EBRD: Green projects in Greece a priority, RES-based economic recovery

The European Bank for Reconstruction and Development (EBRD) is strongly interested in Greek energy market investments, Andreea Moraru, the bank’s head of Greece and Cyprus, has stressed in an interview with energypress.

The EBRD official spoke extensively on significant investment opportunities being created by the energy transition.

Since 2015, the EBRD has invested over four billion euros in Greece, participating in numerous major projects, Moraru informed, noting its recent support for power utility PPC, an investment worth 160 million euros, one of the bank’s largest, to cover customer payment volatility following the outbreak of the pandemic, exemplifies EBRD’s strong support for Greece.

The full interview follows:

What is the role of the EBRD compared to that of other banking institutions? 

The EBRD is a development bank committed to furthering progress towards ‘market-oriented economies and the promotion of private and entrepreneurial initiative. Our role is to be complementary to the commercial banks, to work alongside them and to support them.

Αdditionality is among the founding principles underlying our work and the particular support and contribution that the EBRD brings to an investment project which is not available from commercial sources of finance. Alongside transition and sound Banking, it is one of the three founding principles underlying our work. By ensuring that we are additional in everything we do, we ensure that our support for the private sector makes a contribution beyond that available on the market and does not crowd out other private sector actors.

Whenever we consider financing a project, we analyze whether similar financing can be obtained from private sector local banks or non-banking institutions.

Many of our markets are relatively high risk, and the private sector will only lend for short periods of time or at such high rates as to make the project unfeasible. For major new projects in the field of infrastructure, for example, longer-term financing may not be available on reasonable terms or conditions. This is where the EBRD fits in.

Additionality can also be non-financial in nature, where EBRD’s interventions contribute to better project outcomes that would not have been required or offered by commercial financiers. This can include the provision of comfort to clients and investors by mitigating non-financial risks, such as country, regulatory, project, economic cycle or political risks. Additionality may also be derived from the EBRD’s involvement in helping projects and clients achieve higher standards than would have been required by the market, such as through sharing its expertise on better corporate governance or above ‘business as usual’ environmental or inclusion standards.

Do you consider the energy sector in Greece to be suitable to contribute to the development and reconstruction of the Greek economy? For what reasons?

Absolutely. In general, the EBRD’s vision for the energy sector is of a partnership between industry, governments and consumers that delivers the essential energy needs of societies and economies in a manner that is sustainable, reliable and at the lowest possible cost.

In Greece the energy sector is embarking upon its biggest transformation yet, moving away from its reliance on lignite (c. 20% of total electricity production in 2019) to renewables and a smaller fleet of significantly less carbon intensive gas generating units. The NECP aims to achieve reduction in greenhouse gas (GHG) emissions by more than 55% by 2030 compared to 2005, planned to be achieved through: (i) decommissioning of all 4 GW of lignite-fired generation capacity by 2028 (3.4GW by 2023), (ii) 8.7 GW of new renewable generation capacity to added by 2030, reaching a total of 19 GW, and (iii) 2 GW of new gas generation capacity added for system support and security. The country remains committed to implementing the NECP as planned despite the negative impacts the CV19 crisis is expected to have on the Greek economy in 2020 and beyond.

Greece’s withdrawal from coal is a fundamental transformation that will create substantial sector and social challenges with the following broad implications: (1) constructing large volumes of low carbon generating capacity in order to ensure energy security in an increasing electrified economy, (2) reengineering the country’s transmission and distribution networks to reflect the additional penetration of distributed, intermittent renewable energy, and (3) addressing the social and economic impacts of the closure of a major part of its existing energy infrastructure, i.e. ensuring a just and inclusive transition.

We have supported many energy projects so far, especially renewables, working together with leading companies, such as GEK Terna, Mytilineos and HELPE among others.

A recent milestone is our support for the largest renewable energy project in Greece and the largest solar energy project in south-eastern Europe to date, the new solar park in Kozani. In 2017, we also approved a framework committing up to €300 million to finance renewable energy investments in the country.

The main reasons why this sector is important for the development of the Greek economy and thus our participation, is first to help the decarbonization of the country and the transition to a greener economy, as well as to strengthen local linkages and regional integration.

What is the EBRD’S philosophy about its presence in the Greek economy and especially in the energy sector?

In Greece in particular, supporting sustainable energy and infrastructure is among our top priorities. In fact supporting sustainable energy and infrastructure is one of the pillars of the newly approved country strategy. Our investment strategy in the energy sector going forward will aim at further liberalization and diversification of the energy market focusing on renewables and increased renewable energy capacity and a more diversified energy mix to promote decarbonization of the economy. EBRD could support a second phase of feasible renewable energy projects with project preparation / technical assistance and financing (biomass and biogas plants, use of waste heat in greenhouses for high value-added agriculture, electricity storage facilities, green hydrogen production plants and other forms of energy storage.

We see that it’s challenging to meet EU climate goals in Greece and our goal is to support the country with that. Our approach and philosophy is in line with the National Energy and Climate Plan and we are very glad the Greek government is committed to close all lignite plants. We need to keep this momentum, despite the current Covid-19 crisis, and turn the country greener.

