Energy storage trends - Spotlight on Portugal

On 10 July 2020, the Portuguese Government approved the National Energy and Climate Plan through Council Ministers Resolution no. 53/2020. The plan will shape Portugal’s energy and climate policy from 2021-2030 and sets the long-term objective of decarbonizing the economy by the end of 2050. In this regard, the industry recognises the importance of maintaining adequate levels of service and security of supply.

Now that Portugal is increasingly decommissioning fossil fuel plants, the need to ramp-up the growth and expansion of renewable installed capacity is being brought into sharper focus. Similarly, the need to invest in suitable alternatives and instruments to optimize renewable capacity is also becoming increasingly important.

As such, the Portuguese energy industry recognises the crucial role in which energy storage can play in the energy transition in order to properly integrate renewable energy generation into the grid.

The co-location of energy storage systems with existing generation, especially renewable plants, has been growing rapidly in recent years. For example, the auctions launched by the Portuguese State between 2019 and 2021 awarded capacity to projects which sought to deliver renewable power into the public service grid and which planned to co-locate storage systems alongside renewable generation. In order to attract further investment and speed-up implementation, the new legal framework, which was published in the beginning 2022, provides a framework for standalone energy storage, subject to the previous control procedure, and to be owned by third parties who are separate from the power plant developers.

Below, we provide an overview of the legislative framework and some of the issues that should be considered by operators interested in investing in the energy storage sector in Portugal.

Energy law and regulation

Decree-Law no. 15/2022, of 14 January (the “Decree-Law”), establishes the organization and operation of the National Electricity System (“SEN”) and applies to production, storage and self-consumption activities, amongst others. The Decree-Law implements the national strategy for decarbonization, namely the Energy and Climate National Action Plan.

Article 3 of the Decree-Law defines energy storage as “the transfer of the end use of electricity to a moment subsequent to its production through its conversion into another form of energy, namely chemical, potential or kinetic”.

Pursuant to article 11 of the Decree-Law, specific authorization procedures will be required depending on (i) the power capacity of the production plant to which the storage facility is connected, (ii) the type of storage (standalone or co-located), and (iii) the type of energy source (fossil or renewable) powering the production plant. Broadly, the construction of a new storage facility may be subject to:

1. a production licence (licença de produção) along with an operating licence (licença de exploração);
2. prior registration (registo prévio) along with an operating certificate (certificado de exploração); or
3. prior communication (comunicação prévia).

Prior registration is carried out through an electronic platform and follows several procedures. After registration of the applicant on the platform, the Distribution System Operator has 20 days to issue a statement on technical conditions for connection to the grid. Prior registration may be refused by the DGEG within 30 days after the issuing of this statement or after the 30 days, when it is found that the legal requirements for the exercise of the activity have not been met. After this period, proof of previous registration is issued, and the applicant can install the equipment. Finally, the competent authority performs an inspection to verify compliance with legal standards and issues the operating certificate, authorizing connection to the network.

The prior communication procedure is carried out through an electronic platform. After filling in a form, proof is automatically issued, enabling the interested party to proceed with the installation. When the injection of electricity into the RESP is planned, the DGEG requests the DSO to indicate the connection conditions to the RESP, within 30 days after obtaining proof of submission of the prior communication.

Storage systems subject to the production and operation licence are those:

1. to be co-located with a fossil fuel power generation plants;
2. to be co-located with renewable plants for total injection into the public electricity network (“RESP”) or with a self-consumption facility with a capacity higher than 1 MW;
3. standalone storage systems with a capacity higher than 1MW; and
4. subject to the environmental impact assessment procedure.

Storage systems subject to prior registration along with an operating certificate are those:

1. co-located with renewable plants for total injection into the RESP or with self-consumption facility with a capacity less than or equal to 1 MW;
2. co-located with a self-consumption facility with a capacity higher than 30 kW and less than or equal to 1 MW;
3. standalone storage systems with a capacity less than or equal to 1 MW; and
4. associated with research and development projects or with the demonstration and testing of technologies, products, services, processes and innovative models, in the scope of production, storage and self-consumption activities with a capacity exceeding 30 kW.

