PORTUGAL: An Introduction to Projects

Economic and Political Overview 

The Portuguese economy improved in 2022, having benefitted from a recovery in tourism and private consumption, and performing much better than initially expected, growing 6.7%. In 2023, the Portuguese GDP continued to grow, but at a slower pace, having reached a rate of 2.1%.

Currently, the Portuguese GDP is estimated to have grown in 2024 by 1.2%, still above the medium GDP growth in the euro area (estimated in 0.8%), with some gradual recovery expected in the next few years (2.2% for 2025 and 2.0% for 2026). This reflects the acceleration in external demand, the impact of lower inflation on household incomes and the boost to investment from European funds, as well as the progressive unwinding of the impact of rising interest rates. Having reached 5.3% in 2023, it is expected that inflation will continue its downward path in the following years (2.9% in 2024 and 2.0% onwards).

On the Portuguese political scene, despite early elections being due in March 2024, disruptive change is not expected, and political consensus has been reached on some priorities, providing stability for the implementation of strategic public projects and the use of European funds expected to flow to Portugal from the Resilience and Recovery Programme.

Trends in the Energy Sector in 2024 

Energy is expected to remain a key sector for economic activity in 2024. Currently, Portugal relies heavily on hydro and wind for renewable energy generation. However, due to the country’s high solar availability, solar photovoltaic (PV) power is expected to play a significant role in the future.

Although a significant amount of grid capacity has been allocated for PV plants up to 2024, Portugal is still falling short of its targets in terms of effective project deployment. By the end of 2023, Portugal had around 3.8 GW of PV installed capacity, and the current target, which is set to increase significantly, is to reach a total of 9 GW of PV capacity by 2030. A significant amount of PV capacity is expected to reach ready-to-build status in the next few years, a point at which the financing and M&A activity typically increase.

At the same time, cost-effective alternatives such as overpowering, repowering and hybridisation of existing wind and hydro assets are expected to increase in 2024. Since 2022, there has been legal certainty in the procedure and remuneration legislation for these upgrades and there are already signs that this will often be an option for new, mostly solar installed capacity to be deployed. This will increase the load factor of existing grid connection points.

Offshore wind is also expected to play a key role in meeting renewable energy targets. Portugal has launched a public consultation on a proposal to establish zones for offshore wind projects in Portuguese waters, and it is expected that at least the pre-qualification stage of this tender will be carried out in 2024. Additionally, a national strategy for energy storage is expected to be published during this year and it may be followed by the launching of procedures for allocation of capacity for battery storage or other energy storage projects.

The first-ever auction for renewable hydrogen and biomethane projects, which was announced for the second half of 2023, is now expected to take place in 2024. It is expected that 150 GWh/year of biomethane and 120 GWh/year of green hydrogen will be auctioned in ten-year contracts, and this will provide a new incentive for renewable gas producers to invest in this sector. The country has, since February 2024, a biomethane national plan, and licensing reforms may be taking place aiming to streamline the development of biomethane production projects.

Market Opportunities in Other Sectors in 2024 

After years of delay and lack of definition, a relevant pipeline of infrastructure projects is starting to come out in the short term, attracting investment and increasing competitiveness.

As a matter of top priority, the Portuguese government is committed to implementing a high-speed railway line linking Porto to Lisbon. As it has been announced, it will comprise three phases (per sequential stretches): 1) Porto–Soure (divided in Lot A, between Porto and Aveiro, and Lot B, between Aveiro and Soure); 2) Soure–Carregado; and 3) Carregado–Lisbon. The project recently kicked off (in January 2024), with the launch of the first concession (Lot A of Phase 1), for the design, building, financing and maintenance (DBFM) of the stretches between Porto and Aveiro. Lot B tender should be launched in the second semester of 2024 and the second phase (Soure–Carregado) is expected to be launched as one concession in early 2025. The third and final phase (Carregado-Lisbon) should follow, but neither the timing nor the contracting model have yet been announced.

Having been postponed for decades, the new or secondary airport in the Lisbon area, which is critical to increasing airport capacity in the region (which already exceeds demand estimates and indicators), should be decided in 2024. The government has already appointed an independent technical committee to carry out the strategic environmental assessment, with high-level discussions underway to determine its location and the solution to be adopted among several possibilities. The committee has now completed its independent report (by the end of 2023), which was under public consultation until February 2024. After the committee’s works are ultimately completed, the newly elected government should take a decision and the project should then be launched to award the design, construction, operation and maintenance of the selected infrastructure.

Another highly anticipated and strategic project is the new multipurpose port terminal in Leixões, with an estimated investment of over EUR200 million. Along with the new legal framework to be put in place very soon, there should be a new pipeline (and renegotiations) drawing attention to the port sector in the next couple of years.

In terms of healthcare infrastructures, hospital projects continue to make a comeback. Following the award of the new Lisbon Hospital (Hospital Lisboa Oriental) in 2022, it should now be the opportunity for the Hospital Central do Algarve, which was originally launched in 2008. The project is currently being structured and the tender process is expected to start in 2024.

In addition to new projects, we continue to see regular M&A activity in existing projects, with sponsors selling their stakes in project companies that own fully operational assets. It is also expected that renegotiations of PPPs and arbitration proceedings will follow requests for financial rebalancing, which are now being submitted by concessionaires in various sectors on the grounds of the COVID-19 pandemic and the curfew and lockdown measures adopted.