Introduction

Energy purchase and sale agreements between producers, consumers, and traders—commonly known as Power Purchase Agreements (“PPAs”)—have been gaining importance as instruments for price stabilisation and for financing renewable energy projects. Despite their potential, the use of PPAs in Portugal remains limited compared to other European countries. The main obstacles include a lack of data on prices, volumes, and contractual conditions—which complicates risk assessment—and a lack of standardisation and legal certainty, especially regarding contracts with end consumers.

To encourage the contracting of PPAs, Decree-Law No. 99/2024 established the foundations for the new activity of bilateral energy registration and contracting. This was further detailed by Ordinance No. 367/2024/1, which creates a new OMIP registration platform, to be managed by OMIP, S.A. (“OMIP Platform”).

Registration of PPAs on the Electronic Platform becomes mandatory, allowing:

• Sellers and buyers to disclose contractual conditions for negotiation and conclusion of PPAs, facilitating the meeting of supply and demand; and
• the production of aggregated and reliable statistics, essential for market monitoring and public policy definition.

Additionally, the OMIP Platform will:

• Provide standard clauses and contract templates, making it easier to draft more balanced and secure PPAs, especially for smaller agents, who can thus join the market with greater autonomy; and
• Serve as a meeting point between renewable energy supply and demand, facilitating negotiation, transparency, and liquidity in the PPA market.

The operation of the OMIP Platform will be regulated by a Manual de Procedimentos da atividade de registo e contratação bilateral de energia elétrica (“MP PPA”), whose preliminary version was under public consultation from May 20 to June 20, 2025.

The MP PPA will come into force the day after its publication, subject to the OMIP Platform becoming operational. The platform is scheduled to go live on June 29, 2025.

THE OMIP PLATFORM

Eligible PPAs and Producers

PPAs that satisfy the following criteria must be registered on the Platform:

• Include the actual delivery of energy (i.e., bilateral, physical PPAs);
• Have a term exceeding one year; and
• Are concluded between:

1. An energy producer (or their representative/aggregator); and
2. A natural or legal person purchasing the energy under the agreement as a trader, aggregator, or end customer.

A producer is considered to be the holder of permit for:

• A power generation facility; or
• A self-consumption production unit (“UPAC”) whose surplus energy is partially or fully sold through bilateral agreements.

The following will also be construed as producers:

• Hybrid systems, where the power generation facility or UPAC combines multiple renewable sources (e.g., wind and solar);
• Independent storage units, meaning installations not directly linked to a generation site but capable of injecting power into the Public Service Electricity Network (“RESP”) on their own.

In every case, an entity is classified as a “producer” only if the licensing process requires prior allocation of injection capacity into the RESP.

The length of a PPA is defined by its initial period, or by any extension of it in cases where the initial term is one year or less.

Entity Registration on the OMIP Platform

ENTITY REGISTRATION PROCEDURE on the OMIP Platform

Producers and buyers who

• Have already signed, or plan to sign, one or more PPAs that require registration; and/or
• Plan to execute one or more PPAs through the OMIP Platform

are required to register on the OMIP Platform. This registration follows the creation of a user account, which can represent producers, buyers, or market agents.
Each registered user may associate several producers and buyers, identified through their ACER and CRIA codes. Registration is carried out via a form, which must include the following details:

1. Identification of the producer or buyer, including name or company name, address, access code to the permanent certificate, tax number, and declaration from the central register of beneficial owners;
2. Identification of the representative along with documentation proving the authority to act in that capacity;
3. Specification of the authorisations granted to the user responsible for registering the producer or buyer, for using the OMIP Platform, and proof of such authorisations;
4. Declaration, under a commitment of honour, confirming that the provided information and documents are accurate and complete.

Once the form and required documents are submitted, the registration will be pending OMIP’s validation. If all criteria are met, the registration will be finalised.

The user will then be able to view PPA offers, register agreements made by the producers or buyers they represent, and also negotiate and sign PPAs through the OMIP Platform, within the limits of the powers assigned.

Any updates to the submitted information must be reported to OMIP through the OMIP Platform within five business days.

PPA Registration on the OMIP Platform

Procedure for registering PPAs on the OMIP Platform

PPA registration must be carried out by the producer or purchaser responsible for energy scheduling, or by an authorised entity, provided they are already registered on the OMIP Platform.

A registration fee applies and must be paid within five business days of contract signing; otherwise, a higher fee will be charged. Existing PPAs must be registered within 90 days from the launch of the OMIP Platform.

To register a PPA, the following details must be provided by completing a form on the OMIP Platform:

1. Identification of the involved parties, including ACER and CRIA codes;
2. Identification of the entity responsible for submitting PPA execution schedules;
3. Current development phase of the generation facility, UPAC, or independent storage system at the time of PPA registration (licensing, construction, or operational phase).

Registration also requires details regarding the terms of electricity purchase and sale:

1. Contracted volume (which can be an estimate based on production or consumption profiles and maximum allowed generation capacity in MW);
2. Pricing details (including the pricing structure);
3. Generation technologies employed; and
4. Contract duration, specifying start and end dates.

The user submitting the registration affirms, under honour commitment, that the information is accurate and complete. Registration is finalised once the data is submitted, and the fee is paid.

Any updates or changes to the provided information, including the development status of the project, must be reported to OMIP within five business days.

Voluntary Contracting on the OMIP Platform

Disclosure of terms on the OMIP Platform

The MP PPA (as in its current draft proposal) includes a complementary activity, which involves promoting the negotiation and conclusion of PPAs through the OMIP Platform. Participation in this negotiation is voluntary, unlike registration, which is mandatory.

Thus, producers and buyers registered on the OMIP Platform may disclose contractual terms which, if accepted by a counterparty also registered on the platform, enable the conclusion of a PPA.

This disclosure may be made either directly or via a representative, and should outline the key terms considered essential by the disclosing party, including:

1. The contract structure (e.g., a fixed hourly profile, a monthly or annual baseload, or remuneration based on actual production);
2. The intended contract duration;
3. The current stage of project development;
4. Whether guarantees of origin will be transferred;
5. The primary energy source and technology employed in the project;
6. The electricity pricing model, specifying whether it is fixed, variable, or hybrid, and the methodology for its calculation;
7. Responsibility for energy dispatch and compliance with reporting obligations;
8. Responsibility for imbalance charges, as well as the provision of guarantees by both the producer and the buyer;
9. The estimated volume of electricity to be generated or consumed, and whether this is intended to be covered by a single PPA or may be split across multiple agreements.

The terms are made available on the OMIP Platform for review and negotiation among registered users via a secure, confidential messaging channel. Should the parties reach an agreement based on these published terms, they may proceed to formalise the PPA using templates and standard clauses provided by OMIP.

Negotiating and executing PPAs on the OMIP Platform

The conclusion of a PPA via the OMIP Platform starts with the completion of a form, which includes the identification of the parties involved, details of the power generation facility, the contractual terms agreed upon during negotiations, and any clauses the parties wish to incorporate into the PPA.

Once negotiations are successfully concluded on the OMIP Platform, producers and buyers can choose from standard clauses offered by OMIP, in addition to incorporating any other terms mutually agreed upon.

After the PPA draft is finalised, the parties are responsible for reviewing and confirming its content. Provided no further changes are required, the OMIP Platform will then produce the PPA for the parties to sign.

If the PPA is concluded via the OMIP Platform, the parties may request automatic contract registration, with the form pre-filled using the information submitted during the PPA execution process.

Once the PPA has been concluded, the user who posted the contractual terms on the OMIP Platform is required to withdraw them within 10 business days, regardless of whether they registered the contract themselves.

Parties may utilise the OMIP Platform to advertise their terms and identify potential interested parties for a PPA. However, they are under no obligation to negotiate or finalise the contract via the platform and may choose to conduct these processes independently.

OMIP does not have access to either the negotiations or the draft PPA created by the parties through the OMIP Platform.

Concluding a PPA via the OMIP Platform requires payment of a fee, which exempts the party from paying the standard fee associated with compulsory registration.

