This article was published by Expresso, a Portuguese newspaper, on April 1.
There is no doubt that the world is at a turning point, in History, in the Economy, and in the lives of us all. In History, the veil is now falling away that for so long prevented us from recognizing one of the greatest tyrannies on Earth (and don't think that Russia is the only one that we have yet to admit as such, as we still have China and countries like Saudi Arabia, which we continue to treat as equals in values when they are not). In the Economy, we have entered an inflationary cycle, which was already inevitable as a consequence of the monetary policies followed in the fight against the effects of the Covid-19 pandemic. And which, with the Russian invasion of Ukraine, nobody can tell where it will lead us. In the lives of us Westerners, fortunate enough to live far from war and poverty, we feel squeezed by the rising prices of everything we consume and perplexed in our lack of understanding of the price-setting mechanisms. Some call for the taxation of capital gains that they adjectivize as unjustified, immoral, and the cause of the famine that affects the majority. Others, more moderate, question the universality of market rules and wonder whether it is not time for a new chapter in Economics too.
In this dire context, the European Commission recently proposed a plan called REPowerEU to erase dependence on Russian fossil fuels before 2030, to rebuild European gas reserves and to address rising energy prices in Europe. This initiative might, besides shaking the gas market, have a significant impact on the renewables sector, as it aims at allowing member States to take price regulation measures, to impose temporary windfall taxes, and to use of revenues from emission trading and state aid mechanisms. In the Iberian electricity market we have also seen discussions about electricity pricing mechanisms. The electricity wholesale prices in OMIE (where the daily price and the intra-daily price of electricity in the Iberian Peninsula are negotiated) are calculated through on a marginal prices mechanism that tries to mirror the meeting of forces between the supply and demand for electricity. There is an algorithm for these calculations called EUPHEMIA (who knows if named after the Greek saint tortured to death for not agreeing to participate in pagan sacrifices in the Roman Constantinople of the 3rd century) and we can say in this regard things are very complex; but, trying to simplify them, the setting of electricity wholesale price at OMIE works as follows:
OMIE puts the demand indicated by the operators of the Spanish (REE) and Portuguese (REN) grids together with the offers made by all different types of Iberian producers. The price established for the purchase of the electricity will be the price of the last offer to be entered into the system (normally, that of those who has less incentive to sell, i.e., those who obtain a lower profit margin). If this last offer comes from a combined cycle gas power plant producer it will reflect the costs of this producer and not, for example, the average of the production costs of all the offers made that day. A photovoltaic plant producer will sell its electricity in OMIE at the selling offer price of the producer of the combined cycle gas plant. This, in the current context, means having a significantly higher margin than it would be willing to accept if all the offers to the market were from photovoltaic production.
Here one may ask whether if, by aggregating different types of offers and choosing a price-setting criterion that seems incapable of reflecting the different production costs, we are not preventing the market from functioning properly as it would if the direct confrontation between comparable offers and demand was possible. Of course, the choice of the marginal prices’ principle has a technical explanation, a rationale that may seem more appropriate in a context of abundant supply and homogeneous costs (where the pressure to sell is similar for all producers) but it is apparently necessary because the system needs the energy produced by gas and other fossil fuels burning producers.
The creation of a special tax on renewable generation sources to match the so-called windfall profits (in the style of the infamous claw-back tax created by the Portuguese Government to eliminate the “unjustified” profits of Portuguese producers in MIBEL compared to the Spanish, victims of a special tax of 7%) implies a disincentive to what we are all saying we want to encourage. A disincentive with not only immediate impact, but also for the future of investment in renewable energy marketplace, which needs fiscal predictability. It is important to remember that the market operates based on a perception of risk, which includes factors within the market itself, such as technological developments or, conversely, negative developments in the cost of production factors. If we add non-market risks, such as administrative pricing or the imposition of taxes, the market will be disrupted, affecting, without discrimination, the supply (with high costs producers having to close doors) and the demand (which may have to endure either higher prices or shortages of electricity).
Therefore, ideas like the setting of a price ceiling at 180 euros per MWh, as has been suggested to the EU Commission by the Spanish and Portuguese Governments, will result production at a deficit in gas-fired plants. Certainly, producers with higher costs will withdraw their supply from the market generating supply shortages, unless they are subsidized (making the measure useless). We would risk not having electricity for everyone, because, at the present moment, the energy supply is not elastic (much has been said in this regard about the Portuguese Government's haste in anticipating the closure of the coal-fired plants).
Because all the above results of prices following natural laws and having no ideology, any electricity prices’ regulation is to be avoided. And taxation on the so-called windfall profits will naturally cause prices to rise or electricity to be in short supply for everyone. The least harmful way of State interference will be the direct support to those consumers who are least able to bear the increases in electricity market prices: the individuals and small companies with the fewest resources and the electro-intensive consumer companies whose activity is indispensable to the country's economic fabric. And the most efficient way of providing such support will always be paying individuals and companies in cash (and never by granting them new credit lines, the equivalent to offering water to a drowning person); or, better yet in the case of companies, offering them direct tax rebates.
Consequently, the EU Commission and the EU member States should, first of all, give priority to a consensual reassessment of the electricity pricing models and, if possible, adjust them so that they allow the market to function better, because it is not the market that is failing, but possibly the rules to which trading platforms like OMIE are subject to.
5G – multi-partner business models
Around the world 5th Generation Mobile Network (5G) is expected to act as one of the main tools for economic recovery. By using shorter and higher frequency bands 5G promises lower latency, faster speeds, and greater carrying capacity, which will be especially relevant for accelerating transformation processes at the industry level and benefiting businesses and consumers.
As an evolution in the lineage of cellular mobile network, 5G upgrades its predecessor facilitating the remote control of machines by other machines and of countless day-to-day devices.
The advantages underlying the introduction of 5G vis-à-vis its predecessors include:
- Higher-speed mobile internet access (around 100 times faster than 4G);
- Remote control of machines and devices (IoT);
- Enhanced possibility of network management for providers; and
- Lower power consumption compared to earlier mobile technologies.
Although Portugal also shares these expectations, only in the beginning of 2022, ANACOM, the Portuguese regulatory authority, issued the rights to use the frequencies allocated to the winning bidders of the 5G Auction. Right now, the commercial exploitation of 5G is still at an embryonic stage.
Therefore, most market questions outstanding after the end of the auction, such as the role of the new players and new services to be implemented, remain unanswered.
In this context, while the technological advantages of 5G seem promising, it is not so clear how operators will be able to recuperate on their investments and, above all, how and when other industries will benefit from the technology.
For operators to both recover investments already made to acquire spectrum rights, as well as to deliver on the commitments that the licences require, they will need to develop collaborative, multi-partner business models with specific legal and regulatory challenges to overcome.
To be able to address these challenges, we will make a brief overview on some of the fields in which the boundaries between the communications sector and other undertakings will mostly fade.
5G operators' business models opportunities
From a regulatory perspective, until now, operators have essentially two options, which naturally will branch out almost endlessly. In the first junction operators will basically position themselves either at retail or wholesale level, with large operators, particularly legacy operators with widespread networks, operating in both levels.
