Portugal

Portugal has established a clear long-term direction for its energy transition through the Roadmap for Carbon Neutrality 2050, the Basic Climate Law, and the National Energy and Climate Plan (NECP) 2030. The NECP commits to reducing GHG emissions by 55% by 2030 (vs. 2005 levels) and achieving climate neutrality by 2045. Strong progress has been made, with emissions down 43% in 2024, driven mainly by decarbonisation of electricity supply. Portugal is now entering a mid-transition, in which further progress will depend increasingly on end-use sector decarbonisation, where emissions remain high and structural declines have yet to materialise.

To stay on track to meet its goals, Portugal needs to translate its strategic ambitions into a coherent, co-ordinated national roadmap, such as the Roadmap for Carbon Neutrality, which is under review in 2026. While the NECP identifies clear objectives, the pathways for achieving them are dispersed across numerous strategies, regulatory reforms and funding programmes. This fragmentation makes it difficult to align investment planning, infrastructure needs, workforce development and consumer incentives. A national roadmap would integrate these efforts, increase transparency, and provide clarity and direction for authorities, industry and consumers.

The roadmap should be built on bottom-up sectoral agreements, developed in close collaboration with industry, municipalities, and labour and consumer groups, to ensure that each sector’s pathway reflects practical implementation barriers, technology readiness and cost-effectiveness. This approach would also help sequence actions in electricity, buildings, transport and industry; support targeted measures where progress is lagging; and build shared ownership of the transition.

A well-defined roadmap would provide the predictability required for investment, help avoid bottlenecks in supply chains and workforce skills, and ensure that Portugal’s 2030 and 2045 goals remain achievable. This effort could build on the ongoing revision of the Roadmap for Carbon Neutrality 2050, led by the Portuguese Climate Agency, which offers an opportunity to integrate sectoral pathways under a coherent national framework.

In line with the IEA’s people-centred transition recommendations, which emphasise fairness, inclusion and active participation, Portugal’s energy transition will depend on empowering the groups most affected by and essential to delivering on it. Actions are being taken under the Just Transition Fund, as well as through the implementation of the Social Plan for Climate Action, which was the subject of public consultation in 2025 at the national level. High energy poverty rates mean many households face financial and structural barriers, yet they are also central to driving change through their decisions concerning renovation, heating, mobility and on-site energy production.

Ensuring that public support empowers low-income households to participate in the transition by improving access to building renovation, clean heating, efficient appliances, distributed PV, behind-the-meter batteries, electric vehicles and charging options, and affordable mobility is essential to avoid widening inequality and to maintain social acceptance.

Structural changes in the energy system will also affect workers and regions linked to fossil fuel supply chains. Portugal’s gas sector faces declining demand and the oil sector’s long-term trajectory will be similar. Workers in these sectors have valuable technical and customer facing skills that can support electrification, building renovation and emerging clean energy industries, but they will need clear pathways for retraining and redeployment.

Targeted labour market measures, workforce programmes and regional support can help ensure that these workers benefit from the opportunities created by the energy transition. Lessons from Portugal’s recent industrial transitions, including the closure of the Matosinhos refinery and the retirement of coal-fired plants, highlight the importance of early planning, co-ordinated regional support and clear pathways for workforce redeployment.

Delivering on Portugal’s climate and energy objectives depends heavily on the capacity of the institutions implementing them. Municipalities, regional agencies, regulators and public bodies face rising workloads as they manage grants, permitting, renovation programmes, grid planning and evolving market regulations. Many report resource and skills constraints that slow implementation and limit the pace at which investment can be delivered. Strengthening institutional capacity, improving technical skills and ensuring adequate staffing will be essential so that clean energy programmes reach households and businesses in all regions and the transition proceeds at the scale and speed required.

Transparent electricity price signals are essential for Portugal’s energy transition. Households, small and medium-sized enterprises, and industry will take many of the decisions that drive electrification, including replacing fossil fuel equipment with heat pumps, purchasing electric vehicles and efficient appliances, and investing in industrial electrification. These choices depend heavily on operating costs and payback periods.

