'Volatile market conditions' in Portugal need reforming

Electricity market reforms are key to achieving the Portuguese government's 2040 target of producing 90% of energy demand from renewables, according to a report commissioned by the Portuguese renewables lobby Apren.

Portugal's 2019 federal budget extended an extraordinary tax on energy producers (known as CESE) to include renewables (pic: Enel)

A new report, Portuguese Market Outlook up to 2040 by consultants Pöyry, coincides with the launch of the government’s Roadmap to Carbon Neutrality 2050 and a national energy and climate plan, to be presented to the European Union before the end of 2018.

The analysis models both a business-as-usual and a high renewables scenario for electricity market development.

It found renewables are competitive, even in a context of low CO2 prices, with the marginal price of fossil fuels.

But the Iberian market’s marginal price-setting mechanism is creating "ever more volatile market conditions", which do not produce a predictable and stable climate conducive to investment.

Given adequate investment, by 2040, Portuguese wind production could grow by 72% to almost 8.8GW, while wholesale Iberian electricity prices should remain broadly stable at between €40/MWh and €50/MWh in a context of 1.19% average annual demand growth, the report predicted.

According to Apren president António Sá da Costa, the most useful market reform measure would be introducing contracts for difference, "seeking a satisfactory balance between producer and consumer interests regarding the length of the contracts".

He acknowledged two obstacles to their introduction: one is selecting a tender model, an issue which "can be resolved in a matter of months" and, the other, the lack of interconnection points which means "the grid is not ready to accommodate new power capacity". 

"[Portugal’s] newly-appointed secretary of state for energy, João Galamba, is aware of the need for this reform so I see a bright light at the end of the tunnel," Sá da Costa told Windpower Monthly.

"The new energy and climate plan will establish a minimum mandatory [renewables capacity total], which is good timing in terms of providing the impetus for reform," he added.

The news is not all good for Portugal’s renewables sector, however.

The 2019 federal budget, approved at the end of November, extended an extraordinary tax on energy producers (known as CESE) to include renewables.

The measure "will have quite an impact" with wind power contributing most of the expected €30 million revenue, according to Sá da Costa.

"It is stupid to tax renewables when we need more investment, and even more stupid that it is levied at 0.85% of liquid assets which means younger projects, which have lower feed-in tariffs and tighter margins, have to pay more," he said.

Portugal’s newest wind developments, the approximately 1.6GW awarded by competitive tender, will be exempt from the tax, which is not expected to be extended beyond 2019, Sá da Costa added.