In any case, they will be either (i) offering the network services they design to retail customers – either B2B or B2C – or, (ii) sublet network components to other network operators who, in turn, will offer them to their retail customers.
Simplistically it may be said that until the 1990’s explosion of commercially available IP based communications, in general, retail customers were users of networks focused on content, while operators focused on hard telecommunication engineering skills.
With personal computers exploding and broadband IP based services becoming ubiquitous, in the early 2000’s, the first over the top providers appeared, first in fixed services and a few years later, with the popularization of pocket computers, also known as smartphones using 2,5G and 3G, these services became fully mobile.
As discussed below, the technical possibilities offered by 5G, will not only speed up communications but allow retail customers to become value-added servicers themselves, further blurring the lines between users and providers.
Faster Internet speeds, increased traffic, and technology integration are the benefits commonly attributed to 5G. Some of the major benefits are:
Smart IoT devices - The number of Internet of Things (IoT) devices is expected to increase with the rollout of 5G speeds. Thus, IoT-focused companies may expect this technology to leverage their capabilities. From evolving infrastructure diagnostic systems, to providing better data insights and to reducing device vulnerability.
Network Slicing - The multitude of emerging technology uses and new services by businesses and consumers will require a flexible network that provides a better user experience. With 5G, users will be able to create multiple virtual networks with just one physical system. This network slicing may help enterprises provide an end-to-end virtual system, encompassing not only the network, but also the compute and storage functions.
Multi-Access Edge Computing - Through 5G technology, multi-access edge computing will help to relieve crowded enterprise networks, even while supporting hundreds of devices simultaneously. This cloud-based network architecture can also boost the overall performance of enterprise networks. In addition to handling large data loads and delivering real-time results, multi-access edge computing will also protect user data.
Therefore, we will highlight some of the main sectors (industries) that are usually credited with more immediate benefits from 5G and what could be the relationship between companies operating in the respective sectors and the operators.
Automotive sector
Among the various sectors, despite being one of the sectors that tends to benefit most from the implementation of 5G based networks, the automotive sector will be face some of the major challenges in implementing the “5G transformation”.
When talking about autonomous vehicles used in closed circuits, e.g. in logistics facilities such as warehouses, factories or even ports and airports, the improvements may be immediate since many vehicles may be connected to a network with very low latency and very high speed, which, connected to an intelligent system, will allow internal displacements to be increasingly efficient, fast, controlled and safer.
However, despite being one of the most promising sectors, many questions may emerge, such as: who will be responsible for possible accidents in case there is a failure in the network supply to the company that in turn indirectly affects the final consumer; who will be held liable for compensation if a product fails due to a connection fault; and who will be held liable for compensation in the event of a data leak, the company providing the service, or the operator?
Manufacturing and farming
5G is set to enable large scale “machine to machine” communications, allowing for a reduction in human error and an increase in automated processes. Also, using 5G real time communications to the operators of machinery is growingly possible, making the process faster and safer, with sensors that can reveal exactly when and where a tool needs changing or updating.
As well, in this emerging technological world, scientific farming techniques are being used to boost productivity in farms. These include use of Agri-IoT sensors for soil monitoring, water management, smart irrigation, crop health monitoring, drone-based farm management etc.
Deployment of 5G networks will provide added benefit to manage these drones and obtain real time data from the sensors and conveying it directly to farming operators.
Healthcare sector
In the healthcare sector app-based services are seen as a major tool to provide better services, thus it could benefit greatly from the introduction of 5G. Long-distance monitoring and care services which, although not being exactly novel, with the recent pandemic, we are getting a first glimpse of the possibilities.
5G will also allow for faster and more reliable real-time access to health data from wearable technology and even bring closer the reality of remote treatments. The possibility of using augmented and virtual reality (VR) tools will certainly assist with the provision of remote medical services.
Despite the countless benefits, this is one of the sectors that may raise more complicated situations to deal with, as: e.g., in case of an error due to a network collapse, who will be held responsible? Who bought the system that will serve as the base for the infrastructure, or the telecom operator?
The truth is that although the introduction of 5G will raise several legal and regulatory questions super-fast connectivity will allow futile things that we still do today, such as pushing the grocery cart, to disappear.
The importance of operators in connecting 5G with these sectors
With the 5G journey just beginning, disruption and innovation is already happening in the B2B segment.
The telecom operator of the future will not just be a broadband/communication provider but will be a partner to jointly develop digitization and automation solutions.
Telecoms are collaborating with a growing number of customers in the transport and industrial sectors, and more are to come. Such customers include railways, utilities, and companies in sectors such as energy, utilities, transportation and logistics, healthcare, as well as companies offering traffic management and drone operations.
Industrial campuses are where digitalization and automation are happening
Communication between machines and personnel/staff equipment (e.g., laptops, tablets, etc.) is traditionally implemented through local area networks (LAN) using Ethernet and Wi-Fi-based solutions. While LAN can provide high-speed communication, it is limited to fixed devices and cannot be used in extreme environments such as high temperature areas (e.g., factories producing steel, glass, etc.) and environments with a large number of moving elements (e.g., packaging and shipping warehouses).
While Wi-Fi is easy to install and use, it has a number of limitations. Typically, only a few dozen devices can be connected to a Wi-Fi network and the quality of Wi-Fi is unreliable, vulnerable to external factors (including interference from nearby Wi-Fi networks) and is a "best effort" network. This implies that Wi-Fi is not suitable for machine or mission-critical data flows.
5G field networks can supply the basis for industrial automation
Technology enabled by telcos can open radically new ways of doing business. For the first time, telcos have a valid justification to talk directly to business unit heads and offer them tailored potential innovative solutions based on the field network to further expand industrial productivity.
In such a role, the telecom operator not solely be the provider of the network but become an active partner in digitization and automation solutions with greater synergies with the underlying telecom infrastructure, resulting in lower costs for the industrial partner. In this way, the telecom provider will further move away from its typical role as an external cost centre to become a partnership-based "value creator" for the industrial customer.
Many companies still limit the scope of their corporate accountability and ethics to merely complying with the relevant legal obligations. Profitability remains the main, if not the only, criterion (in many cases) governing business decisions.
Social, legal, and regulatory changes, however, are forcing companies into adopting a different approach. Companies must now provide clear disclosure of their financial position and corporate governance practices and carry out transactions transparently while ensuring to safeguard competition. They must also respect all human rights, prohibit any employment discrimination, and act in a socially and environmentally responsible way, with sustainability and ESG (Environment, Social and Governance) appearing as an aggregating "slogan" of this current trend, which is (rightly) here to stay and with due visibility.
Corporate governance, corporate social responsibility, and compliance must work in unison in today's world. Traditional views on competitiveness and profitability are changing. The change will be vertiginous.
Of course, many of these issues have long been regulated, but control of corporate practices by other stakeholders has been growing. Clients, suppliers, employees, and society are paying far greater attention to the way companies behave socially and requiring them to meet specific criteria, which place them at a different level of competitiveness. The competitiveness of a business and its marketplace vis-à-vis other competitors will also depend on this.
