Portugal - An Energy Transition Case Study

Portugal can be seen as a test case for transitioning energy to renewables with recently achieving several months of 100% renewables supply to the country. I came across an article about Portugal’s remarkable turnaround in energy production from being a highly fossil fuel dependent country to a country regularly being 100% renewable based. This has also cut their importing of energy supply to an annual average of just 20% to balance the grid with their near neighbours. ?

Background?

Portugal's energy transition from 2000 to the present has been marked by a significant shift towards renewable energy sources, driven by ambitious policies and investment in green technologies. It has avoided nuclear power and managed to reduce dependency on imported power to less than 20% annually through Spain via the Iberian Electricity Market (MIBEL), which allows for cross-border electricity trading and helps balance supply and demand in both countries.??

In the early 2000s, Portugal’s energy mix was predominantly reliant on fossil fuels, particularly oil and natural gas, with a small share of renewable energy. At that time, the country faced challenges related to energy security and environmental sustainability, which spurred the need for a comprehensive energy transition.?

The Portuguese government began setting the stage for energy reform with the introduction of various policies and incentives aimed at increasing the share of renewables. Key milestones included the implementation of the National Energy Strategy and the establishment of support mechanisms such as feed-in tariffs for renewable energy projects. The early investments were focused on wind and hydroelectric power, which started gaining traction in the mid-2000s.?

Atlantic facing Portugal made substantial progress in expanding its renewable energy capacity. By the early 2010s, the country had become a European leader in wind power. In 2012, Portugal set a world record by running on renewable energy for four consecutive days. Hydropower continued to be a significant part of Portugal's renewable energy strategy, given the country's favorable geographic conditions for hydroelectric generation. This is the chief base load supplier of energy to the grid. ?

Portugal is investing in innovative renewable projects like floating offshore wind farms and floating solar PV installations. For example, the WindFloat Atlantic project, operational since 2020, is the world's first semi-submersible floating wind farm.?

Floating solar plants on reservoirs, such as the one on the Alqueva Dam, help maximize space utilisation and reduce evaporation, contributing to both energy generation and water conservation.?

Energy Production and Distribution Ownership?

Public and Private Sector Involvement?

Historically, Portugal's energy sector was dominated by state-owned enterprises. For instance, EDP (Energias de Portugal), a major utility, was partially privatized but remained a key player in the energy market. Like many Western economies the liberalization of the energy market in the 2000s opened opportunities for private investment in both renewable and non-renewable sectors. This move was part of Portugal's broader strategy to increase competition and efficiency in energy production and distribution.?

Recent Developments?

There has been ongoing privatization and restructuring of state-owned companies. EDP, for example, saw significant private investment and restructuring, which influenced its approach to renewable energy projects. Today, major Portuguese energy companies like EDP and Galp Energia have diversified their portfolios to include significant renewable energy investments, both domestically and internationally.??

Renewable Energy Share?

Portugal has set ambitious targets for carbon neutrality. The country aims to achieve carbon neutrality by 2050, with specific interim targets such as reducing greenhouse gas emissions by 55% by 2030, compared to 2005 levels. ?

As of the early 2020s, Portugal has made impressive strides in integrating renewable energy. By 2023, renewables (including wind, solar, and hydro) accounted for around 60-70% of Portugal's electricity generation, with wind being the primary supplier of energy. Solar power has seen remarkable growth, contributing a growing share of the country's energy mix.?

Portugal continues to invest in innovative technologies such as battery storage, grid modernisation, and smart grids to enhance the reliability and efficiency of its energy system.?

Future Plans and Forecasts?

Short to Medium-Term (2024-2030)?

The focus will continue on expanding renewable energy capacity, particularly solar and offshore wind. The government plans to increase the share of renewables in the energy mix and to phase out coal-fired power plants.?

Energy Efficiency is also key to this success. Portugal is working on improving energy efficiency across various sectors, including residential, commercial, and industrial applications.?

Portugal is advancing in the development of smart grids and decentralized energy generation. The country has been upgrading its grid infrastructure to accommodate the fluctuating nature of renewable energy sources and to increase grid stability.?

The InovGrid project, led by EDP Distribui??o (now E-REDES), is a key initiative aiming to create an intelligent energy distribution network that optimizes supply and demand, integrates distributed energy resources, and improves energy efficiency.?

Long-Term (2030 and Beyond):?

Decarbonization: The long-term strategy includes a comprehensive approach to decarbonize the economy, which involves not just the energy sector but also transport, industry, and agriculture.?

Hydrogen Economy: There is growing interest in green hydrogen as a potential energy carrier, and Portugal is exploring opportunities to develop a hydrogen economy, which could play a key role in meeting future energy needs and reducing emissions. This is in line with many in the energy sector, but as seen from recent reports less than 1% of hydrogen produced today can be said to be “green”, i.e. produced by renewable energy via electrolysis of water. ?

