Greek power problems run deeper than current crisis


Dr. Giorgos Stamtsis, General Manager of the Hellenic Association of Independent Power Producers provided Power Engineering International with a broad outline of what IPPs in the country are currently facing and emphasized the essential need for structural reform of the market.

The representative body for Greece’s independent power producers has outlined the extent of difficulties facing the sector, but also sounded a note of optimism that problems can be overcome.

Dr. Giorgos Stamtsis, General Manager of the Hellenic Association of Independent Power Producers provided Power Engineering International with a broad outline of what IPPs in the country are currently facing and emphasized the essential need for structural reform of the market.

Dr Stamtsis says that while the Greek electricity market has faced significant challenges over the last five to six years, as a result of the financial crisis and a series of structural market deficiencies, the latest political turmoil and associated immense liquidity issues, have further impacted the situation.

“Delayed payments from consumers, which were already at record-high levels, have escalated due to capital controls and general financial uncertainty. Consequently, the already existing delay in payments to power producers by the market operator and the transmission system operator (the Greek electricity market operates as a mandatory pool), has deteriorated, applying further pressure to the utilities companies’ liquidity.”

“Additionally, the political instability and the economic slowdown, has led to decrease in power demand in July, mainly because the majority of banks were forced to shut down, while a considerable number of small and medium size industries have suspended their operation.”

Despite the nightmare scenario currently being presented, members are remaining positive about how the crisis can be negotiated, at least in the short term.

Following the initial agreement at the recent European summit, as well as positive developments that took place last week, association members are hoping that demand will recover, as the country is now going through its peak season, and liquidity will be gradually restored.

“Visibility remains low, so we have adopted a conservative approach and certainly we are making short to medium terms plans, (rather) than long term ones. It is important to note, though, the fact that the Greek electricity market operates as a mandatory pool and there are no physical bilateral contracts, so producers are instructed by the Transmission System Operator to inject energy to the System, according to demand and to the offers they have submitted for the energy they wish to sell, in the context of a Day-Ahead Scheduling.”

In terms of new power projects, the Greek landscape in recent years has been dominated by a massive penetration of renewables, and that would have remained the case regardless of current financial woes. The only known project at the moment is the construction of the new lignite-fired unit ‘Ptolemaida V’ by the State-owned power company, PPC, which according to latest announcements, remains on schedule to begin in August or September of this year.

Jobs do not appear to be under any immediate threat for those members affiliated with the Hellenic Association of Independent Power Producers with no restructuring plans in the offing. The association is hopeful that the tide will change and in the meantime are monitoring the situation and focusing on optimizing the operation of the units and managing the financial challenges presented.

Power Engineering International asked for more detail on the nature of challenges to be overcome if power generation integrity is to be maintained in Greece for the foreseeable future.

Dr Stamtsis says the sector would have had structural issues to face up to, in spite of recent events.

“The financial situation has without any doubt impacted the electricity market, while latest developments have further deteriorated the state of play. We must not overlook, though, that the Greek electricity market has been facing a series of structural issues, as a result of regulatory failures and anti-competitive practices in the wholesale electricity market.”

“Moreover, the electricity market in Greece is characterized by its incomplete design which does not permit for the revelation of the real value of energy. For example, in Greece the electricity market has only a day-ahead market, while in EU countries electricity markets are composed of forward, day-ahead, intraday and real time balancing markets.”

To compound problems for IPPs in Greece, a series of regulatory measures were introduced, which further eroded their viability. In addition there has been an ongoing delay in the abolition of market distortions created by the dominant presence of the state owned monopoly, and in the creation of the appropriate market mechanisms that would remedy market failures, allowing the wholesale market to reflect the real value of energy.

Dr Stamtsis told PEi, “Unless market problems are timely addressed, the prevailing market conditions will eventually lead to economic retirement of the generation facilities operated by independent power producers in Greece and therefore shall undermine the medium term security of supply of the country risking a serious energy shortage.”

Stamtsis is clear that Greece’s current predicament needs to include provisions towards market reform if the country is to emerge stronger.

Greece remains the most concentrated power market in Europe, where the state-owned power company still controls 97 per cent of the retail market and continues to enjoy a monopolistic access to low variable cost generation sources, such as lignite and hydro.

“As a result, independent power producers are operating in an un-level playing field, since they cannot form equally diversified production portfolios, and hence actually compete with the state-owned company in supply,” states Stamtsis.

He says that apart from resolving the long-standing issue of granting access to lignite and hydro to all energy players of the market, he advocates a number of structural issues and reforms that are needed in the local electricity market. “Firstly, the market operates since the beginning of the year without a flexibility remuneration mechanism despite the fact that IPPs’ units still provide capacity and flexibility adequacy and consumers are still paying the relevant fee.” “Secondly, the TSO significantly and systematically delays payments to independent power producers while applies netting methodologies for the state-owned PPC (active both as Producer and Supplier) rolling over deficits to IPPs.”

“Thirdly, the Greek State applies since Sep. 2011 a very high excise tax on natural gas, i.e. 1,5 Euro/GJ (5,4 Euro/MWh, 10x higher than the minimum). Consequently, gas as a resource (the only one available to independent producers) is disadvantaged against lignite and/or imports.”

The IPP Association chief doesn’t anticipate there being problems with maintenance of the country’s existing power fleet just yet, although capital controls can delay scheduled maintenance. But given the present litany of problems, how is the country equipped with this coming winter? Will maintenance of the existing power fleet pose a problem given present conditions? Surprisingly well, as it turn out, although the crisis and consequent decrease in demand means there is a marginal capacity adequacy. “It is worth noting that during the most demanding periods for the System (winter and summer months), the operation of all efficient gas-fired power generation units are required in order to cover demand, due to the unreliability of lignite-fired plants and their inability to offer reliably the required capacity when necessary. More importantly, according to the Greek TSO, Greece will face increased needs in power very shortly – even within 2016 -, as the economy is expected to recover, old lignite-fired units withdraw due to environmental restrictions and consumption increases as a result of the interconnection of the islands.”

In common with the rest of Europe, the large and constantly increasing penetration of intermittent renewables in power production also creates increased needs for flexible capacity achieved only by gas-fired units and hydroelectric stations. Despite that, Dr Stamtsis is keen to reinforce the fall-out from continuing to marginalize the potential role of IPPs under the present status quo.

“If this situation continues, the financial status of the independent power producers will be significantly impaired, with the risk of operation disruption. In this scenario the very survival of the Independent Power Producers, would be at risk, thus jeopardizing capacity and the flexibility adequacy of the Greek Electricity System.”