CO2 right prices up 39% in 45 days, adding to wholesale market price ascent

CO2 emission right prices have hit new records, trading at levels of over 30 euros per ton in recent days for a rise of 39 percent over the past month and a half that has contributed to the wholesale market price ascent.

These elevated CO2 right levels peaked on Tuesday, at 32.02 euros per ton, well over a price of 23.05 euros per ton recorded just weeks ago, at the end of October.

The upward trajectory of CO2 emission right costs is also contributing to even higher prices in Greece’s wholesale electricity market.

Last Wednesday, the day-ahead market’s average price exceeded 80 euros per MWh, rising further to 93 euros per MWh hour yesterday.

If CO2 emission right trading prices persist at levels of more than 30 euros per ton, power utility PPC will activate a related wholesale price clause incorporated into its supply agreements.

Besides the increase in CO2 emission right costs, the Greek day-ahead market has followed the upward trajectory of other European markets, where the combination of higher demand and deteriorating weather conditions is pushing price levels higher.

According to Greek energy exchange data for today’s day-ahead market, the price will average 82.31 euros per MWh, peaking at 114.1 euros per MWh and dropping as low as 44.38 euros per MWh.

 

Consumers hit with tariff hikes of over 20% in low, mid-voltage

Sharply higher wholesale electricity prices registered over the past five weeks or so in the energy exchange’s new target model markets have, to a great extent, been quietly passed on by suppliers to consumer tariffs in the household, business and industrial categories, without any related announcements  from suppliers.

Price hikes by electricity suppliers have applied to approximately 35 percent of total electricity consumption, during this period, while tariff hikes have exceeded 20 percent in the low and mid-voltage categories.

In the low-voltage category, suppliers have activated clauses enabling tariff increases when wholesale price levels exceed certain levels.

Very few independent electricity suppliers, both vertically integrated and not, carry fixed-tariff agreements in their portfolios, exposing most consumers to wholesale electricity price fluctuations.

On the contrary, power utility PPC, representing roughly 65 percent of overall consumption, does not include wholesale price-related clauses in its supply agreements, meaning its tariffs have remained unchanged over the past few weeks.

Instead, PPC includes clauses linked to emission right prices in international markets. These have remained relatively steady in recent times.

Even if wholesale electricity prices happen to deescalate in the next few weeks, a likely prospect, some latency should be expected in any downward tariff adjustments by suppliers.

Numerous consumers have lodged complaints with RAE, the Regulatory Authority for Energy, over the tariff hikes by suppliers. Complaints by suppliers against energy producers setting excessively high prices in target model markets have also been made.

PPC energy outlay falls €886m, key to strong 3Q results

A decreasing reliance on lignite-fired power stations, nowadays an extremely costly generation option as a result of high-priced CO2 emission rights; lower wholesale electricity prices; and a drop in diesel and natural gas prices reduced power utility PPC’s energy expenses by 885.6 million euros in the nine-month period, to 1.4 billion euros from approximately 2.1 billion euros in the equivalent period a year earlier, the power utility has reported.

This cost reduction, spearheaded by chief executive Giorgos Stassis and his administration, played an important role in favorable results announced yesterday.

PPC’s liquid fuel expenses fell by 33 percent to 357.5 million euros during this year’s nine-month period as a result of the corporation’s lower liquid fuel-based generation as well as lower mazut and diesel prices.

The nine-month natural gas outlay for PPC also fell significantly, by 41.8 percent, to 206 million euros from 353.7 million euros, as a result of a 42.4 percent drop in natural gas prices.

PPC’s CO2 emission right expenses fell to 263.1 million euros in the nine-month period, from 406.9 million euros in the equivalent period of 2019, as a result of the company’s reduced emission levels, down to 10.9 million tons from 17.9 million tons.

The power utility’s lignite-based generation during the nine-month period dropped by 50.6 percent year-on-year.

PPC appears to have given space to rival electricity producers in the nine-month period, while increasing its operating profit, despite a retail market share contraction to 69.3 percent from 76 percent a year earlier.