One good example is our recent support for PPC (DEI). This has been one of our largest investments (€160 million) and the first time we supported the public sector in Greece. This facility supports PPC’s working capital needs at a time of customer payment volatility following the outbreak of the crisis. It also strengthens the resilience of the electricity sector as a whole by ensuring the stability of essential utility supplies and maintaining the momentum towards decarbonization.

What are the characteristics of private companies that could apply to be supported by the EBRD?

When we consider financing a project we analyze different aspects, such as how it supports the green economy, if it promotes women or youth inclusion, if it can enhance the competitiveness and resilience of the Greek economy etc. We look at the financial strength of the project as we operate according to sound banking principles. We cannot finance companies in certain sectors like defence-related activities, tobacco, substances banned by international law or gambling facilities.  As I have already mentioned, we also need to be additional.

We work in a wide range of sectors, from energy, infrastructure, manufacturing, property, tourism, agriculture to trade and financial institutions. We also support SMEs with business advice, know-how transfer and trainings.

What are your conclusions from your cooperation so far with Greek companies and institutions?

We’re very proud of all our projects in Greece so far. Since commencing our operations in 2015, the Bank has invested more than €4 billion in the country, helping respond to the financial crisis. Against a turbulent political and economic backdrop, the EBRD helped stabilize the financial sector, support private companies through export-oriented growth and lay the foundations for greater private sector participation in critical energy and infrastructure projects that have also strengthened regional integration.

We faced several challenges because of the financial crisis, but this was expected and was exactly the reason why we came to the country. Our main conclusion is that Greek companies have strong potential and very talented workforce, who we’re glad to be working with. The COVID-19 pandemic has abruptly interrupted Greece’s steady recovery, but we’re confident that the country can build back better.

We have an excellent cooperation with the Greek Government whom we are supporting on a number of initiatives.  In late 2020, the EBRD joined forces with the Ministry of Development and Investments of Greece to establish a new public-private partnership (PPP) preparation facility cooperation account, following a request from the Greek authorities. We are also working close with the Ministry of Finance on development of a capital market strategy, a project supported by DG Reform.

What are your plans for the new year?

We will focus on supporting the recovery of the Greek economy, by helping with the immediate needs of the Greek businesses because of coronavirus, as well as with their long-term growth plans. Green projects, including in the energy sector, will be our priority, but we’ll also be active in other sectors. We’ll continue supporting the banking sector, too.

Do you consider the investment risk in our country increased after the great economic crisis and in the light of the current crisis due to a pandemic?

The financial crisis had a strong impact on Greece, but we recognize that the Greek economy had started recovering and growing in the recent years. It’s true that COVID-19 containment measures are likely to depress economic output and cause particular disruption to the tourism industry, reversing the economic recovery and hindering investments in the near term, not only in Greece, but also in most countries. There are still many things that need to be improved in the country to attract more investors, but we don’t consider the investment risk much higher than it used to be. The Greek economy can recover after the pandemic.

 

Wholesale prices in Greece well over European average in 3Q

Wholesale electricity prices in Greece during the third quarter of 2020 were three times over the €16/MWh European average, based on the Nord Pool power exchange, a European Commission report covering European electricity markets for this period has shown.

The report also traces the market’s 3Q rebound following a heavy slump in the preceding quarter.

Average prices rebounded at a slower pace in southeast Europe, compared to other regions, before reaching pre-pandemic levels in September as a result of weak demand and high production of wind energy and hydropower facilities, according to the Brussels report.

The average price in the third quarter rose by 43 percent, against 2Q, to €43/MWh, and was 30 percent lower, annually.

European price shifts in August moved in coordination, while the price gap between Greece and the European average narrowed significantly in 3Q as a result of the use of lignite-fired units and weak demand.

This gap vanished in September as a result of stronger wind energy output, which exceeded one TWh for the first time. As a result, prices in the region were between €46 and €47/MWh in September.

As for energy-mix developments, lignite-based production in Greece experienced a decreased share, captured by natural gas-fueled output.

In southeast Europe, the lignite-based output share contracted to 29 percent in 3Q from 35 percent in the equivalent period a year earlier; the gas-fueled sector’s production share rose to 20 percent from 18 percent; and the RES sector’s share of the energy mix increased to 34 percent from 30 percent.

Household electricity tariffs in Greece averaged €16.54/MWh (not including taxes and surcharges), while the country’s average for industrial tariffs was €10.62/MWh, the report showed.

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.

EBRD reports close to €800 million investment in Greece in 2020

The European Bank for Reconstruction and Development (EBRD) stepped up its investments in Greece in 2020 to address immediate needs caused by the coronavirus pandemic and to create the foundations for a recovery with a focus on building back better economies.

Continuing its support for the Greek economy in 2020, the Bank made €797 million new investments in 17 projects, compared to €571 million in 13 projects in 2019, putting Greece in the EBRD’s top five countries of investment last year. 

Andreea Moraru, EBRD Director for Greece, said: “We are very proud to contribute to the robust response of the Greek economy to the crisis, supporting the recovery, helping local businesses with their needs and facilitating the transition to greener economic activities.” 

The Bank provided a senior unsecured loan of up to €160 million power utility PPC. The facility will support PPC’s working capital needs at a time of customer payment volatility following the outbreak of the crisis. It will also strengthen the resilience of the electricity sector as a whole by ensuring the stability of essential utility supplies and maintaining the momentum towards decarbonization. 

