Industry, seeking clarity, demands two-year electricity tariff deals with PPC

The country’s energy-intensive industrial sector is demanding two-year electricity tariff agreements, until the end of 2020, with the main power utility PPC, for greater clarity and stability concerning energy costs to be faced next year.

Shorter-term energy cost planning threatens the sustainability of enterprises in certain sub-sectors, industrialists have warned, adding that energy-cost support for the industrial sector, playing a vital role in Greece’s economic recovery effort, is essential.

Local industrial enterprises, appearing united and adamant, are refusing to sign PPC electricity tariff agreements limited to 2018 and insist on two-year deals.

Separate CO2 emission right cost payments, as is the arrangement at present, would be accepted, industrial sector officials have indicated.

An existing demand response mechanism (interruptability) – compensating major-scale consumers, such as industrial enterprises, when the TSO (IPTO) asks them to shift their energy usage (lower or stop consumption) during high-demand peak hours, so as to balance the electricity system needs – expires in 2019 but the new market conditions to be shaped by a succeeding permanent CAT mechanism remain unclear.

EVIKEN, the Association of Industrial Energy Consumers, has urged energy minister Giorgos Stathakis to seek European Commission approval for a continuation of the demand response mechanism in tandem with the permanent CAT mechanism.


Technical team returns Monday for full review of energy sector

A technical team representing the country’s lenders will be returning to Athens Monday to examine, with Greek authorities, the progress of energy-sector revisions agreed to in the bailout era.

Besides the disinvestment procedure for main power utility PPC lignite units and the course of privatizations, the visiting team’s inspection will primarily focus on the local effort being made for maintenance of the target model’s time frame, which appears to be behind schedule.

For quite some time now, the country’s lenders have applied pressure on Greece for full implementation of the target model – aiming for market coupling, or harmonization of EU wholesale markets – by the first quarter of 2019 and a launch of the local energy exchange by April.

These target dates will be difficult to achieve given the current rate of developments. The time frame’s viability is expected to be discussed by Greek officials and the visiting inspectors.

Electricity market liberalization issues as well as developments concerning RES auctions and the implementation of a transitional CAT mechanism compensating electricity producers offering grid flexibility will also be on the agenda.

PPC takes high court action against flexibility mechanism

The main power utility PPC has filed a case at the Council of State, Greece’s Supreme Administrative Court, in an effort to cancel a transitional CAT mechanism remunerating electricity producers for providing grid flexibility, just days after the staging of an inaugural flexibility auction.

The power utility believes the mechanism is unfavorable for its hydropower and lignite-fired power stations, compared to the benefits offered to natural gas-fueled power stations.

PPC, which expressed its objections against the mechanism in a recent public consultation procedure for the flexibility remuneration plan, has also resorted to the Supreme Court in the past to tackle other temporary CAT mechanisms.

In addition, the power utility has described as unfortunate a decision by RAE, the Regulatory Authority for Energy, to establish a flexibility mechanism whose operation is directly linked to the balancing market instead of focused on ensuring that new markets operate in a timely manner and delivering a mechanism to protect energy sufficiency.

Brussels wants swifter lignite unit withdrawals for subsidies

The European Commission appears set to demand a more ambitious decarbonization plan from Greece, including a swifter withdrawal of lignite units and a long-term deadline specifying the complete removal of lignite units as a condition for support subsidies concerning the main power utility PPC’s ligite units currently on offer to investors through a bailout-required disinvestment.

Athens has requested CAT remuneration eligibility for PPC’s units included in the lignite units sale, representing 40 percent of the power utility’s lignite capacity, in an effort to boost the procedure’s appeal and maximize sale prices.

Though the European Commission has yet to offer an official response, it is believed Brussels authorities have not embraced the Greek request and are expected to demand specific decarbonization commitments before giving anything in exchange to support the PPC sale.

A similar decarbonization plan was adopted in Germany. Lignite-fired units with a total capacity of 2,739 MW and limited lifelines were withdrawn sooner than planned in exchange for compensation worth 1.6 billion euros – in the form of state aid.

It should be pointed out that the subsidy support requested by PPC cannot be provided in the form of CATs as EU directives explicitly point out that aid for production adequacy is incompatible if it counters an objective to phase out energy sources detrimental to the environment, such as fossil fuels.

Flexible power mechanism amendment taken to Parliament

A law amendment for Greece’s transitional CAT mechanism, planned to remunerate flexible electricity capacity from the date of ratification to December 31, 2019, has been submitted to Greek Parliament by the energy ministry.

Flexible power capacity providers such as gas-fired power plants and flexible hydro plants will be eligible for remuneration through the mechanism, as will combined heat and power (CHP) stations for capacities not already compensated by RES and CHP support mechanisms.

The CAT mechanism remunerating flexible electricity capacity has been divided into two periods, the first to run until March 31, 2019 and the second to expire on December 31, 2019. This time distinction has been made as the second period will run concurrently with the balancing market.

The amendment submitted to parliament also offers a description of the competitive procedure through which production units will be chosen for flexibility mechanism remuneration.

Flexibility auction participants will need to bid for capacities of at least one MW, while a starting price of 39 euros per KWh will be set. A total capacity of 4,500 MW will be remunerated through the flexibility mechanism. The first auction is planned to take place no later than September 30, 2018.