Electricity prices in Portugal currently include numerous non-energy and non-network charges, including the cost of legacy subsidies, energy efficiency levies, financing of the social tariff, recovery of the tariff deficit, tariff convergence costs for the Azores and Madeira, funding for the Directorate-General for Energy and Geology, the CESE levy on energy companies, and the audiovisual fee.

Essential policy costs should be shifted to the state budget with clear multiannual commitments while temporary or distortionary charges should be removed. This would accelerate electrification by providing cost-reflective electricity prices while ensuring continued support for essential programmes. Improved time-of-use price signals would strengthen the economics of photovoltaics and batteries, electric vehicle smart charging, heat pumps, distributed energy resources, and demand-side response. This would empower consumers to participate in the transition, supporting higher shares of renewables and increased system flexibility while lowering electricity bills.

Strengthening price signals must go hand-in-hand with maintaining affordability given Portugal’s relatively high levels of energy poverty. Portugal’s social tariff provides important discounts for eligible low-income households. However, the number of beneficiaries has remained stable, indicating underlying affordability challenges that cannot be addressed through tariff discounts alone. Social tariff support should be linked to consumption (kWh) thresholds and financed through the state budget. An irreversible phase-out of the regulated tariff is also needed to support price transparency and incentivise efficient consumption. Complementary support measures for deep building renovation, appliance efficiency and access to clean mobility will also be essential to ensure that low-income households can fully benefit from the transition as price signals improve.

Portugal’s uptake of electric vehicles (EVs) is expanding rapidly, supported by a favourable fiscal regime and a well-developed charging network along major corridors. In 2025, EVs accounted for 38% of new car registrations, higher than the average EU share. Public transport policy has also delivered successful fare-reduction programmes and expanded services. However, major challenges remain. Oil covered 92% of transport total final energy consumption in 2024, road transport remains dominant, and the vehicle fleet is relatively old and inefficient. Transport is the largest source of Portugal’s energy-related greenhouse gas emissions (54% in 2024) and transport oil demand continues to grow.

Shifting trips from private cars to public transport, rail, walking and cycling is Portugal’s most durable lever for reducing oil use and emissions. Unlike technological substitution within the car fleet, modal shift reduces energy demand structurally, lowering oil consumption and the need for costly grid upgrades. At the same time, private vehicle electrification remains essential for decarbonising the large share of travel that will continue to rely on road transport. Achieving this shift will require sustained behavioural change supported by policies that make public transport, walking and cycling convenient, affordable and attractive alternatives to private car use.

EV policy needs to better reflect limited purchasing power and the structure of Portugal’s vehicle market, where around 80% of purchases are used vehicles. Introducing a used EV subsidy targeted at low-income households would help lower the average fleet age and reduce emissions. Professional drivers and small and medium-sized enterprises should also be priority beneficiaries, ensuring that scarce public resources reach those with the greatest financial need and those with the highest potential to reduce emissions.

Expansion of charging infrastructure should prioritise low-voltage charging in urban areas, where many households rely on street parking and cannot install private chargers, with specific attention to low-income households. Strengthening charging availability around park-and-ride hubs would enhance integration between public transport and EV use.

Rail freight also offers substantial efficiency and emissions benefits and more efforts are needed to shift freight from Portugal’s diesel-dependent truck fleet to its highly electrified rail system. Modal shift must remain a central pillar of transport policy. Urban and regional planning should ensure equitable access to active mobility options, reliable and affordable public transport, and national high‑speed rail so that all citizens can benefit from cleaner and more efficient mobility.

Portugal’s industrial emissions have remained broadly flat for more than a decade, even as national climate ambition has increased. The sector now faces two transitions at the same time. Existing industrial facilities must cut emissions rapidly to meet the 2030 targets and industry must position itself to compete within global value chains that are shifting to clean technologies and low-carbon production. These pressures come at a time when electrification and efficiency measures remain uneven across subsectors and when many Portuguese industries, particularly small and medium-sized enterprises (SMEs), face structural constraints related to scale, skills and access to capital.

A clear industrial decarbonisation strategy, building on the forthcoming Green Industrial Strategy, currently under preparation and expected to be finalised during the first half of 2026, can provide the direction needed by establishing subsector emissions reduction pathways that reflect Portugal’s diverse industrial base and identify where additional policy, regulatory or financial measures are required.

