Hydrogen law, regulations & strategy in Portugal

Hydrogen is a key element in Portugal’s near-term energy transition. Portugal is making significant efforts to increase the domestic use of hydrogen. Green hydrogen, in particular, is expected to play a significant role in helping Portugal comply with its ambitious 2030 targets as set out in the National Plan regarding Climate Energy (“PNEC”).

PNEC is the primary instrument for energy and climate policy in the short to medium term in Portugal. Given the country's endogenous resources and its high capacity to generate electricity from renewable sources, Portugal has set ambitious targets for green hydrogen production.

Aligned with these goals, several projects are underway to develop hydrogen production and transportation infrastructure.

One of the leading projects is Galp's investment in the Sines Refinery. In September 2023, Galp, one of the leading players in Portugal's energy market, announced its investment in two large-scale projects. One of these projects, named “GreenH₂Atlantic”, involves the construction of a green hydrogen unit with a 100 MW electrolysis capacity, capable of producing up to 15,000 tonnes of renewable hydrogen per year. The integration of this large-scale project into the operations of the Sines refinery will allow for the replacement of approximately 20% of the current consumption of grey hydrogen and could result in a reduction of around 110,000 tonnes of greenhouse gas emissions annually. 

In addition to this, in November 2023, two new green hydrogen projects in Portugal were classified as Projects of Common Interest ("PCI") under the European framework: the ‘H2Med/CelZa’ and the ‘Portuguese Hydrogen Backbone’. These projects play a crucial role in establishing the Green Energy Corridor for hydrogen transport, connecting Portugal and Spain to Central Europe.

The 'H2Med/CelZa' project, led by REN-Gasodutos, SA (Gas TSO), represents an investment of € 204 million and will consist of approximately 242 km of pipelines, 162 km of which will be located in Portugal. This project is a key development towards the creation of one of the main green hydrogen corridors through the Mediterranean and is key to the European Hydrogen Backbone. The second project is the ‘Portuguese Hydrogen Backbone’, also submitted by REN-Gasodutos, which will build out and adapt the gas grid in Portugal and accounts for an investment of around €210 million. This project sets up important conditions for the production and integration of green hydrogen in the central inland area of Portugal.

As previously mentioned, PNEC is the most important document in Portugal's energy and climate policy, playing a decisive role in defining the strategic guidelines for the next decade on the path to carbon neutrality.

In July 2023, the Portuguese Government submitted a proposed revision of the PNEC to the European Commission. This updated version sets more ambitious targets for reducing greenhouse gas emissions and increasing the share of renewable energy, outlining a clear path towards achieving carbon neutrality by 2045.

Regarding green hydrogen, this update renews Portugal’s commitment to expanding the large-scale use of green hydrogen, with a focus on addressing the challenges of transportation and storage. One example is the planned increase in electrolyser capacity, with an aim to grow from 2 GW/ 2.5 GW of installed capacity to 5.5 GW by 2030. This demonstrates the country's dedication to boosting hydrogen production.

The draft revision was made available for public consultation in July 2024, and its final publication is now awaited.

Another key policy change is Decree-Law no. 80/2023 of 6 September 2023, which established the exceptional procedure for allocating connection capacity for electricity consumption facilities in areas of high demand located in the territory of mainland Portugal. The procedure seeks to allocate capacity which otherwise would not be fully satisfied within the required deadlines set out in the general regime. The regime specifically recognised the territorial area of Sines as an area of high demand, leading to the Sines grid zone being designated as a hub for green hydrogen production projects.

With the approval of both (i) Directive (EU) 2024/1788 of 13 June 2024 on common rules for the internal markets for renewable gas, natural gas and hydrogen and (ii) Regulation (EU) 2024/1789 of 13 June 2024 on the internal markets for renewable gas, natural gas and hydrogen, changes to the gas sector legal framework are expected, including the creation of the legal framework for the construction and operation of pipelines exclusively dedicated to green hydrogen and other green gases.

To meet the demand for low-carbon energy production, the Portuguese Government, through Ministerial Order No. 168/2024/1, approved the Regulatory Framework for Renewable Hydrogen and Other Renewable Gases (the “Regulatory Framework”), aimed at increasing the contribution of these clean energy sources in the climate transition.

This incentive falls under the Recovery and Resilience Plan (“PRR”), a national programme with an implementation period until 2026. The PRR aims to implement a set of reforms and investments designed to restore sustained economic growth following the pandemic, while reinforcing the goal of convergence with Europe over the next decade.

Within the PRR, the C21 – RepowerEU component was created to support Portugal's ambitions for energy independence and ecological transition in the context of new geopolitical situations and the energy market.