FEES For using the OMIP Platform

Fees for the use of the OMIP platform

OMIP levies a fee for the following services offered via the OMIP Platform:

• Registration of PPAs;
• Modification of details or documents submitted for PPA registration;
• Publication of contractual terms for the negotiation and conclusion of PPAs;
• Conclusion of PPAs through the OMIP Platform..

Payment for PPA registration and information updates is made in a single instalment. In contrast, the fee for executing PPAs via the OMIP Platform is paid in equal instalments throughout the estimated duration of the PPA, excluding the final six months.

Should the PPA terminate earlier than anticipated, any outstanding fees must be settled on the termination date.

All fees must be paid within 30 days of the invoice being issued by the OMIP Platform.

A delay in the payment of PPA registration or data amendment fees will incur a 10% surcharge. Moreover, failure to meet the payment obligation for PPA registration will block the scheduling of electricity, thus preventing its commercialisation.

The fee structure for the PPA Market (MP PPA) has yet to be established, with only the procedure for its determination and approval currently outlined. OMIP will be responsible for submitting a well-founded proposal to ERSE, detailing the applicable conditions and pricing, which will then be subject to approval by the regulatory authority.

Fees will be waived for the initial 12 months after the OMIP Platform comes into operation.

FOREWORD

Portuguese large electricity-consuming industries have long waited for the intensive electricity consumers’ benefits scheme (Estatuto do Cliente Eletro-Intensivo – “ECEI Rules”) established by Decree-Law No. 15/2022, the national electricity framework regulation enacted in January 2022.

Aimed at facilities with high, continuous, and predictable electricity consumption, the ECEI Rules are designed to tackle one of the main competitive challenges faced by Portuguese industry: the high cost of electricity. By lowering the final electricity prices and facilitating access to more competitive energy conditions, the ECEI Rules help align Portuguese energy costs with those of international competitors.

Key benefits of the ECEI Rules include:

• Reductions and exemptions from various charges related to the use of the national electricity grid;
• Compensation for indirect CO? costs;
• Exemption from proximity requirements between production units and self-consumption facilities.
• Access to a risk coverage mechanism that supports the execution of long-term renewable energy supply contracts.

In March 2022, Ministerial Order No. 112/2022 defined the eligibility criteria for adherence, as well as the obligations and support measures for consuming facilities covered by the ECEI Rules.

However, ECEI Rules becoming effective was contingent upon its approval by the European Commission under its State aid rules. Such approval was finally granted on 24 April 2025, thereby unlocking ECEI’s implementation.

In this new context, Ministerial Order No. 203-A/2025/1 firstly amended the ECEI Rules by adjusting the access requirements, the adhesion contract, and the respective framework of obligations and benefits.

With an annual allocation of at least 60 million euros intended for approximately 319 eligible companies, the ECEI Rules were established to be a strategic tool for the competitiveness of Portuguese industry.

Therefore, the right time has come to analyse the ECEI Rules highlighting their main implications for the Portuguese energy intensive industry.

THE BENEFITS FOR ENERGY-INTENSIVE CONSUMERS

PARTIAL REDUCTION OF COSTS

By joining the ECEI Rules, consuming installations can benefit from a partial reduction in the General Interest Costs applied to the electricity they purchase from the Portuguese Public Service Electricity Grid.

However, the resulting rate cannot fall below EUR 0.5/MWh.

• An 85% reduction of the cost applies if the installation belongs to a sector deemed to be at significant risk, as established in Annex I of the European Commission Communication 2022/C 80/01, concerning the “Guidelines on State Aid for Climate, Environmental Protection and Energy 2022”.
• A 75% reduction of the cost applies if the installation belongs to a sector at risk, pursuant to the same Annex. This reduction may be increased to 85% provided that the following cumulative requirements are met:

1. ≥ 50% of the installation’s electricity consumption originates from renewable sources; and cumulatively
2. ≥ 10% of the installation’s electricity consumption is secured through a forward contracting instrument or bilateral contract; or
3. ≥ 5% is guaranteed by self-consumption from renewable sources.

• To comply with the requirement to prove consumption from renewable sources, the corresponding guarantees of origin must be cancelled on behalf of the consuming installation.

TOTAL REDUCTION OF COSTS

 

 

Adherence to the ECEI Rules allows consumer installations to benefit, in the case of self-consumption, from:

• Full exemption from General Economic Interest Costs on the energy transmitted through the Portuguese Public Electricity Grid.
• Exemption from proximity criteria between the consumption installation and the self-consumption production unit.
• Total reduction of General Economic Interest Costs applied to the global system use tariff for the portion of self-consumed electricity from a production unit for self-consumption, when transmitted through the Portuguese Public Electricity Grid.
• Exemption from the proximity criteria between production unit for self-consumption and the location of consumption installations, which is a requirement for carrying out self-consumption production activity:

1. 4 km for medium-voltage connections
2. 10 km for high-voltage connections; and
3. 20 km for extra-high voltage connections.

If the connection occurs at the same substation, there is no distance limitation.

RISK COVERAGE MECHANISM

The risk coverage mechanism for medium and long-term renewable electricity purchases is a financial instrument aimed at:

• Shielding energy intensive consumers from electricity price volatility; and
• Encouraging renewable energy use by involving financial institutions that provide guarantees. These guarantees cover part of the contractual obligations, making it easier to enter into medium- and long-term power purchase agreements (PPAs) for renewable electricity.
• Access to a risk coverage mechanism related to the payment of the purchase price for renewable electricity on a medium and long-term basis through long-term bilateral contracts, subject to the following requirements:

1. A minimum contract duration of five years; and
2. Coverage of at least 10% of the consumer’s annual electricity consumption.

The risk coverage is provided by Mutual Guarantee Societies (“SGM”), which are supported by a counter-guarantee issued by Banco Português de Fomento, S.A., acting as the managing entity of the Mutual Counter-Guarantee Fund.

• The SGM guarantee coverage for the risk of non-payment of the agreed contract price, limited to the actual loss suffered.
• Banco Português de Fomento, S.A. assumes the liabilities arising from the obligations guaranteed by the SGM, up to a maximum of 80%.

ADHERING TO THE ENERGY-INTENSIVE CONSUMER RULES

ELIGIBITY REQUIREMENTS FOR STANDARD ADHESION

To be eligible for the ECEI Rules, a consumption facility must meet the following requirements.

• Be part of one of the sectors of activity identified in Annex I of the European Commission Communication 2022/C 80/01.
• Be connected to the Medium-Voltage, High-Voltage, or Extra-High-Voltage Electricity Grid
• Comply with the requirements established under the System for Greenhouse Gas Emission Allowance Trading or the Intensive Energy Consumption Management System, if applicable
• Meet the following requirements in at least two of the last three years.

1. Annual consumption ≥ 1 GWh, including self-consumption and system services.
2. ≥ 40% of the annual consumption during normal off-peak and super off-peak periods, net of energy from self-consumption and system services.
3.  Intensity level ≥ 1 kWh/€ of gross added value.

THE APPLICATION FOR STANDARD ADHESION

The application to benefit of the ECEI Rules must be addressed to DGEG with a set of documents and information, including:

• Identification of the applicant, the consumption facility, the sector or subsector, and the facility’s activity code;
• Copy of electricity supply contract established at the organized market, either through bilateral agreement or via a supplier in the free market;
• When applicable, evidence that the consumption facility complies with requirements of:

1. System for Greenhouse Gas Emission Allowance Trading; and
2. Intensive Energy Consumption Management System.

• Declaration of electricity consumption and proof of electricity from self-consumption and system services for the past three years;

1. If the consumer has no historical data, it may be estimated proportionally to the annual consumption.

• Audited certificate of the annual gross added value of the consumption facility for the past three years;
• Declaration confirming that it does not qualify as an “Undertaking in Difficulty” as defined by EU Regulation 2014/C 249;
• Declaration confirming that the company is not subject to any pending recovery order following state aid granted under a European Commission decision;
• Declaration that no state aid has been received for the same eligible costs or that such aid does not exceed the legal limits.