Fast action needed for industrial emission cost offsetting tool

Greek authorities need to act fast in the coming months if industrial producers are to keep receiving CO2 emission-right cost offsetting support as of January 1, 2021 through a European Commission mechanism.

The European Commission has just announced new state aid directives concerning greenhouse gas emissions beyond 2021. EU member states will need to soon forward their offsetting mechanism plans to Brussels.

Certain revisions have been made. Copper has been added to the list of industrial sectors eligible for emission cost offsetting mechanisms, while the textile and fertilizer sectors have not been included.

Besides copper, the steel, aluminium and paper production sectors have also been included on the list.

The European Commission aims to counter non-EU competition, including Chinese, and prevent industry shifts to locations outside the EU.

Pending issues crucial for industrial energy cost savings

A series of issues concerning prospective industrial energy cost savings that have surfaced either as industrial-sector requests or government announcements remain unresolved, creating insecurity within industrial circles.

New industrial electricity tariffs, currently being negotiated but with much ground still to cover for convergence, are at the very top of this list for industrialists.

One energy-intensive industrial producer has already abandoned power utility PPC after rejecting the industrial electricity tariff prices the utility had to offer.

Industrialists also want a public service compensation (YKO) surcharge reduction.

On another front, the sector expects a special consumption tax rate for mid-voltage industrial consumers with annual consumption levels of more than 13 GWh to be equated with the special consumption tax rate offered to high-voltage industrial enterprises. This revision, concerning approximately 170 factories, has been announced by Prime Minister Kyriakos Mitsotakis.

Another matter for the industrial sector concerns exempting major-scale industrial units from a series of additional electricity supply surcharges, in accordance with European Commission directives.

Industrialists also want a special consumption tax exemption on electricity used for mineral processing in cement and glass production, which would align Greek law with an EU directive from 2003.

The industrial sector is also anticipating a new mechanism to offset CO2 emission right costs.

PPC CO2 emissions down 71.1%, lignite-fired output fades

Power utility PPC’s CO2 emissions plunged 71.1 percent in the first half, from 1.97 million tons in January to 568,900 tons in June, reflecting the significantly diminished role of lignite in generation.

Lignite’s dominant energy mix role has been taken over by natural gas, supported by rising RES output and electricity imports.

Lignite-based electricity generation slid for most of the six-month period between January and June, dropping to 1.41 million tons in February, 882,240 tons in March, 730,970 tons in April and 564,900 tons in May before edging up to 568,900 tons in June.

CO2 emission right costs have been on an upward trajectory over the past couple of months, rising well over customary levels of about 20 euros per ton to reach as high as 29.66 euros per ton. Current levels appear to have stabilized at between 26 and 27 euros per ton.

Despite these higher CO2 emission right price levels, PPC’s operating costs are not expected to rise as a result of its big cutback on lignite-fired production.

PPC’s share of overall electricity production is projected to keep falling as independent producers and traders move in to fill the lignite void through natural gas and RES generation, plus electricity imports.

Rising CO2 right prices signal irreversible post-lignite course

Higher CO2 emission right costs, forecast to rise even further over the next few years, and this trend’s growing cost for power utility PPC’s lignite-fired power stations, highlight the country’s irreversible course towards the post-lignite era.

CO2 emission right costs have climbed to levels of about 30 euros per ton, the highest since 2006, Nikos Mantzaris, policy analyst at The Green Tank, an independent, non-profit environmental think tank, noted yesterday during a presentation of a new report, by the think tank, on Just Transition, the EU policy to end lignite dependence in Europe.

CO2 emission right prices will increase further over the next five years to reach levels of 35 to 40 euros per ton, sector experts have projected, Mantzaris said.

Stricter CO2 emission right regulations to be implemented by the European Commission in 2021 will push prices even higher, Mantzaris supported.

This upward trajectory of CO2 emission right costs is weighing heavy on PPC. Energy minister Costis Hatzidakis has estimated that PPC’s CO2-related costs in 2020 will amount to at least 300 million euros, a repeat of last year.