The European Commission has just approved Greece’s transitional CAT mechanism model planned to remunerate flexible electricity capacity, it announced earlier this week.


Brussels approval of CAT plan not assured, legal experts warn

The European Commission’s approval of Greece’s CAT mechanism plan should not be considered certain as it contravenes EU directive targets for a gradual reduction of support funds for facilities making a negative environmental and economic impact, legal officials have told energypress.

The Greek government, preparing to submit the country’s CAT plan, prepared by RAE, Greece’s Regulatory Authority for Energy, to Brussels, is hoping for an approval as this would boost the chances of a successful bailout-required sale of lignite units by the main power utility PPC. Two teams through to the sale’s second round are gearing up to submit binding offers in October.

The Greek CAT remuneration plan is believed to not make any distinctions that exclude lignite-fired power stations from CAT payments. The units included in PPC’s sale package represent 40 percent of the power utility’s overall lignite capacity.

An EU directive concerning the issue notes that member states should consider alternative production sufficiency ways that do not make a negative impact on the objective of phasing out environmentally or economically damaging subsidies, the legal sources pointed out.

Taking this into account, the inclusion of lignite-fired power stations in the CAT plan could affect its chances of approval in Brussels.

The legal experts added that energy supply sufficiency could be achieved through a combined plan involving aspects of the CAT plan, without remuneration for lignite-fired power stations, and an extension of the existing demand response mechanism (interruptability) – compensating major-scale consumers, such as industrial enterprises, when the TSO (IPTO) asks them to shift their energy usage (lower or stop consumption) during high-demand peak hours, so as to balance the electricity system needs.

Industry: CAT plan serves PPC units sale, not market needs

The industrial sector has serious objections to a finalized CAT remuneration plan prepared by RAE, Greece’s Regulatory Authority for Energy, and delivered to the energy ministry, which will seek the European Commission’s approval.

Industrial sources believe the ministry is aiming for the remuneration mechanism to be activated whenever it is determined that excessively high prices are causing problems in the market, along the lines of an Italian model.

However, the key problem in the Greek market is sufficiency, not price levels, especially now that a number of older power stations are planned to be withdrawn from the system, industrialists have noted.

The new CAT mechanism plan has also raised questions about the future of the demand response mechanism (interruptability) – compensating major-scale consumers, such as industrial enterprises, when the TSO (IPTO) asks them to shift their energy usage (lower or stop consumption) during high-demand peak hours, so as to balance the electricity system needs.

In addition, a public consultation procedure on the new CAT model has not been staged. Such a mechanism can only be adopted if the market and all participants offer their consent, one source told energypress.

However, the industrial sector and electricity producers will be hard pressed to agree to such a plan whose objective is clearly to reinforce the sustainability of lignite units as a means of ensuring the main power utility PPC’s successful bailout-required disinvestment of lignite units – in terms of sale price achieved.

The finalized power compensation mechanism delivered by RAE to the energy ministry does not make any distinctions that exclude lignite-fired power stations from CAT payments, sources have informed.

According to the RAE plan, CAT payments would be made available through annual auctions offering Reliability Options four years in advance. CAT payments would be valid for one year for existing facilities, while new units would secure CATs for seven years, as an investment and financing incentive, according to the plan.



Lignite units not excluded from local CAT payment proposal

A finalized power compensation mechanism plan prepared by RAE, Greece’s Regulatory Authority for Energy, and believed to have been received at the energy ministry does not make any distinctions that exclude lignite-fired power stations from CAT payments, energypress sources have informed.

The CAT remuneration eligibility of lignite-fired power stations has drawn attention in recent times as this detail is believed to be crucial to the sustainability of lignite power stations and mines included in the main power utility PPC’s bailout-required disinvestment of lignite units. The CAT payment eligibility of lignite units is seen as pivotal to the success or failure of the sale procedure.

It remains to be seen if the finalized Greek power compensation mechanism plan, to be forwarded by the energy ministry to the European Commission in September or October, will be approved in Brussels.

Conventional power stations such as lignite units need to meet a CO2 emission upper limit of 550 grams per KWh to qualify for CAT payments, according to current EU regulations. However, EU officials are still negotiating details for a finalized clean energy package. A five-year adjustment period for existing facilities appears probable.

On a visit to Athens earlier this month, Klaus-Dieter Borchardt, Director of the European Commission’s Directorate-General for Energy, appeared willing to exempt Greece from strict EU regulations as acknowledgment of lignite’s important role in the country’s energy mix. However, no details of any exemption plan have yet to be been released.

In a decision reached on April 17, the European Commission recognized the special role of lignite-fired electricity generation for energy supply security in Greece.

According to the RAE plan, CAT payments would be made available through annual auctions offering Reliability Options four years in advance. CAT payments would be valid for one year for existing facilities, while new units would secure CATs for seven years, as an investment and financing incentive, according to the plan.



All first-round PPC units sale participants to make next stage

All first-round participants of the main power utility PPC’s bailout-required sale of  lignite mines and power stations representing 40 percent of the utility’s overall lignite capacity meet the procedure’s criteria to qualify for the next stage, PPC officials have unofficially made known.

A total of six bidding schemes submitted non-binding expressions of interest for the sale’s first round, expected to end today with the announcement of qualifiers.

