Insights and Opportunities
Overview: Energy efficiency/renewable energy (RE) continues to be a priority and strategic sector for the Government of Portugal (GOP), as it has the potential to increase competitiveness of the national economy and generate a greater degree of energy security. Over the last couple of years, various measures have been approved to promote, develop and achieve proposed targets of 39 to 45% of electricity produced from RE by 2010 - one of the most ambitious RE goals among the 27-member European Union Portugal turned to reduce its huge dependence on imported fossil-based fuels – currently over 87% - and meet its international commitments to reduce carbon dioxide emissions.
The objectives defined by the GOP include the following:
Increase installed wind power capacity to a total of 5100MW by 2012; Achieve 250MW in biomass installed capacity by 2010; Reach a target of 10% of bio-fuels integrated into road fuels by 2010; Achieve 100MW of biogas installed capacity for anaerobic waste processing;
Actively promote microgeneration; reach 50,000 installed systems by 2010; and Create a pilot zone capable of reaching 250MW capacity for technological development of new wave energy prototypes.
The GOP has given special attention to microgeneration, which has become popular as a sub-sector in Europe’s strong market for renewable energy, allowing any individual access to his or her own system of energy connected to the electricity grid, with the possibility of selling excess energy generated. The market for microgeneration in Portugal includes applications for micro-wind, solar thermal, PV in buildings and geothermal heating. According to the GOP, large RE investments in renewable energy in Portugal from 2006 to 2012 will total more than $11 billion. It is important to highlight that most of these projects have already been planned and licenses have been awarded. The RE industry in Portugal includes companies that operate as developers, equipment manufacturers, operators, utility and maintenance service providers. Some companies
are active in more than one area and may develop, operate and maintain sites. U.S. firms should enter the Portuguese market with partnerships, services and equipment supply.
Given the GOP’s commitment to accomplishing the above-mentioned goals, demand for products and services in Portugal is expected to continue to grow. U.S. suppliers of products will find significant sales opportunities in micro generation equipment, wind turbines, wind cables and conduits, wind coatings and composite materials, photovoltaic modules, power inverters, alternative fuel conversion systems and dispensers, vegetable and algae oil extraction technology, wave energy technology, energy efficiency products and biomass technology including waste to energy. There is also a strong interest in services in the areas of project development, maintenance and finance.
Wind Energy: Wind power is well established in Portugal and has almost doubled in capacity annually for the past few years. In June 2008, Portugal had 2,526 MW of installed capacity. The average annual growth rate in installed capacity between 2001 and 2007 was around 62.6%. In 2005, the Portuguese Government reviewed its objectives and set a target of 5,100 MW of installed wind capacity by 2012. There are currently more than 1,000 MW under construction and about 5,000 MW which have been licensed and should be online by early 2013. The districts of Viseu, Coimbra, Lisbon, Castelo Branco, Vila Real, Santarem, Leira and Braga have the highest installed rated power (March 2007) and districts with the greatest resources in 2006 were Bragança, Coimbra, Porto, Vila Real, Viana do Castelo, Guarda, Castelo Branco and Aveiro. As in other European markets, financing wind projects has become an attractive business for banks. These include major Portuguese banks such as Caixa Geral de Depositos, MillenniumBCP and Banco Espirito Santo.
Pursuant to its policy of wind power capacity expansion, Portugal issued a tender in 2006 with a twofold objective: to use wind power to leverage the creation of a new industrial sector, and to improve the efficiency of wind power exploitation. The creation of wind clusters will be fully completed in 2008, and includes an industrial complex developed by ENOP - Eólicas de Portugal Group. This group is composed by ENERCOM, a German manufacturer of wind turbines, and four major Portuguese wind energy developers: Finerge, Generg, EDP and TP - Térmica Portuguesa. The total investment is valued at $2.5 billion (€1.7 billion), of which $236 million (€161 million) is for the industrial park and $2.16 billion (€1.47 billion) is for 1,200 MW of new wind farms.
Portugal's utility, EDP, is also a major investor in Portugal’s wind and hydro sectors, both through existing assets and projects currently under construction. Recently, the Portuguese group made a play to get into the US market by acquiring American developer Horizon Wind Energy for $2.15 billion. The utility has gone from a local leader to a global giant in one fell swoop – and is now one of the top five wind developers in the world.
The European Union is also financing research and development in wind energy, which is expected to result in the manufacture of wind turbines 10 times more powerful than the most advanced examples currently operating. These are expected to come on-stream in Portugal in the near future. The EU project is known as Upwind and is budgeted at $32 million (€22 million), partially funded by EU.
Wind energy decisively contributes towards a reduction in CO2 emissions in Europe. Installed Wind power prevents the emission of around 80 million tones of CO2 every year. By 2010, wind energy is expected to save around 140 million tons annually, the equivalent of more than 30% of the EU’s total Kyoto Protocol obligation. It delivers the energy security by mitigating economic and supply risks associated with a reliance on imported fuels.
