High operator guarantee costs a barrier for island market entries

A series of problems, especially disproportionately high and inelastic operator guarantee costs, are keeping independent suppliers out of non-interconnected island electricity markets, sources have informed.

DEDDIE/HEDNO, the electricity operator responsible for the islands, demands extremely lofty guarantees that are imposed at a standard level, a stark contrast to the flexible guarantees formula applied by IPTO, the power grid operator covering the mainland.

IPTO offers electricity suppliers guarantee reductions based on certain criteria such as number of years in business, solvency levels and number of customers.

As a result, the IPTO guarantee payment expected from PPC, the main power utility, ends up being approximately 20 percent of the total amount, while independent suppliers, smaller and newer, are expected to cover between 60 and 70 percent of the full guarantee amount.

On the contrary, flat guarantee amounts are demanded by DEDDIE/HEDNO on the islands, which leads to disproportionate amounts. For example, IPTO guarantee costs for suppliers serving 50,000 customers work out to costing no more than 3.5 million euros whereas DEDDIE/HEDNO guarantee costs for suppliers serving 5,000 customers on any of the non-interconnected islands reach 3 million euros.

Such conditions create barriers for suppliers aiming to enter electricity markets on non-interconnected islands, despite claims by authorities that these markets have opened for all.