Implementation of temporary CAT mechanism now imminent

The country’s temporary CAT mechanism, to apply non-retroactively for a 12-month period, is expected to be signed and made official by RAE, the Regulatory Authority for Energy, over the next few days, if not hours. It will then have immediate effect.

As has been previously reported, Greece’s temporary CAT mechanism, endorsed by the European Commission last month, has a total cost of 225 million euros and will be used to provide payment for participating electricity producing units at a rate of 45,000 euros per MW.

As has been agreed to with the lending institutions, its 12-month validity will be cut short if the permanent CAT mechanism, which RAE is believed to be preparing, is ready for introduction during this period. Such a prospect, however, is considered unlikely.

Finalization and implementation of the temporary CAT mechanism is one of the conditions demanded by the country’s lenders for completion of the ongoing first review of Greece’s third bailout package.

As for the permanent CAT mechanism, the lenders have asked the Greek government to pre-notify the European Commission about the plan by June.

The permanent mechanism, as disclosed by energypress, is expected to be introduced as of 2017 and will be based on the UK model, shaped as an auction capacity system without pre-determined prices. The need for a model offering stability and knowledge of terms to apply in advance for all parties involved, and which can be implemented for as many years as is necessary, is the main reason why this approach is being worked on.

Given that the system’s needs differ every year and that excess installed capacity exists at present, it is believed that an auction-based system will help achieve a balance.

It is expected that all electricity production units that may operate as a fundamental part of the grid – lignite-fired power stations, natural gas-fueled electricity stations, and hydropower facilities – will be able to participate in the auctions.

Officials are believed to be currently examining the prospect of not offering payments to amortized facilities, or to significantly reduce compensation levels for older units. The European Commission has made such a request and the Greek government is obligated to take it into account. The Greek government is seeking to ensure that unit flexibility plays a greater role in the process determining payment levels, as is the case in other countries, based on EU guidelines adopted. Also, the operator will be fully responsible for monitoring the mechanism and making payments.