PPC financial results for 2019 seen reflecting moves late last year

Power utility PPC’s financial results for 2019, expected to be released this afternoon, should favorably reflect measures taken by the state-controlled corporation’s administration and the government during the final four months of the previous year, analysts have forecast.

The results, expected once the day’s trading has ended at the Athens bourse, are also expected to include an initial assessment of the impact, so far, of the coronavirus pandemic-induced lockdown on the corporate group.

Also expected is an update on new initiatives, including investment plans, for the rest of 2020, following a forced revision of plans prompted by the pandemic.

PPC’s administration has set an operating profit objective of between 420 and 470 million euros for 2019, up from 150 million euros in 2018.

EBITDA figures of 240 million euros for the fourth quarter of 2019 and 337 million euros for 2019, overall, have been forecast by Pantelakis Securities.

During the final few months of 2019, PPC revised tariffs and abolished NOME auctions, described by company and government officials as a loss-incurring measure for the firm.

PPC expects even greater clarity on its financial standing in the immediate future. The corporation is waiting for more appropriate market conditions to securitize unpaid receivables worth 1.5 billion euros and issue a company bond.

Proceeds from these initiatives are expected to enable PPC to move ahead with an ambitious investment plan.

Futures market launched in adverse conditions, PPC the market maker

The energy exchange’s futures market begins operating today, far sooner than planned following considerable efforts from all agencies and authorities involved, but the launch comes at a time of adverse conditions.

Authorities, given the currently unfavorable abnormal market conditions, will be content to see this new platform operate without technical glitches. Trial runs ahead of today’s launch did not produce problems.

The current pressure felt by financial markets and electricity suppliers has reined in early expectations.

Power utility PPC will assume the crucial role of market maker, bringing in the embryonic market’s first futures products.

The early launch of the futures market was promoted by the energy ministry to help cover electricity supplier needs following the premature termination of NOME auctions.

New lignite access proposal offered ahead of Brussels talks

Electricity suppliers could be granted access to power utility PPC’s lignite-related electricity production until 2023, when all the utility’s existing lignite units are scheduled to have been withdrawn, according to a new proposal forwarded by Greek authorities to the European Commission’s Directorate-General for Competition, energypress sources have informed.

The energy ministry delivered this transitional mechanism proposal to Brussels last week after a previous plan appears to have been blocked.

The initial proposal, delivered last December, called for the formation of an SPV by the country’s energy-intensive industrial enterprises to be supplied satisfactory electricity amounts from PPC’s lignite-fired power stations.

However, this proposal appears to have been rejected by Brussels as it focused entirely on industry and excluded retail suppliers, seen as a breach of competition rules because it would not help further open up Greece’s electricity market.

The new Greek proposal is expected to serve as the basis of a new round of talks with the European Commission, scheduled to begin around mid-March. It remains unclear if the new proposal stands a chance of being approved by Brussels competition authorities.

Brussels officials, for quite some time now, have made note of Greece’s failure to comply with a European Court ruling on lignite access for third parties, directly linking this shortcoming with the country’s commitment to a retail electricity market share contraction target at state-controlled PPC to a level of less than 50 percent this year.

The European Commission wants alternative measures implemented between now and 2023 as a result of Greece’s failure to sell PPC lignite units and unilateral termination of NOME auctions.

EC insists on third-party access to PPC’s lignite-fired electricity

The energy ministry, locked in an intense yet unpublicized battle with the European Commission over the state-controlled power utility PPC’s lignite monopoly and wider reforms for the electricity market’s further liberalization, has prepared a new proposal for Brussels entailing the establishment, by the country’s energy-intensive industries, of an SPV to which PPC would supply considerable lower-cost lignite-generated electricity amounts.

This electricity amount could, for example, be 40 percent of PPC’s lignite-fired production until 2023, when the power utility plans to have withdrawn all existing coal generators.

A European Court decision calling for access to third parties of 40 percent of PPC’s lignite-based electricity production has not been honored.

The government’s recent decision to abolish NOME auctions has angered Brussels, which expressed firm opposition to the prospect last summer, as the introduction of the auctions about three years ago, along with an instruction for the sale of PPC’s Meliti and Megalopoli coal generators, constituted an agreement of equivalent worth to the court decision.

Greece’s energy ministry has strongly resisted the continuation of NOME auctions or any other lignite-related auction procedure, arguing this is a loss-incurring procedure for PPC, which, worse still, has not helped reduce the power utility’s market share towards a contraction target of 50 percent.

The energy ministry is now looking to discuss its SPV plan with Brussels to see if it is feasible. A similar model had been applied in France in the past, prior to the country’s adoption of NOME auctions.