ELIGIBILITY REQUIREMENTS FOR CONDITIONAL ADHESION

Electricity consumers with consumption facilities in operation for less than three years may apply for conditional adherence to the ECEI Rules in the calendar year prior to the year in which the application is processed.

Obligation of the Energy Intensive Consumer

• The consumer is required to meet the eligibility requirements in at least two of the three years following the application for adherence.

Compliance Assessment

• Compliance will be evaluated based on actual or estimated data.

Application

• The application for conditional adhesion must contain the same documents required for standard adhesion

THE ADHESION AGREEMENT

TERMINATION OF THE ADHESION AGREEMENT

The power to terminate the adhesion agreement to the ECEI Rules falls under the authority of the Director-General of DGEG. Termination leads to the following consequences:

• Cessation of all support measures granted under the ECEI Rules; and
• Reimbursement of unpaid General Interest Costs (CIEG) during the term of the agreement. This reimbursement must be made by July 1st of the year in which the breach was identified.

The adhesion agreement shall be terminated in the following cases:

• Voluntary withdrawal;
• Cessation of activity;
• Subsequent non-compliance with eligibility requirements;
• Failure to notify changes to the agreement conditions;
• Submission of false information or the intentional provision of false statements for the purposes of entering into, renewing, or converting the adhesion agreement; and
• Facilities benefiting from the ECEI Rules must submit to DGEG, by April 30 of each calendar year during the term of the agreement — including the calendar year following its expiry — evidence of continued compliance with the eligibility requirements, by providing the relevant supporting documentation.

THE OBLIGATIONS OF ENERGY-INTENSIVE CONSUMERS

ENERGY AUDITS AND ENERGY MANAGEMENT SYSTEMS

The new ECEI Rules aim to ensure transparency and accountability in the use of public benefits, while simultaneously promoting continuous improvement in the energy performance of facilities and the adoption of sustainable and efficient practices within the energy-intensive sector.

Facilities that benefit from the ECEI Rules and are not part of the Energy Consumption Management System must carry out an energy audit by certified professionals by the end of the first calendar year of the agreement.

For conditional adhesion agreements, the audit must be done by the end of the second calendar year after the year the facility started operating.

In addition, they must carry out at least one of the following actions:

• Implement all energy efficiency measures identified in the energy audit report that have a payback period of 3 years or less;
• Invest at least 50% of the support received in projects that reduce greenhouse gas emissions at the facility; or
• Ensure that at least 30% of their electricity consumption comes from renewable sources, through self-consumption, guarantees of origin, bilateral contracts, or other equivalent mechanisms.

FINAL IMPLEMENTATION REPORT

The energy intensive consumers must submit a Final Implementation Report by April 30 of the calendar year following the term of the adhesion agreement to ECEI Rules.

The Final Implementation Report must include:

• An analysis of the evolution of eligibility requirements;
• The energy audit report;
• Proof of compliance with at least one of the mandatory actions (energy efficiency, emissions reduction, or use of renewable energy);
• Evidence of the installation and operation of monitoring, recording, and control systems;
• Proof of installation, certification, and audit of the energy management system.

TRANSITIONAL RULES - ADAPTATION OF ADHESION AGREEMENTS CURRENTLY IN FORCE

TRANSITIONAL RULES

The adhesion agreements to the ECEI prior to the new ECEI Rules did not benefit from the cost-reduction measures and the risk-coverage mechanism, as these only came into effect following the European Commission’s approval under State aid rules on 24 April 2025.

Electricity consumers with valid agreements for the year 2025 are required to align their contracts with the newly established rules to benefit from the cost-reduction measures and risk coverage mechanism.
According to Explanatory Note No. 2/DG/2025 of DGEG, electricity consumers had the opportunity of filing a conversion request at DGEG through the Energy Intensive Consumer Portal by May 31, 2025.

To avoid termination of their ECEI status, those who failed to submit the conversion request can still file a renewal request until June 15, 2025, following the adhesion process described above in this paper.

Our Partner João Macedo Vitorino will be a speaker at the 4th edition of the Solarplaza Summit Portugal, on October 13, 2022, at 14h40. He will talk about "The opportunity of self-consumption" in Portugal. If you want to participate, book your ticket here.  

The event will take place at the Altis Grand Hotel, in Lisbon. 

 

Transition

In Portugal, electricity self-consumption is ruled by Decree-Law 15/2022. Self-consumption promotes electricity decentralized production from renewable sources. 

Energy self-consumption is the production of renewable energy by a final consumer through one or more production unit(s) for self-consumption (UPAC – unidade de produção para autoconsumo) in a facility owned by that individual that can store or sell in-house produced electricity of a renewable source.

Self-consumption can be:  

According to DGEG data: between 2016 and 2021, decentralized installed power increased by 66% and photovoltaic UPAC increased by around 90%. The use of UPAC from non-solar sources was almost non-existent.

 

Prior control

Both individual and collective self-consumption is subject to a prior control procedure which, depending on the installed capacity of UPAC, can be:

The distribution of spare RESP injection capacity determines if a Production License can be awarded or not. The license award depends on the payment of a security deposit obtained through (i) a general access request (when there is available capacity), (ii) a request-agreement between the interested party and RESP’s operator (the interested party should cover the financial costs of construction or improvement of the grid necessary for the reception of the energy produced by UPAC), or (iii) a competitive procedure.

Spare RESP injection capacity is not necessary where there is:

Until April 19, 2024, the award of an Operation License or Operation Certificate is not necessary whenever the network operator verifies the existence of favorable conditions for connection. The exemption must be requested three years after that verification.

 

Energy sharing and trade

Energy sharing

EGAC must inform network operators about the desired sharing method of collective self-consumption, for distributing UPAC production between self-consumers. If EGAC stays silent, the network operator shares proportionally each installation based on measured consumption.

Energy sharing can be based on:

Electro-intensive self-consumption

The Electro-intensive Customer Statute (Estatuto do Cliente Eletrointensivo - ECE) was ruled by Ministerial Order no. 112/2022, establishing obligations and support measures for consumption facilities that stand by this statute through a standard form contract to benefit from:

New Features

The National Electricity System (Sistema Elétrico Nacional - SEN), brought by Decree-Law no. 15/2022 of 14 January, establishes new sets of rules that were not yet available or were poorly implemented in previous regulations.

Achieving the national energy transition goals focusing on solutions to circumvent the current grid capacity shortage is SEN’s purpose: countering the grid’s inactivity and maximizing the reception potential of the Public Service Electricity Grid (Rede Elétrica de Serviço Público - RESP).

Two of the most important new features are new hydrid power production and hybridization of existing plants:

• Hybridization is adding to an existing power plant or self-consumption production unit (unidade de produção de autoconsumo - UPAC) of new production units that use several primary renewable energy sources, without changing pre-existing injection capacity of the power plant or UPAC; and
• Hybrid new plants or UPAC are those that, for the prior control procedure, simultaneously present more than one production unit using several primary renewable energy sources.

The new framework simplifies and promotes the use of the same injection point in RESP by several technological tools with a different primary source. It allows hybrid generation systems to be set up ab initio or later through a very straightforward prior control procedure to amend the production license.

Renewable power generating plants can carry out a hybridization project; but solar and wind energy hidridized plants have specific daily and intra-annual cycles that leverage their complementarity and allow maximizing the reception point at RESP.

The scale of wind energy generation in SEN, makes the opening for hybridizarion become clearer. In the last 5 years, wind-generated electricity corresponded, on average, to 24% of mainland electricity consumption, with an installed capacity in 2021 of 5,628,00 MW and representing a production share within renewable energies of 55.71%.

 

Prior control - I

Installation of a hybrid power plant or UPAC or the Hybridization of an existing power plant or UPAC are subject to prior control under the following terms:

The award of a Production License is dependent on the prior issue of a grid capacity reservation title into RESP (título de reserva de capacidade - TRC).

Hybridization does not require a TRC as there is no increase in the injection capacity of the existing power plant or UPAC.

