Renewables' Contribution Is Robust, But Growth Prospects Limited
BMI View: Growth in the Portuguese renewable energy market continues to be sluggish, with the country's embattled economy weighing on growth prospects in both the power and renewables industries. The wind sector dominates the renewables mix, but only registered capacity additions of under 200MW during 2013. We do not expect growth to pick up markedly, as investor sentiment remains low and the renewables project pipeline is limited.
Our forecasts for the Portuguese renewables industry remain unchanged this quarter as our fundamental assumptions of the market continue to be relevant. A clouded economic picture and difficulties in accessing project funding are factors which will likely hinder the future growth prospects of the industry; limiting the full potential of the sector and sapping investor interest. As such we forecast non-hydro renewables capacity to grow by an annual average of 3.1% between 2014 and 2023, far below historic growth levels witnessed in the industry. In fact, wind capacity grew from roughly 83MW in 2000 to over 4.5GW in 2012; however, according to the European Wind Energy Association (EWEA) Portugal's wind capacity additions over 2013 were just 195MW.
|Portugal Total Non-Hydro Renewables Capacity By Type, 2013-2020 and Portugal Electricity Consumption and Real GDP Growth, 2013-2020|
Although we do expect the economy to gradually recover from its three-year recession (our Country Risk team forecast real GDP growth of 0.4% in 2014), we believe that the subdued economic picture will weigh on electricity generation and consumption through to the end of our forecast period in 2023. This will limit growth in both the conventional power sector and renewables industry, and dampen investor interest. This was evidenced in August 2013 when French utility GDF Suez decided to sell 50% of its 3,300MW power and renewable energy portfolio in Portugal. Owing to the relatively depressed investor sentiment with regards to renewables, the renewable project pipeline remains small - with five projects recorded in our Key Renewables Projects Database.
Overall, wind continues to be the main focus of the non-hydro renewables sector in Portugal, and we expect the wind segment to contribute the lion's share to both the renewables capacity and generation mix across the coming decade. We expect wind capacity to reach 6.1GW by 2023, which is nearly 82% of the total non-hydro renewables capacity.
Despite the generally bearish outlook for the renewables sector in Portugal, we note that thanks to previous robust levels of growth, renewable energy does already contribute quite a high share to the country's power mix (close to 30%). In fact, owing to strong winds and heavy rain during 2013, Portugal managed to surpass its renewable energy targets (which include hydropower), and in Q113 achieved 70% renewables generation for the first three months of the year - 72% in June alone, according to Portuguese grid regulator REN. Furthermore, Portugal's renewable resources are good, with opportunities to generate power from all renewables technologies, including geothermal, biomass and marine - along with the more traditional solar and wind. There is therefore potential, but we believe this will be limited over the coming decade due the harsh economic climate.