As of Monday, the sale’s second-round qualifiers will gain access to the procedure’s data room for two months – once they have signed confidentiality agreements – to evaluate technical and financial information concerning the power stations and mines up for sale.

A consortium comprising Beijing Guohua, a subsidiary of China’s Shenhua, and Damco Energy, a wholly owned subsidiary of the Copelouzos group; GEK-Terna; ElvalHalcor, a member of the Viohalko group; Czech firm EPH (ENERGETICKÝ Α PRŮMYSLOVÝ HOLDING); Indoverse Coal Investments Limited, also Czech; as well as Mytilineos, all submitted first-round expressions of interest.

The wide turnout could lead to aggressive bidding in the next round, when investors will be expected to produce binding offers. However, not all pundits are convinced turnout alone will be enough to generate elevated bids for a lofty sale price.

PPC’s administration has stressed solid incentives are needed for the prospective investors, including CAT payment assurances for the units included in the disinvestment’s packages, one covering the country’s north and the other the south.

Second-round terms are expected to be announced to the qualifying schemes next week. PPC and the utility’s advisers have pushed the sale’s authorities for the most favorable terms possible in an effort to increase the sale’s appeal for investors.

PPC wants terms that will enable, even encourage, participants to join forces. Mobility is being reported among the first-round bidders, including the Czech bidders, believed to be maneuvering for possible partnerships.

The second-round terms are also expected to clarify whether participants will be permitted to submit a joint offer for the sale’s northern and southern packages. Sources said such a provision will be included in the second-round terms, based on a formula applied for the privatization of regional airports around Greece.

The PPC disinvestment’s Greek-Chinese bidding team of Beijing Guohua and Damco Energy, which yesterday signed a partnership agreement for this sale yesterday, made clear it is interested in both the northern and southern packages.

CAT eligibility vital for prospects of PPC units sale, chief notes

The level of investor interest, asset value and achievable sale price of a bailout-required sale of main power utility PPC lignite mines and power stations will depend on whether the units being offered will be eligible for CAT remuneration, the power utility’s CEO, Manolis Panagiotakis, has told journalists.

Strong political support by the government, perhaps from its top level, will be needed as European Commission directives issued so far exclude lignite units from CAT mechanism payments, the PPC boss noted.

Conventional power stations, such as lignite-fired units, must satisfy a CO2 emission limit of 550 grams per KWh to qualify for CAT mechanism payments.

A European Commission proposal calling for even stricter limits is gaining growing support throughout Europe.

Given the developments, the PPC lignite units placed for sale will most likely remain ineligible for CAT support. If so, this will severely limit their appeal for investors in general. They would need to be taken on by industrial enterprises active in sectors eligible for mechanisms offsetting a considerable percentage of CO2 emission right costs.

Meanwhile, taking the sale process a step further, PPC shareholders yesterday approved a split from the corporation of the two lignite unit packages being offered in the sale of lignite mines and power stations, representing 40 percent of the utility’s overall lignite capacity.

Yesterday’s approval now enables PPC to open a data room through which six candidate investors will be informed on the details of assets included in the disinvestment.

“Our work begins now – to correctly inform interested parties, make appropriate presentations and highlight the details that make the units attractive investment prospects – in order to to achieve a satisfactory sale price,” PPC’s chief executive, Manolis Panagiotakis, informed journalists. “Now is also the time for the government and the European Commission to show, with action, their support for lignite-related production,” he added.

Three major local players, GEK-Terna, Mytilineos and ElvalHalcor, a member of the Viohalko group, as well as a fourth, the Copelouzos group, joined by Beijing Guohua, a wholly owned subsidiary of China’s Shenhua, submitted first-round expressions of interest for the PPC lignite units. Two Czech firms, EPH (ENERGETICKÝ Α PRŮMYSLOVÝ HOLDING) and Indoverse Coal Investments Limited, also emerged as surprise participants.




CAT flexibility mechanism’s publication to pave way for auctions

Greece’s new CAT mechanism model compensating electricity generation flexibility, a bailout demand taken on by the government during the fourth review, will be uploaded to the EU’s official website either today or tomorrow and is then expected to be officially endorsed soon after.

According to energypress sources, the European Commission gave permission for the Greek plan’s publication a few days ago, once adjustments it had requested were made.

The European Commission is expected to officially approve the new CAT flexibility mechanism soon after it is published, sources informed.

Then, Greek authorities are expected to push ahead with procedures leading to the first auction. Though it is not yet clear how long this could take, environment ministry officials are confident the first CAT flexibility mechanism auction could be staged in July. Preliminary work needed to set up the auctions has already begun ahead of the plan’s anticipated approval in Brussels, the ministry officials noted.

The new CAT flexibility mechanism will operate transitionally until the implementation of the target model, expected towards the end of the first half next year.

Independent electricity producers are keen to see the new CAT flexibility mechanism up and running as its previous version expired in April, 2017. This has prompted financial issues at production units.

Hydropower facilities, natural gas-fueled power stations, as well as RES units will be eligible to take part in these auctions and be compensated for their short-term notice electricity supply to the grid. Compensation for RES units will be limited to output not remunerated through renewable energy support mechanisms.

