Commission Decision (EU) 2026/994of 4 May 2026granting the Portuguese Republic a derogation from certain provisions of Directive (EU) 2019/944 of the European Parliament and of the Council on common rules for the Internal market for electricity and amending Directive 2012/27/EU in respect of the small isolated system of the island of Berlenga(notified under document C(2026) 2789)(Only the Portuguese text is authentic)

Commission Decision (EU) 2026/994 of 4 May 2026 granting the Portuguese Republic a derogation from certain provisions of Directive (EU) 2019/944 of the European Parliament and of the Council on common rules for the Internal market for electricity and amending Directive 2012/27/EU in respect of the small isolated system of the island of Berlenga (notified under document C(2026) 2789) (Only the Portuguese text is authentic) THE EUROPEAN COMMISSION, Having regard to the Treaty on the Functioning of the European Union, Having regard to Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU OJ L 158, 14.6.2019, p. 125, ELI: http://data.europa.eu/eli/dir/2019/944/oj. , and in particular Article 66 thereof, Whereas:

1. PROCEDURE (1) On 15 November 2019, the Portuguese Deputy Minister and Secretary of State for Energy (Ministry of Environment and Climate Action) submitted to the Commission an application for derogation from certain provisions of Directive (EU) 2019/944, in respect of the island of Berlenga, in accordance with Article 66(1) of that Directive. (2) On 18 March 2021, the Commission published information on the application for derogation on its website Access to infrastructure, exemptions and derogations. and informed the Member States of the application in accordance with Article 66(1), third subparagraph, of Directive (EU) 2019/944. The period for submitting comments was open until 30 April 2021. No observations were submitted. (3) The adoption of the final decision was postponed due to the energy crisis and political context in Portugal, including legislative changes in Portugal in 2022 and 2023. On 4 June 2025, the Portuguese authorities confirmed their application for a derogation and provided an updated overview of the situation on Berlenga.
2. THE ISLAND CONCERNED BY THE APPLICATION FOR DEROGATION (4) The island of Berlenga is part of the Berlenga archipelago, a group of islands that were designated a biosphere reserve by the United Nations Educational, Scientific and Cultural Organisation (Unesco) in 2011. The island is situated 10 km off the Portuguese mainland and forms part of the Peniche municipality. It includes recreational areas classified as partial reserves, while the remainder is a full nature reserve accessible only for scientific research and environmental monitoring. The island is inhabited only for a few months each year, and its energy consumption is low and seasonal. (5) The island of Berlenga is not connected to Portugal’s mainland energy system. In its application, Portugal states that connecting the island’s network to the mainland would be economically unfeasible. The island’s annual electricity consumption is about 30 MWh and has remained relatively unchanged for the last 30 years. Electricity consumption has been covered by three on-site diesel generators operating alternately. (6) Due to the environmental protection measures in place on the island, no further construction is permitted, except for the project to convert the island’s energy supply to a renewable system. This project is subject to strict power, space and construction restrictions, as approved by the Instituto da Conservação da Natureza e das Florestas (Institute for Nature Conservation and Forests).

2.1. The electricity system on the island (7) E-REDES, a legally unbundled distribution company, is the only electricity provider on the island and currently provides electricity services under a concession contract. It is also the main low-voltage distribution system operator in mainland Portugal, under 278 municipal concession contracts for low-voltage grids, and the sole medium- and high-voltage distribution system operator, under a public concession contract. (8) The concession contract referred to in recital 7 is a historical contract for low-voltage distribution in the municipality of Peniche. It was renewed on 29 October 2001 in the form of a framework contract for 20 years, in accordance with national legislation. At the time of renewal, the government was still a shareholder in the concessionaire (E-REDES), until the company was unbundled in 2007. (9) As a result of a 2017 amendment, national legislation requires distribution concession contracts assigned to municipalities to be clustered and tendered together for a new concession holder to be appointed (Law No 31/2017) Lei n.o 31/2017, de 31 de maio | DR. . As the concession contract expired on 28 October 2021, a new contract is to be concluded, following a public tendering procedure. The new concession contract should be valid for 20 years. Due to a change of government and procedural delays, the new concession contract has not yet begun. Meanwhile, the previous contract remains in force by virtue of an automatic extension provided for in paragraph 1 of Article 285 of Decree-Law No 15/2022 of 14 January 2022 Decreto-Lei n.o 15/2022, de 14 de janeiro | DR. . That decree-law extended all municipal concession contracts for low-voltage electricity distribution networks. The general extension will lapse once the future operators start operating those concessions, following the completion of the tendering procedure pursuant to Ordinance (Portaria) n.° 397/2023 published on 28 November 2023. In the first stage of that legal tendering procedure, the legal and technical requirements for the award of low-voltage electricity distribution concessions in mainland Portugal were set out. Furthermore, Council of Ministers Resolution No 27/2024 of 23 February 2024 Resolução do Conselho de Ministros n.o 27/2024 | DR. , established the principles and timetable for awarding municipal concessions for the distribution of low-voltage electricity. That resolution set 30 June 2025 as the deadline for the representative of the group of contracting entities to launch the tendering procedure for the award of low voltage electricity distribution concessions in Portugal. (10) Until a tendering procedure is launched, the previous contract, referred to in recital 8, has been extended on the basis of Decree-Law No 15/2022 and Law No 31/2017. (11) At the end of the current concession contract referred to in recitals 7 to 9, all related assets will be returned to the municipality of Peniche and may subsequently be made available to the new concessionary. That includes assets covered by the project for which the derogation is requested. E-REDES is the concessionaire of the local grid, which forms part of the Peniche municipal low-voltage grid concession, and owns and operates the distribution network and the generation assets on the island until the low-voltage grid concession expires.

