Power policy

Renewables enjoy a dominant share of generation capacity in Portugal, particularly onshore wind and hydropower. Meanwhile, fossil fuels contribute just under half of generation.

Onshore wind was the largest beneficiary of Portugal’s feed-in tariff scheme, with capacity increasing tenfold between 2004 and 2014. However, the scheme's suspension ended this growth. The government's support program for underdeveloped technologies has a maximum award of €5 million ($5 million) per developer – too small for offshore wind projects. However, the government is helping to provide a grid connection for a floating offshore wind platform.

Portugal launched its first utility-scale renewable energy tenders in 2019 to accelerate progress towards its target of installing 7GW of new solar photovoltaic (PV) capacity by 2030. The first round for 1.4GW of PV injection capacity was held in July 2019. The second round opened in August 2020 and allowed solar-plus-storage projects to participate, awarding contracts to 187 megawatts (MW) of standalone PV and 483MW of PV plus storage. The country also announced a tender for floating PV in November 2021 and allocated a total capacity of 263MW due to be auctioned in 2022.

Power prices and costs

Portugal and Spain share the Iberian wholesale power market, known as Mibel, which is coupled with the European day-ahead market. Electricity is dispatched in merit order, and power prices are generally higher than the European average due to limited interconnection and dependency on imported commodities.

Power prices are primarily driven by gas and to a lesser extent coal and carbon. The growth of wind, in combination with a large hydro fleet, has reduced the country’s dependence on gas. However, gas generation remains important as it fills the gap during times of low hydro or wind output.

Power market

Electricity generation and retail are fragmented in Portugal. Energias de Portugal (EDP) holds the greatest market share in both segments, but a number of players with a 1% share or less are active.

Doing business and barriers

Overcapacity and limited interconnection increase curtailment risk and may pose a barrier to higher market penetration of unsubsidized utility-scale PV. France, Spain and Portugal have signaled steady progress on interconnector developments between the Iberian Peninsula and the EU internal market, but it is unclear whether these projects will mitigate oversupply. According to Bloomberg's country risk assessment, Portugal has very low financial risk, but scores less positively on economic and political risk compared to its European counterparts.

EV market

Portugal is aiming for electric vehicles (EVs) to account for more than 30% of vehicle sales in 2030, rising to 100% by 2050. To help reach its 2030 goal, the country’s Environment and Finance Minister announced back in 2019 that 50% of the public administration's fleets will be EVs.

Portugal has also taken legislative steps to implement and execute its EV ambitions. The Programme for Electric Mobility is a legal framework that applies to the electric mobility sector and EV users. It covers prices and service quality, and sets out guidelines for tariffs for entities managing the electric mobility network.

EV policy

To complement the legislation and boost EV uptake, Portugal approved incentives for EV purchases totaling more than €2.6 million in 2018 as part of its Environmental Fund. Other types of incentives on offer in the country include tax exemptions for EV purchases, and a lower rate of circulation tax. Companies that have EVs are exempt from autonomous tax and also benefit from a reduction in value added tax.

Buildings market

Portugal has identified energy efficiency, electrification, insulation and heat pumps as the main avenues for decarbonizing the buildings sector in its journey towards carbon neutrality by 2050. The central government has established a grant scheme for residential heating systems – called “More Sustainable Buildings” – which subsidizes 70% of the cost of heat pumps and solar thermal systems up to a maximum €2,500, and 70% of biomass systems up to €1,500.

Buildings policy

Under the country’s National Buildings Energy Performance Certification System, all residential, service sector and public buildings must go through an audit to receive an energy certificate when they are constructed or deeply renovated, as well as each time the building changes ownership or is leased. There are also other conditions warranting a fresh audit for service sector or public buildings.