Companies must review their governance practices not only to comply with their statutory obligations but to ensure accountability, fairness, and transparency towards their stakeholders.
Compliance challenges and changes
Companies are also facing new challenges in diversity management and equal opportunities to increase the proportion of minorities and women in senior roles.
Diversity management focuses on valuing ‘difference’ and on non-discrimination and respecting every individual in the workplace regardless of their race, gender, or sexual orientation. Antiharassment, which recently gained strength with the “#MeToo” movement, is another concern driving the introduction of new workplace policies and procedures.
We have also seen a surge of new laws and regulations about business ethics, social responsibility, and personal data, among others.
Social responsibility and sustainability — recognising a company’s role in society through, for example, charitable support and environmental responsibility — should not be seen as a marketing tool to maximise future profits but as contributing to the welfare of all stakeholders: employees, shareholders, suppliers, customers, and society.
Ethics are an essential and complementary part of compliance
Investors are changing how they review a company’s performance and make decisions based on criteria, including ethical considerations. There is evidence that a company’s ethical corporate behaviour is increasingly impacting stakeholders’ market perceptions and the decisions of investors and customers regarding their choice of companies to deal with.
In companies with poor culture and ethics, employees tend to behave in a way that can lead to unethical, harmful behaviour, increasing the risk of breaches and subsequent damages.
Companies will be obliged to assume responsibility for their management and employees’ actions unless they can prove that they have performed all endeavours to deter or advise against illegal and fraudulent behaviour.
Therefore, all employees must be given the relevant training, and controls are developed across the company involving all departments, primarily legal and compliance. Policies, procedures, or rules will not be effective unless they are prepared, implemented, and enforced in a much more inclusive manner within the company.
The key is not only to follow the law but to teach those within the company that doing so is not a choice. The company must understand why it must be followed and why it must be a business priority.
Compliance is not a passing trend
Compliance cannot be reduced to a set of checklists. There is no one-size-fits-all compliance solution.
Legal and compliance departments must develop a framework for promoting corporate ethics and legal compliance within the company. These steps include:
- Implementing internal legal audits;
- Making information regularly available within the company regarding corporate social responsibility and legal compliance;
- Internally relaying relevant information about local and other legislation that relates to the business;
- Providing training courses/workshops on corporate ethics and legal compliance for every single employee and discussing misconduct prevention across the company; and
- Creating corporate ethics and legal compliance helpline, i.e., an internal whistle-blowing system.
Companies must understand that corporate governance, social responsibility, and compliance affect the entire company, including the board, management, shareholders, employees, and other stakeholders. It is becoming a day-to-day exercise for which they must be fully prepared.
It is time for companies to rethink legal compliance beyond traditional risk management and see it as a strategic business asset. Accountability, transparency, and dialogue can help make a company more reliable and boost the standards of other companies at the same level. Everyone benefits, but not necessarily in the traditional sense of profit!
A shorter version of this article was published by Público, a Portuguese newspaper, on January 18. To read, follow this link.
The idea that robots and machines might one day replace people fascinates and scares many people. Literature, movies and cartoons depict the image of robots that take over control over humankind in a not-so-distant future. The Matrix saga, 2001: A Space Odyssey, The Jetsons, among many others have populated the imagination of children and adults for generations. Until the beginning of the XXI century, the subject of artificial intelligence (AI) was confined to the academic world, science fiction, and a few industries. At the end of the last century, Goggle brought AI to everyone’s lives in a palpable way. Research at our fingertips replaced long hours in libraries and bookshops.
Today, AI is everywhere, in social networks, in the advertising industry, computer research, development of cars and other machines among so many other things. Computer software is powered by AI engines. Smartphones, computers and laptops have embedded AI. When you lift a smartphone, unlock your phone using face ID or use speech recognition, you are using AI-powered software.
But the AI revolution seems not to have reached the business of law. Of course, lawyers and law firms now use AI in their electronic devices and in computer software, some of which is designed specifically for lawyers, such as document management systems and billing software. But AI has not disrupted the business of law as it has done in so many other businesses.
The changes to the business of law brought about by legal AI technology, the concerns and scepticism of lawyers call for a discussion about the role of legal AI in the future and if some or all of the lawyers’ tasks will be replaced by legal machines.
First, let us define AI. According to the Encyclopaedia Britannica “artificial intelligence (AI) is the ability of a digital computer or computer-controlled robot to perform tasks commonly associated with intelligent beings”. AI is the ability to simulate the logic of an algorithm by a machine. An algorithm is a finite sequence of defined instructions used to perform a computation. Algorithms are used as specifications for performing calculations, data processing, automated reasoning, automated decision-making and other tasks. AI gives machines the ability to perceive a given environment and to take actions to achieve the goals set by the machine’s program.
To some lawyers, this is impossible, at least for the more complex legal matters, because the business of law, whatever its shape and form, lives around “words”. From the dawn of history, enacting and enforcing laws has revolved around the use of “words”. Rhetoric and grammar have always been at the core of all legal professions. Words may be ambiguous and have multiple meanings depending on the context and order in a sentence. The interpretation of words appears to be a purely human activity.
However, due to its “prescriptive” nature, the Law implies simple deductive reasoning processes, which makes it ideal for AI “coding”. Putting it simply, the Law is not immune to AI; on the contrary, the Law is an ideal field for AI.
The good news for today’s lawyers is that we are far from the day when AI will take over their business. For that to happen, we must “code legal thought”.
To code legal thought one needs to create the processes that will allow machines to interpret laws, contracts and court decisions, which seems still far on the horizon because “words” and “sentences”, the matter of law, have many meanings, many times elusive, and open to manipulation by legislators, the politicians that make the laws, lawyers and even judges, who are no more than humans and, therefore, have sentiments, opinions and convictions to which they hold strong. Right and wrong are not clean-cut, are not yes and no, are not a series of 0s and 1s.
Yet, legal thought can and will be software coded in the not-so-distant future.
This is how it will happen. Firstly, AI will replace lawyers and other legal practitioners in the review of documents. Document review systems use machine learning technologies and pattern recognition technology to identify key contract concepts, tag clauses, court decision patterns, flag discrepancies and other patterns in the application and interpretation of laws and contracts, etc.
Lawyers are still needed to interpret the data coming out of computer systems and attribute meanings to those discrepancies and patterns. The machine will learn from the human lawyers’ interpretation, build new models, discern potential risks, etc.
Existing computer programs, like Luminance or Kira, already successfully help lawyers to conduct due diligences and provide advice to clients.
The second stage of legal AI will affect how courts prepare their rulings. AI-powered research systems already give judges and lawyers access to legal precedents concerning the specific subject matter of the case. In the future, AI will enable judges to narrow down the key elements of their decisions and offer them a roadmap for the decision-making process. Let us take a simple court decision such as determining if the court has jurisdiction over a particular matter that is put to it. Legislations around the world have a clearly defined set of rules for determining courts’ jurisdiction, which can be coded in computer language, that is, in an algorithm.
Some software systems, such as Lexis+, offer court decisions analytics and help lawyers to assess the likelihood of success of cases based on past decisions.