A series of support measures have been established to achieve these objectives, including investment C21-i06 which aims to provide financial assistance for the production of green hydrogen, as regulated by the new Regulatory Framework. This measure consists of a series of actions (including the two objectives set out below) aimed at promoting the production, storage, transportation, and distribution of renewable gases, with the goal of increasing the contribution of renewable gases to meet energy consumption, reducing greenhouse gas emissions, increasing Portugal’s energy independence, and improving energy supply security. Thus, there are two main objectives intended to be achieved through this framework:

• Launch the tender for the selection of projects to be granted financial support, with a maximum of €15 million funding per project available. The tender will seek to achieve at least 77 MW of new installed capacity for renewable hydrogen and other zero-emission renewable gases.
• Increase the additional installed capacity (+277 MW) for the production of renewable hydrogen and renewable gases with zero or very close to zero emissions.

The tender will be based on "objective, transparent, and non-discriminatory criteria," and will be implemented through the Environmental Fund, an entity under the supervision of the Ministry of Environment and Energy.

To support these objectives and to encourage and finance the production of gases from installations using renewable energy sources and/or renewable origin gases, including green hydrogen, a new mechanism for granting subsidies was established through Ministerial Order No. 168/2024/1, notably auctions of renewable origin gases, including green hydrogen.

As part of the implementation of the Regulatory Framework and funded by the C21-i06 investment, in June 2024 the Environmental Fund launched a tender, under Notice No. 01/RP-C21-i06/2024, entitled “Reinforced Measure: Additional Capacity for Renewable Hydrogen and Other Renewable Gases Production”. The tender  will make available a total of €70 million funding (with a maximum of €15 million available to each project), with the aim of increasing the production and use of sustainable biomethane and renewable hydrogen.

Public or private legal entities interested in developing investment projects for the production of renewable hydrogen and other renewable gases were eligible to participate in this tender.

The full impact of this tender on the hydrogen market will be assessed once the tender results are available.

On October 1, 2024, the Environmental Fund approved 22 applications for investment projects in the renewable hydrogen and gases sector, with total funding of €83 million.

The Environmental Fund selected projects covering various technologies and sectors, from hydrogen production from renewable sources to its use in transport and industry. If implemented, these projects will achieve a total capacity of 178.5 MW.  These projects not only contribute to the country's climate targets but also strengthen the competitiveness of the energy sector and create opportunities for the renewable hydrogen industry in Portugal.

Among the approved applications, Voltalia Mobilidade secured two projects with approximately €13 million in funding (€6.696 million for one project and €6.264 million for another). The cement company Cimpor was awarded €6.48 million for a decarbonisation project, HVerdeElvas €6.3 million, and Hevo Aveiro €5 million. Rega Group’s hydrogen projects received €11.8 million in total—€3.8 million for Rega Mondego and €8 million for Rega Nazaré, which secured the largest individual amount. Prio Bio was granted €3.8 million, and Hyperion Renewables H2 Alter approximately €6 million.

This investment, amounting in total to €83 million, falls under the PRR and represents an important step towards the decarbonisation of the Portuguese economy. With this investment, Portugal is establishing the conditions to position itself at the forefront of this sector.

The implementation of these projects will directly contribute to the goal of installing an additional 200 MW of capacity, which is expected to be reached by the first quarter of 2026.

Ministerial Order No. 15/2023 (the “Order”) established a centralised purchasing system for biomethane and hydrogen produced via electrolysis using electricity from renewable energy sources, as defined by Decree-Law No. 84/2022.

The Order opened a competitive procedure in the form of an electronic auction for the injection of renewable or low-carbon gases into the public gas network, with the following key features:

• The maximum quantities for contracting renewable gases are set at 150 GWh/year for biomethane and 120 GWh/year for renewable hydrogen.
• Bids that are to be accepted will be limited to maximum base prices of €62/MWh for biomethane and €127/MWh for renewable hydrogen.
• The Directorate-General for Energy and Geology (“DGEG”) will manage the procedure in coordination with the Supplier of Last Resort (“SoLR”).
• The auction will follow a "descending clock" format, with multiple sequential rounds.

On May 27, 2024, Order No. 5971-A/2024 was published setting out the regulations that would govern the competitive procedure and initiated the auction. Applications were to be submitted by July 26, 2024.

As established by Decree-Law No. 62/2020, the SoLR is responsible for acquiring renewable and low-carbon gases from producers to ensure compliance with the minimum quotas for incorporating these gases into the National Gas System, acting as a facilitator between production and commercialisation.