Regulation of electricity utilities – power generation

Authorisation to construct and operate generation facilities

What authorisations are required to construct and operate generation facilities?

In general terms, any person wishing to set up an electricity generation plant in Portugal will be subject to a prior control procedure, whether informing the licensing entity of such intention or requesting the attribution of a generation licence. The permit entitles the applicant to proceed with the construction of the power plant, provided that a construction licence is issued by the relevant municipality and all applicable legal regimes with regards to environmental impact, waste or hydric resources are complied with. The applicant is required to attach several documents to the communication or request, namely and when applicable, an environmental impact statement.

Following the successful obtainment of the relevant permit and the construction of the power plant, the owner shall request an inspection of the facilities and the attribution of an operation licence, which authorises the commencement of the power plant’s industrial operation.

If generation is carried out under a ‘special regime’ of electricity generation (notably through renewable energy sources or cogeneration) with guaranteed remuneration (such as a feed-in tariff), the promoters must be selected upon the conclusion of a public tender procedure, or a proceeding that allows any interested parties that comply with the applicable requirements to be established, as per fair and transparent criteria, determined by the ministry responsible for the energy sector. The promoter must then request a network interconnection point to be allocated by the network operator. Once the network interconnection point is secured (which may entail the provision of a bond), the aforementioned licensing formalities apply.

Grid connection policies

What are the policies with respect to connection of generation to the transmission grid?

Access to transmission and distribution networks of electricity must be regulated through objective, transparent and non-discriminatory criteria, in order to ensure all market participants have the same opportunities and promote competition between the industry’s players.

Access to regulated infrastructures is subject to the following key principles:

  • safeguard of the public interest, including the maintenance of security of supply;
  • equal treatment and opportunities for all users;
  • reciprocity on the use of interconnections by the entities responsible for the management of the grids to which the national electricity system is connected; and
  • payment of the applicable tariffs.

Despite the principle of equal treatment and opportunities for all users and for the purposes of ensuring an efficient use of energy sources available at each given moment, both the TSO and the DSOs are bound to grant priority access to the grid for electricity generated using renewable energy sources (except for electricity generated by hydropower plants with an installed capacity greater than 30MW). Also, network operators must implement adequate measures aiming to prevent or minimise limitations to the transmission and distribution of electricity generated using renewable energy sources.

Additionally, in general terms, applicants who wish to install a power plant shall be granted a generation licence (and proceed with the plant’s construction and operation) only if the relevant network operator confirms that there is enough grid capacity for such project. If the electricity is not purchased under the terms of a power purchase agreement entered into by and between the generator and the supplier of last resort, a grid use agreement must be executed between the generator and the relevant grid operator.

Alternative energy sources

Does government policy or legislation encourage power generation based on alternative energy sources such as renewable energies or combined heat and power?

Following the enactment and transposition of several EU directives on renewable energy, Portugal has been committed to the promotion of renewable energy through economic incentives attributed to renewable energy generation and the setting of mandatory national targets for the overall share of energy and for the share of energy from renewable sources in transportation.

Economic incentives to renewable energy generation were established through feed-in tariffs from which renewable generation plants were able to benefit, as per the provisions of Schedule II of Decree-Law No. 189/88 of 27 May (as amended). This statute set out a specific formula for calculating the tariffs to be paid to generators, for the electricity generated by power plants using renewable energy (excluding large hydropower plants), that initiated their licensing procedure prior to the entering into force of Decree-Law No. 215-B/2012 of 8 October. Co-generation (combined generation of heat and electricity) also benefits from a favourable remuneration regime through other statutory provisions.

Renewable energy generators benefiting from feed-in tariffs also enjoy priority over conventional generators in dispatching their energy to the grid and the guarantee that electricity generated is purchased by an offtaker at the feed-in tariff rate.