Independent power suppliers set to raise low-voltage prices

After raising electricity prices in the mid-voltage category, independent suppliers are now set to do likewise for low-voltage electricity, supplied to households and businesses. A first step by one or more suppliers is expected to  swiftly trigger action from the rest.

Virtually all independent suppliers have activated a clause used to cover elevated System Marginal Prices, or wholesale prices. The power utility PPC has already increased its mid-voltage electricity prices.

Higher tariffs at PPC, still the dominant player, have prompted many consumers to switch supplier in recent times, leading to considerable market share losses for the utility.

Though independent suppliers are currently gaining clients from the PPC outflow, they are also keeping a close watch on each other.

Independent suppliers must keep providing incentives to lure PPC customers, and, at the same time, lessen their risks of financial loss.

Lower-cost electricity acquired by independent suppliers at NOME auctions will soon run out. The government recently decided to abolish this procedure, loss-incurring for PPC. Independent suppliers should start being exposed to the wholesale market’s higher prices in January and will be fully exposed by June.

By this stage, the performance of independent suppliers will greatly depend on wholesale electricity market conditions.

If LNG prices remain subdued, a favorable prospect for the SMP, then independent suppliers, despite their increased exposure to the wholesale market’s conditions, will not be forced into loss-incurring deals but, instead, will be in a position to keep competing against PPC for market share gains.

State-controlled PPC has adopted into its business plan the prospect of a market share reduction to levels of around 60 percent or less by June, 2020. Subsequently, independent suppliers will control 40 percent of the retail electricity market, meaning competition between them, rather than against PPC, stands to intensify.

Any agreements reached during negotiations between the government and the European Commission in January will also impact the market.

Ministry preparing market liberalization plan for January

The energy ministry, working following a latest report by the European Commission, has yet to decide on the details of corrective antitrust measures it is expected to present to Brussels in January, energypress sources informed.

Market officials, seeking greater electricity market liberalization, are looking forward to measures.

The ministry is striving to revise the negotiating base with Brussels. Athens believes the country’s decarbonization package, aiming for the closure of the bulk of power utility PPC’s carbon generators by 2023, and the rest by 2028, will successfully counter a European Court decision against PPC’s lignite monopoly.

The Greek lignite withdrawal effort includes a plan to close the Megalopoli and Amynteo coal generators by summer.

The energy ministry measures should emerge as a prelude to negotiations with Brussels that month.

The Greek government will, under no circumstances, accept a return of NOME auctions, as these are deemed to have generated considerable losses for PPC without any result in terms of the utility’s market share contraction to 50 percent, as had been agreed to by the previous government, sources noted.

Brussels has consistently opposed the Greek government’s recent decision to terminate NOME auctions.

PPC market share seen falling to 60%, a tool for lender talks

Power utility PPC’s retail market share is projected to drop to 60 percent, or even less, the gradual entry into the market in coming months of lower-cost electricity acquired by independent suppliers at older NOME auctions, prior to their recent termination, being a key factor.

This market share forecast and other projections are expected to be included in state-controlled PPC’s new business plan, to be announced in mid-December.

Deputy energy minister Gerassimos Thomas and PPC chief executive Giorgos Stassis offered respective accounts of the power utility’s changing role at a parliamentary session last night.

The power utility’s projected market share drop could be used as a negotiating tool by the  energy ministry in talks with the European Commission on the future role of PPC amid the electricity market’s new landscape.

Greek officials could seek the establishment of a milder and more realistic market share contraction target of between 60 to 65 percent for PPC instead of a currently unattainable 50 percent target included in the country’s third bailout agreement.

Higher tariffs at PPC, introduced September 1, have given competitors the opportunity to make further market share gains. This could also bolster the negotiating position of Greek officials in their talks with the European Commission.

Returning to the NOME auctions, the benefits for independent suppliers of lower-cost electricity acquired at these sessions are not unlimited and should dry up by June, 2020.

NOME auctions were recently terminated as PPC was being forced to offer rivals lower-cost electricity at a loss, the government explained.

This decision was made prior to the year’s final session, scheduled for October 16, which would have offered independent suppliers a mammoth 1,029 MW, enough to stretch the benefits for independent players well beyond June, 2020.



Suppliers face tougher times, NOME benefits ending

The termination of NOME auctions in Greece leaves independent suppliers with enough lower-cost wholesale electricity to fully cover their needs until the end of the year but the subsequent gradual change of market conditions can be expected to begin taking effect as of January when the suppliers start being exposed to the wholesale market.

By March, 2020, suppliers will be fully exposed to the System Marginal Price (SMP), practically meaning the sector’s course will depend on the course of the wholesale market.

If LNG prices remain low to contain the SMP level, then independent retail electricity suppliers should avoid losses despite their wholesale market exposure and, as a result, will be able to compete against the power utility PPC for market share gains.

