Portugal and the offshore technologies: What lies ahead

The path taken by the Portuguese Government

The Portuguese Government has approved the following instruments to enable the development of offshore technologies, one of the priorities of the country's strategy to decarbonise the economy

1. The path taken by the Portuguese government dates to 2016, with the publication of the "Roadmap for an Industrial Strategy for Renewable Ocean Renewable Energy", aimed at the creation of an integrated vision of the development of the value chains that should support renewable energies (offshore wind and wave energy).
2. The next step was the approval of the Industrial Strategy and Action Plan for Ocean Renewable Energy (EI-ERO) through Council of Ministers Resolution no. 174/2017, on November 24 2017 which recognised the potential of Portuguese offshore technologies. The aim was to supply 25% of the electricity consumed in Portugal each year whilst at the same time an enormous export hub would be created generating, 280 million Euros in added value, 254 million Euros in investment, and 1500 new jobs.
3. By 2018, Portugal had already tested three offshore renewable energy technologies, on the coast of Peniche (Waveroller project led by AM Energy), in the Aguçadoura area, in the hands of EDP (Windfloat project) and the manufacture by Portuguese companies of the Corpower wave technology.
4. Later, in June 2022, during the United Nations Oceans Conference, held in Lisbon, the Portuguese government publicly announced the ambition to reach an installed capacity of offshore wind of 10 GW in 2030, to be allocated through competitive procedures, such as auctions.
5. This declaration was followed by the state assuming responsibility for the delimitation and evaluation of specific areas for the development of offshore Renewable Energy System projects, for which, in September 2022, a working group was created, bringing together the Ministry of the Sea, Energy and Infrastructures, with the mission of presenting, by May 31 2023, a report setting out:
   1. the grid connection points to be assigned to the generating centers;
   2. the indicative powers to be allocated in the competitive procedures for the attribution of the necessary titles of reserve capacity for injection into the grid (known as "TRC") and the associated titles of use of maritime space (so-called “TUPEM”);
   3. the procedure by which these titles should be allocated;
   4. the technical and investment model for the development of the electricity and port infrastructures necessary for the centers to come into operation.

An insight into the Portuguese offshore wind auctions

a) What has already been disclosed?

The year 2023 started with positive news, with January being the month where a preliminary proposal of the specialised areas for implementation of offshore wind renewable projects, prepared by the above-mentioned working group, was submitted to public consultation. However, it was in May that a decisive step was taken regarding offshore wind auctions, with the official announcement, by the Secretary of State of Energy, that the first offshore wind auction should be launched by the end of September this year.

It was also on the 31st May that the working group has published the report that should define the most important elements of the auction announced.

According to the information released so far, these are the main features of the Portuguese offshore wind auctions:

1. The procedure of allocating reserve capacity for offshore wind technologies will be gradual, with not just one, but several auctions expected to be launched over the next few years;
2. The first auction, which is still supposed to take place in 2023, is expected to target areas in the North of the country (such as Viana do Castelo and Figueira da Foz), recognised as those with the best conditions for offshore wind production;
3. The procedure aims for projects with a total installed capacity of more than 1 GW and shall comprised 4 lots of 500 MW each, in a total of 2 GW;
4. This auction shall have as its purpose, the award of some of the rights and licenses that the applicable legislation determines as necessary for these kind of projects, such as (i) the above mentioned TRC and (ii) the TUPEM, a title that will allow the use of the public maritime space delimited for the implementation of the projects;
5. The winners will be required to build floating wind farms with turbines installed in deep sea, where winds are strong enough to harness more energy than conventional structures onshore;
6. Therefore, after the results are announced, the next phase will be (i) the preparation of the projects, (ii) the procurement and supply of the necessary materials, (iii) obtaining of the applicable environmental authorisations (iv) obtaining a production license, and, finally (v) the completion of the construction of the wind farms, which is expected to occur around 2028;
7. Despite the Government’s urgency, the winners of the first areas made available in this first auction should only be known in 2024.

b) What we still expect to find out?

Several international market agents have already shown interest in developing offshore wind projects in Portugal, and some Portuguese companies have already signed partnership agreements to jointly explore potential opportunities in the context of the first auction to be launched by the Government.

The interest already shown is expected to increase as soon as the report of the working group, delivered to the Government on 31 May, is released.

In fact, this report should clarify crucial aspects of the auctions, such as the (i) auctions schedule and concrete date of launch, (ii) the way of awarding the titles and the design of the procedure, confirming whether an electronic bidding phase will be adopted, as in previous solar auctions, and if the winners will be required to conclude, with the port administrations, concession contracts, (iii) how the injection of the produced electricity into the grid will be remunerated by the government and its duration, (iv) the value of the guarantees to be provided to the Portuguese State, (v) how the port infrastructure will need to be reinforced to enable the production, storage, maintenance, and ultimately the decommissioning of the components necessary for the construction of the wind farms, and (vi) what environmental requirements will be imposed on the projects.

With the country eager for offshore wind energy, it is hoped that this report will not be late in coming out.

Lessons learned from previous international tenders

a) Germany – uncapped negative bidding

On 12 July 2023, the German regulator Bundesnetzagentur announced the outcome of its biggest offshore wind auction ever, where 7 GW of new capacity in the German North and Baltic Sea was awarded. The successful bidders paid an aggregate amount of EUR 12.6 billion for the entitlements to build the offshore wind farms. Furthermore, on 10 August 2023, the German regulator Bundesnetzagentur announced the outcome of the second offshore wind auction with a new capacity of 1.8 GW in the German North Sea. In this auction, the successful bidders paid an aggregate amount of EUR 784 million. The second auction adopted a different regime to the first auction, as it also comprised qualitative criteria such as the decarbonisation of offshore development and the use of environmentally friendly foundation technologies.

The outcome of both auctions shows the high level of interest in the market in offshore wind assets. However, the outcome is also highly disputed in Germany. Main concerns, especially with regard to the first auction, are that some bidders may have only reserved the sites and may come back to the German government asking for financial support should their financial expectations not be realised.

b) UK – CfD approach

On 8 September 2023, the UK Government announced that zero offshore capacity was awarded in latest auction as no developers showed interest in the auction. The auction was based on a contract for difference (CfD) scheme including a price cap of GBP 44 per MWh. Developers were of the opinion that with this cap it was impossible to recover their investment costs and therefore no bids were submitted.

c) The Netherlands – Qualitative requirements

The Netherlands has a substantial history of tender processes for offshore wind parks, and it aims, with each tender round, to increase requirements such as ecology and system integration. It has recently issued a new tender round following which bids are expected at the latest by 28 March 2024.

Under the tender scheme, the Dutch government provides the bidders with information on the sites that are up for tender. The bidders have to submit a bid that contains qualitative requirements together with a financial bid. This allows the government to set minimum criteria that have to be met such as the above mentioned ecology and system integration requirements. One interesting difference with the previous tenders is that the amount of the financial bid is significantly increased, from EUR 50 million up to EUR 420 million. This amount is payable by the developer each annum.

Several developers have shown interest, 28 March 2024 will show whether the tender will be successful.

This article is a collaboration between Bird & Bird and Servulo and will be part of a series of informative pieces on the offshore wind sector in Portugal as it gears up for investment over the coming months. If you have any queries regarding your involvement in the offshore wind sector in Portugal, please get in touch with the authors: Sophie Dingenen and Lars Kyrberg at Bird & Bird and Mark Kirkby and Isabel Guimarães Salgado at Sérvulo.