Portugal, a strong bet on renewables to reduce its energy dependency

Portugal seems to understand that sustainability is more than a trend, it is a vision towards the future. In the last decade, investing in this strategic development path has been seen more like a moral obligation for both entities and companies, as well as a way of achieving a positive advancement for their economy. Portugal has carried out remarkable progress in this field until becoming now a country leader in the renewable energy transition.

In 1900, more than 90% of the world’s emissions were produced in Europe and the United States, even by 1950, they accounted for more than 85% of emissions each year. Portugal entered the 20th century as a non-industrialized country due to the lack of technology and a general social backwardness in comparison to other European states. By 1910 nearly 60% of the country’s economically active population was still engaged in agriculture, 25% engaged in industry and 17% in the service sector. Portugal had few fossil fuels resources and due to the different lifestyle, their energy consumption was lower in comparison to other European countries at that time such as the UK, France or Germany, which made the carbon emissions low as well.

Portugal had a high dependency on external energy due to the shortage of fossil fuel resources and the different sector set up due to the late industrialization. Hydroelectric power did not have the capacity to meet demand needs and the increasing proportion of fossil fuels in power generation contributed to the rise in coal and especially hydrocarbon imports, making Portugal one of the European countries with the highest energy dependence, about 80% in 2010. Therefore, the country has to import all the coal used in power stations, as well as its entire oil and gas supplies, mainly from Algeria and Nigeria. Natural gas is also received in a liquid state – LNG (Liquefied Natural Gas), through tankers that dock at the Sines natural gas terminal. The gas that arrives through the Maghreb-Europe gas pipeline across the Spanish border is injected directly into the National High Pressure Natural Gas Transportation Network. Upon arrival at the Sines terminal, the LNG is transformed into its gaseous form to be introduced into this network.

Portugal’s first support scheme for renewables was established through the Decree Law 189/88 that installed an undifferentiated FiT system to all renewables, a policy mechanism designed to accelerate investment inrenewable energy technologies by offering long-term contracts to renewable energy producers. During the 1990s the European Union brought in policies to promote a common European electricity market and also to progress towards renewable energies in order to reduce environmental pollution and to break the link between economic growth and environmental degradation, so in 1995 Portugal’s electricity market converted from a vertically integrated state monopoly into a dual market structure, comprised of a Public Service System and a liberalised system. Furthermore, the Portuguese and Spanish governments made plans to integrate the two countries’ electricity market into a single Iberian Electricity Market (MIBEL) which was launched in July 2007 and the Portuguese electricity market liberalisation completed to the degree that all electricity customers were freely able to choose and change their electricity provider.

However, in the middle of this energy progress came the 2008 financial crisis and complicated the situation, as Portugal was deeply affected by it. In May 2011, due to increasingly untenable interest rates on its bonds, Portugal necessitated a bailout, in return of addressing its financial unsustainability. The entry the bailout restricted Portugal’s choice of options and made harder times for the renewable energy companies and projects, but there was no fundamental political, cultural or ideological change in regard to renewable energy. Portugal’s energy and climate policies pushed for carbon neutrality primarily through broad electrification of energy demand and a rapid expansion of renewable electricity generation, along with increased energy efficiency.

As a matter of fact, the last two months of 2019 were historical for Portugal when in November they registered a daily generation of wind power, and in December, an uninterrupted period of 100% renewable demand in mainland Portugal, lasting for 131 hours (corresponding to 5 1⁄2 days), and starting on the 18th. These achievements were a result of high hydroelectricity and wind generation, once again demonstrating the high resilience of the national power system while facing significant amounts of renewables integration in the grid.

Regarding the boosters of this process, there is a theory known as “latecomer advantage” that divides ‘pioneering’ countries from ‘follower’ ones, and claims that technological backwardness of the ‘followers’ allows them to absorb the most recent innovations developed in the latter, without having to bear  the initial costs of development. In the case of Portugal, it is an intermediate economy and a typical case of “follower” of technological changes initiated in the more advanced economies and as the theory says we can see a spectacular progression towards renewable energy.

In January 2022, 4,085 GWh of electricity were generated in mainland Portugal, where 63.64% came from renewable sources being 31.27% wind, 17.78% hydro, 6.99% bioenergy, 3.80% solar and 3.80 pumping. However, Portugal still remains reliant on imported fossil fuels, as the remaining 36.36% came from fossil fuels such as gas natural, that accounted a 31.27%.

