A Practical Review of the Public Policies Used to Promote the Implementation of PV Technology in Smart Grids: The Case of Portugal

Abstract

Every country has objectives for climate change, and public policies are implemented to achieve those commitments. This paper aims to review the different public policies used to promote the integration of photovoltaic technology into smart grids, taking the case of Portugal as reference. An analysis of previous supporting policies is performed both in Portugal and some European countries; these policies consist of feed-in tariffs, feed-in premiums, green certificates, electricity compensation, direct capital subsidies, and tax credits. The policies currently in force in Portugal no longer aim to support the technology; instead, they intend to promote it. Energy communities, local markets, and solar auctions are examples of public policies that are currently being used, not only to promote PV power but also the development of microgrids. Finally, the Portuguese solar auctions of 2019 and 2020 are analyzed and compared. It is concluded that auctions are a very effective way of expanding the installed capacity of the PV technology in the country and have more weight on promoting the technology than other promoting policies currently being used.

1. Introduction

Climate change is an inescapable and growing threat to biodiversity and ecosystems; it not only affects individual species and their interaction with other organisms, but also their habitats. These changes alter the function and structure of ecosystems and the goods and services that natural systems provide to society. It is essential to understand the direction of ecological events to allow human communities to better respond to these changes and adapt as necessary [1]. Developed countries, which are historically responsible for the most significant proportions of carbon emissions, have the great responsibility to act first and most. It is expected that their consumption will decrease due to increased efficiency (without decreasing comfort). However, developing countries will rightfully want to increase their energy consumption in order to have better living conditions. The decrease in consumption in developed countries will not compensate for the increase in developing countries, so the overall energy demand will continue to increase [2].

Not only will the primary energy demand increase, but also the final energy consumption and the share of electricity in it, as can be seen in the report by [2]. Supposing that this is the case, in the future, energy production will be forced to increase. In that case, renewable energy technologies might be the only chance to make this increase sustainable. They are not only beneficial for the environment because they do not use fossil fuels, which means they do not emit Greenhouse Gases (GHG), but they are also economically viable by stimulating employment and economic growth; these technologies will then help the world move towards a low-carbon economy [3].

In 2015, world leaders formulated Agenda 2030, a set of seventeen objectives geared towards sustainable development and, in particular, actions to fight climate change. [4].

Europe is determined to achieve carbon neutrality by 2050, which entails the reduction of GHG net emissions to zero. This does not mean that the emissions will be zero; this means that emissions will be off-set, whether it is by planting trees, applying techniques in the ocean, or by using CO₂ capture technologies. The European climate goal for 2030 was to decrease emissions by 40% as compared to 1991; however, in September 2020, the European Commission presented the new European Green Deal—Stepping up Europe’s 2030 climate ambition [5] to the European Parliament. This document established two new main objectives: (1) to make the GHG emission reduction target for 2030 even lower—to at least 55%—and (2) to fundamentally change climate and energy legislation in order to achieve these goals.

Public Policies Supporting Renewables (PPSR) are then implemented to achieve these commitments; in fact, in the literature, PPSR are also known as “market-opening policies” or “market-driven policies” [6].

This paper reviews the different public policies used to hold up PV installations connected to the electrical grid. In the past, public policies were deployed to support the widespread use of photovoltaic (PV) power, as was the case of feed-in tariffs (FiT), feed-in premiums, green certificates, electricity compensation, direct capital subsidies, and tax credits. These policies played an important role and are reviewed and historically contextualized in this paper. With the increasing cost competitiveness of PV technology and with the transition from conventional power systems to modern smart grids, new policies were needed to promote the integration of more PV power into the smart grids. Moreover, these policies were also aimed at renewing the interest in microgrids as a way to increase energy self-sufficiency and decarbonization.

Converting conventional grids into smart grids (SG) involves the incorporation of communication mechanisms that allow consumers to play an active role in managing their own consumption through the use of demand-side management (DSM)—also known as demand response (DR) methods. In this way, they can manage to reduce their consumption and, in turn, their electricity bill. Combining this vision of the future with renewable energy sources is what is needed for a sustainable future [7]. This was accomplished by Sibo Nan et al. in [8], in which a DR schedule model was developed, with the goal of alleviating the pressure of the grid during peak hours, but also decreasing consumers’ costs without decreasing their comfort. From this case study, multiple schedule solutions that would contribute to the elimination of these problems were found. Another example is shown in [9], in which the authors developed a more efficient and improved communication infrastructure that was SG-based and used cognitive radio technology. It included an approach based on game algorithm in DSM, which helped to select the appropriate storage size for each user. Results showed a decrease in the total cost of the system as well as a decrease in the electricity bill and a decrease in the peak-to-average ratio.

SG also have different characteristics from conventional grids; one example is their high reliability. An SG can detect errors and resolve them, acting as a self-healing mechanism [10]. Moreover, this high reliability is only achievable with continuous monitoring and advanced control systems that enable the optimal management of the power flow [11]. One barrier in SG implementation is security, as a grid with a high level of automation is more susceptible to cyber-attacks; thus, there are several organizations working to improve and develop regulations for the SG [12,13].

Electric vehicles are another method of strengthening the grid, so long as its integration is carefully planned. A Portuguese study showed that a higher number of electric vehicles charging lead to a reduction of the surplus energy in a house with a PV system. A good correspondence between EV smart charging and PV production suggests that the charging of electric vehicles should take place during the day [14].