Future legal algorithms will help legal professionals to determine if matters follow into one legal category or another and how the law will be applied in specific cases. This will be one step away from determining the application of legal rules. Again, taking a simple example, if someone goes into another person’s property and it was not entitled to do so by law, such action falls under the legal concept of trespassing. These tasks will be done with an increasing degree of complexity, eliminating false positives, the application of conflicting rules and rights, the existence of exculpatory reasons to dismiss the application of a certain rule and the choice for another prevailing rule.
Many lawyers will argue that doing law has some specific features, such as the interference of sentiments and beliefs, which make it a non-computable task. AI can probe into statistics and the cold walls of legal statutes - they will say - but not into the hearts and minds of real people.
This is the wrong approach to legal AI. There are two areas where legal AI will struggle to master: an upper layer of present laws with their cultural, sentimental and political veneer that cover the law’s core rules. This veneer will be cleaned up by more powerful algorithms and the rationality of legal algorithms, uncovering a simpler and, therefore, fairer set of rules free of many of their present inconsistencies and conflicts.
As far as lawyers are concerned, legal technology and, in particular, AI systems will change the way they work but will require all of their ingenuity to interpret the complex legal issues that are needed to power legal AI. Lawyers and law researchers will have to break down the questions embodied in existing laws, contracts and legal precedents to map the AI systems of the future. Lawyers will also have to understand how to introduce queries into AI-powered systems and interpret the results brought to light by AI, formulate legal strategies and create legal documents, such as court briefings, contracts and opinions.
Legal AI will empower lawyers and clients. Legal AI will create faster and more efficient ways of completing all legal tasks. This is the case of knowledge management, documentation analysis, contract drafting, litigation review, preparation of court briefings. Legal AI will release lawyers from many repetitive and standardised tasks.
AI will disrupt the business of law. AI will lead to the disintermediation of legal services as it is now doing in other business sectors. In finance, for example, centralised exchanges will have to compete with the blockchain-enabled trustworthy peer to peer (P2P). The same will happen with many existing legal services. The traditional legal services will only be provided by lawyers when a trusted confirmation or reliable advice cannot be found in other sources.
Many lawyers view the disintermediation of other business sectors as unwelcome news, unaware that automated legal services have already taken a chunk of their old business. Automated services now offer many services that were exclusively provided by lawyers and paralegals a few years ago, such as invoice collections, automated contract drafting is now offered to business consumers and for low-value contracts. It is foreseeable that in the medium to long term, many legal services will be taken over by machines.
All legal professions will benefit from AI. Lawmakers will make better laws; judges will issue fairer judgements; lawyers will be able to perfect their court pleadings to a higher degree of efficiency and practicality. Many conflicts will be solved before being taken to courts because the odds, that is, the likelihood of success, will be against one of the parties in a clearer way, prompting that party for a settlement or simply to avoid litigation.
AI will not replace lawyers, but it will radically change the way lawyers provide services.
Legal thinking must remain in the sphere of lawyers because inside the core of all laws live values and values are non-computable. Values cannot be reduced to the mathematical formulations of algorithms. The creation and the application of law must, in the end, be made by humans and for humans.
Law is a science and a technique, but it is also an art and therefore cannot be reduced to mere algorithms. This is the limit of legal AI and the limit to any AI-powered technology.
Under the 5G Auction Regulation, the objectives of the auction are, among others, to promote greater competition in the electronic communications market. To achieve this objective, the auction was designed to promote the entry of new entrants through the application of asymmetric coverage obligations and prices.
With the bidding phase concluded, it remains to be seen what operators and consumers in the communications market can expect. For this purpose, it is important to understand the importance of the specific bidding phase for new entrants - which corresponded to the reserve price in the first phase and in subsequent phases to the value determined by ANACOM's Board of Directors.
New entrants and incumbents
Allocation of radio spectrum rights
In January 2021, after merely 44 rounds, four 2 x 5MHz frequency bands in the 900MHz and 1.8 GHz were awarded for approximately 84 million euro, ensuring these entrants will be able to provide IMT2000 based services, while being permitted to bid in the main bidding stage.
The allotment of non 5G spectrum for new entrants, accompanied by low coverage obligations, unusually generous payment terms, is consistent with ANACOM’s understanding that the number of mobile network providers should increase to counter what regulators have been arguing to be an excessively concentrated market. The hypothesis of excessive concentration is fiercely disputed by incumbent operators, who in general argue that the said concentration is not the result of an unfair advantage but rather of the market structure itself.
In any case, as mentioned above, it is not the first time that ANACOM tries to force the entrance of new players by what it perceives to be a levelling of the playing field.
To this end while it is providing new entrants with spectrum that allows for the immediate provision of services, it is also imposing other obligations. Thus, in the 700 MHz bands, holders of spectrum will be required to provide 25% mobile broadband service coverage by 2025:
- On each of the country's highways;
- On each of the main road routes in the country; and
- On each of the railway routes included in the “Atlantic Corridor”, for the part relating to national territory (essentially a railway connection between the country’s largest seaports from Sines in the South to Oporto), the Braga-Lisbon link, the Lisbon-Faro link and the urban and suburban links of Lisbon and Porto.
ANACOM considered it appropriate to impose on new entrants benefiting from these 'advantages', gradual coverage, and the maintenance of a level of investment which, without discouraging new entry, is also intended to contribute to the robustness of the network offer and to increase the benefits of these allocations for end users.
Access to national roaming
New entrants will also have access to the networks of incumbent operators, irrespective of the amount of spectrum acquired. For this purpose, incumbent operators will be obliged to enter into commercial agreements for national roaming with the new entrants (‘roaming’).
As above, new entrants benefiting from national roaming will be subject to mobile coverage obligations. For the purposes of compliance with coverage obligations in locations or buildings where only the installation of infrastructures of one of the holders of rights of use of frequencies in the 700 MHz band is permitted, the operators shall be obliged to enter into national roaming agreements, under non-discriminatory conditions, to enable other holders of rights of use of frequencies in the 700 MHz band to provide services in such locations.
Operators entering into roaming agreements will be subject to an obligation to provide mobile coverage of 25% and 50% of the national population by using the frequencies allocated to them respectively within 3 and 6 years from the conclusion of those agreements.
It should be noted that compliance with these coverage obligations may be achieved by using any frequency band assigned under the auction or consigned until the date of entry into force of the Regulation.
5G and consumers
The holders of rights of use of frequencies are subject to compliance with the conditions of article 27 and 32 of the Electronic Communications Law, namely:
- Transparency obligations of public communications network operators offering publicly available electronic communications services in order to ensure end-to-end connectivity;
- Maintenance of the integrity of public networks;
- Public authorities’ terms of use for communications to the general public for warning for imminent threats and mitigating the consequences of major disasters;
- Security of public networks against unauthorised access;
- Providing a service or using a type of technology including, where appropriate, coverage and quality requirements; and
- Network development and fixed voice signal augmentation.
Given the delay, it could be several months before operators' commercial offers involve 5G tariffs.