(12) The derogation concerns the involvement of the current concessionaire (E-REDES) and, eventually, a new concessionaire once the new concession contract has been signed in activities that go beyond the distribution of electricity. In particular, this includes the generation of electricity and the ownership and operation of storage facilities on the island of Berlenga. 3. THE APPLICATION SUBMITTED BY PORTUGAL (13) The application requests a derogation from Articles 4, 5, 6, 35 and 36 of Directive (EU) 2019/944 for the island of Berlenga. (14) The derogation is requested for the purpose of implementing a project to modernise the island’s electricity system and replace fossil power generation with more environmentally sustainable and renewable solutions. 3.1. The Sustainable Berlenga project (15) To fully decarbonise electricity generation on the island and eliminate the environmental and safety risks associated with the current electricity generation system, Portugal launched the Sustainable Berlenga project. Construction was completed and the project was inaugurated on 29 July 2020. The purpose of the project is to provide an alternative supply of electricity that is environmentally sustainable and technically viable by replacing diesel-powered generation with renewable energy sources. The project comprises the installation of solar photovoltaic panels with a capacity of 70 kWp and battery storage with a capacity of 150 kWh, and a backup diesel generator. The market arrangements on the island, as described recital 5, remains unchanged until the current concession contract expires. (16) According to the Portuguese authorities, E-REDES owns and operates the storage assets covered by the Sustainable Berlenga project, which support solar power generation, store excess electricity and inject it into the grid when the solar photovoltaic generation is insufficient. Accordingly, the storage facility will be used not only for network purposes, but also as part of the generation infrastructure and for balancing purposes, to ensure that the electricity supply on the island is not disrupted. (17) As the Sustainable Berlenga project does not have an end date and aims to ensure the long-term energy supply on the island of Berlenga, the Portuguese authorities are applying for a derogation for the maximum period allowed by Union legislation. 4. ASSESSMENT 4.1. Legal basis of the application (18) In accordance with Article 66(1), first subparagraph, of Directive (EU) 2019/944, a derogation from the relevant provisions of Articles 7 and 8 and of Chapters IV, V and VI can be granted if the Member State applying for such derogation can demonstrate that there are substantial problems for the operation of small isolated systems or small connected systems. (19) In accordance with Article 66(1), second subparagraph, of Directive (EU) 2019/944, small isolated systems may also apply for a derogation from Articles 4, 5 and 6 of that Directive. (20) In accordance with Article 66(2) of Directive (EU) 2019/944, except in the case of outermost regions, the derogation is to be limited in time and subject to conditions aiming to increase competition and integration with the internal market for electricity. Finally, the derogation is to aim to ensure that it does not obstruct the transition towards renewable energy, increased flexibility, energy storage, electromobility and demand response.

