Trade Winds, Sound Policies Push Portugal to the Renewable Energy Forefront

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Portugal wind farmTypically, the Scandinavian countries and Germany have set the example in the European renewables field. Yet lately, a Southern country - Portugal - has attracted attention after delivering its National Renewable Energy Action Plan to the European Commission this June.

Portugal has made dramatic changes in its energy policy over the last five years under the government of Prime Minister José Sócrates. The country's installed renewable energy capacity more than tripled between 2004 and 2009, from 1,220 megawatts (MW) to 4,307 MW, and renewables now represent roughly 36 percent of electricity consumed. Portugal currently ranks fourth in Europe in energy production from renewables.

Of course, Portugal benefits from favorable conditions for renewables: a strong wind resource, great hydropower, good tidal waves potential, and a high sunshine rate. After the country removed several dams in recent years, Sócrates' government has focused instead on wind power development, under most conditions the cheapest renewable energy source after hydropower. With more than 600-percent growth in wind energy production between 2004 and 2009, Portugal now ranks sixth in Europe in total installed capacity and third in capacity per capita, behind only Denmark and Spain. Some even expect Portugal to overtake its neighbor Spain in per-capita wind energy production as early as this year.

Additionally, Portugal is starting to exploit its solar potential. A photovoltaic (PV) power station located in Moura, operative since 2008 and expected to be fully completed by the end of 2010, will count among the world's largest solar farms. But despite a great progression of installed PV capacity in Portugal (from 1 MW in 2000 to 75 MW in 2009), solar power still lags far behind wind's installed capacity of 3,353 MW. Portugal also deploys other renewable energies, albeit at a much smaller scale. Biomass and biogas represented 3.2 percent of total consumed electricity in 2009, and the world's first shoreline wave power plant has been operating since 2005 on the island of Pico in the Azores, with 400 kilowatt-hours (kWh) of capacity.

How did Portugal assume such impressive leadership in the clean energy transition? The key, as usual, lies in ambitious supportive policies. Prior to 2000, Portugal's transmission lines were owned by private power companies that had no interest in investing in renewables, as the deployment of these technologies would require radical changes in the grid infrastructure and therefore raise costs. To address this barrier, the government bought the lines and began adapting the grid to renewables requirements, including more flexibility and a better grid connection in remote areas to allow the production and distribution of electricity from small generators, such as domestic solar panels.

A combination of incentives was implemented to attract investors. Feed-in tariffs (FIT) - which guarantee producers of renewable energy a specified price for every megawatt-hour of power fed into the grid - were first introduced in Portugal in 1988 and have increasingly evolved into a highly sophisticated system with individual prices for each renewable energy source. The latest tariff stipulations, issued in 2005 and 2007, take into account environmental considerations, the level of technology development, and the inflation rate. The government also integrated new technologies such as Concentrating Solar Power (CSP) and tidal power into the system.

Today, all renewable energy sources in Portugal wil benefit from the feed-in tariff for 15 years, and small hydropower prices are guaranteed for 20 years. The tariffs vary from around 7.5 Euro cents (around 9.5 U.S. cents) per kWh for wind and hydro to more than 30 Euro cents (38 U.S. cents) per kWh for photovoltaic energy. Renewable heating and cooling is also supported under conditions by financial and fiscal incentives, largely for the benefit of small and medium-sized enterprises.

The European Commission plays a decisive role in setting targets for each Member State via its 2009 Renewable Energy Directive. Portugal is expected to reach a 31-percent share of renewable energy in its gross final energy consumption by 2020. Also, the European Emission Trading Scheme (ETS) encourages participating countries to cut their emissions of greenhouse gases and therefore move from fossil fuels to renewables, by requiring energy producers and energy-intensive companies to meet strict carbon dioxide emissions targets and to purchase additional permits for overshooting them.

 According to the International Energy Agency (IEA), Portugal became a net power exporter last year, delivering a small amount of electricity to Spain. Inspired by these good results, Portugal set more ambitious targets in its National Energy Strategy (ENE 2020), adopted by the Council of Ministers on April 15. The country now aims to reach a 45-percent renewables share in its electricity production by the end of the year, and a 60-percent share by 2020.

The main focus of Portugal's renewable policy will remain on wind power, a dynamic industry that represents a source of revenue and creates green jobs. The electricity operator Energias de Portugal even invests in wind farms located in the U.S. Midwest.

Prime Minister Jose Socrates' government wants to improve the reliability and efficiency of Portugal's renewables supply. Renewable energy production is often challenged by natural flows-including the common criticism that the sun does not always shine and the wind does not always blow, even in Portugal. By the end of the year, the government will set up a system to monitor on-going energy demand and potential supply from various available renewable sources.

What is driving Portugal to undertake such changes? One factor, of course, is the fact that the country does not possess any noteworthy fossil fuel resources, as illustrated by 2007 IEA data. Yet in 2005, the bulk of Portugal's gross electricity was generated by three fossil sources: coal (32.7%), natural gas (29.2%), and oil (18.9%). The country is therefore heavily dependent on imports that place a high toll on the national budget - amounting to 86 percent of spending in 2006, according to the European Renewable Energy Council (EREC). In its ENE 2020 strategy, Portugal aims to reduce fossil fuel imports 70 percent by 2020 and cut its energy import balance 25 percent, saving some US$2.55 billion.

In order to address initial local conflicts due to the financial costs of intense development of wind power plants, a unique mechanism has been set up. Under the current feed-in tariff legislation, municipalities that host wind farms benefit from additional financial support in the form of a 2.5-percent share of the monthly remuneration paid to local wind project operators.

Overall, the IEA's Shinji Fujino tells the New York Times, "So far, the [renewable energy] program has placed no stress on the national budget."

Alexander Ochs is director of the Climate and Energy program at the Worldwatch Institute and Camille Serre is a research intern with Worldwatch. They can be reached at aochs@worldwatch.org.

This article originally appeared on the Worldwatch blog ReVolt. For permission to republish this report, please contact Cristina Adkins at cadkins@worldwatch.org.