Solar Energy: Portugal boasts one of the highest levels of solar radiation in Europe. Sunshine on mainland Portugal varies between 1,800 and 3,100 hours per year. The total of direct solar radiation and diffuse sky radiation varies between 140 and 170 (kilocalories per square centimeter - kcal/cm2). There is vast potential for the application of thermal solar power in Portugal, estimated at around 2.8 million square meters of panels. Thermal solar power for low temperature water heating is advantageous, both from an energy and environmental viewpoint, representing a significant contribution in reducing greenhouse gases. In addition, Portugal enjoys excellent conditions for photovoltaic conversion, with generating indices of between 1,000 and 1,500 kilowatt-hours (kWh) per year for each installed kilowatt-peak (kWp).
The average annual growth rate in installed capacity between 2001 and 2007 was around 49.5%. The goal for photovoltaic is 150 MW capacity by 2010. In recent years, Portugal constructed two of the largest solar photovoltaic power plants in the world: the completed 11 MW Serpa Solar Power Plant comprised of 52,000 photovoltaic modules; and the 62 MW Moura PV Power Station with over 376,000 solar panels currently under construction. The Serpa project was an excellent example of a joint venture with a U.S. financial institution and a Portuguese project developer. It provides enough electricity to supply over 8,000 homes and cost $75 million (€51 million) to install.
Biomass: Portugal has high potential for biomass in the form of forest residues and wood waste. Portugal’s goal regarding biomass is to reach a total of 250 MW of electricity generating capacity by 2010. In 2006 the government launched a public tender to award 15 licenses for forestry biomass power plants which represent a total of 100 MW at an estimated investment of around $330 million (€ 225 million), promoting linkages with forestry resources. Preference has been given to two types of biomass power plants; up to 12 MW permitting economies of scale in electricity generation and ensuring a larger forestry biomass collection area and up to 6 MW permitting the development of small local development units. Portugal currently has two thermoelectric power plants connected to the national grid, using forestry biomass as their main fuel - the EDP power plant located in Mortágua and Centroliva located in Vila Velha de Ródão - plus nine cogeneration power plants installed in forestry sector industries such as Portucel, Amorim Revestimentos, Stora Celbi, Soporcel, SIAF and Companhia de Celulose do Caima which take advantage of biomass for heat production.
Biofuels: Biofuels represent an area of diversification in the supply of fuel to the transport sector, which has recorded the highest growth rates in terms of energy consumption. In Portugal, the transport sector’s energy dependency on oil, which is responsible for 42% of total imported oil consumption, is extremely high. The objectives defined by Portugal in regards to biofuels are to achieve a target of 10% of biofuels to be included in road fuels by 2010 and to promote national agricultural strands for biofuels.
A fiscal exemption from the ISP - Imposto sobre os Produtos Petrolíferos (tax on oil products) was also introduced by the Portuguese government and was designed to promote the use of biofuels in the transportation sector. This will reduce Portuguese dependency on petroleum and comply with EU directive to replace 10% of conventional fuels used in the transportation sector with alternatives by 2020. Small dedicated producers also have access to fiscal exemptions.
Biofuels production investments have been announced by companies such as Iberol, Martifer (Prio Fuels), Sunenergy, Torrejana and Biovegetal. The Martifer (Prio Fuels) 8,000 square meter refinery, a $36 million (€ 25 million) investment, is located alongside two other Martifer plants in Aveiro. The refinery’s Bio-diesel output is to be around 100,000 tons per year, generating a turnover of $102 million (€ 70 million). The project is designed to supply the Iberian market and will use raw materials such as soy.
Hydropower: Hydropower is a priority and one of the national energy’s policy commitments, with the objective of exceeding an installed rated power of 7,000 MW by 2020. Portugal has developed about 5,000 MW of hydro thus far, covering about half of the country’s potential. It is also important to mention that hydro in Portugal is dependent on annual rain fall and Spanish management of rivers that flow into the country. It is a challenge to build new hydro facilities in Portugal, mostly due to the fact that the best spots are developed and developing new projects is complex. Europe's largest man made reservoir is located in the Alentejo region of Portugal at Alqueva. The Alqueva hydro power plant’s installed capacity is 240 MW and produces about 269 GWh annually. Its reservoir can reach a maximum quota of 250 square-km. The plant was completed in 2002 and at a total cost is valued at $2.6 million (€1.8 million). Looking ahead, EDP has at least two dam projects in the works ranging between 100 to 200 MW.
Wave Energy: While solar, wind and hydro all have commercial projects now in operation; Portugal has enormous energy potential offshore. Every day, waves come rolling in from the Atlantic, crashing on the country's 500 km of western mainland coastline. Portugal's unique sea conditions - its continental shelf drops to 50-100 meters only three to six miles off the coast - make it difficult for offshore wind development but ideal for wave power technologies. Portugal has some natural advantages over Europe's other great wave spot - Scotland. Its swells are not as strong, storms not as big, about 80% of Portugal's electricity consumption occurs within 50km of coast. Also, getting power offshore and into the grid is supported by existing infrastructure near the shoreline. The first wave energy project in Portugal was developed in Pico, located on the Azores islands. The Pico OWC (Oscillating Water Column) plant was completed in 1999 and involved several Portuguese companies and institutions such as EDP, EDA, EFACEC, Consulmar, Irmãos Cavaco, INETI, IST and WEC.