4.2. Small isolated systems (21) In their application, the Portuguese authorities state that the island of Berlenga is a small isolated system within the meaning of Directive (EU) 2019/944. (22) Pursuant to Article 2, point (42), of Directive (EU) 2019/944, a small isolated system is any system that had an annual consumption of less than 3000 GWh in 1996 and where less than 5 % of annual consumption is obtained through interconnection with other systems. (23) According to the information provided by the Portuguese authorities, the island of Berlenga has an annual electricity consumption of about 30 MWh, which has remained relatively unchanged for the past 30 years. (24) There is no interconnection between the island and the country’s mainland electricity system. The electricity system on the island is relatively basic, serving only a few customers with a low total annual consumption. (25) The Commission therefore concludes that the island of Berlenga is a small isolated system within the meaning of Article 2, point (42) and accordingly falls within the scope of Article 66(1) of Directive (EU) 2019/944. 4.3. Substantial problems for the operation of the system (26) The wording of Article 66(1), first subparagraph, of Directive (EU) 2019/944 is very broad, referring to substantial problems for the operation of the system. The term substantial problems is not legally defined, nor has the Commission provided a definition in its decision-making practice. This open formulation allows the Commission to consider all potential problems related to the particular situation of small systems, provided they are substantial and not merely marginal. Such problems may vary significantly depending on geographical particularities, production and consumption patterns of the system, and technical developments such as electricity storage and small-scale generation. (27) The application highlights the following substantial problems for the operation of small isolated systems: (a) the difficulty, or even impossibility, of establishing a competitive market for electricity, due to the island’s specific characteristics and small size and the very low level of electricity consumption; (b) the small size and unique situation of the island of Berlenga (such as seasonal and daily interruptions of supply, a distance of 10 km from the mainland with frequent inaccessibility, and environmental restrictions prohibiting new construction), which make investments in generation and storage assets by companies other than E-REDES or the eventual new concessionaire unlikely. It is improbable that any market activity in generation or supply would be feasible, let alone profitable; (c) the size of the market, which is unlikely to attract applications for authorisations or bids for tenders. Consumption fluctuates widely during the year and is very low and seasonal; (d) the strict conditions applicable to human activity on the island, stemming from both Portuguese environmental legislation and the Unesco Statutory Framework of the World Network of Biosphere Reserves;

(e) the distance to the mainland, which, combined with the problems listed in points (a) to (d), makes it economically unfeasible to connect the island’s network to the mainland via an underwater power cable; (f) the absence of permanent civilian habitation on Berlenga, which makes competition unfeasible. Electricity supply is heavily restricted in terms of availability (limited to daytime) and demand (limited maximum generation output). Electricity services are not continuous throughout the day and only operate during the tourist high season. These characteristics prevent the emergence of retail competition. (28) Considering all the grounds set out in recital 27, the Commission concludes that substantial problems exist in the operation of the electricity system on the island of Berlenga as a small isolated system and that the full application of the regulatory framework could create problems for the operation of that system. (29) The application states that, due to geographical constraints and the island’s isolation from the mainland electricity system, electricity consumption on the island has so far been covered by three on-site diesel generators operating alternately. Transporting diesel by sea and unloading it in difficult weather conditions poses environmental risks due to potential accidents. The new system would be more environmentally friendly, limiting the use of diesel generators to backup functions. 5. SCOPE OF THE DEROGATION (30) The Commission considers that, with regard to the implementation of the Sustainable Berlenga project, the derogation from the provisions referred to in recital 13 complies with the conditions set out in Article 66(2) of Directive (EU) 2019/944. 5.1. No obstruction to the transition towards renewable energy, increased flexibility, energy storage, electromobility and demand response (31) Article 66(2), first subparagraph, of Directive (EU) 2019/944 provides that the Commission is to ensure that a derogation does not hamper the transition towards renewable energy, increased flexibility, energy storage, electromobility or demand response. (32) The purpose of the derogation applied for by Portugal is to enable the implementation of a project to increase the use of renewables and facilitate greener energy supply solutions on the island. The derogation also takes into consideration the strict environmental protection measures on the island, which significantly restrict new construction in the area. It therefore does not obstruct the transition towards renewable energies. (33) The derogation also has no noticeable impact on electromobility or demand response. 5.2. Limitation of the derogation in time and conditions aiming to increase competition and integration with the internal market for electricity (34) Article 66(2), first subparagraph, of Directive (EU) 2019/944 expressly provides that the derogation is to be limited in time and it is to be subject to conditions aiming to increase competition and integration with the internal market for electricity.

