Preliminary talks for 9th post-bailout review begin today

Power utility PPC’s lignite monopoly ordeal, the effort to ensure proper functioning of target model markets, the progress of privatization plans, and Greece’s decarbonization master plan for the lignite-dependent local economies of west Macedonia, in the country’s north, and Megalopoli, Peloponnese, are the key issues on the agenda of the ninth post-bailout review set to be conducted by the European Commission.

Preliminary review talks are scheduled to commence today between energy ministry officials and Brussels technocrats. These will be followed by higher-level talks involving technocrat chiefs and Greece’s newly appointed energy minister Kostas Skrekas.

Though his predecessors faced plenty of pressure, especially over PPC’s dominance, the new minister could be in for a hard time if pending energy-sector issues are not directly dealt with.

RAE, the Regulatory Authority for Energy, and power grid operator IPTO are still seeking solutions to tackle problems faced by the target model’s new markets. They got off to a problem-laden start in November, prompting a sharp rise in balancing market costs during the first few weeks.

As for energy-sector privatizations, the plan to offer a 49 percent stake in distribution network operator DEDDIE/HEDNO appears to be making sound progress and attracting strong interest, as exemplified by the participation of 19 participants in December’s market test.

On the contrary, the privatization plan for gas supplier DEPA Commercial could be destabilized by the company’s ongoing legal battle with ELFE (Hellenic Fertilizers and Chemicals) over an overcharging claim made by the latter. This battle could delay and affect the DEPA Commercial sale.

The Just Transition Plan for Greece’s decarbonization effort is now beginning to make some progress, but this unprecedented endeavor’s degree of complexity cannot be overlooked. Vast amounts of land controlled by PPC need to be repurposed, Brussels must approve investment incentives, and licensing matters need to be resolved, amongst other matters.

Decarbonization compensation effort locked in bureaucracy

A Greek decarbonization compensation request forwarded to the European Commission for power utility PPC’s need to keep operating lignite-fired power stations, nowadays loss-incurring units, from 2021 to 2023, has developed into a slow-moving ordeal locked in Brussels bureaucracy.

Though, until recently, the Greek request appeared to be headed towards approval, Brussels officials have since slowed down the case, extensively questioning the claim through a stream of emails to the energy ministry.

State-run PPC is seeking respective compensation amounts of 180, 150 and 200 million euros for the three-year period.

The European Commission has been relentless with its questioning despite appearing to recognize the validity of the Greek compensation request.

The Netherlands and Germany have both received similar decarbonization compensation amounts.

Greece, according to some sources, has not pursued the right strategy as it should have delayed the decarbonization compensation request case until the finalization of an older antitrust case concerning PPC’s lignite monopoly.

Though Greece and the European Commission reached an agreement last October, according to which 40 percent of PPC’s lignite-generated electricity production must be exclusively made available to independent suppliers at a pre-determined price, not below cost, the decision has yet to be implemented.

A market test still needs to be conducted to measure the market’s level of interest in this offer. Given the cost of lignite, independent players may not be interested.

Swift action taken for Saving at Home subsidy platform issues

The energy ministry is making technical improvements to an online platform accepting subsidy applications for energy efficiency upgrades of buildings following reports of a severe imbalance in the processing of bids.

‘Saving at Home’ subsidy program applications submitted by larger-scale professionals of the building industry, such as big civil engineering firms, are being processed collectively and making it through the system, blocking out, as a consequence, bids lodged by individuals or smaller professional firms.

Newly appointed energy minister Kostas Skrekas has ordered swift action for functional improvements of the platform after being notified of the imbalances by ministry officials and the Technical Chamber of Greece (TEE).

Also, the minister has decided to delay, by two weeks, the starting date of the platform for the remainder of regions around the country still not serviced.

Upstream projects awaiting Greek State reassurances

Local and foreign upstream companies holding exploration and production licenses for hydrocarbon reserves on Greek territory, offshore and onshore, are awaiting Greek State reassurances for their ventures following a cabinet reshuffle that has resulted in a change of leadership at the energy ministry, bringing in Kostas Skrekas in place of Costis Hatzidakis.

