The potential for new, small-scale and micro-cogeneration installations in Portugal is very considerable and the growing availability of natural gas and the EU Directive on cogeneration should both encourage progress. Here, Nuno Afonso Moreira, Eliseu Monteiro and Salvador Malheiro discuss how the legal framework of the Portuguese energy market might be modified to accommodate the Directive.

Portugal relies to a very large extent on imports to meet its energy needs, with the country’s most important domestic source of energy being hydropower. While Portugal has the EU’s lowest electricity consumption levels per capita, the country has the highest electricity consumption growth rates and forecasts suggest that this trend will continue in the future. The Portuguese Government, in an effort to curb the exponential growth in greenhouse gas emissions due to rising electricity consumption and transportation, has been aggressively promoting renewable energies and energy efficiency policies.

Cogeneration has benefited from this political push and in 2003 it contributed approximately 12.2% of total national electricity production. The share of decentralized generation (of which cogeneration accounts for over 80%) has increased steadily since the early 1990s despite the limited availability of natural gas.

The Government’s Climate Change Programme under the Kyoto Protocol recognizes that global warming is a serious problem. It also indicates the need for Portugal to develop an extra 800 MW of electrical capacity by 2010, thus reaching a total of 1800 MWe. However, as of the end of 2004, only 20% of this extra 800 MWe was in operation or under construction.

Some sub-sectors of the cogeneration market have good potential for development considering the conditions related to natural gas and electricity tariffs. For example, the buildings sector has an estimated market of around 500 MWe for cogeneration systems of less than 150 kWe in size. If this power was implemented, it could reduce CO2 emissions by 290,000 tonnes a year. Applications for micro-cogeneration in Portugal include shopping centres, sport centres, hotels, small industrial sites, apartment blocks, agricultural facilities requiring hot water, and wastewater treatment plants.

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Portugal’s economy is dominated by the services sector (63%), while the industrial sector accounts for about 30% of GDP. The commercial and public sectors offer interesting potential applications for cogeneration, especially as these market segments have not been developed so far. Hotels, leisure centres, large corporate buildings and hospitals are the most suitable locations for cogeneration plants.

According to the Research Centre for Energy, Transport and Environmental Economics, the micro-cogeneration market in Portugal has the potential for 6000 units distributed across these sectors (see Table 1).

The main hurdle to higher penetration of micro and small-scale cogeneration is the limited availability of natural gas. However, Portugal has expanded its natural gas network and introduced discrete natural gas re-gasification units, some of them by private initiative.

Changes to be made in the Portuguese cogeneration policy

Portugal’s electricity sector has been undergoing profound changes since the end of the 1980s, when the production and distribution of electricity was opened up to private sector involvement. In 1991, this sector began to undergo further restructuring with a law that established the general legal regime for the production, transmission and distribution of electrical energy.

The National Electric System (SEN) is organized and functions according to several legislations passed during 1995-2000. Also out of these legislations, an independent electricity regulator, the Regulatory Entity of the Electric Sector (ERSE), was created.

Directive 96/92/CE on harmonization requirements for the electricity market resulted in widespread changes to the policy and organization of the electricity sector, which caused many changes in Portugal’s National Electric System. Further to this Directive, specific regulations were produced and revised in September 2001, the most notable of which are the Tariff Code, the Commercial Relations Code, the Dispatch Code, the Access to the Public Grid, and the Interconnections Code.

According to this regulatory framework, cogeneration plants in Portugal are assessed as ‘highly efficient’ if they fulfil the following expression:

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E is the annual electrical energy produced
T is the annual thermal energy consumption
C is the annual consumption of primary energy
CR is the equivalence energy consumption of renewable resources or industrial, agriculture or urban wastes

ηel.eq is the equivalent electrical efficiency, assuming the following values:
ηel.eq ≥ 45% for biomass or waste incineration fuelled plants
ηel.eq ≥ 50% for diesel fuelled plants
ηel.eq ≥ 55% for natural gas fuelled plants.

The electrical energy delivered to the grid is remunerated according to the following expression:

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where FC is a standard correction factor, PF is a constant fraction assigned to all plants recognized as high-efficiency CHP, PV is a variable fraction related to the ηel.eq achieved and PA is a fraction related to the CO2 emissions avoided, and therefore dependent on both efficiency and fuel.

