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Last Friday, the Portuguese Government approved new emergency measures to contain the increase in energy prices resulting from the war in Ukraine:

• The reduction of Oil Products Tax at the rate of VAT reduction, so 13%;
• Mechanisms to limit the impact of the gas price increase on the cost of electricity, by limiting the unexpected profits of electricity companies - which can cause considerable uncertainty and a decrease in investment in the energy sector since their profits are limited; and
• Suspension of the carbon tax increase until June, representing 5 cents less, per litre, and its quarterly revaluation until the end of the year, without full reinstatement.

To accelerate the installation of renewable energy production projects, the Portuguese Government has decided to:

• Reduce licensing deadlines, under terms to be regulated;
• Allow the injection in the Electrical Public System (Rede Elétrica de Serviço Público – “RESP”) of all production from existing wind power generating centers, without administrative limitations and applicable immediately; and
• Exemption of the issuing of an operating license or operating certificate for renewable energy generating centers, storage facilities, and production units for self-consumption whenever the grid operator confirms the existence of conditions for connection to RESP.

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All projects owned by public or private entities related to renewable gases production, incorporating the development of new technologies, may apply for the Portuguese Recovery and Resilience Plan’s hydrogen incentive program, approved by Order 98-A/2022, of 18 February, which shall apply retroactively to all 41 applications registered submitted to this date.

Future notices of invitation to tender shall comply with the rules set out in Regulation (EU) 2021/241 of the European Parliament and the Council of 12 February 2021. They will be published at the website www.fundoambiental.pt.

The Portuguese Environmental Fund is the responsible authority for conducting the whole process of analysing the applications and notifying the participants within 60 working days of its acceptance or non-acceptance decision.

To benefit from these incentives, companies must:

• Be legally established;
• Have their tax and social contributions obligations in order;
• Be able to develop activities in Portugal;
• Declare not to have any unpaid salaries;
• Have the technical, physical, and financial resources to develop their activities; and
• Have a financially healthy environment.

Eligible expenses include all investment costs that are demonstrably related and strictly necessary to the production of renewable gases. Consequently, the eligible expenses will correspond to the difference between the investment costs to produce renewable gases foreseen in the application and the investment in a conventional plant for the production of hydrogen of identical production capacity. Applicants may also include accessory investments with storage, transportation, and distribution of renewable gases.

Expenses such as consumption and current maintenance costs, property purchases, electricity transportation infrastructures investment; interest and other financing charges, and publicity are not eligible.

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The new framework applicable to the National Electrical System (“SEN”) finally came into force, brought by Decree-Law 15/2022, of 14 January (the “New SEN Framework Law” ). The main novelties are the following:

Electricity generation and storage

• Instead of an ordinary and a special regime, generation, self-consumption, and storage will be covered by a single framework of prior control, which could be either a prior notification, prior registration, operating certificate, or production and operating license.
• The feed-in tariff scheme is eliminated, and electricity generation and storage activities are now subject to prices freely established in the market, with two exceptions: (i) feed-in tariffs already granted will keep going until the end of the respective term; (ii) renewable production can benefit from specific traffic granted in new capacity auctions by the Portuguese Government.

Grid capacity titles and production licenses

• The New SEN Framework Law sets a new timetable: (i) applications for production licenses from the National Department of Energy and Geology (Direção Geral de Energia e Geologia -“DGEG”), must be submitted until a year after the issue of the grid capacity title when an environmental impact assessment is required; if not, within 6 months; (ii) the production license must be issued until a year after the application submission; (iii) the operating license must be issued within 1 year after the date of the production license, with the possibility of extension.
• Obtaining a grid injection capacity title is now subject to the payment of a EUR 1,500/MVA compensation to SEN.
• The limits on transferability of production licenses and capacity titles are narrowed: they can be transferred before the production license is issued through a 50% increase of the bond.
• Ongoing grid capacity titles requests, submitted to DGEG under the scheme of agreement with the grid operators, that have already obtained a final classification in the terms of reference’s lists (published at DGEG website) shall remain in place and will be governed by the rules of the New SEN Framework Law. Those not included in the lists are expired.

Hybridization

• There is a new framework for hybridization and hybridized units, defined as the new generation units using different primary renewable energy sources to an existing power plant or self-consumption unit (“UPAC”), without changing the injection capacity of the pre-existing power plant or UPAC.
• Hybridization, like over-equipment and re-equipment, is exempt from grid capacity title allocation despite being subject to the prior control scheme.
• It will be possible for a legal entity other than the owner to hybridize a generating facility or a UPAC.