Assuming no major changes have been made to the plan, the new CAT flexibility mechanism should offer compensation for 4,263 MW of annual output. Hydropower facilities are expected to be entitled to compensation for output totaling 750 MW, up from the previous model’s amount of 582 MW. Starting prices at the CAT flexibility mechanism descending-price auctions are expected to be set at 39,000 euros per MW, higher than 25,000 euros per MW originally planned.

The demand response mechanism (interruptability) – compensating major-scale consumers, such as industrial enterprises, when the TSO (IPTO) asks them to shift their energy usage (lower or stop consumption) during high-demand peak hours, so as to balance the electricity system needs – will not be incorporated into the new CAT flexibility mechanism.


EU climate change action may lower PPC lignite unit prices

A European Commission proposal for tougher CO2 emission limits on units qualifying for CAT remuneration, which, if followed through, could stop older lignite-fired facilities from receiving CAT payments for output, threatens to impact the market price of main power utility PPC lignite units included in a bailout-required sale package.

The level of any new CO2 emission limits that may be imposed will be crucial in determining the CAT cut-off point for lignite units.

According to sources, prospective investors considering the PPC lignite unit sale raised questions, during a recent market test, as to whether the units being offered (Meliti, Megalopoli III & IV) will remain eligible for CATs.

A European movement campaigning against the use of coal is growing. This drive includes powerhouse nations and players. In recent comments delivered at the Davos summit, French president Emmanuel Macron said France is determined to lead the way against the use of coal. France, as well as Italy, the UK and the Netherlands have all decided to gradually withdraw lignite-fired units from their respective energy mixes over the next few years.

In Germany, climate change and commitments concerning the withdrawal of lignite units from the country’s grid have developed into key negotiation issues between the CDU and SPD parties in their effort to establish a coalition.

At present, Poland, besides Greece, remains the only firm supporter of lignite use in Europe.

These developments are expected to negatively impact the level of investor interest in PPC’s sale package of lignite units as well as sale prices.

This was exemplified in a sale of lignite units last year by Vattenfal to Czech fund EPH, carried out at a loss for the Swedish company, which was determined to reduce its portfolio’s exposure to coal and lignite.

Based on the old CAT mechanism, PPC received approximately 400 million euros per year. The Meliti unit, part of the sale package, received 13.95 million euros, annually, while the yearly CATs for Megalopoli III and IV amounted to 11.51 million euros and 12.91 million euros, respectively, under the old system.



EU lignite talks lead to new framework for CATs in Greece

An issue concerning support for lignite-fired power plants operating in EU member states is expected to return to the fore within the next few days as European Parliament will vote on the matter this month.

The matter is of concern to electricity production in Greece as it is linked to a permanent CAT mechanism plan to be delivered by local authorities to the European Commission in March.

Last month, the energy ministers of EU member states were locked in fierce negotiations that included many disagreements before compromising to reach an agreement containing overall terms for lignite-fired power plant support. It promises to offer support to existing facilities until 2030.

The main stumbling block of these difficult negotiations concerned the inclusion of lignite-fired power plants in CAT mechanisms. An initial plan forwarded by the European Commission proposed the inclusion of lignite-fired power plants whose CO2 emmissions were maintained at levels of no more than 550g per kWh. Member states eventually agreed to exclude new electricity production units from such limits until 2025.

Elpedison losses attributed to major CAT mechanism delay

Independent electricity supplier Elpedison, a joint venture involving ELPE (Hellenic Petroleum) and Italy’s Edison, posted a 3Q loss of 5 million euros, based on electricity output of 717,000 MWh, a slump from a pretax net profit of 9 million euros based on production of 698,000 MWh for the equivalent period in 2016.

Elpedison’s operating profit nosedived by 86 percent despite a sales increase of 18 percent, a poor result for one of Greece’s three major vertically integrated independent electricity players.

The board at ELPE attributed Elpedison’s disappointing results to the greatly delayed CAT mechanism. Company officials, during their presentation of results to analysts, indicated that retroactive payments could be pursued once the new CATs are introduced.

On the contrary, DEPA, the Public Gas Corporation, in which ELPE holds a 35 percent stake, posted impressive 3Q results.

DEPA’s volume-based sales figure grew by 2 percent in the third quarter and 9 percent over the nine-month period, while the gas company’s operating profit for the nine-month period rose by 32 percent to 223 million euros.

Profit after tax at DEPA more than doubled from 60 million to 135 million euros, a result that provided 47 million euros for shareholder ELPE’s coffers.

ELPE officials explained this result stems from higher natural gas demand and sales.

Though already widely known, ELPE officials confirmed that binding offers for a renewed international tender offering 66 percent of DESFA, the natural gas grid operator, in which the petroleum company holds a 35 percent stake, are expected in December.

Market reforms, demand response enter flexibility mechanism talks

Officials of RAE, the Regulatory Authority for Energy, currently engaged in talks with represnentatives of the European Commission’s Directorate-General for Energy and Directorate-General for Competition, in the Greek capital to attend “The Athens Conference on European Energy Law amd Policy”, are grappling with electricity market reform issues, which need to be resolved before any new capacity mechanisms are successfully implemented.

Electricity market reforms need to be implemented to ensure fair payment for gas-fired power units through an effective flexibility remuneration mechanism before RAE’s proposed mechanism can be further discussed.