For many companies, as much as 50 percent of their profitability has been derived from trading lower-cost NOME electricity, primarily as an export product to neighboring markets. In certain cases, significant profits earned through this trading activity enabled aggressive pricing policies in the domestic market, especially the mid-voltage category.

The new market conditions will make electricity export activity more challenging as earnings will be lower. Greater exposure to SMP risk will create problems. The triggering of SMP clauses will require consumers to pay greater amounts and independent suppliers will be less competitive against PPC.

An increase of the SMP level would put some suppliers who have offered relatively low-cost mid-voltage supply contracts in the unpleasant position of needing to maintain supply to customers at below-cost levels. Mid-voltage prices offered by independent suppliers have risen in recent times but are still below those of PPC.

The tougher conditions amid a fluid market of more than 20 retail suppliers in electricity and gas – of which no more than 12 hold market shares of consideration – promise to narrow down the field.

Three takeover and merger agreements have already been reached over the past year or so, beginning with Motor Oil’s acquisition of NRG, followed by a transfer of Green’s client list to Heron, and, just days ago, Volton’s acquisition of KEN.




Authorities in rush for new futures product as NOME replacement

Authorities and agencies, primarily Greece’s energy exchange, tasked with designing a futures product intended to replace the country’s NOME auctions, being abolished, are racing against a time limit imposed by the European Commission.

The introduction of a six-month product, to run from this coming January to June, is being considered, according to a recent update provided by the government to Brussels.

Preparations leading to the establishment of required platforms by the end of the year are being pushed ahead.

Various developments have shrunk the available time for the new product’s introduction by six months, placing all authorities involved under considerable time pressure.

The Greek energy exchange, aiming to start operating in February, is currently working closely will all other relevant agencies on various issues, including the delivery of a product to replace the NOME auctions.

The level of readiness of power utility PPC to assume the role of market maker of the new futures product is pivotal.

DG Comp summons ministry officials over PPC dominance

A team of energy ministry officials has been summoned by the DG Comp for a meeting in Brussels this week to be dominated by power utility PPC’s ongoing electricity market dominance as well as the state-controlled corporation’s intended position in the new-look electricity market being shaped as part of the target model.

PPC’s role remains a concern in Brussels following last July’s collapse of a sale effort that had been intended to offer investors lignite-fired power stations belonging to the utility.

Greece’s next Enhanced Surveillance Report is expected late in November.

In Brussels, the energy ministry officials will be looking to ease a PPC retail electricity market share contraction target of 50 percent, included in the country’s third bailout agreement, to 65 percent, seen as feasible.

The DG Comp is expected to remain firm on the original target unless the Greek officials table an offsetting measure of equivalent worth.

Brussels officials also want further information on the forward market, including the duration and technical details of contracts, planned to be launched in February, 2020.

The energy ministry is seeking to convince concerned independent electricity suppliers that the forward market will compensate for a planned termination of NOME auctions.

The DG Comp’s position on the country’s hydropower market is also eagerly anticipated. Early in 2017, Brussels officials had raided the headquarters of PPC and power grid operator IPTO as part of an alleged market-abuse investigation. Findings have yet to be reported.



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.

Measures in making to offset NOME end cost for suppliers

The energy ministry is preparing a series of measures intended to alleviate independent supplier concerns fueled by the ministry’s plan to abolish NOME auctions.

These measures, expected next month, should satisfy at least some of the demands made by independent electricity suppliers, who have been able to acquire lower-cost wholesale electricity at the NOME auctions.

The ministry is working to bring together the measures as a package that could be attached to a draft bill concerning power utility PPC’s restructuring.

Supplier representatives, at various recent meetings with deputy energy minister Gerassimos Thomas, have demanded a series of interventions, minor and major.

These have included a call for stricter legal framework to counter electricity theft and obligating distribution network operator DEDDIE/HEDNO and power grid operator IPTO to relay to suppliers a share of network surcharges paid by consumers through electricity bills.

The ministry is seeking to offset the cost for suppliers of its plan to abolish NOME auctions and, thereby, make clear that the government’s plan to restructure PPC – the dominant yet troubled retail player with a 74 percent market share – does not entail blocking independent suppliers from this market.

NOME auctions, introduced about three years ago, have forced PPC to offer independent suppliers below-cost wholesale electricity and incur accumulating damages now worth millions, the energy ministry has argued.


First round of new ministry, lender talks this Wednesday

The current financial standing of state-controlled power utility PPC, effort  to reduce the power corporation’s market share, competition in the electricity market, target model progress, and prospective energy utility privatizations will all feature on the agenda of the recently appointed energy ministry’s first official meeting with the country’s lender representatives, scheduled for this Wednesday in Athens, sources have informed.

Energy minister Costis Hatzidakis will participate in the meeting but the country’s lenders will not be represented at the highest level, the sources added. The energy minister’s participation at the meeting Wednesday highlights the political significance of the PPC rescue effort for the government, the sources noted.