Benefits of renewable energy in Portugal

a) Reduction of CO2 emissions

Portugal was among the first countries in the world to set 2050 carbon neutrality goals and it is the EU country that has been most successful at cutting greenhouse gas emissions since 2005, the year in which there was a peak in the emission of these gases. The European statistics agency Eurostat published in 2018 the data on CO2 emissions from energy use in the European Union where Portugal confirmed one of the largest falls in CO2 emissions with a reduction of 9% in greenhouse gas emissions in relation to the levels registered in 2017.

Furthermore, in the last years Portugal has been seen many times in the media as an example of a country that is really taking action when it comes to lowering carbon emissions. The capital city of Lisbon received the title of “European Green Capital” in 2020 as it had achieved a 50% reduction of CO2 emissions between 2002 and 2014, and it also has one of the world’s largest networks of electric vehicle charging points.

b) Reduction of energy dependence 

The objectives that Portugal pursues are not confined to environmental concerns, since a commitment to renewable energy is expected to transcend the frontiers of the electricity sector and have a positive impact on the advancement of their economy. One of the advantages of renewable energy is that countries can make use of their own natural resources to create energy, which allows them to become more independent if they do not have enough fossil fuels for energy supply. Renewable energy has helped to increase the share of domestic generation and lower energy dependence from around 88.6% in 2005 to 74% in 2019, according to IEA.

Portugal has shortage of fossil fuel resources as previously mentioned, but it also has enormous potential for the development of a highly decarbonized electricity sector, either because of the availability of renewable endogenous resources, such as water, wind, sun, biomass and geothermal energy, or because of the fact that it has a reliable and efficient electrical system. This energy transition in a future could even convert them into net exporters of electricity and also support lowering current account deficits, which for Greece and Portugal in 2012 amounted to more than 6%.

Besides, Pedro Amaral Jorge, the president of APREN (Portuguese Association of Renewable Energy) revealed in an interview with Portugal Global that investing in renewable energy generated more than 45,000 jobs in the country. He also remarked that at the moment, as a result of the economic crisis that we are facing due to the COVID-19 pandemic, Portugal should be able to benefit from the skills developed over the last 20 years and move from an energy-poor country, in the light of fossil fuels, to an energy-rich country in the light of renewables, using the transition and green economy.

c) Control of electricity prices

Since January 2021 fossil gas prices have increased more than 170% in Europe, and with it, the cost of electricity. Accounting for the increase in energy prices are the rebound in energy demand as economies reopen, constrained gas supplies from Russia and Norway, greater competition with countries in Asia for liquefied natural gas, together with unplanned outages and delayed maintenance. Nevertheless, there is a popular belief that the recent increase in energy prices is due to the energy transition, but according to the European Consumer Organisation, it’s indeed because the energy transition is not going fast enough. A recent report on Renewable Power Generation Costs by IRENA (International Renewable Energy Agency) shows that today solar and wind power production is cheaper than fossil fuels like coal. What’s more, while fossil-fuel electricity got more expensive, the cost of wind and solar remained stable. Therefore, an electricity system mostly based on renewables would be less subject to this price volatility. 

APREN’s President Pedro Amaral Jorge insisted that he will continue to work in order to factually explain and show the advantages of electricity produced from renewable sources and its very positive impact on controlling electricity prices. He emphasized that in Portugal the price of electricity dropped by 3.5 percent in 2019 and 0.4 percent in 2020, a trend that is to be expected in the future thanks to the increase in the share of renewables in our energy mix. He also claimed that renewable energies contributed 18.5 billion euros to GDP and saved 6.1 billion euros in electricity consumer bills between 2016 and 2020: savings of up to 50 euros for a domestic consumer and up to 4,500 euros for a non-domestic consumer. The conclusion was from the studyon the impact of renewable electricity, carried out by the consultancy Deloitte for APREN.

The discussion of different actors in the transition

a) The Portuguese population

A survey conducted by Marktest for APREN came to the conclusion that 60% of people are of the opinion that Portugal is doing little to reduce greenhouse gas emissions, and only 30% believes that the country is mobilizing sufficient efforts towards decarbonization by 2050. The majority of Portuguese respondents (80%) also reveal that they know partially or totally all the points that make up their electricity bill, an invoice that 91% of respondents consider expensive. More than 80% believe that the price of electricity in Portugal is higher than the European average and, to try to combat this, 88% believe that a bet should be made on renewable energy sources to the detriment of fossil fuels.