Notwithstanding these feed-in tariffs still being in force for currently operating renewable energy plants:

  • feed-in tariff periods were curbed for small hydro and wind power generators pursuant to Decree-Law No. 35/2013 of 28 February (although wind generators and the government were able to negotiate a ‘net present value-neutral’ payment to SEN to partially offset the effects of such reduction to the feed-in tariff period);
  • there is currently no applicable feed-in tariff for renewable generation plants with generation licence granted after 9 April 2013 (as the relevant legislation has not yet been enacted), with the exception of renewable cogeneration and small scale generation; and
  • the Portuguese government has launched a competitive bid procedure to grant grid capacity to solar energy projects against either a payment of a contribution to the National Electric System or a discount over a reference tariff determined by the government - both remuneration schemes (ie, the payment of the contribution and the feed-in tariff resulting from such discount) shall apply during a period of 15 years.

Regarding, on the other hand, renewable energy targets, Decree-Law No. 141/2010 of 31 December, as amended by Decree-Law No. 68-A/2015, of 30 April (transposing Directive 2012/27/UE into national law) established national targets for renewable energy in gross final consumption of energy and for the share of energy from renewable sources in transportation.

Climate change

What impact will government policy on climate change have on the types of resources that are used to meet electricity demand and on the cost and amount of power that is consumed?

The main policy instrument enacted for the purposes of fighting climate change is Resolution of the Council of Ministers No. 56/2015 of 30 July, which approved the Strategic Framework for Climate Policy, the Climate Change National Programme and the National Strategy for Climate Change Adjustment. This Resolution, among other things, also determined that Portugal must reduce its greenhouse gas emissions from 18 per cent to 23 per cent by 2020 and from 30 per cent to 40 per cent by 2030, both calculated on the basis of the 2005 levels, contingent on the results of European negotiations.

The Resolution also set the following targets, in line with the commitments assumed by Portugal and the EU under the Kyoto Protocol: an increase in the proportion of renewable energies in final energy consumption of 40 per cent and an increase in energy efficiency through a reduction of 30 per cent over the baseline energy in 2030, which translates into an energy intensity ratio of 101 tep/per millions of euros of gross domestic product.

The Resolution of the Council of Ministers No. 107/2019, of 1 July, which approved the Roadmap to Carbon Neutrality for 2050, has established the goal of reducing the emissions of greenhouse gases between by 85 per cent to 90 per cent until 2050, compared to 2005, and compensate the remaining emissions by using soil and forests, which shall be achieved by gradually reducing such emissions by 45 per cent to 55 per cent until 2030, and between 65 per cent to 75 per cent until 2040, compared to 2005. The Roadmap also sets out, among other targets, to decarbonise electricity generation, by eliminating generation through coal until 2030 and completely decarbonise the electricity generation system by 2050, by promoting generation though renewable endogenous resources.

In addition, Portugal has transposed Directive 2009/29/EC of the European Parliament and of the Council of 23 April 2009, concerning the Community’s greenhouse gas emission allowance trading scheme, as well as Directive (EU) 2018/410 of the European Parliament and of the Council of 14 March 2018 amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments, and Decision (EU) 2015/1814 into law (Decree-Law No. 38/2013 of 15 March, as amended by Decree-Law No. 10/2019, of 18 January). Revenues from auctioning of said greenhouse gas emission allowances for the promotion of renewable energies are regulated by Ministerial Order No. 3-A/2014, and include compensation for renewable energy ‘overcosts’ in the tariff system and the funding of the Environmental Fund (a government-sponsored scheme that, among other things, has the ability to financially support renewable energy and energy efficiency projects).

Storage

Does the regulatory framework support electricity storage including research and development of storage solutions?

Although pumped hydro storage has existed in Portugal for several decades and battery storage is expected to gain traction in the near future, electricity storage has only recently been specifically acknowledged as a National Electric System activity under the main legislative bodies of electricity regulation (notably Decree-Law No. 172/2006 of 23 August, as amended by Decree-Law No. 76/2019, of 3 June), but it shall be further addressed by legislation to be approved.

Also, no specific research and development incentives for energy storage are attributed pursuant to the electricity regulatory framework in Portugal.

Government policy

Does government policy encourage or discourage development of new nuclear power plants? How?

Portugal does not generate energy from nuclear energy sources and its only nuclear reactor has been built and is operating for investigation and education purposes only.

There has been an ongoing public debate in Portugal (notably in the 1970s and the 2000s) regarding the merits and disadvantages of having nuclear power and in particular in pursuing the construction of a nuclear power plant, but no project ever came to fruition and apparently no licences for such purposes were attributed.