Storage

• When electricity production includes storage, the prior control for production comprises the storage activity.
• Autonomous electricity storage is subject to a production and operation license (i) when the installed capacity is above 1 MW or (ii) when an environmental impact assessment or environmental impact assessment procedure is required. When the installed capacity is equal to or less than 1 MW, the autonomous storage of electricity is subject to prior registration and operating certificate.

Decentralized production

• The maximum distances between UPAC and User Facility (“IU”) allowed for self-consumption production range now from 2km to 10 km.
• Consumer installations of Electro-Intensive Customers are not subject to any maximum distance requirements.
• No municipal construction permits will be required for the installation of solar photovoltaic panels on (i) pre-existing-built structures not defined as buildings, (ii) installed on delimited areas of the ground, such as commercial complexes, large commercial surfaces, industrial parks, industrial plots, logistics platforms, camping parks, and parking lots.
• Renewable Energy Communities (CER) can share energy through dynamic management systems but also trade energy among their members.
• UPAC may be owned and developed by CER or by third parties if at CER’s service.
• The New SEN Framework Law establishes rules for Citizens Communities for Energy.

New Market Agents

• The awarding of (i) Last Resort Supplier, (ii) Last Resort Aggregator, (iii) Guarantees of Origin Issuing Authority, and (iv) Logistics Operator for Switching Suppliers and Aggregators licenses are subject to a public tender procedure.
• The same applies to the concession for the new Integrated Operator of the High Voltage, Medium Voltage, and Low Voltage distribution networks.

Intensive consumers

• The intensive electricity consumers will benefit from a new Electro-Intensive Customer Statute established by the New SEN Framework Law.
• This new statute will include support measures, such as (i) reduction of electricity consumption charges or (ii) risk coverage mechanisms in the purchase of electricity from renewable energy sources through long-term agreements.

Technological Free Zones

• The New SEN Framework Law created three Technological Free Zones (“ZLT”) for renewable energies: (i) an offshore zone for the generation of electricity through renewable energy from an oceanic source or location; (ii) a second one as part of the decommissioning of the Pego coal-fired thermoelectric plant and, (iii) a third in the Rega do Mira perimeter, for innovation and development land use for agriculture and electricity production projects.
• ZLT are to be managed directly by DGEG or by third parties through concession awarded by a competitive tender.
• The installation of research and development projects in ZLT are subject to prior communication and registration procedure rules.

Electricity transportation and distribution networks

• Annexes II and III of the New SEN Framework Law set the bases for concessions the national electricity transportation network (RNT) and the concession bases for the national medium and high-voltage electricity distribution network (RND).
• The concessions cover mainland Portugal and have a term of 50 years in the case of RNT and 35 years in the case of RND and may be extended if justified by public interest.
• According to the new bases (in Annex IV to the New SEN Framework Law) for low-voltage electricity distribution network concession, these concessions will have a municipal geographic range and a maximum duration of 20 years.
• The unification of the technical management of the high-voltage, medium-voltage, and low-voltage distribution networks in the new Integrated Operator of the distribution networks means that the concession agreements in force will have to be renegotiated and amended.

Other Relevant Changes

• Holders of generating or storage facilities with a connection power exceeding 50 MVh are obliged to install (i) UPAC with an installed power equivalent to 0.3% of the connection power, or (ii) electric vehicle charging stations for collective use in public spaces with equivalent capacity in municipal buildings. Alternatively, Municipalities may opt for one-off cash compensation of 1,500 EUR/MVh of connection power allocated.
• For unlawful appropriation of energy, new penalties that range from the interruption of energy injection or energy supply to the payment of compensation are established.
• If a supplier has more than 200,000 clients, it must subject its electricity contracts to dynamic prices.

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The Portuguese Resilience and Recovery Plan (RRP) incentive system for the decarbonization of industry, worth 715 million Euros in non-refundable subsidies, supports up to 100% of the expenses of projects that incorporate electrification of final energy consumption, energy efficiency, renewable energy, and energy storage.

The maximum limit per new project is 500,000 Euros, of which 250,000 Euros must be used on relevant upgrades of already existing projects. This limit may be exceeded for projects that exhibit a significant potential to reduce emissions at a national level.

Under the new Regulation of the Incentive System "Decarbonization of Industry" and the Public Tender Notice, the following types of projects are eligible for these subsidies:

• New processes, products, and business models incorporating new raw materials, waste-derived fuels (e.g., biomass and biogas), replacement/adaptation of equipment and processes for sustainable technologies and renewable energy vectors. This typology also includes projects for the electrification of final energy consumption, particularly through the electrification of final energy consumption in industry and the strengthening of access and quality of service; and/or
• Energy efficiency measures, that reduce energy consumption and greenhouse gas emissions, in connection with the adoption of consumption monitoring and management systems; and/or
• Measures to incorporate energy from renewable sources and energy storage, such as hydrogen and other renewable gases.

