IEA commends Portugal’s energy investment

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Agency commends cuts to fossil fuel dependence, approach to sustainability and early work on hydrogen power.

Portugal’s plans for a carbon-neutral economy are well-balanced and supported by a sustainable approach to its Covid recovery stimulus. That is the verdict of the International Energy Agency (IEA) in its latest review of the country.

In its first assessment of Portugal’s energy sector since 2016, the IEA has welcomed Portugal’s energy and climate policies, saying they set a pathway to carbon neutrality primarily through broad electrification of energy demand and a rapid expansion of renewable electricity generation.

Portugal was among the first countries to set a carbon-zero target for itself and more recently the government has embedded energy investment in its Covid recovery plans, placing it amongst better performing countries in that regard.

In March 2020, Portugal announced a €9.2bn stimulus package that took actions to improve energy sector sustainability, fast-tracked over two-hundred solar-power projects, funded public transport and introduced a financial support programme for building energy efficiency measures – a programme that proved highly successful and has now been renewed for the coming years.

Portugal is also set to benefit from EU funding worth €610m for additional energy efficiency and renewable energy in buildings, and €185m to support 264 megawatts (MW) of renewable gas production – based on hydrogen and biomethane. The EU has estimated that Portugal’s recovery and resilience plan, along with other measures taken by the government, should result in strong recovery from the pandemic, with GDP increasing by over 8% through 2021 and 2022, suggesting that sustainable energy-focused stimulus programmes work.

IEA executive director, Fatih Birol, commented: “Its roadmap for carbon neutrality shows a strong commitment to electrifying its economy and ensuring a secure and affordable energy transition. The IEA looks forwards to supporting the Portuguese government as it works on a fair and inclusive transition to a carbon-neutral economy.”

Portugal’s economy will remain heavily reliant on imported fossil fuels for some time to come, though it is hoped that an effective auction process for renewable energy projects will result in almost two gigawatts of new renewable generation coming online in the next few years, tripling Portugal’s capacity.

The government is also pushing to reduce oil demand and associated emissions through transport decarbonisation, with over $10bn of investments in electrified rail and public transport underway, favourable tax treatment for electric vehicles, and support for charging infrastructure – but it has a long way to go to match the progress already made by some other countries on transport.

Portugal also sees a key role for hydrogen produced from renewable energy in hard-to-decarbonise sectors. Its National Hydrogen Strategy sets a goal for hydrogen produced from renewable energy to cover 1.5-2% of Portugal’s energy demand by 2030. But despite the positive report, Portugal’s climate and energy goals still face real challenges.

The IEA warns that it still needs to establish a broad stakeholder alliance to drive rapid implementation and to provide investor certainty that the present policy direction is long term. It also suggests that Portugal must do more to enhance its electricity retail market competition by removing barriers to entry for new players and facilitate market innovations that incentivise reduced demand.

Interconnectivity is also another challenge, with a need for better energy connections not only between Portugal and Spain, but between the Iberian Peninsula and the rest of Europe. Achieving that would help to better manage peaks and troughs in demand more sustainably.

The full IEA report can be read here.