PPC has already made moves to restrict its lignite-fired generation for the grid. “The downward trend became even steeper following a full decarbonization decision announced [by the government] in September, 2019, which led, in May, 2020, to lignite covering just 6 percent of electricity demand on the grid, a historic low,” according to the latest Green Tank report.

For the first time in seven decades, not a single lignite-fired power station in Greece’s west Macedonia region operated on May 20 this year, while, between June 7 and 9, all the country’s lignite-fired power stations did not operate for 40 hours, the report noted.

 

 

RES generation in EU captures record share of energy mix

Renewable energy generation captured a record-high 35 percent share of the EU’s energy mix in the fourth quarter of 2019, up from 31 percent a year earlier, primarily as a result of record generation levels registered by the hydropower and wind energy sectors, latest European Commission data has shown.

Hydropower production rose significantly, by over 16 TWh year to year, while major gains were achieved by the wind energy sector, whose onshore wind farms grew by 9 TWh, or 9 percent year to year, and offshore wind farms registered a record year-to-year increase of 3.3 TWh, 18 percent.

Overall RES generation in December totaled 105 TWh, a new record level for the month, as a result of favorable conditions for wind farms and record hydropower production levels.

On the contrary, the energy mix share of fossil fuel fell to 39 percent in the fourth quarter of 2019, down from 42 percent a year earlier.

Greenhouse gas emissions in EU electricity generation fell by approximately 12 percent in 2019 as a result of the increase in RES production and a turn from coal to gas.

CO2 emission right costs increased by 57 percent year to year, to 25 euros per ton, according to the European Commission data.

 

 

Natural gas, LNG, CO2 right, wholesale power prices down

Besides lower oil prices in international markets over the past few days as a result of the coronavirus spread and price war between Saudi Arabia and Russia, energy commodities across the board are under great pressure, which has led to price reductions for natural gas, CO2 emission rights and electricity.

Lower oil and gas prices are offering relief for the economy and enterprises. However, there are two sides to this story, positive and negative. On the one hand, the price drops are creating opportunities for suppliers and consumers, while, on the other, natural gas futures indicate a decline until the end of the third quarter this year, meaning markets anticipate a downward trajectory in Chinese consumption and no sign of an economic rebound until at least September.

Prices at the Dutch trading platform TTF, a key index for LNG, slid to a three-month low on Monday, registering 8.627 dollars per MMBTU, before edging up to 8.993 dollars per MMBTU yesterday. This index has fallen 39.4 percent since the end of December’s three-month peak of 14.2 dollars per MMBTU.

Besides shaping LNG prices, according to new pricing formulas adopted at Gazprom, the TTF also greatly influences the rise of Russian pipeline gas.

CO2 emission right prices have fallen by 13.6 percent between December and early February, from 26.74 euros per ton to 23.11 euros per ton. A slight rise has been registered this week, to 23.25 euros per ton on Monday and 24.07 euros per ton on Tuesday. Lower prices on this front are favorable for lignite-fired power stations as well as energy-intensive industries.

Prices have also fallen in Greece’s wholesale electricity market. In the day-ahead market, the System Marginal Price (SMP) fell from 49.2 euros per MWh on Friday to 41.42 euros per MWh on Monday before edging up to 43.12 euros per MWh yesterday. A rise to 50.44 euros per MWh is expected today.

 

Authority wants to end virtually all power bill price clauses

RAE, the Regulatory Authority for Energy, has prepared a plan aiming to abolish all price-related clauses included in electricity bills except for one linked with fluctuations of the System Marginal Price (SMP), or the wholesale electricity price, sources have informed.

The overall objective of this plan, which could be forwarded for public consultation within the next few days, is to offer full transparency to consumers on procedures determining their electricity bill costs.

An existing clause enabling electricity suppliers to revise prices in accordance with CO2 emission cost levels would need to be abolished if the plan is implemented. Power utility PPC has already triggered this clause in reaction to rising CO2-related costs.