Projects must reach COD within six months from the date of approval by IAPMEI (the Portuguese investment agency), and the expenditure financed shall be maintained and allocated to the relevant activity for a maximum duration of 2 years, with the possibility of extension by IAPMEI in duly justified cases.

Applications for the public tender must be submitted via electronic form available on the IAPMEI website. The application period will run until 7 p.m. on 31 March 2022.

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After a public announcement session held on November 24, the first Portuguese Floating Solar Auction launched last Friday and includes 7 lots with capacity from 8 MVA (Salamonde) to 100 MVA (Alqueva), in a total of 263 MVA. The auction is two folded as it comprises the allocation of:

• Reserve capacity for injection into the grid; and
• Private use titles over public water domain of the seven reservoirs dams that make up the auction lots.

This auction is organized in three phases:

• Eligibility phase: From January 29, 2022 until March 2, Promoters shall first register in the online platform https://leiloes-renovaveis.gov.pt/ and provide basic corporate information regarding to the company bidding for the auction and its legal representative, as well as a provisional deposit in the amount of 10.000€/MW calculated in accordance with their bidding intentions;
• Bidding phase: Following the admission and exclusion of applications, the jury will notify Promoters with a prior notice of 5 days from the start date of the bidding phase. In this phase, Promoters submit a bid through the online platform applying for one of the following remuneration schemes that will remain valid for a period of 15 years from the entry into operation of the project: (i) a fixed compensation where promoters bid for a contribution to be paid to the National Electric System (SEN) in €/MWh, or (ii) a variable fee, where promoters will be entitled to receive a variable fee equal to the auction closing price in €/MWh.
• Allocation phase: Within 5 days from the closing of the bidding phase, the winning bidders will be awarded with the reserve capacity title by the Portuguese energy authority, Direção-Geral de Energia e Geologia (DGEG), with the right to use public water resources of the relevant reservoir, on a provisional basis, by the Portuguese environmental agency, Agência Portuguesa do Ambiente (APA). Then, those promoters must provide two performance bonds: (i) one in the amount of €20,000/MVA to DGEG upon the award of the reserve capacity titles, and (ii) another in the amount of €40,000/MVA to APA upon execution of the concession contract of the reservoir dam and the granting of the production license by DGEG.

After the awarding of the bids, promoters must meet a strict deadline regarding licensing obligation, under penalty of execution of the performance bond and expiration of the titles. Counted as of the allocation of the reserve capacity title, promoters shall:

• Obtain the production license and the approval of the execution project of the project within a period of 18 months, or 24 months (if the plant requires environmental analysis);
• Obtain the operation license within a period of 42, or 48 months, as applicable; and
• Start operation of the power 30 days after the award of the operation license.

Auction rules and specifications are available on the online platform and requests for clarifications may be submitted by Promoters through the email address jurisolar@dgeg.gov.pt until 1:00 p.m. (GMT+1) of January 10, 2022.

Launching this auction under the present market circumstances is a challenge to the outgoing Portuguese government energy price strategy, where the auctions of capacity have been used as an instrument to lower the energy prices to end-consumers.

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The Portuguese government published yesterday the bases of the new solar energy auction dedicated to floating solar.

The new legislation unifies tender procedures for the simultaneous allocation:

• Of reservation of capacity titles for the injection into the Public Service Electricity Network of electricity from floating photovoltaic plants to be installed in water dams; and
• Of titles for the private use public domain for such purpose.

Unlike the 2019 and 2020 auctions, this auction will focus exclusively on water reservoirs. Promoters will make not one, but two bids:

• One bid for the price to produce electricity through solar energy; and
• Another for the occupation of the public water domain.

In any case, the bidding will again follow the two already available modalities: remuneration to the network and fixed tariff, for a period of 15 years.

This solar energy auction will include the Paradela, Alto Rabagão, Vilar Tabuaço, Salamonde, Alqueva, Cabril and Castelo de Bode reservoirs, with a total maximum implementation area of 445 hectares and an estimated total connection power of 362.5 MVA.

The procedure details for the new auction will be published in the next few days.

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The Portuguese government wants to leave its mark on the sector with a new regulatory framework for the National Electrical System (NES), which is under public consultation since November 10 and until November 24. Here is a list of the main points of the draft regulation to be submitted to the Portuguese Parliament by the end of November.

Prior control of NES’ activities and network planning

The differentiation between Ordinary Regime Generation (ORG) and Special Regime Generation (SRG) and the different procedures for licensing the activity of electricity generation will be extinguished.

