By Costis Stambolis
When the government, with the full agreement of the PASOK opposition party, passed through parliament late in November the new electricity law which provides for the generation of electricity by independent power producers (IPP) and harmonises Greek law with EU legislation and directives, there were more than few voices who expressed real concern over specific clauses and conditions which in their view would make competition in the market a far cry. Earlier in the year the Regulatory Energy Authority(RAE) had completed the much needed codes (i.e. rules and regulations) which are necessary for the operation of the new liberalized market.
Unlike the monopolistic market model in use until now, whereby the state run, although 49% privately owned, Public Power Corporation (PPC) had total control over access to the grid and clients, the new model enables IPP’s also to sell electricity to the pool system
which is operated by the independent electricity transmission operator (DESMHE). However, argue market sources, a number of key clauses of the ‘code’ are shrouded in ambiguity and can be interpreted in more ways than one, much like the sayings of the Delphi oracle. A clear demonstration of the shortcomings of the new market model was experienced this week when the new power station built by Thessaloniki Energy, a subsidiary of Hellenic Petroleum, and situated close to the refinery area in Salonica, tried to enter the market by offering, what TE operators termed as, a competitive price. According to sources close to the grid operator PPC planners having calculated the operational costs of the brand new natural gas fired 390 MW plant of Thessaloniki Energy manipulated their system’s economics and bided at a price well below that day’s market position with the result that Thessaloniki Energy engineers decided to opt out of the system rather than operate at a heavy loss. DESMHE released data showed that for December 27 PPC offered 28 euros per MWh compared with HP’s 60.8 euros per MWh. In a similar situation a month ago on a day when the system also required 7,500 MW, PPC had offered a more realistic 79 euros per MWh. Electricity market experts point out that the prices offered by the different players are normally made up on the basis of actual costs which comprise the cost of the fuel used, operational expenses and transmission costs. PPC, which generates most but not all of its electricity from extremely low cost lignite coal, since it owns all the mines,is in a very advantageous position when it comes to calculating its operational costs. But PPC is also using gas and oil fired stations as well as hydro in its system which simply do not operate at the very low prices offered this week to the pool. “When PPC planners decide to include the costs of all the different types of fuels used in its system any day of the week, the prices they arrive at border the 70’s and 80’s euro per MWh region”, notes an engineer who is familiar with the pool operation. “What we saw earlier this week was a clear demonstration of how PPC staff can manipulate the system,by legally interpreting the codes to their advantage, with clear intent of blocking entry into the system of a new competitor”
Yesterday,Thessaloniki Energy was unable for the fourth day in a row to compete with PPC, on the strength of the latter’s artificially deflated prices.It is worth mentioning that the ‘independent’ grid operator, DESMHE, is an offshoot of PPC staffed entirely by transferred PPC employees who is just managing the corporation’s main dispatch center. Even at times of peak demand , the price offered by PPC earlier in the week did not exceed 55 euros per megawatt hour (MWh), whereas Thessaloniki Energy must sell at 60 euros per MWh in order to break even.
Following the failure of Thessaloniki Energy power station for an entire week to operate and sell electricity to the pool, causing the ultimate embarrassment to the government which is now championing the cause of private power generation, alarm bells began ringing at the highest offices. Development Minister Dimitri Sioufas had a meeting with the Prime Minister last Wednesday specifically to discuss the issue. The government is extremely concerned over the wider implications of the case for likely private sector investors who may decide that inspite of the legal panoply in place a free and competitive market cannot yet function. In statements to the press the Development Minister tried to downplay the significance of Thessaloniki Energy’s exclusion from the system by saying that it is the first time that a private electricity unit of this size enters the market and problems of this nature which are similar to ‘baby diseases’ are expected. The Minister called yesterday in his office representatives of PPC and Hellenic Petroleum in an effort to resolve the situation. “The situation can only be resolved if PPC’s management decides to enter the market by offering realistic prices which correspond to its true production costs. This can only happen if PPC decides to fully unbundle its operation as the European Commission has requested long ago”, observes one of the independent power producers who is now reconsidering his position for building a new power station.
The failure of the country’s first proper private power station to enter the market and successfully compete with the state controlled PPC raises great doubts as to the government chosen model to partially privatize the country’s electricity market. It confirms the worst fears that both market analysts and independent power producers have voiced over the years ( e.g. see Athens News of 21 May 2004).