobility purposes, its end-use is vast and covers a significant part of our day-to-day energy consumption.

One of the downsides of green hydrogen production is its high cost. Naturally, a small-scale production will be more costly and therefore less attractive to investors. Notwithstanding, it is expected that as decarbonization progresses, generating energy from renewable sources will be cheaper, making it less expensive to obtain green hydrogen.

As smaller energy storage projects are just in their early stage in Portugal, there is no clear evidence that hydrogen can compete with other technologies.

In the Portuguese solar auction that took place on 31 August 2020, energy storage was part of eight of the 12 awarded projects. Still, hydrogen will not be used in those projects, but lithium batteries which appear to remain the reference in energy storage.

Maybe in the future hydrogen will replace lithium batteries but the Portuguese Government is supporting the opening of new lithium extraction fields and is currently working on the creation and development of the first lithium refinery in Europe.

For those reasons, decentralized projects will face the cost-efficiency challenge against other technologies that may delay their development, unless there is proper support to such investments, which, until this moment, does not seem to be the case in Portugal.

The Green Flamingo project

The Sines Project, also called “Green Flamingo”, is a 3,5 billion Euro industrial-scale project for the production of green hydrogen that involves the main Portuguese energy stakeholders, such as GALP, EDP and REN. It is focused on leveraging solar and wind energy as competitiveness factors and on industrial transformation and expects to have a 1 GW of capacity production until 2030, fully supported by green sources.

Sines benefits from its natural resources, such as its coastal location - which is a critical point regarding exportation, the deep-water port and access points to the natural gas distribution grid. In addition, the city already has qualified manpower and infrastructures that make it a competitive location for the installation of an industrial-scale green hydrogen production project.

The hydrogen generated in Sines will initially be consumed in the national market, using mainly the natural gas distribution grid. It is expected that, as the production capacity increases, a significant part of the production shall be exported using the deep-water port of Sines. The Dutch and Portuguese Governments are currently negotiating a Memorandum of Understanding for this purpose.

On 18 June 2020, the Portuguese Government launched a market consultation on the Sines Project and received answers from 74 entities, for investments valued in 16 billion Euro (equivalent to 7,5% of the national GDP). On 27 July, of the 74 projects, 37 representing an investment of nine billion Euro were selected by the Admission Committee and are now eligible for the PO SEUR - Operational Programme for Sustainability and Efficient Use of Resources, PO SEUR is a Portuguese Government’s incentive program to transform the national energy system to meet the sustainability requirements of EN-H2.

The Sines Project has potential to be considered by the European Commission as an Important Project of Common Interest (IPCEI) due to its size or scope and its very considerable technological financial risk. For that it must meet a number of criteria such as making a concrete contribution to the achievements of one or more of the Union’s objectives or having a significant impact on the Union’s competitiveness.

The Sines Project being classified as an IPCEI, the Portuguese Government and investors will most likely benefit from European funds of up to 100% of eligible expenditure, it also enables the accumulation of various sources of funding and establishes an EU platform to support long-term cooperation between regions, clusters and industry.

EN-H2, despite heterogeneous, is clearly privileging the Sines Project over decentralized projects. Therefore, opportunities for investors are expected to arise mainly in the Sines Project, which may include easy access to credit, public investment in the grid and other infrastructures.

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Published on ECONEWS.

The holiday period is always a window of opportunity to escape the banality and seek literary perspectives that fictionalize the future and that rarely may be read in our daily work year.

The Jungle Grows Back, by Robert Kagan, has this potential. It is a book that contains a global geopolitical analysis and which – unfortunately – recalls that the period of peace that has been going on in Europe since the end of World War II is a mere historical dust and not for certain.

In this work, the author analyzes the change that is taking place in the world order and underlines the (real) risk of bankruptcy of liberal democracies and world peace.

The analysis is simple and enlightening.