Oil companies, delaying investment plans as a result of the pandemic and lower oil prices, are waiting for a vote of confidence from the Greek State, market sources insist.

The fall in oil prices, currently at levels of about 50 dollar a barrel, may have halted upstream investments internationally, but, nevertheless, this is a good time for resolving bureaucratic obstacles and preparing local communities for prospective exploration efforts that promise to contribute to job creation and economic recovery.

Four upstream investment plans are currently either at an advanced stage in terms of prospective drilling or at preliminary exploration stages.

Of all four plans, Energean’s license for Katakolo, western Greece, is at the most mature stage. Public consultation on an environmental impact study concerning this project’s drilling requirements was completed in December, 2019. The regional authority for western Greece has offered its approval. Even so, a year later, the energy ministry has yet to deliver its decision on the environmental study.

A license for the Gulf of Patras field, held by Hellenic Petroleum (ELPE) and Edison, is also at a mature stage. The partners requested, and were granted, an extension for the start of drilling at this field. EDEY, the Greek Hydrocarbon Management Company, granted the pair a further 15 months, until January 23, 2023, to facilitate their preparations.

Sources have attributed this additional time to a lack of appropriate regional port facilities, needed to facilitate the installation of equipment required for drilling. ELPE and Edison had previously been given another extension, until October, 2021.

On another front, a partnership comprising Repsol and Energean has until April to start a second stage of exploration activities at its Ioannina block in northwestern Greece. Local community approval is needed. The government needs to take action on the issue.

A fourth upstream project carrying geopolitical weight concerns licenses held by a consortium made up of Total, ExxonMobil and ELPE for offshore fields west and southwest of Crete. Though company representatives recently informed Crete’s regional authorities that seismic surveys are planned to begin towards spring, there have been no further updates or any signs of action.

New minister, just appointed, has issues to resolve in 2021

Kostas Skrekas, just appointed new energy minister as part of the government’s cabinet reshuffle, in place of Costis Hatzidakis, who has headed the ministry for a constructive year and a half, faces a series of pending energy-sector matters that remained unresolved in 2020. They need to be addressed as soon as possible. Developments and conditions this year will be pivotal for these matters.

Skrekas was previously deputy minister for agricultural development and food.

Also in 2021, a year during which takeovers and mergers are seen occurring in the retail electricity and gas markets, rivals will continue battling for market share gains. The target model’s launch two months ago has brought about new conditions, strengthening the positions of vertically integrated suppliers.

The need for a normalization of the target model’s new markets stands as the energy ministry’s most pressing task at present. A sharp rise in wholesale electricity prices as a result of soaring balancing market costs has deeply unsettled the market, impacting the standings of non-vertically integrated suppliers, as well as industrial enterprises and consumers, who face rising bills.

Market coupling with Bulgaria’s day-ahead market, scheduled to take place within the first three months of the new year, is the next step of the target model, a procedure designed to harmonize EU energy markets and promote competition.

New energy-intensive industrial tariffs also need to be set soon. Though essentially a matter concerning state-controlled power utility PPC and Greece’s industrial players, the cost of industrial energy is crucial for Greek industry, carrying particular political and economic weight.

Also, Greece has little time left in its negotiations with Brussels for a framework to offer third parties access to PPC’s lignite-based generation. This issue is no longer as crucial as it once was because the country’s lignite output has been drastically reduced. Even so, it remains important for independent suppliers.

A number of energy-sector privatizations could be completed this year. Gas utility DEPA’s two new entities, DEPA Infrastructure and DEPA Commercial, electricity distribution network operator DEDDIE/HEDNO, and a tender for a tender for the development of an underground natural gas storage facility (UGS) in the almost depleted natural gas field of “South Kavala” in northern Greece are all on this year’s privatization list.

In renewable energy, the ministry needs to take decisions within the first few months to clarify terms regulating the sector. RES investment interest is currently high. Steps still need to be taken in an ongoing effort to simplify RES licensing procedures, while a legal framework must be established for energy storage, offshore wind farms and hydrogen use.