The EBRD also stepped up its efforts to help the Greek private sector by investing €57.5 euros in GEK TERNA’s successful issuance of a seven-year €500 million bond. GEK TERNA S.A. is the holding company for a group active in concessions, renewable energy, thermal energy and construction, incorporated in Greece. 

This issuance was the largest bond transaction to be listed to date on the Athens Stock Exchange and the first corporate issuance in the country since the outbreak of the pandemic. The proceeds will be used to refinance secured commercial loans with longer tenors and reduced financing costs, enabling a corporate transformation that will optimize the capital structure of GEK TERNA. 

Facilitating the transition from fossil fuels to renewable sources of energy, EBRD launched its just transition initiative linking the transition to a low-carbon economy with inclusive economic development. One of the first projects under this approach was the Bank’s €75 million investment in the successful Eurobond tap issuance by Hellenic Petroleum (ELPE), in support of a new solar photovoltaic plant in Greece, the largest solar energy project in south-eastern Europe to date. 

The total funds of €100 million raised will enable ELPE to finance the construction of 18 solar photovoltaic (PV) plants with a total installed capacity of 204 MW in Kozani, western Macedonia, the country’s most coal-dependent region. The solar park will be built close to existing coal-fired power plants that are being phased out and is expected to reduce CO2 emissions by 320,000 tons annually.

In addition, the EBRD invested €50 million in the first senior preferred (SP) green bond issuance by the National Bank of Greece (NBG), combining support for capital market development and for the green economy in Greece. It was the first green bond issuance by a Greek bank and the first SP instrument to be issued by a Greek financial institution. 

Together with other investors, the EBRD invested in a €186.4 million securitization transaction of automotive leases, originated by Olympic Commercial and Tourist Enterprises S.A. (Avis), the leading car leasing company in Greece and master franchisee of the global car rental company Avis Budget Group.  

The transaction was an important milestone for the Greek securitization market as it was the largest issuance by a non-bank originator and the first auto lease asset-backed security transaction in the country with a sustainable and green element. 

Part of the proceeds will be used by Avis for the replacement of its existing fleet with lower CO2 emissions, electric and hybrid vehicles, helping the company to reduce its diesel footprint.

In late 2020, the EBRD joined forces with the Ministry of Development and Investments of Greece to establish a new public-private partnership (PPP) preparation facility cooperation account, following a request from the Greek authorities. 

The EBRD will manage the facility, which will provide high-quality, client-oriented project preparation, training and advisory services, policy support and institutional strengthening activities related to the infrastructure sector in Greece. The Ministry will fund the activities of the facility with €20 million. The project pipeline will mostly be in the social infrastructure sector (education and health), sustainable urban infrastructure, and water and waste management.

Keeping vital trade flows going, the Bank provided a €20 million factoring facility to ABC Factors under its Trade Facilitation Program (TTP). Building on the EBRD’s cooperation with Alpha Bank, the parent company of ABC Factors, the facility will enable the factoring subsidiary to further expand its portfolio of small and medium-sized enterprises (SMEs) and local corporate clients by providing funding for domestic and international factoring transactions. Greece remains the EBRD’s most active country under TFP, with close to €320 million trade transactions in 2020.  

In 2020, the EBRD started 41 new advisory projects with Greek SMEs in various areas, such as strategic and business planning, marketing and e-commerce, operational efficiency, financial management and digitalization, and delivered five online export training seminars to more than 100 participants. Donor funding from Greece, as well as from the European Union through the European Investment Advisory Hub of the European Investment Bank, has been crucial. 

Papoutsanis, a leading Greek manufacturer of soap and liquid cosmetics, became the first Greek firm to join the EBRD’s Blue Ribbon program, which combines business advice and finance for companies that stand out for their market leadership and high-growth potential. 

Furthermore, the Board of Directors of the EBRD approved a new strategy for Greece, which will guide the bank’s investment and policy engagement in the country during the next five years. 

The EBRD responded to the coronavirus pandemic with record investment of €11 billion in 2020 through 410 projects. This represents a 10 per cent increase in annual business investment relative to 2019, when the bank provided €10.1 billion to finance 452 projects.

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.

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.

 

PPC holding back on Ptolemaida V fuel decision

Power utility PPC will take ongoing global technological developments and their comparative costs into account to decide, in approximately a year’s time, on the fuel to be used at its prospective Ptolemaida V power station in northern Greece from 2028 onwards, when a switch from lignite has been scheduled.

The facility, expected to be completed in 2022, is initially planned to operate as a lignite-fired power station for a six-year period before switching to another fuel or fuels.

All options are being left open, meaning that, beyond 2028, Ptolemaida V could run on natural gas, biomass, waste-to-energy or a combination of these energy sources.

Biomass represents an advantageous option as it can be produced at the utility’s older lignite-fired units in the area, PPC’s chief executive Giorgos Stassis has pointed out.

If a biomass option is chosen, PPC intends to provide land for farmers and cooperatives to cultivate plants for energy production. Yield potential and the local climate promise to be the two main factors behind PPC’s selection of plant species to be cultivated for biomass purposes.

