Revised Variable Cost Recovery Mechanism being prepared

The latest bailout agreement for Greece includes a plan to readopt a revised Variable Cost Recovery Mechanism whose aim will be to straighten out current market distortions that prompt losses at numerous power stations. The specific measure is included in sections of the bailout agreement that have yet to be publicized.

The fundamental principle behind the plan to reintroduce the Variable Cost Recovery Mechanism, locally acroymed MAMK, concerns the need to cover start-up costs of power stations called into action to help meet the grid’s needs.

Thermal power stations, which typically take a couple of days to warm up before being able to produce, are feeling the strain of not being supported by a cost recovery mechanism.

Independent electricity producers have reported reduced turnover figures for the first half, while virtually all are currently in the red.

Preliminary work leading to decisions for the new Variable Cost Recovery Mechanism is expected to be completed by the end of the year. Officials will need to decide whether the mechanism will cover costs over short-term periods (hours or days) or medium-term periods (monthly, every three months).

Revisions to the previous Variable Cost Recovery Mechanism are considered certain. Power stations that have already amortized their investment costs are expected to either not qualify for the cost recovery mechanism or receive significantly lower compensation amounts, according to energypress sources.

Another related issue concerning this yet-to-be-publicized part of the bailout agreement concerns the new CATs (Capacity Availability Tickets) mechanism and a reappraisal of the system’s real needs. This will need to be completed in the immediate future.

The same sources informed that the establishment of a new Variable Cost Recovery Mechanism will influence progress of the new CATs mechanism, whose new form is also expected to be finalized by the end of the year. The objective will be to coordinate the two mechanisms to avoid overcompensating producers.

The Variable Cost Recovery Mechanism’s payments are expected to be managed by IPTO, the power grid operator, which, based on current indications, will be commissioned greater authority and roles in the electricity market’s new model being planned.