By Chryssa Liaggou

The Greek electricity market is increasingly starting to resemble that of California – where the system crumbled due to distortions in the liberalization of the energy market – with authorities finding it hard to combine stability with sustainability.

Over the last month the independent electrical energy transmission operator, ADMIE, has been watching the emergence of an unprecedented phenomenon in Greece that is raising fears, as it is likely to be exacerbated next month.

For many hours of the day the cost of production in the wholesale market comes to zero, with the system marginal price (SMP) averaging at a historic low of 10 euros per megawatt-hour. ADMIE sources said that on Thursday, the production cost stood at zero for 10 consecutive hours. The low SMP means electrical production units are unable to pay their operational costs, thereby increasing the deficit of electricity market operator LAGIE, while the government is anxiously seeking new measures to cover it.

This negative development is due to the combination of three factors. The major decline in demand combined with the high penetration of photovoltaic systems and the excessive supply of energy from hydroelectric plants constitute an explosive cocktail that is threatening the fragile viability of the system and creating serious stability problems for the first time.

For instance, the peak of electrical power demand on Thursday reached the very low level of 7,030 MW, 30 percent of which was covered by hydroelectrics. The contribution of natural gas plants was reduced to 17.5 percent and of lignite units to 43 percent, as they were squeezed by the increased operation of photovoltaic and wind power units, which enter the system by priority and whose payment is based on a guaranteed price. The cost burdens the system further as the marginal price declines.

According to ADMIE officials, the oversupply of hydroelectric power stems from the need to operate the units in order to prevent reservoirs from overflowing, as the current water reserves now represent 2,880 gigawatt hours, while the maximum limit is 3,000 GW/h. At that level, as well as overflowing, the dams are at risk of structural damage. The situation is expected to deteriorate in April, the same officials said, a month when inflows continue unabated while electricity demand traditionally drops to the year’s lowest level.

But even without the hydroelectric factor, the problem would remain huge due to the major penetration of photovoltaic systems, whose output will grow in the coming months due to the increased hours of sunshine. Photovoltaics, and renewable energy sources in general, squeeze the conventional production units out of the grid but are not able to replace them, resulting in a major sustainability problem, mostly for the private natural gas-operated plants.

The problem created by the photovoltaics is well-known across Europe, ADMIE officials stress, predicting a broad revision of the European Union’s policy toward the renewable energy sector policy.

The current situation is having a direct impact on the natural gas market, too, as demand for electricity production has dropped significantly. In 2012 the demand for natural gas for use by power plants posted a 9 percent decline compared with 2011, while this year it is expected to shrink further.