No grace period for re-elected government on energy matters

The Production Reconstruction, Environment and Energy Minister to be appointed in the newly re-elected Syriza-led government will not have a single day of spare time as eight of 26 bailout agreement measures that need to be made by the end of September concern the energy sector.

Highlighting the pressure, the interim government’s caretaker energy minister Ioannis Golias formed seven committees last week, just four days before yesterday’s Greek snap elections, to keep matters running on the required energy-sector reforms. This move should have been made a lot earlier.

According to sources, details on the new coalition government’s line-up are expected within the next few hours. If Panagiotis Skourletis is re-appointed energy minister, his choice would minimize any transition time loss as the official was already familiarized with the sector in the previous Syriza-led government. Skourletis had replaced Panagotis Lafazanis on July 20, about a month before Prime Minister Alexis Tsipras called snap elections to seek a fresh four-year mandate, which he gained last night.

No matter who is appointed energy minister, the energy-sector reforms will need to be pursued at a relentless pace, even if the European Commission ends up granting Greece a one-month extension in light of the eight measures that need to be implemented over the next ten days.

Some of the eight actions that need to be taken include establishing mobile teams charged with imposing the law to fight fuel smuggling activities; implementing temporary and finalized CAT’s; introducing a new Variable Cost Recovery Mechanism to help cover hefty start-up costs of independent power stations; revising power utility PPC tariffs based on production costs, in place of 20 percent discounts offered to energy-intensive consumers; and discussing – with the European Commission – the establishment of NOME-type auctions with the aim of reducing PPC’s wholesale and retail electricity market shares by 25 percent. If an agreement on the NOME-type auctions is not reached by the end of October, then alternative measures producing the equivalent results will need to be implemented.

Looking beyond these specific energy-sector actions, the new coalition will also need to decide on broader energy-sector issues, such as hydrocarbons exploration, a front that has essentially been left unattended. Neither Skourletis nor his predecessor, Lafazanis, had sufficient time to seriously deal with the domain. Three bids submitted on July 14 for offshore blocks in an international tender offering twenty blocks in the Ionian Sea and south of Crete have remained unprocessed.

The new government will also need to focus on the renewable energy sources (RES) sector. Market officials expect an upcoming RES support model – which, according to the bailout agreement, will need to be adopted by the end of this year – will reinvigorate the  RES market. Indicative of the overall anticipation, LAGIE, the Electricity Market Operator responsible for wholesale activity, has factored in considerable PV-related impetus into its RES special account forecasts for 2016 and 2017.

Officials preparing the RES support model face the challenge of providing improved tariffs for PV production in order to spur investments. At the same time, officials will need to avoid creating new RES special account deficits, and, by extension, not be forced to increase emission reduction tariffs (ETMEAR) paid by energy-intensive industries to support the RES sector.