A maximum remuneration amount of 25,000 euros per MW set by RAE, significantly less than the 45,000 euros per MW offered to producers through the previous mechanism, stands as a core issue.

The absence of the demand response mechanism, and, by extension, major-scale consumers, including industrial, from the new model, is another major issue. RAE will need to convince Brussels officials of this intention.

The European Commission has insisted on including the demand response mechanism (interruptability) in the temporary flexibility remuneration mechanism (CATs), but RAE has not made any such provisions.

RAE contends that there are no immediate prospects for the implementation of a flexibility remuneration mechanism that includes a demand response mechanism.


Brussels officials in Athens this week, PPC units sale on agenda

A market test needed to measure the level of investor interest in a bailout-required sale package of main power utility PPC lignite units is expected to be proceed as scheduled, by the end of next month, even if certain revisions to a proposal forwarded by Greek officials is necessary, various sources agree.

A finalized list of the PPC units to be offered for sale will need to be delivered within the next five to six weeks if the procedure is to remain on schedule.

Brussels authorities representing the European Commission’s Directorate-General for Competition and Directorate-General for Energy are expected to travel to Athens towards the end of this week for talks on various issues.

All sides involved in the negotiations – European Commission, Greek government and PPC – will need to reach an agreement on the sale package of PPC lignite units if the current plan is to proceed.

Though the visit’s agenda has yet to be announced, all issues concerning the Greek electricity market’s liberalization effort should be examined, including the PPC sale of ligite units. The new temporary CAT mechanism and the Greek government’s extension request for the demand response mechanism (interruptability), enabling energy cost savings for major industrial enterprises, are also expected to be top-priority items on the agenda.

Elpedison posts losses, delayed flexibility mechanism cited

ELPE, the Hellenic Petroleum group, may have announced record profit figures yesterday but a closer look at the results does hide one important and unfavorable development, the performance of Elpedison, an associated company in which ELPE holds a 50 percent stake, which incurred losses and presented a reduced energy production level.

Elpedison’s EBITDA registered at €1m in 2Q17, down from six million euros a year earlier, while its EBIT stood at a loss of six million euros. Company officials, in comments offered to analysts, cited the delayed re-establishment of the flexibility remuneration mechanism for gas-fired units as the key reason affecting its electricity division.

This cannot be viewed as an isolated incident as all other independent electricity producers are also being affected by the flexibility remuneration mechanism’s delayed re-establishment.

Market officials have expressed concerns that the transitional mechanism, whose adoption has already been delayed, will take longer to implement. RAE, the Regulatory Authority for Energy, which still appears a long way off from sending its mechanism plan to the European Commission for approval, has contributed to the problem.

According to energypress sources, a public consultation procedure has been planned for the first half of September as a means of examining the views of interested parties. The sources added that RAE will not present a full and  completed plan for its upcoming public consultation procdure.

Despite the obstacles, Elpedison did manage to increase its electricity production in the first quarter, which was enough to deliver a 14 percent overall increase in the first half. Second-quarter electricity production at Elpedison fell to 464,000 MWh from 540,000 MWh.

From a wider perspective, the country’s gas-fired electricity units are contributing to the grid for longer hours, compared to the past, but being deprived of CAT payments, which is affecting their operating profits and sustainability.



RAE, Brussels officials working on temporary CAT mechanism

RAE, the Regulatory Authority for Energy, and European Commission officials remain hard at work, deep into the summer, on Greece’s new temporary CATs, expected to replace the previous mechanism that expired in April, leaving the market without a flexibility mechanism over the past three months or so. As a result, electricity producers have been left without CAT payments for their output.

According to latest information, the European Commission is insisting on the inclusion of a demand response system into the new temporary CAT mechanism. RAE, however, believes that the demand response system should be excluded from the temporary mechanism, citing two main reasons.

The authority contends that implementing such a system will prove difficult in practice, adding that, if a formula is found, the overall procedure will be further delayed, ultimately cancelling out the temporary mechanism’s chance to operate as an intermediate measure.

RAE wants the new temporary CATs to be based on the old model, which did not include a demand response system, noting, however, that other features demanded by Brussels would be incorporated to make the new plan competitive.

Sources noted that RAE is moving to present for public consultation, within the current month, a flexibility plan prepared by IPTO, the power grid operator, as well as the basic mechanism features it is proposing.

As was previously reported by energypress, the system’s total flexibility needs anount to approximately 4,000 MW per year, according to the IPTO study.

RAE and IPTO are examining the prospect of introducing a plan that would include two products to share this 4,000-MW capacity. One would offer electricity producers three hours notice and demand roughly 1,600 MW. The other product would give producers a one-hour notice and require between 2,500 and 2,600 MW.

The temporary mechanism is expected to determine which production units will have the right to participate in auctions for both these products and in what order.

The transitional flexibility mechanism needs to be delivered to the European Commission by September, along with pre-notification of a plan for a permanent mechanism.


Brussels suspicious over PPC role in new CAT system delay

A series of new delays and problems holding back the implementation of local electricity market measures is raising the level of suspicion felt by the country’s lenders, including the European Commission, against Greece, making it difficult for the two sides to find common ground on issues, sources in Brussels have told energypress.

Greek electricity market developments are making one step forward and two steps back, European Commission officials believe.