TRC can be acquired in one of three ways:

Introduction

Until 2006, Eletricidade de Portugal, E.P. (“EDP”), a state-owned company, held all the electricity production, transmission, distribution and supply market and its main infrastructures. From 2006 onwards, activities linked to the electricity marked, such as the electricity production and supply, started to be more liberalized. This liberalized market opened the doors for several other private companies and investors.

Most recently, Decree-Law 15/2022, of 14 January (“Electricity Law“), implemented Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018, on the promotion of the use of energy from renewable sources, and Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019, that establishes the common rules for the internal market for electricity.

The Electricity Law sets a framework to the National Electrical System (Sistema Elétrico Nacional - “SEN”). Some of its most distinctive features are the creation of three Technological Free Zones (regulatory sandboxes), the creation of the Electro-Intensive Customer Statute and the creation of an electricity aggregator, responsible for connecting the consumption flexibility and storage electricity, purchasing or selling through electricity markets and/or though bilateral agreements.

In this paper, we travel through all Market Participants and their respective functions and obligations as defined in the Electricity Law.

 

The Portuguese Electricity market Participants 

Electricity Producers 

Electricity Producers, ruled by articles 11, 39, 97 and Annex I of the Electricity Law, are responsible for generating and providing electricity to the Portuguese electricity grids. Electricity producers can:?

To operate, producers shall obtain from the Portuguese Directorate of Energy (Direção Geral de Energia e Geologia – “DGEG”) a prior registration certificate or a production license (as pursuant to the installed capacity) in relation to each production unit.

The procedure to obtain an electricity production license is subject to the prior assignment of a public electricity grid (Rede Elétrica de Serviço Público – “RESP”) injection capacity reserve title (Electricity Law, article 18/1). This request must be submitted through the DGEG electronic platform.

 

Storage Companies 

Electricity storage (regulated in article 2/60 of Directive (EU) 2019/944 and in articles 11 et seq., 79, 80 and 97 of  the Electricity Law) is defined as the process by which previously produced energy is stored through its conversion into another form of energy to be used in a different time. In Portugal, hydroelectric pumping is the most common energy storage method. Other common energy storage technologies in use are lithium batteries and flywheels.

Autonomous storage activity is subject to a prior control procedure by DGEG in case installed capacity:

Integrated storage activity with the production of electricity shall follow the prior control procedure applicable to production covering, in such case, all activities simultaneously.

 

SEN Global Manager

The Global Manager of the National Electrical System (Sistema Elétrico Nacional - “SEN”) is responsible for SEN management. 

It is also responsible for ensuring SEN’s harmonized operation, security and electricity supply stability in the short, medium, and long term. 

This includes ensuring that the system is operated safely and efficiently, as well as coordinating with other European countries a stable and secure electricity supply.

The Electricity Law establishes the Global Manager of the National Electrical System rules and the technical management of the National Electricity System in its articles 3 jj) and 103 to 106.

Article 104 of the Eletricity Law establishes that the technical management of the National Electricity System is assigned to Redes Energéticas Nacionais SGPS, S.A. (“REN”) in its capacity of TSO - National Electricity Transportation Grid (Rede Nacional de Transportes - “RNT”) operator. 

 

Integrated DSO

The Distribution Grids Integrated Operator (“Integrated DSO”) holds the technical management of the electricity distribution grids in high, medium, and low voltage and is responsible for the technical management of the distribution grids in articulation with the Global Manager of the National Electrical System.

The Integrated DSO rules are set in articles 108, 109 and 166/2 of the Electricity Law.

This includes managing the electricity flows in the distribution grids and ensuring their interoperability with the grids to which they are connected. According to article 108 of the Electricity Law:

E-REDES, S.A. is the only company in Portugal that operates in the distribution system at high, medium, and low voltage.

 

Transmission System Operator 

The Transmission System Operator (“TSO”) is the entity in charge of the electricity transmission activity, and it is responsible for the construction, operation, and maintenance of the transportation grid, ensuring the grid capacity in the long term.

TSO main rules can be found in articles 2/35, 6, 40 to 42  and 47 to 56 of Directive (EU) 2019/944, in articles 3/zz), 105, 106, 227 and in Annex II of the Electricity Law.

Electricity transmission is carried out by REN, which is responsible for, among other things:

Annex II set the bases of RNT 50 years concession for mainland Portugal. REN holds the concession of RNT until 2057 and is subject to the control by DGEG and to the supervision of the energy services regulatory authority ERSE – Entidade Reguladora dos Serviços Energéticos. 

 

Medium and High Distribution System Operator 

The Distribution System Operator ("DSO") rules are found in articles 2/39 and 35 of Directive (EU) 2019/944 and in articles 3/xx), 8/1 and in Annex III of the Electricity Law that sets the bases for the medium and high-voltage electricity distribution grids concessions.

DSO activity is granted by a 30-year concession subject to a public tender procedure.

DSO of medium and high voltage is responsible for:

E-REDES holds the DSO concession until 2044. 

 

Low Distribution System Operators 

The Low Voltage System Operators (“LDSO”) rules are set out in articles 2/39 and 35 of Directive (EU) 2019/944 and in articles 3/xx), 8/1, 115, 116, 268, 285 and in Annex IV of the Energy Law.

According to Annex IV, low voltage electricity distribution in Portugal is a municipality activity, which may be granted by a 20-year concession contract under a public tender procedure.

Article 118 establishes that the low voltage distribution concession is a remunerated activity. The remuneration is based on the size of each municipality and the number of customers. There is also a solidarity factor that benefits the municipalities with a lower population.

Besides its technical assignments - which include the relationship with DSO - LDSO also has commercial duties, such as: metering reading, making the reading metering reading data available to suppliers and the invoicing and collection of the grid access tariffs from suppliers.

There are currently 11 LDSO, with E-REDES accounting for around 99.5% of consumers. The existing municipal concessions have mismatched periods, with most expiring in 2022.

 

Closed Distribution System Operators 

Closed Distribution System Operators are entities responsible for ensuring the capacity of the closed distribution system. A closed distribution system is a system that is part of areas or infrastructures excluded from the scope of electricity distribution concessions.

The Closed Distribution System Operator and the Closed Distribution System are regulated in articles 38 of Directive (EU) 2019/944 (EU) and in articles 3/yy) and 120 and onwards of the Electricity Law.

The Closed Distribution System Operator is responsible for:

 

Electricity Market Operator 

Electricity Market Operators are entities responsible for the market management and related activities. The main regulations in their regard are set out in articles 163 et seq. of the Electricity Law.

In the last stage of the electricity supply chain, the Electricity Market Operator (along with Electricity Suppliers) relates directly to consumers. Consumers can choose their supplier and change (free of charge) whenever they find better suited offers to their type of consumption.

The main duties of an Electricity Market Operator consist of:

Introduction

Sustainable financing, with an emphasis on "green" financing, reveals the growing concern with new environmental, social and governance (ESG) challenges.

Sustainability has a tangible financial dimension that has been growing at an exponential rate. According to Refinitiv, in 2021 sustainable bonds reached a global value of $1 trillion, which represents 10% of the global debt market.

Because we believe that sustainability is an essential aspect of company’s business purpose and will become a pre-condition for accessing financial markets in the future, MACEDO VITORINO has created a Green Finance Team dedicated to the development and financing of green projects.

Our Green Finance Team has deep knowledge of the energy sector and the key regulatory and financial issues in preparing and structuring up green finance transactions.

The pace of development of the green debt and equity markets means that green finance will become dominant in the medium term. In the long term, companies that do not meet sustainability requirements will face increasing difficulties in accessing the financial markets.

 

Background

According to McKinsey, to prevent a rise of more than 1.5°C, no more than 400 gigatons can be emitted, which means cutting present emissions levels by two-thirds over the course of the decade.

In 2019, the European Union (EU) approved the "European Green Deal" with the aim of transforming Europe’s economy and set the following objectives:

The Portuguese National Plan for Energy and Climate (PNEC) establishes the following goals for 2030:

Like the rest of the world, Portugal has been suffering from the devasting impact of the coronavirus pandemic. The measures adopted to prevent the spread of COVID-19 had a significant impact on the country´s economy.