More recently, a project to develop and launch the world’s first commercial wave farm has been initiated by Enersis (owned by Babcock & Brown) and involving the Scottish firm Pelamis Wave Power Ltd. The device is called Pelamis and is a snake-like unit comprised of cylinders and linked by hinged join, which ride 'head first' into waves and generate power using hydraulic motors via smoothing accumulators. This investment of about $12 million (€8 million) totaling 2.5 MW offshore in northern Portugal also benefits from a feed-in-tariff and will sell electricity into the grid for € 0.24 per kWh.
The Portuguese Government strategy to promote micro generation was developed a few years ago with the creation of a legal framework for energy efficiency requirements in buildings and lately with new legislation on micro generation that outlines production and compensation conditions. The concept of micro generation is growing in popularity as a sub-sector in Europe’s strong market for renewable energy. Energy companies and government support for micro generation provides consumers with real incentives to invest in this new green technology. The market for micro generation in Portugal includes applications for micro-wind, solar thermal, PV in buildings and geothermal heating. There are already a number of interesting projects emerging for solar thermal heating for which the US has relevant technologies. Portugal is also looking to benefit from expertise in project design and integration of micro generation into buildings. According to the latest legislation on micro generation, any individual can have access to his or her own system of energy connected to the electricity grid, with the possibility of selling excess energy generated. These systems may be powered by small scale wind turbines, mini hydroelectric plants, photovoltaic solar systems, ground source heat pumps, or a combination of the above. Portugal’s climatic conditions are especially good for solar and wind installations.
Micro generation systems may be autonomous, using batteries with stored electric charge, or connected directly to the regular electricity grid. Although a direct connection to the electricity grid is not essential, it helps decrease costs by allowing financial recompensation schemes, also known as net metering. Under net metering, a system owner is reimbursed for a portion of the electricity that they generate. Portuguese law has established the following compensation scheme and conditions for micro generation: In order to install a micro generation system/unit, an individual must first apply and go through an inspection and certification process managed by the Registration System of Micro production (SRM) under the Directorate-General of Energy and Geology (DGEG) in Portugal. Once this process is complete, it will be determined whether the system meets requirements to connect to the Public Service Electricity Grid (RESP) on the general or incentive scheme.
Other restrictions include: System owners may not input more than 50% of the amount of energy consumed for the electrical installation and utilization; it is obligatory to provide thermal solar containers for water heating with a 2m² area container minimum; and in the case of installations in condominiums or apartments, the system owner must have an energy contract with the building that contains and identifies all implemented measures of energy efficiency.
The existing market for renewable energy in Portugal is characterized by the following positive factors: Portugal has a national obligation under EU agreements to cut greenhouse gas emissions with firm deadlines in 2010 and 2020; There is a shared policy interest between diversifying energy sources and increasing energy independence; Policymakers and private firms see an excellent opportunity for the development of a high-tech industry in the renewable energy sector and are open to international cooperation; Tax reductions are available; Fixed feed-in tariffs per kWh exist for PV, wave energy, small hydro, wind power, forest biomass, urban waste and biogas, encouraging the development of renewable energy and its use; and there is broad market demand from utility companies, firms in other sectors, investors and private individuals alike.
The exchange rate of the U.S. dollar to the Euro still favors U.S. manufacturers. A broad range of policy measures have been implemented to encourage the use and development of renewable energy in Portugal. In September 2007, new incentives for micro generation of renewable electricity were approved as part of a package for reducing carbon emissions. By 2015, national micro generation capacity will be around 200 MW.
The above factors determine the dynamics of Portugal’s existing renewable energy market development. Through at least 2015, a window of opportunity exists for: Producers of renewable energy generators (solar panels, wind turbines, heat pump systems, etc.) and all related accessories, materials and services; Providers of biomass (e.g., wood pellets); Providers of wave energy technology; Producers or developers of any products and services that may directly or indirectly contribute to the reduction of greenhouse gas emissions. With the negotiation of a successor to the Kyoto protocol after 2012 highly likely; developments in sustainable renewable energy are part of a long-term trend towards pollution control, energy diversification and energy security in Europe.
Given this sustained growth of the renewable energy market in Portugal, its broad market base and numerous associated developments, we urge U.S. companies to consider the opportunities that the Portuguese market presents. A sustained local presence, product exposure or track record in this industry will also serve as a major asset as the market develops and matures. We encourage U.S. RE companies to touch base with the different RE-focused groups and institutions to explore areas for collaboration. This industry is very receptive to advances in technology, which present opportunities for entry via a collaborative research or partnering approach with a local company. Obtaining up-to-date information on market dynamics is very important, given the fast developing nature of the industry and the continuing introduction of new technologies.