Portugal just got a thorough energy policy review from the IEA, and the short version is this: the power sector has done its job. Everything else needs to get moving.

The Portugal 2026 Energy Policy Review, released in Lisbon this week, covers the full picture, electricity, gas, transport, buildings, industry, and grid infrastructure, and lays out 10 recommendations for what the country needs to do next. It is more candid than these reports usually are.

The Part That Worked

Solar PV, hydropower, and wind have transformed Portugal’s electricity sector. The country now has one of the lowest carbon intensities for electricity generation among all IEA member countries, and overall greenhouse gas emissions are down 43% compared to 2005 levels. That is a real number, and the IEA credits it almost entirely to the clean-up of the power sector.

“Portugal has built a strong foundation through rapid progress in renewable electricity,” said IEA Deputy Executive Director Mary Burce Warlick at the Lisbon launch. “As emissions reductions increasingly depend on electrification across the economy, electricity becomes central to both energy security and economic development.”

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There are economic payoffs too. As oilprice.com has covered, the Iberian Peninsula’s high renewable penetration has insulated Portugal and Spain from the gas price volatility hammering the rest of Europe. Wholesale electricity prices in the region have held around €60-70/MWh while Germany and Italy have periodically blown past €150/MWh. The investment community has noticed. TotalEnergies recently recycled €178.5 million from its Portuguese renewables portfolio while retaining operational control, and EDP’s hybrid wind-solar capacity in Portugal is approaching 700 MW across five major projects.

The Mid-Transition Problem

The IEA describes Portugal as entering a “mid-transition”, a phase where the electricity system and the fossil fuel system are moving in opposite directions simultaneously, and the coordination between them is getting complicated.

Transport, buildings, and industry together account for 82% of Portugal’s remaining energy-related greenhouse gas emissions. That is where the transition has to happen next, and so far the structural declines simply are not there.

Gas Is Falling Off a Cliff

Here is something that does not get enough attention: Portugal’s natural gas demand has already dropped to levels its grid operator did not expect to see until the mid-2030s. Combined-cycle gas turbines are being pushed out by solar and wind faster than anyone planned for.

That sounds like good news, and in emissions terms, it is. But it creates a financial problem for the gas network. Throughput is falling, fixed costs are not, and the customer base left holding those costs is shrinking. The IEA is direct about this: without updated remuneration frameworks for gas network operators and clear decommissioning planning, Portugal risks stranded assets and tariff shocks as the system contracts faster than it was designed to.

Gas workers and companies also have technical skills that could be redeployed into electrification and building renovation. The report calls for that transition to be planned, not left to chance.

The Grid Cannot Keep Up

Distributed solar PV barely existed in Portugal a decade ago. By early 2026, it was at 3.1 GW and still growing fast. The grid has not kept pace. Connection timelines are slipping, constraints on both the transmission and distribution networks are visible, and the IEA warns that without more proactive planning, Portugal risks slower renewable deployment, rising curtailment, and delayed electrification.

This matters even more in the context of last year’s Iberian blackout, which left tens of millions across Spain and Portugal without power. The eventual investigation found that outdated grid rules and poor voltage control were to blame, not renewable energy itself, but the episode exposed exactly the kind of coordination failures between transmission and distribution operators that the IEA is now pressing Portugal to fix.

The agency wants a scenario-based flexibility roadmap covering storage, frequency response, and system flexibility needs out to 2050, alongside market-based, technology-neutral procurement for ancillary services. Where those competitive markets have been introduced elsewhere, Australia and Germany, battery participation has pushed costs down sharply.

Transport: The Biggest Gap

Transport accounts for 54% of Portugal’s energy-related greenhouse gas emissions. Oil covers 92% of the sector’s energy consumption. The vehicle fleet is old and inefficient. This is, by some distance, the country’s biggest remaining emissions problem.

EVs hit 38% of new car registrations in 2025, which is above the EU average and looks good in a headline. But EVs are only 6% of the total fleet, because roughly 80% of vehicle purchases in Portugal are used cars, and there is essentially no policy support for buying a used EV. The IEA recommends fixing that, targeting subsidies at low-income households and professional drivers rather than stacking more incentives on top of new car buyers. Urban charging infrastructure, especially for people who park on the street, is flagged as a gap, too.

The report also pushes hard on modal shift, moving people from private cars to public transport, cycling, and rail, and moving freight from diesel trucks to Portugal’s already highly electrified rail network. That structural demand reduction matters more than technology substitution within the car fleet, the IEA argues, because it lowers energy demand rather than just switching its source.

Your Electricity Bill Is Full of Junk Charges

This is the pricing section, and it is one of the more pointed findings in the report.

Electricity in Portugal currently costs more than gas on a final energy basis, not because clean power is expensive, but because the bills are loaded with non-energy charges. Legacy subsidies, efficiency levies, the social tariff financing, tariff convergence costs for the Azores and Madeira, the audiovisual fee. They all end up on the electricity bill. The result is that for many households and businesses, the economic case for switching from gas to a heat pump or induction cooker is weaker than it should be, which slows the entire electrification push.

The IEA wants those policy costs moved to the state budget with multi-year commitments, distortionary charges removed, and the regulated tariff phased out entirely. The social tariff, which helps low-income households, should be restructured to be consumption-based and state-funded rather than embedded in everyone’s bill. Energy poverty in Portugal runs well above the European average, and tariff discounts alone do not solve it. The IEA wants those households given real access to building renovations, efficient appliances, and clean transport options.

Buildings and Industry: Not Much Has Happened

Building renovation rates are low. Support programmes are fragmented, administratively heavy, and mostly focused on single measures rather than deep retrofits. The IEA calls for proper one-stop shops that manage the entire process from assessment to delivery, backed by a white certificate programme to attract private capital, citing Italy and Poland as examples where this has actually worked at scale.

Industrial emissions have been essentially flat for more than a decade. The sector faces two transitions at once: cutting emissions quickly enough to meet the 2030 targets while also repositioning competitively in global supply chains that are shifting toward low-carbon production. Portugal’s low-carbon electricity is an asset here that is not being used. Green hydrogen ambitions aside, the IEA sees heat pump manufacturing as one concrete near-term opportunity; Bosch’s recent investment in domestic production is cited as the kind of supply chain anchor that follows when policy signals are stable.

What It All Adds Up To

Portugal has a 2030 target of cutting greenhouse gas emissions 55% from 2005 levels, with climate neutrality by 2045. The power sector has pulled its weight and then some. The question now is whether the rest of the economy can do the same, on a much tighter timeline and without the relatively straightforward lever of replacing coal and gas generation with wind and solar.

The IEA’s 10 recommendations are coherent and specific. Coordinating them across transport, grid planning, buildings, industry, and social policy is the hard part. Portugal has shown it can move fast when the political will is there. The transition’s second half is where that gets tested.

By Michael Kern for Oilprice.com 

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