Transfer or lease of rights of use
The rights of use of frequencies may only be transferred or leased by the respective holders after 2 years from the date of commencement of the provision of publicly available electronic communications services using the frequencies assigned to them provided that ANACOM has not prohibited such transfer.
Nevertheless, there is a duty of prior communication to ANACOM of the intention to transmit or lease the rights of use of frequencies, as well as the conditions under which they intend to do so.
ANACOM has, within 45 working days, the right to prohibit the transfer or assignment if the following conditions are not met:
- The transfer or lease does not distort competition, namely due to the accumulation of rights of use;
- The frequencies are used efficiently and effectively;
- The intended use of the frequencies is in line with what has been harmonised through the implementation of Decision No 676/2002/EC of the European Parliament and of the Council of 7 March 2002 (Radio Spectrum Decision) or other EU measures; or
- Legal restrictions in relation to radio and television broadcasting are safeguarded.
In conclusion, the need to enhance the competitiveness of the country and of all its regions associated to 5G is thus perceived. Moreover, ANACOM believes that the obligations associated with the coverage of municipalities with low population density, in the Autonomous Regions of Madeira and the Azores, may be ensured, with efficiency gains in these areas through national roaming agreements.
To learn more, please read the extended version of this paper with extra content on our PDF down bellow.
With the massification of the "Covid-19" vaccination in Portugal, with 83,5% of the population fully vaccinated, the last quarter of 2021 promises to be a resume to work. But this time, everything points to a return to work stressed by what we used to call "Future of Work".
The Future is already among us, and it has a name: Hybrid Work. A powerful combination of remote and in-person work.
This is the big new trend in Western economies: the United States, Canada, Australia, Brazil and Europe are investing heavily in hybrid work models that combine work at the premises (vertical or horizontal) with the remote work that characterized the pandemic.
Remote work and telework, as we already know, has tremendous advantages for all stakeholders and for the community:
- For companies, it reduces costs with installations and generates a greater capacity to recruit employees geographically distant, besides allowing the stability of the operation in confinement phases;
- For workers, it guarantees them greater freedom of action, better work-life balance, the ability to work for companies located in different geographies, and the reduction of costs and time associated with commuting;
- For the community, it is a huge factor in reducing commuting, a tool for reducing CO2 emissions; a tremendous opportunity for development of previously forgotten and abandoned rural areas; and an important factor in containing new pandemic outbreaks that may continue to occur, due to the Delta variant or others that may come.
But exclusive remote work also has obvious disadvantages: it heightens social isolation; makes career progress more difficult; separates workers from their representatives and union structures; and reduces group work, the exchange of ideas, and the resulting creativity. Exclusive remote work alienates people and human contact.
Because of this, the hybrid model, in professions that do not require constant physical presence, can enhance the advantages of remote work, and minimize its disadvantages. It ensures employee turnover and less crowding workplaces, allowing employees to benefit from two complementary realities: in-person work and remote work.
However, for it to work well, there are some precautions to take:
- Planning: companies and their HR departments must plan intelligently and clearly the distribution of hybrid work among their employees; in some cases, for example, employees work 2 days a week in face-to-face work and 3 days in remote work; in others, it may be the other way around; or we may have entire weeks of in-person work and others of remote work;
- Communication: planning must be properly communicated to employees in advance, so that they can plan their lives and know what to expect; the worst that can happen in an organization is lack of communication and the use of "Chinese walls" about the model to be adopted; uncertainty and lack of communication about how the future will be generates anxiety, unnecessary "noise" and lower productivity;
- Involvement: employees must be involved in the solution; not necessarily by consulting or issuing prior opinions, but at least through good explanation of the rules adopted and constant and effective communication mechanisms;
- Adaptation: hybrid work plans should not be definitive; they should be flexible, follow the evolution of the pandemic and the adaptation to this new way of working; they can (and should) be changed and recalibrated, to the extent that this is justified; and workers should be aware of the temporary nature of the plans to be adopted.
We know that the Future of Work is not going backwards and will involve hybrid work, digital nomadism, work on digital platforms, lots of digitization, and the use of algorithms. It will bring new opportunities, but also new risks and challenges that must be guarded against.
The solution is not in trying to prohibit or decree a return to the past; the solution is in regulating these new trends, in the name of the Decent Work Agenda. The Future of Work in Portugal must be cultivated and regulated so that it can bring new opportunities, decent and better paid jobs, with more freedom and less precariousness.
With the development of the digital economy, new economic and financial assets, like tokens and cryptocurrencies, were created. Because of their high (potential) returns, they have become a refuge for investors, leading more and more people to invest in them.
This type of asset is not subject to the limits of monetary and exchange rate policies defined and controlled by central banks, and this lack of regulatory control encourages volatility and speculation. The innovation of these instruments involves significant legislative challenges, particularly regarding their legal nature, the regulation of the respective market and the taxation of their holders’ profits.
Concerns such as money laundering and terrorist financing led to the publication of the report "Taxing Virtual Currencies", by OECD, in October 2020, which addresses the existing legislative gaps for the main types of taxes and gives countries that want to strengthen their tax policy in this area some recommendations. Among OECD's recommendations there was the need to provide guides on tax treatment of virtual currencies that are clear, regularly updated, and consistent with the treatment of other assets. In Portugal, unlike many other European countries, such regulation was not yet implemented.
But is there a tax regime in Portugal?
In Portugal, the law is silent as to how this type of asset is taxed.
Between March and May 2020, the purchase and sale of cryptocurrencies in Portugal increased by 60% compared to the same period in the previous year. However, against what would be expected, neither the Government nor the Parliament have been following this growth through a clear and adequate legislative framework.
More recently and following the announcement that the Bank of Portugal has taken over the supervision of entities managing cryptocurrencies and the approval of anti-money laundering rules specifically addressed to transactions on these assets, there have been rumors of a change in the position of the Portuguese Tax Authorities to consider that this income should be taxed as capital income (at a rate of 28% or 35% if from a "tax haven"). But no amendments have been approved (yet).
… so how are they currently taxed?
In the absence of an express taxation, and after being questioned by several taxpayers, Tax Authorities took the only position that would be acceptable under the law.
In what concerns Personal Income Tax (“PIT”), the Tax Authorities confirmed that the income from this type of assets is presumably not taxable, unless the income arises from the performance of constant, regular professional activity. However, it has not been clarified when there is a regular performance of a professional activity for this purpose, which creates uncertainty.
Tax Authorities have not yet disclosed any kind of understanding regarding Corporate Income Tax (“CIT”). But, as the taxable profit of legal persons is based on the net profit recorded in the company’s financial statements for the period and any income earned by a company must be registered in its accounts, the income arising from transactions on bitcoins should be subject to CIT.
Regarding VAT treatment of the transactions on bitcoins, Tax Authorities considered, following the understanding of CJEU in the Hedqvist case (C-264/14), that bitcoins are comparable to fiduciary currency and their exchange for fiduciary currency, or vice versa, carried out for consideration, although characterized as a supply of services for VAT purposes, will be exempt from Portuguese VAT.
What's next?
