Major energy reforms planned for 2016 promise new scene

For years, the energy-related direction taken by the European Union has been clear, its key objectives being to fully liberalize energy markets, enhance competition and subdue dominant players, develop networks and energy intergration, limit climate change, and increase the role of renewable energy source (RES) production. However, despite hailing and embracing the European vision, Greece’s political forces have made little progress over the past decade or so. Major market distortions have remained unattended, while new ones have replaced older ones. Political forces advocating change have either never really challenged safe keepers of backward ways, or stopped at the very first hurdle.

The current government appears to have accepted the responsibility to carry out major energy-sector reforms so as to modernize the local market and allign it with the European Union. The pressure being applied by lenders through the bailout agreement is making it virtually impossible for this Greek government to step back on energy reform commitments. Most of the required reforms will be made in 2016. Eight key reforms promise to change the domestic energy scene.

IPTO, the power grid operator, will be split from its parent company, the main power utility PPC, for the establishment of a new IPTO to to be controlled by the state. Fixed assets (network) will be transferred to the new IPTO company. This solution replaces a plan by the previous administration to privatize 66 percent of IPTO.

NOME auctions will be introduced to create competition in the retail electricity market. A 50 percent share of PPC’s customers will need to transfer to rival power suppliers by 2020. Greek officials and creditor representatives disagree on details but these will need to be overcome as the NOME plan is a bailout commitment. The plan will definitely be institutionalized in 2016 regardless of whether the initial format of the NOME auctions proves effective or not.

A ratified plan by the previous administration to part-privatize a 30 percent share of PPC has been abandoned by the Syriza-led coalition. But it will still need to guide PPC towards surrendering production at a level of 50 percent by 2020. Greece faces European Commission legal pressure to offer third parties access to lignite and hydropower production, low-cost options currently enjoyed exclusively by PPC.

A new support model for the RES sector will also need to be introduced. A final plan is expected to be delivered within the next few days by a special committee assembled for this purpose by the energy ministry.

The natural gas market’s full liberalization will be gradually implemented following the ratification of law.

The 66 percent sale of DESFA, the gas grid operator, pending since the summer of 2013, is now approaching its final stretch. Socar, the Azeri buyer, will need to surrender at least 17 percent to EU-based companies and settle for a maximum of 49 percent within the first two months of 2016. The European Commission had intervened in the sale process. Fluxys-Enagas and Snam appear set to bid for the surrendered stake.

Construction of the TAP (Trans Adriatic Pipeline) project appears set to commence in 2016 following an agreement signed between the Greek coalition and the TAP consortium. Other gas projects such as the IGB Greek-Bulgarian pipeline, awaiting market tests and keeping other dependent projects on hold, such as a floating LNG terminal in Alexandroupoli, may also be developed in 2016.

Following a 15-year spell of local inactivity in the local hydrocarbons exploration and exploitation field, licenses are expected to be offered within 2016 for three onshore blocks in western Greece. The government has asked Hellenic Petroleum (ELPE) and Energean to join forces for a license in the Arta-Preveza area. Both companies have submitted bids.