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 co-generation) 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 (RES) (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 RES.

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 European Union 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 although 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); and
  • 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 co-generation and small scale generation.

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 European Union 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 M€ of gross domestic product.

In addition, Portugal has transposed Directive 2009/29/EC of the European Parliament and of the Council of 23 April 2009 concerning the greenhouse gas emission allowance trading scheme of the Community into law (Decree-Law No. 38/2013 of 15 March). 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, energy storage is not directly regulated under the main legislative bodies of electricity regulation (notably Directive 2009/72/EC and Decree-Law No. 29/2006 of 15 February).

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 in the first decade of the third millennium) 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.