Despite this, Portugal is currently the country with the highest percentage of people fully vaccinated, with 83,5% of the population fully vaccinated, as of September 2021, which is already encouraging the Government to open the economy and will decrease the numbers of the setback caused by the crisis.

Portuguese GDP fell 7.7% in 2020 and is expected to recover by 4.8% in 2021. Exports are also expected to recover 9.2% in 2021 after falling 20.1% in 2020. As expected, tourism, textile and footwear sectors, which are highly dependent on export markets, were severely hit.

However, investment in tourism, real estate, renewable energy and other longer-term projects in Portugal maintain their course. Despite the present difficulties, local and international investors remain confident in longer term prospects and in the resurge of tourism when the Covid-19 pandemic is behind us.

More importantly, against a backdrop of social unrest in many other developed countries in recent years, Portugal offers security, little social unrest and an inclusive and open society with low levels of racism, religious tensions and sex biases. According to Institute for Economics & Peace’s “Global Peace Index 2021”, Portugal ranks 4^th in the most peaceful countries in the world, 3^rd amongst European countries. Portugal also ranks 9^th in Societal Safety and Security domain amongst the countries in the world.

Other opportunities will arise from the recently announced National Investment Program (Programa Nacional de Investments) with investments in 85 infrastructure projects over the next 10 years, supported by the European Union, with EUR. 21,660 million to be invested in the transportation sector, mainly in upgrading or building new railroads and subway infrastructure, EUR. 13,060 million in renewable energy and EUR. 7,418 million in environment related investments.

This guide reviews the main aspects to be considered by foreign investors looking at Portugal as a place to invest, such as how to set up of a business, government incentives, employment rules, tax system, intellectual property protection, investing in real estate and judicial system.

For more information go to www.macedovitorino.com/en/why-portugal.

The Portuguese Energy Transition goals

The National Hydrogen Strategy (EN?H2), of 14 August 2020, sets commitment to ensure the neutrality of Portugal's carbon emissions by the end of 2050:

• Greenhouse gas (GHG) emissions to be reduced by 85% to 90% in relation to 2005 levels.
• Carbon sequestration to reach levels of 9 to 13 million tons of CO2 in 2050.
• A 55% reduction in GHG emissions and a 47% share of renewable energy in gross final energy consumption is expected to be achieved by 2030.

All this is aligned with the 2050 Carbon Neutral Roadmap (RNC2050) and the 2030 National Energy and Climate Plan (PNEC 2030).

Green hydrogen arises as an efficient solution to promote the energy transition in various sectors, particularly with the decarbonizing of transport and industrial sectors while strengthening the national economy and promote scientific development. It is an energy carrier with high energy density, which makes it the ideal solution for energy-intensive industrial processes, for the storage of energy produced through renewable sources and for the emergence of other renewable based fuels.

To achieve this transition, EN-H2 assumes as main goals for 2030:

• 5% green hydrogen in final energy consumption, road transport and industry;
• 15% green hydrogen injected into natural gas networks;
• 50 to 100 hydrogen refuelling stations; and
• Between 2 and 2.5 GW of installed production capacity.

Although EN?H2 sets out the intent to carry out a large production of green hydrogen in Sines with a capacity of 1 GW by 2030, support measures for decentralized hydrogen production projects of different scales, spread throughout the Portuguese territory are also expected.

Green H2 production and usages in the en-h2

Although hydrogen exists in great abundance, it almost always appears in combination with other chemical elements, and their combination constitutes other elements, such as water. As a result, the production of hydrogen requires the use of processes to separate it from the compounds in which it appears.

Hydrogen production can be accomplished using a wide variety of technologies, which always require energy in the form of heat, light or electricity. One of this technologies is water electrolysis, which is a simple process of breaking down water into its two components (splitting the hydrogen and oxygen atoms) using electric power.

For the purposes of EN-H2, green hydrogen is defined as hydrogen produced exclusively from processes using energy from renewable sources and whose GHG emissions throughout its production life cycle are zero or very close to zero.

EN-H2 foresees that Portugal can benefit from the following uses of green hydrogen:

• Fuel for various types of transport, with particular potential for heavy road transport, maritime or even rail and air transport through the use of fuel cells (which can store hydrogen and use it to produce electricity in a controlled way);
• Replacing natural gas as a fuel in the industrial sector, which contributes to reducing GHG emissions;
• Decarbonize and replace fuel production with synthetic fuels produced from mixtures of hydrogen and carbon dioxide;
• Conversion of excess renewable electricity into hydrogen, stored and then reconverted back into electricity using fuel cells; or
• Injected into the natural gas network or by converting hydrogen into synthetic methane to be used directly by residential and industrial consumers.

Starting with the Prior Registration

Production of hydrogen through renewable origin is ruled by Decree-Law No. 62/2020, of 28 August (the “National Gas Law”) and it is only accessible to legal persons that display relevant technical, financial and management capacity.

Performance of green hydrogen production activity is subject to prior registration at the Directorate of Energy and Geology (Direção Geral de Energia e Geologia – DGEG) to start construction and operating of the generating facilities.

Promotors must submit their requests to DGEG through e.Portugal with several documents, including: (i) proof of the land rights for the project, (ii) execution project of the generating facility, (iii) project plan and timeline deadline for entry into operation, and (iv) evidence of the technical, economic and financial capacity and experience of the promoter to ensure the development of the project.

The file is then forwarded to the licensing platform of the Portuguese Environment Agency (APA) (SILAIMB) where an environmental assessment will be conducted.

After registration application, the TSO, in Portugal REN GASODUTOS, SA, or the DSOs (Beiragás, Lisboagás, Lusitaniagás, RENPortgás, Setgás and Tagusgás each one with its exclusive distribution area) (as applicable), on a first come first served basis depending on the grid capacity proposed conditions, accepts or not the project as proposed by the promoter and sets the conditions for its connection to the grid.

DGEG shall confirm the prior registration (subject to payment of a €600 fee) within 30 days as from grid operator’s decision.

After the prior registration, the promoter must start operating the hydrogen plant within a maximum period of two years subject to an additional extension of one year when its insufficiency is due to unavoidable reasons not attributable to the promoter.

The promoter has then the right to inject the hydrogen into the grid and to sell the plant’s production: (i) in organized market or through bilateral contracting, at a price previously agreed between the parties, or (ii) through the last resort supplier against payment of fixed remuneration.

Environmental requirements

Hydrogen plants are subject not only to a prior registration, but they are also subject to environmental regulations. Hence, H2 plants must go through:

• Environmental Impact Assessment: According to Decree-Law no. 151-B/2013, of 31 October, should be made (i) directly, if the project reaches the thresholds set out in Annexes I and II; or (ii) indirectly, If the project does not meet the thresholds of Annexes I or II but is likely to have significant effects on the environment, according to Annex III.
• Major Accident Prevention: As hydrogen is a dangerous substance, whenever in quantities of 5 tons and 50 tons or more, producers are subject to a set of obligations, namely the communication and evaluation of compatibility of location where the production plant will be installed, as well as in the definition of a Policy for the prevention of major accidents.
• Integrated Pollution Prevention and Control Regime: To produce hydrogen on an industrial scale, by chemical or biological transformation, whose commercialization is in bulk and/or by injection into the gas or transport networks, is necessary an environmental licensing permit (TUA) issued by APA, which must be requested by operators through the SILIAMB Platform.
• European Emissions Trading Framework: green hydrogen projects that are based on the electrolysis of water using renewable energy are not covered by this regime, but other types of production may be, namely in case production is based on fuel combustion with thermal input exceeding 20 MW and that generate greenhouse gas emissions being subject to obtain greenhouse gas permit to be issued by APA and to register in the Portuguese Emission Allowances Registry.
• Air Emissions Permit: If there are sources of air pollution associated with the production process, obtaining an Emission Permit to be issued by APA or by competent Regional Coordination and Development Commission (CCDR) is mandatory. 
• Water Resources Use Regime: Water abstraction and wastewater discharge for hydrogen production are subject to obtain a Water Use Title (TURH). The use of sea water is subject to obtaining a title for occupation of the maritime space (TUPEM).