The slow progress being experienced in the establishment and implementation of Greece’s new temporary CAT mechanism, needed to replace the previous mechanism which expired last spring, is expected to leave the market’s producers uncovered until at least early next year, when the new system is seen arriving. This delay has been identified in Brussels as the latest noteable issue causing irregularities.

Electricity suppliers, especially the main power utility PPC – as the dominant retail player – are continuing to collect an accumulating related surcharge that is not being relayed to producers as a result of the absence of the new CAT mechanism.

Electricity producers, primarily PPC, collected approximately 15 million euros per month through the old CAT mechanism.

Whether coincidental or not, this surcharge intended for electricity producers, but whose lions share is kept by PPC, the main retailer, has helped offset losses incurred by the utility through the NOME auctions, introduced last October to provide third parties with access to PPC’s low-cost lignite and hydropower sources.

This detail has not gone by unnoticed, raising suspicions concerning various other pending electricity market measures, Brussels sources informed.


Suppliers left with growing coffers in absence of new CATs

The country’s electricity suppliers have found themselves with unlikely coffers containing accumulating sums expected to eventually reach a grand total of 170 million euros as a result of a delay in the introduction of a new transitional flexibility mechanism.

Once this mechanism – rewarding producers for flexibility offered to the grid – is up and running, the accumulating amounts held by electricity suppliers will need to be relayed to electricity producers.

Electricity suppliers, who are continuing to collect these amounts as surcharges included on electricity bills, stopped relaying the respective amounts to electricity producers in April, when the validity of the previous transitional CAT mechanism expired.

According to recent reports, a further delay to the new mechanism’s introduction can be expected as the European Commission’s needed assessment of the Greek plan has been shifted to September. As a result, the new CATs cannot be expected to be introduced until late this year.

Energypress has estimated that the related amount held by electricity suppliers will have reached around 170 million euros by then.

These amounts are divided up for electricity producers, based on their respective market shares.

The main power utility PPC, whose retail electricity market share currently stands at 85 percent, is holding on to an equivalent share of the accumulating surcharge total, while the remainder sits in the coffers of the independent suppliers.

The Greek government would like a swift solution but officials in Brussels will seemingy require some time before endorsing the Greek plan.


Gradual progress being made on flexibility mechanism

RAE, the Regulatory Authority for Energy, and IPTO, the power grid operator, are currently focusing on the technical aspects of a transitional flexibility mechanism being prepared by Greece for imminent delivery to the European Commission.

Ongoing talks between officials in Athens and Brussels are gradually providing shape to the Greek proposal. At the same time, Greek officials are seeking to make necessary legal revisions concerning the electricity market that will ensure electricity producers of payments they are entitled to.

The European Commission’s Directorate-General for Competition and Directorate-General for Energy both demand that all required electricity market legal revisions are made prior to the implementation of any capacity mechanisms covering market needs.

The revisions required in Greece primarily concern compensation methods for electricity producers offering supplementary services to the grid.

As for the country’s transitional mechanism for electricity producers offering flexibility, the Greek plan appears to be settling for two products to be offered through auctions. The first of these, offering producers three hours notice, will require roughly 1,600 MW. The second, giving producers a one-hour notice, will require a capacity of between 2,500 and 2,600 MW.

Local officials are pushing to have the plan endorsed by the European Commission as soon as possible as the previous mechanism expired in April, leaving electricity producers without CAT payments.

Authorities are currently examining issues such as the technical feasibility of the current plan, which production units would be entitled to participate in auctions for the two aforementioned products, and their order of entry.

The procedure determining the level of compensation for units offering flexibility to the system (new transitional CATs) will be tendered. Two pre-determined upper limits are expected to be set for the two aforementioned products. The upper limit is expected to be higher for the product giving electricity producers a one-hour notice.



Flexibility capacity cuts seen for temporary CAT mechanism

A flexibility study prepared by power grid operator IPTO and delivered to RAE, the Regulatory Authority for Energy, limits flexibility provisions to electricity production units that are capable of entering the system within three hours of notification by the operator, according to energypress sources.

More specifically, the annual flexibility needs have been calculated at 3,500 MW for 2017, 2018 and 2019, the first three years of a ten year-period examined in the study. This comes as a reduction compared to the temporary CAT mechanism that expired in April and was based on annual flexibility needs of 5,000 MW.

The significant reduction of flexibility capacity and provisions indicates that the amount of CATs to be offered as part of the new temporary flexibility mechanism to be proposed by RAE and implemented, assuming the European Commission offers its approval, until the target model is introduced, will be reduced.

Proceedings at auctions, required by related new European Commission regulations, will determine which units stand to benefit as well as the amounts to be received by units offering flexibility.

Given the new standards proposed by the IPTO study, it remains unknown whether main power utility PPC’s hydropower stations will be able to qualify into the category of units offering flexibility services.

RAE plans to soon announce the new temporary CAT mechanism and offer pre-notification of the permanent mechanism, which, according to the bailout, must be announced by the end of June. At this stage, it does not appear that the permanent mechanism’s announcement can be made any earlier than mid-July. The pre-notification of the permanent CAT mechanism and the announcement of the temporary system are expected to be jointly announced.

