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The Portuguese Government approved the National Strategy for Hydrogen (“EN-H2”) on May 2020. In the Executive Summary of the EN-H2, the Portuguese Government set out as the main objective of this strategy to “introduce an element of incentive and stability for the energy sector, promoting the gradual introduction of hydrogen as a sustainable pillar and integrated in a more comprehensive strategy of transition to a decarbonised economy, as a strategic opportunity for the country”.
The main “use cases” set out in the EN-H2 are the decarbonisation of the transport, industry and electricity sector.
The Portuguese Government has declared that the main goal for the creation of a “hydrogen economy” is increasing the independence of the Portuguese energy sector from other countries. In fact, as explained in the EN-H2, the production of green hydrogen – to replace fossil fuel (combustíveis fósseis) – would allow not only to achieve the environmental goals in renewable energy production, but also the replacement of an imported energy source by a nationally produced (environmentally friendly) energy source.
The following table summarises the use cases set out in the EN-H2:
The main targets for the incorporation of hydrogen in the different sectors of the economy (in volume) can be summarized in the following table:
According to the EN-H2, the new energy model aiming at carbon neutrality will transform the national economy through sustainable development, progress, technological advances, employment, wealth creation, territorial cohesion and preservation of natural resources.
Besides the substitution of imported fossil fuels by domestically produced green energy source, the following factors influenced the EN-H2:
The previously mentioned factors, amongst others, were considered relevant in the adoption of the EN-H2, which will allow for the energetic independence of Portugal and the creation of “green-oriented” employment opportunities in the country.
The EN-H2 is highly focused on the “Sines Project”. The Sines Project is a pioneer industrial-sized project for the production of green hydrogen, being developed through a strategic partnership with The Netherlands. It is planned to be located in the deep-water port terminal of Sines – which allows access to transport infrastructure (by sea, road or through the natural gas national grid) – and, by using solar and/or wind renewable energy, will entail a total capacity of 1GW in electrolysers (by 2030). The green hydrogen, produced in Sines, will be transported by three possible ways:
The estimated investment for the Sines Project is over €2.85B and European funding is expected to be obtained, as it may be included in the European Commission initiative of “Important Projects of Common European Interest”. The construction is expected to begin in 2023 and the operation to start in 2025.
Please refer to the table below for a summary of the main areas of interest in the Sines Project and the development goals for each area:
Apart from the Sines Project, the EN-H2 also includes the Portuguese projects highlighted in the table below:
The industry sector (responsible for the emission of 11% of greenhouse gas emissions) is described in the EN-H2 strategy as traditionally pro-active in the adoption of innovative technologies that reduce operation costs. The main industries identified in the EN-H2 strategy as the ones that may benefit from the decarbonisation of the economy are: (a) the refinery industry, (b) the chemical industry; (c) the metallurgical industry (in particular, steel production), and (d) the mining industry.
The EN-H2 is particularly focused on the production of green hydrogen as one of the motivation factors for the investment in hydrogen production (already referred above) are (a) the low renewable solar energy production costs and (b) the geographical location of the country (close to the sea).
Recovery and Resilience Plan (RRP) and first call for tender.
For more information on what is proposed under the RRP, please refer to chapter 4.
In the EN-H2, the Portuguese Government has focussed on public and private European and National financing sources as the route to incentivising clean hydrogen. The European financing sources included in the EN-H2 are: (i) Invest EU; (ii) Connecting Europe Facility; (iii) Horizon Europe; (iv) Innovation Fund; (v) InnovFin Energy Demo Projects; (vi) EEA Grants 2014-2021 (Blue Growth, Innovation and SMEs); (vii) Just Transition Mechanism – Just Transition Fund; (viii) EU Recovery Fund (COVID-19 related); and (ix) European Bank of Investment.
The Portuguese financing sources included in the EN-H2 are: (i) PO SEUR – Operational Programme for Sustainability and Efficiency in the Use of Resources (Programa Operacional Sustentabilidade e Eficiência no Uso de Recursos); (ii) Innovation Support Fund (Fundo de Apoio à Inovação); (iii) Environment Fund (Fundo Ambiental); (iv) PPEC – Plan for the Promotion of Consumption Efficiency (Plano de Promoção de Eficiência no Consumo); (v) PPEC – Plan for the Promotion of Consumption Efficiency (Plano de Promoção de Eficiência no Consumo); (vi) Portugal 2030; (vii) PPEC – Plan for the Promotion of Consumption Efficiency (Plano de Promoção de Eficiência no Consumo) and (viii) Blue Fund (Fundo Azul).
Besides these financing sources, the EN-H2 also highlights other support mechanisms that will promote the development of a hydrogen economy. Please consider the table below for further supporting mechanisms expected to be implemented in the future:
It is not clear how and if hydrogen investment costs are to be reflected in end-user tariffs. However, some of these support mechanisms have already received formal policy endorsement, as is the case with the amendment of the guarantees of origin legal framework to include “low carbon gases and for gases of renewable origin” – i.e. green hydrogen – since August 2020.