Connecting to the grid

After the prior registration, promotors shall enter into an agreement with the relevant grid operator setting forth the technical and commercial conditions for connecting the hydrogen plant to the grid.

Promoters will have to bear the costs of the construction of the necessary connection infrastructures to the public gas grid under the conditions established in the agreement executed with the grid operator, including the costs related to the occupation of the land which may be necessary for the installation of said infrastructures. In addition, promoter is also subject to the payment of a grid contribution fee, which is calculated pursuant to a formula published by the Portuguese Energy Services Regulator (ERSE).

However, in case a connection branch becomes used by a new producer, the promoters that have borne the costs of its construction shall be reimbursed by that producer, under terms defined by ERSE.

For the execution of the infrastructures necessary for connection and injection into the grid, promoters may constitute easements and request expropriation for public utility of the necessary real estate under the same terms and conditions as the concessionaires of the public gas grid.

Investments in the grid (namely to accommodate the injection of hydrogen) are made by the relevant transmission and distribution operators, according to their development and investment plans, which, in general terms, end up being supported by the consumers through network access tariffs.

Connection infrastructures shall become part of the grid and integrated in the concession of the relevant grid operator after construction and as soon as they are in technical operating condition.

The grid operator may request the promoter to provide a guarantee, valid for a period of two years, corresponding to a maximum of 10% of the value of the connection elements in order to make up for any construction deficiencies.

Prior to the start of operation of the hydrogen plant, a contract for the use of the grid infrastructures shall be entered into between the promotor and the relevant grid operator for the purpose to establish the conditions related to the use of the grid and interconnections, as well as the technical conditions for injection and the terms under which injection may be stopped or limited.

Construction permit

The construction of a hydrogen plant requires a construction license to build the plant and related infrastructure. The promotor may obtain prior information about the feasibility of carrying out the construction of the project, as well as on the respective legal or regulatory conditions, by submitting in the municipality of the plant’s location a pedido de informação prévia (“PIP”).

A positive PIP binds the municipality for a period of one year to the issuance of the construction license, in the exact terms in which the PIP was granted.

The request for a construction permit can be submitted online (at the municipalities’ website).

Within 45 days from the date of receipt of the last of the opinions the municipality must obtain from other authorities, the municipality will grant a construction license and issue an alvará de construcção (a construction permit certificate) at the request of the promotor.

Issuing of the construction permit is subject to the provision of a deposit by the promoter to the Municipality as well as a valid insurance policy covering work accidents.

The construction of the hydrogen plant must start within one year after the issuing of the permit, under penalty of expiration of the relevant construction license.

After completion of the construction works, the promoter needs a license of use for the plant issued again by the Municipality following submission of (i) the final blueprints, and (ii) a term of responsibility subscribed by the director of the works, in which they declare that the work is completed and that it has been executed in accordance with the architectural and specialty projects, as well as with the legal and regulatory rules that apply to it.

The license of use is granted within 10 days of receipt of the application, unless a survey to the work is decided by the President of the Municipality.

Support Mechanisms

EN-H2 provides for serval support mechanisms to encourage new investments in green hydrogen. These are still subject to the publication of specific regulations:

• The injection of hydrogen into natural gas networks may benefit from a partial or total exemption from network access tariffs for an initial period.
• A public allowance to hydrogen production, through a premium that covers the difference between the production price of green hydrogen and the price of natural gas in the Iberian natural gas market (MIBGAS).
• Fiscal mechanisms to encourage replacement of natural gas by green hydrogen, adjusting the relative prices between the two alternatives, penalizing natural gas and reducing the cost of hydrogen. Tax benefits and positive discriminations in applicable taxes shall be established based on the advantages of green hydrogen.

Renewable gases are covered by the system of guarantees of origin (GO), granting producers access to the GO market.

The Recovery and Resilience Plan (PRR) includes a first call for 62 million euros launched for projects that aim to produce renewable gases for self-consumption and/or injection into the grid. Projects for developing and testing new technologies, or tested technologies that are not sufficiently disseminated in Portugal, are eligible.

The program applies to all public or private companies that: (i) requested prior registration to produce renewable gases; and (ii) obtained a prior assessment from DGEG that it is an eligible operation. Funding per beneficiary and per project will have a maximum amount of support of 5 million Euros, although this may rise to 10 million Euros if projects cover more elements of the value chain (i.e. that include the integration of production, distribution and the final consumer). The maximum co-financing rate is 100% of the total expenditure considered eligible.

As European support instruments, we highlight (i) Horizon Europe: which aims to finance projects linked to the transition to a low-carbon economy, with a budget of €5 billion; (ii) the Innovation Fund: which focuses on low-carbon projects in carbon-intensive industries; and (iii) the InnovFin Energy Demonstration Projects: which is designed to provide loans, typically between €7.5 and €75 million, for innovative renewable energy projects.

The market reaction

There are currently 37 PRR approved projects involving public and private companies, universities, municipality organizations and other institutions, related to the production of green hydrogen, which include, namely the following players: The Navigator Company, Altri, Bondalti Chemicals, Dourogás, Turbogás, Tejo Energia, Prio, CaetanoBus, and Grupo Águas de Portugal.

EDP plans to install about 250 MW of electrolysers over the next four years, which will represent an additional investment in 0.5 to 1 GW of new renewable capacity in green hydrogen production.

The company Fusion Welcome announced a fusion fuel production project, aiming to achieve a production capacity of 27,000 tons of green hydrogen per year. The consortium formed by AkuoEnergy and Solarbelt has also received approval to build a hydrogen jet fuel plant.

"Green Pipeline Project" in Seixal is the first project in Portugal that will inject green hydrogen into the gas grid, targeting 80 residential, commercial, and industrial customers who, as of January 2022, will start receiving a mixture of natural gas and hydrogen.

The mega consortium "H2 Sines“ has already received a first permission from Brussels to move forward with the production of green hydrogen. The next step is reaching an agreement with the European Commission regarding funding for this project. This project aims to produce green hydrogen using an electrolyzer with a capacity of 10 MW.

This technology already exists in Évora and Benavente and is expected to be extended to more regions of Portugal during the course of 2022 to produce green hydrogen through photovoltaic plants, which capture and concentrate solar radiation and then perform electrolysis to produce green hydrogen with high efficiency and low cost.

More recently the European Clean Hydrogen Alliance published a list of projects that European industry is committed to creating the European hydrogen economy at a large scale. With more than 750 projects, the list includes projects ranging from clean hydrogen production (446) to its use in industry (172), mobility (240), energy (143), and buildings (77). Portugal appears with 23 projects listed in the northern region, 67 in the center, 23 in the Lisbon Metropolitan Area and 18 in the Alentejo. The aim of the alliance is to facilitate investments in clean hydrogen by promoting sustainable projects and contact with investors being its membership open to all entities with activities in the renewable or low-carbon hydrogen.

Introdução

It is often said that Portugal is the country with the largest number of sunny days in Europe, with more than 300 days of sunshine in a year.

These weather conditions give Portugal the perfect recipe to use solar energy at its full potential. As such, the Portuguese photovoltaic market is experiencing an all-time high at the present moment, thanks to various successful small and large-scale projects.

In addition, the Portuguese Government is committed to a long-term strategy for carbon neutrality by 2050, with the most recent data (January 2021) showing that 71,2 % of the electricity generated in Continental Portugal came from renewable sources.

Solar power currently represents 3.8% of the electricity generated in Portugal mainland, but it is expected that this figure will grow, particularly, thanks to the competitive solar auctions conducted in 2020 and in 2021, with more expected to be launched in the following years.

This study´s goal was to determine which taxes are applicable during the construction and the operation phase of solar power plants in Portugal, including national and municipal taxes and fees.

As such, this analysis is focused on Real Estate Taxes, Corporate Income Tax, Value Added Tax and other taxes applicable in the energy sector.

