Under the New Electricity Framework, the national electricity system (the "Sistema Eléctrico Nacional" or "SEN"), can be divided into five major functions: generation, transmission, distribution, supply and operation of the electricity market. Each of these functions must be operated independently, from a legal, organizational and decision-making standpoint, from the others, subject to certain exceptions. See "Regulation".
- Electricity generation
Electricity generation is now fully open to competition, subject to obtaining the requisite licenses and approvals. Electricity generation is divided in two regimes: ordinary regime generation, which refers to the generation of electricity through traditional non-renewable sources and large hydro-electric plants, and special regime generation, which refers to the use of alternative indigenous and renewable sources for electricity generation and for cogeneration. Special regime generation is subject to different licensing requirements and benefits from special tariffs. Under the New Electricity Framework, the last resort supplier (currently EDP - Serviço Universal, S.A.) is obliged to purchase all electricity generated under the special regime generation.
- Electricity transmission
Electricity transmission activity is carried out through the national transmission grid, through an exclusive concession granted by the Portuguese State to REN Rede Eléctrica on June 15, 2007 for a 50 year period. Our electricity transmission activities are described below in greater detail.
- Electricity distribution
Electricity distribution is operated through the national distribution grid, consisting of a medium and high voltage network, and through the low voltage distribution grids. The national distribution grid is operated through an exclusive concession granted by the Portuguese State. Presently, the exclusive concession for the activity of electricity distribution in high and medium voltage has been awarded to EDP Distribuição. The low voltage distribution grids continue to be operated under concession agreements awarded by municipalities primarily to EDP Distribuição.
- Electricity supply
The supply of electricity is now fully open to competition, subject to obtaining the requisite licenses and approvals. Suppliers are able to freely buy and sell electricity, and have the right of access to the transmission and distribution grids upon payment of access charges set by ERSE. Under the New Electricity Framework, consumers are free to choose their supplier, and may switch suppliers without incurring any additional charges. A new entity, whose activity will be regulated by ERSE, will be created to oversee the logistics operations of switching suppliers.
Suppliers are subject to certain service standards with respect to the quality and continuous supply of electricity are required to provide access to information in simple and understandable terms.
In addition, the new role of the last resort supplier, which is subject to regulation by ERSE, has been undertaken by EDP - Serviço Universal, S.A., an independent entity established for this purpose, and by a few local low voltage distribution concessionaires. The last resort supplier is responsible for the purchase of all electricity generated by special regime generators, an obligation which until January 1, 2007 was carried out by REN Rede Eléctrica, and for the supply of electricity to customers that purchase electricity under tariffs or regulated customers and is subject to universal service obligations. This role is temporary, and will exist until the liberalized market is fully competitive and the concession contracts have expired as provided for in Directive 2003/54/CE.
- Operation of the Electricity Markets
The organized electricity markets operate on a free market basis, subject to authorizations jointly granted by the Minister of Finance and by the Minister responsible for the energy sector. Electricity market operation is to be integrated into the functioning of any organized electricity markets established between the Portuguese State and other EU Member States. Generators operating under the ordinary generation regime and suppliers, among others, can become market members.