The EN-H2 strategy is highly focused on transferring the potential increase in production costs of hydrogen from consumers to financing sources (e.g. the Environmental Fund). However, it is not clear whether this funding will suffice in order to incentivise hydrogen at the rate required for the transition to net zero.
As mentioned in Getting Hy, the RRP proposes investing:
According to the RRP, the targets and schedule for the implementation of EN-H2 and, in particular, the renewable gas production projects, will be as follows:
264 MW of renewable gas production capacity [2021-2025]:
Schedule for launching the support tenders
Execution timeframe for the € 185 M
On 28 September 2021, the Portuguese government launched the first call worth €62M under the program “Support for the production of renewable hydrogen and other renewable gases”. This call aims at subsidizing the production of the first 88 MW of hydrogen production capacity.
The eligible projects are (i) production of gases from renewable sources related to the development and testing of new technologies (TRL equal to or greater than 6), from production to consumption; and (ii) production of gases from renewable sources with tested technologies (TRL equal to or greater than 8) and which are not yet sufficiently disseminated in the national territory, from production to consumption.
100% of eligible expenses will be reimbursed, corresponding to the extra cost of an investment in the production of gases of renewable origin compared to a conventional installation to produce hydrogen from steam reformation of natural gas. Funding per beneficiary and per operation will have a maximum allocation of € 5 M, which could be doubled to € 10 M if the project covers investments in different activities of the value chain (production, distribution and final consumption).
In February 2023, the Portuguese Government published the final report with the assessment of the applications submitted for the first call tender. A total of 25 projects will be supported under this programme (21 green hydrogen projects and 4 biomethane projects) up to a total of € 102 M.
The launch of a second call for tender worth € 83 M has meanwhile been announced, to be mainly focused on the production of biomethane. The submission of applications will be open until 31 July 2023.
In January 2023 the main rules and calendar for the centralised purchasing system for biomethane and hydrogen produced through the process of water electrolysis using renewable energy sources were published (Order no. 15/2023, issued by the Portuguese State Secretary for Energy and Environment):
Until 30 May 2023 the tender documents will be prepared by the Directorate General of Energy and Geology (DGEG) in coordination with the LRS and submitted to the approval of the member of the Government responsible for the energy sector. Then, until 30 June 2023, DGEG will publish the relevant announcement, thus launching the tender.
In September 2021, the Portuguese Government also launched an electronic auction to allocate capacity reserve for the injection into the public grid (in Pego, Abrantes) of electricity produced exclusively from renewable energy source(s). The tender was open to all renewable energy sources, thus admitting production of hydrogen. In March 2022, the final report was published with the proposal to award the tender – the awarded proposal (from Endesa) comprising a hydrogen project.
In addition, the energy sector national regulator ERSE approved in 2020 a pilot project, in Seixal, for the injection, by Galp Gás Natural Distribuição, of hydrogen into the natural gas distribution grid (the Green Pipeline Project). The project was successfully licenced and started injecting in the grid in March 2023 – within the next two years, the percentage of injection is expected to increase up to 20%.
On 18 April 2022, the Portuguese Government approved a series of exceptional measures for the simplification of administrative proceedings regarding the production of renewable energy, including hydrogen (Decree-Law 30-A/2022, of 18 April, as amended on 10 February 2023 by Decree-Law 11/2023). Pursuant to this Decree-Law, the installation of facilities for the production of hydrogen from water electrolysis is subject to a prior communication procedure (and no longer to a licensing one, which is more time consuming). In addition, if the project has an installed capacity equal to or below 1 MW, the respective installation is exempt from any prior urban planning control.
Furthermore, with the approval of Decree-Law 11/2023, of 10 February, the Portuguese Government exempted the production of hydrogen from renewable sources and water electrolysis from any type of environmental licensing, including from environmental impact assessment procedures.
The existing Portuguese legislation and energy sector-related regulation (issued by the energy sector national regulator ERSE Entidade Reguladora dos Serviços Energéticos) has been recently amended to include possible injection of hydrogen in the natural gas distribution grid.
In fact, under the national gas system law (approved by Decree-Law 62/2020, dated 28 August, as amended in October 2022 by Decree-Law 70/2022, the “National Gas System Law”), the production of renewable and low carbon gases, in particular hydrogen, is foreseen as a liberalised activity. The current National Gas System Law includes low administrative requirements (with the appropriate regulation to ensure the safety of supply to the national gas system) and the choice for the producer of renewable or low carbon gases to use the product for any purpose, such as: self-consumption, injection into the public gas network, supply by tanker to any industrial or private consumer, export and application to the transport sector.
In addition, the new National Gas System Law also establishes the mechanism for the issuance of guarantees of origin for low carbon gases and for gases from renewable origin.
Further to the approval of the new National Gas System Law, ERSE approved a series of new regulations to complete the adaptation of the legal framework to the production and injection of hydrogen into the grid.
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