Portugal

hydropower

Yet with Russia withholding natural gas from countries opposed to its invasion of Ukraine, the tiny coastal nation of Portugal is suddenly poised to play a critical role in managing Europe’s looming energy crisis.

For years, the Iberian Peninsula was cut off from the web of pipelines and huge supply of cheap Russian gas that power much of Europe. And so Portugal and Spain were compelled to invest heavily in renewable sources of energy like wind, solar and hydropower, and to establish an elaborate system for importing gas from North and West Africa, the United States, and elsewhere.

Now, access to these alternate energy sources has taken on new significance. The changed circumstances are shifting the power balances among the 27 members of the European Union, creating opportunities as well as political tensions as the bloc seeks to counter Russia’s energy leverage, manage the transition to renewables and determine infrastructure investments.

The urgency of Europe’s task is on display this week. On Wednesday, Russia’s energy monopoly, Gazprom, again suspended already reduced gas deliveries to Germany through its Nord Stream 1 pipeline. With natural gas costing about 10 times what it did a year ago, the European Union has called for an emergency meeting of its energy ministers next week.

As Brussels tries to figure out how to manage the crisis, the possibility of funneling more gas to Europe through Portugal and Spain is gaining attention.

Portugal and Spain were among the first European nations to build the kind of processing terminals needed to accept boatloads of natural gas in liquefied form and to convert it back into the vapor that could be piped into homes and businesses.

This imported liquefied natural gas, or L.N.G., was more expensive than the type much of Europe piped in from Russia. But now that Germany, Italy, Finland and other European nations are frantically seeking to replace Russian gas with substitutes shipped by sea from the United States, North Africa and the Middle East, this disadvantage is an advantage.

Together, Spain and Portugal account for one-third of Europe’s capacity to process L.N.G. Spain has the most terminals and the biggest, though Portugal has the most strategically located.

Its terminal in Sines is the closest of any in Europe to the United States and the Panama Canal; it was the first port in Europe to receive L.N.G. from the United States, in 2016. Even before the war in Ukraine, Washington identified it as a strategically important gateway for energy imports to the rest of Europe.

Spain also has an extensive network of pipelines that carry natural gas from Algeria and Nigeria, as well as large storage facilities.

The peninsula’s resilient energy network is one reason that dormant discussions about constructing gas and electrical connections through France have suddenly been resuscitated. And there is now an unexpectedly vocal backer: Germany, which had long linked its energy fortunes to Russia. Prime Minister Pedro Sanchez of Spain and Chancellor Olaf Scholz of Germany met this week to discuss Europe’s dizzying energy prices.

Portugal’s prime minister, Antonio Costa, has said a new gas pipeline — which could be made to handle green hydrogen — from Sines to the Spanish border could help make Europe “energy self-sufficient.”

An underground natural gas pipeline across the Pyrenees, which would have connected Spain and France, was abandoned three years ago after regulators in both countries deemed it unnecessary and overly expensive.

France was particularly opposed to the project, said Simone Tagliapietra, a senior fellow at Bruegel, a research group in Brussels, because the country wanted to protect its energy producers and powerful nuclear industry from competition.

Building the pipelines, Mr. Tagliapietra said, would help solve “one of the major energy bottlenecks in Europe,” providing another route for gas to flow into Germany, the continent’s largest economy, and elsewhere.

But hammering out a unified energy policy among countries with such different resources, needs and priorities remains a knotty political problem.

France, at least so far, still opposes a new gas pipeline. Portugal and Spain, too, bristle at some of the proposals coming out of Brussels. The two were among a handful of nations that initially objected to the European Commission’s proposal in July for a 15 percent curb on natural gas use. Spain’s energy minister chastised countries that “lived beyond their needs from an energy point of view.” Portugal’s secretary of state for energy pointed out that Europe was asking Portugal and Spain to share the pain in case of shortages after it had been unwilling to invest in building a shared energy network that could have lowered Iberia’s costs. Why should their citizens suffer higher prices now?

The members of the European Union eventually agreed to a sliding scale of voluntary reductions, which Mr. Tagliapietra called “an unprecedented step forward” in E.U. coordination. But the episode illustrates how difficult negotiating such arrangements can be.