This paper also reviews and comments on actual policies, namely energy communities, local markets, and solar auctions. The case of Portugal is taken as an example when commenting on the public policies analyzed. One of the focuses of this review is the solar auctions, a procedure that is currently being followed in Portugal. In solar auctions, grid capacity is auctioned to allow for the injection of electricity by PV utility-scale power stations. The objective is to analyze if this particular policy is an innovative procedure and how it is a better option than other promoting policies.

This paper is one of the few papers in the literature that deeply reviews two different types of public policies—supporting and promoting policies—as a tool to increase the penetration of renewable energy sources and achieve decarbonization targets. This paper showcases the consequences of the application of such policies and provides a critical review of strong and weak points. Moreover, this paper presents case studies with quantitative results and comparisons, and it also explains the innovative procedure behind the solar auctions currently being implemented in Portugal. This explains the lowest value—11.43 EUR/MWh—that Portugal achieved on a tariff ever in its history during the 2020 auction. Furthermore, there are not many articles explaining and commenting on auctions as an innovative policy used to increase the installed capacity of a renewable energy source.

Figure 1 shows a diagram that sums up the topics that will be described in this paper:

Note that supporting policies (which can be called “past policies” because they are no longer needed) aim to support the technology until it becomes economically viable, and this is achieved through financial incentives. On the contrary, promoting policies (or “present policies”) are mechanisms used to spread the technology that is already mature, with the goal of increasing the installed capacity.

In the following section, a literature review is offered regarding public policies on PV development. Then, in Section 3, a review and historical contextualization of the public policies used to support the PV technology are given, some of which are used in Portugal. In Section 4, we present a deeper analysis of some national public policies that promote PV implementation, namely energy communities, local markets, and solar auctions. In Section 5, a study is performed regarding solar auctions—the public policy with the most significant impact due to the amount of PV capacity involved. A discussion of the findings is presented in Section 6, and the paper is brought to a close with Section 7, where the main conclusions of the work are outlined.

2. Literature Review

Photovoltaic distributed generation (PVDG) corresponds to the PV technology with the final goal of self-consumption, and it is generally located near the loads. PVDG support is a central topic when it comes to climate and energy policies, not only because of the environmental benefits that this technology brings, but also due to its social benefits, including the creation of new jobs. In fact, from 2009 to 2017, the PV modules’ cost decreased by over 85%—as compared with the price in 2009—which resulted from support schemes and improvements in technological competitiveness [15].

In 2016, PVDG had a share of 29% of the global solar installed capacity, which corresponded to 74.8 GW; in fact, that percentage is expected to rise to 62.6% and the global capacity to 872 GW by 2030 [16]. This growth relies on appropriate PV policy support and an electricity distribution sector that needs to be prepared for high shares of variable distributed generation. This scenario forces the analysis on the policies being implemented to support the technology—this arrangement differs from country to country, and it can also be discussed in the same country—and evaluate possible regulatory adjustments.

In [17], an economic analysis was performed to compare different PV support policies in the EU. This was based on the Net Present Value (NPV), Discounted Cash Flows (DCF), and Internal Rate of Return (IRR). It was found that PV installations have increased competition with regard to production and are able to develop substantially only in countries where the feed-in tariffs (FITs) were high enough to recover the investment cost within a reasonable time, which was less than the system’s lifetime.

Cucchiela and D’Adamo [18] studied the sources of investment risk in the PV industry through a sensitivity and risk analysis, and they found that removing the normalization limit, simplifying the procedure, and having additional support from the government are critical factors for the higher penetration of PV in Italy. It was also concluded that the bigger the system, the higher the initial investment, but the later the payback period due to the higher savings required.

Other authors developed a procedure to estimate the potential of PV systems in urban areas based on the most critical economic parameters and financial incentives [19]. The main finding of this study was that the discount rate profoundly influences the risk of the project. This parameter is affected by crisis and the country’s economic situation.

Marques et al. [20] started by categorizing some Energy Policies and Measures, such as direct investment, financial incentive, market-based instruments, information and education, policy support, etc. The conclusion was that market-based instruments are only effective if the technology is already mature (in the long run). This suggested that an optimal public policy includes a mix of policy-based instruments (such as direct investments and financial incentives) not only to enable early market diffusion but also to maintain the investment in the long run.

From a different perspective, Garcia et al. [21] jointly analyzed two central solar PV energy support policies—FiT and quota obligations. The first one incorporated information about the tariff size and the contract duration into the statistical analysis. The conclusion was that these positively influence the PV energy capacity, but not significantly. Regarding the quota obligations, the results suggested that the capacity also increases but is not statistically significant compared to the non-existence of this policy.

The authors of [22] analyzed 13 countries and used a five-criteria approach to explore the PV diffusion’s different trajectories. The first conclusion from this study is that most countries have been adapting their policies to mitigate the impacts related to the increasing share of PVs. This impact is highly correlated with the adopted compensation scheme. The study considered two compensation time frames: real-time compensation (such as net metering) and roll-over compensation (producers can accumulate credits to reduce future electricity bills). It was found that the roll-over results in higher policy costs, thus leading to the more minor adjustments of FiTs, while real-time compensation leads to shifts in the revenues of distribution companies and distortions of grid cost allocation between consumers.