Japan’s Mitsubishi, providing the new facility’s electromechanical equipment, was commissioned, some time ago, to conduct a study determining the optimal choice of fuel for Ptolemaida V beyond 2028.

Continued use of lignite, after 2028, at Ptolemaida V has also been tabled as a possibility if carbon-capture utilization and storage (CCUS) technology is applied for a zero net carbon footprint.

In such a case, the CCUS technology could be applied on a wider scale to lure industrial units to the region for the establishment of a new industrial zone.

PPC set for solid start in 2021, €400m inflow in coming days

Power utility PPC, in a positive start to the new year, expects to receive, in January, approximately 200 million euros linked to its large-scale securitization agreement reached last summer with international investment company Pimco for unpaid receivables of over 90 days, and, in addition, a 200 million-euro advance payment from the Greek State, by December 31, for public sector electricity consumption throughout 2021.

The amount to be received by PPC from Pimco represents the bulk of a 300 million-euro agreement.

The power utility intends to utilize this amount, along with a 150 million-euro sum received in November for a smaller-scale securitization agreement with JP Morgan, to initiate its investment plan for 2021.

PPC’s securitization deal with JP Morgan, for unpaid receivables of up to 60 days, is worth a total of 200 million euros.

Overall, PPC stands to receive 500 million euros from the two securitization packages. This sum will be reinforced by a 160 million-euro loan secured from the European Bank for reconstruction and Development (EBRD) last month, as well as a portion of the current year’s profit, once older arrears to market operators have been covered.

PPC’s expected collection of 200 million euros by December 31 from the Greek State as an advance payment – at a discount rate – for public sector electricity consumption in 2021 at the country’s ministries, public enterprises, hospitals and local government buildings, represents the first of two installments, or less than half the agreed sum for the year.

The Greek State’s second and final installment for 2021, to PPC, a 390.5 million-euro installment, is due on February 28.

In the previous two years, PPC had received full advance payments from the Greek State covering the entirety of public sector electricity costs for the respective years ahead.

Furthermore, PPC will achieve a cost reduction in 2021 through its closures of three lignite-fired power stations, Kardia III and IV and Megalopoli III.

The company’s anticipated return to capital markets with a bond issue, expected within the first half of 2021, should provide even greater support for the financing of its investment plan.

Lignite unit output up, target model overpricing a factor

Power utility PPC’s lignite-fired power stations, temporarily covering for gas-fueled plants undergoing maintenance work and also favored by power grid operator IPTO as a result of excessive target model market prices demanded by independent producers, have made somewhat of a production comeback despite the urgency of the government and state-owned utility to withdraw these high-cost units as soon as possible.

On December 3, eight of the country’s ten remaining lignite-fired power stations operated throughout the day, most close to full capacity.

Agios Dimitrios I, III, IV and V, Kardia III and IV, Meliti and Megalopoli IV covered almost one third of the country’s total electricity demand, supplying over 40,000 MWh of the day’s 139,000 MWh to the grid.

In recent days, between six and seven lignite-fired power stations have been called into action.

Heron’s two gas-fueled power stations are currently sidelined for service work as are two such units respectively operated by Elpedison and PPC in Thessaloniki and Lavrio, close to Athens. Furthermore, overpricing in the day-ahead market by independent producers has prompted IPTO to seek lignite unit coverage.

PPC is still operating at least four lignite-fired power stations on a daily basis, despite related losses, to cover telethermal needs in cities of the west Macedonia and Megalopoli regions.

The power utility intends to hasten the withdrawal of its Megalopoli III, Kardia III and IV lignite-fired units, all set to close in 2021, according to an updated PPC business plan announced earlier this month.

Decarbonization strategy’s spatial planning enters crucial stage

The country’s decarbonization master plan is entering one of its most crucial stages, the establishment of spatial planning for a just transition, or establishment of new commercial activity in regions to be financially impacted by the country’s withdrawal of lignite units, now underway.

These spatial plans, which will need to be submitted to the European Commission for approval, will determine the speed and success of the overall effort as just transition mechanism funding approval will be based on them.

A just transition mechanism sum of 5 billion euros is expected to be utilized. However, Greek officials will need to present analytical spatial plans detailing the transitions in accordance with the National Energy and Climate Plan. These plans will be incorporated into the EU’s National Strategic Reference Framework funding program.

Power utility PPC, monopolizing the country’s lignite facilities, will obviously be involved in the process. The utility will keep some of the land hosting lignite mines to develop its own investment plans, including solar energy parks.

The lignite-dependent economies of west Macedonia, in the country’s north, and Megalopoli, in the Peloponnese, will need to be completely redeveloped as part of the decarbonization plan.

It remains unclear when Greece’s spatial redevelopment plans will be ready to be submitted to the European Commission. They are not expected to be ready any time before the new year.

Big month for PPC begins with 9-month results, business plan

December promises to be a big month for power utility PPC on a number of fronts, beginning with the corporation’s announcement tomorrow of profitable nine-month results.

The results will be followed by the presentation of PPC’s  updated and ambitious business plan for 2021 to 2023 on Wednesday, and the launch, on Thursday, of a market test concerning the privatization of a 49 percent stake in distribution network operator DEDDIE/HEDNO, a PPC subsidiary.