Duarte Cordeiro, the energy and environment minister of Portugal, commended the E.U. for recently having been more responsive to his country’s concerns, but he added that there had once been a harmful “imbalance” in priorities and that southern Europe had been neglected.

His office estimated the cost of improving the capacity of L.N.G. shipments from Sines to Central Europe at 12 million euros, or about $12 million. A gas pipeline linking Spain’s network with the port would cost between €300 million and €350 million.

Carlos Torres Diaz, the head of gas and power markets research at Rystad Energy, a consultancy in Norway, said national priorities had at times conflicted with efforts to create a more integrated energy system even though such an approach would benefit the union as a whole.

Such a system could mean, for example, that excess electricity produced primarily by wind in Portugal and by the sun in Spain could ease shortages in the rest of Europe.

Portugal has at times in the past sent electricity that it doesn’t use during the night to Spain, said Jaime Silva, the chief technology officer at Fusion Fuel, a Portuguese company that in August received a $10 million grant from the government to develop a green hydrogen project in Sines. The company’s offices occupy the site of a shuttered Siemens transformer factory. A model hydrogen generator powered by the sun sits on the lawn out front.

He said it would be relatively easy and quick to install electrical cables through France that could transfer that energy farther north.

“Before this crisis,” Mr. Silva said, “it was just Portugal and Spain saying, ‘We want to sell that energy,’ but the response from France was, ‘No, no, no.’”

“Now,” he said, “we have Portugal and Spain saying, ‘We want to sell,’ and the other countries are saying, ‘We need to buy.’”

“If France doesn’t want to buy it,” Mr. Silva added, “at least allow us to sell it to Germany, to Hungary, to the Czech Republic, to Austria, to Luxembourg, to Belgium, because those countries need energy right now.”

Portugal and Spain’s ability to generate cheap electricity from wind, sun and water is putting pressure on Europe’s energy markets in other ways. They have argued that the European Union needs to reconfigure a system that currently bases the price of electricity on the price of gas. The power market was designed to encourage the development of renewable energy at a time when gas was cheap. But skyrocketing gas prices have caused electricity prices to explode.

After pressure from Portugal and Spain, the European Union agreed in June to what is being called the “Iberian exception”: The two countries can cap the price of electricity, and decouple it from the price of gas, for one year.

The arrangement was condemned by critics who said it interfered with the market, but other leaders have since joined the push for revamping the price structure.

Ursula von der Leyen, the president of the European Commission, said on Monday that the current system didn’t work. “We have to reform it,” she said. “We have to adapt it to the new realities of the domain of renewables.”

“It was developed under completely different circumstances and for completely different purposes,” she added.

Michael E. Webber, a professor of energy resources at the University of Texas at Austin, said the transition period was the most difficult. “There will be a lot of flailing around to find a solution for a very complex problem,” he said, adding, “Solutions take two to five years, and the crisis is now.”

Meanwhile, he said, Europe is “muddling along as best it can.”

France’s upper house voted on Friday to adopt measures that would make solar panels compulsory in all car parks with more than 80 of spaces, so large supermarkets and stores would likely be included.

The version of the renewable energies bill voted on by the Senate has 21 articles, all of which deal with the technical and administrative ways France can increase the use of renewable energy, from wind turbines to solar panels.

While the bill still has to go back to the National Assembly to be reviewed before it is finalised, the current version would make it so that any parking lot with more than 80 spaces must install “photovoltaic shades” – or large solar panels over the spaces. This amends the original version of the text, which required parking lots of at least 2,500 metres squared to do so.

For parking lots with 80 to 400 spaces, they will have up to five years to make the necessary adjustments, while parking lots with over 400 spaces would have only three.

Overhead solar panels can already be seen in some French car parks, particularly lorry parks on autoroutes, but they are not widespread.

The bill allows for some exemptions, such as for parking spots reserved for heavy goods vehicles, and its final version is likely to come with other alterations.

The measure is part of the country’s continued “energy transition” goal, which is to move France away from dependence on fossil fuels.

In September, President Macron announced that 80 turbines would enter full service by the end of the year, which are set to “provide up to 40 gigawatts” in service by 2050.

The French government has targeted vehicles and driving in other proposals as well. French president Emmanuel Macron recently announced an increase in the financial aid available for those who trade in their combustion engine cars for electric ones.