At the income tax level, very few countries have considered cryptocurrencies as fiduciary currency because they have limited acceptance, lack intrinsic value (they are not linked to the value of any commodity or foreign currency), are volatile, are not issued by a public authority and are not regulated.
The current tax framework for cryptocurrencies leaves Portugal on the (increasingly short) list of countries that still do not tax income from this type of asset, which makes Portugal an attractive destination for investors of this kind.
But it is difficult to imagine that these gains will escape the tax net in the future. The 2022 State Budget to be presented in the next two months could be a turning point and new tax rules could be approved starting January 1, 2022.
TAP, S.A, Portugália, S.A., and the fourteen labor unions that represent the airline concluded, between February 5 and 11, eight fundamental emergency agreements to the company’s restructuring .
The emergency agreements were signed under article 502, nº. 2, of the Portuguese Labor Code, that allows the suspension of collective agreements by agreement between employers and unions in the event of a serious business crisis.
The labor restructuring process is part of TAP’s Restructuring Plan, presented by the Portuguese Government in Brussels (DG Competition) as necessary to the approval of State subsidies given to the company. TAP, along with several airline companies worldwide, was deeply affected by the world economic crisis caused by the pandemic.
This process, absolutely remarkable for the year of 2021, was one of the most relevant labor processes in the history of the airline company and maybe even in the history of collective bargaining in Portugal.
As it is known, TAP Group's Restructuring Plan includes fleet restructuring, financial restructuring, and labor restructuring. The labor restructuring, with savings of 1.4 Billion euros, covers a wide range of measures, such as part-time work, unpaid leave, wage reductions, revocation of employment contracts, pre-retirement agreements and, ultimately, collective dismissals.
The emergency agreements, that will last until December 31, 2024, include the following measures:
- Wage reductions across the entire company, through a 25% wage cut, including both the base salary and all wage supplements (seniority, overtime, night work, annuities, shift subsidies, etc.);
- Freezing and suspending of all automatic progressions and promotions and any wage increases;
- Suspension of several clauses of the company agreements and other regulations that were in force in the company, namely the Salary Regulation, Retirement and Social Guarantees and the Work Use and Performance Regulation, in order to guarantee savings and productivity gains for the company in the organization of time off, working hours and in the management of fleet personnel;
- In the case of crew members and aircraft maintenance technicians, transversal and mandatory application of part-time work, with the following reduction in normal working hours: 15% (2021); 10% (2022); 5% (2023);
- Suspension of the clause that guaranteed crew members a special allowance corresponding to 15 days per month, in addition to their basic pay, even if they flew less than 15 days. This guarantee will decrease to 6 days in 2021 and cease to apply as of January 1, 2022; flexibility of the airplane crew composition regulation was adjusted as well and, in some cases, will operate with the minimum crew defined by the aircraft manufacturer; for long-haul aircraft, working hours will be defined by European regulations;
- Increased wage reduction for pilots on the top of the 25% of reduction applied to all workers. The reduction will be progressive: 50% (2021), 45% (2022), 40% (2023) e 35% (2024); annual exercise and seniority fees and the payment of the "fine", that included paying pilots a special remuneration for the months they flew less, were suspended; increased payment for hours on vacation and time off was also suspended; the number of times the company pays a social security supplement in the case of short-term illness was also reduced, being limited to a maximum of 6 events per year (6X3 days); and a mechanism of equitable distribution of working hours and no overtime work, most of the time, as included.
The Agreements also state that the parties should initiate, in the first trimester of 2021, the renegotiation of the company agreements that were suspended to adjust them to the company’s budget targets and environmental sustainability goals for 2025.
The emergency agreements negotiation was concluded in 15 days only, in several negotiating rounds in person and through video conference, that lead to the conclusion of eight agreements with fourteen labor unions, covering pilots, cabin crew and ground employees, including civil aviation and airport workers, aircraft maintenance, metallurgists, commercial aviation managers, economists, handling technicians.
Law 75/2020 of november 27
A set of exceptional and temporary measures for the recovery of companies in difficult economic situation due to the COVID-19 pandemic has been introduced by Law 75/2020 of November 27.
The said Law:
- Establishes an exceptional and temporary regime, extending the deadline to conclude negotiations to approve a recovery plan or a payment agreement, and also adapting the insolvency proposal;
- Extends general privileges over movable property provided in the Insolvency and Corporate Recovery Code (CIRE) to partners, shareholders or any other specially related persons who finance the company's activity during the Special Revitalization Procedure (‘PER’);
- Provides for the application of the Extrajudicial Regime for the Recovery of Companies (‘RERE’) to companies that are currently in a situation of insolvency caused by the pandemic; and
- Creates the Extraordinary Viability Process for Companies (‘PEVE’) affected by the economic crisis resulting from the pandemic.
Extraordinary viability process for companies
PEVE is a process that seeks the judicial homologation of an extrajudicial agreement to ensure the viability of a company, established (out of court) between the company and its creditors.
PEVE is applicable:
- To companies in a difficult economic situation or in imminent or current insolvency, provided that: (i) they are still viable, (ii) their assets exceed their liabilities as of December 31, 2019 and (iii) they are not under PER or insolvency proceedings;
- To micro or small enterprises that: (i) are not in a pending PER or insolvency proceeding, (ii) have received rescue aid that has not yet been repaid, or are in a restructuring plan under the State aid measures (even if on December 31, 2019 their assets were not in greater number than their liabilities).
- To companies that have managed to regularize their insolvency situation through RERE and filed the restructuring agreement in due time, while not having more assets than liabilities on December 31, 2019.
Differences between PER and PEVE
In comparison with PER (directed to the judicial homologation of a recovery agreement between a company and its creditors), the distinctive notes of PEVE are essentially two:
- Its application to situations of current insolvency of companies (contrary to PER, which is reserved to companies in a pre-insolvency situation);
- Its application only to companies in difficult economic situation or imminent or current insolvency caused by the COVID-19 pandemic.
In what concerns the procedure, PEVE has many similarities with PER, with some differences justified by its own purpose - to avoid mass insolvencies caused by the COVID-19 pandemic - and by its exceptional and temporary nature.
PEVE is an urgent proceeding, with priority over other pre-insolvency and insolvency urgent proceedings, including PER and insolvency proceedings.
The proceedings begin with the filing of an application in court to declare the company’s insolvency. The application must be accompanied by the viability agreement (signed by the company and by creditors representing at least the majorities of votes provided for in Article 17-F, paragraph 5 of ‘CIRE’) and by a set of documents that are intended to prove the company's economic situation, including the list of the company's creditors and a declaration by the management body attesting that its situation was caused by the crisis brought by the COVID -19 pandemic and that it meets the necessary conditions for viability.
After filing of the application, the company can request the joinder of other PEVE's filed by companies in a parent-subsidiary or group relationship, as long as their proceedings are also at the preliminary stage. This possibility is not contemplated in PER’s regime.