A vague picture also prevails for the demand response mechanism (interruptability), directly linked to the CAT mechanism. Though the energy minister Giorgos Stathakis and Prime Minister Alexis Tsipras have both promised Greece will submit a seperate application for a three-year extension to the current mechanism that expires in October, the European Commission’s DG Comp, according to sources, is seeking to have the demand response mechanism incorporated into the temporary CAT mechanism as it believes flexibility is not only restricted to electricity production units but can also include consumers.

Greek industrialists have made clear to Greek government officials that the demand response mechanism is essential if energy-intensive producers are to remain competitive.

The demand response mechanism (interruptability) enables major industrial enterprises to be compensated when the TSO (IPTO) asks them to shift their energy usage (lower or stop consumption) during high-demand peak hours, so as to balance the electricity system needs.


RAE seeking consultant for country’s new CAT mechanism plan

RAE, the Regulatory Authority for Energy, intends to seek guidance from a consultant for its shaping of a plan to serve as the energy ministry’s proposal to the European Commission for Greece’s fixed CAT mechanism.

The plan will need to fully address the country’s need for a fixed CAT mechanism, used to compensate electricity production units for output contributing to the grid’s adequacy and stability. The plan will also need to comply with related EU directives. These include payment provisions for units contributing to the grid’s adequacy and flexibility and energy-intensive consumers for their demand response participation.

RAE has asked IPTO, the power grid operator, to prepare a new study on the system’s flexibility needs and tools that could possibly be introduced to the electricity market’s operating framework. A previous IPTO study was delivered by the operator to RAE a couple of months ago but returned as it was considered incomplete.

Tools ensuring flexibility for the energy system are considered essential if RES production, entailing inevitable output fluctuations, is to further penetrate the market.

Besides the new fixed CAT mechanism, the energy ministry will also propose a new transitional CAT mechanism to apply as of this April, when the validity of the current transitional CAT mechanism expires. This new transitional CAT mechanism would support the system until the fixed plan is approved and adopted.

As April is just around the corner, electricity producers face the prospect of remaining unpaid for output until a new transitional CAT mechanism is introduced. The intermediate inability to be paid could challenge certain units in their struggle to remain sustainable.

A recent European Commission report on CAT mechanisms made clear to all EU member states the need for detailed presentations justifying the need for such mechanisms.



Grid flexibility study for CAT mechanism requires additions

A study on the local electricity grid’s flexibility needs, conducted by IPTO, the power grid operator, following a request from RAE, the Regulatory Authority for Energy, has been delivered to the European Commission, which requested the study, but does not appear to be complete, prompting officials in Brussels to demand revisions and further details, according to energypress sources.

The study, examining the Greek electricity system’s real flexibility needs, growing along with the increased contribution of renewable energy production to the grid, while also considering regulatory tools providing greater market flexibility, are European Commission prerequisites in the lead up to its final appraisal of the country’s fixed Capacity Availability Ticket (CAT) mechanism, which will need to soon replace the temporary CAT mechanism as a means of maintaining payments for electricity producers.

Though it was based on an equivalent study conducted by ELIA, the Belgian system’s operator, reliable sources have informed that European Commission officials believe that firm conclusions and proposals are lacking from the study.

Facing growing time pressure, RAE appears to have forwarded various electricity market revision proposals to Brussels. These would secure market-generated earnings which producers are entitled to.

Once an agreement has been reached on the fixed CAT plan’s finalized form, adjustments and additions will need to be made. The temporary CAT mechanism, through which electricity producers have begun receiving payments, will expire this April. Approval and implementation of the fixed CAT plan, as a follow-up, is crucial to the survival of electricity production facilities.

Further ahead, the fixed CAT plan will eventually be replaced by the target model, expected to be implemented in 2020.


Power producers expecting first temporary CAT payment of €100m

IPTO, the power grid operator, expects, within the current week, to have finalized and sent out notifications to electricity producers detailing amounts they are to receive through the country’s temporary CAT mechanism.

Electricity producers have been eagerly awaiting these CAT payments, the first to be made, which are expected to reach a total of about 100 million euros.

The temporary CAT mechanism will be funded by electricity supplier contributions collected by IPTO.

Temporary CAT mechanism payments, applied retroactively as of May 1, will reach a maximum of 171 million euros over a 12-month period, based on a decision reached by RAE, the Regulatory Authority for Energy.

This figure is 54 million euros less than an initial amount of 225 million euros that had been endorsed by the European Commission’s Directorate-General for Competition.

A total of 30 electricity production units – 21 operated by main power utility PPC and nine by private-sector companies – with a combined capacity of 4,672.284 MW are eligible for the 171 million euros to be provided through the temporary CAT mechanism.

This payment will be the first to be offered through the temporary CAT mechanism. Producers did not receive any payments in 2015 or during the first four-month period of this year.

The temporary CAT mechanism will be valid for a total of 12 months, according to an agreement reached with the country’s creditors, unless the permanent CAT mechanism is introduced before the end of this year, a prospect that has not been ruled out.

Mixed response to European Commission’s ‘winter package’

The European Commission’s “winter package”, a series of proposals representing an effort to modernize Europe’s energy system, has received a mixed response from market officials. Some agencies and associations have criticized Brusssels for a lack of ambition while others described the package proposals as favorable.

Capacity Availability Ticket (CAT) mechanisms and their future direction, as envisioned by the European Commission, represent a key part of the package.