Disneyland Paris began plans to implement a large scale “solar canopy” in its main guest parking lot. The panels are set to produce 36 GWh per year of energy by 2023, which according to the company is equivalent to the annual energy consumption of a city with 17,400 inhabitants.

The funding deal, brokered between the US, Indonesia and Japan, is set to be outlined Tuesday on the sidelines of the Group of 20 summit in Bali, following more than a year of talks. It is the largest single climate finance transaction ever, according to a senior US Treasury Department official.

Under the package, Indonesia will commit to capping carbon dioxide releases from its electricity sector at 290 megatons by 2030 — an emissions peak that will apply not just to its conventional grid but also power suppliers for industrial facilities. The country will also establish a goal of reaching net-zero emissions in the power sector by 2050 and commit to boost deployment of renewable energy so that it comprises at least 34% of all power generation by the end of this decade.

“Together, we hope to mobilize more than $20 billion to support Indonesia’s efforts to reduce emissions and expand renewable energy and support workers most affected by the transition away from coal,” Biden said at an event with Widodo and European Commission President Ursula Von Der Leyen.

More than 10 gigawatts of localized power systems in Indonesia are set to be redirected to renewables instead of coal, according to a State Department official who requested anonymity to preview the announcement. Some of the funding could go toward renegotiating debt for existing coal plants, with the goal of retiring them early.

The effort “can truly transform Indonesia’s power sector from coal to renewables and support significant economic growth,” US Special Presidential Envoy for Cimate John Kerry said. “At every step, Indonesia has communicated the importance of building a clean economy that works for the people of Indonesia and attracts investment. Together, we have a shared vision for that goal.”

$600 Billion Need

The financing commitment – known as a “just energy transition partnership,” or JETP – chips away at the estimated $600 billion that Southeast Asia’s largest economy will need to phase out coal-based electricity in favor of a grid powered by renewables with the capacity to connect the next generation of electric vehicles.

Indonesia has said solar, geothermal and nuclear energy will be crucial to its goal of reaching net-zero carbon emissions by 2060. Under the pact, it is moving up its net-zero goal for the power sector to 2050. Indonesian state power firm Perusahaan Listrik Negara also has set a goal to double the share of renewables in its energy mix by 2025.

Indonesia had previously planned to shut all its coal plants by 2055. Under the arrangement, the country’s emissions will peak in 2030 — seven years earlier and at an amount about 25% less than previously expected, according to the senior Treasury official.

Details of the financial package are to be developed over the next three to six months, with the $20 billion split between government dollars and private finance. The private sector spending will include contributions from the Glasgow Financial Alliance for Net Zero group of banks and asset managers, likely taking the form of debt and equity.

Government funding is likely to include concessional loans, grants and equity, with support coming from the US, Japan, Canada, Denmark, the EU, France, Germany, Italy, Norway and the United Kingdom.

Banks involved in the deal include Bank of America Corp., Citigroup Inc., Deutsche Bank AG, HSBC Holdings Plc, Standard Chartered Plc, Mitsubishi UFJ Financial Group Inc. and Macquarie Group Ltd, according to the senior Treasury official. The money will be delivered within three to five years, the official said.

Wary of Debt

Indonesia has a massive funding need for energy transition and development, but the country also has a low appetite for debt. It maintains a relatively small debt ratio at 42.71% of gross domestic product, the fourth-lowest among G-20 nations.

The Southeast Asian country would only agree to the JETP if the rates offered are as low as those in developed markets, Luhut Panjaitan, coordinating minister for investment and maritime affairs, said at the Bloomberg CEO Forum in Bali on Friday.

“If it’s the same as for emerging markets, then what’s the point for us?” he said. The program doesn’t allow for financing natural gas projects. Investments that could be backed include boosting solar manufacturing and re-negotiating coal take-or-pay contracts to facilitate plant closures.

Group of Seven countries had aimed to complete the deal -– modeled on a similar, $8.5 billion pact with South Africa announced during last year’s UN climate summit -– by the end of the calendar year. Members of the G-7 have sought similar finance agreements with Vietnam, India, and Senegal, with negotiations intensifying before the climate summit in Egypt this month.

Although it took a year for donor countries and South Africa to work out a final investment plan for that JETP, the Indonesian effort envisions a more rapid turnaround, including the creation of a secretariat and the identification of necessary policy changes over the next three months.