In addition, PPC is also awaiting a response, imminently, from the European Commission on a compensation request linked to the utility’s plan to withdraw its lignite-fired power stations sooner than planned.

PPC may also opt to head to capital markets in December.

The power utility’s nine-month profit to be announced tomorrow, including operating profit in 3Q for the fourth quarter in succession, has been attributed to lower natural gas and wholesale prices as well as the utility’s diminished use of lignite. These latest results should pave the way for an EBITDA figure of over 900 billion euros.

Natural gas prices have been low in 2020, but higher price levels are expected in 2021.

PPC will present its updated business plan at Wednesday’s Investor Day, rescheduled as an online event amid the pandemic. It will involve the participation of dozens of Greek and foreign analysts.

Besides a RES energy-mix share of between 15 and 20 percent, the three-year plan will also feature a more aggressive commercial policy, electromobility and digitalization initiatives, as well as the DEDDIE/HEDNO privatization.

Government committee meets for decarbonization master plan

A government committee overseeing the country’s decarbonization master plan is scheduled to meet tomorrow to discuss and approve a funding mechanism concerning the new National Strategic Reference Framework’s just development transition.

The funding mechanism will be applied to manage funds and facilitate investment plans for lignite-dependent areas.

Consultation for the just development transition of Greece’s lignite-dependent area, west Macedonia, in the north, and Megalopoli in the Peloponnese, has been completed. Officials are currently processing the procedure’s comments and observations.

The government’s decarbonization master plan will aim for investments totaling 5 billion euros – both national and EU funds – to restructure the production models of Greece’s lignite-dependent areas and protect their respective employment markets.

The decarbonization plan’s coordinating committee is preparing a draft bill for the implementation of the master plan, whose features include incentives for investment, expected to be ready for Parliament in the first quarter of 2021.

Natural gas-fueled generation reaches energy-mix record share of 56.64%

The energy mix contribution of natural gas increased to a record-level share of 56.64 percent in October, a latest energy exchange monthly report has shown.

This significant rise in the energy-mix share of natural gas – to a level never before reported since the full liberalization of Greece’s electricity market – has been attributed to a major slowdown of power utility PPC’s lignite-based generation.

Natural gas-fueled power stations operated by power utility PPC and independent producers further consolidated their place in the energy mix standings, stretching further ahead of other fuel categories.

October’s 56.64 percent energy-mix share captured by natural gas broke this fuel’s previous record of 53.76 percent, registered in August. The natural gas energy-mix share had dipped slightly to 51.74 percent in September before rebounding for October’s record-breaking result.

A year earlier, the natural gas energy mix share was below 50 percent, at 49.86 percent, while lignite’s share was at approximately 22 percent.

Returning to the latest energy-mix figures, natural gas was followed by the RES sector, capturing 33.86 percent, lignite’s share shrunk further to 4.25 percent, and hydropower followed with a 3.21 percent share.

PPC’s lignite-based generation could rise slightly in coming months to cover telethermal needs.

The role of natural gas in the ongoing energy transition towards renewable energy dominance is expected to play a pivotal role for the grid’s sufficiency and security.

PPC’s upcoming Investor Day event on strength of good news

Power utility PPC plans to go into early December’s rescheduled Investor Day, an online event organized by the corporation for its presentation of an updated 2021-2023 business plan to international analysts, on the back of favorable developments, including yet another profitable quarter, the fourth in a row, as well as new business openings.

PPC had originally planned Investor Day for last March, in London, but was forced to postpone and reshape for an online version as a result of the pandemic’s outbreak.

A year earlier, PPC was struggling, but the succession of positive quarters has lifted the company into a confident higher flyer.

Its updated business plan will feature more specific goals of greater ambition for the three-year period. They are expected to include a RES market share target of between 15 and 20 percent and capacity of over 1 GW, as well as fresh news on the company’s digital transformation, electromobility effort, commercial policy, and, possibly, an even swifter withdrawal plan for the company’s lignite-fired power stations.

Just days ahead of the Investor Day event PPC will announce a series of favorable developments, namely an initial securitization deal collection of 150 million euros; a higher EBITDA figure for yet another quarter; the launch of a privatization procedure to offer 49 percent of distribution network operator DEDDIE/HEDNO, a subsidiary; and, on December 1, financial results for the nine-month period, including a profitable third quarter.

PPC is also expected to announce a further workforce reduction plan and employee shifts from lignite units headed for closure. Earlier this year, the power utility reported a 10 percent payroll cost reduction for the first half.

 

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.

 

PPC awaiting Brussels verdict on lignite unit exit compensation

The European Commission could reach a decision by the end of November on an energy ministry request seeking compensation for state-controlled power utility PPC’s plan to withdrawal lignite-fired power stations ahead of schedule.

The ministry has requested a compensation package of 180, 150 and 200 million euros for 2021, 2022 and 2023, respectively, for the power utility.

European Commission officials are currently closely examining the data and information accompanying the Greek application, energypress sources informed.

At best, a decision could be delivered in approximately three weeks, the sources estimated, adding that the Greek request has been favorably received.

Last May, the European Commission released a 52.5 million-euro compensation package to the Netherlands for the country’s premature closure of its Hemweg coal-fired facilities.

