The Portuguese 2020 Solar Auction Second Public Session was held yesterday with further information on the auction rules and specifications, and confirming the three methods of remuneration (fixed tariff, market scheme and market scheme with storage) announced in the first public session.
The map of the auction with the relevant substations was finally revealed. It comprises 12 lots with a wide capacity range, from 10 MVA to 109 MVA, in a total of 700 MVA, all located in the Alentejo and Algarve regions.
The auction rules, specifications and draft agreements to be executed by the winning bidder were also disclosed to promoters and are now available in the online platform https://leiloes-renovaveis.gov.pt/.
The current lack of grid capacity in the areas subject to this tender and the constrains related to the Covid-19 pandemic outbreak lead to the extension of the post-auction timetable schedule compared to last year’s auction. According to this new schedule, promoters have now 48 months (42 months if the project is not subject to environmental impact assessment) from the award of the grid capacity title to obtain the relevant operation license, instead of the 36 months (or 30 months) initially planned. Awarded projects are expected to reach COD in June 2024.
Promoters may submit their applications from 8 June to 31 July via the online platform, and the bidding phase shall take place by end of August.
Requests for clarification can be submitted by email to the address jurisolar@dgeg.gov.pt until 3 June at 1:00pm.
You can read more about the solar auction on our paper “The Portuguese 2020 First Solar Auction”, to be updated and complemented with the auction documents soon.
The Portuguese Government approved the Decree-law 12/2020, of 6 April transposing Directive (EU) 2018/410 of the European Parliament and of the Council, approved in the sequence of the Paris Agreement and its decarbonization goals.
Entities on the national list of facilities covered by the ETS list may benefit from free of charge emission permits, upon request to the Portuguese Environmental Agency (Agência Portuguesa do Ambiente, I.P.) (“APA”) in a specific form for the collection of data and methodology report. The criteria for the allocation of free of charge emission permits are based on fully standardized measures which set benchmarks at Community level.
Emission permits not granted under the free of charge method shall be subject to a sale in auction, the revenue from which shall be used for measures contributing to the development of a competitive and low carbon economy.
For the first time in Portugal, ETS of low emission installations (up to 25.000 tCO2eq) will not need an emission permit, provided that they are subject to measures allowing an equivalent contribution of emission reductions, or very low emission installations (up to 2.500 tCO2eq), without any equivalent measure. In addition, the amount of free emission permits is adjusted to the operators’ activity if its levels decrease or increase by 15% compared to the level used to establish the emissions.
Failure to obtain an emission permit, when mandatory, is an administrative offence and the owner of the relevant facility may be subject to the payment of a penalty up to the amount of 5 million euros if committed with intent, or 144 thousand euros if committed by negligence.
On the other hand, failure to comply with the threshold of the emission permit, entails the duty to financially compensate the Portuguese State, under the “polluter pays” principle, corresponding to the emission excess, and taking into account the possible costs that the owner would have incurred by buying more emission licenses in the auction.
The new regulation becomes effective on 7 April 2020.
Today, the Portuguese Energy Secretary of State announced in an online session that the first 2020 solar auction will be, on the whole, similar to the 2019 solar auction. Despite the announcement, there is no date for the auction’s launch, due to the Covid-19 pandemic’s effects on the market.
The injection capacity to be auctioned will be of 700 MW, all in the Alentejo and Algarve areas.
The promoters may apply to the following remuneration schemes:
- a market scheme without storage where the promoters bid for a contribution made to the National Electric System (“SEN”), in €/MWh. The Promoters available to pay larger contributions will be awarded with the capacity title;
- a fixed guaranteed tariff structure, where the bids will express a discount to the reference feed, to be announced (in 2019, was 45€/MWh);
- a market scheme for power plants incorporating a storage system. A value of an annual payment to be made to SEN, in MW, will be announced and the promoters interested in this new option offer a discount to this value.
The obligations for the awarded bids in the auction will be similar to those of the 2019 solar auction and they include a performance bond (60.000€/MWh) to guarantee the compliance with a tight schedule to connect the plant to the grid.
A few days ago the Portuguese government also enacted Decree 80/2020, of 25 March initiating the simplified licensing for small production units (up to 1 MW). Through this proceeding, the Promoters may apply for a guaranteed remuneration for 15 years. On a monthly basis, until offering a total of 20 MW, the Portuguese Energy Authority (“DGEG”) will organize sessions where the Promoters bid among themselves. The Promoters will offer a discount to the reference feed (45 MW/h). The first session is scheduled to June of 2020, however due to the Covid-19 pandemic’ effects, there is some uncertainty regarding this date.
