On a theoretical level, Greece may fulfil bailout obligations concerning electricity market reforms if a NOME-type auctions model for lignite and hydropower capacity is adopted within October, but indications already suggest these initiatives will fail to open up the retail electricity market to competition, which is the effort’s ultimate objective.
The plan faces two hurdles that risk rendering it ineffective. One concerns the main power utility PPC’s adamant stance on the starting price of auctions. The corporation is unofficially making clear to all that it will not accept anything below 59 to 60 euros per MW as the average cost of its lignite-fired electricity production. This was the level it had presented in a legal battle with Aluminium of Greece, when the court ruled on a level of 36 euros per MW. Also, at a PPC shareholders meeting in February 2014, the figure was presented as being at 44.50 euros per MW. Even so, PPC appears to be insisting on a level of about 60 euros per MW. If the new energy ministry does not pressure PPC on this demand, then the NOME-type auctions plan will definitely fall apart.
The second equally crucial obstacle to opening up Greece’s retail electricity market concerns the significantly lower price of natural gas, which has fallen as a result of lower crude prices – gas prices in Greece are tagged to oil prices and revised every three months – and become an increasingly cost-competitive option compared to lignite as a means for electricity production.
This may be a temporary development, but it does overturn certain market conditions as the cost of lignite will be used to determine the starting price of NOME-type auctions. If, for example, the starting price is to be set at 50 euros per MW, and the cost level is similar to that of gas-fueled electricity production costs, producers will have no reason to get involved with NOME-type auction procedures.
For the time being at least, lignite-fired power production has lost its comparative cost advantage. This will be the case when the first NOME-type auction is held in mid-October.