Finalized decisions are not expected during Wednesday’s negotiations. Talks are expected to run until mid-November. A Greek post-bailout  appraisal has been deferred until then as a result of European Commission personnel changes following the European elections last May.

This Wednesday, the energy ministry will inform the country’s lenders on the results of a first round of measures taken by the new Greek government to prevent PPC’s collapse.

A government decision to abandon NOME auctions, introduced about three years ago to offer lower-cost wholesale electricity to independent players, will also be officially announced at Wednesday’s meeting. This measure has cost PPC approximately 600 million euros since its launch, according to Hatzidakis, the energy minister.

The energy ministry officials will also seek a revision of a PPC market share contraction agreement, included in the bailout terms, requiring the utility to reduce its retail market share to less than 50 percent by the end of this year. It is not yet clear if the lenders will accept this request and, if so, what the replacement plan could be.

The key aspects of a government plan for swifter decarbonization, including the closure of PPC’s Amynteo and Megalopoli III power stations; planned efforts for no further target model delays; as well as privatization plans concerning gas utility DEPA and Hellenic Petroleum ELPE will also be discussed Wednesday.

Ministry wants post-NOME measures for supplier protection

The energy ministry has asked RAE, the Regulatory Authority for Energy, for a detailed assessment on how the planned termination of NOME auctions would impact Greece’s electricity market as well as a proposal for normalization measures during the transition period leading to the target model, if the authority deems measures will be necessary.

Energy ministry officials already appear convinced measures will be needed for the pre-target model transition period as a means of covering the electricity needs of independent suppliers, protecting smaller non-vertically integrated players against possible collapse, and avoiding sharp energy cost increases for industry, especially high-level consumers in the mid-voltage category.

Legislative measures obligating power utility PPC into offering short-term contracts to suppliers, possibly even major-scale electricity consumers, for prices slightly below the wholesale price level, will probably be needed as an imminent arrival of an organized futures market at the energy exchange does not appear feasible.

At a recent meeting with deputy energy minister Gerassimos Thomas, retail electricity market representatives requested an adequate NOME replacement tool – if the auctions are abolished – that would enable hedging at competitive prices until the target model’s implementation.

Independent electricity suppliers fear a cancellation of this year’s final NOME auction in October, as is wanted by the energy ministry, would expose them to high prices that could affect their sustainability.

Regional-based PPC market share reduction tool examined

Geographical-based package sales of power utility PPC customers to rival suppliers are being considered by the state-controlled utility and energy ministry as a means of reducing the utility’s retail market share and ending its ongoing dominance. The country’s lenders have yet to become involved or take a stance.

Still rudimentary, the geographical-based customer sale plan is being looked at as an alternative that could replace NOME auctions, introduced about three years ago to offer lower-cost PPC wholesale electricity to competitors and now closed to being withdrawn.

This new proposal, which would result in the transfer, to rivals, of PPC customers with assorted profiles, from punctual, reliable, household, professional to agricultural, shares the principles of the previous chief executive Manolis Panagiotakis’ line of thinking for a mixed bag of customer transfers to competitors.

However, there is one big difference. If implemented, the new idea would reduce PPC’s market share around the country, not just in certain areas.

The government’s plan for a more aggressive 51 percent sale of distribution network operator DEDDIE/HEDNO, a PPC subsidiary, would help this new alternative overcome EU unbundling regulations. The sale of customer packages and PPC networks to different companies would abide by EU rules.


Independent suppliers fear post-NOME auctions void

Independent electricity supplier representatives will be going into their first meeting today with recently appointed deputy energy minister Gerassimos Thomas preoccupied by concerns over the plausibility of the deputy’s plan for an organized futures market, as an intermediate measure until the target model is implemented. They fear this plan may not be actualized.

Thomas, who requested today’s session as part of a series of meetings with energy sector players, has so far shown an eagerness to listen and seek solutions to various market issues.

The supplier representatives will be hoping the deputy minister has reassuring news on the launch of the target model and energy exchange markets in June, 2020.

They will also want firm news on a satisfactory hedging tool for competitive prices as a temporary substitute for NOME auctions – if they are abolished and the year’s final session, scheduled for October 16, is scrapped – until the target model’s implementation.

Suppliers fear being exposed to elevated wholesale electricity prices and other uncertainties that would endanger their sustainability if the year’s final NOME auction is not held. Suppliers have counted on the year’s final session, planned to offer a substantial electricity amount, as a growth catalyst over the next year.

Introduced about three years ago as a tool to reduce power utility PPC’s dominant retail market share, the NOME auctions have obligated the utility to offer rivals below-cost wholesale electricity.


