Pedro Silveira Borges: “Portugal has seen significant changes in renewable energy legislation”
Servulo & Associados' new M&A partner discusses what drives foreign investment in Portugal and regulatory changes in the country’s energy sector
LL: We saw oil prices turn negative in 2020. How did this impact M&A in the renewable energy sector?
Silveira: Given the current energy crisis, it is very hard to remember that a year ago we saw energy prices turn negative. This was most certainly influenced by the Covid-19 pandemic which had a relevant impact in economic activity.
Renewable energy was naturally impacted by this chain of events. As a result, Energy M&A was also impacted: we saw some projects postponed for a 3-4-month period. During that time, the prices offered for renewable energy projects decreased significantly, however, most renewable energy promoters had enough liquidity to withstand this period. At the end of the 2020 summer, this market had resumed normal activity.
What is driving international investment in rural Portugal?
There are currently several types of international investors looking at Portugal as a preferred place to invest in rural real estate assets. The two main types of investments, implying the need to buy/rent land, are solar PV projects and agriculture investments. Both types of investments are having significant impact on the price of rural real estate assets, however these prices remain lower than in other European countries, which is a clear incentive for investment in our country.
As to agriculture investment, Portugal has a long-standing tradition in this sector, having very professional players already well established. The quality of the land and the climate have created adequate conditions for these investments, the product of which can then easily be exported to any EU country.
What do you see as the biggest constraint on the renewable energy sector in Iberia?
First and foremost, independent of existing constraints, we continue to see international investors be very interested in this sector in Portugal.
One of the most important constraints in Portugal remains access to the grid. In fact, electric grid capacity is a very scarce, and valuable, asset to have. The Portuguese government has launched two renewable capacity auctions which were very competitive. Further investment in the grid would be paramount to getting other projects off the ground.
We have also seen some of the projects which already have grid capacity struggle with administrative red tape. In this sense, it would be very important to ensure more investment - and hire additional qualified professionals - in public administration to help handle the increase of projects in this sector.
One of the most important changes is renewable capacity auctions
Could you discuss some of the regulatory changes that have occurred in Portugal recently and their effects on the renewable energy sector?
Portugal has seen (and will continue to see, I believe) significant changes in renewable energy legislation, because of the constraints mentioned before. In fact, securing grid capacity has become the first milestone of any renewable energy project. This has clarified and given more certainty to the execution of projects. Within this context, one of the most important changes is renewable capacity auctions. Legislation has also tried to reduce administrative red tape, which we expect will continue to be addressed in new legislation to be approved in the future. We have also seen more legislation on self-consumption and green hydrogen, so as to enable further investment in these two areas of the renewable energy sector.
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