Solar photovoltaic (PV) projects and energy transition.

Leveraging its average 3,000 annual sunshine hours (the highest in Europe), Portugal is attempting at capitalising on the opportunity to emerge as one of the leading countries in transitioning towards renewable energies.
26 Jul 23 | Portugal
Environmental and Energy
Macedo Vitorino
João Macedo Vitorino
Frederico Vidigal

As of 2021, a remarkable 58.4% of Portugal’s electricity is already derived from renewable sources, and this percentage is projected to increase significantly over the next decade.

The 30 June 2023 draft version of the update of Portugal’s 2021-2030 National Plan for Energy and Climate (PNEC) sets a bold target for 2030 with 85% of the total electricity being generated from renewable sources. In order to meet such a target, Portugal must of course significantly strengthen its capacity to generate electricity from renewable sources, as follows:

  • Solar PV based capacity increasing to 20.4 GW, with centralized and decentralized solar PV productions accounting respectively for 14.9 GW and 5.5 GW;
  • Wind energy-based capacity increasing to 12.4 GW with onshore wind and offshore wind accounting respectively for 10.4 GW and 2 GW;
  • Green hydrogen electrolyser capacity reaching 5.5 GW.

With these ambitious objectives in place, Portugal is aiming to achieve a total electricity generation capacity of 47 GW by 2030, which would represent a significant increase compared to the current operational capacity of 23 GW.

Starting in 2019, Portugal has held three solar based grid injection capacity auctions which resulted in the allocation of approximately 2 GW of grid injection capacity. These auctions drew global attention by setting record-breaking low-price bids, with one bid even reaching a remarkable negative €4.13 per MW price for a 15-year period. Despite the overwhelming demand, the auction model faced challenges as approximately 700 MW of the awarded projects had not yet commenced construction by the end of 2022. This is due to the low Feed-in Tariffs (FiT) and their negative impact on the bankability of projects.

After the enactment of Decree-Law No. 15/2022, on 14 January (“DL 15/2022”) which sets out the current organization of the Portuguese National Electricity System, the requirements to connect a 1 MW+ renewable energy generation or storage power plant to the Portuguese electricity grid will include obtaining:

  • A grid capacity reservation title (TRC) from the grid operator, granting the promoter the right to connect to the public electricity grid;
  • Environmental clearance from Portugal’s Environmental Agency (“APA”), following an environmental impact assessment;
  • A governmental production license (issued by DGEG), granting the promoter the right to start the development and construction of the power plant;
  • Approval from the local municipality either through obtaining a construction license or through a prior communication on the part of the promoter;
  • A grid access agreement with the grid operator;
  • A government establishment license (issued by DGEG) granting the promoter the right to start the construction of the infrastructure connecting the power plant to the public grid; and
  • A government operation license or certificate (issued by DGEG following an inspection to the power plant premises) granting the right for the project to enter into operation.

Produced renewable energy may be sold through two different remuneration schemes:

  • The general sale scheme, where producers sell the electricity on the organized market or through the execution of bilateral agreements with final customers or electricity traders on a market price basis; or
  • The guaranteed scheme, in which producers sell the energy to the last resort supplier under a PPA or similar arrangement. The guaranteed scheme applies mostly to injection capacity allocated through competitive tender procedures.

DL 15/2022 also grants promoters the option to enter into agreements with the grid operator, provided they bear the costs associated with grid reinforcement. However, this option is on hold since the Portuguese Government initiated a procedure (known as “Termos de Referência”) in 2020 to rank around four hundred pending requests, representing more than 17 GW of electricity generation capacity at that time. The final rankings for eligible projects seeking agreements with the Transmission System Operator (TSO) and Distribution System Operator (DSO) were published in October 2021. While drafts of grid reinforcement agreements have been sent to the top ten ranked promoters, totalling around 3 GW of electricity generation capacity, no grid injection capacity has been assigned yet under said “Termos de Referência”.

To maximize the load factor of the existing grid injection capacity, DL 15/2022 provides for various approaches, such as hybridization (combining solar and wind), repowering, and overpowering existing plants and generation units by up to an additional 20% of their capacity.

In support of renewable energy growth and investment, the Portuguese Government has implemented several additional regulatory measures: an increase in the tariff paid to producers based on the consumer price index (CPI), excluding housing, from the award year until start of operation of the power plant was approved in October 2022; auction projects were granted the benefit of an extra 12-month trial period, during which promoters have the right to sell their energy in the open market instead of relying solely on the FiT remuneration; the deadlines for obtaining relevant licenses for the 2019 and 2020 solar auction winning projects have been extended to accommodate the challenges posed by the COVID-19 pandemic and the ongoing war; to simplify licensing and environmental clearance of projects, environmental impact assessment by APA has been waived as to solar plants occupying an area of 100ha or less, and for wind farms with up to 20 towers if located outside sensitive areas or 10 towers if situated in sensitive areas.

To meet Portugal’s potential as a major solar PV energy producer, substantial investment will be necessary to improve the national grid’s capacity to accommodate solar power. This will involve expanding the grid’s reception capacity and implementing storage solutions to add flexibility.

Conducting capacity auctions and allocating capacity to specific projects will be pivotal in moving energy transition forward, especially for electricity-intensive industries, including all H2 plants required to achieve the ambitious 5.5 GW green hydrogen electrolyser capacity goal outlined in the PNEC.