Greek officials had initially sought, quite some time ago, the approval of a cost recovery mechanism for PPC’s lignite-fired units, implemented in Germany as a strategic reserve capacity.

This proved too complex, prompting Greek officials to shift their focus onto the current compensation request for the country’s effort to decarbonize.

The European Commissioner for Competition Margrethe Vestager declared, in May, when the Hemweg compensation bid was approved, that EU member states must be compensated for their decarbonization efforts, adding that the Dutch compensation amount does not cause European market distortions.

PPC’s lignite unit losses are reported to have reached 300 million euros last year. The utility is seeking to limit such losses by closing such units sooner than planned.

PPC has announced its Megalopoli III facility will be shut down six months earlier, in the first half of 2021 instead of early 2022. If accomplished, this closure will represent PPC’s second PPC lignite unit withdrawal following Amynteo, closed down in May.

The utility intends to push for a swifter withdrawal of all other lignite-fired units, except Ptolemaida V.

PPC’s second voluntary exit plan this year achieves 85% success rate

Power utility PPC’s second voluntary exit program offered to employees this year has achieved a success rate of 85 percent, convincing 465 staff members to sign up, from a target group of 550.

Applicants needed to meet two prerequisites for this latest PPC exit program. Firstly, applicants must be on the way to turning at least 55 years of age by December 31, 2020. Secondly, they needed to have already qualified for pension rights before applying for the exit plan.

Without the pension right criterion, the program would have applied to a far broader group of as many as 1,700 employees at PPC units around the country.

PPC is believed to be satisfied with the course of its voluntary exit plan this year. The tally of voluntary exits this year is seen reaching 1,200, over an initial estimate of 1,000.

Employees who sign up for the program each receive compensation packages totaling 35,000 euros.

The power utility is expected to keep downsizing. According to last year’s business plan, PPC is aiming for a workforce reduction of 4,500 employees by 2023.

PPC, turning to green energy, has scheduled to shut down its Kardia III and IV and Megalopoli III lignite-fired power stations in 2021, followed by Agios Dimitrios I and II in 2022. Megalopoli III could be withdrawn sooner than planned, the company recently announced.

Government’s post-lignite master plan set for one-month consultation

The government’s post-lignite master plan for the west Macedonia region in the country’s north, and Megalopoli in the Peloponnese, both lignite-dependent economies, is set to be forwarded for public consultation, possibly within the day, to enable observations and comments for a one-month period.

Power utility PPC plans to phase out its lignite-fired power stations and mines over the next three years as part of Greece’s decarbonization strategy.

The master plan’s draft will feature specific targets, studies conducted to reach conclusions, and the government plan prepared by a special decarbonization committee headed by government official Constantinos Mousouroulis.

The availability of funds necessary to support the development of this strategic plan will be pivotal.

Energy minister Costis Hatzidakis has announced that funds totaling over 5 billion euros will be made available for the post-lignite master plan through the EU’s National Strategic Reference Framework; national sources; the Just Transition Fund; European Investment Bank; and the European Fund for Strategic Investments, commonly referred to as the Juncker Plan.

Nearly 70 investment proposals have been submitted to the special decarbonization committee headed by Mousouroulis, while 16 major investment plans are now regarded as mature plans possessing the ability to create new jobs in west Macedonia and Megalopoli and reform the economies of these regions.

 

PPC lignite compensation effort key to Brussels negotiations

Greek authorities have taken to a higher European Commission level a compensation request by the state-controlled power utility PPC, seeking 200 million euros, annually, for the gradual withdrawal of its loss-incurring lignite-fired power stations between 2021 and 2023, hoping for a favorable outcome with the next two months.

If, however, the effort fails to produce a positive result, Greece’s ten-year dispute with the European Commission over the country’s continued reliance on lignite for electricity generation could drag on.

In this case, Greece will probably not agree to settle a long-running antitrust case that has prompted the government to offer PPC’s rivals 40 percent of the utility’s lignite-based generation until the lignite-fired power stations are withdrawn.

Greece cannot be expected to adopt a mechanism offering PPC’s rivals access to lignite-based output if the European Commission refuses to approve cost-offsetting measures for the utility, as has been the case in other EU member states, local sources contend.

Germany and Dutch energy companies have benefited from such offsetting measures in the past.

All issues will need to be resolved as one package deal or there will be no deal at all, sources said.

At this stage, a new European Court antitrust case against Greece, for PPC’s lignite monopoly, would make little, if any, sense as the country’s lignite-based generation will have greatly diminished by the time the case is heard.

PPC changing company logo to symbolize RES transformation

Power utility PPC plans to unveil a new company logo within the next month that will symbolize the corporation’s shift from lignite to renewable energy and also signal its transformation into a company offering a range of domestic services, including maintenance and repair work, such as electrical and plumbing.

Announced late last year, this transformation is now approaching its launch. PPC recently completed a tender for a partner to support the company’s emergency domestic technical services program.

This program, part of PPC’s new commercial policy, will enable customers who have taken up a related insurance policy to call a hotline at all times for emergency help. Insurance fees for this policy, to cover annual periods, will be payable through monthly installments.

Most major energy firms in Europe offer customers supplementary services such home insurance and energy efficiency equipment.