Liberal democracies are based on individual freedoms. Freedom of thought, expression and association and economic freedom. They are sustained in the Rule of Law and follow the values of tolerance, equality and inclusion, as well as in the separation between the State and religion. Liberal democracies are in the antipodes of totalitarian and autocratic regimes, which subjugate individual freedom in the name of an alleged collective interest. They also distance themselves from religious states, in which State and Religion are merged

What varies in Western democracies is not the primacy of the person and the defense of his self-determination. What varies is just the model of Social State. In the Anglo-Saxon model, the Social State is minimal; in the Scandinavian model, it is maximum; in countries in Southern Europe, is at half-term.

The preservation of liberal democracies rests, above all, on the radiating force of their values and in the promotion of the common good.

But not only.

Liberal democracies have also depended on the communion of values between Europe and the United States of America (USA), a country that since World War II has always been present in the defense of this way of life. In a first phase, the US was decisive to the defeat of Nazi Germany; during the “cold war”, was on the front line against the Soviet model; more recently, after the fall of the Berlin Wall, the US helped containing religious movements with military pretensions, such as that of Daesh.

This road is running out.

The philosophy of “America First” and the exaltation of isolationism leave Europe isolated. The previously touted “Atlantic Community“, based on a democratic order between the US and Western Europe, was virtually set aside by the current American Presidency, which questions the previous world order. Europe is no longer seen as a partner, but instead as a competitor.

This new status quo, along with Brexit and the growth of nationalist movements, leaves the European Union isolated and at the mercy of two giants who do not follow our model and who have (both) expansionist ambitions: China and Russia.

It is in this context that the pandemic crisis, due to the economic and social repercussions, must be fought by the European Union without hesitation, through the preservation of jobs and the European model of life.

A possible failure in this area would have catastrophic effects. It would promote distrust in the regime, strengthen nationalist movements and would pertain liberal democracies. In Portugal, the preservation of business, employment and income is crucial. And the increase of the minimum wage is a sign of hope and sustainability of the regime, especially if it results from an agreement that bring together employers, employees, and the Government. But we must go further. Elites and big companies should voluntarily collaborate in combating the crisis, under their social responsibility, by promoting a greater distribution of wealth and betting on the employment of young people.

The garden of democracy is fragile and must be preserved.

And the jungle is just around the corner.

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Published on Eco News.

The digital revolution, automation and artificial intelligence have the potential to profoundly change the labor market.

Not only will the Taylorist model of work is dead, but the contractual type on which the employment relationship is based tends to be distorted.

The increase in information and communication technologies, along with the use of algorithms in the selection of workers, data processing on a scale never seen before and the massification of remote work, will bring new ways of providing work, new (un)balances, new challenges in reconciling work and family life, as well as new issues in the right to privacy, the limitation of working time and the right to disconnection. On the other hand, the increase of informal workers, the work provided on collaborative platforms and the distortion of the traditional employment contract, can jeopardize social protection and the sustainability of social security.

To face this challenges, there are two possible paths: the first, is to do nothing, to believe in the market and its “invisible hand” and to follow a Hayekian line, according to which freedom of business management and economic agents will find, alone, the best way for these new questions, without the interference of the State. The second, more Keynesian, is based on regulation – since it is a theme that can break with the social model we know, enhance unemployment, bring social conflict and threatens the pillars of liberal democracies, it is important to regulate, prevent and act, in order to avoid unpleasant surprises.

The famous conflict of two great economic schools, which pitted Hayeck and Keynes in the aftermath of World War II, sublimely described in the work of Nicholas Wapshott, seems to be in force again, this time regarding the future of work.

It is true that the theme is recurrent. The idea that machines are going to steal our jobs is old. Since industrialization and the end of the 18th century, countless economists have warned about the threat of massive machine use, which can make human labor superfluous.  The truth, however, is that since then societies have always fostered, reaching a level of satisfaction and sophistication that have altered our standard of living. In general, at least in Western countries, innovation and technology have increased our standard of living; life expectancy has increased; public health systems have become universal; and social security has created an equally universal system of protection in old age, sickness and unemployment. The machines destroyed some jobs, it is undeniable, but the balance was positive: technology increased labor productivity, brought competitiveness, extended consumers’ freedom of choice and opened doors to new opportunities, which once existed only in the field of science fiction

This time, however, the disruption may be more intense.

