By Costis Stambolis
Following the approval last Monday (May 9) of the revised electricity codes by the Minister for Development, Mr.Dimitris Sioufas, the prospects for the opening up of the Greek electricity market look brighter. The approved administration Code of the Electric Energy Transaction System, provides the basis, much like an engine’s manual, for the operation of the country’s electricity system. The code, which is fashioned very much like similar administration schemes already in place in other European countries, will enable the participation in the ‘daily energy programming’, on an equal basis, of private power producers as well as units operated by the Public Power Corporation(PPC), the country’s monopolistic electricity supplier.
Until very recently PPC was the sole power producer in the country, a public utility monopoly, as was the case in most other countries in Europe and elsewhere. However, and as part of a new liberal, market oriented economic policy, which first started being implemented in the Thatcher era in the 80’s,the whole monopolistic model has now changed. In its place we have independent market forces, profitable private conglomerates and companies, which provide a variety of services on a competitive basis. In the case of electricity and gas a new market reality is now evident throughout Europe and also globally. Electricity and gas are being produced, transported, distributed and marketed by thousands of companies, mostly new in age and mentality, which compete for market segment and customer loyalty. The operation of these companies is being regulated by government appointed regulators in each country and also by corresponding independent grid operators. According to EU Directives EC 53/54-2004 the electricity and gas markets should be fully liberalized by July 2007. That means that all different types of consumers, whether industrial, commercial or domestic, will have the right to choose their preferred supplier. In most countries the choise of supplier is limited to the large industrial and commercial clients.
In Greece market liberalization seriously lags behind other EU countries mainly as a result of PPC’s powerful trade union opposition and the previous government’s refusal to admit new players in the market. Although the necessary legislation was adopted back in 1999 ( law 2773/99) and the Regulatory Energy Authority (RAE) and the independent grid operator (DESMHE) were set up and the first licences were awarded to would be independent power producers, today not a single private power plant has been constructed, with the exception of a medium sized 150 MW open cycle gas fired unit built by Terna Energy SA, as part of a contract to provide much needed auxiliary power to the grid’s operator in order to meet peak demand.
The adoption of the new electricity code by the government satisfies both EU and investment funding requirements as it lifts any uncertainties over the government’s commitment to push forward with electricity liberalization and curb PPC’s market dominance. According to investor sources banks are now willing to seriously examine all outstanding investment plans
from the five major groups which have received licences to built the power plants and have advanced plans, including land acquisition, gas pipeline connections and securing of gas turbine equipment. These groups include the Motoroil refinery company in Corinth, ENELCO, a Copelouzos company,Sidenor,a Viochalco company, Mytilineos Group and Terna Energy, with a well prepared site near Thebes in Viotia where its Heron I plant is already in operation. Between them these companies are ready to go ahead and construct five different power plants with a total installed capacity nearing 2,000 MW. This is a much needed capacity which will help solve the country’s chronic power shortage problem which becomes very evident during the hot summer months, often leading to extended local or national black outs.(During the peak summer electricity load PPC’s stations and imports can guarantee a maximum input of 9,500 MW ) With all of these plants destined for construction near Athens, where most of the grid’s power needs arise, one would have thought that the government would push hard for these projects to start construction as soon as possible. However, the situation is not as straight forward as one would have thought.
According to investor circles one shortcoming of the approved codes is that they do not provide any comfort to new comers that the power which they will generate will be bought by the operator DESMHE . The new comers will have to compete with low cost electricity produced by PPC from hydro plants and thermal plants which burn lignite, a type of local low calorific value coal, which it costs almost nothing to PPC as it owns the mines. On the other hand the new independent power producers are obliged to use expensive natural gas which is imported from Russia and Algeria. At the same time certain provisions in the approved codes make it uncompetitive for the independent producers to export any large quantities of electricity to neighbouring Italy, a potential large customer. “The new codes” notes a disgruntled investor, “although much improved from the ones presented a year ago, are made in such a way as to protect and PPC’s virtual market monopoly. In fact it is a veiled attempt to prolong the status quo by making it uneconomic for new entrants to compete on equal terms with PPC”
The government, through repeated statements of Development minister Mr. Dimitris Sioufas, makes no secret of its “strategic” decicion to protect PPC’ dominant position in the years to come.
RAE’s chairman Prof. Michael Karamanis few weeks ago clearly warned local investors that “the government through the new codes, or otherwise,was not prepared to subsidise the new independent power producers”. The producers responded to these criticisms by saying that they never asked for any subsidies since they do not lack the funds to construct and operate the new plants. What they want, says Mr. George Peristeris, chairman of Terna and regarded by many as market leader, is a minimum of government commitment that part of the electricity to be generated by the new plants will be absorbed by the grid operator, so as to ensure the plants’ financial viability. Ministry of Development sources note that the only way that the government is willing to facilitate private investments in the power sector is through a bidding process, which is to organize before the end of the year, where all parties will be invited to participate, for the non cash purchase by the grid operator of ‘power availability certificates’. According to the same sources the first tranch will offer 600 to 900 MW, which means that it may accommodate just three stations, including a 400 MW plant belonging to Hellenic Petroleum, located in Salonica, and currently under construction. The power certificates normally refer to 70% of each station’s capacity.
Whatever the outcome of the bidding process next fall, most investors remain skeptical as to the future of private power generation in Greece despite the approval of the grid’s operation codes. They feel that they are playing ball in a non level field with them being onthe lower side. “The government will have to make up its mind whether they want new investmentstotaling 2.0 billion euros over the next two years and the creation of thousandsof new jobs or they just want to prevaricate and pacify PPC beurocrats and the unions. Clearly they cannot have it both ways”, says a senior industrialist with considerable interests in power generation.