Micro-generation and tax benefits on renewable energies – Abreu Advogados

On February 2, 2008, decree-law no 363/2007 came into force and the production of energy in Portugal entered a new era. The principle behind the new law is to save energy, reduce costs and protect the environment. Indeed, consumers are now allowed to produce electricity themselves through small power plants, ie not exceeding 5.75 kW, and sell the surplus to the public network with a limit of 150 kW.

The goal is to reach 165 MW of installed power by 2015, corresponding to an electrical energy generation capacity of 200 GWh, which is equivalent to the total generation capacity of the proposed 125- metre Baixo Sabor dam in the north east of Portugal.

La entrada en vigor de la nueva ley lusa sobre la microgeneración ha aumentado las oportunidades y los incentivos para individuos y pequeñas empresas que generen y vendan energí­a a la red nacional, así­ como para los bancos que contribuyen con su financiación para este tipo de proyecto, comenta Tiago Corrña Amaral, letrado del bufete portugués de Abreu Advogados. Los incentivos incluyen la fijación de precios de doble tarifa, importantes desgravaciones fiscales para gastos de capital y, hasta determinados niveles, ingresos exentos de impuestos.

Thus, micro-generation is emerging as an attractive business opportunity for thousands of individuals and dozens of companies, which are now being offered a range of solutions for home-based energy production. But this is also a potentially attractive new market for banks, which are now beginning to offer new funding products.

To install a micro-generation unit, consumers must be registered under the SRM – System for Registration of Micro Power Plants – which can be made online through the website of the Directorate General for Energy and Geology (DGEG). Micro-generation units may be installed by entrepreneurs or companies registered before the Institute of Construction and Real Estate (INCI).

Under the new scheme, micro producers have access to two remuneration schemes: The Ordinary Regime, in which the sale price of energy to the public network is equal to the standard purchase price for Kwh; and the Subsidised Regime, applicable to micro units under 3.68 kW, which make use of renewable energies under certain conditions.

Micro-generation production has also recently received an incentive through the introduction of a tax benefit of up to 30% for investments made in renewable energy. Indeed, individuals may deduct the tax due on the sums spent on acquiring new equipment for the use of renewable energy or for the purpose of producing electric and/ or solar thermal energy.

Previous to the 2008 state budget, the possibility of deducting these expenses was foreseen, however they were thought to likely be added to the already existing deductions of interest on housing loans. With the approval of the state budget for 2008 it was decided however to separate these two deductions. The decision allows access to such deductions to those who are still paying a loan for the purchase of a house.

With the approval of the state budget for 2009, it is possible to deduct up to 30% of the tax due (with a limit of €796) provided they are not considered to be costs related to an entrepreneurial activity. The deduction may however apply to the sums spent on acquiring new equipment for the use of renewable energies and also the sums spent on the acquisition of equipment to produce electricity and solar thermal energy, including the additional equipment required for their operation.

Tax is also deductible, on the same conditions, against the sums spent on acquiring electric vehicles subjected to registration, or those powered by renewable energy or non-polluting sources. By allowing this deduction the amortisation period applicable to such equipment is significantly reduced, with their acquisition also subject to a VAT tax rate of only 12%.

On the other hand, the income obtained from energy produced by micro-generation units is tax exempt if below €5,000.

Companies that decide to invest in renewable energies can recover the investment made on equipment over a four-year period, with 25% the maximum rate of return and depreciation applicable. Companies cannot however deduct such costs against their corporate income tax – unlike the ability of individuals to do so – although the ability to offset costs through the fouryear depreciation period offers by itself a good incentive.

Tiago Corrña Amaral is a lawyer in the Public Law and Environment group at Abreu Advogados. He can be reached via tiago.c.amaral@abreuadvogados.com