Five major energy issues to be tackled by gov’t, lenders

Five main energy-sector issues will need to be tackled by government officials and a visiting team of bailout agreement technocrats when work and negotiations resume in Athens on September 11.

The Greek government’s proposal concerning a bailout demand requiring the main power utility PPC to reduce its lignite-related capacity by 40 percent; a plan forwarded by RAE to resolve pending Public Service Compensation (YKO) payments and issues; revisions to the Social Residential Tariff (KOT) program offering underpriviledged households subsidies for lower-cost electricity; the country’s temporary CAT plan; as well as a road map for the natural gas market’s liberalization are the five issues that will dominate the energy-related agenda in the upcoming talks.

The Greek government will battle to save the fundamentals of its bailout-required sale package proposal of main power utility PPC units, submitted to the European Commission for approval. The sale package tabled by Athens includes the state-controlled utility’s two lignite-fired stations in Amynteo (550 MW), Meliti I (330 MW), and a license for Meliti II (450 MW).

As for the Public Service Compensation (YKO) issue, a multi-faceted and complex challenge, Greece’s finance ministry is avoiding offering its endorsement to a RAE (Regulatory Authority for Energy) plan that would transfer coverage of YKO-related costs to the national budget and, therefore, offer some relief to electricity consumers. Also, the country’s lenders want outstanding YKO amounts owed to PPC to be settled.

The YKO surcharge added to electricity bills is paid by consumers to primarily subsidize PPC’s high-cost electricity production on Greece’s non-interconnected islands and also support the Social Residential Tariff (KOT) program offering underpriviledged households subsidies for lower-cost electricity.

Many thousands of the current 690,000 or so KOT beneficiaries are expected to be removed from the list if income and property criteria revisions are implemented.

As for the natural gas market, the country’s lenders are pushing to limit the omnipotence still maintained by DEPA (Public Gas Corporation).

Greece’s transitional flexibility mechanism proposal, the fifth major issue to be dealt with, has acquired some shape. Following up on European Commission advice, IPTO, the power grid operator, has proposed two models. The first of these, offering producers three hours notice, will require roughly 1,600 MW. The second, giving producers one hour’s notice, will require a capacity of between 2,500 and 2,600 MW.

The transitional flexibility mechanism needs to be delivered to the European Commission by September, along with pre-notification of a plan for a permanent mechanism. The country’s previous mechanism expired in April, leaving electricity producers without CAT payments for their output.

Market officials believe that the simplest solution, given the delays, would be to continue with the preceding model, applied, however, through auction procedures.