EFFECTS
Once the application is received, the judge issues an order appointing the provisional judicial administrator. This order has the following effects as well:
- It prevents the filing of judicial actions for debt collection and suspends pending actions with the same purpose. All these actions are extinguished if the viability agreement is homologated by the court;
- The company is no longer allowed to perform acts of special relevance without prior authorization of the judicial administrator;
- Suspends pending insolvency procedures, which are extinguished with the judicial homologation of the viability agreement;
- Suspends all prescription and limitation periods until the judicial homologation or refusal of the viability agreement;
- Prevents the suspension of essential public services, such as water, electricity, natural gas, or electronic communications supply.
Relevant proceedings
PEVE includes a phase to challenge creditors and request the rejection of the viability agreement (within 15 days), on the basis of undue inclusion or exclusion of claims, incorrectness of their amounts or incorrect legal qualification of the recognized claims.
Upon receipt of the oppositions, the judge decides within 10 days: (i) on the objections made; (ii) on the rejection or homologation of the agreement, considering the creditors’ statements and the (non-binding) opinion of the provisional administrator.
The agreement must be homologated by the judge only if, cumulatively: (i) it complies with the majorities provided for in CIRE; (ii) presents reasonable prospects of ensuring the viability of the company; (iii) there are no other circumstances that justify a rejection.
The homologation decision is binding for the company, subscribing creditors and creditors included in the definitive list of creditors, even if the latter did not take part in the negotiations, regarding the credits constituted prior to the appointment of the provisional administrator.
Any creditor not included in the definitive list of creditors has 30 days to accede to the homologated agreement. The company is notified and has five days to accept or reject the inclusion of the creditor, the silence corresponding to non-acceptance.
If the court rejects the agreement, PEVE and all its effects are extinguished. This means that all actions against the company may be resumed, including actions that were suspended with the order appointing the provisional administrator. Contrary to what happens in PER, the rejection of the agreement cannot, in any situation, be equivalent to insolvency proceedings application by the company.
Differently from PER, the rejection of the agreement is not subject to appeal.
Incentives to invest in the recovery of companies
Some of PEVE's incentives to invest in the company's recovery are particularly interesting:
- Transactions provided for in the agreement to raise the company’s credit availability are not subject to resolution in favor of the insolvent estate, in case the company is declared insolvent after PEVE; and
- Creditors, partners, shareholders or any other persons especially related to the debtor who, in the extraordinary viability process, finance the company's activity shall enjoy a general privilege over movable property, ranked before the general privilege over movable property granted to employees.
Entry into force and duration
Law No. 75/2020 of November 27, 2020 entered into force on November 28, 2020 and will remain in force until December 31, 2021.
Considering the temporary nature of the aforementioned measures, an increase in pre-insolvency and insolvency situations in the Portuguese business sector is expected at the end of 2021 and at the beginning of 2022. When this time approaches, it may be particularly important to extend the duration of PEVE regime.
Overview
Portugal and Spain are strongly committed to the decarbonization goals set by the Paris Agreement. After a significative downtime, mainly due to the 2008-2012 economic crisis, there have been significant changes in recent years with strategy refocusing on the development of solar energy comes along, as both countries have two of the highest solar irradiation levels in Europe.
This is a market with high growth potential where, until the end of 2030, Portugal intends on reaching 9 GW of solar photovoltaic ("PV") installed capacity, and Spain has set the objective of reaching 37 GW, against a current installed capacity of, respectively, 1,030 MW and 11,547 MW.
In this article, we have looked into how both countries are addressing the challenges arising of how to combine limited the low availability of network capacity with a high demand from market players. Both countries have launched public tenders for PV capacity and to these challenges have added a political priority of reducing tariffs to final costumers.
The Iberian auction experiences
The Portuguese National Plan for Energy and Climate 2030 (“PNEC 2030”) established a set of ambitious goals for renewable energy to be met until 2030. According to this plan, renewable energies should represent 47% of national electricity consumption in 2030, with an increase in installed capacity up to 28.8 GW. Particularly in solar, there has been a significant reduction of costs associated with PV technology since 2017 which, alongside with the high level of predictability of solar resources, has led to an increase of the number of requests for energy production licenses in Portugal. Such demand proved to be higher than the installed capacity of the Public Grid (“RESP”).
To deal with a reduced grid capacity, in 2019 the Portuguese Government changed the legal framework of the electricity sector reviewing the whole procedure for allocating power generation licenses. The licensing process was reversed, requiring the promoter to request the granting of a grid capacity title (“RESP Title”) before applying for a power plant production license. Under the 2019 regulatory framework, the RESP Title can be obtained: (i) by request directly to the Portuguese Energy Directorate (“DGEG”) if there is any available network capacity; (ii) by entering into a capacity agreement with the grid operator if there is no available network capacity, where the promoter bears the costs of the grid capacity extension; or (iii) by award in an auction organized by DGEG, where the title is granted after a tendering procedure for the allocation of reserve capacity.
The first Portuguese auction under this new regime, in August 2019, awarded 1150 MW, distributed by 22 projects. Bids were submitted by two different pricing schemes: the guaranteed remuneration tariff where the average result has been of €22,22 p/MWh; and the market scheme, with an average tariff offered of €18.36 p/MWh. This auction was a huge success, with demand outstripping nine times the supply and the lowest ever solar power electricity price bid of €14.8 p/MW. A total of 64 companies participated, including major players in the energy sector, such as EDPR, Galp, Iberdrola, Voltalia, EDF and Finerge. By country, Spain was the big winner country of the auction with the largest lot awarded to JB Capital Markets, with 110 MW. Iberdrola won five lots, corresponding to 149 MW, and Solaria won four lots, with 49 MW.
A subsequent auction of 700 MW held in August 2020 awarded 670 MW composed of 12 lots in Alentejo and Algarve, with an average bid of €0.020/kWh. A total of 35 bidders participated, with demand once again largely outstripping the offer. The big winner was the South Korea's company Hanwha Q-Cells, awarded with 315 MW, while Tag Energy obtained 20 MW. Iberdrola and Endesa gained 69 MW and 99 MW respectively. This second auction was perceived by the Portuguese Government as an even greater success than the one of 2019, with a gain of about 833 thousand Euros for each MW awarded, an increase of about 80% compared with 2019. The Portuguese Government came into this auction expecting to obtain 33.5 thousand euros per MWh, but the winners ended up paying to 37.1 thousand euros per MWh to the system. Also, the World record for the lowest output price was broken once again with a bid of €0.0112/kWh.
In Spain, the development of solar energy started earlier. At the beginning of the new millennium, the country started stimulating the solar energy market with attractive remuneration schemes and subsidies which led to its early development. In 2008, Spain had 2,718 MW of installed solar capacity but the outbreak of the financial crisis, an unexpected increase of PV installations, and the Spanish Government move to contain costs by reducing the sector’s subsidies lead to a severe market contraction. In 2009, requests for injection were in the reduced number of 44 MW.
The turning point came with the Paris Agreement and with Spain’s national action plans to meet new decarbonizations goals. Economic conditions allowed the decline of the PV technology implementation costs, boosting investment in this segment of the energy market, and, as in Portugal, resulting in an increase of requests for energy production licenses exceeding the available grid reception capacity.
