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| Fig. 1: The Alqueva dam, in Portugal (Source: "Wikimedia Commons"). |
If the world oil production keeps fairly constant, according to the 2018 BP Statistical Review of World Energy, the oil reserves will last 38 more years. [1] Even considering that the reserves will increase (due to new techniques), or production decrease, it is hard to see how oil can last more than 100 years. We will eventually need a replacement to provide all the energy that we use. An increasingly popular idea among some countries (especially in Europe) is to invest in renewable energies. Portugal is an example of a country that strongly invested in wind and hydro power. However, that investment is heavily affecting electricity costs, years after the investment was made. In this report, we will look at the investments made in Portugal in the last years and analyze the consequences of those actions on electricity costs.
By the end of 2015, Portugal had an installed hydropower capacity of 5,902 MW, that generated 9.78 TWh during that year. The hydropower network had 57 hydroelectric power stations that generated at least 0.54 GWh yearly. The Venda Nova (pumped storage) hydropower station had the greatest capacity by the end of 2015, peaking at 746 MW. In 2017, the Frades II hydropower station became the station with the highest capacity: 880 MW. In 2016, the hydropower network generated 16.9 TWh of electricity, which represented 28% of the total production. [2] Fig. 1 shows the Alqueva dam, one of the largest Portuguese dams.
At the end of 2017, the total installed wind power in Portugal was 5,313 MW. The installation of further wind turbines almost stopped from 2013 onwards. The windpower network is formed by more than 250 wind farms, and generated 12.4 TWh of electricity during the year of 2016, which represented 21% of the total electricity production. [3]
Finally, there is solar power. Portugal's solar power capacity was 478 MW by the end of 2017. The solar electricity production during 2016 was 822 GWh, or 1.4% of the total production. [2]
In May 2016, all the Portuguese electricity was produced by renewable sources during four days. All this really sounds like good news, but Portuguese consumers are currently paying a high price for such achievements.
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| Fig. 2: Electricity price in Portugal. [2,4-6] (Source: D. Braganca) |
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| Fig. 3: Electricity price in the US. [3,5,7,8] (Source: D. Braganca) |
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| Fig. 4: Relation between price and renewables in Portugal. [2,4-6] (Source: D. Braganca) |
We may assess the impact that renewables had on the electricity price in Portugal by comparing the evolution of electricity prices normalized to GDP per capita in Portugal and in the US. We can check if the discrepancies are correlated to a higher use of renewable sources in the total energy production in Portugal. This metric tells us the average weight of the electricity cost in the finances of a Portuguese citizen. Note that this method is not perfect because the electricity price can be affected by other factors (economic crisis). Nevertheless, we would expect a priori this normalized electricity price to either decrease or remain fairly constant as a function of time.
Figs. 2 and 3 show the difference between the nominal and normalized electricity price in each country (Portugal and US). In Portugal's case, we normalized with the 1991 GDP per capita, and in the US with the 1996 GDP per capita. As we can see, in Portugal's case, although the nominal price almost always increases, the normalized one mostly decreases (this method corrects automatically for inflation). However, we notice that starting in 2008 the normalized price starts increasing steadingly up until reaching a big jump from 2011 to 2012. This big jump is also due to the 2007-2008 oil crisis and to the Portuguese financial crisis. However, there is still this increasing trend in the price that started in 2008 and was only interrupted in 2017. In the case of the US, the normalized price is steadier. We notice an overall decrease, interrupted by two periods of increase in price: from 2000 to 2001 and from 2005 to 2009. One evident difference between the two is that between 2008 and 2017 the US normalized price steadily decreases whereas the Portuguese price steadily increases.
Fig. 4 may hint at what is causing those two different trends. Here, we compared the normalized price to the share of renewable sources in the total energy production in Portugal. We also smoothed this quantity by averaging over 5 years. To help the visualization, the value of both quantities in 1994 is set to 1. Notice that there seems to be a correlation between the two. When the share of renewables decreases, the price decreases, as we can see between 1994 and 2005 roughly. However, once the renewable share starts increasing, in 2007, the price starts increasing the following year. The correlation is very interesting, and may indicate some influence of renewables on the price of electricity.
This short analysis hints at there being an influence of renewable sources of electricity on its price. This makes sense intuitively, since oil is still the most cost efficient way to produce electricity. Portugal has already reached a 50% overall share of renewables in the total electricity production, and so the increase of the price of electricity comes as a natural consequence, specially considering a market very strongly dominated by only one company, EDP, who has almost no competition. Furthermore, the push for renewable sources has come mainly from the government, and not from market pressures. The government invested even if the costs were still too high and renewables were not very profitable. Naturally, this also implied that now Portuguese consumers have to pay for these non-profitable investments. On the other hand, in the case of the US, the push for renewables came naturally from a decrease in the installation cost, so that they were actually profitable, and private investors could support the installation of renewables. It was an organic development. That is why, despite having more and more renewable sources, the normalized electricity price in the US is not increasing, and most probably will not anytime soon.
© Diogo Pinto Leite de Bragança. The author warrants that the work is the author's own and that Stanford University provided no input other than typesetting and referencing guidelines. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.
[1] "BP Statistical Review of World Energy 2018," British Petroleum, June 2018.
[2] "Energy Statistics of OECD Countries," International Energy Agency, August 2015.
[3] C. Murphy-Levesque et al., eds., "IEA Wind - Technology Collaboration Programme - 2017 Annual Report", International Energy Agency, September 2018.
[4] "OECD Economic Surveys PORTUGAL," Organisation for Economic Co-operation and Development, February 2017.
[5] "Quarterly National Accounts, Volume 2018/2," Organisation for Economic Co-operation and Development, 2018.
[6] "Energy Policies of IEA Countries: Portugal 2016 Review," International Energy Agency, 2016.
[7] "EIA Annual Energy Review", Energy Information Administration, DOE/EIA-0384(2011), September 2012.
[8] "Electric Power Monthly with Data for August 2018", U.S. Energy Information Administration, October 2018.