Industrial processes use fuels, heat and feedstocks in very different ways, so decarbonisation pathways must be tailored to the different subsectors. Electrification and energy efficiency should remain the primary focus for most subsectors, supported by stronger implementation of the Management System of Intensive Energy Consumption energy audit programme and targeted measures for SMEs and innovation.

At the same time, Portugal has opportunities to build new value chains around emerging clean technologies. Bosch’s recent investment in domestic heat pump manufacturing illustrates how stable demand signals and workforce programmes can anchor production capacity and create skilled jobs. International experience, including Poland’s rapid scale up of heat pump manufacturing, shows how policy stability and strong market signals can accelerate this process. Implementation of the biomethane strategy needs clearer milestones to provide a pathway for hard-to-decarbonise sectors to transition away from natural gas.

A national industrial decarbonisation strategy with bottom-up sectoral pathways and targeted measures would support investment, boost competitiveness and ensure that industry can play a greater role in Portugal’s energy transition.

Portugal’s buildings sector has relatively low greenhouse gas emissions, reflecting a high level of electrification. Despite this, buildings remain central to Portugal’s energy transition and social policy goals. Most of the housing stock is old and inefficient, and high rates of energy poverty mean many households face low comfort, high bills and limited ability to invest in upgrades. Deep renovations are essential not only to reduce emissions but also to improve comfort, cut energy poverty and deliver efficient electrification.

Progress, however, remains limited. Portugal has numerous building efficiency support schemes, but the programmes are fragmented, administratively complex and often focus on single measures rather than deep renovations. Heat pump uptake is accelerating, but energy savings depend on pairing heat pumps with deep renovations that improve thermal insulation.

To accelerate deep renovations, Portugal should reinforce and expand its network of one-stop shops so that they can deliver comprehensive renovation support. This includes managing the entire process from initial assessment to project delivery, covering permitting, accessing financial support, contractor selection and quality control. Ireland’s model shows that well-resourced one-stop shops, supported by strong communication and outreach strategies, can drive deep renovations at scale while creating skilled local employment across regions.

Portugal should also establish a broad white certificate programme that rewards energy suppliers, energy service companies, energy communities, small and medium-sized enterprises, and consumers for verified energy efficiency improvements. Successful schemes in Italy and Poland show that white certificates can mobilise private capital and drive large-scale renovation. Portugal should also explore co-operation with Spain to develop an Iberian white certificate market, allowing both countries to benefit from greater scale and more efficient programme delivery.

Given Portugal’s persistent energy poverty challenges, public support for deep renovations should be targeted to low- and middle-income households and social housing. Together these actions would turn the renovation challenge into a cornerstone of social, economic and climate progress and ensure that all people benefit fully from Portugal’s energy transition.

Portugal is entering a mid-transition in which the electricity and gas systems are evolving in opposite directions. To meet climate targets, renewable generation, grid flexibility and capacity, and economy-wide electrification must be rapidly scaled up in tandem. At the same time, natural gas demand is falling much faster than anticipated, reaching a level in 2024 that the gas transmission system operator did not expect until 2035. This rapid decline is concentrated in the electricity sector, where combined-cycle gas turbines are being displaced (reduced operations) by strong growth in solar photovoltaic and sustained hydro and wind output, but buildings and industry are also likely to experience structural reductions in gas demand as heat pump deployment accelerates and competitiveness pressures favour electrification.

These trends are essential for meeting climate targets but create challenges for the gas sector: maintaining reliable operation with decreasing throughput, ensuring fair cost recovery across a shrinking customer base and preparing pathways for decommissioning. Gas-fired generation will continue to play a limited but important role in supporting electricity security until sufficient flexible resources such as storage and demand-side response are scaled up.

Managing this crossover requires an integrated planning approach across the Directorate-General for Energy and Geology, electricity and gas system operators, and ERSE. Electricity and gas network development plans should be clearly linked, aligned with climate targets, and reflect the accelerating pace of change and uncertainty around future demand. This calls for adaptable planning frameworks that ensure that investment decisions can be adjusted as system conditions evolve.