The existing SMP clause, currently triggered by all suppliers except for PPC, will be subject to strict rules, enabling consumers to know the cost of their bills with simplicity and precision by  factoring the SMP price into a formula for an immediate result, according to the RAE plan.

The complexity of the current billing system makes it difficult for consumers to make safe comparisons of supplier offers.

RES sector seen dominating electricity generation by 2050

The renewable energy sector is forecast to be in a clearly dominant position by 2050, especially in electricity generation, projections involving various scenarios agree.

The RES sector’s share reaches levels of 82 percent in 2050, driven by favorable policies anticipated for the sector, according to projections.

A reduction of renewable energy investment costs combined with a continual increase in CO2 emission right costs, within the ETS framework, is anticipated in all projections, justifying the spectacularly increased presence of the renewable sector in electricity generation over the coming decades.

Projections for considerably higher CO2 emission right costs between 2030 and 2050 result from the Market Stability Reserve (MSR), implemented automatically until 2050, according to EU law.

The anticipated ascent of the renewable energy sector in electricity generation is also expected to sharply boost other RES domains concerning heating, cooling and transport.

 

 

Higher-cost lignite sidelining gas units a Greek market paradox

Greece’s wholesale electricity market is still adjusting as, despite sharp rises in CO2 emission right costs, lignite continues to play a leading market role. Contributions from lower-cost gas-fueled generators remain subdued.

A recent drop in temperatures around the country has led to wholesale electricity market demand peaks of more than 7,500 MW since the beginning of December, up from previous demand peaks ranging from 6,000 to 6,100 MW.

According to the energy exchange’s day-ahead market data, virtually all of the power utility’s coal generators are contributing to distribution without operating at full capacity. Instead, they are running at minimum levels. This is reducing the need for gas-fueled generators.

Yesterday, PPC’s Agios Dimitrios III, IV and V, Kardia III and IV, Amynteo I and Meliti all operated at minimum levels, while the contribution of gas-fueled generators was kept to a minimum. Sidelined units included Heron, ENTHES, Aliveri and Komotini, while Protergia and Korinthos Power units contributed only during peak demand hours.

The picture for today remains unchanged with the System Marginal Price (SMP), representing the wholesale price, at 63 euros per MWh, as was the case yesterday. Before the recent increase in demand, SMP levels ranged between 50 and 55 euros per MWh.

Power grid operator IPTO, offering an explanation for the ongoing dominance of coal over gas, despite the rising demand in the wholesale market, noted that turning off and withdrawing a lignite-fired power station – except for telethermal units – costs more than leaving a gas-fired power station sidelined without distribution input.

For PPC, the objective is to maintain the SMP at low levels as the utility is required to purchase energy from the pool given its big market share in supply and smaller share in production.

PPC implements CO2 cost clause, tariffs still unchanged

Power utility PPC has implemented a clause enabling tariff hikes if CO2 emission right costs exceed limits, and vice versa, beginning November 1, as had been announced by state-controlled corporation and the energy ministry.

Even so, no tariff hikes are seen in the next few months, according to sources at PPC and the ministry, but cost increases cannot be ruled out after winter.

For the time being, PPC’s tariff prices remain unchanged at levels set on September 1.

Meanwhile, RAE, the Regulatory Authority for Energy, is soon expected to reach decisions on various cost-related clauses adopted by electricity suppliers. Public consultation was staged last Spring to examine the level of transparency of surcharges included on electricity bills.

The authority is expected to soon decided on a standard formula for CO2-related clauses, sources informed.

RAE is also examining whether PPC’s CO2 clause breaches any supply code rules, sources added.

Additional energy costs a big concern for mid-voltage manufacturers

CO2 emission cost charges have developed into a major concern for mid-voltage manufacturers following recent market changes such as electricity tariff hikes and a reduced punctuality discount, offered when bills are paid on time.

The operating details of a CO2 emission cost adjustment mechanism, prompting charges that do not reflect actual costs, are seen as the main problem by manufacturers.

These charges are revised when CO2 emission right cost increases are greater than 10 percent and remain unchanged when the emission charge change is less than 10 percent.

