An Unprecedented Opportunity to Reindustrialize Portugal

This is how the consulting firm McKinsey defines the ongoing energy transition and the opportunity that is opening for the Portuguese economy to gain a leadership position.
 

The study "Industrializing Portugal: the Emerging Opportunity in the Energy Transition, A Path of Advantages for All", to which Expresso had access, calculates that, if Portugal takes advantage of its competitive potential in this area, it will have an impact by 2030 between 10% and 20% of GDP with the creation of 500 thousand jobs, one in five of which are qualified. This is the good news. The unwelcome news is that, to achieve this goal, there is no time to lose.

Several countries are in the race and, as the old proverb (Heraclitus) says, "the same water.

What advantages does Portugal have?

McKinsey´s thesis is simple: the energy transition will entail an unprecedented reallocation of capital. These will be global investments in the range of 6% to 7% of GDP by 2050. Given its weight in global GDP, Portugal will be responsible for something like five hundred billion euros in these two and a half decades. It is a brutal volume of investment, which will affect the entire economy in a transversal way, but which will focus mainly on the energy, construction, industry, agriculture, transport and infrastructure sectors.

And that, says McKinsey, has an enormous transformative power over the economy, which can be harnessed not only in energy production, but also to vertically integrate some relevant industries into the green economy.

The Portuguese economy in the Iberian ecosystem has natural conditions to lead the energy transition due to the conditions to produce renewable energy. In terms of quantity and cost. Mainly because of the natural conditions to produce renewable energy and also because of the infrastructure. Some data helps frame the idea. Portugal has three hundred days of sunshine per year, 20% more hours than the European average, which reduces solar energy costs by 20 to 30%. It also has more than 5% to 10% of wind resources and the largest lithium reserves in the European Union or even the eighth largest in the world.

 

The Portuguese economy also has developed infrastructures with the seventh largest capacity of hydroelectric power plants that can serve as energy warehouses. And a human capital with an academic background never seen before. Our energy matrix in Portugal is already quite renewable, but our geopolitical stability is also a point in our favour.

In theory, there are two paths for countries that have natural resources like us. The model of the Middle East and the Persian Gulf, which is only to export raw materials such as energy and crude oil.

Which would leave Portugal with less than half of the potential gain in its energy transition, or the other path is the development of value chains in Portuguese territory, providing the national industry with an unprecedented transformation through green energy, as the study indicates. The impact on the economy is the sum of the contributions of the various sectors that can best seize the opportunity.
 

How?

The idea is to increase energy production in electrification, renewables, green hydrogen, biochemicals, biogas, biofuels. And thus, take advantage of the low cost of the green energy raw material to industrialize the Portuguese economy in several areas of industries in which energy is a relevant cost and achieve it at a lower cost with a huge advantage for the country´s competitiveness. Overall, that is a 10% to 20% impact on GDP by 2030.

The big question, as with everything that involves transformations in countries and economies, is how to move from ideas to practice. Because Portugal is not alone in this race, and has as direct competitors the Nordic countries, in Europe that are already betting a lot on the energy transition. And, the USA, which is making an incredibly significant and very incentivized investment.

 

The question is how to do all this, namely, how to ensure that politics and governments take the right steps to make it possible. Because take the energy transition train on the starting grid as they say in Formula 1. It implies, among other things, attracting capital on a global scale, having a stable and predictable long-term incentive structure, with incentive schemes for large projects, attracting talent and critical mass with excellence in the execution of projects and the development of their infrastructures.