By Costis Stambolis
As the new conservative government of New Democracy is trying to map its long term economic policy, the energy sector is emerging as a key area of economic activity which is capable of attracting considerable investment from both Greece and abroad.
The other potential investment areas which have been identified by a joint team of experts from the ministries of Economics and Development include tourism, construction and quality agricultural products.
Following a meeting last week between the minister of Economics Mr. George Alogoskoufis and the minister for development Mr. Dimitris Sioufas,it was agreed that the energy sector will be given a priority in terms of stepping up efforts to attract foreign direct investment and also create stronger interest among local firms already involved in energy related projects.
“The energy sector in Greece, in terms of investment and business opportunities is where
telecommunications were ten years ago”, points out George Alogoskoufis. “Our aim is to open up the electricity market over the next 18 months in line with EU directives, create the necessary competition and allow new business to develop and provide cheaper energy”, says Alogoskoufis.
Development minister, Dimitris Sioufas notes that substantial EU funds in the tune of 2.5 billion euros are in danger of being lost since Greek companies have so far only managed to submit a limited number of suitable proposals and have attracted only 3.03% of the above funding.
The liberalization of Greece’s electricity market is considered as a key issue in the overall effort to attract investment in the power generation sector. Although the legal framework which foresees the opening up of the market was first introduced in 1999 (Law 2773/99) and was later augmented with a more precise law which details the electricity market daily operation (Law 3175/2003), backed by the necessary rules and regulations prepared by the Regulator (RAE),the market is still dominated by the Public Power Corporation (PPC), the country’s power utility.
PPC currently controls 98% of power generation and 100% of power transmission and distribution.
Under pressure from the powerful GENOP-DEI union the Corporation’s management refuses to proceed with the required by EU ‘unbundling’ process,whereby the utility must provide full information on its cost structure. Lack of such information hampers any efforts by the government to attract private investment in the sector since the would be private power generators will be at a disadvantage to plan their investment on a cost benefit basis and offer competitive prices to consumers.
As a result of seven licenses awarded by the government since 2001 for the construction and operation of large thermal power plants only one group, Hellenic Petroleum SA, has gone ahead with the implementation of its 180 milion euro investment in Thessaloniki for a 400 MW natural gas fired power plant. Construction is well under way and the project should be operational by mid 2005.
Of the other six licensees only two companies appear interested to go ahead and implement their power generation projects once the operational conditions have been clarified by the government. Mytilineos, an industrial and mining group, and TERNA, a major construction company, have plans at an advanced stage to built two power plants in Volos and Viotia respectively.
The Energy Regulatory Authority(RAE) has estimated that Greece will need 400 MW of new power capacity each year over the next ten years in order to meet surging electricity demand which now averages 5% per year.A total of approx 12,500 MWs, owned by PPC, is currently feeding electricity into the country’s interconnected grid system.
Apart from the construction, currently under way, of a 500 MW new power plant by PPC in its Lavrion power complex , some 80 kms southeast of Athens, PPC has been barred from the building of any new capacity in mainland Greece. It is hoped that any new required power capacity will be provided by the private generators. PPC , in compliance with the new EU directive (2003/54/EK) for the regulation of the electricity market in Europe which comes into force next June, will soon have break up its operation in three different companies to cover power generation, transmission and distribution in line with European practice.
With so many unresolved issues and with a clear lack of determination by PPC, which understandably does not wish to limit its role or curtail its operations by loosing market share,private investors in Greece and abroad are
wondering whether it makes sense to pursue further their plans. Deputy Minister for Development, in charge of the energy sector, Mr. George Salagoudis, whom we asked to comment on the situation says that one of his top priorities is to finalise and approve the regulatory codes for the operation of the market which were proposed by RAE early this year.
It is absolutely necessary for the regulatory framework to be clarified as soon as possible since this will re assure investors and banks, which will have to fund the various projects, of our commitment in opening up the market, notes Salagoudis. At the same time the government, as the controlling shareholder of PPC, (49% of PPC is floated in the Athens and London Exchanges) intends to exercise fully its authority and insist on the unbundling process and the breaking up of the corporation, note well informed government sources.
The investment picture in other energy areas such as renewables and petroleum refining and marketing appears less complicated as the market is fully liberalized. For example in the wind power business Greece has in operation several privately operated wind farms in places such as Eastern Crete, South Evia, Thrace and in some Aegean islands.
The size of the farms ranges from 2 to 3 MWs each for the small ones and up to 50 to 60 MWs for the larger ones, while the total wind installed capacity in Greece is currently estimated at 400 MW. Of course the country has a much bigger wind potential according to figures provided by the Hellenic Association for Wind Power (ELETAEN). It has been estimated that Greece can accommodate a further 3,000 MW of installed wind capacity so that total wind generated electricity can provide 7,500 GWHs per year corresponding to 15% of the country’s electricity requirements. “Greece has a tremendous investment potential in wind energy”,notes Mr. John Tsipouridis, president of ELETAEN, “but progress has so far been constrained as a result of unacceptable government beurocracy at all levels”.
The new government is now promising to simplify the licensing procedure and ensure new investments in this much promising area.