Grid investment a key challenge for Portugal’s net zero ambitions

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Grid investment a key challenge for Portugal’s net zero ambitions
World beating solar prices are just one sign of Portugal’s substantial renewable energy potential

Think of Portugal; sunshine, beaches, vinho verde and the giant waves crashing off the surfing hotspot of Nazaré come to mind. But Portugal’s sunny climate has other benefits, last year making headlines for what was then a world record for solar power prices. Spanish company Enerland bid 10 MW of solar PV at just €11.14/MWh. In total, the tender awarded 670 MW of new capacity, of which 315 MW will be coupled with storage.

With just over 1 GW of solar installed as of 2020, Portugal plans to boost this to 9 GW by the end of the decade. Solar power could then be generating close to a fifth of the nation’s electricity with potential for much more by 2050, when, along with other European countries, Portugal is targeting net zero carbon emissions.

Hydropower backbone

But shock, horror, Portugal is not always sunny! The winter months, particularly in central and northern Portugal, are wet, but this too has been put to good use.  The backbone of Portugal’s electricity system are its 17 large hydroelectric plants, comprising more than 7 GW of capacity, situated on mainly east-west running rivers that flow into the Atlantic Ocean. Four of these have pumped storage capacity, totalling 2.8 GW, adding an essential element of flexibility to the system.

Moreover, by 2024, Portugal should complete the new three plant Tamega hydro complex in the country’s north. The hybrid project, which includes 300 MW of wind, will add 1.16 GW of capacity and include pumped hydro. Three hydro plants are under construction, Gouvaes, Daivoes and Alto Tamega, on the Tamega and Torno rivers, making a substantial addition to baseload generating and storage capacity.

Wind boost

Portugal is only starting to scratch the surface of its super-low-cost solar potential, but it is onshore wind that has made the biggest difference to the country’s energy mix in recent times.

Onshore wind capacity has risen since 2003 to reach 5.24 GW at the end of 2020, when wind output equalled that of hydro power. In the previous three years, wind generation in fact exceeded hydro, but the rate of expansion has slowed since 2013, following the end of a feed-in tariff for renewable energy generation.

Offshore wind

However, a new wind boom could be in the offing. Portugal has long shown an appetite for innovation, being the site of pioneering wave power projects, and now being one of the world’s first countries to install a floating offshore wind farm. The country has coastline in abundance, but the seabed falls away steeply from shore into the deep Atlantic, providing little scope for conventional fixed-bottom installations. Floating offshore wind provides the remedy.

The WindFloat Atlantic project uses a semi-submersible foundation to host three 8.4 MW MHI Vestas turbines at site 20 kilometres off the coast of Viana do Castelo. According to the developers, the project has performed well above expectations in its first year of operation.

With multiple new floating offshore wind concepts coming to market, Portugal’s windy Atlantic coastline offers a new layer of dependable renewable power to the country’s already high level of clean energy production.

Seasonal change

However, seasonal variability is a key challenge for Portugal. Solar may power up from April to October, but declines over winter. The country’s hydro reserves and flow through run-of-river hydro plants builds from November, but is depleted across the summer, while wind power picks up in winter and tends to decline later in the year.

Typically, over the course of a year, hydro will provide about a fifth of the country’s electricity, but in the first quarter of 2021, highlighting its seasonality, hydro generated 44%, wind 28%, biomass 5.6% and solar 2%, relegating fossil fuels to less than 20%.

Portugal's renewable electricity generation, in TWh

source: BP Statistical Review of World Energy 2021

But, as winter approaches, it is possible to cross the Zezere river upstream in Central Portugal, between the Bouca and Castelo de Bode hydro plants, without getting your toes wet. Moreover, climate warming poses a significant threat to Portugal’s electricity system. Reduced rainfall can have a big impact on hydro production and limit the ability of pumped hydro stations to provide system flexibility.

Portugal is also one of the most forested countries in Europe, and wood burning is the largest source of renewable heating, but hotter temperatures, among other factors, are resulting in a high incidence of wildfires, which consume useful biomass and damage electrical transmission infrastructure.

Fossil fuels in retreat

Currently, seasonal flex is addressed by gas-fired plant, powered predominantly by Liquified Natural Gas (LNG), pipeline gas imports from Spain and electrical interconnectors.

In line with the government’s environmental targets, coal is all but gone. The country’s last coal plant is scheduled to close in November. Coal-fired generation has been pushed out of the energy mix as a result of higher carbon prices under the EU Emissions Trading System and the progressive removal of exemptions for coal from Portugal’s carbon and energy products taxes.

Starting from April 2020, gas-fired electricity generation also faces the steady elimination of energy product and carbon tax exemptions, which will favour the deployment of renewables, although gas is expected to remain part of the energy mix until at least 2040.

Electrification challenge

Filling the gap will be a much-expanded renewables sector and increased reliance on electrification. Renewables by 2050 are expected to cover 86-88% of final energy demand and 100% of electrical generation, while electricity will meet 66-68% of final energy demand up from 25% in 2019, amid major reductions in consumption overall, owing to energy efficiency measures.

As such, the real challenge for Portugal may not lie in the availability of renewable energy resources, but in their connection, transmission and distribution. Banking on a high level of electrification in a country where electricity prices are high may prove a big ask of consumers.

In the first half of 2020, Portugal had the eighth highest household electricity prices in the EU, despite relatively low income levels by EU standards. 67% of the retail price is made up of various tariffs and taxes, while, for industry, tariffs and taxes account for 58%. High electricity costs disincentivise electrification.

Moreover, for generation developers, grid connections have been and remain a stumbling block, owing to a lack of availability and complex licensing procedures. The success of Portugal’s world beating solar PV tenders in no small part reflected the inclusion of guaranteed network connections.

The country has also seen a growing amount of capacity connected directly to the distribution system, rather than to high voltage transmission. The International Energy Agency reports that 5.9 GW of capacity, about 25% of total installed capacity, was connected to the distribution system in 2019, almost all of it renewable energy.

In rural areas, in particular, power quality can be an issue, with variable voltage levels interrupting residential users’ ability to export power to the distribution grid, for example. Outages are also not uncommon, reducing consumers’ willingness to invest in electrically-powered products.

Expanded renewable energy capacity, from multiple technologies with overlapping generation profiles, enhanced energy storage and energy efficiency are all critical elements in Portugal’s net zero ambitions, which should provide not just a clean energy system, but an end to the country’s high level of import dependence on fossil fuels.

However, the central role played by electrification means Portugal must somehow square the circle between the costs of electricity grid investment while keeping electrical supply affordable for its citizens.

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