 

EU directive for electricity market to bring about changes

Legislation of an EU directive from 2019 concerning electricity market regulations, whose features include establishing consumers as active players through an ability to sell self-produced electricity, and also providing the framework governing smart meter systems, is expected to be one of the energy ministry’s first legislative acts, if not first, in the new year, within the first two months.

Energy minister Costis Hatzidakis has assembled a team of lawmakers to adopt the EU directive as Greek law.

Active consumers selling their electricity output will be able to do so directly, on an individual basis, or through accumulated group representation.

Consumers will also be able to participate in, and benefit from,  flexibility and energy efficiency programs.

In addition, the new rules will enable active consumers to give third parties management rights – without any further powers – over related system installation, operation, maintenance and data management.

Other changes to result from the new rules include giving consumers active pricing policy rights through which agreements between supplier and consumer will reflect fluctuations in the electricity market, including the day-ahead and intraday markets.

Target model balancing cost skyrockets, suppliers on edge

Balancing costs in the electricity market have exceeded rational limits, skyrocketing to 57 million euros in the fifth week of the target model after totaling 71 million euros during the model’s first four weeks of operation.

Stubbornly high price levels in the wholesale electricity market have created perilous conditions that could lead non-vertically integrated suppliers to bankruptcy, while consumers, beginning with the mid-voltage category, now face tariff hikes as a consequence.

Balancing market costs between November 30 and December 6 doubled compared to a week earlier.

Despite energy minister Costis Hatzidakis’ warning of intervention to producers, whose overinflated offers have prompted this ascent, balancing market costs on December 5 and 6 exceeded 20 euros per MWh, well over levels of between 3 and 4 euros per MWh prior to the target model.

The target model, designed to ultimately homogenize EU energy markets into a single unified market, has been pitched by the Greek government as a price-reducing tool.

Though authorities have played down the price ascent of recent weeks, describing it as a nascent target model abnormality that will settle into place and not prompt consumer tariff hikes, suppliers, under severe pressure as a result of sharp cost increases, have called for immediate measures.

Suppliers have warned they will take legal action against all responsible parties in letters forwarded to the RAE, the Regulatory Authority for Energy, the energy ministry and power grid operator IPTO.

RAE held a meeting yesterday with major-scale producers, who defended their actions, according to sources. The authority limited its reaction to proposals, the sources added.

Target model markets showing signs of price de-escalation

Price levels in new target model markets – the day-ahead market and the balancing market – are showing signs of de-escalation following sharp wholesale electricity price rises over the past month that have caused major unrest among suppliers.

Though balancing market prices over the weekend were at levels of around 20 euros per MWh, even higher than last Friday’s price level of 19 euros, market data indicates these levels will drop tomorrow.

Electricity producers have changed their pricing policy, lowering price offers submitted, which indicates that price reductions should be on the way.

The next few hours of trading will be pivotal in illustrating whether the balancing market price problem is a persisting one or not.

A reassessment of the situation will be made as of today before decisions are made, the energy ministry has announced. Last week, the ministry made clear it would not hesitate to intervene if wholesale prices remained elevated.

“The wholesale market price issue is a very significant one for the Greek economy and, under no circumstances, would we leave it unchecked,” a ministry official told energypress. “RAE [Regulatory Authority for Energy] is examining all available data and the government, too, has tools which it is prepared to use if the situation does not normalize,” the official added.

During the target model’s first month, the balancing market’s cost reached 36 percent of the equivalent cost for all of 2019, which had totaled approximately 200 million euros.

Ministry set to intervene if wholesale prices do not fall

The energy ministry is seriously examining the prospect of imposing a price ceiling, next week, on wholesale electricity prices if they do not deescalate over the next three days.

Wholesale electricity prices have risen sharply since last month’s  launch of the target model, pitched by the government as a price-reducing tool.

Day-ahead market prices for today – based on offers made prior to on online meeting between energy minister Costis Hatzidakis and electricity producers – fell mildly to 77 euros per MWh from 90 euros per MWh on Thursday.

If current prices do not fall further, it is a matter of time before suppliers pass them on to the retail market. Prior to the target model, wholesale electricity price levels ranged between 55 and 60 euros per MWh.