For low voltages, a legislation in 2002 created the entity ‘producer-consumer’ who was allowed to produce electricity at such voltages. At least 50% of the electricity produced must be self-consumed. The maximum power that can be delivered to the grid is 150 kWe.

The remuneration for the electricity delivered to the grid is defined by the following equation:

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VRDm is the monthly remuneration
VRD(BTE)mis the electrical energy value delivered to the network by the installation in special low-voltage tariff, excluding the fixed monthly charge and the power fee
Ct is the technology coefficient used, ranging from E0.01/kWh (Otto engine cycle) to E0.20/kWh (photovoltaic and fuel cells)
EECm is the electric energy delivered to the public grid
IPCdez is the consumer price index in December of the previous year (in December 2005 this was 107)
IPCref is the reference consumer price index (98.1 in December 2001).

In 2004, the Iberian Peninsula began to take shape as an integrated electricity market interacting in a homogenous way with the rest of the EU. The regulatory entities of Spain and Portugal drew up a joint proposal to define the organizational model for the Iberian electricity market (MIBEL).

This is expected to lead to the development of a fluid and efficient competitive market, one with mechanisms of cooperation and control that ensure the satisfaction of consumers’ needs, a guaranteed supply, and compatibility between the objectives of developing efficient energy and renewable energies in both countries.

The Cogeneration Directive creates a framework for the promotion and development of high-efficiency cogeneration based on useful heat demand and primary energy savings in the internal energy market. In order to comply with the Directive, Member States should take into account the distinctive aspects of local energy markets via the laws and administrative provisions that they enforce. For these reasons, the necessary modifications to the Portuguese energy policy are discussed below.

Proposal for transposition

With the scenario described, the following changes are expected to be made in Portugal’s energy policy:

  • Equation 3 shall be substituted by Equation 2, changing the way of qualifying a cogeneration plant with power above 1 MWe as high-efficiency.
  • The revenues calculated with Equation 4 should consider the primary energy savings of the cogeneration system.
  • The conditions expressed by Equation 3 shall not be applied to small-scale cogeneration (< 1 MWe), because this category of cogeneration units are assessed as highly efficient if they provide some primary energy savings (PES), as calculated by Equation 2.
  • The legal framework for the ‘producer-consumer’ should be opened to production at medium voltages.
  • The technology coefficient parameter (Ct) in Equation 5 should be correlated with the standard PES of the type of cogeneration technology.
  • The amount of energy fed into the grid should not be limited to 50%, therefore helping the PES of the system to reach its total potential.

The methodological doubts about the use of equivalent electrical efficiency nel.eq in the earlier framework will remain, because the new framework continues to be based on efficiency reference values. One way to address this problem is to define standards for these reference values, where PES should have the primary importance.

The producer-consumer should not be limited to producing low-voltage electricity at only the 50 kWe micro-cogeneration category because this would restrict project development – for example, it could miss a relatively huge market (500 MWe) for cogeneration below 150 kWe. Instead, the figure for the producer-consumer at low voltage should be extended to small-scale cogeneration (up to 1 MWe), and this should also be open to medium-voltage connected systems. These modifications, which do not create any complexity to the grid manager, can improve significantly the number of potential hosts for cogeneration systems, fulfilling the Directive’s objectives.


The expansion of the natural gas network in Portugal, along with the cost reductions of the power generation technologies, has introduced a set of factors favourable to the expansion of natural gas CHP and micro CHP systems. The buildings sector has a strong potential, where about 6000 buildings have the conditions to host a small or micro-cogeneration system, representing a total power of 500 MWe.

In addition, the recent EU Cogeneration Directive encourages the development of high-efficiency cogeneration. Plants with installed capacity of over 1 MWe achieving a PES higher than 10% are assessed as efficient. Small-scale cogeneration plants (i.e. those with an installed capacity below 1 MWe) and micro CHP plants (i.e. plants in cogeneration unit lower than 50 kWe) are qualified as high-efficiency cogeneration if they provide some primary energy savings.

The Cogeneration Directive will promote three main modifications in Portugal’s energy policy:

  • For cogeneration plants with capacity above 1 MWe the equivalent electrical efficiency will be calculated by the PES (the result must be higher than 10%). The transposition should encourage the maximization of energy revenues, dependent on the PES.
  • For small-scale cogeneration (< 1 MWe), the equivalent electrical efficiency will be calculated by the PES, and will be assessed as high-efficiency if the result is positive. The transposition should induce a less restrictive framework for the installation of new cogeneration systems, reducing the technological barriers, namely allowing medium-voltage connection with the grid, and improving the revenues provided from these small cogeneration systems.
  • The legal framework of the producer-consumer in low voltage should be extended to small-scale cogeneration and opened to medium-voltage systems. These modifications can improve significantly the number of potential hosts for cogeneration systems.