With regard to self-consumption, 87% of respondents do not have this option, but almost the entire population (95%) agrees that there should be incentives and public support for the acquisition and installation of thermal and photovoltaic solar panels in Portuguese homes. Even so, of those interviewed, only 20% revealed a desire to have self-consumption in the future.

b) The government

The Portuguese government has also made a strong commitment to renewable energies, presenting as essential the National Strategy for Green Hydrogen, which promotes the progressive insertion of hydrogen in the various sectors of the economy, allowing the transition to a decarbonized economy. In addition, this strategy aims to create a green hydrogen export hub for Europe, being an essential step forward for the growth of the sector's internationalization.

Portugal’s Prime Minister Antonio Costa also said that the country “must have the ability to diversify energy sources, invest more in green hydrogen and widen the gateways to natural gas, which is a transitional energy.” “We cannot simply be dependent on Russia, Turkey and Algeria. We must each strengthen the transatlantic relationship. Portugal is already the gateway for one-third of the liquified natural gas coming from the United States – we can and should increase this share,” he said.

Furthermore, leaving a clear message that Portugal is really betting in renewable energies, they joined an anti-nuclear alliance at COP26 with Austria, Luxembourg, Germany and Denmark on their side. They presented a joint statement advocating nuclear-free EU energy projects at the event saying that “all the money put into nuclear energy is money that should be put into renewable energy, we need energy that does not have nuclear waste.”

c) Civil society

Ana Calhoa, the secretary general of ABA (Advanced Bioenergy Association), a non-profit entity that represents operators in the area of bioenergy, defended that for Portugal “it would be very difficult to make a unique and exclusive bet on electric mobility,” believing that the Government will better bet on the “energy mix.” She explained that for Portugal it would be very difficult to make a single and exclusive bet on electric mobility, despite being where they are heading. Regarding possible measures to stop producing cars with combustion engines and move to electric vehicles by 2040, she said that the Portuguese economic scenario“does not allow for a total transformation to electric mobility.” She added: “I think electric mobility is good, useful and a good bet, just like hydrogen. But we have to understand that these are realities that will take longer, their technologies need to mature more, as well as economic issues.” She believes that the bet in Portugal involves the “energy mix and not just a source of energy,” considering that waste and advanced biofuels (from waste such as edible oils, animal fats, coffee grounds or sauces) can “contribute a lot” to the desired goals of carbon neutrality.

Furthermore, APREN emphasizes that in Portugal not only investment in renewable energy will be necessary, but also a simplification of processes and licensing, which are today bureaucratically complex and time-consuming, due to the involvement of numerous administrative entities that must be consulted.

An assessment on the transition

Accelerating the transition to a renewables-based energy system can be a great path for Portugal and other countries in order to become more sustainable, more self-sufficient, and have more control over the electricity prices.

In the political matter, it does not seem like a left-right dichotomy since most Portuguese agree on the need to develop renewable energy for environmental and economic reasons. The question would rather lie on how that transition towards sustainability should be carried out; as the Secretary General of ABA remarked, an ‘energy mix’ using different energy sources might be more realistic for a country like Portugal.

Moreover, while a high percentage of the participants in the survey about renewable energy in Portugal claimed that they wanted more action to be taken, only 20% of them showed interest in having self-consumption in the future. Therefore, more information and facilities on self-consumption could make easier access to it and would allow the population to become more active in the transition, as well as help them save money from the electricity bills that they consider rather expensive. The government could encourage and promote the installation of more solar panels for self-consumption, as hydro, wind and biomass energy are already well developed in Portugal, so there should be more focus on solar energy - one of the endogenous renewable sources in which the country is rich, but that still has a reduced expressiveness compared to other countries.

In the economic matter, while the creation of MIBEL rendered electricity exchange within the Iberian Peninsula a non-issue, due to its geographic position, exporting excess electricity is difficult. As such, MIBEL can be seen as an almost isolated system and without an adequate connection to the European market, both Portugal and Spain will continue to struggle to promote a cost-effective RET. Therefore, it should also be taken into account that in order to become net exporters and produce economic growth from that, they should improve the interconnection between the Iberian Peninsula and the rest of Europe.

In regard to the environmental matter, it’s clear that a small country like Portugal can set examples and make a contribution to avert the high risk of a climate catastrophe, but, of course, it’s up to major polluting nations such as China, the United States, India and Russia to reach a workable solution. Nevertheless, the remarkable development and progress of Portugal over the past years deserves to be recognized and applauded.