 

Real estate taxes

Construction phase

Solar plants may be built over land acquired or leased by the solar plant owner.

The acquisition of the ownership (direito de propriedade) or a surface right (direito de superfície) over the land will be subject to municipal real estate transfer tax (“RETT”) and stamp duty.

RETT rates vary depending on the type of asset:

• Land: 5%; and
• Urban buildings (other than housing) and other onerous acquisitions: 6.5%.

The stamp duty is charged at a rate of 0.8%.

As a rule, RETT and stamp duty will be levied on the acquisition price or the asset tax value, if higher.

The lease of the land is not subject to RETT and is only subject to stamp duty at a rate of 10% over the lease rent.

 

Operation phase

The ownership and surface rights are subject to municipal real estate tax (“RET”).

RET is levied on the asset tax value.

RET rates are different depending to the type of real estate asset:

• Urban buildings: 0,3% to 0.45%; and
• Land: 0.8%.

As a rule, the owner or surface right holder must pay RET in May of every year, although it may also be paid in instalments under certain conditions.

If the land is leased, RET will be paid by the owner unless the parties agree otherwise.

 

Corporate income tax

Construction phase

(i) Deduction of costs and losses

The costs and losses necessary for the generation of the income or gains subject to Corporate Income Tax (“CIT”) or for the maintenance of the producing source may be deducted for tax purposes. These include:

• Production or acquisition cost of any goods or services, such as materials used, labour, energy and other general manufacturing, maintenance and repair costs; and
• Distribution and sale charges, covering transport, advertising and placement of goods.

However, some expenses incurred during the construction phase are not accounted as costs, but rather as tangible fixed assets. Capitalised costs will not be deductible as tax costs but may be amortized according to Portuguese tax rules.

(ii) Tax loss carry forward

As a rule, losses may be deducted from taxable profits within the following 5 tax years. Nevertheless, companies that qualify as micro, small and medium-sized enterprises ("SMEs") may carry forward tax losses in the following 12 tax years with an annual limit equal to 70% of the taxable income.

In view of the current pandemic crisis caused by Covid-19, the 2020 Supplementary Budget approved a set of special rules for the years 2020 and 2021:

• Tax losses generated in 2020 and 2021 may be carried forward in the following 12 years;
• The annual limit of the deduction is extended from 70% to 80%; and
• The years 2020 and 2021 will be disregarded when counting the period for carrying forward tax losses (of 5 or 12 years).

 

Operation phase

(i) Taxation of income

The general CIT rate applicable to taxable profit is 21%.

Companies that qualify as SMEs benefit from a 17% rate on the first €25,000.

The amount of CIT due in each tax period can be increased by the Municipality Surcharge (Derrama Municipal), which varies according to the municipality where the company's head office is located and eventually the company's turnover.

The Municipal Surcharge rate is fixed annually by each municipality up to a maximum of 1.5%. However, municipalities may approve exemptions for:

• Companies with a turnover of less than €150,000 in the previous financial year;
• Companies operating under a certain Code of Economic Activity (the so-called “CAE”); and
• Companies that have been recently incorporated and create jobs.

As a rule, the income is deemed to be generated in the municipality where the taxpayer has its head office or effective management.

If the taxable profit exceeds €1,500,000, a State Surcharge (Derrama Estadual) will be applicable at the following rates:

• On the taxable profit between €1,500,000 and €7,500,000: 3%;
• On the taxable profit between €7,500,000 and €35,000,000: 5%; and
• On the taxable profit exceeding €35,000,000: 9%.

As a rule, CIT and municipal taxes must be self-assessed and paid by the companies after submission of the annual tax returns (Form 22) by 31 May of each year.

Companies will be entitled to deduct to the CIT any advance tax payments, special advance payments and additional advance payments that may be made by them during each tax year.

(ii) Amortization of tangible assets

The expenses incurred during the construction phase of the solar plants which are recorded as tangible fixed assets are subject to impairment due to their loss of value because of their use, the passage of time, technical progress, or other causes.

Portuguese tax laws determine that these assets may be subject to depreciation as from their entry into operation and the relevant amortization periods.

As a rule, the amortization must be carried out during the maximum period of useful life, which implies that at least the minimum quota of depreciation is accounted as a cost. As a result, depreciations made beyond the maximum life span are not accepted as tax costs.

According to the depreciation regime, the life span may vary between a minimum of 12.5 years and a maximum of 25 years.

As a rule, the calculation of the depreciation and amortization of the assets is made in accordance with the straight-line method. However, companies may choose the declining-line method under certain conditions.

The adoption by the taxpayer of other amortisation methods, which result in the application of depreciation or amortisation quotas higher than those provided in the law, is subject to the Tax and Customs Authority’s authorisation.

 

Limits on deductibility of financing expenses

Net financing expenses can contribute to the determination of taxable profit up to the higher of the following limits:

• €1,000,000; or
• 30% of the earnings before taxes, net finance costs, depreciation and amortization.

However, there are two exceptions:

• Net financing costs that may not be deductible in a given year may be considered in one or more of the five subsequent tax periods, after the deduction of the net financing costs of that period, subject to the above-mentioned limitations; and
• If the amount of financing costs deducted is less than 30% of the earnings before taxes, net finance costs, depreciation and amortization, the unused portion is added to the maximum amount deductible in the five subsequent tax periods.

The right to carry forward the financing costs ceases to apply when it is verified, at the end of the tax period in which the deduction is made or the limit is increased, that there is a change in the ownership of more than 50% of the share capital or majority voting rights of the taxpayer, except in cases provided in the law or if authorization is obtained from the member of the Government responsible for the area of finance in cases of recognized economic interest, by means of an application to be filed with the Tax and Customs Authority under the terms of the law.

 

Value added tax

Construction phase

(i) Acquisition of equipment in Portugal

Acquisitions of appliances, machinery and other equipment used exclusively or mainly for capturing and using solar energy are subject to Value Added tax (“VAT”) at a rate of 13%. Acquisitions of other goods and services are subject to the general rate of 23%.

In the case of acquisition of equipment where the vendor is based in Portugal, VAT is assessed by the seller of the goods.

There may be an inversion of the taxable person in case the supplier performs the installation, and this installation involves civil construction work, as explained below.

(ii) Aqcquisition of equipment in another Member-State

Where the supplier of the equipment is resident in another Member State and the equipment is dispatched from that Member State, the supply will constitute an intra-community supply.

Intra-community transfers will give rise to two operations:

• An intra-community supply of goods which is VAT exempt in the Member State of origin; and
• An intra-community acquisition of goods which is subject to VAT in the Member State of destination.

In intra-community acquisitions, there is a reverse charge, since it is the purchaser - and not the supplier - who must pay VAT.

In the case of transfers of goods dispatched or transported from another Member State in which the installation or assembly in Portuguese territory is made by or on behalf of the supplier, the transaction is also considered located in Portuguese territory and, consequently, will be subject to VAT in Portugal.

(iii) VAT reduction, VAT deduction, VAT credit and VAT refund

As a rule, the VAT will be deducted at the moment the tax becomes chargeable, i.e.:

• In transfers of goods, when they are placed at the disposal of the purchaser; and
• In the provision of services, at the time of their performance.

Whenever the VAT deduction exceeds the amount due for taxable transactions, in the corresponding period, the excess is deducted in the following tax periods, which translates into a VAT credit.

If the value of the VAT credit continues for 12 months in relation to the period when the excess began, a refund can be requested, provided the value is greater than €250.

The company may also apply for a refund before the end of the 12th month period in cases where a VAT credit exists at the time of end of activity, change of the VAT taxation regime, or if the credit in favour of the taxpayer is higher than €3,000.

The reimbursement of the VAT shall be made by the Directorate-General for Taxation (“Direção-Geral dos Impostos”) until the end of the second month following the month in which the request was presented, at the end of which the payment of compensatory interest may be requested, provided that certain conditions are met, namely:

• Submission of the VAT returns in which the refund request was made within the deadline; and
• Delivery of a guarantee (usually in the form of a cash bond or bank guarantee) that may be required by the Directorate-General of Taxation whenever the amount to be reimbursed exceeds €30,000.