It is not just a question of introducing technology and automation into existing models. What’s at stake right now is more than that. It is a change in the model of social contract that has brought us a long period of peace and prosperity since the end of World War II. What is at stake this time is the increase of inequalities, the implosion of permanent employment contracts and their replacement with a new working model, based on flexibility, intermittency, and the absence of working relationships between those who work and those who hire.

For this reason, several international organizations, including the European Union, the International Labor Organization and the OECD, have warned of the need for society to jointly prepare the future of work, promoting social dialogue between governments, employers and workers.

It is in this context, therefore, that several countries have studied the theme and promoted the publication of a Green Paper on the Future of Work, as is the case of Green Paper Work 4.0, prepared by the German Ministry of Labor.

On the eve of assuming the Presidency of the European Union, and in order to be at the forefront of this movement, the Portuguese Government also started preparing its own Green Paper, and I have the privilege of being one of the scientific coordinators of it, along with my colleague, Prof. Teresa Coelho Moreira.

The making decision process will be based on listening sessions with all: academics, thinkers, civil society, NGOs, employers’ associations and trade unions.

The goal is clear: by the end of 2020, guidelines should be set up to prepare the country for the challenges of the future in the labor market.

Above all, we´ll try to reach a fair balance be struck between modernity, technology and flexibility, on the one hand, and the existence of decent, secure and healthy works, on the other.

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Published on ECO News.

The State of California is known for its gorgeous landscapes, the Golden State Warriors and its entrepreneurial, innovative and progressive spirit. Silicon Valley is the heart of the largest technology companies and several startups. And it is in California that we may find some of the best American universities, like Stanford or Berkeley.

The Golden State is an incubator of dreams and good ideas, which tend to make a difference.

The recent approval in this State of the Bill AB5 is also a milestone in the configuration of employment. The AB5 has the potential to mark the future on a global scale.

The qualification as an employee is one of the most striking topics today. Worldwide, labor laws use to guarantee workers a floor of rights that protect them – minimum wages, limitation of working hours, right to paid holidays, parental leave, protection against accidents at work, prohibition against unfair dismissals arbitrary, as well as sickness assistance.

The protection given to the employee is significant, leading to the inherent operating costs for companies.

For this reason, the 21st century has been marked by an attempt to escape the employment contract by several companies, which choose to hire independent contractors instead. This option, which provides less protection for those who work, affects the sustainability of Social Security and is also questionable in terms of concurrence, as it puts companies that offer good working conditions side by side with others that escape this regime in search of lower costs and competitive unfair advantages.

The issue is particularly impressive regarding the use of collaborative platforms and in the so-called gig economy, in which companies position themselves as mere technological intermediaries between the end customer and the independent contractor, who is no longer qualified as a worker.

Bill AB5 aims to combat this phenomenon.

Based on the case of Dynamex Inc., vs. Charles Lee, the law defined what the employer has to prove in order to dismiss a presumption of employment contract and demonstrate that the provider is really independent. What matters, is to consider the substance of things and the way work is actually done.

To do this, the company will have to comply with the “ABC” test, that is, prove that: (A) The provider is free from the control and direction of the hiring entity in connection with the performance of the work; (B) The person performs work that is outside the usual course of the hiring entity´s business; (C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

If the company fails to prove these three points, it does not pass the test and the provider will be qualified as an employee and not as a service an independent contractor, even if there is a written contract saying the contrary.

That was the solution reached in that case, in which the transport company Dynamex had chosen to stop having workers and to hire only “independent” drivers. As the company was unable to pass that test, the drivers were qualified as employees, despite the contracts saying they were independent.

Thus, Bill AB5 threatens the business models of companies such as Uber, Cabify and others, which center their activity based on independent contractors.

The “ABC” test promises to revolutionize worldwide the way courts come to recognize the existence of employment contracts. In addition to the legal tests that are already been used by the Department of Labor and the National Labor Relations Board, this test becomes the new gauge for the courts to decide.

The idea is clear: entrepreneurship is good and makes the world move, but the defense of employment is also an investment in quality, in the future of the community and in the people who work.

The Californian dream is a possible dream: it combines modernity and innovation along with the protection of employment and the community.