Greek energy policy after September elections: which opportunities for reform?

Alexis Tsipras’ victory in the general elections this September will have – no doubts – large implications for the future of Greece. Between the many expectations it is called to fulfill, action from the newly formed government might constitute the turning point for an aspect often overlooked by the urgent political and financial concerns: the country’s energy system and environmental policy.

The first action of the President has been, early last week, appointing Mr. Panos Skourletis to the newly formed Ministry of Environment and Energy. The Minister might now have the time and scope for planning a series of much needed reforms which neither his previous short mandate nor his predecessor Lafazanis have had.

A central role in the definition of the energy policy agenda will be played by the fulfillment of the reforms asked by the latest Memorandum of Understanding (MoU), agreed in August.  The document’s conditions, in fact, include the definition of a new Renewable Energy Strategy (RES) to be adopted by the end of this year and a progressive liberalization of the country’s energy market.

Early action is required not only due to the MoU’s commitments, but also given the energetic and environmental challenges faced by the country. Notwithstanding a great potential for the development of cleaner energy generation, in particular for solar and wind technologies, one of the most urgent concerns is Greek’s power generation dependence on lignite fired power plants: around 93 percent of primary energy comes from burning fossil fuels, with lignite providing 70 percent of the country’s electricity.

During Tsipras’ first mandate, the current status of the energy mix was given protracted support. In May the government approved the construction of a new 660 MW lignite plant –  Ptolemaida V – by signing the licenses for unit construction that were required  to secure the realization of the project.

In fact, domestically produced, cheap coal is a fuel which poses fewer challenges than imported oil and gas or than renewable energy generation both for the security of the country’s energy supply  as well as for the stability of the fiscal budget – matters which became extremely relevant in the years of the economic and political crises.

Furthermore, lignite generation might favor lower electricity prices, a social imperative under the soaring emergency of the population’s energy poverty: nearly 3 million people – over a population of 11 million – cannot afford heating during winter times. Finally, Ptolemaida V is ment to be built with the latest technology in pollution control and was approved with the intent to replace older and inefficient coal plants.

Nevertheless, according to a report by the International Energy Agency (IEA)  and to a recent case study on lignite power plants by the WWF, an energy mix relying on coal generation represents for Greece an extremely costly and  unsustainable option both in social and economic terms. The latter study for instance estimated that Ptolemaida V operation will cause additional premature deaths and chronic illnesses adding up to €4 billion a year in health costs, notwithstanding of the plant’s cleaner technology. In addition, after conducting a comprehensive cost analysis, it shows that  renewable energy sources as photovoltaic are already fully competitive with conventional electricity production technologies, and specifically with Ptolemaida V.

Both the WWF and the IEA reports conclude that there is greater scope for clean technologies development once the policy agenda will consider that, even in current economic conditions, renewable energy is the best possible social investment compared to the financial, health-related and ecological costs of a fossil fuels dependent economy.

Between 2009 and 2010, an energy sector reform aligned to these pledges was adopted by the Papandreou government and by its Ministry of Environment, Energy and Climate Change. The administration’s 2010 Renewable Energy Law  for instance introduced a wide set of feed-in tariffs for renewable electricity generation. In the same year, within the EU 20-20-20 strategy,  the government committed to the ambitious target of 40 percent of electricity generation through renewables by 2020.

The sharp change in the political and economic landscape, and in particular the worsening of the public budget constraints, resulted in the downturn of such momentum. The feed-in-tariff was cut by 44.7 percent in 2013 and the first Syriza government, appointed  in January 2015, substituted the former environment-centered Ministry with the Ministry for Productive Reconstruction, Environment and Energy, covering a broader set of assignments.

The new RES called by the MoU will thus have the task to incentivize renewable energy investments but, in parallel, to avoid to generate account deficits. Nevertheless, a recent investigation published by the Energy Policy Journal argues that opportunities of reform are large. The study finds that to promote wind and solar investments the government should improve the availability of financial resources as well as favor the expansion of the country’s grid capacity and the streamlining of its bureaucratic processes. The most important factor, stresses the research, will in any case be the definition of a stable and long-term energy planning.

A first step in this direction was taken by the Government in early May with the introduction of the net metering option for electricity self-producers. So far the political turmoil and the imposition of capital controls gave no room to assess the efficacy of such policy to spur PV installations.

The future development of renewable energies will also depend on the choices over the power generation, transmission and distribution markets’ transformation asked by the MoU. Key requirements – aimed at bringing higher transparency and competition – are to limit to 50 percent the maximum share of total electricity that a single undertaking can produce or import by 2020, to unbundle the transmission grid from the Public Power Corporation (PPC) – owned by 51 percent by the Government and delivering 75 percent of the total generated energy –  and allow all customers to switch gas supplier by 2018.

The extent to which the government will follow such commitments is yet an open question. In fact, despite Tsipras’ campaign pledged to implement the conditions required for the €86bn bailout, the appointed Minister Skourletis stood for its commitment to protect the vertically integrated PPC.

Further measures, argues the document, will  support both public financial stability and environmental sustainability and should hence be on top of the policy agenda. These include the gradual abolishment of the fuels’ excise duty refund for farmers and the replacement of the 20 percent discount for energy-intensive users with tariffs based on marginal costs.

Developments might be expected in October already, when the first review of the Greek reforms under the bailout and the debt restructuring will be discussed with creditors.

 

(Image: Road with energy wind mills, Evoia island, Greece. Photo credit: Nikos Patsiouris on Flickr)