Joao Faria Conceiçao is the chief executive of Redes Energeticas Nacionais, the counterpart of Red Eléctrica and Enagás, in Portugal. The executive visited Spain on the occasion of the Hydrogen Day organized by the Spanish gas manager and took the opportunity to review the company's situation and joint plans with Spain.
What are REN's hydrogen investment plans in Portugal?
The objectives we have in hydrogen are very ambitious and, as such, we have the responsibility to create the necessary infrastructure to meet them. The most important project is the interconnection between the Portuguese municipality of Celorico a Beira and Zamora (CelZa), included in the H2Med project. We are talking about an investment, on the Portuguese side, of about 200 million euros. In the municipality of Sines there are also several industrial projects underway, many of them involving hydrogen production, and the plan is to create a hydro-product to connect hydrogen producers with consumers. Thirdly, we have an important mission. The National Hydrogen Strategy in Portugal goes through a period of hydrogen development that does not involve the direct creation of hydrogen infrastructures, but using existing natural gas infrastructures and allowing what is called blending. Portugal has set a target of 5% blending by 2025 and 10% from 2030 onwards.
Portugal has a subway storage infrastructure (Carriço) composed of six natural gas storage cavities in a natural saline formation. We are doing many studies and some adaptations to allow, in a first phase, blending to be extended to this storage infrastructure, with the aim of gaining experience and preparing the next phase so that only hydrogen can be stored in these cavities.
Are you going to develop new natural gas storage facilities?
The idea is to build two new caverns that are prepared to store 100% hydrogen. They could be in operation between 2026-2027 for a total cost of around 100 million euros.
Do you plan to incentivize hydrogen demand?
Portugal is preparing its first hydrogen auction for 2023, for a volume of 120 GWh at a price of 127 euros?/GWh, with 10-year contracts from the date of the first supply. The Wholesale Marketer of Last Resort will act as the sole purchaser of this volume from the respective producers.
What are the bottlenecks in the development of renewable hydrogen at the moment?
I would say that one of them is the grid itself, not only the gas grid, but also the electricity grid. The commitment to green hydrogen requires having behind it a renewable electricity generation capacity to generate the electricity that the electrolyzers will need to produce the hydrogen. We are talking about a ratio of 1.5 to 2 times the capacity of the electrolyzers, depending on the renewable mix, and that is why it is necessary to have a network, not only for the transport and distribution of hydrogen and to connect hydrogen consumers and producers, but also grid connection points so that renewables can inject. Another bottleneck is the issue of equipment. In the contacts we have with potential hydrogen project developers, they tell us that it is not being at all easy to have access to electrolyzer equipment, since much of the production capacity of this type of equipment is already reserved, mainly for projects in the USA. Another relevant aspect, which is more of a challenge than a bottleneck, is to have a market maker or entity that promotes the purchase of hydrogen projects that are being made to create the necessary volume and critical mass for this market to develop.
How much will hydrogen costs improve?
From REN we say that all this change that is being made at the energy level in the world has to be sustainable. When we talk about sustainability, we are not only referring to the environmental part, but also to the technical part. The idea is to be able to reach prices of 40-50 euros?/MWh from 2030 so that hydrogen is competitive and we are not developing a very interesting product in terms of security and energy independence in Europe, but which detracts from the economic and financial competitiveness of the European economy.
In addition to being the grid operator and system operator in the gas sector, REN performs the same functions in the electricity sector.
What challenges do you face?
On the electricity side, we have a lot of workload ahead of us in the next decade. On the one hand, we had to face the challenge of creating the necessary conditions for the Portuguese renewable plans to reach 10 GW in solar and go from 5 GW of wind to 9 GW with repowering of existing farms. Portugal has much more solar than this 10 GW, when the consumption peak is 10 GW; that is, we have production levels well above the consumption peaks. At the moment, the requests for solar connection are well above what was expected. On the other hand, we have the Portuguese government's plans to launch an offshore wind auction to reach 10 GW by 2030. We also have the challenge of prioritizing the ability to obtain licenses (both energy and environmental) and then the ability to execute. After years of underinvestment, suddenly everyone wants high-capacity grid and what happens is that our construction suppliers are not ready to respond to these volumes.
How are the electricity interconnections between Spain and Portugal coming along?
The next one to start up is the Minho-Galicia interconnection. The objective is to have it in operation by the end of 2024.
Spain and Portugal have asked Brussels to extend the 'Iberian derogation'. How do you assess the functioning of this measure?
It does not have a direct impact on us. However, I believe that it is giving positive results and that the European Commission should think about whether to allow it to continue. Portugal has had a major challenge with the drought, having decided not to have coal. We have no coal since November 2021. Fortunately it has started to rain and we have recovered the water capacity that guarantees security of supply.