Low rates hinder power investment

The high growth rates in demand for electricity are expected to exhaust Greece’s productive capacity in power production in coming years, making the need for new investment urgent, the National Bank of Greece (NBG) says in an analysis in its latest bulletin. The study points out that the rise in electricity consumption in the last five years has significantly exceeded the growth rate of the country’s gross domestic product (GDP), the respective averages being 4.8 percent and 3.7 percent. Such rates make Greece one of the fastest growing electric power markets in the eurozone – which is not surprising given that per capita consumption of electricity is still among the lowest and therefore has still much room for growth. The significant increase in peak-time demand for power in recent years is mainly accounted for by the services sector and households, and is particularly evident during the summer months. Total demand is projected to keep rising at more than twice the average rate of the eurozone. This will require boosting installed capacity by 3,200 megawatts in order to ensure adequate supplies until 2010. Investment plans currently being implemented represent a total capacity of 1,200MW. A major factor hindering the attraction of new investment to a deregulated power market is the low electricity rates. These are about 35 percent lower for households than the average in the eurozone, while industrial rates are about the same. The relatively low level of electricity prices is mainly due to the fact that the Public Power Corporation (PPC), which still produces 97 percent of the country’s power, makes extensive use of lignite – a cheap raw material. The new prospective producers will mainly use natural gas, which is considerably more expensive. The NBG analysts calculate that even if the average annual increase in electricity rates exceeds the inflation rate by half a percentage point, the projected wholesale prices will remain significantly lower than the minimum which producers in the eurozone consider necessary for the viability of their investment.