Those subject to prior communication are storage systems:

1. co-located with self-consumption facility with a capacity exceeding 700 W and less than or equal to 30 kW; and
2. associated with the activities referred in (b) with a capacity exceeding 700 W and less than or equal to 30 kW.

Under article 80(2) and article 110(4) of the Decree-Law, the Transmission System Operator and the Distribution System Operator may own and operate storage facilities, if they are primarily intended to provide system services that ensure the security of the system and the reliability of the networks.

Environmental and planning law

Like any other energy production plant, the construction of energy storage facilities may also require compliance with environmental assessment rules and procedures.

Therefore, if the storage facility is co-located with a new power production plant, the environmental aspects relating to the storage facility and the production plant will assessed together.

Decree-Law n.º 151-B/2013 establishes the legal regime for environmental impact assessments (“EIA”) to be carried out for public and private projects deemed likely to have significant effects on the environment. The competent authority in this procedure is the Portuguese Agency for the Environment. A decision following the EIA is necessary before the licensing or authorisation of projects can proceed. Storage facilities that are not covered by the provisions of this Decree-Law shall be, when the applicable legislation expressly determines, also subject to an environmental impact analysis procedure.

Depending on the renewable plant that any storage facility is co-located with, it may also be necessary to obtain other permits. For example, a water resource use title may be required pursuant to Decree-Law n. º 226-A?7 and Decree-Law and Law n. º 58/2005.

In relation to planning, the Municipals Plans, approved by municipalities, establish the framework for land use and need to be considered.

Property law considerations

The first step in the construction of a new storage facility is to secure the proper use or rights over the land where the installation is to be developed. Under Portuguese law, various options are available to do this. The four most common ways to secure plots of land are:

1. Lease agreements;
2. Surface rights;
3. Sale and purchase agreements; or
4. Operating lease (cessão de exploração), in case of common land.

Contract design and corporate law issues

The contract design depends on the storage facility.

The integration of a storage system facility into an existing power plant or a plant that is under development follows the same contractual mechanism used for the development and operation of the energy production plant (e.g., EPC and O&M contracts), as the rules and technical prescriptions governing the storage facility must be coordinated with those regulating the production plant. If the storage facility is to be exercised autonomously, an SPV will be required to develop and maintain the storage system.

Storage projects are remunerated according to market rules, as the production facilities that inject electricity into the public network.

Public Procurement

The implementation of energy storage projects by public entities is subject to public procurement rules, requirements and related regulations. The Portuguese public procurement legal framework is established by the “Public Contracts Code” (“PCC”), approved by Decree-Law no. 18/2008, of 29 January, that has transposed the EU procurement directives 2014/23/EU, 2014/24/EU, 2014/25/EU, of 26 February, and 2014/55/EU, of 16 April.

The PCC sets out both the public procurement procedure rules and also the legal framework applicable to the performance of administrative contracts.

The PCC is applicable to contracting authorities, including the Government, local and central bodies and administration services, autonomous regions, municipalities, public foundations, independent administrative authorities, bodies governed by public law, public associations, or associations financed or controlled by these entities. The PCC is also applicable to contracting entities, including public and private entities operating in the utilities sector, i.e., water, energy (gas, thermal energy; electricity), transport services, and postal services. The PCC requires that these entities conduct open procurement procedures for supply, service or works contracts, ensuring that a private contractor is selected in fairly and through a non-discriminatory process.

In relation to the utilities sector specifically, a private company will be subject to public procurement law if:

1. it carries out utilities-related activities on the basis of special or exclusive rights; or
2. a public contracting authority exercises a controlling influence, either directly or indirectly, over the company,

and provided that the contractual price of the supply, service or works exceeds than the relevant EU thresholds.

In addition, the PCC also applies to private entities that enter into contracts for works or associated service contracts in which more than 50% of the contractual price of the project is directly financed by a contracting authority and the value of the contracts exceeds than the relevant EU thresholds.

It is advisable, therefore, to consider if the execution of such project is subject to these public procurement rules at the preliminary stages of the development of an energy storage project. This will allow for a proper and effective procurement planning process to be established.

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