(35) In their application, the Portuguese authorities request a derogation for the maximum duration allowed by Union law. As Union legislation does not specify a time frame for the validity of derogations, the duration of this Decision should take into account the specific technical conditions and market situation on the island. The Portuguese authorities have further specified that they apply for a derogation for 20 years from the date of inauguration, that is from 29 July 2020 until 29 July 2040. (36) The application states that the specific conditions on the island make investments unlikely and the creation of competition improbable, due to low interest from market participants. (37) The temporary nature of the derogation should reflect the possibility of future market developments on the island. The Portuguese authorities should continue to ensure that there are no obstacles to the creation of competition or to integration into the internal market for electricity. The derogation is directly linked to the tendering procedure for the new concession contract referred to in recital 9. Thus, while competition on the market of Berlenga is not possible, the tendering process at least ensures competition for the market. (38) The Commission considers it appropriate to grant the derogation for the period of 20 years applied for by the Portuguese authorities, to align with the concession period referred to in recital 9. The Commission should therefore grant the derogation from 29 July 2020 until 29 July 2040. However, the derogation period is based on the technical and regulatory framework applicable at the time the application was submitted by the Portuguese authorities on 15 November 2019 and confirmed in June 2025, which may evolve. Therefore, the derogation should no longer apply to the small isolated system of the island of Berlenga if the island becomes interconnected with the mainland system, or if any major developments occur that could affect the conditions under which the derogation was granted. The Portuguese authorities should inform the Commission of any such developments. (39) The derogation should allow E-REDES, or the eventual new concessionaire following the signature of the new concession contract, to own and operate generation assets only for the purposes of the Sustainable Berlenga project. The National Regulatory Authority (NRA) should [be able to] observe and monitor the costs of this activity. (40) The accounting unbundling requirements set out in Article 56 of Directive (EU) 2019/944 should apply to the Sustainable Berlenga project, and E-REDES, or the new concessionaire, should keep separate accounts for the ownership and operation of generation assets. To avoid cross-subsidies, the Portuguese authorities should ensure that the costs of the Sustainable Berlenga project are not recovered through distribution network tariffs but through a separate resources. 5.3. Extension procedure (41) To enable the Commission to assess whether the derogation remains necessary in light of any possible future clarifications and changes in market conditions on the island of Berlenga, the Portuguese authorities should inform the Commission at least one year before the end of the derogation period whether they consider an extension necessary. This would allow a thorough analysis of the extension application and provide early information to market participants on the future regulatory framework applicable to the island of Berlenga.

(42) To take sufficient account of changes to the regulatory framework and of technological and market developments, any extensions granted should be limited in time. 5.4. Retroactive effect (43) The Commission received the derogation application prior to the start of the Sustainable Berlenga project. To avoid rapid and unpredictable changes to the regulatory framework, which could seriously disrupt market functioning on the island of Berlenga, and to allow for the full implementation of that project, this Decision should be applicable from 29 July 2020, HAS ADOPTED THIS DECISION:

Article 1

A derogation is granted to the Portuguese Republic from the provisions of Articles 4, 5, 6, 35 and 36 of Directive (EU) 2019/944 in respect of the small isolated system of the island of Berlenga.

Article 2

The derogation granted under Article 1 shall apply until 29 July 2040. The Portuguese authorities may apply to the Commission for an extension of the derogation period, provided that they inform the Commission sufficiently in advance of the end of the derogation period referred to in the first paragraph whether they consider an extension necessary. The derogation granted under Article 1 shall no longer apply to the small isolated system of the island of Berlenga if the island becomes interconnected with the mainland system, or if any major developments occur that could affect the conditions under which the derogation was granted. The Portuguese authorities shall inform the Commission of any such developments.

Article 3

The derogation granted under Article 1 shall apply only for the purposes of the Sustainable Berlenga project. The Portuguese authorities shall ensure that all following conditions are met: (a) the Sustainable Berlenga project is implemented under conditions that aim to increase competition and integration of the internal market and that do not obstruct the transition towards renewable energy, increased flexibility, energy storage, electromobility or demand response; (b) the National Regulatory Authority (NRA) is able to observe and monitor the costs of the Sustainable Berlenga project; (c) the unbundling of accounts requirement set out in Article 56 of Directive (EU) 2019/944 applies also to the Sustainable Berlenga project, and E-REDES or a new concessionaire keeps separate accounts for the ownership and operation of the generation assets; (d) the costs of the Sustainable Berlenga project are not recovered through distribution network tariffs in order to avoid cross-subsidies, but through separate resources.

Article 4

This Decision shall apply from 29 July 2020.

Article 5

This Decision is addressed to the Portuguese Republic. Done at Brussels, 4 May 2026. For the Commission Dan Jørgensen Member of the Commission