By Fitch Solutions

Key View

  • The Portuguese Solar sector will lead renewables growth in the market over the coming decade with a surge in investor confidence.
  • We expect low-carbon green hydrogen to play a growing role in supporting new renewable capacity growth as the market looks to expanded production and utilisation of the gas.

The solar sector will lead renewables growth in Portugal over the coming decade resulting from a surge in investor confidence. We forecast the solar sector will add 3.1GW of capacity additions between 2021 and 2030 – accounting for 78% of total net capacity additions within the market over the same timeframe. As such, installed solar capacity is set to reach 4.4GW by 2030. While this means that Portugal is set to still fall well short of its 9GW target, we have made improvements to our outlook towards the latter half of the decade as a result of increasing investor interest, developer involvement and the unveiling of new auctions. This growth will result in solar output tripling to just under 7TWh, representing 11.6% of total power generation by 2030.

Supporting our positive growth outlook, towards the end of 2021 the Portuguese government announced the opening of a floating solar auction with 263MW of capacity available across seven dams. The deadline for proposals has been set for Q122 and will see power production awarded in 15-year power purchase agreements (PPA’s). Additionally, Lightsource BP has partnered with INSUN to co-develop five solar projects in Portugal with a combined capacity of 1.35GW. Lightsource plans to invest EUR900mn (USD1.1bn) in the facilities over a period of six years. The solar facilities, currently in early development phase, will come up in the Moura, Castelo Branco, Mogadouro, Chamusca and Viseu regions. More recently, over December 2021, Lightsource announced that they would be developing a 130MW project with Portuguese gas utility Dourogas. The project will see the direct supply from a new 200MW solar farm dedicated to hydrogen production.

We expect low-carbon green hydrogen to play a growing role in supporting new solar capacity growth as the market looks to expanded production of the gas. The solar sector will also be boosted from combined solar and storage systems as network operators seek to mitigate the impacts of renewable growth in isolated regions. Hybrid solar and hydrogen projects are taking shape in the market with Spanish power utility Endesa having proposed a renewable energy project for the Medio Tejo region in Portugal. The EUR582mn project includes the construction of a 650MW solar photovoltaic (PV) farm, 100MW of battery storage capacity and an electrolyser with an annual green hydrogen production capacity of 1,500 tonnes, which will be sold to industrial clients in Medio Tejo. Additional project developments which could benefit the solar sector include:

  • Portugal’s power utility, EDP, has unveiled plans to convert its 1.2GW coal-fired power plant into a green hydrogen complex in Sines, Portugal. The proposed facility will feature 200MW of renewable capacity, 100MW of electrolysers and a research and development centre. Oil refine Repsol is likely to purchase output from the hydrogen hub, which is likely to be operational in 2025.
  • EDP has announced further targets to develop 1.5GW of hydrogen power generation capacity by 2030. This initiative would see the looping hydrogen back into a power production system and is mirrored by 27 other major global energy firms. This is seen to be a key step in the low carbon energy transition as variability from renewable power generation could be offset with stable hydrogen based baseload power supply.

Portugal ranks relatively highly at 24th on our Green Hydrogen Suitability Index – coming in above many large markets. This is due to the greater balance of industry risks and rewards surrounding the sector’s development as outlined below. The North America And Western Europe (NAWE) region contains some of the most suitable markets globally for the development of green hydrogen. The Index’s assessment of green hydrogen development suitability is scored out of 100, with the higher the score indicating a more favourable balance of risks and rewards. The index combines Fitch Solutions Non-Hydropower Renewables forecast data to form the Renewable Industry Rewards as well as our economic, political and operational research teams’ assessments to form a Country, Project and Industry Risk profile. Furthermore, we include 33 industry-dependent indicators to assess current and future demand for hydrogen as well as capture existing technical expertise.

Our assessment is confirmed by the elevated level of development activity behind the sector. In addition to the above-mentioned projects, joint-venture between Iberdrola and H2 Green Steel (H2GS) plans to build a 1GW electrolysis plant in the Iberian Peninsula, occupied by Spain and Portugal. The estimated EUR2.3bn (USD2.59bn) project, producing 2mn tonnes per annum of direct reduced iron (DRI) using green hydrogen, will be funded using a mix of public funding, green project financing and equity financing. Iberdrola will deliver renewable energy, while H2GS will own and operate DRI production and downstream green steel production processes. Operations for the project are scheduled for 2025 or 2026. Iberdrola has taken a deeper interest in the Portuguese power market with the collaboration with Spanish solar developer Prosolia to invest USD0.9bn in four solar facilities with 1.1GW targeted for Portugal by 2025.

Some downside risk is presented to the market’s solar outlook following with the rejection of the latest national budget and subsequent government collapse in late October. Notably, our Country Risk team expects that these issues will complicate Portugal’s post-pandemic economic recovery in 2022. Furthermore, we at Fitch Solutions have revised down Portugal’s score in our proprietary Short-Term Political Risk Index from 72.1 to 69.6 to consider rising political uncertainty ahead of the snap elections scheduled for January 2022. We highlight that these issues could impact the dispersal of the EU’s recovery and resilience funding. The EU has endorsed the country’s plans for EUR16.6bn in funding over the 2021-2026 period with 38% of its total allocation aimed at supporting climate-based objectives.

The article has been sourced from Fitch Solutions and can be accessed here