End of tax on gas relief for PPC, widens supplier profit margins

The elimination of a Special Consumption Tax (EFK) imposed on natural gas purchased and used by gas-fueled power stations is a favorable development for such production units, primarily because the initiative comes as an adjustment by Greece to a related EU directive.

For electricity suppliers, especially PPC, the main power utility, the lifting of the tax will offer direct economic benefits, as suppliers ultimately covered the tax imposed on natural gas through their wholesale electricity trading activities.

According to intial estimates, the tax’s elimination, ratified in Greek Parliament last night as part of a superbill carrying requirements needed for the completion of the first review of Greece’s third bailout package, will lessen the tax burden for suppliers by an annual amount of over 85 million euros. The measure comes into effect on June 1.

Besides offering PPC some breathing space, the measure will also provide the corporation with the opportunity to eventually reduce its tariffs for consumers. Such a prospect is being heavily supported by energy minister Panos Skourletis.

For PPC’s rival independent electricity suppliers, the reduction of wholesale electricity prices, as a result of the elimination of the tax on natural gas, will increase their profit margins and allow them to make even greater price cuts in offers being made to lure customers away from the main power utility.

The upcoming NOME auctions, also ratified last night as part of the superbill and scheduled to be launched in September, will provide considerable impetus to the bailout-related objective of reducing PPC’s wholesale and retail electricity market shares.

NOME auctions will provide third parties with access to PPC’s low-cost lignite and hydropower sources as part of the bailout-related obligation to help break the utility’s dominance.

An amount equivalent to eight percent of the retail electricity market’s total demand in 2015 will be offered by PPC through the NOME auctions in 2016. In 2017, the amount to be offered will be increased to 12 percent of the retail electricity market’s total demand in 2016. The objective is to have decreased PPC’s retail electricity market share by 20 percent at the end of 2017. In 2018 and 2019, 13 percent of the retail electricity market’s demand for 2017 and 2018, respectively, will be offered through the NOMΕ auctions with the objective of reducing PPC’s retail electricity market share to less than 50 percent by 2020.

Electricity suppliers registered with LAGIE, the Electricity Market Operator, will be entitled to take part in the NOME auctions. On the contrary, PPC and major-scale industrial consumers will not be permitted to participate.

EVIKEN, the Association of Industrial Energy Consumers, expressed its satisfaction over the energy-related measures included in last night’s superbill as it includes a gradual tax reduction for natural gas used in industry. The initiative could utimtately help reduce industrial costs, the association noted.