Order no. 268-B/2016, of 13 October, issued by the Secretary of
State for Energy entered into force on 14 October and is highly
detrimental to those private investors who have benefited from
state grants over the years.
This legislation imposes, with immediate effect, an obligation
for power plants benefiting (or having benefited) from guaranteed
remuneration for energy generated from renewable sources supplied
to the public grid (known as
«feed-in-tariffs») to refund to the
Portuguese State part of amounts received to the extent they also
benefited from other types of state grants (or
incentives) to promote and develop projects to generate power from
renewable energy, including cogeneration.
The reasoning behind this Order is that state grants should not
have been received cumulatively with the guaranteed remuneration
referred to above. As a result, the intention of the Portuguese
State is that amounts received in excess should be paid back
through the Last Resort Supplier ("LRS»). This supposed
excess is to take effect in the upcoming 2017 tariff period.
The need for this «offsetting» is based on the
Government's aim to lower the electricity consumption bill and
the tariff deficit of the National Electric System
(«NES») linked to the extra costs incurred by this
sector, including the costs arising from tariff incentives to
generators, with a view to achieving greater sustainability of the
Nonetheless, several doubts arise from this Governmental
Order, such as:
state grants are covered?
What is the legal
basis behind the requests to refund the incentives?
How far back will
the Government go regarding cumulative incentives?
Exactly how will the
adjustment of the excess amounts be processed?
When will the
obligation to refund the amounts in excess (even if through
offsetting) be due by generators?
The DGEG - Directorate General for Energy and Geology will have
to (i) identify the excess amounts received by each power plant,
and (ii) set down the amount in euros per MWh to be offset against
the remuneration to be received from the LRS.
The DGEG has already started notifying power plants to (i)
confirm the amount received as from the granting of the
production licence, and (ii) provide extensive information and
documentation, evidencing, inter alia, investment amounts and
operating and maintenance costs, within 10 working days. If it is
concluded that the Governmental Order is illegal or
unconstitutional, the acts and administrative decisions
performed/issued under or as a result of it may be challenged in
court on the grounds of their illegality and
If any foreign entity owns rights over any of the renewable
energy generation projects covered by the Order in question –
directly or through any kind of equity stake – these foreign
investors will be entitled to bring a legal action directly against
the Portuguese State by means of international investment
protection arbitrations. They will be able to do this
under international law and regardless of the lawfulness or
constitutionality of the Order under the Portuguese legal system,
by claiming for compensation from the Portuguese State on the
grounds of the negative impact of the Order on their
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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In general terms, a "corporate" power purchase agreement refers to a contractual arrangement whereby independent generators (typically renewable) and corporates that are large energy consumers, contract for the sale of power to that consumer.
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