Monarca et al. [23] showed that solar irradiation can influence the profitability of PV projects, and that this parameter, when wrongly estimated, can harm the final consumers. The main conclusion was that the support tariff defined by public authorities should be transparently revised when there are significant changes in long-term solar irradiation data. If that is not the case, this might lead to excessive rents as well as declines in the expected financial returns for PV developers.

Baldwin et al. [24] collected data from 149 countries from 1990 to 2010 in order to see the policy instruments that most influence the spreading of Renewable Energy Sources (RES) across low, middle, and high-income countries. It was found out that low-income countries’ subsidies represent the best policy to influence the adoption of this technology. However, in middle-income countries, FiT proved to be the most effective method, and in high-income countries, FiT and renewable portfolio standards (RPSs)—these are policies that increase the use of RES for electricity generation by encouraging suppliers to provide their customers with a minimum share of electricity from RES [25]—were the ones that drove the development of renewable technology.

The influence of carbon taxing and aggregated policies in solar and wind energy adoption was studied in [26]. The results showed that carbon taxing influences the adoption of both technologies; however, the evidence of climate change as a threat was associated with a greater use of solar technology, but not of wind. On the other hand, the size of domestic financial capital supplies positively influenced wind technology development, but this correlation was not so visible in solar technology.

In China, new regulations regarding PV technology were implemented, and Rodrigues et al. analyzed the profitability of PV accordingly [27]. Due to the large area of the country, the solar exposure changes according to the region, and so does the electricity price. The study concluded that the system’s capital cost, the annual solar production, and the self-consumption tariff highly influence the payback time of the project; on the other hand, the grid tariff has a low impact.

Tao and Finenko [28] addressed the higher tariffs in Small Island Developing States (SIDS), not only through the analysis of the Levelized Cost of Energy (LCOE), but also by using other economic parameters such as NPV or IRR since using LCOE as a benchmark could be misleading. The study showed that financing conditions strongly influence the economic feasibility of the projects, so policies should be geared toward making sure that the private sector finances solar PV projects.

The profitability of a PV system with storage was analyzed in [29]. It was concluded that energy storage systems (EESs) make it possible to overcome the intermittency problem of the RES. However, it is no longer an economically viable solution—from an environmental perspective, it was also pointed out that in depth analyses of their impact and life cycle should be conducted in further studies. In this way, it is not appropriate to subsidize this system.

A review of 96 empirical studies considering the impact of different policies on two key investor decision metrics, investment risk and investment return, was the objective of Polzin et al. [30]. The study’s conclusions showed that less risk and higher certainty lead to increased private investment. Another finding was that FiTs and RPSs are more effective in attracting private investment than other instruments such as green or carbon certificates.

In [31], Patrick and Angel discussed the various forms of financing renewable energy projects at different development states in order to guide funding decisions in the market. It was concluded that when the price of technologies drops (due to economics of scale) and government intervention is no longer needed, grid parity is an achievable goal through the use of smart grids and smart meters.

Wall et al. [32] aimed to map the foreign direct investment (FDI) flow in RES due to its growth and its contribution to the spread of RES; this was based on an analysis of 137 OECD (Organization for Economic Co-operation and Development) and non-OECD countries. It was found that globally, the policy instruments that most attract FDI in the RES sector was FITs, followed by Fiscal Measures (FM) such as tax incentives and RPS. It was also concluded that carbon tax correlates with high FDI in OECD countries and Emissions Trading Schemes (ETS) in non-OECD countries. ETS is a GHG trading program. The state of each country establishes a total, annual, maximum amount of emissions and sells it by auction to plants in operation instead of setting a maximum for each plant [33].

On the other hand, Ramirez et al. [34] provided a comparative assessment of cost-effectiveness using FiTs and net-metering (NM) schemes. A model was developed to evaluate the best combination of these schemes to produce a profitable plant. It was found that this combination results in profitable projects in most of the countries considered, and that the size of the plant is a crucial parameter that defines the viability of the project.

In [35], the authors studied two heuristic procedures to detect abnormal consumption: change in consumption and the distance from k-nearest. A collection of 50 smart meters from hostels in the IIIT-Delhi campus were used; because each meter collects 10 electrical parameters every 30 s, more than 5 million data points are generated every day. Then, in [36], the same authors deepened the analysis and presented four heuristic procedures with the same goal. The two previous procedures were also used: percentage change in consumption and the distance from k-nearest; the two new procedures were histogram buckets using consumption data and the detection of abnormal consumption using principal component analysis (PCA). Smart meters are essential when it comes to energy efficiency because their usage avoids energy wasting and helps to reduce electricity costs.

Wajde Baiod et al. in [37] addressed the issue of blockchain in several areas, particularly in the energy sector. They began by defining and explaining the difference between blockchain and cryptocurrency. Blockchain can be seen as a space or a structure where information is exchanged and shared in a decentralized way. This can be very useful in the energy space, namely in microgrids. Blockchain-based contracts allow for the payment and exchange of energy between users without a centralized and regulatory figure. Some examples were given, such as [38], which studied a decentralized market based on blockchain, and [39], which described a blockchain auction for p2p trade.

To provide an alternative way of using actual plant facilities to new workers and developers, the authors of [40] developed a real-time Plant Environmental Simulator (PES). This allows new members to simulate the learning environment and test new prototypes without using the actual plant facilities.

