Exchange of Electricity Capacity from Lignite-Fired Power Plants

Exchange of Electricity Capacity from Lignite-Fired Power Plants

The Greek Government has notified a proposal to the European Commission for electricity capacity exchange between lignite-fired power plants of PPC and foreign electricity generation companies with the aim to enhance competition on the national electricity market. According to a former Decision of the European Commission against Greece, the latter was obliged to take concrete measures in order to open the domestic market of exploitation and use of lignite through a fair competition procedure. In the meantime though, Greek policy has changed radically giving priority to the option of electricity capacity exchange (swaps). This proposal partly serves environmental purposes in accordance with the aim to decrease the exploitation of new lignite deposits by PPC’s competitors. However, the deep rooted monopolistic approach has led to an excessive delay of the liberalization of the Greek electricity market in comparison with other Member States leading to a significant mistrust towards Greek management by the European Commission and to the necessity of taking immediate measures in order to address the overall distortion. The pressure of the European Commission may lead to radical, however effective on a long term basis, solutions to fully liberalize the market with benefits for both local and European competition as well as for the consumers.

In similar cases, the European Commission has undertaken action in countries such as Germany, France and Sweden, where a violation of the competition rules in the energy sector by ex-monopolistic or oligopolistic companies was noted. In many instances, the European Commission initiated official proceedings, or even reached decisions against energy companies, imposing heavy fines. In Germany, giant companies such as E.ON (in the electricity sector) and R.W.E (in the natural gas sector) had to offer commitments such as the partial selling of electricity capacity and/or their transport system, in order to avoid a European Commission’s condemnatory decision. In particular, E.ON committed itself in 2008 to sell 5.000 MW of electricity capacity as well as its electricity transport system in order for the European Commission to put an end to its investigation against them. Moreover, E.ON and GdF Suez Group realized in July 2009 a capacity exchange of about 1.700 MW from conventional power plants, nuclear power, but also renewable energy (hydroelectric power plants of E.ON). Similar exchanges took place between E.ON and EDF and also between its German competitor EnBW. Through these exchanges E.ON managed to become the third greatest electricity producer in Belgium, it strengthened its position in the French electricity market, while it decreased its market power on the local German market, enhancing competition towards an internal electricity market.

Considering the above examples, power exchange seems to be used as a means under several commitments proposed by energy companies in order to avoid severe fines by the European authorities. The capacity exchange referred further to capacity, not only from conventional energy sources, such as carbon or lignite, but also from hydroelectric or nuclear power.  It has to be noted that the above companies’ conduct had already been examined by the European Commission and they had offered other commitments as well in order to avoid severe penalties. Thus, the proposal to exchange capacity from lignite-fired power plants between PPC and energy companies in neighbor countries or other Member States may not satisfy the Commission’s main request for a long term weakening of PPC’s dominant position on the national electricity market. Unfortunately, the overall conservative Greek policy in terms of implementing the third energy package, including the application of the IΤΟ model for the unbundling of the transport system, doesn’t seem to bear in mind the Commission’s concrete mistrust of the effectiveness of this model regarding the independence of the system’s operator and the protection of competition, in comparison with the preferable ownership unbundling or the ISO model, which lead to a broader and more substantial separation of the transport system.

The success chances of the initial capacity exchange proposal seem to be minor, due to the current lack of interest for the exchange of capacity from the proposed lignite-fired power plants, the intense reactions of the local producers that will negatively affect the European Commission’s position towards the proposed measures and the short timeframe for the submission of interested parties’ offers. The above, as well as the high tolerance of the European Commission towards the Greek policy, combined with the experience gained from the liberalization procedure in other countries and the heavy fines imposed on companies having breached competition rules, reduce the possibility of a positive outcome. Keeping in mind that in the following years, the national electricity prices are  likely to increase, proper alternatives are needed in order for new investors to enter the market and PPC to invest both in national and in foreign markets, while improving its services in the national market. In any case, a reference of the country to the European Court due to non compliance with the European energy and competition rules, needs to be prevented through effective liberalization of the relative market. Otherwise, the risk of fines being imposed is high, to the detriment of end consumers in an already financially as well as politically unfavorable period.

Antonios Roussos, LL.M., Partner & Dr. Markela Stamati, LL.M., Senior Associate
I.K. Rokas & Partners (Athens)

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