Key energy ministry official holds first session with lender technocrats

The new energy ministry’s secretary-general Alexandra Sdoukou is expected to hold her first meeting today with technocrats representing the country’s lenders, currently in Athens.

Recent tariff hikes at power utility PPC, a campaign intended to improve the utility’s electricity bills collection record and a government plan for the gradual withdrawal of lignite units will all be presented by the energy ministry official.

Sdoukou also intends to present the government’s case supporting the need to end NOME auctions as well as details concerning the target model’s progress and finalized schedule.

NOME auctions have obligated PPC to offer below-cost wholesale electricity to rivals as a market share contraction measure over the past few years. The measure has affected the utility’s financial results and failed to produce results.

The ministry is seeking to establish a fresh setting for the country’s energy-sector negotiations with the country’s lenders, especially the European Commission, on Greece’s energy direction, the electricity market’s structure and PPC’s place in it.

The Greek bailout program includes objectives that have fallen too far behind to be achieved such as PPC’s market share contraction targets and disinvestment of lignite units.

The recently appointed energy minister Costis Hatzidakis is seeking a new overall solution for the country’s electricity market that would entail the adoption and implementation of EU strategic planning, as well as the eradication of any systemic threats, such as a possible collapse of PPC.

As part of this approach, the energy ministry has announced it will accelerate the withdrawal of lignite units and revise the National Energy and Climate Plan for even more ambitious RES targets.

The delay of a post-bailout appraisal of the Greek economy until mid-November, instead of October 31, should give the government additional time to prepare the details of its various energy sector plans, including lignite unit withdrawals, the termination of NOME auctions and privatization of distribution network operator DEDDIE/HEDNO.

PPC bond issue in January after rescue package measures

Power utility PPC will delay a planned bond issue until early next year, most probably within January, once a series of rescue-plan measures have been implemented, energypress sources have informed.

Though current market conditions are ideal, as highlighted by the 10-year Greek Govt bond yield of between 1.5 and 1.7 percent, the power utility’s board would rather wait for the implementation of all measures included in its rescue package before proceeding with a bond issue in pursuit of low-cost capital from international markets.

A series of measures intended to bolster PPC will have been taken by early next year. PPC’s first-half results, expected along with a report by the power utility’s certified auditor Ernst & Young on September 24, will include all measures deemed necessary for the corporation’s restructuring.

The energy ministry is soon expected to take legislative action enabling public service compensation returns of approximately 200 million euros to PPC for 2011 as well as the termination of NOME auctions in October or November, a favorable prospect for PPC, which has been obligated to offer below-cost wholesale electricity to rivals through the auctions over the past few years.

Also, between October and December, PPC plans to securitize unpaid receivables concerning electricity bills overdue by at least 60 days to draw capital from foreign funds.

Furthermore, consulting firm McKinsey is expected to have delivered an updated business plan for PPC by the end of December.

All these initiatives, along with electricity tariff hikes, will be included in PPC’s bond issue prospectus to make the utility’s growth prospects as convincing as possible.

Plan to end NOME auctions raises fears among suppliers

A government plan to prematurely end the country’s NOME auctions has unsettled some of the Greek retail electricity market’s independent suppliers, who fear the absence of an effective transitional model until the establishment of the target model would expose them to unforeseen dangers.

Energy minister Costis Hatzidakis has declared he wants to abolish NOME auctions, including the year’s final session, scheduled for October 16, noting the measure – introduced by the previous government as a tool to help end power utility PPC’s market dominance – is forcing the state-controlled utility to sell wholesale electricity at below-cost levels and consequently further aggravating the troubled firm’s financial performance.

Electricity suppliers, not including the major vertically integrated players, have expressed concerns as a further delay in the implementation of the target model and launch of energy exchange markets is considered likely.

Some suppliers have asked their legal departments to examine possible moves.

“On the NOME auctions, we would like to point out that we are confident the ministry will find the fairest solution for healthy competition,” commented Federico Regola, CEO at Zenith. “We are open to discussing our experience with authorities in order to relay our experience for utilization and the proper functioning of the market to the benefit of consumers. We are monitoring developments and awaiting related announcements while also maintaining our legal rights, like all companies, as this issue does not only concern Zenith but the entire sector,” he continued.


Brussels hears out Greek plan for electricity market reforms

The recently elected conservative New Democracy government’s plan for energy market reforms, especially in the electricity sector, has been closely listened to by leading European Commission officials over two days of talks in Brussels, generating cautious optimism for acceptance amid the government’s ranks.

Deputy energy minister Gerassimos Thomas spearheaded a Greek team to present the government’s proposals that include the termination of NOME auctions; withdrawal of lignite-fired power stations; reinforcement of the RES sector; and restructuring at power utility PPC.

