Internalisation of Environmental Benefits Concerning Dispersed Generation in the Portuguese

Contributor identification Contribution identification Name António Brito Session 4 Company EDP Distribuição Energia, S.A. Block 1 Address Rua do Brasil, 1 Question n° 3 030 – 075 Coimbra Portugal Language used on the floor English Phone + 351 239 00 2151 Accompanying visuals on file ? yes e-mail [email protected]

Internalisation of Environmental Benefits Concerning Dispersed Generation in the Portuguese Legislation

The text explaining the “power point” file BRITO_PT_author_ALPHA4_BLOCK1.ppt is the following:

Presentation This presentation concerns the improvements in the economic instruments contained in the remuneration of dispersed generation within the context of the portuguese legislation. The aspects related to the valuation of power emission, the reduction of losses in the transport and distribution nets and the contribution to the global efficiency of the electric system are also mentioned. In conclusion, some future guidelines are pointed out.

Introduction The 1973 oil crisis lead to a global change of the European energy politics in a attempt to reduce external dependence. Thus, in striving to reach this objective, some priorities were defined: diversify the oil supply, promote the saving and the rational use of energy and develop the internal sources of energy.

Renewable Energy Sources In this context renewable energy sources achieved greater importance, as a main contribution to the global security in terms of energy supply. A special focus has also been given to the research and development of new technology. Portugal, having also suffered the consequences of the fossil fuels price increase, found it essential to use internal sources of energy, and so a new legal context was introduced in 1988.

Legal Context – Decree-Law nº 189/88 In order to stimulate the construction of small power plants, Decree-Law nº 189 was published in 1988, which established a new and detailed context for the production under a special regime. The main points of this Decree-Law are the following: technical definition of the plants connection to the grid; remuneration process assured; obligation of purchasing the energy emitted to the grid. The support to the investment has been achieved by some programs within the context of the Europian Union financing.

1 Slide 5 – Legal Context – Decree-Law nº 168/99 The legal context was updated in 1999, by means of Decree-Law nº 168, which was merged with the concept of “green tariff”. The remuneration process internalises the environmental benefits, the reduction of costs in the Public Electric System and the reduction of losses. The remuneration has a monthly correction according to the inflation evolution expressed by the index of consumers price.

Legal Context – Decree-Law nº 538/99 After the publication of Decree-Law nº189/88 many cogeneration plants were set up. Thus in 1999 Decree-Law nº 538 was published, which defined a new paradigm for cogeneration process. The internalisation of environmental benefits and the remuneration of the reduction of costs and losses in the grid was introduced as well. The remuneration has also a monthly correction according to the oil price, the relation between dollar / euro and the inflation evolution. The concept of equivalent electric efficiency was introduced, which was improved in 2001, by means of Decree-Law nº 313. More recently , according to regulation 399/2002, all the energy produced in the cogeneration plants can be sold to the Public Electric System.

Percentile distribution of PSR in 2002 In 2002 the energy emitted to grid under a special regime reached 2 810 GWh. The following graph shows the percentile distribution of this production for type of installation. Cogeneration represents the largest percentage of production, and it is predictable that in the near future, the relative percentage of the wind driven production of energy will increase significantly.

Weight of PSR in terms of the total energy flow in the grid The following graph shows the weight of production under a special regime in terms of the total energy flow in the distribution grid, which is 7,04%. RNT represents acquisitions to the National Transport Grid and PNV e SENV are acquisitions of energy within the context of the liberalised market.

Small Hidro In this slide we represent the map of Portugal and the limits of municipalities. The green spots represent the municipalities where small hydro plants are installed. The production of energy is higher on the northern part of Portugal, where the number of rivers and streams is greater. In 2002 the energy emitted to the grid reached 706 GWh.

Cogeneration Cogeneration is mainly placed on the northen part of Portugal, specially on the municipalities near Oporto. There are also cogeneration plants around Lisbon and some others are widespread on the territory. In 2002 the energy emitted to the grid reached 1 160 GWh.