Some suppliers are considering to activate cost-related clauses for their tariff prices, while others have done so already, sources informed.

Producers contend the ascent in wholesale electricity prices reflects actual market conditions, adding that their power stations were previously incurring operational losses under the preceding pricing system.

However, energy ministry officials believe producers are exploiting certain rules to artificially raise prices. Hatzidakis, the energy minister, has urged producers to heed the government’s call or face intervention as of Monday.

Wholesale prices surging with target model, ceiling considered

The target model, pitched by the government as a price-reducing tool ahead of its recent launch one month ago, is developing into a major problem for the energy market as it has sparked a continual rise in wholesale electricity prices, which, if not brought under control, will eventually be rolled over to households and the industrial sector.

Mid-voltage tariffs are on an upward trajectory, while in the low-voltage category, many electricity suppliers are now reshaping clauses to incorporate increased costs.

The day-ahead market price for today reached 90 euros per MWh, up from 74 euros per MWh yesterday, and, prior to the target model, levels ranging between 55 and 60 euros per MWh.

This upward price surge has prompted strong concerns, even bankruptcy fears, among electricity suppliers who are not vertically integrated. Meanwhile, this worrying development has coincided with diminishing water levels at hydropower plant reservoirs.

The energy ministry has called for restraint from producers, warning it may need to intervene. The ministry’s secretary-general Alexcandra Sdoukou, in initial talks with producers yesterday, requested an end to overinflated prices, warning that a price ceiling may need to be imposed if the results are not satisfactory.

Whether such intervention could be implemented for an extended period remains unclear as measures of this nature are forbidden by the European Commission.

RAE to set DEDDIE’s WACC level this week, investors keen

The launch of a privatization procedure to offer a 49 percent stake in distribution network operator DEDDIE/HEDNO should be brought one step closer to its actualization this week as RAE, the Regulatory Authority for Energy, is expected to set a WACC level for 2020, before following up, a few weeks later, within December, with a WACC level covering 2021 to 2024.

These steps are intended to offer investors clarity on the operator’s earning potential.

The distribution network operator’s WACC level for 2021 to 2024 is expected to be set at just below 7 percent, a highly attractive level given the far lower yields offered by respective European distribution network operators.

Investor interest in the forthcoming DEDDIE/HEDNO sale is currently high, energy ministry sources informed. Though no companies were specified, the sources indicated that potential buyers who had surfaced prior to the pandemic remain interested.

Germany’s EON, Italy’s Enel, France’s Enedis and a number of Chinese firms had all expressed interest. Surprise additions to this list cannot be ruled out.

A market test, to measure the level of interest of prospective bidders, is expected to take place next month, immediately following an Investor Day online event planned by state-owned power utility PPC, the operator’s parent company, for early December, energy minister Costis Hatzidakis told a recent energypress conference.

DEDDIE/HEDNO, possessing networks covering 242,000 kilometers, has prepared a major investment plan that includes installation of 7.5 million smart power meters, a project budgeted at 850 million euros, and a digital upgrade of the network. The operator’s assets are valued at 3.6 billion euros.

Lignite antitrust case agreement subject to PPC compensation

The country will implement an antitrust case agreement reached in late October with the European Commission – based on a Greek proposal that would offer 40 percent of power utility PPC’s lignite-generated electricity to suppliers at a predetermined price not below cost – only if Brussels approves a Greek compensation request concerning the state-controlled utility’s ongoing withdrawal of lignite facilities for a satisfactory sum reflecting amounts offered to EU member states in other such cases, energy ministry officials support.

A European Commission report on the Greek economy, released yesterday, has called for the need of a market test to determine whether sufficient supplier demand exists for the Greek proposal’s implementation in 2021.

Given the views of energy ministry officials, Greece will only go ahead with the proposal’s market test if the lignite withdrawal compensation request is approved by Brussels.

The Netherlands and Germany have both already been compensated for lignite facility withdrawals.

“In any case, as has been pointed out in the past, an overall solution that would harm PPC cannot be accepted,” an energy ministry official noted yesterday.

