According to Sergio Clemente, analyst at Aurora Energy Research, this measure limits the operational flexibility of batteries, affecting their profitability. 

“The restriction forces batteries to operate suboptimally, reducing their participation in ancillary services, particularly Secondary Regulation,” he explains in conversation with Strategic Energy Europe. 

This condition prevents projects from maximizing their revenues through price arbitrage and other optimization mechanisms in the electricity market.

The storage auction is part of the “Flexibilidade da Rede e Armazenamento” initiative under Portugal’s Recovery and Resilience Plan (PRR). With a budget of €99.75 million, its goal is to strengthen grid stability and facilitate renewable integration, reducing dependence on gas.

“The long-term vision for the Iberian system involves a major renewable contribution, with growing storage capacity,” says Clemente, who highlights Portugal’s ambition to further reduce its gas production by increasing solar PV and wind power installations. Storage will play a crucial role in providing greater flexibility and reliability to the system.

However, while the auction encourages the deployment of new batteries, subsidies are exclusively directed at storage systems, without directly supporting renewable generation. As a result, many projects have opted for hybridization with existing renewable facilities, as projects with an operational license for their generation site were prioritized in the selection criteria.

Auction Results: Participation and Key Awardees

The auction attracted significant interest from the industry. A total of 79 valid applications were submitted, 61 of which met the selection criteria, with 43 projects ultimately receiving funding until the budget was exhausted. This left 14 projects without funding due to budget constraints.

Large energy companies were the primary beneficiaries. Iberdrola Renewables secured approximately 20% of the total subsidy, while Akuo Energy and GALP also played key roles in the auction.

However, details regarding the exact capacity allocated to each project have not yet been disclosed. What is known is that all awarded batteries must meet a minimum duration of two hours and have a capacity of at least 1 MVA, as specified in the auction’s requirements.

The Challenge of Operating with a 75% Renewable Charging Requirement

The main challenge of the auction lies in the operational constraints imposed by the 75% renewable charging requirement, which restricts revenue optimization. Batteries generate value not only through price arbitrage in the daily market but also by participating in ancillary services and frequency regulation. However, this restriction reduces their ability to adapt to market fluctuations, particularly impacting their role in Secondary Regulation.

For Clemente, the 75% renewable charging requirement adds another hurdle to project profitability. “Each project must be evaluated individually to determine whether the overall subsidy conditions enhance profitability,” he explains. Some configurations may not offset the revenue losses caused by the restriction, even with CAPEX grant support.

To mitigate this issue, some developers may opt to oversize their renewable assets to maximize renewable charging and utilize excess energy, thereby reducing dependence on the grid when batteries need recharging.

The Impact of Public Funding on Project Profitability

The auction offers subsidies of up to €30 million per project or company, covering up to 20% of eligible costs exclusively for battery energy storage systems (BESS). While this financial support helps mitigate initial costs, it is less attractive compared to other similar initiatives in Europe.

For instance, Spain’s PERTE storage auction allowed for much higher subsidies, covering up to 60% of eligible costs and without restrictions on the source of battery charging. This makes Portugal’s auction less financially appealing, especially for projects that rely on market flexibility to ensure profitability.

“The CAPEX grant helps mitigate the limitation of charging batteries from the grid, but for many configurations, it will not offset the negative impact of the renewable charging restriction,” warns Clemente.

Regulatory and Technical Challenges for Implementation Before 2025

Awarded projects must be operational by December 31, 2025, a deadline that could pose challenges for some developers. Key obstacles include:

• Securing grid connection permits and associated administrative timelines.
• Technically integrating batteries with existing renewable plants.
• Regulatory uncertainty surrounding storage operations in the Iberian market.

According to Clemente, “revenue stacking through participation in different markets is crucial to developing an attractive business case for batteries.” However, the combination of operational restrictions and a limited incentive scheme raises concerns about the sector’s ability to attract additional investment.

In the long run, Portugal aims to reach 2 GW of installed storage capacity by 2030, but the effectiveness of this and future auctions will determine whether the country can compete with other European markets in energy storage deployment.