DGEG, the Portuguese energy authority, brought, at last, long expected news for solar energy promoters: Decision 27/2020 suspends the licensing deadlines for all electrical projects.
As we had alerted, the first measures announced by the Portuguese Government did not protect the Solar promoters from the Covid-19 pandemic’ effects. The promoters would be forced to continue complying with their permitting obligations until DGEG would close to the public.
Following the Portuguese Government’s measures driven by Covid-19 pandemic emergency, DGEG closed to the public on March 16. Despite DGEG continuing to operate online, this decision suspends all deadlines linked to licensing procedures with effects from that date.
This suspension comprehends the deadlines for all actions and formalities regarding any administrative proceedings run by DGEG, including, but not limited to:
- the deadline for obtaining the relevant operation license (both to promoters who obtained the production license prior to the approval of the Decree-law 76/2019 as well as promoters awarded on the first Portuguese solar auctions in June 2019); and
- the deadline to complete the request for an agreement for the expansion of the public grid, with the corresponding Operator.
The suspension of the deadlines lasts until DGEG announces the end of the suspension, or, if it occurs first, on the date from which the Covid-19 exception situation is withdrawn by the Portuguese Government.
In addition, this decision establishes that new requests, including those to obtain a grid capacity reserve title through an agreement with the Grid Operator, will not be received until the end of April 2020.
The Covid-19 pandemic will affect drastically the solar promoters in Portugal as it will make harder for them to comply with their permitting obligations in due time. These are some examples of how Portuguese promoters are subject to a tight schedule:
- promoters with production license obtained prior to the approval of the Decree-law 76/2019 have two years after its issuing to obtain the operation license (extendable to 3 years);
- promoters awarded on the first Portuguese solar actions in June 2019, have 6 months to obtain the land rights required for the plant construction; and, depending if the project requires environmental impact assessment or not, 12 or 18 months to obtain the production license, 18 or 24 months to obtain the construction license and 30 or 36 months to obtain the operation license;
- promoters seeking an agreement with the Grid Operator to increase the grid capacity have 20 business days, counting from 11 March 2020, to provide documental support in order to be attended before other promoters, which have 120 business days to gather such documents;
The Covid-19 pandemic driven emergency measures contained in Decree law 10-A/2010, enacted on 13 March by the Portuguese Government, do not contemplate yet cases such as these. It suspends all tacit approval deadlines but the above deadlines do not benefit of tacit approval, and therefore are not suspended. Suspension will only occur in case the competent authorities close due to the Covid-19 pandemic, but this did not happen so far with DGEG (the Portuguese energy authority), with APA (the Portuguese environmental authority) or with the Municipalities, which are expected to continue working online. Arguably, a general force majeure principle may apply if, for instance, an operation license’s requirements are delayed because a construction permit issuance is delayed due to a Municipality’s service restrictions imposed during the Covid-19 pandemic.
Needless is to say that If promoters fail to comply with their licensing schedules, financial penalties, including performance bonds, may be enforced and, in some cases, licenses could be terminated. So, these are times to stay at home, yes, but working harder than ever. That’s the only way everyone’s projects can reach COD successfully.
This will be the year for 5G licenses in Portugal.
After, in February, the 700MHz band, which is rather relevant for 5G, being cleared of DVB-T, the frequency spectrum shall be auctioned in April 2020 by the Portuguese NRA (ANACOM – initially envisaging regional allotments of the frequency spectrum and 20MHz bands - will be segmented. The auction will not only cover the whole spectrum of frequency – which may advantage when compared with other European Union (“EU”) jurisdictions, currently attributing partial licenses for 5G, and may potentiate investment by operators.
Dividing the spectrum was necessary, according to ANACOM, because each operator has specific needs and different projects for 5G services, and to ensure a more efficient spectrum distribution: the efficient use of the whole frequency spectrum through projects of different sizes is crucial to increase competition between telecommunications players and to reduce costs for end-customers.
The greatest concern revealed by market players in October 2019 consultation by ANACOM was that the frequency spectrum was insufficient to meet all interested operators’ needs. This was, indeed, the reasoning for a dispute concerning a license attributed to Dense Air Limited until 2025 and that was reconfigured and redesigned – but it was not revoked – by ANACOM.
Redefining the spectrum is critical for the success of the bidding process: the spectrum of frequency within which operators may offer 5G network services is limited in size, meaning that sufficiency, on the one hand, and allocation, on the other, to each competing operator is very relevant for current and future outlooks of the telecommunications market.
5G licenses will be awarded in August 2020, after the bidding process comes to an end. Recent numbers on the impact of the 5G network in the Portuguese economy are estimated to reach 3.6 billion Euros in the next ten years.
