EDP nets €641 million by selling tariff deficit in Portugal

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The Portuguese utility has sold €641 million of tariff deficit in Portugal.

Related to special regime generation, the tariff deficit results from the 5-year deferral of the recovery of the 2017 over-cost with the acquisition of energy from special regime generation (including adjustments from 2015 and 2016).

In recent years electricity tariff deficits have emerged in Spain, Portugal, Greece and in some other EU Member States.

Tariff deficits are shortfalls of revenues in the electricity system which arise when the tariffs for the regulated components of the retail electricity price are set below the corresponding costs borne by the energy companies.

The tariff debt in Portugal is also substantial. The total accumulated tariff debt was estimated by the regulator at €3.7Bn (2.2% of GDP) at the end of 2013; according to Portuguese government estimates that figure could actually be even higher at €4.4Bn (2.6% of GDP).

This means a substantial increase in comparison to the €2.85Bn (1.7% of GDP) of tariff debt at the end of 2012. The majority of Portuguese tariff deficit emerged in 2008, 2012 and 2013 during the peak years of economic crisis.

The tariff deficit in Portugal therefore represents a mismatch between the integral electricity tariff (which should cover energy, network, taxes, levies, and other relevant costs) and the sum of corresponding costs borne by energy utilities.

The Government’s goal is to pay off the tariff debt by 2020 by a moratorium on support to new renewable energy installations and the elimination of power guarantee incentives, revised remuneration scheme for co-generation; agreement with EDP on reduced compensation for the early termination of former long-term power purchase agreements (CMECs) among others.