Adieu lignite, hello to renewable energy sources

Δημοσιεύτηκε από economia 14/01/2020 0 Σχόλια Greek Business File,

Greek Business File, November-December 2019, No 123

Βy Kerin Hope

 

Adieu lignite, hello to renewable energy sources

 

Greece has become the first country in the Balkans to announce a cut-off date for using locally mined, highly polluting brown coal (lignite) to generate electricity. At present coal-fired plants generate around 50 per cent of Greece’s electricity.

 

The centre-right New Democracy government has pledged to phase out all the country’s coal-fired power plants by 2028 at the latest, but aims to close most of them by 2024. They would be replaced by renewables, mostly wind energy and solar power. However, the government’s move to comply with EU energy policy will sharply impact the state-controlled Public Power Corporation, the only electricity producer in Greece that uses lignite, at a time when it already faces growing challenges related to accelerating liberalisation of the country’s energy markets.

 

Full decarbonisation by 2028

 

PPC is preparing to shut down several ageing coal-fi red plants at Amyntaion in western Macedonia and Megalopolis in the Peloponnese during 2020. Altogether, 14 plants are slated for closure in line with the government’s aim of achieving full decarbonisation by 2028.

 

Lignite has dominated Greece’s energy mix for more than half a century, with 11 units located in western Macedonia and another three at Megalopolis. With total capacity of around 4,000 megawatts, they are able to cover more than one-third of Greece’s electricity needs but are gradually losing market share to plants fuelled by natural gas, which are mostly owned by private suppliers.

 

Coal-fired electricity plants account for one-third of the country’s greenhouse gas emissions over the past 30 years. While emissions declined during the country’s economic crisis, Greece still emits the equivalent of 100m tonnes of carbon dioxide every year, about 50 per cent higher than the EU average.

 

PPC, less and less competitive

 

Operating costs at coal-fi red plants have surged in recent years because of increased spending on CO2 emissions rights, making PPC less competitive on price as more players have entered the wholesale market. According to The Green Tank, an independent energy policy group, PPC suffered cumulative losses of almost Euro700m in the past three-and-a half years from its coal-fired operations.

 

The overall cost of closing the coal-fired plants is likely to exceed Euro2bn, including redundancy payments to almost 6,000 workers and remediation of environmental damage due to decades of open-pit mining, according to analysts.

 

Plans for renewable energy sources

 

Generating capacity fuelled by lignite would be replaced by renewables, led by wind energy and solar power, according to Greece’s current RES (renewable energy sources) plan. Greece raised its target for energy consumption from renewable sources from 31 per cent to 35 per cent (compared with 27 per cent for Bulgaria) in September. Some Euro40bn of investment would be needed, according to current estimates.

 

Meeting the updated targets would mean tripling Greece’s current wind capacity of around 2,900MW, requiring much faster licensing procedures. About 100 wind turbines providing just 191MW of new capacity were connected to the grid in 2018. At present it takes 6-7 years to move from applying for a wind license to starting construction. New legislation will permit off shore wind installations in the Aegean and Ionian and of larger onshore wind units, but environmental groups are expected to raise strong opposition to largescale wind projects that could affect Greece’s attractiveness for tourism.

 

Solar capacity would have to increase from 2,700MW to more than 7,000MW, with a similar emphasis on construction of larger units.

 

Putting PPC back on track

 

A rescue plan for PPC launched in September aims at cutting costs through closures of coal-fi red plants and reducing the 16,000 strong workforce by at least 2,000 through a voluntary redundancy programme. Investment will focus on renewables, where PPC has a market share of less than 5 per cent.

 

PPC made a record loss of Euro900m in 2018, but managed to reduce first-half losses to Euro274.8m from Euro534m last year, thanks to a rebalancing of tariff s for medium- and high-voltage customers and reduced discounts for customers who pay their bills on time.

 

 A dysfunctional business model, which combines a dominant role in the retail electricity market with a steadily shrinking share of electricity generation, contributes to PPC’s losses: it is forced to make costly purchases of wholesale energy to cover its downstream needs.

 

More than 60,000 customers of PPC switched to small private electricity retailers in September - double the August number - fearing the company was about to collapse. Unpaid electricity bills for households and small companies, mostly accumulated during the crisis years, amounted to Euro2.7bn. Declining revenues and mounting pretax losses prompted the utility’s auditor, Ernst & Young to note “material uncertainty” about the future.

 

Under new top management and with support from the government, PPC has so far managed to stay afloat. The auditor’s statement of first-half results dropped its earlier reference. But the company’s finances are precarious: the new managers must cover a Euro750m cash shortfall by mid-2020.

 

Government cash injection of Euro200m

 

PPC has hiked electricity rates by 20 per cent, though the increase is offset by a reduced charge for renewables, and has cut the discount to customers that pay on time from 10 per cent to 5 per cent. Revenues are projected to increase by Euro200m over the next 12 months, while collection of unpaid arrears is making progress. The government will provide a cash injection of Euro200m in public service compensation, giving a boost to liquidity.

 

An updated five-year business plan prepared by the consultancy McKinsey - the second in two years - calls for privatising the distribution network operator DEDDIE/HEDNO, a PPC subsidiary and its only profitable entity. A Euro4bn investment plan that included the construction of a new coal-fi red power plant will be revised to focus on renewables.

 

Meanwhile, a clutch of private Greek energy groups are accelerating plans to build additional natural gas-fi red capacity to fi ll the gap created by closures of PPC’s coal-fi red plants. GEK-Terna, Elpedison and Copelouzos have all applied for licenses, while Mytilineos has begun construction of a new 500MW plant in central Greece. Exports to neighbouring countries are also planned.

 

Greece’s power grid operator IPTO is preparing an upgrade of grid interconnections with the Balkans. Bulgaria’s decarbonisation process, and projections for increased electricity demand in North Macedonia and Albania, all offer opportunities for Greek suppliers.

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