Hydrogen law, regulations & strategy in Portugal

Hydrogen is a key element in Portugal’s near term energy transition. There are a number of ongoing projects concerning hydrogen production and transportation. Portugal also has a number of projects for decarbonising of industry as well as the decarbonisation of electricity and heat generation.

Whilst, at present, low-carbon hydrogen is not widely used, Portugal is endeavouring to grow the domestic use of clean hydrogen. Green hydrogen, in particular, is expected to be a major contributor in helping Portugal comply with its ambitious 2030 targets as set out in the National Plan regarding Climate Energy (“PNEC”). Additionally, the European Union in its Hydrogen Strategy 1  “A hydrogen strategy for a climate-neutral Europe” https://ec.europa.eu/energy/sites/ener/files/hydrogen_strategy.pdf has set out its intentions of investing 40 million euros in the ongoing Portuguese projects.

The most important document in relation to hydrogen is the National Strategy for Hydrogen (the “Strategy”) which was launched for consultation in May 2020. The Strategy set out a number of proposed projects and funding options in relation to using green hydrogen in the sectors mentioned below. The public consultation closed on 6 July 2020 and publication of the final document was approved and published on 14 August by Resolution of the Council of Ministers.

We have set out below some key hydrogen related projects currently in development in Portugal.

Hydrogen Production

The company Fusion Fuel is aiming to develop hydrogen production using solar PV energy, i.e. electrolysis using solar power. The company claims that the method they use to create green hydrogen is as cost-efficient as traditional methods that produce brown and grey hydrogen. The advantage of DC PEHG 2 Corresponds to the usage of photovoltaic concentration simultaneously with the heat that in that technology is dissipated, to proceed with the electrolysis of the water in a decentralized way, avoiding all the transmission losses due to the fact that the electrolysis is physically coupled to the production of energy and heat.  technology is in obtaining energy converting rates of 27% (from solar to hydrogen) with low production costs. This is because hydrogen is produced directly at the place of solar energy production with no need for transportation, transformation or other infrastructure. Hydrogen production is expected to start in 2022.

Separately, EDP, Portugal’s largest utility, has also set a target in respect of hydrogen production from offshore energy with the development of a modular and standardised system. Its aim is to be able to open new markets with hydrogen production and to increase competition in the offshore energy sector.

Transport

In the transport sector, there are a few projects in development, such as Power-to-Mobility. This involves the development of hydrogen refuelling stations for small and large road vehicles. The Power-to-Mobility project anticipates offering hydrogen fuel which is produced from solar energy, and expects to have an average capacity of 300kg/H₂/day.

For marine transportation, Shore-to-ship is another project in respect of the refuelling of cruise ships. Again, this will take the form of a green hydrogen refuelling station, and the installation is expected to have an average capacity of 1000kg/H₂/day.

Lastly, the development and manufacture of hydrogen buses is being undertaken by a partnership consisting of CaetanoBus, SA and Toyota. On 13 August 2021 in Cascais, the first ever hydrogen-powered bus was put into circulation in Portugal (which was 100% manufactured in the country). The bus uses the same fuel cell as the Toyota Mirai and has a driving range of 400-600 km, with refuelling only taking 10 minutes. This bus is particularly innovative as the tank is located on the roof, providing a larger capacity for passengers. The Municipality of Cascais has already stated that by the end of 2021, the first hydrogen refuelling station will be ready and open to the public.

Industry

The Ultimate Technology to Industrial Savings (“UTIS”) is developing a project to decarbonise certain industrial processes using hydrogen. The base principle of the company’s technology is the injection of a low amount of hydrogen and oxygen into the combustion system. The hydrogen will be produced locally (1 to 10m³/h) in dedicated units adapted for the use of various types of energy sources.

Heating

Portugal relies on methane gas for electricity production and heating. Accordingly, blending and pure hydrogen based heating is the long term goal. EDP is investing around €12.6 million (over the next 4 years) to develop new power-to-hydrogen-to-power (“P2H2P”) solutions integrated in combined cycle thermal power plants (“CCGT”). The name of the project is “FLEXnCONFU” and it will be developed for hydrogen production in the Ribatejo Combined Cycle Power Plant.  It has been planned that an electrolyser with an installed capacity of 1 MW and 12 MWh of storage capacity will be connected

The project’s main objective is to develop new power-to-X-to-power (“P2X2P”) solutions integrated in CCGTs with dedicated hydrogen and ammonia firing turbines; the ultimate aim being to reduce the burning of natural gas to produce electricity. EDP has stated that the first step is to gain experience in hydrogen production and in its conversion in electricity. After this, the project intends to demonstrate the possible injection of hydrogen into natural gas pipelines. This is seen as a solution that will allow economies of scale in the generation, transport and distribution of hydrogen in the future.

Although the hydrogen market in Portugal is nascent, it is expected to grow rapidly in the near future. In terms of funding, Portuguese Secretary of State of Energy stated that the European Union is willing to invest heavily in Portugal.

Policy and government programmes

The Strategy states that it is possible to blend around 22% of hydrogen into the natural gas network without impacting the calorific power of the gas in the grid. As such, the calorific power remains within the limits of the existing legislation. There is also a longer term goal to export pure hydrogen through a gas pipeline in the future.

