Message from the President - May 2022

I begin by addressing the extraordinary measures taken by the Government to contain the rising prices of energy and agri-food. The mechanism resulting from the Iberian proposal to limit the impacts of the gas price increase on the cost of electricity was presented, as well as the suspension of the increase in the carbon tax until June, and its quarterly revaluation by the end of the year without full replacement.

 

Following this announcement, made in April, it was more recently announced that Portugal and Spain have already delivered in Brussels the final version of this wholesale electricity market intervention agreement by setting a reference cost for natural gas that is used in combined cycle power plants. Recently, it was made known that the European Commission has made a positive preliminary assessment of this mechanism.

 

The two countries should set a reference cost for natural gas of EUR 40/MWh, which will progressively rise, so that over the next 12 months the average reference cost is around EUR 50/ MWh.

 

Concerning this subject, it is also worth mentioning the report submitted by the Agency for the Cooperation of Energy Regulators (ACER), which considers that the integration of electricity markets should be accelerated, delivering on all that is already defined in this area.

 

The integration of electricity markets has brought many millions of euros a year in benefits to consumers over the past decade and is therefore a measure to be deepened, alongside the simplification of processes. Another of the measures proposed by ACER is to promote long-term contracts for the purchase and sale of renewable electricity (PPA – Power Purchase Agreements), which can be an advantageous tool for all market agents, promoters, traders, and their customers.

 

European regulators believe that renewable incentives and support should continue to be addressed and strengthened even if mechanisms can be adjusted and improved. Stimulating market making to promote liquidity in markets is another suggestion. The Agency's assessment also highlights the need to enhance consumer flexibility as a security of supply tool.

 

The removal of barriers is another need identified by regulators, who believe that market interventions, induced by strong pressures, should be analysed prudently. ACER advocates less interventionist options whenever possible but admits to temporary measures to cope with excessively high prices, as will happen next year in Portugal and Spain.

 

APREN agrees with the ACER report and recommended that these measures be adopted in our country, as we have announced to the media. Short-term measures should not undermine the long-term climate neutrality objective by 2050. The path should focus more on the much-needed expansion of renewables, and for this it is necessary to simplify licensing processes and all bureaucracy associated with the installation of more renewable power, as well as creating regulatory stability.

 

In fact, and according to the publication Financing and Investment Trends 2021, from WindEurope, around €41 billion was invested in new wind farms in Europe in 2021, creating a new capacity record of 24.6 GW. The same report points out that 19 GW of new projects were funded, well below the 32 GW annually needed to meet the targets. Renewable projects are an attractive investment, and therefore it is necessary to solve the current difficulties.

 

The design of the European electricity market, currently under discussion, should ensure an effective and efficient dispatch of renewable electricity produced, while continuing to be the main mechanism to ensure cost-effective flow of energy from renewable power plants and compliance with electricity contracts. It should also provide for PPAs, as long-term contracts provide security for investors and help unlock investment in renewables, as well as reduce short-term price fluctuations experienced by consumers.

 

An effective market design will also have to look at the existing electricity grid, optimising it. On the one hand, its scarcity should be reviewed and strengthened where necessary, and, on the other hand, the creation of centralised and/or regional electricity network capacity allocation mechanisms for renewables should be promoted, with the inclusion of storage. Energy security must also be considered and have, with the adequacy of current remuneration mechanisms to climate neutrality objectives. These mechanisms should depend on an emissions performance standard from the European Investment Bank (EIB) lending policy standard and decreasing over time.

 

Finally, market design should also focus on the integration of energy systems, and flexibility, creating ancillary services that contain a long-term vision and foster investment in new flexible resources.

 

APREN signed the joint open letter from the European associations EASE, WindEurope and SolarPower Europe which calls on the European Commission to recognise the central role of energy storage in the security of supply of the European continent. This letter aims to create compliance targets by 2030 also for energy storage, promote the development of associated technologies through financing instruments, and create space for this sector in the implementation of REPowerEU and in the discussion of electricity market design.

 

The European Commission has also received another letter, signed by the energy ministers of Austria, Belgium, Lithuania, Luxembourg and Spain, calling for a higher solar ambition at European level. The letter recommends that any EU Solar Law establish solar roofs as "the norm" for all new and renovated buildings, maximise the potential for prosumers, unlock an EU Solar Manufacturing Fund and ensure the workforce needed to implement the transition.

 

The European Commission is launching an REPowerEU action plan on 18 May, detailing the measures already announced. It should include guidelines for each government to simplify licensing processes. In addition, it will bring new legislation that will make the expansion of renewables a matter of public interest, and will require governments to identify go-to-areas for a faster installation of solar and wind farms with simplified licensing.

 

In line with REPowerEU demand and regarding renewable power installation, European wind and solar associations anticipate targets appropriate to the needs of energy independence and security of supply. WindEurope reports that by 2040 Europe will have to have installed 480 GW of wind power, and today has 190 GW installed. On the other hand, SolarPower Europe points to 1 TW of solar in 2030 in the EU.

 

It remains to be seen whether this will be the case, and what will be pointed out with regard to increasing the production and consumption of Green Hydrogen and increasing renewable power to supply security of supply and energy independence.

 

Because Portugal needs our Energy!