Remuneration frameworks also need to be updated: for electricity, to support needed grid capacity expansions while placing a greater emphasis on efficiency, digitalisation and the integration of flexibility solutions; for gas, to ensure predictable cost recovery during managed decline while minimising the risk of stranded assets. The potential roles of biomethane and electrolytic hydrogen should be assessed based on realistic volumes, geographic clustering and cost‑effective delivery options, recognising that their use is likely to be targeted rather than system-wide.

A coherent planning and remuneration framework will help maintain energy security, guide investment toward least-cost pathways, and ensure that both systems evolve in a co-ordinated and financially sustainable manner through Portugal’s mid‑transition. Integrated planning should also recognise the gas sector’s existing technical expertise and incorporate workforce planning and reskilling needs to support a just and orderly shift toward a clean energy economy.

Meeting Portugal’s climate and energy targets requires continued rapid growth in renewable generation; accelerated electrification across transport, industry and buildings; and the expansion of distributed energy resources. However, grid capacity and system flexibility are not keeping pace, with both the transmission and distribution networks showing emerging constraints that are already affecting connection timelines for generation and demand. Rapid growth in distributed solar PV, from negligible levels in 2015 to 3.1 GW at the start of 2026, is reshaping local network needs while electrification will place additional pressure on the grid. Without a more proactive, forward-looking planning framework, Portugal risks slower renewable deployment, rising curtailment and delays in electrification that could increase the cost and difficulty of achieving its climate and energy targets.

International experience shows how quickly grid constraints can limit both the expansion of renewable generation and end-use electrification, and how decisive policy responses can address them. The Netherlands provides a prominent example: after severe congestion emerged from rapid electrification and renewable growth, grid operators introduced proactive congestion management, transparent data publication, clear locational signals, readiness-based connection queues, and regulatory reforms enabling non-wire alternatives and flexible resources. Similar lessons come from Texas’ competitive renewable energy zones and Australia’s renewable energy zones, both of which used anticipatory transmission investments and permitting reform to unlock large-scale renewable development.

Portugal now has a strong opportunity to follow this path. Work has begun on identifying renewables acceleration areas (RAAs), but this process needs to move quickly so that RAAs can genuinely support more spatially informed grid planning and streamline permitting. Portugal also needs broader reforms to move toward truly proactive grid planning.

These include strengthening TSO-DSO co-ordination, publishing more granular information on grid constraints and ensuring that planning incorporates flexibility solutions alongside traditional reinforcements. A proactive, transparent and adaptive grid-planning framework will help Portugal integrate renewable generation at the required pace, facilitate electrification and the expansion of distributed energy resources, and reduce the risk of persistent bottlenecks across transmission and distribution networks.

Portugal should prepare a comprehensive flexibility roadmap that quantifies future requirements for storage capacity, ramping capability, frequency response across different time frames, inertia and voltage support through 2030, 2035 and 2050. This roadmap should be based on multiple realistic scenarios that go beyond the National Energy and Climate Plan and test sensitivity to variables including renewable deployment pace (delays or acceleration), demand growth (electrolysers, data centres, electric vehicles, heat pumps), technology cost evolution, and climate variability affecting hydro and renewable output. The roadmap should identify cost‑effective resource mixes, set deployment trajectories for different flexibility technologies, and sequence regulatory and market reforms to enable timely scaling. The roadmap should be aligned with the National Flexibility Assessment planned for 2026 and the National Energy Storage Strategy 2026-2050.

Market-based procurement should be extended to all ancillary services. Introducing markets for services has proven efficient in promoting competition and reducing costs in several countries. In Australia’s National Electricity Market, frequency ancillary services costs fell by more than 50% from 2019 to 2024, reflecting intensified competition driven by growing battery capacity. Similarly, Germany has seen battery participation drive cost reductions in secondary reserves.

Portugal should establish market-based, technology-neutral procurement for frequency retainment reserve (FCR) (currently mandatory and non-remunerated), aFRR (automatic frequency restoration reserve; currently non-market), fast frequency response, synthetic inertia and voltage control where feasible. For services with limited providers or high technical requirements (such as black-start or certain voltage support applications), bilateral contracting may remain appropriate, but procurement should still be competitive and transparent. Real-time co-optimisation between energy and ancillary services markets would enhance efficiency but requires broader European co‑ordination.

