The electricity market in Greece is undergoing several structural changes. Gearing itself to meet the challenges of the implementation of the EU Target Model by the end of the year, Greece has had to implement in the meantime several undertakings made towards its lenders, all with a view of creating a more liberalized market in the wholesale, retail and generation sectors in electricity and gas.
Privatisations: slow pace and uncertain future
The partial privatization of the electricity grid operator, ADMIE, is currently ongoing, although there are substantial concerns as to whether the current scheme will be concluded by March 2017 as undertaken, failing which, a new scheme of 100% privatization may be put on the table. Under the current scheme, PPC loses its shares in ADMIE, by selling 24% of ADMIE to the Chinese State Grid (following a relevant tender), with 25% to be transferred to a company controlled by the Greek State and another 51% to be transferred to a Holding Company which will be listed in the Stock Exchange and the shares of which will be given to the current shareholders of PPC (the Greek State 34%, the Hellenic Privatisation Fund (HDRAF) 17% and private investors 24%).
The privatization of the gas grid operator, DESFA, is still not concluded. Until recently this was stalled because of the concerns raised by the EU in the eligibility of a third country operator, the Azeri operator SOCAR, as a majority shareholder and the participation of Snam SpA as a minority shareholder was considered to provide a way out. However recently, the decision of the Energy Minister of Greece to reduce the regulatory income of DESFA has again put a spanner in the wheel. Despite attempts of SOCAR and the Greek State to reach a compromise, no solution was found and currently a new tender is being planned.
The privatization of PPC and the creation of a "small PPC" which had been legislated under the previous Government have been cancelled by the current Government, which has instead agreed with Greece's lenders to reduce the market share of PPC in the retail and wholesale sector to below 50% by the year 2020. Some of the measures outlined below (NOME auctions) work to this target. In the meantime PPC itself is trying to divest some of its supply business to a new JV to be operated together with a strategic investor.
New Tariff System for Renewable Generation
A new law was passed in August 2016 changing the tariff system for renewable generation which aims to continue the support to renewable generation under a system more sensitive to market price signals and market conditions in general. The law comes in implementation of Greece's obligations towards its lenders to restructure its support schemes to renewable generation as well as in compliance with European guidelines in state aid in the energy sector and in view of the forthcoming implementation in Greece of the EU Target Model in electricity markets. The main features of the new scheme have as follows.
Feed in Premium Model
The current "feed in tariff" ("FiT") model is replaced by the "feed in premium" ("FiP") model, a system that provides for a sliding premium to cover the difference between (i) the value allocated to the relevant category of renewable plant in the daily wholesale electricity market ("ETA") and (ii) a Reference Price determined by the law according to type of technology (see below table)..
Exceptions from the FiP model are prescribed for RES in non interconnected islands, small RES etc. Most important is however the rule applying from 2017 under the EU Commission's Guidelines on State Aid for Environmental Protection and Energy 2014-2020 which has as follows.
Reference Prices reached through Bidding Procedures
As from January 1st 2017, the Reference Price in the FiP scheme (or relevant FiT) will be determined for some categories of renewable generation through a public tender. The categories or technologies which will be subject to such tenders will be determined by virtue of a Ministerial Decision following an opinion by RAE which is expected shortly. Renewable plants established in countries within the European Economic Area could in theory also be eligible subject to available interconnection capacity.
A pilot tender took place in December 2016 for photovoltaic plants. The cap price for the tender was 94€/MWh and 104€/MWh for the pv of above/below 1 MWp respectively and maximum capacity bid per offer cannot exceed 10MW. The plants need to energise their grid connection within 24/18 months respectively for the two abovementioned categories (above/below 1MWp). RAE ruled that the aggregate capacity bidding for each category should exceed 40% of the tendered capacity in order for the bidding process to avoid gaming.
Establishment of electricity sales mechanism ("NOME") via auctions of electricity forwards sold by PPC S.A to electricity suppliers
In order to implement the legislative undertaking to reduce the market share of Public Power Corporation (PPC) to below 50% by the year 2020, new legislation introduced a new mechanism along the French model of "NOME" auctions. The aim is the reduction of PPC's share in the retail energy market by 20% until 2017 and eventually below 50% by 2019; it is noted that it is anticipated that the Target Model will be implemented from 2018 onwards.
In addition it is noted that the Code seeks to restrict the risk of consumption of the auctioned electricity by large industrial consumers unless such industrial consumers have a distinct supply business. The use of the auctioned power for export is also an open issue. The first auctions took place in 2016.
New Compensatory Mechanism for IPPs under the "Transitional Mechanism for Compensation of Flexibility"
A new support mechanism for IPPs is also introduced to replace the previous Capacity Certificates. Contrary to the previous schemes which were given to all IPPs, the new scheme is to be provided to those power plants which have a technical flexibility to rapidly increase or decrease the generation of the unit so as to cover the demand requirements, following the orders of the grid operator.
The units have to have the technical ability to move within 3 hours from the state "warm" to "hot" within a defined capacity circle of operation and to ability to respond for at least 3 consecutive hours.
The holders of supply licence will pay for the provision of this flexibility service at a fixed rate of 45 €/kW of available capacity; the maximum amount to be received by each producing unit may not exceed fifteen million Euro.