It is possible to transpose the Cogeneration Directive with some small modifications to the Portuguese legal framework. These modifications should consider the PES as the central objective, and therefore should index with PES the technological parameters used to calculate the revenues of cogeneration systems. The changes to the framework for small-scale and micro CHP could improve the current connection limitations, inducing a strong growth in the number of systems installed.

Dr Ing. Nuno Afonso Moreira is team leader of the NITEC Tecaprod project, on the research and development of micro CHP systems in Portugal. Eliseu Monteiro MSc is responsible for the R&D department of Tecaprod and is working on his PhD thesis. Dr Ing. Salvador Malheiro is energy adviser of the Swedish Embassy in Portugal. All three authors are with the University of Trás-os-montes e Alto Douro, Vila Real, north Portugal.

The EU Cogeneration Directive

The Cogeneration Directive (2004/8/EC) aims to increase energy efficiency and improve security of supply by creating a framework for the promotion and development of high-efficiency cogeneration based on useful heat demand and primary energy savings in the internal energy market.

Electrical and heat reference values

The quantitative part of the Directive reflects the two-phase approach of plant evaluation:

  • a harmonized methodology for calculating the electricity from cogeneration
  • a methodology for determining the efficiency of cogeneration.

In phase 1, the Directive states that the whole generated amount of electricity should be considered as produced from cogeneration when an overall annual efficiency of 75% is reached (80% for combined-cycle gas turbine and steam-extraction condensing turbine).

If the overall efficiency is below the above values, then the amount of electricity produced from cogeneration can be calculated by:

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where HCHP and ECHP represent respectively the net heat production from a cogeneration process (calculated as total heat production minus any heat produced in separate boilers) and the amount of electricity from cogeneration, while C is the power-to-heat ratio, ranging from 0.45 to 0.95 depending on the kind of plant considered.

In phase 2, the main principle for the assessment of high-efficiency cogeneration is that a considerable amout of primary energy saving (PES) must be pursued. This can be calculated with the following expression:

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where CHP Hh and CHP Eh represent, respectively, the average thermal and electrical efficiency of the CHP process during an operation year, while Ref Hh and Ref Eh represent the reference efficiencies of separate thermal and electrical production processes. Plants achieving a PES higher than 10% are assessed as ‘efficient’.

The reference values shall not be far from the values expressed in the Commission’s Amended Proposal, where new plants with separate heat production are assumed to have 90% efficiency (85% for oil- or coal-fired boilers) and natural gas power plants are assumed to have 55% electrical efficiency for electric production (42% for coal- and oil-fired plants).

As seen above, the electricity from the CHP plant that is eligible for support will be determined by considering both the overall efficiency (phase 1) and the primary energy saving (phase 2, Equation 2). However, plants achieving 10% energy savings (calculated by Equation 2, substituting CHP Hh and CHP Eh with Hh and Eh) are assessed as high-efficiency plants, independently from their overall annual efficiency.

This is very important because plants operating in a mixed state (CHP activity and non-CHP activity) do waste some heat; therefore, calculating a 10% energy saving on the total energy production ensures that CHP activity is prevalent throughout the year.

The Directive also indirectly defines the qualification for CHP, as evident in the following:

  • The Directive abolished the 50 MWe capacity threshold for efficient plants to be eligible for support programmes. This was introduced in the first proposal for a Directive of the European Parliament and of the Council on the promotion of cogeneration based on useful heat demand in the internal energy market.
  • The Cogeneration Directive explicitly refers to the Directive on the Energy Performance of Buildings (Directive 2002/91/EC), which requires Member States to provide technical, environmental and economic feasibility documentation on CHP systems before exploiting any new construction with a total surface area over 1000 m2.
  • All parameters for the calculations are adjustable, to take into account technical progress.
  • To guarantee that the electricity produced comes from cogeneration, Member States shall designate one or more competent supervision bodies.
  • Small-scale cogeneration plants (those with an installed capacity below 1 MWe) and micro cogeneration plants (below 50 kWe) are qualified as high efficiency cogeneration if they provide some primary energy savings.