Other programs include the PNEC and the RNC50 (Carbon Neutrality Roadmap) 3 Portugal has committed itself internationally to reducing its greenhouse gas emissions so that the balance between emissions and removals from the atmosphere is zero by 2050. This objective has been given the name of “carbon neutrality” which have a main role to identify and release guidelines for the decarbonisation of Portugal by the year 2050, and hydrogen is now seen as a vital component in helping to reach that target.

Primary Legislation

Since 28 August 2020, Portugal has introduced specific legislation regarding hydrogen regulation, albeit this is not very detailed. In fact, with the publication of Decree-Law no. 62/2020, of 28 August, which also transposed Directive (EU) 2019/692, green hydrogen has been included in the remit of the Portuguese National gas system (former National Natural Gas System), and defined as a gas of renewable origin.

This Decree-Law guarantees that the production of this type of gas is a liberalised activity with low administrative requirements of eligibility. Accordingly, a hydrogen producer can allocate the product for any purpose, particularly self-consumption, injection in public gas networks, bulk supply to any consumer, either for industrial or private purposes, export or for use in other sectors, such as transport.

On the other hand, following the approval of the Strategy and in line with the clear commitment that the Government intends to make on hydrogen and biomethane as fundamental for Portugal to achieve carbon neutrality by 2050, such decree-law creates the conditions for the material incorporation of gases of renewable origin or low-carbon content within the national gas system. In light of the relevant modifications and reorganisation that it introduces in the sector, its publication led to the revocation of Decree-Law no. 30/2006, of 15 February and of Decree-Law no. 140/2006, of 26 July, as amended, (whose principles related to the organisation and functioning of the National Natural System are now gathered in a single legal instrument).

It should also be noted that, with the entry into force of this decree-law, the consumers will be obliged to consume a certain share of gases of renewable origin or low-carbon gases and the supplier of last resort will be entrusted with the role of facilitator between production and commercialisation. This is intended to ensure the acquisition of this type of gas as it will be needed by other market agents to meet the minimum incorporation share of hydrogen on the network.

Regulation of hazardous activities

To pursue environmental protection, Portugal guarantees the right to a balanced ecological environment. Among others, the Decree-Law 62/2020 requires a statement by the Environmental Impact Assessment Authority that the relevant hydrogen project is not subject to an environmental impact assessment (“EIA”) or, if there is the need for such an assessment, that the project has obtained a favourable EIA and has complied with any conditions imposed on it.

The hydrogen sector is regulated within the remit of gas regulation. 

DGEG (from the State’s direct administration) and ERSE (the energy regulator) are the regulatory bodies responsible for the regulation of the Portuguese energy sector. DGEG’s mission includes seeking to contribute towards the promotion and evaluation of energy policies. It is also responsible for issuing permits necessary for injection into the power grid and regulates the development of systems, processes and equipment linked to the production, transmission, distribution, and use of energy. The ERSE regulates the electricity and natural gas markets in relation to trade relations and quality-service. The legislation that establishes the general principles of the organisation and functioning of the National Natural Gas System, the National Electric System and electric mobility attributes regulatory competence to ERSE.

Following the release of the Strategy, it is possible that new regulatory bodies may be established in the future.

Goals for 2030

Portugal aims to have hydrogen, represent a viable and suitable energy source by 2030. Therefore, the national goals are to have the following targets achieved over the coming decade:

1. 5% of hydrogen in road transportation consumption, in the energy sector consumption and in the final consumption of overall energy.
2. 15% of hydrogen injected into the natural gas network.
3. 50 to 100 hydrogen refuelling stations developed across Portugal.
4. A reduction of natural gas importance to a value of €300 to 600 million.
5. Investment of €7 billion on hydrogen production projects.

Upcoming projects

In addition to the projects identified in the Strategy, three further domestic projects are worth noting:

“H2 Sines”

This project which is due to begin construction in 2021 is to create a €7 billion hydrogen solar power plant in the Sines Industrial and Logistics Zone (ZILS). Sines was chosen as the location for hydrogen production infrastructure owing to the deep waters that surround the port as well as the existing electricity grid connections. It also has the most optimal weather suited to producing solar energy. The project involves 13 companies with partners from Germany, Denmark, and the Netherlands. The objective is to produce hydrogen powered by solar PV generation and then export it to the Netherlands and other northern European countries. When fully operational, it will have the capacity to produce around 465 tonnes of hydrogen a year.

In a first phase, the installation of a 10MW electrolysis pilot project is foreseen, which, throughout this decade, shall evolve to a 1GW capacity, aiming in time to install around 1.5GW of renewable electric energy generation capacity to feed the electrolysers.

Synthetic Fuel for Aviation

This is a project being developed by Solabelt and Akuo Energy. The goal is to use green hydrogen produced by electrolysis using electricity generated from solar PV sources to produce an alternative aviation fuel. The production of such fuel should be around 10 tonnes a year. The forecasted investment for this project is around €90 million. The project is being developed but there is no estimated date to become operational as of yet.

Hydrogen Auctions

In the first semester of 2021, the Government gave a presentation offering details of the first green hydrogen auction. The Portuguese Secretary of State for Energy mentioned that such hydrogen auction is scheduled to be held during the course of 2021.  

It was also stated that such auction will not be aimed for producers, but for hydrogen users and thus all companies shall be eligible to go to auction, including energy traders. Finally, the Portuguese Secretary of State for Energy stated that a certain amount of hydrogen shall be auctioned, but it has not yet been defined what such amount will be.