Local p2p trading brings more opportunities on the demand side, namely by giving the opportunity to the prosumers to interact with no intermediary. They can act as sellers when they have an excess of production—for example from the PV generation—or as buyers when charging electric vehicles (EV). Blockchain is an excellent tool that fits in this dynamic domain. In [41], the authors developed a trading platform that consists of a market and a blockchain layer. The blockchain offered a new level of automation, security, and fast real-time trading.

In [42], Esther Mengelkamp et al. took advantage of the blockchain technology and introduced it in a local market scheme. Local energy markets consist of consumers and prosumers trading renewable energy directly inside the community using a decentralized approach. The authors presented a simulation with over 100 residential houses, and they provided a decentralized market platform without a central intermediary. Their conclusions pointed out the decrease in the overall prices of the participants and an increase in transparency and security of the transactions. A drawback of this emerging technology was that some transactions were more expensive than what they were supposed to cost.

Fredrick Blom and Hossein Farahmand, in [43], modelled a local market on the Ethereum platform, and the results showed that this platform is scalable to 600 participants and able to perform an energy trading every 5 min.

Konstantinos Christidis et al. designed and evaluated an auction-based local market using blockchain in [44]. An open-source blockchain platform—Hyperledger Fabric—was used, and the smart contract, architecture, and operational parties were also designed. In contrast to the rest of the literature, these authors did not treat blockchain as a “black box”, but they studied how changing the mechanisms of the blockchain data model could impact market efficiency.

Table 1. Main findings in the literature.

Ref.	Procedure	Objective	Achievement
[17]	Research on all supporting policies	Compare different policies	FiTs are enough and the most effective.
[18]	Risk and sensitivity analysis of the investment	Study the critical factors for PV penetration and conduct economic analysis	Government support is critical for PV development, and the bigger the system, the more savings and the lower the PBP.
[19]	Developed a procedure to estimate the most critical economic parameters	Determine the potential of PV in urban areas	The discount rate profoundly influences the risk of the project and is highly influenced by the country’s economic situation.
[20]	Categorized policies and measures connected to RES	To know which policy is more effective in each situation	Market-based instruments are only effective if the technology is already mature.
[21]	Analyzed FiT and quota obligation	Study two main PV policies	FiT influences the PV installed capacity but not significantly, and quota obligation is not statistically significant and relevant.
[22]	Developed a five-criteria approach	Explore the PV diffusion’s different trajectories	The impact of the policy is highly correlated with the compensation scheme adopted.
[23]	Analyzed solar irradiation and the policy used	Determine the influence of solar irradiation on the policy used	The support tariff defined by public authorities should be transparently revised when there are significant changes in long-term solar irradiation.
[24]	Collected data from 149 countries	Determine the policy with more influence on the spreading of RES	The policy changes according to the financial situation of the country.
[26]	Study of the carbon taxing policy	Study the influence of carbon taxing and aggregated policies on solar and wind energy	Carbon taxing influences the adoption of both technologies.
[27]	Due to the large area of the country, the solar exposure changes according to the region and the electricity price	Study the new PV policies in China	The system’s capital cost, the annual solar production, and the self-consumption tariff highly influence the payback time of the project; on the other hand, the grid tariff has a low impact.
[28]	Analysis of the LCOE, NPV, and IRR	Study the higher tariffs in SIDS	Financing conditions strongly influence the economic feasibility of the projects.
[29]	NPV and IRR	Determine profitability of a PV system with storage	Storage is not environmentally nor economically viable so it should not be subsidized.
[30]	Review of 96 empirical studies	Impact of policies on investment risk and investment return	FiTs and Renewable Portfolio Standards (RPS) are more effective in attracting private investment than other instruments such as green or carbon certificates.
[31]	Study of different case studies	Study different forms of financing at different development stages	Smart meters and grids are achievable when technology’s cost drops and no longer needs government financing.
[32]	Analysis of 137 OECDs	Map the foreign direct investment (FDI) flow in RES	The policy instruments that most attracted the FDI in the RES sector were FITs, followed by Fiscal Measures (FM), such as tax incentives and RPS.
[34]	Development of an economical model	Cost-effectiveness assessment	The combination of FiTs and NM schemes results in profitable projects, and the size of the plant is crucial to the viability of the project.
[35] [36]	Heuristic procedures	Detect abnormal consumption in smart meters	Decreased energy consumption and reduced waste.
[37]	Blockchain	Application of blockchain in the energy sector	Being able to perform energy exchanges without a central figure.
[38]			Decentralized market.
[39]			Blockchain energy auction.
[40]	Software development	Develop a virtual platform for new users	Development of a real-time Plant. Environmental Simulator (PES).
[41]		Develop a new platform for energy trades	Platform that consists of a market with a blockchain layer that increases automation, security, and allows fast real-time trading.
[42]	Simultaion model of a local market	Development of a local market using blockchain	Decrease of overall prices of the participants and an increase in transparency and security in the transactions.
[43]	Ethereum platform	Modelling a local market	This platform allows about 600 participants and performs energy tradings every 5 min.
[44]	Hyperledger Fabric	Modelling a blockchain auction	The authors showed how changing the blockchain models could affect the efficiency of the market.

presents a summary of this section:

The literature is lacking an article that critically reviews the past policies—used to support technologies at an early stage—and that also discusses current policies—in force with the goal of promoting the technologies that are already mature. In Portugal, the policy with the most impact is solar auctions, and so the literature lacks a study that explains how this procedure can contribute to the development of renewable energy sources while delivering savings for the consumers at the same time; this allows the decarbonization goals set by the country to be achieved.