Successes of Portugal’s Privatization?

How has Portugal’s privatization been so successful when compared to the UK’s? In 2017 the average UK domestic customer was paying considerably less for electricity than their Portuguese equivalent due to the high percentage of gas fired power stations (UK 17p/kWhr to P 29p/kWhr) Purchasing Power Standard equivalent. With the war in Ukraine and the subsequent knock-on prices in fossil fuels, Portugal’s longer-term switch to locally produced and secure energy supply means the situation is reversed (UK 48.5€c/kWhr to P 21€c/kWhr). ?

The privatization of Portugal's energy sector has been a carefully managed process, aimed at balancing market efficiency with national interests. Privatization of Portugal's energy sector began in earnest in the late 1990s and early 2000s. The process was part of a broader wave of liberalization and privatization across various sectors in Portugal and other European countries. The aim was to increase competition, efficiency, and investment in the energy sector. The process was accompanied by the establishment of regulatory frameworks to ensure fair competition and protect consumers. Regulatory bodies such as the Energy Services Regulatory Authority (ERSE) were created to oversee the sector, monitor market practices, and ensure compliance with national and European regulations.?

Reforms included the unbundling of energy production, transmission, and distribution to promote competition and prevent monopolistic practices. This was in line with European Union directives aimed at creating a single energy market.?

EDP, Portugal's largest energy company, was partially privatized in the early 2000s. The Portuguese government sold a significant stake in EDP, reducing its direct control over the company. As of the early 2020s, EDP is majority-owned by private investors, including a large stake held by the Chinese state-owned enterprise State Grid Corporation of China. Other significant shareholders include various institutional investors and private equity firms. Despite privatization, the Portuguese government retains a minority stake and some influence over key strategic decisions.?

Galp Energia, the major oil and gas company, underwent a series of privatizations and restructuring efforts from the late 1990s onwards. The Portuguese government sold its majority stake, and the company is now predominantly owned by private shareholders. The largest shareholders of Galp Energia include private investment funds and institutional investors. The Spanish energy company Repsol and other international investors also hold significant shares. The government no longer has a direct ownership stake in Galp Energia, though it retains indirect influence through regulatory and policy frameworks.?

Various other energy companies in Portugal, including those involved in renewable energy, have also undergone privatization. These companies are typically owned by a mix of private investors, both domestic and international, and sometimes involve partnerships with multinational corporations.?

There was foreseen a need for strong regulatory oversight. The Energy Services Regulatory Authority (ERSE) remains the key body responsible for regulating the energy sector. ERSE oversees market operations, ensures fair competition, and protects consumer interests.?

This has been coupled with European Union influence. As a member of the EU, Portugal's energy sector is also influenced by broader EU regulations and directives aimed at creating a unified European energy market and ensuring compliance with environmental standards.?

While the Portuguese government no longer directly controls most major energy companies, it retains significant influence through regulatory mechanisms and policy decisions. The government also continues to play a role in setting strategic energy goals and ensuring that the sector aligns with national and EU-wide sustainability objectives.?

Recent Developments?

The privatization process has led to increased private investment in renewable energy projects, reflecting the government’s commitment to transitioning towards a greener energy mix. Private companies are now key players in developing and operating Portugal’s expanding renewable energy infrastructure.?

Portugal aims to achieve carbon neutrality by 2050. This goal includes increasing the share of renewables in the energy mix and phasing out fossil fuels. The country is focusing on advancing technologies such as battery storage, smart grids, and green hydrogen to support the integration of renewable energy and ensure grid stability.?

Conclusion?

Portugal's energy transition has been characterised by a decisive shift towards renewable energy, supported by progressive policies and investments. The country has set ambitious goals for the future, aiming for a fully sustainable and decarbonized energy system, with significant emphasis on innovation and efficiency improvements.?

This coupled with the privatization of Portugal's energy sector has been carefully managed through regulatory oversight and strategic policy frameworks. The sector is now characterized by a mix of private ownership, with significant international involvement, and continued government influence through regulatory bodies and strategic policy initiatives.?

Portugal's electricity supply and distribution system exemplifies a dynamic and forward-looking approach to sustainable energy. This is enhanced by the inclusion of utilising smart-meters and other energy saving policies and has achieved a remarkably efficient system in a short time. ?

Although the state does own small stakes in the larger production and distribution companies, it is their strong focus on strategic aims like energy security and sustainability that has secured benefits to date when compared to systems such as the UK’s which still relies heavily on fossil fuels, notably gas. ?

For Orkney's efforts on Transitioning to net Zero see ICNZ programme www.ICNZ.org