BMI View: Portugal's economic situation is slowly improving, but the after effects of the global economic crisis, and Portugal's own recession, which only ended at the end of 2014, continue to affect growth in the country's power sector, which will remain slow during the next ten years. In early 2015, Portugal began making early repayments on the loan it borrowed from the IMF in 2011, increasing investor confidence in the market. This resulted in the upgrading of state utility Energias de Portugal (EDP) and state grid company Redes Energeticas Nacionais (REN), to investment grade status, allowing both to sell bonds and reduce their considerable debt. This signifies that investor confidence is gradually returning, although BMI believes growth in the country's renewable sector will not return to pre-economic crisis levels before 2024.
That said, Portugal's recent history, aided by strong government direction on renewable policy, has seen considerable investment since 2001. In consequence, generation from renewable sources will account for some 29.17% of total power output in 2015, a figure which will remain steady, reaching 29.5% in 2024. Despite sluggish growth in the renewable sector - BMI forecasts growth between 2016 and 2024 to be 1.6%, slightly less than the previous quarter's 2% estimate - renewable generation will continue to play a key role in the country's energy matrix.
Wind power generation continues to dominate as a government focus, although BMI forecasts wind capacity to grow by just 1.52% between 2016 and 2024. In 2015, generation from wind power will be 13.35TWh, equivalent to 77.42% of non-hydro renewable potential. BMI forecasts this figure to increase to15.3TWh by 2024.
Solar power will only account for 1.27% of non-hydropower renewable output in 2015, equivalent to 0.64TWh. BMI forecasts this figure to increase slightly during the period 2016 to 2024, reaching 3.72% by 2024, equivalent to1.52TWh. Due to a lack of government focus on the technology, solar will not challenge wind as a dominant generation source, despite high levels of insolation in the country.
Portugal also has some generation from geothermal, which in 2015 will be 25MW, and is scheduled to increase to almost 36MW during 2016, and biomass, which will produce 3.10TWh in 2015, and is forecast to produce some 3.99TWh by 2024. Neither technologies, however, are focuses for the Portuguese government.
Since 2001, Portugal's green energy agenda has been governed by the country's adoption of the E4 Programme (Energy Efficiency and Endogenous Energies). This set Portugal's renewable energy targets at a 39% share by 2010, and a 31% share by 2020. Owing to Portugal's recession and the accompanying collapse of investor confidence in the market, Portugal missed its 2010 target. BMI forecasts the country will miss its 2020 target also, although only by half a percentage point if measured in terms of installed capacity. If measured in terms of output, Portugal will exceed this target by more than six percentage points.
Key Trends And Developments
Both REN and EDP had their investment ratings upgraded in 2015 to investment grade, an indication of gradually increasing confidence in the sector. Both companies successfully sold ten year bonds in the first part of the year, of EUR300mn and EUR750mn respectively, representing a substantial contribution to debt repayments. Enel Green Power, EDP and Portuguese Generg's Eolicas de Portugal ENEOP announced in March 2015 it had completed its project to install 1.3GW of wind power in the country. The project has been ongoing since 2006 and cost a total of EUR1.6bn (USD1.7bn).
In August 2015, EDP-Renovaveis was cleared to proceed with a buy in of 613MW's worth of wind farms from ENEOP, representing 12 wind farms. The transaction is scheduled to close in coming months.
In May 2015, Irish company Island Renewable Energy announced it planned to construct a 50MW wind park in Portugal. The project is seeking finance from the European Central Bank.
In July 2015, the European Investment Bank said it was considering providing finance for an experimental floating wind power project in Portugal. The project received approval from the European Commission in April 2015.
In August 2015, the Portuguese government extended the deadline for companies which had received generation licences for biomass projects for completion until 2018. The projects were originally tendered in 2006, and represent a total of 100MW. The government had already granted one extension in 2012.
We expect the 12MW Pico Alto field geothermal project on Terceira Island to come online in 2016.