As a result, the current system is leading to charges that do not reflect actual costs.

Electricity tariff changes for medium-voltage manufacturers, especially the termination of a CO2 emission cost discount, have increased their energy costs by 11 to 12 percent, making them less competitive.

The majority of these manufacturers are exporters and risk losing foreign markets, which would decrease production levels and place jobs at risk.

The issue is a concern for some 30 Greek manufacturers employing thousands and needing to overcome energy costs that represent between 30 and 40 percent of total production cost.

“Authorities need to understand that a measure prompting 10 percent electricity price increases or decreases is of little significance to an enterprise whose electricity cost represents just 2 percent of production cost, for example, but, on the other hand, is huge for an enterprise whose electricity cost represents 40 percent of production cost,” a leading industrialist told energypress.

Expanded NECP committee set for inaugural meeting Thursday

An expanded special committee formed late last month and tasked with preparing a new National Energy and Climate Plan, expected to feature more ambitious RES targets, is scheduled to hold its first official meeting this Thursday.

The committee will need to complete its task swiftly so that Greece’s revised NECP can be forwarded to the European Commission following official approval from KYSOIP, the Government Council for Economic Policy, by the end of the year.

Besides ministerial secretary-generals, the expanded committee, headed by deputy energy minister Gerassimos Thomas, now also includes the chief official at RAE, the Regulatory Authority for Energy, as well as civil, chamber and specialized energy and climate representation.

The new NECP, to feature the government’s energy policy priorities, will also take into account European Commission recommendations forwarded in June, in response to an initial plan submitted by Greece to Brussels early this year.

Promising guidance to the public and private sectors for energy and climate initiatives up to 2030, the new plan will incorporate national commitments announced by Prime Minister Kyriakos Mitsotakis at the recent UN climate action summit in New York.

Greece’s decarbonization, required as a result of new market conditions prompted by increased CO2 emission right costs; utilization of the country’s RES potential; and energy efficiency improvement will constitute the main aspects of the new NECP, Thomas, the deputy energy minister, has noted.

PPC retail dominance, lower production has cost plenty

Power utility PPC is paying the price for a paradoxical and distorted business model combining retail electricity market dominance with a low share of electricity generation – a structure created by the state-controlled corporation and supported by a succession of governments over the years – latest financial results have indicated.

The power utility’s retail electricity market share remains dominant, at 73.9 percent, but its share of electricity production is far lower, at 43.4 percent.

The inability of the power utility’s power stations to generate sufficient electricity needed to cover its retail needs has forced the corporation to make high-cost wholesale energy purchases.

This, combined with NOME auctions, obligating PPC to offer lower-cost electricity to rival suppliers over the past three years; high-priced CO2 emission rights, needed as a result of the utility’s considerable lignite-based production; a sharp drop in hydropower output; as well as a sharp price increase of fuel and gas, all contributed to the disappointing first-half results.

PPC’s overall cost for fuel, gas, CO2 emission rights and lignite surcharges increased by a total amount of 494.1 million euros, or 42.3 percent, in the first half compared to the equivalent period a year earlier, the first-half results showed.

McKinsey’s new PPC business plan to feature major changes

Consulting firm McKinsey, set to prepare a new five-year business plan for power utility PPC, will base its proposals on three key factors: CO2 emission right costs;  lignite-fired units that should remain active or withdrawn; and the resulting impact of these decisions on the grid’s sufficiency.

The study, whose preparation will soon get underway, is expected to end up featuring major changes compared to a previous set of proposals as PPC’s current financial condition has deteriorated compared to early in 2018, when the previous business plan was delivered.

It had called for an improvement of the corporation’s operating profit by 500 million euros over a five-year period. The current demands are far more challenging.

The previous business plan, which was based on eight fronts, placed emphasis on renewable energy investments, new business activities, international expansion and overall investments totaling 3.9 billion euros, approximately half of which would have been channeled into networks and the RES sector. A 23 percent share of the investments was planned for the construction of a new lignite-fired power station, Ptolemaida V. Major changes are now expected along all these fronts.

