Proposed Greek reforms set to favour flexible electricity generation

Published on the ICIS Dashboard at 11:46

Market participants have reacted critically to Greek energy regulator RAE’s plans to change the way capacity payments are calculated.

RAE has proposed the algorithm to calculate the capacity payments be based on four elements: capacity availability, flexibility, strategic reserve and demand-side response. However, producers have expressed concern over the plans.

The capacity payment mechanism is designed to ensure security of supply. Under the scheme, market operator LAGIE will reward power plants when they are called in to balance out supply and demand. The system is funded by a levy on end-user bills.

Until now, units have also benefited from a cost recovery mechanism through which producers were compensated if forced to run below their break-even point. The mechanism was scrapped earlier this year. However, capacity payments remained in place.

Market woes

Traders have voiced concern over the lack of clarification in the initial proposal. “Before [end users] start paying we need to know what we are buying and whether it’s needed,” one trader said.

It remains unclear exactly how much units will be able to earn under the new proposals and how each of the four elements will be weighted, with market participants saying the very definitions of each of the four pillars raises questions.

Some responses to a public consultation on the matter called for more in-depth definitions and further analysis into the need for some of the elements, with at least two responses pointing to an excess of power generation capacity in Greece.

Some traders agreed. One said: “You first need to determine what flexibility is, then you have to determine what your need for such flexibility is.” For example, Greek incumbent the Public Power Corporation (PPC) said RAE’s study focused on what gas-fired units can offer, ignoring “the ramping [up of capacity] that can be and is provided by other resources such as lignite and hydro”.

Flexibility

If flexibility becomes a valuable characteristic in itself under the system, this would be a new introduction to the Greek market.

PPC called flexibility the “most controversial” aspect of the proposals, because the payments would apply only for services granted by combined-cycle gas turbines and open-cycle gas plants. The flexibility element could be perceived as an incentive for upgrades to domestic gas units.

But PPC argues “the need [to emphasise flexibility] is not demonstrated” as excess capacity is anticipated until 2020.

Given tough market conditions the additional value yielded by such efforts may not be worth the investment required, one trader said. “However you might need to increase your [flexibility] to be more competitive,” he added.

But a second source disagreed, saying the current system is inflexible because of technical specifications in gas units.

A third source said changing the capacity payment system would be a hard sell because of “diverging interests”, adding that “the payments may be critical for the survival of some [gas-fired] plants”.

Despite recent cuts to the cost recovery mechanism, interest in gas-fired units continues. Swiss energy firm AXPO recently announced plans to build a 153MW combined cycle gas turbine unit in Greece.

Details of the next stage of the capacity payment proposal are yet to be confirmed.

One trader said that, judging by similar issues in the past, a second public consultation will be held after more detailed data becomes available. “ADMIE [the transmission system operator] needs to perform a detailed study before anyone can decide,” he said.

The regulator was unavailable for comment. Sophie Udubasceanu