Slash CATs cost or face illegal state aid charges, troika says

Although media coverage of Greece’s latest round of negotiations with its creditor representatives, or the troika, is not placing emphasis on the effort to restructure the country’s Capacity Assurance Mechanism, the issue has acquired alarming proportions, from a local perspective.

The members of the troika delegation focused on Greece’s energy matters are not only maintaining a tough stance along the lines of the approach adopted by the creditor representatives at a recent meeting in Paris, but, according to sources, are also expressing direct threats, even blackmailing, to achieve revisions to the mechanism as they see fit.

Energypress sources said the troika’s rejection of a plan prepared by RAE, the Regulatory Authority for Energy, has trapped the government in a corner from which it is expected to either deliver a new, lower-cost plan for the mechanism that takes into account all of the troika’s demands but creates survival problems for producers, or risk facing allegations of illegal state aid received through Capacity Availability Tickets (CATs) from 2005 and on. In such a case, action would be taken for Greece to return CAT amounts received over the past decade. Both prospects are potentially distastrous for the country’s energy sector.

The latter case would place under great danger the financial standing of electricity producers receiving CATs, meaning PPC, the Public Power Corporation, and independent private-sector producers.

On the other hand, avoiding the troika’s threat of alleged illegal state aid claims and accepting its lower-cost version of the restructured Capacity Assurance Mechanism would pose a major survival threat for both PPC and the independent producers. The troika insists that a mechanism to reward producers for capacity availability during low-demand periods is not necessary. However, the troika does agree to the need for a mechanism that supports producers for offering capacity flexibility to the system. The creditor representatives are applying pressure for the overall cost of the new CATs to be reduced by more than 50 percent of the exisiting system’s level.

Under the current CAT system for Greece, worth a total of 570 million euros, PPC receives 170 million euros and the independent producers a total of 400 million euros. RAE’s proposal would reduce the 570 million euro total to approximately 420 million euros, with PPC receiving 120 million euros and the independent producers a combined amount of 300 million euros. Acceptance of the troika’s proposal would slash the total value of the new CAT system to about 270 million euros. In this case, PPC would receive next to nothing, while the remainder, reserved for the independent producers, would amount to approximately half the amount they are currently receiving.

“Such a development would lead PPC to destruction and force the independent producers to shut down,” a sector authority commented.

Alarmed by the options being made available, HAIPP, the Hellenic Association of Independent Power Producers, locally known as ESAI, has warned the Environment, Energy & Climate Change Ministry and other top-level government officials that it would be unacceptable for the coalition to succumb to the troika’s demands.

Meanwhile, the Environment, Energy & Climate Change Ministry is carrying on with its negotiations, hoping it can find a way out. It is employing the findings of a recent study conducted by IPTO, the Independent Power Transmission Operator – it warns that the country’s grid will encounter a capacity adequacy problem from 2016  – as a fundamental argument. Even so, the troika officials appear to be remaining adamant and unperturbed.

The effort to restructure the country’s Capacity Assurance Mechanism is becoming increasingly urgent as the current system will expire at the end of the year following a series of extensions in the past.