The plan was presented to various Brussels officials, including the European Commissioner for Climate Action and Energy Miguel Arias Canete; the Director-General of the Directorate for Energy Ditte Juul Jørgensen; as well as to the office of new European Commission president Ursula von der Leyen.

The main aim of the Greek officials was to underline PPC’s poor financial standing as a systemic threat, stress the need for further electricity market reforms, and highlight the government’s commitment over these matters.

The Greek proposals did not prompt any negative reaction, at least for the time being. On the contrary, they could represent the beginning of a positive course as the proposed measures are in line with EU policies on lignite unit withdrawals, emphasis on renewable energy and other matters.

Prime Minister Kyriakos Mitsotakis may have set the tone by presenting a green agenda during recent talks with key European officials.

European Commission technocrats will soon be in Athens for negotiations concerning the Greek economy’s post-bailout monitoring. These talks could stretch beyond October given the recent change of guard at the European Commission.

Energy ministry officials believe negotiations concerning the government plan to abolish Greece’s NOME auctions will have been completed prior to October 16, when the year’s final session is scheduled to take place, and therefore enable energy minister Costis Hatzidakis to scrap this particular session and the auctions in general, as the minister has declared he intends to do.

The NOME auctions, introduced by the previous Syriza government, are seen as a loss-incurring measure for PPC, obligated to offer below-cost wholesale electricity to independent suppliers since 2015.

Energy deputy in Brussels for electricity market negotiations

Deputy energy minister Gerassimos Thomas (photo) and the ministry’s secretary-general Alexandra Sdoukou are both in Brussels to negotiate measures for the electricity market’s liberalization.

The Greek officials are scheduled to remain until September 5 for meetings with the European Commissioner for Climate Action and Energy Miguel Arias Canete and other Brussels officials, the intention being to pave the way for ensuing negotiations concerning the Greek economy’s post-bailout monitoring.

Thomas, the energy deputy, will present the recently elected Greek government’s plan for the energy sector, including its decision to abolish NOME auctions. They are seen as a loss-incurring measure for power utility PPC, obligated to offer below-cost wholesale electricity to independent suppliers since 2015.

Government plans entailing a partial privatization of distribution network operator DEDDIE and closure of old lignite-fired power stations run by PPC are also on the Brussels agenda.

In exchange for the termination of NOME auctions, which were introduced to reduce PPC’s retail electricity market dominance, the Greek officials will present a lignite unit withdrawal schedule that includes PPC’s Amynteo, Megalopoli III and Kardia power stations.

The European Commission’s overall position remains unknown.

The Greek government intends to renegotiate an older term committing PPC to reduce its retail electricity market share to less than 50 percent by the end of this year, sources informed. Athens will aim for a softer target of between 60 and 65 percent, the sources added.

More clarity on where the two sides stand is expected next week, when a team of Brussels technocrats is expected in Athens for further negotiations.

NOME auctions ending, EC to decide on October session

The big question currently preoccupying the thoughts of domestic electricity market officials is whether the next and final NOME auction of the year – planned to offer independent suppliers a mammoth quantity totaling 1029 MW on October 10 – will be staged as this will greatly influence the market’s shape until the eventual implementation of the target model.

Power utility PPC, which began offering below-cost wholesale electricity to rivals through NOME auctions when they were introduced as a market-opening measure in 2015, following an agreement between the previous Syriza government and the European Commission, wants the October NOME session scrapped.

So, too, does the recently appointed new energy minister Costis Hatzidakis, who described Syriza’s NOME agreement as “the world’s first ever free privatization” in an interview for the Sunday edition of Greek daily Kathimerini.

The former Syriza government introduced the measure as a tool to help reduce PPC’s dominant retail electricity market share from 90 percent to 50 percent. It has not worked. PPC’s market share remains over 80 percent and the utility, Hatzidakis contended in the interview, has lost over 600 million euros as a result of this measure.

A legislative bill abolishing the NOME auctions and setting the groundwork for a transition to the post-NOME era will be submitted to Greek Parliament before the end of October, Hatzidakis noted, adding he wants to have reached an agreement on the NOME auctions with Brussels prior to this. The European Commission has the final say on the matter.

Electricity suppliers are hoping one final NOME auction can be staged in October so that they can stock up on a year’s worth of electricity to cover market needs, even at a higher starting price, as would be the case if the session is held.


Independent suppliers adjusting policies in view of PPC hikes

The country’s independent electricity suppliers, sensing opportunity for retail market share gains amid greater competition as a result of power utility PPC’s imminent tariff hikes, are looking at making price adjustments to capitalize on these changes.

The upcoming electricity tariff hikes by PPC, still the dominant player, will bring to an end distorted market conditions prompted by the utility’s refusal to adjust its pricing policy to considerably higher wholesale electricity costs.