The activities of generation, self-consumption and storage will be covered by a single regime of prior control which may take the form of prior notification, prior registration and operating certificate, or production and operating license.

The draft Decree-Law makes new investments in network infrastructures dependent on a cost and benefit analysis in relation to other alternatives, such as storage.

Tender mechanisms for the exercise of NES activities

The awarding of (i) Last Resort Supplier, (ii) Last Resort Aggregator, (iii) issuer of guarantees of origin and (iv) Logistics Operator for Switching Suppliers and Aggregators licenses will be subject to a prior public tender procedure.

The draft decree-law creates a new market agent: the integrated operator of the high-voltage, medium-voltage and low-voltage distribution networks, which will exercise the activity under a concession scheme, awarded after a prior public tender procedure.

Electricity generation and storage activities will be remunerated exclusively at market price or through bilateral contracts, eliminating once and for all the guaranteed remuneration regime. This notwithstanding the possibility of granting by public tender specific support schemes for production from renewable energy.

Active participation of consumers in electricity generation and in the markets

Passive consumers are to become active agents producing electricity for self-consumption or for the sale of surpluses and storage with:

• The installation of smart grid infrastructures, which include communications and energy data processing systems and technologies and smart meters;
• Consumer participation in electricity markets through the creation of the aggregator;
• New schemes for collective self-consumption and energy sharing through the establishment of energy communities.

The duties of the suppliers have been strengthened since they must offer electricity contracts at dynamic prices when they have more than 200,000 customers, provided the respective consumption facilities have a smart meter.

If the customer has a smart meter, the supplier is now also required to include in the bill a breakdown of average energy consumption by day of the week and time of day.

If the consumer has a smart meter, he shall be entitled, upon request, to access to the actual electricity consumption and the actual period of use, and this data shall be easily accessible and free of charge. The consumer is also entitled to additional information related to consumption history and detailed data regarding periods of use.

The draft Decree-Law also provides a scheme for the unlawful appropriation of energy.

New realities: re-equipment, hybrids or hybridization, and storage

Three Technological Free Zones (ZLT) are planned to facilitate development in new realities:

• The first intended for research and development pilot projects in the scope of offshore electricity generation, from renewable energies of oceanic source or location;
• The second to be developed under the decommissioning process of the Pego coal-fired thermoelectric power plant; and
• The last one, to be located in Perímetro de Rega do Mira, intended for the establishment of innovation and development projects in the scope of compatibility of land use for agricultural activities and electricity generation.

The draft also provides that the re-equipment of a solar or wind power plant will not subject to the environmental impact assessment procedure. Additionally, upon total re-equipment of the generating station, the connection power is increased up to a maximum of 20% of the connection power initially allocated, subject to a simple prior control procedure of mere amendment to the production license or prior notification only.

The first challenge to the market has been set: to respond within 15 days to such a broad project to change the legal framework of the Portuguese electrical system.

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Direção Geral da Energia e Geologia ( “DGEG”) informed all promoters planning to obtain a grid capacity title by negotiating an extension of the grid capacity with the grid operator - in accordance with Decree-law 172/2006, of 23 August and the Reference Terms approved by DGEG, in 17 February 2020 -  of the new deadlines to complete their requests with project documentation.

DGEG announced that it will reopen (and the deadlines’ suspension will end) on 27 July. Accordingly and following the Reference Terms,

-       promoters have until 28 July to provide the project documents mentioned in Annex I so that their projects may be granted full priority over other requests filed at DGEG;

-       promoters unable to meet deadline above may submit the documents mentioned in Annex I until 6 October 2020. In this case, they may only be granted priority over requests submitted without such documentation and over project filed in the future.

With the second Portuguese solar auction also under way (promoters having to submit their applications from 8 June to 31 July via the online platform, and the bidding phase shall take place by end of August) we can say that the race for Portuguese PV is on.

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The Portuguese Government approved today the Portuguese Climate and Energy National Plan (Plano Nacional de Energia e Clima or “PNEC”) for the decade 2020-2030. This plan set an agenda to reach the goal of the decarbonization of the Portuguese economy by reaching a reduction of 30% of the greenhouse gases emissions until 2030.

To reach that target, the Portuguese Government sets several goals (to be reached until the end of the decade) such as:

• Raising the weight of renewables in the power generation (from 31% to 47%);
• Reaching a percentage of 20% of electric vehicles in the total traffic; and
• Reducing the consumption of primary energy.

The development of the industries connected with the growing concerns with environmental sustainability may provide opportunities for several investors. The agenda set on PNEC, ambitious as it is, will certainly provide many chances for that, as the photovoltaic auctions and the approval of the National Hydrogen Plan illustrate.