Portugal: Ahead of the sun, sea and breeze game (ENERGY)

[Mario Ferreira]

URL: http://search.ft.com/ftArticle?queryTex ... 00190&ct=0

FT REPORT - INVESTING IN PORTUGAL 2008:
Ahead of the sun, sea and breeze game

By Peter Wise
Published: Apr 08, 2008

Outside the white-walled town of Moura in the rolling plans of southern Portugal, more than 240,000 solar panels covering an area equivalent to 150 football pitches are slowly being manoeuvred into position in what will be the world's biggest photovoltaic power plant.

A few kilometres away, at Alqueva, the Guadiana river has been dammed to create the largest reservoir in western Europe and one of 18 hydroelectric power projects under way in Portugal's river valleys.

In the north-west Alto Minho region, one of the world's biggest wind farms is under construction.

Off the coast, south of Porto, wave energy converters are being moored to the seabed in readiness for the start-up of the world's first commercial wave-driven power plant

These projects reflect an ambitious government policy to produce up to 60 per cent of the country's electricity from wind, sun, wave and other renewable sources by 2020.

Success will make Portugal a world leader in the move to replace oil, gas and coal with clean energy.

"The cost of doing nothing is very high," says Manuel Pinho, the economy minister.

"We have to turn the challenge of higher fuel prices and climate change into an opportunity to create jobs, promote new industries and encourage innovation."

Portugal is already well ahead of the field.

Last year, renewable sources accounted for 40.7 per cent of total electricity production. This compares with about 5 per cent in the UK, for example.

Having already passed the 39 per cent target that the European Union has set for Portugal for 2010, the government has voluntarily lifted its clean energy goal to 45 per cent of total power generation by that year, and Mr Pinho believes 55 to 60 per cent by 2020 is "perfectly feasible".

In 2005 and 2006, Portugal's wind power capacity increased fourfold, faster than in any other EU country, to more than 2,000 megawatts, making it one of the world's top 10 producers of wind energy in absolute terms.

Three of the world's biggest solar power stations are being built in Portugal and €2.6bn is being invested in 18 hydro-power projects with a total capacity of 2,830 MW.

Portugal is embracing renewable energy partly because it has no fossil fuel resources of its own.

It depends on imports for up to 85 per cent of its primary energy needs. A doubling in oil prices since the government took office three years ago has underlined the country's exposure to volatile international energy markets.

Portugal's geographic location, climate, long coastline and abundance of rivers help provide ideal conditions for wind, solar and wave energy. Big investments in hydro power plants will also tap unused potential.

"We have enormous hydro capacity that was not being utilised," says Mr Pinho. "It was as if Venezuela was not using its oil."

The new plan is aimed at lifting total hydro capacity to 7,000MW by 2020, representing 70 per cent of the country's total estimated hydro potential, up from a current level of about 46 per cent.

More hydro capacity is needed partly to realise the full potential of wind farms. Excess wind energy generated at night will be used to pump water to the top of dams, ready to produce power when the wind drops.

However, hydro plants are facing increasing opposition from environmentalists. They say a controversial project in northern Portugal, the €354m Baixo Sabor dam, could cause irreparable damage to the ecology of the Sabor river valley, described as the last remaining "wild river" in Europe and a habitat for rare Bonelli's eagles.

But the project's owner, Energias de Portugal, the country's dominant power utility, has won government and EU approval and, during the 75-year life of the dam, will place €750,000 a year - 3 per cent of estimated revenue - into an independently-managed fund to be used to protect the local environment.

As suitable locations for dams and onshore winds farms become harder to find, interest in the wave power potential of Portugal's 832 kilometres of coastline is expected to increase.

Potential investors include EdP, the former state power monopoly, which has begun to focus strongly on renewables. Last year it paid $2.2bn for Horizon, a leading US wind energy company, making the Portuguese group the world's fourth largest wind energy producer.

Later this year, EdP hopes to follow the lead of Spain's Iberdrola with a stock market flotation of its renewables division, selling up to 25 per cent of a company with an estimated value of between €8bn and €10bn.

"The global energy market is changing and the trend towards renewables is unstoppable," says António Mexia, EdP's chief executive. "Wind and hydro will be EdP's key drivers over the next five years."

Mr Mexia has acknowledged that the group also has alternative plans should financial markets prove too volatile for the planned initial public offer of EdP Renováveis.

The alternatives under consideration are understood to include an issue of convertible bonds or the sale of non-core assets to fund investment in clean energy.

"The planned IPO is a clear sign that renewables are a core option for EdP," says Mr Mexia. "It will help fund investments that will keep the group at the forefront of the global renewables market."