Notwithstanding the multiple international treaties Portugal is a party to regarding the use of atomic energy (notably the EURATOM treaty), there is currently no specific government policy towards encouraging or discouraging the promotion of nuclear energy.

Regulation of electricity utilities – transmission

Authorisations to construct and operate transmission networks

What authorisations are required to construct and operate transmission networks?

Electricity transmission is carried out through the national transmission network; rights to construct and operate the national transmission network are exercised under an exclusive concession granted by the Portuguese government for a 50-year period (currently until 2057). The incumbent TSO is REN - Rede Eléctrica Nacional, SA (REN), a subsidiary of REN - Redes Energéticas Nacionais, SGPS, SA.

Portuguese law establishes a certification procedure for the transmission system operator (in order to ensure compliance with unbundling obligations), which is carried out by the Portuguese Regulatory Authority for Energy Services (ERSE). On 9 September 2014, ERSE issued a decision certifying that REN complies with the relevant legal requirements to be considered a transmission system operator compliant with unbundling obligations, subject to the conditions set out therein.

In turn, layout and expansion of the national transmission network is based on a 10-year plan (reviewed every two years) for development and investment of the network (PDIRT), which takes into account:

  • the supply safety monitoring report prepared by the government;
  • technical characteristics of the network and electricity supply and demand; and
  • coordination with the planning of the networks which are interconnected with the national transmission network (including neighbouring networks).

PDIRT must be submitted to the Directorate General of Energy and Geology (DGEG) and must contain at least:

  • information on infrastructure to be constructed or modernised in the following 10-year period, including indication of the investment decided by the TSO (and, among these, those projects that are to be executed within the next three years), and respective execution calendar;
  • obligations arising from MIBEL and objectives set out under Regulation 714/2009 of the European Parliament and of the Council of 13 July 2009; and
  • joint measures adopted by the Agency for the Cooperation of Energy Regulators and European Network of Transmission System Operators for Electricity, notably the non-binding 10-year plan for a European-wide transmission network.

PDIRT is subject to public consultation, prior opinion of ERSE, discussion by the parliament and approval by the member of government responsible for energy affairs.

PDIRT 2018-27 was approved by the member of the government for energy affairs in 2019.

Eligibility to obtain transmission services

Who is eligible to obtain transmission services and what requirements must be met to obtain access?

The TSO must provide non-discriminatory and transparent access to the transmission network. In fact, the legal unbundling criteria approved by Portuguese law eliminate, and prevent, the risk of discrimination with regards to transmission network access.

Access to the networks and interconnections is automatically recognised for any interested entity upon completion of the connection of the relevant installation to the network, which in itself may be subject to licensing procedures.

Government transmission policy

Are there any government measures to encourage or otherwise require the expansion of the transmission grid?

At the moment there are no government policies to encourage or require expansion of the transmission grid. As a matter of fact, taking into account the economic and financial constraints the country faced at the start of the decade, coupled with efforts made to reduce the tariff deficit of the SEN, government policy has been working the other way around (ie, curbing expansion in the transmission network) for the purposes of keeping network access tariffs down.

This effort to curb expansion in the transmission network in order to restrict increases in network access tariffs is evident in the opinions of ERSE regarding the latest PDIRTs.

Rates and terms for transmission services

Who determines the rates and terms for the provision of transmission services and what legal standard does that entity apply?

Transmission activity is subject to ERSE’s regulation, which determines the tariffs applicable to the provision of such services by the TSO. The determination of such tariffs must comply with certain legal principles that, in particular, aim at guaranteeing transparent and efficiency-driven pricing, as well as the protection of electricity consumers and equality of treatment. The methodology for the calculation of the mentioned tariffs is approved by ERSE’s Tariff Regulation of the electricity sector.

Entities responsible for grid reliability

Which entities are responsible for the reliability of the transmission grid and what are their powers and responsibilities?

The entity responsible for ensuring grid reliability is the TSO. To achieve this goal the TSO uses its attributions as the global manager of SEN, notably through its functions of system technical management, system services procurement and market-making, energy planning and transmission network planning.