PPC recently also announced an online appointments program for personalized service over the internet.

Though the company does not intend to back these initiatives with any major promotional campaign, they do represent elements building PPC’s new commercial policy.

Brussels considering PPC compensation for lignite units

Certain European Commission officials are believed to be considering a compensation request made by power utility PPC for its three-year phase-out, between 2021 and 2023, of all existing lignite-fired power stations, severely burdened by elevated CO2 emission right costs.

Brussels officials had flatly rejected a compensation request made by PPC nearly a year ago. However, a shift by Brussels has become apparent in recognition of the Greek decarbonization effort’s progress.

The European Commission has offered compensation elsewhere for lignite units withdrawals. Last May, Brussels made available compensation worth 52.5 million euros for the Netherlands as a result of the country’s premature closure of its Hemweg coal-fired facilities.

At the time, the European Commissioner for Competition Margrethe Vestager had declared EU member states may need to compensate companies for their efforts to end their coal reliance, adding that the Dutch compensation amount does not threaten to cause market distortions at a European level.

PPC officials expect European Commission developments on the issue during the final quarter of this year.

Taking into account Brussels’ handling of such issues in the past, PPC officials also believe an antitrust case concerning the Greek power utility’s lignite monopoly and the corporation’s compensation request could be resolved simultaneously.

Excessive cost, for PPC, of running lignite-fired units hastening exit plan

The financial burden on power utility PPC as a result of its continued use of lignite-fired power stations at a time when the EU is racing towards climate neutrality has prompted the utility to revise its lignite unit phase-out plan for power stations in northern Greece’s west Macedonia region and Megalopoli in the Peloponnese.

According to latest information, PPC’s administration is planning further premature withdrawals of lignite-fired power stations after announcing a precipitated exit of its Megalopoli III unit, as was reported by energypress yesterday.

The Megalopoli III unit will be shut down six months sooner, in mid-2021, instead of early 2022. This 250-MW lignite-fired facility has operated for just six hours since April.

The average variable cost of lignite-based energy generation is €0.80 per MWh, well over the System Marginal Price of €0.45 per MWh, according to data presented by energy minister Costis Hatzidakis.

According to some sources, PPC has once again raised, to the European Commission, a compensation claim for being required to keep operating high-cost power stations in order to secure grid sufficiency and security.

PPC will be forced to proceed with swifter lignite unit exits if this compensation request is not satisfied, pundits said.

Power grid operator IPTO has the final say on the assessment of energy security matters.

PPC’s lignite-fired power stations covered just 36.8 percent of the country’s overall electricity demand in the first half, its lignite units playing a diminished role.

 

Ministry proposal seen ending PPC lignite monopoly case

Independent electricity retailers would be entitled to lignite-generated electricity supply from power utility PPC at a predetermined price, definitely not below cost for the utility, in quantities constituting 40 percent of each lignite-fired power station’s production, to be distributed to suppliers in proportion to their respective retail electricity market shares, until 2023, when  lignite-fired units are expected to have been phased out as part of the country’s decarbonization plan, according to a finalized proposal forwarded by the energy ministry to the European Commission’s Directorate-General for Competition a fortnight ago in an effort to resolve a long-running antitrust case.

Energy ministry officials are confident this formula will end the antitrust dispute, now a decade long, concerning’s PPC’s lignite sector monopoly.

Back in 2010, lignite dominated Greece’s energy mix but there is now much less at stake as lignite-fired power stations are being phased out over the next three years.

PPC’s lignite-fired electricity generation dropped 47.8 percent in the first half, diving 70 percent in the second quarter, the utility announced just days ago when presenting its first-half results.

PPC’s lignite-based output totaled 3,000 GWh in the first half and just 756 GWh in the second quarter.

Energy ministry officials believe the Directorate-General for Competition will not resist accepting the Athens proposal as a rejection would take the dispute back to European Court, meaning a case would not be heard any sooner than late-2021. By then, PPC’s lignite-fired power stations Kardia III and IV and Megalopoli III will have all been withdrawn, according to the latest schedule announced by energy minister Costis Hatzidakis earlier this week.

 

PPC power demand coverage down to 36.8%, lignite savings

Power utility PPC’s lignite-fired electricity production plunged 70 percent in the second quarter of 2020, its generation covered just 36.8 percent of overall electricity demand in the first half, while the corporation’s retail electricity market share has contracted to 69.9 percent, first-half company results have shown.

These shifts highlight the major changes occurring in Greece’s energy market – in terms of energy mix and retail competition.

PPC’s retail electricity market share drop to 69.9 percent followed a 77 percent share reported for the equivalent period a year earlier.

Electricity demand fell just 1.7 percent in the first quarter before sliding 12.7 percent in the second quarter, the PPC results showed.

A significant part of the corporation’s recurring EBITDA figure of 457.3 million euros reported for the first half was attributed to the utility’s diminished reliance on lignite-fired generation, until recently Greece’s dominant energy source. PPC’s lignite units have been kept shut or used minimally, saving the corporation from losses.

However, this is one side of the story for PPC. The company’s reduced reliance on lignite may be saving the power utility considerable amounts, but its coverage of overall electricity demand has dropped to 36.8 percent in the first half, from 46.9 percent in the first half last year. Gas-fired and hydropower generation have been low.