Though the final price comparisons of packages – including surcharges and taxes – to be offered by suppliers will ultimately differ very little, as PPC intends to partially offset its tariff hikes with surcharge reductions, the independent suppliers will be keen to focus on tariff prices, specifically, and take advantage of the power utility’s hefty tariff increases.

PPC’s tariff hikes will range from 21.5 to 24.5 percent. This promises considerable leeway for independent suppliers to shape more aggressive pricing policies in the retail battle against the power utility.

PPC’s anticipated adoption of a clause triggering further tariff hikes should CO2 emission right costs exceed certain levels, and vice versa, is another favorable development for the independent suppliers as the stigma associated with their preceding implementation of this measure will be diluted.

The ambiguous immediate future of NOME auctions is a negative factor that spoils the otherwise favorable scene for independent suppliers. This ambiguity injects an element of risk to the plans of independent players for pricing policy adjustments.

It remains unclear if the year’s final NOME auction, scheduled for October, will take place. Energy minister Costis Hatzidakis has noted he intends to negotiate the  termination of NOME auctions with the European Commission.

State-controlled PPC would prefer that the October session does not take place, whereas independent suppliers see this disputed session as one more opportunity to stock up on lower-cost wholesale electricity, even at higher starting prices, for a certain period, which would further boost their level of competitiveness.


Secondary market profits, some losses, for NOME amounts

Companies acquiring power utility PPC electricity amounts through NOME auctions have, in many instances, benefited from wide profit margins in secondary market sales, while, in some cases, narrow profits were incurred.

Profit margins reached as much as 8.22 euros per MWh in July, while losses of up to 1.029 euros per MWh were registered, according to data published by the Energy Exchange in a July report.

Losses were incurred in five of 27 sales of NOME electricity amounts in the secondary market, the July data showed.

Profit margins averaged 1.81 euros per MWh while the overall NOME electricity amount transferred to the secondary market in these 27 cases totaled 1,347 MWh/h.

Minister’s PPC rescue plan aims to inject €500m into utility

Power utility PPC stands to gain financial support worth an estimated 500 million euros from a series of measures announced in Parliament yesterday by the newly appointed energy minister Costis Hatzidakis, the aim of his measures being to ensure the utility’s sustainability.

The minister’s restructuring plan for PPC, under severe financial pressure, includes an electricity tariff increase that is expected to boost the company’s annual earnings by roughly 200 million euros. This tariff hike, expected to be a single-digit rise, will not burden consumers, the minister pledged, as it will be neutralized by an equivalent reduction of a RES-supporting ETMEAR surcharge included on electricity bills. A 10 percent discount for punctual electricity payments will remain intact.

The government’s support plan for PPC also includes a cash injection of approximately 200 million euros for public service compensation (YKO) returns linked to previous years.

The sale of a minority stake of network operator DEDDIE/HEDNO, a PPC subsidiary, to a strategic investor is also a part of the minister’s plan.

A voluntary exit plan will seek to reduce the company’s payroll, now 16,000 strong, by 2,000 workers. It will target staff members who have qualified for pension rights but have chosen to keep working.

Also, NOME auctions, which, so far, have set back PPC by some 600 million euros since their introduction about three years ago, will be abandoned. The auctions have offered PPC rivals lignite and hydropower electricity generated by the power utility at below-cost prices.

Greater pressure will also be placed on PPC customers dodging electricity bill payments despite believed to be capable of covering required amounts. A mere 60,000 customers owe PPC approximately 800,000 euros, Hatzidakis, the energy minister, reiterated yesterday. PPC’s unpaid receivables figure has reached 2.7 billion euros.

Many aspects of the minister’s speech yesterday echoed proposals included in an older plan by McKinsey. The consulting firm was commissioned by PPC but its proposals have yet to be implemented. Plan features included a call for an operating profit improvement of 500 million euros over a five-year period, a voluntary exit plan for 2,000 persons, as well as tariff hikes.



New minister set to present PPC recovery plan details

Hydropower units belonging to the power utility PPC will not be sold; NOME auctions will be abandoned; and electricity costs for consumers will not rise, the newly appointed energy minister Costis Hatzidakis is expected to announce later today when the New Democracy party presents its wider  policy program.

The minister is also expected to present details of a plan to seek strategic investment into distribution network DEDDIE once control of the network is transferred from PPC to the subsidiary with the permission of creditor banks.

Prime Minister-elect Kyriakos Mitsotakis is expected to make a general announcement on this network sale plan before his energy minister follows up with further details. The procedure will offer full protection for PPC’s interests, including compensation for the sale, the government officials are expected to stress.

The minister’s plan for an end of NOME auctions, launched about three years ago to offer independent parties access to the power utility’s lower-priced lignite and hydropower sources, was approved by the country’s lenders last week at a meeting between the two sides in Athens.