They include a 550 gram CO2 per KWh emission limit on units eligible for CAT mechanisms. This limit would exclude new lignite-fired power stations from CAT mechanism eligibility. Based on the proposal, the limit would not apply for existing lignite-fired units, which will be able to receive CAT subsidies in the future.

Euro MP Claude Turmes, a member of the Group of the Greens, described the “winter package” as a “gift for Poland”, given the numerous lignite-fired stations operating in the country.

The proposals would also allow the European Commission to exercise greater control, directly and indirectly, over the energy policies of EU member states.

The European Commission proposed the establishment of an EU governing body for energy policy as a means towards reaching objectives, especially ones concerning climate change and energy targets set for 2030.

‘Market reforms a prerequisite for CAT mechanisms’

The European Commission has released a finalized report concerning CAT mechanisms, noting that market reforms are a prerequisite before they are adopted.

Many EU member states are lagging behind in the requirements set by the EU framework, the report noted.

It also stresses that member states often fail to fully define the matters they intend to resolve through mechanisms before adopting them.

“The capacity availability mechanisms need to respond to the demands set by the market and be open to all technologies. They must not indirectly offer support to a specific technology, such as fossil fuels, or lead to particularly high prices for consumers,” noted Margrethe Vestager, the European Commissioner for Competition. “The report will help both the European Commission and EU member states introduce more accurately designed mechanisms, only if there is a real need for them. Even in the event that CAT mechanisms are well designed, they cannot replace the essential need for electricity market reforms.”


Market reforms before fixed CAT plan, Brussels indicates

Greece will first need to institutionalize electricity market reforms that will provide power stations with revenues they are entitled to based on actual market conditions before a permanent CAT (Capacity Availability Tickets) mechanism, to replaced the temporary CAT system, is submitted for processing and approval, the European Commission’s Directorate-General for Competition and Directorate-General for Energy have indicated, according to energypress sources.

The DG Comp and DG Energy in Brussels are not casting doubts over the principles and framework of the permanent CAT mechanism already prepared and delivered for public consultation by RAE, the Regulatory Authority for Energy. However, these authorities believe the permanent mechanism should be ushered in to cover resulting needs once specific electricity market reforms have been implemented.

The expected revisions will primarily focus on issues concerning the market’s Management Code.

RAE will now need to work on introducing revisions and complementary tools to the system so that compensation amounts provided for electricity production units accurately depict market conditions.

At the same time, IPTO, the power grid operator, will need to present a study focused on grid flexibility needs. These are rising as the RES sector’s contribution to the grid’s energy mix grows.

The overall conditions and results of these moves will be co-assessed before a permanent CAT mechanism proposal is submitted.

Swift action will need to be taken as the temporary CAT plan expires in April, 2017. If the permanent mechanism has not been endorsed and launched by then, electricity producers face the danger of being left without any compensation, which could threaten the sustainability of production units.


Producers to receive €50m less through temporary CAT plan

Electricity producers will receive a total of 175 million euros, 50 million less than originally planned, through Greece’s transitional CAT mechanism for twelve months of production, RAE, the Regulatory Authority for Energy, has decided, according to energypress sources.

The temporary CAT plan will be applied retroactively, as of early May, 2016. Authorities informed that, next month, suppliers will pay the first of four installments into the system while payments to eligible producers will begin a month later.

The temporary CAT plan will remain valid for a year until May, 2017, but its duration would expire prematurely if the permanent mechanism is prepared prior to this date, a highly unlikely prospect. RAE is currently working on the permanent CAT plan.

The RAE decision to implement the temporary CAT plan ends a series of postponements and delays that has deprived electricity producers of payments throughout 2015 and for the first four months of 2016.

RAE is expected to look into certain bureaucratic details today, the main concern being whether parliamentary procedures, as an addition to the authority’s own endorsement of the temporary CAT plan, will be needed to launch the mechanism.

Government sources said no further delays to the plan’s introduction should be expected. This remains to be seen.

Producers will be paid at a rate of 45,000 euros per MW for the temporary CAT plan’s twelve-month period.

As for the permanent CAT plan, details are being looked into. Its progress is behind schedule. According to the bailout agreement, the European Commission should have received pre-notification of the plan by June. This will not occur any sooner than late next month. Various issues are still pending such as a study by IPTO, the power grid operator, on the system’s flexibility.



Authority’s fixed CAT plan headed in right direction, EVIKEN notes

A proposal made by RAE, the Regulatory Authority for Energy, for the country’s fixed CAT mechanism to compensate electricity producers is headed in the right direction as, compared to the current temporary CAT model, it factors in a wider range of selection criteria for producers, EVIKEN, the Association of Industrial Energy Consumers, has noted in letter sent to the authority. A public consultation procedure for the mechanism is now in progress.

In its letter, EVIKEN also pointed out that the fixed CAT mechanism needs to take into account the electricity market’s imminent restructuring.

In addition, the association noted that the “disruption management” plan – enabling major industrial enterprises to benefit from electricity cost savings in exchange for shifting energy usage to off-peak hours whenever required by the operator – which is scheduled to remain valid until October, 2017, will need to be extended until the target model, Greece’s series of adjustments needed to meet the EU’s wider plan for an integrated energy maket, is fully implemented.