3. Public Policies Used to Support PV Solar Technology in the Past

The extensive policies supporting renewable energy began in Germany in 1990 [45], followed by other European countries that applied similar incentive policies. In 2009, with EC 2009/28, the EU launched measures and targets to increase the share of renewable energy in the energy mix until 2020. Each country had to establish economic and environmental policies together with instruments that would lead to having 20% of the total energy produced from RES [46].

Back in 2005, Portugal started to invest in wind energy because it was cheaper than solar at the time; Figure 2 shows the LCOE of both technologies from 2009 to 2020, and it shows that in 2009, wind technology was still much cheaper than solar. Furthermore, in 2008, there was a worldwide economic crisis that affected both investments in new technologies and incentives. It is true that the feed-in tariffs (a supporting policy) paid to solar producers were also high, but this turns to be too high a price to be paid by the Portuguese consumers through the feed-in tariffs. This explains the poor development of solar PV in Portugal until 2019 and the relative underachievement of the supporting public policies.

In 2013, Portugal launched a plan for Renewable Energies, which had the primary goal of achieving 20% RES in the Portuguese energy mix; however, in 2014, this was updated to the actual law of Portuguese self-consumption in the decree-law no 153/2014 [48].

In addition to these policies and guidelines to encourage the consumption and production of solar energy, national and international institutions developed other mechanisms to speed up the growth of this technology. This resulted in creating financial mechanisms until the technology became economically viable.

Nowadays, because the LCOE of solar is much cheaper than it was in the past (it is even cheaper than wind, as can be seen in Figure 2), the goal is to increase the installed capacity, which is still much lower than wind’s capacity (5 GW of wind vs. 1 GW of PV). To do this, it is necessary to implement promoting policies—explored in the next chapter—to contribute to this growth. This is the role of solar auctions, currently being used by the Portuguese authorities to promote solar PV, and that will be developed further in this paper.

The policies explored in this chapter—focused on the European context—are the ones that allowed this decrease in the solar LCOE and these are feed-in tariffs, feed-in premiums, green certificates, electricity compensation systems, direct capital subsidies, and tax credits.

3.1. Feed-in Tariffs

Feed-in tariffs (FiT) are fixed remuneration rates for electricity production that intend to help the producers because the technology is not yet economically mature [45]. The value of the tariff can change among countries to adjust to production and maintenance costs [49]. According to REN21 [50], about 68 countries were using FiT in 2014, and Germany, Italy, and Spain had the best results. In Germany, the values of the tariffs were very high in 2004; however, at the same time, there was disinvestment in nuclear energy and coal, and both measures increased the popularity of renewable energies [45]. This energy transition called Energiewende encouraged energy communities—a concept that will be explored further in this paper. In Italy, a similar mechanism was applied in 2005; however, the most crucial measure was taken in 2008, when renewable facilities with a capacity lower than 1 MW could receive a tariff or a green certificate [49]. Today, most FiT incentives in European countries have been removed.

In the European context, Portugal revised its status-quo by introducing new renewable technologies in development and in expansion such as wind and solar. FiT was introduced and changed according to the technology, resources, investment, construction costs, and operation and maintenance costs. Then, in 2006, the first photovoltaic plant in Portugal with 11 MW of installed capacity appeared. In the following year, the first small decentralized production units started to be built—known as micro-generation—to encourage small producers to install PV panels on the rooftops [51].

3.2. Feed-in Premiums

Market-dependent FiT are usually known as premium price policies or feed-in premiums, given that a premium payment is added above the market price. This instrument adds value to the price of electricity injected into the grid, and it is practiced on the market in question as a “bonus” for producers who sell energy to the public grid through RES [52].

When compared to the market-independent FiT, it is possible to have higher profit with this strategy; however, the uncertainty is more elevated since this value is dependent on the market value of the electricity.

3.3. Green Certificates

In Portugal, the green certificates appeared under the name of “guarantees of origin” [53]. These certificates can be requested by independent producers and companies that intend to prove to consumers that part of their electricity production is by RES or cogeneration. It is necessary to call an audit by credited entities to obtain the certificates. It is impossible to acquire the green certification if the producer has any other incentive, such as FiT.

3.4. Electricity Compensation

This mechanism was mainly used by Italy, Netherlands, Belgium, and the United States. It consists of rules that allow for the local consumption of the electricity produced by RES. This can be put into practice through self-consumption or net metering schemes; both will reduce the PV owner’s electricity bill by taking advantage of compensation for electricity consumption and the PV energy produced. Self-consumption allows the producer to use the PV-generated electricity instead of purchasing from the grid, for example, in times of the day when the electricity is most expensive [49]. Contrary to self-consumption, net metering compensates the producers for the energy generated over a long period (months or years). In this mechanism, consumers can offset their consumption, which can be different from when energy is produced by small-scale RES and stored in the utility’s grid [49].

3.5. Direct Capital Subsidies and Tax Credits

Although the variable costs of renewable energy are zero and the maintenance costs are low, the initial investments are usually very high. This has led governments to introduce policies to reduce this value, for example, in Belgium, France, Germany, Italy, Netherlands, or Sweden. These measures depend heavily on government contingency, but they are also susceptible to the political environment [49].