A transition plan leading to the launch of the target model, to offer market coupling, or harmonization of EU wholesale markets, is expected to be reached between the minister and the lenders when they next return to Athens for official talks in September. The transition plan will be designed to ensure that supply markets remain fully operational ahead of the target model’s launch.

The energy minister’s promise of no electricity cost increases for consumers will be accompanied by details of the state-controlled power utility’s more ruthless handling of unpaid receivables owed by consumers believed to be able, even affluent, but unwilling to cover their power bill debts. PPC is under financial pressure.

The government intends to reshape PPC along the lines of the transformation of telecommunications company OTE, a corporation in which the Greek State now holds just 5 percent, Deutsche Telekom being the main shareholder with a 45 percent stake.

Besides preventing a systemic crisis posed by PPC’s current financial woes, a rebound by the power utility would also send out a positive message for the Greek market to domestic and foreign institutional investors.




‘NOME auctions have run their race, alternative required’

Nearly one third of the electricity amount offered to independent players at yesterday’s NOME auction remained unwanted, while bidding was non-existent, keeping prices flat at the recently elevated starting price of 58.12 euros per MWh throughout the session.

The absence of any bidding activity prompted officials to write off the future prospects of the NOME tool as a market opener and note that an alternative system must be found.

A total of 763 MW was offered to participants but 214 MW was not purchased.

“The NOME auctions have reached the end of their road,” Dinos Benroubi, head official at the Mytilineos group’s Protergia energy company, told an industry panel at an Economist conference in Athens. “This shows that NOME prices, determined by – and reflecting – lignite production, are no longer the way to open up the market…The NOME auctions have exhausted their limits and cannot be used as a tool to open up the retail electricity market,” the official continued, while adding that a new system needs to be introduced.

Full competition without total access to all energy sources is not possible, Benroubi highlighted, while noting that it is up to the country’s authorities to prepare and implement a new system.

The next NOME auction, scheduled for October, is planned to offer participants a record-level electricity amount of 1,029 MW, which includes a penalty quantity for the power utility PPC’s failure to meet an electricity market share contraction target included in the country’s bailout terms. Given the results of yesterday’s NOME auction, the outcome of the October session is already being seen as a foregone conclusion.


No new NOME surprises seen Wednesday, supply ample

Participants at this coming Wednesday’s NOME auction, the third session for the year, do not expect any new surprises in terms of price levels and bidding competition following a considerable starting-price increase to 58.12 euros per MWh, taking effect as of this week’s auction, and ample supply.

The revised starting-price level is just under the highest price of 58.74 euros per MWh reached at the previous auction in April.

Market officials have already factored these latest levels into their calculations as a result of higher wholesale electricity prices.

Intensified bidding competition, which would drive prices higher, is not expected as the electricity quantity to be supplied this Wednesday exceeds demand, a study conducted by industry expert E-intelligence has shown.

A total of 763 MW will be offered to NOME auction participants on Wednesday, comprised of a predetermined 500-MW amount plus a 263-MW penalty triggered by power utility PPC’s failure to reach a first-half retail electricity market share contraction target included in the country’s bailout terms.

A further penalty amount will be added down the road, at an ensuing October 10 NOME auction, which will increase the total offer on offer to a mammoth 1,029 MW.


PPC lignite sale is over, overall market solution to be sought

The newly elected center-right New Democracy government, appearing determined for major energy sector changes, will begin new negotiations with the European Commission in search of an overall solution for the country’s electricity market and the role and place in it for the power utility PPC, currently struggling.

The long-running disinvestment effort offering investors PPC lignite units has just about collapsed. A binding-offers deadline for a package that includes PPC’s Megalopoli and Meliti units expires on July 15, following an extension. Investors have not shown any interest, while, given the flatness, an additional extension could not reinvigorate the sale.

The next NOME auction, the year’s third, scheduled for July 17 and planned to offer independent energy firms 500 MW/h of PPC’s lower-cost lignite and hydropower production, appears likely to be the last under existing terms agreed to by Greece and the country’s lenders. Changes are also expected along this front as part of the intention for an overall electricity market solution.

Initial contact between Brussels and officials of Greece’s new administration has already been made. Meetings are soon expected to become more regular once the government has set out the specifics of its rescue plan for PPC.

Any resulting solution will need to satisfy Greek bailout terms including the need for PPC to have reduced its retail electricity market share to less than 50 percent by the end of this year. The power utility’s share is currently at 73.5 percent, meaning PPC will need to surrender even greater low-cost electricity amounts to competitors through the NOME auctions.

Fair competition in the electricity market also needs to be assured. Hydropower sources, currently exclusively controlled by PPC, may be brought into the negotiating picture. The European Commission is currently conducting a related study on PPC’s management of hydropower generation. Findings have yet to be released.