The Portuguese Renewable Energy Market

By de Matos, Tiago Ferreira | Energy Law Journal, January 1, 2002 | Go to article overview

The Portuguese Renewable Energy Market

de Matos, Tiago Ferreira, Energy Law Journal


The Portuguese Electricity Market is an example of the restructuring process moving from a public monopoly situation to a moderate liberalization required for the completion of the European Electricity Market.2

In line with the Kyoto Protocol, in which the developed nations agreed to limit their greenhouse gas emissions, the European Union (EU) is determined to reduce pollution-causing emissions by granting incentives for energy production using 'clean' sources. The concession of incentives is settled through national programs supporting renewable energy production and cogeneration facilities using natural gas. As a result, production of electricity using Renewable Energy Sources (RES) is increasing at a fast pace in Portugal.3

As for Portugal, the governmental goal is to reach 39% of generation capacity from RES from a total output demand of 12.000 to 15.000 MW by 2010.(4) Although this target will mainly be reached through wind and minipower, the opportunity exists for developing other applications, such as biomass, solar and wave energy. It is predicted that, in order to achieve the referred purpose, "[t]he total investment will be approximately 5.000 million euro [$ 4,915,500.00]."5

The Portuguese regime of incentives is based on two major aspects: (1) a subsidized tariff that provides producers using RES with higher remuneration than what the other producers receive, and (2) the obligation on the part of the distribution companies to purchase the power that independent producers using RES place in the grid.

The Portuguese energy consumption, based on oil and black coal,6 largely IMAGE FORMULA4

depends on imports, with a dependence much higher than the EU average. Nevertheless, Portugal remains one of the EU countries that makes more use of its available RES (mainly wind power, biomass and hydropower). Consequently, the Portuguese government has heavily promoted its energy policy based on renewable energies.7 Its primary intention is to encourage the rational use of energy and energy efficiency. Therefore, regarding the energy policy for the upcoming years, the government has established the following goals: (1) reduction of energy dependence and development of endogenous resources; (2) reduction of dependence on oil and coal and diversification of energy sources; (3) reduction of environmental effects of production and use of energy; (4) reduction of the energy bill; and (5) increase the efficiency of supply.8 For that purpose, the main priorities have been focused on the substitution of oil in the energy balance, by promoting the introduction of natural gas. In addition, the focus has been on the liberalization of the energy market by opening this former state-owned sector to competition and private investment.9

The three major initiatives for pursuing the referred goals (use of RES and energy market development) are the following: (1) the Independent Power Producers (IPP) law, introduced in 1988; (2) the Operational Programme for Economic Development (POE), launched in 2000; and (3) the E4 Programme (Energy Efficiency and Endogenous Energies), launched in 2001, which has substituted the former ENERGIA Programme (1994-1999), both supported by the EU Framework Programmes.10

The incentive programs, such as ENERGIA, POE and E4, played an important role in the pursuit of private investment. However, it is unquestionable that the Portuguese restructuring process was initiated with the IPP law, a fundamental step towards the market liberalization.11

The IPP law (Decree Law 189/88 of May 27, 1988) sets forth the legal framework for the production of electric energy from renewable sources." Introduced in 1988, the IPP law was further revised (1995, 1999, & 2001), as part of the new legal framework for the electricity sector.13 It allows for individuals or companies, public or private, to generate electricity from any type of RES and sell it to the grid, as long as: (1) legal, technical, and security IMAGE FORMULA6

requirements are performed; and (2) the output capacity does not exceed 10 MW of apparent available power.

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