This downward slide at PPC is expected to continue until the corporation’s green energy output rises to between 2,000 and 3,000 MW, a level that would take the company into a new era. A period of at least two to three years will be needed before this can be achieved.

The pandemic and its downward pressure on energy price levels has helped PPC. Company outlays for fuels, natural gas, CO2 emission rights and electricity purchases fell by 33.7 percent, or 561.3 million euros, in the first half, compared to the equivalent period a year earlier.

PPC saved 95 million euros on fuel costs, 110.2 million euros on natural gas costs, approximately 80 million euros on CO2 emission rights, and 260.2 million euros on electricity purchases, the first half results showed.

Energy products may rebound in the second half, meaning PPC has no other choice but to accelerate its foray into the RES sector.

Despite the encouraging first-half results, there is no room for complacency, PPC’s chief executive Giorgos Stassis stressed.

 

 

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.

Wholesale electricity prices down considerably in first half

The System Marginal Price, or wholesale electricity price, has fallen considerably and consistently throughout the first half of the year, driven down by lower natural gas prices and a dramatic contraction of lignite-fired generation, now a costly option.

Official data released by the energy exchange shows lignite’s energy mix dominance is fading and renewable energy sources are gaining ground, while natural gas-fueled generation is consistently at the helm. 

The SMP fell throughout the first-half period, falling 22.45 percent to 59.68 euros per MWh in January, compared to the equivalent month a year earlier; 28.55 percent to 49.23 euros per MWh in February; 43.65 percent to 43.65 euros per MWh in March; 54.31 percent to 28.51 euros per MWh in April; 48 percent to 34.27 euros per MWh in May; and 50.04 percent to 34.04 euros per MWh in June.

The SMP is primarily determined by natural gas-fueled power stations, their price-setting involvement measuring 60 percent in June, the energy exchange data showed.

Also in June, natural gas was responsible for 48.06 percent of overall generation, the RES sector generated 34.74 percent of total production, hydropower contributed 9.77 percent, while lignite-fired generation was limited to 7.42 percent.

Gas, renewables cover 76% of electricity demand in June

Natural gas and renewable energy sources covered 76 percent of electricity demand in June, limiting lignite’s contribution to a mere 5 percent, latest figures provided by power grid operator IPTO have shown.

The development highlights the fast-approaching end of the lignite era in Greece, currently in transition towards green energy.

Natural gas-fueled generation in June covered 37 percent of electricity demand, plus 2 percent contributed by cooling, heating and power (CCHP) generation, while renewables contributed 37 percent, including hydropower input of 9 percent.

Highlighting lignite’s severely diminished role in generation, PPC restricted its lignite-fired generation last month by 75 percent compared to the equivalent month a year earlier.

During this same one-year period, renewable energy source generation increased by 7.6 percent, while natural gas-based electricity production was up by a milder 1.2 percent, the IPTO data showed.

In another noteworthy statistic, all of the country’s lignite units were switched off for 40 hours, continuously, for the first time in June.

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.

 

 

Power demand dives 14.61% in June as tourism slumps

Electricity demand slumped 14.61 percent in June, compared to a year earlier, despite the month’s lifting of lockdown measures, latest Greek energy exchange figures have shown.

June’s drop in power demand, attributed to the unprecedented decline in tourism activity, was even bigger than the declines registered in April and May, 13 percent and 9 percent, respectively.

Numerous hotels and other tourism industry units have not opened for business. Also, flight bans were essentially not lifted until the beginning of this month.

Responding to the drop in electricity demand, energy producers have restricted output by 16 percent.

Natural gas and renewables dominated electricity generation in June. Natural gas-fueled generation covered 36.56 percent of demand, while RES production covered 26.43 percent, the energy exchange’s June report showed. Electricity imports covered 23.93 percent, hydropower 7.43 percent and lignite-fired production 5.64 percent.

 

 

Grid passes summer’s first test, demand at 7,600 MW today

The country’s grid is set to face increased pressure as temperatures rise throughout the country and are forecast to reach as high as 39 degrees Celsius today. Electricity demand is expected to rise to 7,600 MW.

The country’s grid coped well during yesterday’s first major test for the summer. Electricity demand reached 7,300 MW amid temperatures marginally lower than the levels forecast for today.

The power utility PPC was forced to use its hydropower facilities. Water deposit levels have been extremely low this year. Further usage of the hydropower facilities will be needed today but PPC is expected to act cautiously as it awaits tougher days ahead.

PPC anticipates it may need to use 50 to 60 percent of its 3,171-MW total hydropower capacity in July.

The heat-related rise in electricity demand has coincided with increased wholesale electricity prices over the past week. They rose sharply from 28.62 euros per MWh on June 28 to 44.52 euros per MWh on Tuesday and 45.01 euros per MWh yesterday.

This first summer test for the grid has once again highlighted the extremely high costs entailed in operating lignite-fired power stations. Their generation costs are now between 90 and 100 euros per MWh.

During this heatwave, PPC, currently moving to withdraw most of its lignite units over the next three years, has opted to minimize its reliance on lignite, preferring instead to cover its generation needs through its natural gas units and hydropower stations.