Spain launched its first 700 MW renewable energy auction in January 2016 exclusively for wind and biomass technology. In May 2017, a new bigger auction was held: 3,000 MW were awarded. In both Forestalia took the biggest share, with in excess of 1,500 MW of wind and biomass capacity in Aragón.
In the second auction of 2017 (which also comprised solar), 5,037 MW were granted to 40 different companies. The largest share was granted to the Spanish industrial group ACS with 1.55 GW of assigned projects, followed by X-Elio (455 MW), Endesa (338 MW), Forestalia (316 MW), Gas Natural Fenosa (250 MW) and Solaria Energía (250 MW).
In 2020, Spain announced ambitious targets for the development of renewable energy under its proposed Integrated National Energy and Climate Plan (“PNIEC”) 2021-2030, which comprises the installation of around 5,000 MW of new renewable energy capacity per year over the next decade. To achieve these goals and increase competitiveness process, a new remuneration scheme for renewable energy facilities was established through the New Economic Regime for Renewable Energy (“REER”) setting up a long-term guaranteed remuneration price for awarded bidders in an auction.
On January 26, 2021, Spain held the first auction of installed power capacity under the REER, where 84 companies offered bids, and represented a total of 9,700 MW of capacity. There were 32 winning bids, representing a total of 3,034MW of energy capacity awarded: 2,036 MW of solar PV and 998 MW of wind energy. The average price for solar was set at 0.02447/kWh and the lowest bid at €0.01498. The most successful bidder has been X-Elio Energy with 315 MW of PV capacity, followed by Iberdrola subsidiary Iberenova Promociones (243 MW) and Spanish utility Naturgy (196 MW).
Different approaches to auctions
In its auction procedures, Portugal had more restrictive approach than Spain, as only new PV installations were allowed to participate, while in Spain new facilities and enlargements or modifications of existing facilities were eligible.
The application process in Portugal is very simple. Promoters sign up their application through an online platform and provided basic information regarding their company and their bidding capacity intentions. In Spain, it there is more bureaucracy. First, promoters have to be pre-qualified, by submitting a high detailed set of documentation regarding their commercial information electronically. After being pre-qualified, bidders are entitled to participate in the auction for a certain power previous declared. In both countries, promoters must provide a bid bond: 10,000€ p/MW in Portugal and 60,000€ p/MW in Spain.
In the Portuguese bidding stage, promoters submit several bids through an online platform, applying for one of the following remuneration schemes already mentioned above: (i) market scheme without storage where promoters bid for a contribution to be paid to the National Electrical System (“NES”); (ii) a fixed guaranteed tariff structure for a 15-year period, where the bids expressed a discount to the reference feed; and (iii) a market scheme for plants incorporating a storage system, where the bids expressed a discount to an annual fee. The storage mechanism was a new feature compared to the auction held in 2019. This modality has two advantages: since renewable energy production is intermittent, it is essential to increase this storage capacity in order to obtain energy autonomously. On the other hand, concerning price fluctuations, storage ensures that the price of electricity injected into the grid never exceeds a particular value.
In Spain, the capacity is awarded through a competitive sealed-bid auction whereby the awarded bid corresponds to an awarded price. As such, Producers are bound to sell all their energy at their bidding price, with small adjustments concerning wholesale market pricing. In the last auction, promoters were granted a 12-year offtake agreement that could vary in future auctions between 10 and 15 years. The specific remuneration under the ERRE is obtained from its auction price, the remuneration parameters of the technology, the characteristics of each facility and its participation in the energy market. For the 2021 auction, the remuneration parameters included: a minimum number of annual operating hours; a maximum number of annual operating hours; and market adjustment percentages. This auction offered the possibility for bidders to include energy storage in their offers. Although, no winning bids featured such technology. This can be justified by the fact that the storage market in Spain is currently underdeveloped, limited to pilot projects or research facilities and by the fact that the profitability of this model depends exclusively on market prices.
The Portuguese bidding phase is much more competitive than the Spanish one since promoters are entitled to make several bids competing directly and simultaneously with other promoters, and thus, it is no surprise that output price has been breaking records. The Spanish bidding phase is less competitive among the promoters since promoters are only allowed to make one offer (by closed letter), and without knowing the bid offers of the other promoters. On one hand, prices in Spain may not be as low as in Portugal, but on the other hand, winning an auction in Spain is much more uncertain than in Portugal since promoters have a much lesser active role.
In both countries, operators with an awarded bid must provide a performance bond of 60,000€ p/MW and are subject to a strict schedule and the compliance of certain millstones, starting with obtaining the necessary construction licenses and permits. Failure to comply with these obligations would result in the loss of the bond provided after the awarding. The Spanish auction granted, on average, longer deadlines for the compliance of these obligations.
Summarizing the differences between the two countries in relation to solar auctions:
- The Spanish auction system allows existing installations to participate, while the Portuguese system only new ones.
- The Portuguese auctions contain various types of remuneration, which allow investors to tailor proposals according to the preferable business model, whereas the Spanish system only permits a fixed guaranteed tariff structure. Also, the Portuguese fixed remuneration scheme offers a 15-year period and the Spanish 12-year period only.
- The energy storage appears to be more attractive in Portugal than in Spain since the storage bids are granted a capacity payment in exchange for hedging the Portuguese electricity system against high market prices. This capacity payment has been a real advantage for storage bids since the storage system itself was almost free of constraints to operate on the different markets.
- The Portuguese bidding phase is more competitive than the Spanish closed offer system, since it allows promoters to make several bids competing directly and simultaneously with other promoters. Even though bid prices in Spain are higher than in Portugal, Portuguese Promoters have a more active role and influence the auction prices.
What next?
To achieve decarbonization goals, promotion of renewable energies is paramount. Given the privileged geography and the investment in solar energy of these two countries, we can only expect that new solar auctions follow this year and in the upcoming years taking into account that the auction system ensures for a number of advantages, namely: (i) limitation of investor’s risk (ii) economic efficiency of the winning projects, and (iii) achievement of energy policy goals.
In Portugal, the Government intends to continue to hold solar auctions in the coming years, but there are still no dates for the new solar tenders in 2021. Even so, according to the goals outlined in the PNEC, the country aims to achieve a solar installed capacity of 6,6 GW in 2025, and 9 GW in 2030. In a scenario of strong demand for production licenses and shortage of reception capacity in the grid, auctions will be the main way to meet this demand and to speed investment in new capacity.
The next Portuguese solar auction this year will include floating power plants on reservoirs to circumvent availability of land limitations as well as to reduce costs related to land rights’ acquisition.
In parallel, the Portuguese Government has already announced that it will move forward with the first green hydrogen auctions in 2021, which will not be targeted to producers, but to potential and future consumers of green hydrogen. The outline presentation of the green hydrogen auctions will be made public in the first week of April. Auctions for offshore wind energy in Portugal are also expected to be launched in the near future.
As for Spain, the auction schedule appears to be substantially more solid, with the Spanish government committing to launching one auction per year in the next four years: 4,600 MW in 2022; 6,400 MW in 2023; 8,200 MW in 2024; and 10,000 MW in 2025.