A favorable business environment in 2016 has helped independent electricity suppliers make market share gains and chip away some of the dominance of PPC, the main power utility, but this momentum could be challenged by the prospect of higher electricity price levels in the year to come. The resilience of some of the emerging players could be tested.
A low System Marginal Price (SMP), essentially the wholesale price at which suppliers purchase electricity, was maintained at very low levels in 2016, imported electricity prices were also low, while PPC has offered high prices for most of the year. These factors created ideal conditions for independent suppliers, who showed strong resilience even when PPC reduced its prices by 15 percent for punctual customers.
PPC began the year holding roughly 95 percent of the retail electricity market, a figure that has contracted to about 89 percent, according to most recent official data.
The competition has grown particularly intense in the medium-voltage category, where consumption is considerable and the customers very few. This drove price levels down. Independent suppliers have captured nearly 30 percent of this specific category.
However, pundits believe the signs for 2017 do not look as favorable. Crude oil and natural gas price levels, pivotal in determining wholesale electricity prices, will rise in 2017, according to forecasts. The cost of carbon emission rights is also expected to rise. In addition, problems are being encountered at nuclear electricity plants in France, a negative development pushing up the price of electricity in Greece’s neighbor Italy.
The independent suppliers operating in the Greek market also forecast considerably higher SMP levels in 2017, compared to 2016.
The profit margin for suppliers will be narrowed in 2017 following the recent ratification of a law designed to increase the contribution of suppliers to the RES special account as a move intended to wipe out the account’s deficit. This will further limit the leeway available to suppliers for competitive pricing.
A slowdown in the shift of customers from PPC to independent suppliers could cause issues for the government, which faces a bailout requirement demanding a reduction of the utility’s market share to less than 50 percent by 2020. Slower movement of customers towards the independent suppliers will also put emerging power companies under pressure, especially in the medium-voltage category, as contracts already offered to customers commit the suppliers to sell their electricity at low prices. However, as things are turning out, suppliers will be buying electricity at higher prices and selling at low levels, which will surely test the endurance of some, or, more specifically, the maller independent players not vertically intergrated.
The price-related uncertainty felt for 2017 could drive prices higher at the upcoming inaugural NOΜΕ auction, scheduled for October 25. An electricity amount of 460 MW will be offered through the auction procedure, intended to provide third parties with access to PPC’s low-cost lignite and hydropower sources. Higher NOME prices, to subdue the competitiveness of emerging players, will benefit PPC, at least temporarily, because the lenders will surely step in to take urgent action.