4. Public Policies Currently Used to Promote PV Solar Technology

Nowadays, solar PV public policies are no longer intended to support this technology; given that these are already economically viable, they are now considered to be the cheapest way of producing electricity. Therefore, the public policies that are currently in effect are supposed to help to expand the capacity installed and the number of solar PVs connected to the smart grids. Furthermore, they are meant to promote the development of microgrids that can operate independently or are connected to the main grid. These incentives can happen through Energy Communities, Local Markets, or Solar Auctions. This last one will be mainly explored in the following chapter.

4.1. Energy Communities

An energy community is a set of consumers that, through a shared installation (close to the participants), produce part—or even the totality—of the consumed electric energy [54]. An advantage of this system is that even with the impossibility of having an individual facility, this method allows the participants to join a renewable project with equal access and to pay a lower value for their electricity [54].

The working mechanism is as follows. The electricity produced is injected into the grid, the participants consume directly from the grid, and then each one’s energy consumption is adjusted according to the production of the power plant and their respective share. This share is related to the consumption or investment of each participant [54].

The consumer receives two bills, one from the trader, which has the total consumption minus the consumption of the solar community, and another from the solar community, which is related to the facility’s operating costs.

Not only does the consumer have a more considerable energetic independence given the fact that they rely on two sources of production, but they also contribute to the local economy, help in the creation of new jobs, and generate savings. Consumers outside these communities do not know if the electricity they are using in their houses is coming from renewable sources or not; however, inside the community, all the participants are sure that the electricity originates from solar technology.

In the actual European Regulatory framework, there are two approaches related to energy communities that are seen as legally recognized entities [55]:

• Renewable Energy Community (REC) under the EU Directive 2018/2001 promoting the renewable energy sources is defined in the 2nd article of the EU “RED II” directive and regulated in article 22 [56].
• Citizens Community for Energy (CCE) under the EU Directive UE 2019/944 for the Internal Electricity Market is defined in the 2nd article and regulated in article 16 [57].

In

Table 2. Differentiating characteristics of REC and CCE (Adapted from [55]).

REC	CCE
Limited membership and specific governance	Specific governance but not limited to membership
Proximity to RES generation	Without geographical limitation
All RES	Considering only electricity
100% RES	Technologically neutral
Regulated (22nd article RED II Directive)	Regulated (16th article of the Internal Electricity Market Directive)

, it is possible to see the differentiating aspects of each approach:

An example is the CCE project developed in Miranda do Douro in Northern Portugal. This is the first of a list of 30 projects that will be implemented in Portugal in the following months, which will benefit more than 100 communities [58].

Additionally, it is expected that renewable energy communities will boost the interest in developing microgrids that can be self-sufficient and promote electricity access, clean energy, and technological development. REC, working together with batteries and electric vehicles—vehicle-to-grid (V2G) feature—may participate in demand response programs to help with the management of microgrids [59].

4.2. Local Markets

A local market is a place where individual consumers and producer consumers interact to negotiate electricity in a specific neighborhood [60]. This scenario was studied in a pilot project called “Dominoes”, a European research project supported by Horizon 2020 and which joined several European partners [61].

The Dominoes project started in October of 2017 and had a budget of USD 4 million. It aims to discover and help to develop new responses to demand, aggregation, network management, and peer-to-peer (p2p) commercial services through the design, development, and validation of an expandable solution for the local energy market [61].

The project was tested in two countries and three environments. One of them was in Portugal, more precisely in Évora, and another was virtualized through a Virtual Power Plant (VPP) solution, which used a large number of consumption points all over the country. The third was in Lappeenranta, Finland [62].

According to E-Redes, the Portuguese Distribution System Operator (DSO) and a partner of the project, this study concluded that it was possible to save 7% on the average energy bill by implementing the solutions studied in the project [62].

Promoting local markets is expected to raise interest in developing microgrids to create a good environment for local energy trading.

4.3. Solar Auctions

Solar auctions are reverse auctions in which the producers compete for long-term power purchase agreements (PPA) [63]. This situation offers a lot of opportunities to governments, namely the ability to plan PV capacity and energy volumes, minimize investments risks for the developers (this is accomplished, for example, by assuring revenues for a certain period) as well as reflect their policy priorities (for example, deciding to promote manufacturing industries with local requirements in bid criteria).

The auction procedure usually has three steps. In the first step, governments or utilities allow the participants to propose the specific capacity or generation that they intend to acquire through the auction process. There are two types of auctions: “technology-specific”—if all the projects are solar projects, or “technology-neutral”—when solar projects compete with other types of projects. At this step, with the objective of reducing the risk of projects that might not have the means to be developed, governments try to eliminate speculative bidders. In the second step, the project developers must present the bids that correspond to the electricity price they are willing to receive along with the PPA. Governments decide who the winners are based on the price or on other parameters, such as the generation of local employment. The winners sign PPAs with the off taker in the third and last step of the auction procedure. Governments then ensure the delivery of projects through the scheduled commissioning date and impose penalties for non-performance based on compliance rules [63].

Table 3. Summary of the public policies described in the present paper.