Eolic The eolic plants are mainly placed on the higher hills in northern and central part of Portugal. There are also some plants near the cost, specially in the western part of the Algarve. In 2002 the energy emitted to the grid reached 340 GWh.

2 Slide 12 –Biomass Concerning biomass there is a power plant in the central part of Portugal. In 2002 the energy emitted to the grid reached 38 GWh.

Biogas There are three municipalities, in the central part of Portugal, where the production is higher. In 2002 the energy emitted to the grid reached only 10 MWh.

Remuneration process for renewable energies Decree-Law nº 168 established that the energy purchasing process for renewable energies is based on the avoided costs, according to three additive remunerations: Fixed Remuneration, which represents the avoided investment costs; Variable Remuneration, which represents the avoided operation costs; Environment Remuneration, that valorises the avoided emissions of CO2.

Remuneration process for renewable energies In the remuneration process, the losses prevented in the nets are still considered (coefficient LEV). There is also a correction that depends on the diagram of energy production (coefficient KMHO) and another correction according to the inflation.

Remuneration distribution The following graph shows the distribution of the energy remuneration for a significant sample of producers. The greatest percentages of the remuneration components are related to variable remuneration (PV) and environment remuneration (PA). These components are proportional to the energy emitted to the net.

Modulation of Production Diagram There is also a coefficient that multiplies the remuneration, which is optional. This coefficient is related with the shape of the diagram of energy production. If the producer does not want to take the coefficient into consideration, it takes the value 1. If the producer can modulate the production, he may choose the use of this coefficient. The following graph shows the variation of that coefficient according to the percentage emitted on low load hours. If the percentage of energy produced in low load hours is small than 42% it is advisable to choose the coefficient, because it takes a value greater than 1.

Increase of remuneration due to Z parameter. In 2001 Decree-Law 339-C/2001 was published which introduced a new parameter (Z) that multiplies the environment remuneration. Due to Z parameter the average increase of remuneration is 8% for hydro plants and 27% for wind plants. For eolic plants, if the use of declared power is greater than 2 200 hours, the remuneration will begin to decrease. The purpose of this procedure is to stimulate the construction of wind plants near the loads, preventing the installation of these plants on hilltops.

Remuneration process for cogeneration The energy purchasing remuneration is also based upon three additive remunerations: Fixed remuneration, which is proportional to the power emitted to the net; Variable remuneration, which is proportional to the energy emitted and represents the avoided operation costs;

3 Environment remuneration, which is also proportional to the energy emitted and valorises the avoided CO2 emissions.

Remuneration process for cogeneration The losses prevented in the nets are still considered (coefficient LEV). There is also the coefficient KMHO that depends on the modulation of the energy emitted to the net. A correction according to the inflation, the relation between euro / dollar and the evolution of the oil price is also considered.

Remuneration distribution The following graph shows the distribution of the remuneration for a significant sample of producers. The variable remuneration is the most significant component. The environmental remuneration is much small than in the case of renewable energies.

Future perspectives The guidelines for the coming years are the following: reduction of the obstacles that can prevent the increase of electricity by means of renewable sources of energy; simplification of administrative procedures; establishment of objective rules; easy access to the grid, maintaining the reliability and safety of the electric system; introduction of the “green certificate” mechanism. Recently, on 28 April, the Portuguese Government settled the resolution 63/2003, which establishes some goals to achieve, such as: security of energy supply, use of renewable energies and environment protection. The green certificate market is also pointed out. It is desirable that the power installed in plants that use renewable energy, which was 4 603 MW in 2001, can achieve 9 680 MW in year 2010. The Portuguese Government is going to settle some mechanisms to promote the use of renewable energy, including support to research and investments on the grid for the connection of new plants. In year 2010 we hope 39% of the energy consumed in Portugal will come from renewable energy sources.