Industrial energy consumers fear EU measure will derail liberalization

By Antonios Konteleon

Board member of the Hellenic Union of Industrial Consumers of Energy

Industrial consumers of energy throughout Europe have, in general, been staunch supporters of the liberalization of the electricity market. It is even more so in Greece:  The overregulated and rigid quasi-market for electricity in Greece has, over the years, resulted in much higher market prices than the EU average, crippling the competitiveness of the industry at large.

So when the implementation of the Target Model was included in the 3rd Memorandum between Greece and its creditors in August 2015 as a prerequisite for the disbursing of financial assistance, industrial consumers of energy considered it a great step forward, the official noted, adding the step could at least partially redress the hardship suffered by the Greek industry during the years of the crisis.

UNICEN, the Union of Industrial Consumers of Energy, publicly expressed its support for this policy and urged the Greek authorities to proceed as fast as possible along this route.

Developments since August 2015 have raised grave concerns about whether the new market design will actually be implemented in a meaningful way in Greece. The issue raises concerns that are in fact of interest not only to Greece but to the European Energy Market at large. There are two reasons:

First, the creation of a real Energy Union requires a coupling of all markets — so whatever happens in one country has repercussions in all.

Second, the legislative process in Greece for policies, stipulated in the aforementioned Memorandum, is monitored closely by the EU and its technical teams in Athens. It may sound inconceivable that serious market distortions are allowed in legislation that is prepared in close cooperation with EU Commission representatives — nevertheless it may just be so in the case of Greece.

After a long delay, the Market Operator has prepared a draft Code of Day-Ahead Market, and submitted it to public consultation in January 2018. To our great surprise, the document included various impediments to real and open competition among market players.

The most shocking of these, is the provision for a minimum generators’ bidding price in the day- ahead market. The bidding price, as per the draft code, should never be below the variable production cost of the bidder. These provisions will definitely increase the day-ahead market price, and hence the energy cost in Greece. They will also undermine the Greek market coupling with the Italian day-ahead market, which shall be implemented at the time of the go-live of the new day-ahead market in Greece.

Given the above, consumers of energy are deeply worried that the process of electricity market liberalization in Greece might be hijacked by those who would like to see the current status quo extended into the future. It is not difficult to envisage a structure that will bear the name of the “Target Model”, but would contain so many constraints and caveats, that the protection of the producers’ oligopoly now in operation, would in fact be continued indefinitely.

One would expect that even if the National Regulator (RAE) were to accept such stipulations in the Codes, the European Commission would intervene in favor of the consumers’ interest. This is indeed our hope. Nevertheless, given the experience of the past few years, consumers remain skeptical about whether there will be such an intervention. The reason for this skepticism is the fact that the EU authorities have shown themselves to be predominantly preoccupied with the reduction of the dominant position of the erstwhile state monopoly (PPC), with significantly less attention given to other distortions of the market. They repeatedly expressed their concern about the profitability of PPC’s competitors, without similar worries or actions regarding the high cost borne by consumers of energy. The body of energy related legislation adopted in Greece over the years of the implementation of the financial aid programs — which has been drafted in close cooperation between the Greek authorities and EU officials — clearly reflects these preoccupations.

The justification that the Market Operator provides for the bidding floor is — once again — the need to constrain the dominant player. But it is at least paradoxical to try to constrain a dominant player by increasing the level of prices and delay progress towards the achievement of the Greek market coupling! Even though we agree that the state owned dominant player should be kept in check for a market to be created, extreme caution should be taken in the overall market conditions: replacing a state monopoly with a state supported oligopoly is definitely not in line with the Energy Union principles. Let us hope the European Commission will rise up to the situation. (Source: Politico)