Public Policies	Supporting Policies	Feed-in Tariffs	FiTs are fixed remunerations that prevent producers from losing money and help the technology to grow while is not mature.
		Feed-in Premium	These are additional remunerations for producers that inject electricity into the grid, and their value is dependent on the market price.
		Green Certificates	Green certificates are a way of proving to the consumers that the electricity produced is renewable and a way that producers have to show that they are producing clean energy.
		Electricity Compensation	This consists of rules that allow for the consumption of RES electricity produced. This can be accomplished both by self-consumption and net-metering schemes.
		Direct Capital Subsidies and Tax Credits	RES have lower variable costs but usually high investment costs, and so this is a scheme where governments have to help reduce the initial cost of the technology.
	Promoting Policies	Energy Communities	This is known to be a group of individuals that share the electricity produced by RES to help reduce the overall electricity bill of the participants.
		Local Markets	It is a place where individual consumers and prosumers interact to negotiate electricity price in a specific neighborhood.
		Solar Auctions	These are reverse auctions where the developers submit bids to compete for long-term power purchase agreements.

sums up the past and present policies:

Among the five supporting policies, the most used in Portugal was FiT. Although green certificates were also used, FiT was a direct way of supporting the technology. Green certification was not used for direct financing; its objective was to ensure that the electricity generated was clean and increased revenues through a “cleaner” image.

Regarding the promoting policies, they can work together to reach a common goal—increasing solar PV installed capacity. Energy communities can be implemented at the same time as when solar auctions occur. Because solar auctions are reverse auctions, they present an opportunity for lowering the cost of electricity to be paid by the consumers, and in particular those who do not have the possibility to form an energy community due to space restrictions. Solar auctions also mobilize much more capacity than the other two mechanisms.

In the following section, the process of solar auctions that occurred in Portugal in 2019 and 2020 is going to be explained.

5. Solar Auctions in Portugal

As there is growing interest in developing renewable electricity generation, Portugal faces a new problem: the low availability of the grid to connect more generation centers due to the high investment in the renewable sector by private companies [64].

To meet the country’s goals, the government had to define a different approach, and so the decision was to auction specific connection points where there is availability or where the network is expected to expand [64]. This way, it would be possible not only to meet the requirements of supply and demand and make sure that these projects benefit the public electrical grid, but also to reduce the consumers’ bill since the selected projects are the ones with lower prices—given the fact that this is a technology-specific auction. The investors also win with this procedure as it provides better predictability of revenues; hence, the risk of the project is lower [64].

5.1. The 2019 Auction

For this auction to be launched, its adaptation to the legal regime was necessary, and so the Decree-Law 76/2019 was published [64,65]. The authority for this auction is the Portuguese State, more specifically the General Directorate of Energy and Geology, which directs the entire procedure. In this auction, there were 24 lots of solar energy proposed, which corresponds to a total power of 1400 MW. It is worth noting that at the end of 2019, the total installed capacity of PV technology was around 830 MW.

It was also possible to choose between two different remuneration regimes: the guaranteed remuneration regime and the general remuneration regime. In the first case, the goal was that the investors would offer the lowest tariff possible that benefit the consumers; in this regime, the producers sell the electricity produced to the Last Resort Retailer at a guaranteed price within a certain period. In the second case, the objective was for the electrical system to ensure the highest contribution. Here, the producers sell the electricity produced at market price; in this case, the promoter is subjected to market rules. However, they receive guarantees of origin/green certificates [66].

An important factor when analyzing auctions is the competitiveness of the prices, and this can be achieved by comparing arithmetic and weighted averages. Considering the guaranteed remuneration regime, the arithmetic and weighted averages of foreign companies are 22.68 EUR/MWh and 20.16 EUR/MWh, respectively; on the other hand, the arithmetic and weighted averages of national companies are 23.62 EUR/MWh and 21.20 EUR/MWh, respectively. The difference between both averages is minimal, indicating that the lots with higher capacity do not reveal a significant factor. There is a difference, however, when comparing both averages in the general remuneration regime. The arithmetic average has a value of 15.47 EUR/MWh and the weighted average of 21.35 EUR/MWh; this is because lot 2 and 13 have shallow values when compared with the others.

5.2. The 2020 Auction

The main difference between the two auctions is that in this one, there is the possibility of having a new remuneration regime for systems with storage. Moreover, in this auction, the bids were all located in Alentejo and Algarve (Southern of Portugal), contrary to the previous auction [67].

There were 12 lots of solar energy proposed in this auction, which corresponds to a total power of 700 MW; however, only 670 MW were awarded [68]. It was also possible to choose from three different remuneration regimes (it is recalled that in the 2019 auction, there were only two regimes): (1) variable premium for differences; (2) fixed compensation for the public grid; and (3) fixed flexibility award, this last one specifically being for systems with storage [69].

The participants in the first model have the right to a variable premium, positive or negative, depending on the daily market closing price. If the market price is higher than the producer price, then there is a right to receive that difference; if the market price is below the producer price, then there is an obligation to pay that difference.

In the second model, the winners of the lots are obliged to pay an annual contribution to the public electrical grid. On the other hand, the bidders are free to independently sell their electricity by whatever mechanism they prefer, including on the market.

In the new model, the winners (only systems with storage) have the right to receive a fixed annual premium. However, when the wholesale price goes above a strike price, there is an obligation to pay that price difference. This is, in fact, a very innovative strategy that indirectly “obligates” the producer to use the maximum capacity of the battery. The more capacity used, the more energy sold at the market price, and therefore the more revenue the producer will have. This might justify why this regime awarded 75% of the total capacity auctioned.