Removing participation barriers is essential for scaling flexibility. Portugal should eliminate symmetric bidding requirements for FCR and aFRR, which prevent batteries and other technologies from providing asymmetric response more cost-effectively. Aggregator frameworks must be finalised to enable the participation of distributed energy resources and demand-side response. Clear rules for value stacking across energy, balancing and ancillary services markets will allow resources to optimise revenue across multiple services. Longer-term contracts (three to five years) for flexibility services will provide investment certainty for capital-intensive solutions.

Enhanced transparency on forward contracts and power purchase agreements will support market development. Grid codes should require flexibility provision from new renewable plants above defined thresholds (e.g. >1 MW) with appropriate market‑based compensation. These reforms will strengthen investment signals, enable rapid scaling of diverse flexibility resources and support a secure transition away from gas-fired generation while maintaining system reliability.

A scenario-based electricity flexibility roadmap would allow Portugal to quantify its flexibility needs, assess the cost-effective mix of flexibility options, and set out a clear sequence of regulatory and market reforms. This can be closely aligned with the National Flexibility Assessment that Portugal plans to prepare in 2026. Extending market-based, technology-neutral procurement to all ancillary services will be
essential to deliver the roadmap; strengthen investment signals; and ensure that flexibility resources scale in time to support the secure, least-cost transition away from gas-fired generation.

Portugal is achieving notable success in decarbonising its electricity system, with rapid growth in solar photovoltaics and sustained contributions from wind and hydro. However, this progress increases the risk that gas-fired generation could become uneconomic and retire before alternative flexibility resources have scaled sufficiently to ensure system security.

As the operating hours of combined-cycle gas turbines (CCGTs) decline, the system will rely increasingly on storage, demand-side response (DSR) and other flexible resources whose development remains at an early stage. Ensuring a secure transition, therefore, requires a clear, evidence-based assessment of whether Portugal can meet future adequacy needs through reforms to existing markets and improved grid planning or whether a capacity remuneration mechanism (CRM) may also be required.

Under EU electricity market rules, a capacity remuneration mechanism may be introduced only if adequacy assessments demonstrate a genuine security-of-supply risk and show that reforms to energy markets, system operation and flexibility provision cannot address it. The mechanism must have clear objectives and a defined purpose, targeting specific adequacy needs while preserving market efficiency. If it is determined that a CRM is necessary and appropriate, an important consideration will be whether a strategic reserve, focused on retaining specific capacity temporarily, could address near-term gaps until storage and DSR scale up, or whether more comprehensive arrangements, such as a capacity market with regular auctions, would be required for persistent concerns, or if a combination of approaches may be appropriate.

Technology neutrality ensures cost-effectiveness while supporting the energy transition. Article 22 of Regulation (EU) 2019/943 mandates that CRMs be open to all resources capable of delivering required technical performance, including energy storage and DSR. Technology-neutral, competitively allocated mechanisms allow markets to reveal the least-cost resource combination, with batteries and DSR often providing adequacy at a lower cost than thermal generation while delivering flexibility co-benefits.

The mechanism must encourage the scaling of new flexible resources rather than preserving gas-fired generation beyond security requirements, ensuring capacity payments complement rather than substitute energy market revenues. International examples include Ireland’s technology-neutral capacity auctions where diverse resources compete equally while maintaining security through instantaneous renewable penetration exceeding 90%, and the United Kingdom’s reformed capacity market demonstrating the value of clear eligibility rules and willingness to adapt.

Volume-based mechanisms promote competition and transparent price discovery while co-ordination through MIBEL offers potential efficiency gains. Remuneration should link to actual availability during system stress, with appropriate penalties for non-performance. Moreover, regular reassessment ensures adaptation as renewable deployment, storage additions and demand patterns evolve.

Finally, given the single Iberian energy market and ACER’s finding that cross-border co-ordination could reduce capacity needs, Portugal should consider establishing joint working groups with Spain to explore alignment opportunities on mechanism design and resource eligibility, recognising that Spain’s implementation head start may limit full harmonisation.