Portugal staggers under wind rush -- New law sparks stampede

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An avalanche of applications to connect 7000 MW of wind plant was the immediate response in Portugal to an end of year flurry of pro-renewables legislation. With 127 MW on-line to date, and only 36 MW put up last year, the legislation is broadly welcomed by developers. But old hands are only cautiously optimistic. Trade group Associaçao Portuguesa de Productores Independentes de Energia Eléctrica association (APREN) is predicting 600 MW by 2005 followed by 250 MW a year up to 2010.

A growing realisation of wind's potential in helping meet Portugal's 5% annual growth in electricity demand lies behind the new swell of political support, according to Alavaro Rodrigues of Porto University's technology transfer and innovation institute. In September the government rubberstamped a ten-year energy efficiency policy, the E-4 Plan, which included ratification of the EU goal for Portugal to generate 39% of its electricity from renewable sources of energy, including 2500-3000 MW from wind.

There are two main obstacles to wind development in Portugal, however, both of which are now being tackled. First, the country's sole electricity utility Electricidade de Portugal (EDP), has been blocking grid access. Wind project developers have long accused it of deliberately admitting non-viable projects so that it can cry grid saturation and refuse to consider viable applications. "But suddenly we find there is 1000 MW free," says Carlos Pimenta of Siif, the renewables affiliate of the French state utility EDF. December's new grid law now places responsibility for processing grid applications with the state energy directorate, Direcção Geral de Energía (DGE), a co-ordinating body between developers, the grid operator, Rede Eléctrica Nacional (REN) and EDP. DGE is already responsible for plant licensing and APREN's Antonio Sa da Costa says the new system is the next best thing to a one stop shop.

The second obstacle has been in the shape of the environment department. According to Sa da Costa, it was taking up to four years to make environmental impact assessments on wind projects. But recently it has made a dramatic U-turn and environment minister Jose Socrates has now become one of wind's most outspoken supporters. It was the environment department which presented December's tariff law -- the key to this year's wind rush.

Tariff and subsidies

The law aims to make sites with lower wind speeds more viable and brings wind plant closer to inhabited areas with existing electricity infrastructure. The new tariff pays a top rate of EUR 0.082/kWh for the first 2000 hours of production from all wind plant. It then progressively drops for any production beyond 2000 hours, levelling off at its lowest rate of EUR 0.0743/kWh for production in excess of 2800 hours. APREN complains that the lower end does not compensate for the avoided costs of equivalent energy production via thermal generation. Overall it calculates the average rate over the lifetime of a wind plant will be just under EUR 0.08/kWh, compared with the fixed rate tariff prior to the new law of EUR 0.06/kWh.

Portugal's wind developers also have access to interest free loans over 12 years from the EU for 40% of the capital costs of a wind project, channelled through the Programa Operacional de Energía (POE) program, though Sa da Costa calculates these funds will run dry once about 350 MW is running. The POE fund also grants subsidies to wind plant, up to EUR 300,000. The law also attempts to grease the wheels of the permitting system by guaranteeing municipal authorities a 2.5% of the earnings of projects they licence -- an amount APREN says it is excessive.

"The problem is that nobody expected the response to be so huge," says Rodrigues. On the contrary, the new law was meant to filter out what were suspected to be a large number of speculators who had taken out site options but with no real intention of developing projects in the near future. The law scraps all but 200 MW of existing advanced applications -- from a backlog of over 3000 MW -- and demands that all new applications be accompanied by a down payment of EUR 400 per megawatt, up to a ceiling of EUR 8000 for each project.

Whether the law has eradicated speculation is anybody's guess. For Pimenta and Rodrigues, the deluge of applications has mostly come from developers whose old discarded projects have suddenly become viable under the new tariff. Pimenta believes the new political will is enough to clear the bottleneck and begin licensing within six months. Others are more sceptical, complaining there is no guarantee the tariff will last, that the DGE does not have the staff to clear the bottleneck, and this will give room for wind opponents at EDP and REN to intervene. One developer remarks cynically: "The only thing certain about the new law is that the DGE has solved its budget problems for this year," though he prefers not to ruin his licensing chances by going public with the comment.

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