Quercus Proposes Windfall Tax on Hydropower Firms to Fund Portugal's Storm Recovery

Environmental NGO Calls for Windfall Tax on Hydropower

Environmental watchdog Quercus has called for hydroelectric producers to pay a windfall profits surcharge to help finance disaster recovery following the devastating storms that struck Portugal in January and February. The proposal comes as the government announced its own catastrophe fund to support affected residents.

Why This Matters

• Quercus proposes a percentage-based levy on hydropower companies' windfall gains from record water storage after the storms

• Energy firms earned extraordinary profits from reservoir levels that hit record highs following the disasters

• Government announced the Portugal Recovery, Transformation and Resilience (PTRR) fund to finance disaster response

• Quercus demands transparency: the Environmental Agency must publish monthly water-use data by sector and reservoir

Hydropower Profits Amid National Tragedy

Three successive storms—Kristin, Leonardo, and Marta—swept through Portugal in January and February, claiming 18 lives and causing widespread damage across the Centro, Lisbon and Tagus Valley, and Alentejo regions. While communities counted losses and filed damage claims, national water reservoirs filled to capacity—delivering a significant financial windfall to hydroelectric operators.

Quercus, Portugal's oldest environmental advocacy group, argues that the energy sector should not profit privately from a public disaster. In a statement, the association proposed that hydropower producers contribute a surcharge calculated as a percentage of extraordinary profits to help fund disaster relief efforts.

The logic is straightforward: the same atmospheric rivers that destroyed homes and infrastructure simultaneously maximized water storage, enabling turbine operators to generate electricity at near-zero marginal cost for extended periods. While families assess losses and small businesses file insurance claims, reservoir operators control a valuable strategic asset—stored energy—that generates elevated profit margins.

Government's Disaster Recovery Plan

Prime Minister Luís Montenegro announced the government's disaster recovery framework in response to the January-February storms. The program includes:

• Housing reconstruction support for primary residences affected by the storms

• Income replacement assistance for affected workers and business owners

• Municipal Emergency Fund expansion to strengthen local government disaster response capacity

• Evaluation of support mechanisms for vulnerable populations, small enterprises, and farmers

Funding sources for these measures remain to be detailed by the government. Quercus aims to address this gap by proposing the hydropower windfall tax as a revenue source.

The Economics of Hydroelectric Generation

Hydroelectric generation operates on a distinctive economic model. Once infrastructure is built, operating expenses drop to minimal levels. When reservoirs overflow following heavy rainfall, operators can supply electricity to the grid at near-zero marginal cost, undercutting other sources and temporarily depressing wholesale prices.

However, this price suppression is temporary. As reservoir operators strategically manage water releases and other generators reclaim market share, wholesale rates climb back toward normal levels. The difference between depressed generation costs during wet periods and recovering sale prices as conditions normalize constitutes a liquidity windfall—profit driven by meteorological events rather than operational excellence.

Quercus contends this windfall should be partially directed to disaster recovery, especially when the atmospheric conditions generating it also triggered a national emergency. The association has not specified an exact levy rate but suggests the surcharge should reflect the magnitude of extraordinary profits.

Transparency and Water Management Demands

Beyond the windfall tax proposal, Quercus has called for greater transparency in water management. The association demands that the Portuguese Environment Agency (APA) publish monthly, detailed data on:

• Water consumption by sector—residential, industrial, agricultural, and hydroelectric—broken down by individual reservoir

• Projected duration of current storage under various consumption scenarios

• Forward-looking availability estimates for different sectors

Currently, APA releases aggregate national statistics on reservoir levels, but sector-specific consumption data and projections remain limited. Quercus argues that transparent, accessible water accounting is essential for public debate, particularly as climate volatility increases and competing demands on water resources grow.

The association also called for reactivation of the National Water Council (CNA), an advisory body focused on sustainable water planning. Quercus indicated the council should convene more regularly to address emerging water governance challenges, particularly given government plans to revise the National Water Plan in 2026.

European Context and Political Questions

Portugal's debate reflects broader European discussions about energy profits and crisis response. In 2022, the European Commission proposed that member states levy at least 33% on unexpected energy sector profits during the energy crisis. Various EU countries implemented similar measures, though Portugal did not at that time.

The current proposal raises fundamental questions about how private entities that benefit from disaster-related events should contribute to recovery efforts. Whether the Portuguese Parliament will consider the Quercus proposal remains unclear. The government has not yet commented publicly on the recommendation, and no legislative timeline has been announced.

For Portuguese residents, the key distinction is important: the government is implementing its own disaster recovery fund through announced measures, while Quercus has put forward a separate proposal to supplement that funding through a hydropower windfall tax. Whether this proposal gains traction in Parliament and becomes policy is still an open question.