A tougher stance on unpaid receivables; a plan entailing the partial sale of DEDDIE/HEDNO, the distribution network operator; and pricing policy adjustments are expected to feature in the new plan.

McKinsey’s examination to determine which lignite-fired power stations must keep operating or be withdrawn is expected to generate a voluntary retirement list of 2,000 employees.

If so, severance pay costs for PPC will amount to 30 million euros, as employees are currently entitled to 15,000-euro payments for early retirement.

 

 

Households, businesses to cover bulk of PPC rescue plan’s cost

Households and businesses using low and medium-voltage electricity will shoulder most of the weight of a rescue plan prepared for troubled power utility PPC as these consumer groups  will end up covering 350 million of 490 million euros in additional revenues to be generated by the plan’s revised pricing policy.

Of this 350 million-euro amount to be covered by households and businesses, 250 million will stem from tariff hikes; 68 million will result from a punctuality discount reduction for low-voltage consumers; 16 million from a punctuality discount cut for medium-voltage consumers; and 16 million euros from the termination of a punctuality discount offered for CO2 emission right costs in the medium-voltage category.

PPC’s electricity tariff hikes, just introduced, include a 16.8 increase to 0.11 euro per kWh for consumption up to 2,000 kWh. A 16.5 percent tariff hike has been imposed on consumption of 2,000 kWh and over, taking the rate to 0.11946 euro per kWh.  Nighttime tariff rates have been increased by 19.4 percent to 0.07897 euro per kWh.

A RES-supporting ETMEAR surcharge included on electricity bills has been reduced by 25 percent to 0.017 euros for low-voltage household consumers to partially offset the tariff hikes.

The aforementioned rate revisions, along with a VAT reduction from 13 to 6 percent on electricity bills, will result in annual electricity cost increases of between 30 and 60 euros for consumers requiring 3,300 kWh.

Sharp rise in wholesale, CO2 right costs behind tariff hikes

Increased System Marginal Prices (SMP), or wholesale electricity prices, and CO2 emission right costs are key factors behind the power utility PPC’s substantially higher operating costs, negative impact on the corporation’s financial results, and the resulting need to increase electricity tariffs, the utility’s new chief executive Giorgos Stassis is expected to underline at a board meeting tomorrow.

PPC’s pricing strategy and policy is shaped by a series of factors concerning the overall production and trade cost estimates of the vertically integrated company, the chief executive’s address is expected to stress.

The wholesale electricity price average for 2019 is estimated at 67.15 euros per MWh, up from 60.33 euros per MWh in 2018 and 54.70 euros per MWh in 2017, according to official industry data. A further rise, to 70.33 euros per MWh, is expected in 2020.

The CO2 emission right cost average for 2019 is projected to be 25.70 euros per MWh, a sharp rise from 14.68 euros per MWh in 2018 and 5.84 euros per MWh in 2017, according to the industry data. This cost is expected to escalate further, to 30.25 euros per MWh, in 2020.

Details of PPC’s CO2 rights clause enable ‘tariff hikes only’

Technical details of a clause triggering electricity tariff hikes when CO2 emission right costs increase to certain levels will not enable price adjustments in the opposite direction, for tariff reductions should emission right costs deescalate, power utility PPC’s chief executive Giorgos Stassis is expected to explain to the company board at a meeting tomorrow.

“This clause will not apply for any other situation [other than CO2 emission right cost increases],” the utility’s boss’s address is expected to note.

The resulting extra charges will not be subject to any discount offered by PPC, not even the remaining 5 percent of its punctuality discount, being lowered from 10 percent.

PPC, under financial pressure, is adopting a series of measures designed to boost the  company’s revenues.

EVIKEN, the Association of Industrial Energy Consumers, has criticized the power utility for lack of transparency in its calculations of the CO2 emission right costs clause for the medium and high-voltage categories.

Adding to the negative reaction, it is believed that RAE, the Regulatory Authority for Energy, has forwarded a related letter to PPC contending its CO2 emission right costs formula is not fully substantiated.