Portugal should have postponed closing coal-fired power station

The former president of EDP – Energias de Portugal, António Mexia, said this week that given the current energy crisis caused by the war in Ukraine, Portugal would have done well to postpone the decision to close down is coal-fired power station in Sines.

It is an idea also voiced by the ex-president of the Business Confederation of Portugal (CIP), António Saraiva, who was one of those who attended the lecture given by António Mexia at Tagus Park, and also attended by Alexandre Fonseca, ex-CEO of Altice Portugal, and Isaltino Morais, the Mayor of Oeiras.
The lecture was the first time that Mexia returned to the spotlight after he was removed from his leadership role at EDP in July 2020 after he was made a legal defendant in the case of alleged excessive rents at EDP. (See paragraphs in italics)
António Mexia’s presentation was essentially about energy transition in which he identified stubbornly rooted myths but also opportunities associated with them.
In January 2021, EDP closed the doors on its last major coal-fired power station at Sines after 35 years of operation leaving 500 employees in a delicate situation.
“It is obvious that things are seen differently today. Today, I would say that the ideal situation would have been to postpone this decision given the war, that’s obvious. No one imagined the war”, he said in answer to a question from António Saraiva.
Nevertheless, Mexia argued that a “transition is always a transition” and it was far from being “harmonised and inclusive” and energy companies could not just “play to the gallery”, he said in a reference to green washing. However, the ex-EDP and Galp executive defended the decision to ultimately close down (or phase out) the coal-fired station which was capable of providing almost one-third of Portugal’s electricity needs.
The focus now, he argued, was on a carbon neutral economy through electrification in which electricity would be the new oil. Decarbonisation would be done through the “five Ds” — decarbonisation, decentralisation, digitalisation, democratisation, and sustainable development.

The EDP Rents Case

The so-called EDP rents case harks back to as far as 1995 when it was necessary to attract investment for power plants that the country needed, but the government was unable to pay for at the time.

So the government launched international tenders offering investors Energy Acquisition Contracts known as EACs (CAE in Portuguese).
The EAC’s bound investors to build and maintain the plants receiving a compensation rate in return. However, in 2003 with the creation of a competitive wholesale market in mind, the European Commission forced a change in rules.
In order for the Iberian market to exist, the EACs could not continue to do so. So, to avoid paying the producers the compensations foreseen in the EACs, the Portuguese government created the Contractual Equilibrium Maintenance Cost Mechanism or CEMC.
This mechanism foresaw that the power plants whose CAE ended before the expected date would only be compensated by the difference between the CAE value and the revenues they would obtain in the market.
For example, if in a given year a plant generated a net revenue of €100M on the market and was expected to receive €150 million through the EACs, the CMEC would be the difference or €50M.
But it is alleged that both the head of EDP Renovaveis, João Manso Neto and António Mexia may have been involved in some irregularities over the CMECs in terms of corruption and economic participation. Both have never been formally charged.

Photo: ANTÓNIO COTRIM/LUSA
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