(iv) Construction services: reverse charge rule

Generally, VAT is assessed by the companies that provide the services. In the case of construction services, there is a reverse charge.

The reverse charge will apply when the following (cumulative) requirements are met:

• There is a purchase of “construction services”; and
• The purchaser is a VAT taxpayer in Portugal and carries out transactions that confer, in whole or in part, the right to deduct VAT.

As a result of the reverse charge, the purchaser of the construction services is responsible for assessing and paying the VAT due, without prejudice to the right to deduct it under the general rules.

It should be noted that in cases where the obligation to assess and pay the VAT falls in the purchaser of the goods and services, only the tax assessed by virtue of that obligation confers the right to deduct.

Regarding the supply of movable assets in connection with the construction services, the Tax and Customs Authority has published several opinions that clarify the application of the reverse charge rules.

 

Operation phase

(i) Sale of energy in Portugal

A supply of goods carried out for consideration within the Portuguese territory by a VAT taxpayer is subject to VAT.

Electricity, gas, heat, refrigeration and the like are considered tangible goods for VAT purposes.

Thus, the sale of energy by a photovoltaic power plant will be considered a transfer of goods and is subject to the general VAT rate of 23% and the seller must pay VAT.

(ii) Sale of energy to a Member-State

The sale of energy to a buyer based in another Member State constitutes a intra-community transfer. As such, the following rules are applicable:

• The intra-community supply made by the seller is VAT exempt in Portugal; and
• The intra-community acquisition by the buyer is subject to VAT in the Member State of destination.

In this way, the seller does not have to account for VAT and it is up to the buyer to do so, provided this does not affect the right to deduct input VAT.

 

Other taxes and tariffs

Social electricity tariff

The social electricity tariff was created with the purpose of guaranteeing access by all consumers to the essential electricity supply service, namely economically vulnerable customers.

The payment of this tariff is ensured by the owners of electricity generating centers under the ordinary regime, in proportion to the installed capacity of each electricity generating center.

The amount of income obtained with the financing of the costs of the social tariff by the owners of the generating power plants, as well as its allocation to the operators intervening in the electricity sector value chain until the attribution of the social tariff by the distribution network operator are determined in accordance with that established in the tariff regulations applicable to the electricity sector.

Nevertheless, in accordance with the Clarification of 17 June 2020 of the Directorate-General for Energy and Geology (“DGEG”), the holders of the rights arising from the auction procedures of July 2019 and August 2020 for the allocation of reception capacity in the Public Service Electricity Network (“RESP”) of electricity produced at solar power plants ("Rights Holders") are exempt from the social tariff for electricity.

 

Extraordinary contribution over the energy sector

The State Budget Law for 2014 created an extraordinary contribution over the energy sector. This contribution is imposed on natural or legal persons that make part of the national energy sector and that are VAT taxpayers.

This contribution is levied on the value of the following assets:

• Tangible fixed assets;
• Intangible assets, with the exception of industrial property; and
• Financial assets allocated to concessions or to activities licensed under the terms of the previous article.

The rate of the extraordinary contribution on the energy sector is 0.85%.

According to the DGEG clarification, the Rights Holders are exempted from this extraordinary contribution.

 

Clawback mechanism

Under Decree-Law no. 74/2013 (“Clawback Law”), the Portuguese Government approved a regulatory mechanism aimed at compensating the distortions that the extra-market measures and events registered within the European Union cause in the formation of the average electricity prices in the wholesale market in Portugal.

This way, whenever the abovementioned extra-market events give rise to benefits not expected for domestic producers, the corresponding compensation is made, within the scope of the distribution of costs of general economic interest, ensuring the balance of competition in the wholesale electricity market in Portugal.

In this sense, Decree-Law no. 104/2019 amended the Clawback Law introduced the possibility of a payment on account which mitigates the time lag occurring between the verification of the extra-market event and the respective compensation. 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 with this amendment, the Clawback Law has now expressly established that the clawback charges apply to all electricity producers that sell electricity at a price by reference to OMIE (the Iberian electricity daily market).

The value of the payment on account to be applied in 2021 to electricity producers covered by the clawback mechanism is €2,24/MWh, per unit of energy injected in the public service electricity grid, which already takes into account and internalises 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.

Nevertheless, although Clawback Law only established that this charge is to be applied to electricity producers, the Portuguese Energy Secretary of State determined that in the case the supplier acquires electricity from a producer under a power purchase agreement (“PPA”) with a fixed price 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 at the level of the supplier, which must be subject to the Clawback Law mechanism.

Between 1 July and 30 September 2021, by Order no. 6398-A/2021, the Portuguese government decided to suspend the application of this rate, which corresponds to the suspension of tax measures in Spain, identified by Energy Services Regulatory Authority (“Entidade Reguladora dos Serviços Energéticos – ERSE”) as having an impact on the formation of average electricity prices in the wholesale market in Portugal.

According to the DGEG Clarification, the Rights Holders are exempt from the clawback mechanism.

To learn more, please download our PDF down below. 

As part of the Recovery and Resilience Plan ("Plano de Recuperação e Resiliência - PRR"), which supports sustainable economic recovery in the context of the post-Covid-19 pandemic, the Portuguese Government announced that the forestry sector now has a total of 615 million euros available for its reform.

Three key reforms were outlined for this sector. First, the transformation of the Landscape of Vulnerable Forest Territories, based on integrated approaches and territorialities foreseen by the Landscape Transformation Program, approved through the Resolution of the Council of Ministers no. 49/2020, of June 24. It is intended to transform the landscape of vulnerable forest territories in order to define a new land use matrix.

The goal is to create a new landscape, which discontinues the areas of pine and eucalyptus, and fosters the introduction of crops that are more profitable for landlords and the territory and, at the same time, make the territory safer, according to the possibilities that territories have for crops.

Secondly, the plan is to Reorganize the Rural Property Registry System and the Land Use and Occupancy Monitoring System.
This reform’s goal is to provide the country with up-to-date and detailed knowledge of the territory, by expanding the simplified cadastral information system and universalizing the Single Office for Buildings (BUPi) platform, and by developing a Land Occupation Monitoring System and reference cartography with high-resolution image coverage.
With this reform, knowing each property, also knowing what is inside each plot, this information is available for owners, investors, and for those who protect the territory.

Finally, it also has de purpose of preventing and fighting rural fires, which includes the implementation of a primary network of fuel management strips and equipping the responsible entities with means and resources that include machinery, equipment, and aerial means for fighting fires (MAIs Forest Program).
In this last phase, thousands of linear kilometers must be opened to interrupt forest masses, to allow firefighters to circulate and stop when necessary.

With all these measures, the Government intends to adopt a non-conformist vision of the fires that ravage the Portuguese territory every year, while at the same time developing and promoting a more sustainable forest.

In a more general tone, the following study is intended to provide readers with an overview of the forestry sector in Portugal. It aims to demonstrate the risks, obligations, organization and capacities of the Portuguese forestry sector.
Forestry activity and its products are of significant economic importance to Portugal due to their contribution to GDP and employment

The sector is mainly supported by national raw materials. More than 60% of Portuguese continental territory is made up of forest areas, 84.2% being private property, 13.8% community lands and only 2% public areas.

Nowadays, the forestry sector is facing important challenges, such as: (i) globalization of the market and economy; (ii) sustainability of resources and the quality of products with consequences in forest management certification and forest products chain-of-custody certification; (iii) greater susceptibility to pests, diseases and fires; and (iv) competition in the use of national forest raw materials.

Despite several potential uses for each forest species, eucalyptus row is used on the pulp and paper industry, pinus pinaster row is used on the wood and furniture industry and cork oak row is typical on the cork industry, for corks, acoustic and thermal insulation material or as fashion accessories.

Portugal imports lumber, veneer, plywood, and firewood into the industry, as well as more than two million cubic meters of logs annually.

If you wish to learn more, please download our PDF down below.