The Greek government has requested a three-year compensation package for PPC offering the utility approximately 180 million euros in 2021, 150 million euros in 2022 and 200 million euros in 2023.

The European Commission could offer a response to the request by the end of this month, energypress sources have informed.

 

Conditions set for new energy efficiency category subsidies

Four new categories included in the latest Saving at Home program subsidizing energy efficiency upgrades at existing properties (photovoltaic systems with net metering; energy storage systems; vehicle recharging units; energy management systems) will only be made available for program applicants if older energy-saving categories (window frame replacement; external wall insulation; heating-cooling systems; hot water supply) are incorporated into applications and, in addition, elevate the energy status of residencies by at least three categories, according to a guide just released by the energy ministry.

The new program will feature offer energy efficiency upgrade subsidies of up to 85 percent and will be made available to virtually all property owners as income-related criteria will be relaxed. For example, families with annual income totals of as much as 120,000 euros will be eligible.

Greater subsidy amounts will also be made available for applicants following an increase of a previous 25,000-euro upper limit to 50,000 euros.

Environmental terms for RES licenses ‘still tough’, investors note

Contrary to popular opinion, recently ratified environmental impact licensing rules remain strict for renewable energy investors despite upper-limit capacity increases for wind and solar energy installations, sector officials have pointed out in comments to energypress.

Last August, the energy ministry increased the upper-limit capacity for Category B wind energy installations from 5 MW to 10 MW and Category B solar energy installations from 2 MW to 10 MW.

Investors behind Category B projects do not need to provide environmental impact studies but must meet predetermined environmental terms and all related terms included in a ministerial decision implemented back in January, 2013.

“It is not true that investors merely submit statements declaring that their projects do not have environmental impact, as has been generally said,” a sector official explained. “Investors must observe specific environmental terms and submit studies and data required by the ministerial decision from 2013,” the official added.

Special Ecological Assessments must be conducted for projects planned for protected Natura areas. Also, bird fauna studies must be included in investment applications for Special Protection Zones.

Furthermore, the ministry has advised licensing authorities to be particularly careful when examining project applications slicing big RES projects into a series of smaller projects as a means of simplifying licensing procedures. Such practices need to be stopped, the ministry has stressed.

Professionals want more time ahead of energy upgrade offer

Civil engineers and architects, citing inevitable lockdown-related obstacles, are calling for a delay in the launch of the latest Saving at Home program subsidizing energy efficiency upgrades and energy independence system installations at existing properties.

The Technical Chamber of Greece, the official technical advisor of the Greek state, could offer an opinion today or tomorrow on whether a delayed launch is necessary.

The energy ministry has not ruled out new dates, in various regions, for the launch of the subsidy program’s platform.

At present, the program is scheduled to start on November 30 in Crete, the north Aegean and the south Aegean. A December 2 starting date has been set for east Macedonia and Thrace. The starting date for west Macedonia is December 4 start and December 7 for central Macedonia. The dates for all other regions are: Thessaly – December 9; Epirus, Ionian Islands – December 11; Wider Athens area – December 14; mainland Greece, Peloponnese – December 16; western Greece – December 18. A January 11, 2021 starting date has been set for apartment blocks.

 

DEDDIE wants PV connection-term review rules revised for swifter results

Distribution network operator DEDDIE/HEDNO has decided to push for a revision of evaluation criteria concerning connection term applications for solar energy projects following talks with sector professionals, the objective being to unblock thousands of project applications by next summer.

The operator is expected to forward to the energy ministry during the week – if it has not done so already – its proposal for revisions to a related ministerial decision implemented last March concerning prioritization and assessment methods for connection-term applications.

The proposed revisions would give DEDDIE/HEDNO flexibility to also examine applications on a more localized scale, at municipal level, not just on a bigger provincial level, as is the case at present.

In other words, DEDDIE/HEDNO wants connection-term application decisions to be based on the availability of grid capacity at a municipal level, as opposed to requiring investors to wait in line for approval by provincial authorities.

If the operator’s proposed changes are implemented, then thousands of PV connection-term applications could be processed, for approval or rejection, over the next ten or so months.

Current rules have prompted an accumulation of these applications at DEDDIE/HEDNO.