Excerpt from pv magazine 05/2022

According to the latest statistics, Portugal installed 572 MW of new solar photovoltaic capacity in 2021. The installations include small and large-scale photovoltaic systems supported by several political programs. For example, the country has installed micro and mini PV systems which are remunerated by fixed feed-in tariffs (FIT), although this policy has now been replaced by a self-consumption system.

This system differs from net metering in that installed systems do not receive credits for excess electricity generation, but are instead allowed to sell excess electricity to the grid according to electricity market tariffs (price of pool). The policy also allows new installations of up to 250 kW that receive FITs, although the installation of such systems is generally capped each year to represent only a few megawatts of new capacity.

As far as large-scale PV is concerned, most of Portugal’s large-scale solar parks were installed under the old FIT regime. The legal framework Decreto-Lei n.º 76/2019 introduced in June 2019, established two routes to market access: auctions and direct agreements with network operators. The latter is widely referred to as the merchant segment of the market, which means that investors sell solar power directly to a buyer through a power purchase agreement (PPA). Official statistics indicate that this is the strongest part of the country’s PV market.

The Portuguese Energy and Geology Office (DGEG) indicates that of the 1.73 GW of cumulative capacity, 342 MW comes from self-consumption systems. About 171 MW are micro and mini solar installations, while 55 MW are small systems, sized up to 250 kW each and supported by FITs. The remaining capacity includes utility-scale plants installed through the expired FIT regime or through the new tender and merchant programs.

The DGEG said photo magazine that it has no specific information on these market segments. However, looking at DGEG statistics for the past 10 years and considering the various policy changes that have taken place over the same period, it is possible to extrapolate that between 400 MW and 500 MW have been installed under the old FIT diet.

The remaining large installations should therefore comprise either tendered projects (of which very few have been installed) or merchant farms. The 50 MW Ourika farm was installed in July 2018 and would be the first merchant solar project in Portugal and Europe.

Submitted projects: loading

To date, Portugal has announced three tenders, in 2019, 2020, and a final one in April this year, focused on floating PV. The 2019 exercise set a low price of US$0.016/kWh, although that benchmark price fell to $0.01316/kWh the following year.

The April 2022 auction, on the other hand, generated negative prices, which means that the photovoltaic system offering this offer will pay the Portuguese electricity system to produce electricity for 15 years. This is a hybrid project that also includes wind power and storage; therefore, the investor can generate profits from the other elements of his investment.

Overall, the tenders allocated 1.15 GW, 670 MW and 183 MW of generation capacity in 2019, 2020 and 2022, respectively.

The government boasted that Portugal’s tenders had been a success, helping electricity consumers. However, these benefits will only be felt if the projects are installed. To date, very few winning projects have materialized and the grace period for projects in the first two auctions to secure the necessary licenses has recently been extended.

The DGEG says this extension is the result of the Covid-19 pandemic, but market forces have expressed doubts whether all the projects tendered will be installed. He says the current skyrocketing cost of photovoltaic equipment and supply chain disruptions are making the most competitive projects unprofitable to build.

Merchant Projects: Queuing

The country’s commercial projects are less discussed; however, they are arguably where the country could see a new wave of facilities materialize soon.

João Garrido, founder and director of the solar consultant Caparica Solaris based in Lisbon, tells photo magazine that following the policy framework released in 2019, investors flocked to DGEG, submitting applications for around 253 GW of merchant projects.

According to Garrido, however, the framework was poorly designed and did not require any financial commitment from investors, which led to so many project applications.

In March 2020, DGEG stopped accepting new project applications from traders due to the pandemic and did not reopen the process. “I doubt he will reopen it any time soon,” says Garrido, who adds that the key issue is the guidelines for classifying merchant projects that DGEG introduced last February. Under them, investors were asked to provide additional information by July or October 2020, which would then determine the ranking.

Since then, the Portuguese network operators have published two lists, ranking the merchant projects relating to the July 2020 deadline. More specifically, the Portuguese transmission operator (REN) has published a list of 78 projects, while the operator distribution company (E-Redes) ranked 53.

Garrido says that the market has still not heard of the merchant projects related to the October 2020 deadline and what is worse, he argues, is that a new law (the Decreto-Lei n. º15 /2022) introduced in January 2022, cancels all projects that transmitted information to the DGEG in October 2020.

As Garrido puts it, this is unacceptable because “in the end, project developers followed official guidelines only to have their applications dropped due to a change in the law.”

Lucky

Francisco Veiga de Macedo, WiNRG’s Germany-based director for the Iberian Peninsula, said photo magazine that the lists published by the network operators REN and E-Redes are all projects classified with the DGEG. The DGEG and the network managers, he said, tried to find the most mature projects, for example those that had secure land and were pre-approved by local municipalities, etc.

Following the publication of the ranking lists, the two system operators began negotiations with the promoters on the feasibility studies for their projects. Three things need to be clarified though, Veiga de Macedo said. First, not all developers are welcome to negotiate with network managers, who are currently only in talks with top-ranked developers. For example, REN only invited the 11 best projects, corresponding to 3 GW of photovoltaic capacity.

Second, investors have little room for negotiation. The network managers present them with an offer to undertake a network feasibility study examining the needs for network reinforcement. It is the investor who pays for the feasibility study, while following the study, any network reinforcement expenses are also borne by the investor.

Third, the law introduced in January obliges system operators and investors to reach an agreement within 12 months of the publication of the law. But if this negotiation process takes nine months, for example, what will happen with the rest of the projects that are not yet invited to speak to the network managers, asks Veiga de Macedo.

A potential solution is for the government to extend the deadline by 12 months. He agrees, but adds that the more top-tier projects that strike a deal with grid operators, the less viable the lower-ranked projects will become. “It’s because the grid will be taken,” he said.

WiNRG is not one of the companies referenced by network managers because it is not a project developer. On the contrary, he generally explores the market for projects under development and presents interesting opportunities to the investors he works with. If investors are awarded the projects, WiNRG will arrange issues such as project and asset management, etc.

At present, the company manages a portfolio of around 200 MW comprising six photovoltaic parks connected to the Portuguese grid in 2020, 2021 and 2022. The six projects are merchant, which means that they operate on the basis of a mix of PPA with a local antenna. lessee and they participate in the Portuguese spot market.

Veiga de Macedo says these projects were spotted by WiNRG before Portugal introduced a bidding regime, but their investor felt confident moving forward given it was is a stable European country with an established market and high solar irradiation. “There is not yet a strong appetite for enterprise PPAs in Portugal; however, PPAs with an electric utility are viable and we are pleased to be able to secure some of the few fully licensed merchant projects that were available early in the country,” he says.

Asked about the future of Portuguese merchant PV projects, Veiga de Macedo concludes: “The DGEG has learned from the mistakes made in the past and I am very sure that we will never again have a process like the one we had in 2019. The DGEG will certainly introduce hurdles in the application process to differentiate honest and serious investors from opportunists.

However, he also expresses doubts that politicians fully support the merchant solar sector. In effect, politicians are selling the bidding story to the public as a great political success on the back of record tariffs. Such news makes good headlines. But will they dedicate more network capacity to merchant projects or stick to tenders, even if the latter never materialize? That remains to be seen.