According to Eurostat, the price of telecommunications in Portugal walks the opposite direction of that of EU’s: in Portugal, prices rose 12% in the last ten years, while in the EU, prices fell approximately 11%; Portugal is the seventh most expensive jurisdiction in the EU; and, in Portugal, prices are 15% to 25% higher than the European average regarding specific services, such as bundle services and internet, respectively.
Back in 2015, Spain levied a special tax on electricity producer which was suspended on the beginning of October 2018 for a six months period. Now that the suspension has ended, and as in Portugal there is no such tax, this was perceived as a competitive advantage to investors in the Iberian electricity market.
Apparently this is no longer the case as the Portuguese government has introduced a brand new special tax of €4,18 per MWh to be levied in 2019 upon all renewables not subject to a special regime. The Portuguese government argues that this fiscal disparity creates a market disturbance and should be treated as an extra-market event “which may influence the market price and revenues of the different Portuguese producers”.
The Portuguese government is in fact authorized by Decree-Law no. 104/2019 to create a payment on account in order to suppress such disparity between Portuguese and Spanish electricity producers.
This new tax was determined by the Secretary of State for Energy through the Ruling no. 8521/2019 after a proposal from the Energy Services Regulatory Entity and has entered into force on 27 September 2019.
This new tax was already foreseen in the State Budget for 2019 and its creation raises questions on its lawfulness.
Last 14 June of 2019, the European Parliament published new regulations aligned with the long term goals for full integration of the EU energy market.
Regulation (Eu) 2019/941 Of The European Parliament And Of The Council, of 5 June 2019 on risk-preparedness in the electricity sector, repeals the Directive 2005/89/EC and establishes new rules concerning the storage of energy to guarantee its in case of a crisis. This Regulation also uniformizes the obligations of the grid operators on this regard, specially, with the need of making plans for contingency periods and new forms of cooperation among the State Members.
Regulation (Eu) 2019/942 Of The European Parliament And Of The Council, of 5 June 2019, redefines the legal framework of the European Union Agency for the Cooperation of Energy Regulators (“EUACET”). EUACET will issue opinions and recommendations to the players and national agencies and submit guidelines on energy policy to the European Commission agency aiming to further involve all Member States regarding in energy cooperation within the EU.
Regulation (EU) 2019/943 Of The European Parliament And Of The Council, of 5 June 2019 addresses the two main goals for the decade: decarbonize the sector and generate cleaner energy. It includes thresholds for CO2 emissions of each electric facility that generates power using fossil sources.
Directive (EU) 2019/944 Of The European Parliament And Of The Council, of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU aims to confront the new challenges to the energy market posed by smart grids and the smart metering.
For several years, the Portuguese Government supported a free market approach for renewable energy producers, withdrawing all incentives to solar energy production. This meant the end of new feed-in tariff contracts and the difficult task of promoting new solar projects with free market tariffs. Expectably, the financing of such projects was heavily affected, resulting, to quote the Minister of Environment and Energy recent interview, in “…1.2 gigawatts of solar power licensed, and only 49 megawatts implemented”.
To change this state of affairs, the Portuguese Environment and Energy Minister announced in January two auctions for solar licenses with guaranteed tariffs.
The Portuguese Environment and Energy Minister is “certain that there will be lots of investors with different dimensions” interested in bidding for the licenses under new tariff structure. Promoters will be grouped by the dimension and financing capacity. But, possibly, in the auction with guaranteed tariff will not apply to the “largest players”. Auctions with guaranteed tariffs will more likely be destined to smaller players, to facilitate the access to credit to less bankable promoters.
The impact of this policy change will, of course, depend on the guaranteed tariff’s range. So, we will have to wait until April, when the auctions’ details are to be revealed.
The new solar energy policy comes in the context of the also new National Energy and Climate Plan (in Portuguese, Plano Nacional para a Energia e Clima – “PNEC”) which is mandatory to all EU countries under Regulation 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action. The Portuguese Minister of Environment and Energy announced that PNEC is due to publication on July, after a public consultation period beginning in April.
The new PNEC targets to reduce total energy consumption in 35% by 2030. It forecasts a private investment amounting to 18 billion euros in renewable energy generation facilities and in transport and distribution networks. The aim is to achieve a 47% of renewable sourced of the total energy consumption in Portugal.
The Portuguese Government has put in place a Fund for the Systemic Sustainability of the Energy Sector aiming at reducing the Portuguese tariff deficit. This deficit is the result of a long term policy of power utilities support through complex compensation schemes (including but not limited to those known as CMEC) payable by consumers.
Energy utilities will now be called to contribute with an extraordinary contribution (a new tax already foreseen in the 2014 Budget Law) that will be used to partially replace the CMEC and to acquire tariff credits from energy companies.