Figure 3 shows the evolution of the installed capacity of both technologies. The evolution of wind capacity is similar to a log curve; however, the solar curve is comparable to an exponential curve. This exponential increase in solar technology resulted from the implementation of support policies.

We can see in Figure 3 that the solar PV is on an upward trajectory, and this is expected to continue in the future. Figure 4 shows Portugal’s forecast of solar PV capacity until 2030.

Portugal is investing heavily in solar energy; as can be seen in the figure, by the end of 2030, it is expected that more than 7.5 GW of solar PV capacity will have been installed. Solar auctions are perhaps the decisive factor in achieving these goals as they are the public policy with the most impact on solar promotion, given that it is the promoting policy capable of attracting more solar investment.

There are also the production units for self-consumption, which consist of RES systems with a maximum capacity of 1 MW and whose objective is to self-consume the produced energy, with the possibility to inject the surplus into the grid. Figure 5 shows how this activity is also growing in Portugal and contributing to the overall installed capacity.

6. Discussion

PV technology is the cheapest way of producing electricity, so the policies that are in force are no longer meant to support the technology but to promote it and to help its integration into the smart grids. These promoting policies can be considered market-based instruments since their goal is to help to maintain investment in the long-run. The current promoting policies in Portugal are energy communities, local markets, and solar auctions, with the solar auctions being the ones with more capacity involved and so with more potential savings for the consumers. Regarding energy communities, there is a project in course in Miranda do Douro in the north-east of Portugal; this is the first of a 30-project list to be implemented in Portugal, which will benefit more than 100 communities and will create and encourage self-consumption energy communities. Portugal’s legislation regarding energy communities still needs some improvements to increase its efficiency in promoting energy communities as a tool for delivering savings to the consumers and achieving decarbonization targets. Concerning local markets, “Dominoes” is a project supported by Horizon 2020 and seven companies. There are two testing environments; one of them is in Evora in the center of Portugal, and one of the main outcomes of this pilot project was a savings of 7% on the average bill. These policies are instrumental in promoting the development of microgrids. The solar auctions of 2019 and 2020 were then profoundly analyzed. In the first auction, there were 24 lots available, which resulted in the attribution of 1292 MW—considering that at the end of 2019, the total installed capacity of PV technology approached 830 MW, which is a considerable increase. There were two regimes available—the guaranteed regime and the general remuneration regime—and the total estimated savings were around EUR 40 million/year in the following 15 years, representing around 5% of the over-cost of the renewable technologies that Portuguese consumers pay every year. The auction in 2020 auctioned 670 MW of installed capacity and added a new regime specifically created to encourage the PV systems with storage. In this new regime, when the market price is above a specific strike price, there is an “obligation” to pay the system. This is a very innovative way of forcing the producer to use the maximum capacity of the storage system because the more energy stored and then sold at the market price, the more revenue the producer will have after paying that obligation. If the producer does not use the battery’s maximum capacity, after paying the system, there might be a debt. In this auction, there were savings of about EUR 32 million/year, which corresponds to 20% fewer savings than in the previous one. However, there were only 670 MW auctioned, which is 50% less than the 2019 auction. Auctions as a tool for promoting solar PV development might represent an opportunity for Portugal to be more energy-independent from other countries (Portugal still uses natural gas to produce electricity, and there are no natural gas reserves in Portugal) and to stabilize market prices. The Russia–Ukraine war showed how Portugal’s market prices are highly volatile and dependent on natural gas prices; the more renewable energy the country produces, the more it contributes to climate change, but also the more independent it becomes, and the less volatility is inserted into the Iberian electricity market.

7. Conclusions and Future Work

This paper aimed to study the different types of policies used to promote the implementation of PV technology in smart grids, particularly the solar auctions that occurred in Portugal in 2019 and 2020. The goal was to analyze whether this procedure is innovative and in which way it is better as compared to other policies currently implemented.

Research was performed regarding both the policies used in the past to support PV technology and the current policies used to promote it. Regarding the promoting policies, it is possible to conclude that solar auctions are a very effective way of expanding the installed capacity of PV technology in the country. It allows the promoters to gain access to a specific and guaranteed delivery point. Without this, a promoter would have to apply for a delivery point in competition with others and without knowing whether he will ever obtain the desired connection point. This is a valuable asset that explains the historically low tariffs that the producers are able to receive for the energy they deliver to the grid. Another factor to consider is that although energy communities and local markets are important in spreading the technology, it is essential to note that auctions mobilize more investment, more installed capacity, and more savings for the consumers than the previous policies in action. It is fair to say that this measure is innovative and has more weight on promoting the technology than the other promoting policies that are currently being used.

There are several potential ways of improving this work. One possibility could be through the integration of blockchain technology in the national future auctions. The literature shows how blockchain can be integrated into an energy trade platform and how it can be inserted into an auction environment. As explained in this paper, blockchain is a powerful tool when it comes to trading, not only in the financial sector, but also in the energy industry; this fact, allied with auctions—which have proved to be one of the best policies now—may lead to even more successful results. Blockchain-based contracts allow energy transactions to be autonomous, fair, secure, and trustworthy without depending on a central figure. Blockchain auctions can also enable exemptions from participation fees for the participants, as is already happening in the financial sector where this tool is already being used.