Study warns lack of deregulation in power industry may lead to shortages after 2007

An annual review of Greece’s energy market foresees a shortage of electric power after 2007, higher prices, delays in the development of the natural gas network and a slowdown in the growth rate of the petroleum products market due to rising prices and substitution for natural gas. The review, prepared by consultancy firm Kantor Capital, notes the growing trends in Greece’s energy market but also that it is still in a transition phase. The deregulation of the power segment remains on paper and there is considerable upward pressure on prices; the penetration of natural gas is less than expected, mainly because of the delays in the implementation of private investment schemes in power production, says the report. With regard to the power market, Kantor Capital forecasts that while increased cross-border trade will help smooth out price differentials in the European Union, demand in Greece will continue to grow and cause, in combination with delays in private power production, a shortage of capacity after 2007 and rising prices. Demand for power in Greece has been growing at an average annual rate of 4.4 percent in the last 10 years, against an EU average of 2.1 percent last year (the largest increases registered in Spain, 6.3 percent, and Portugal, 5.9 percent). Delays in the development of independent power producers (IPPs) are mainly due to consumer prices, which do not suffice to cover the cost of new investment, and to the uncertainty regarding the operation of the market (the Transaction Code is expected to be finalized before the end of the year, but the operation of a different and complex new market is naturally pregnant with uncertainties). The contracts of capacity availability which will be offered by the Hellenic Transmission System Operator (DESMIE) to the new producers through tenders (the terms have still to be clarified) work in the direction of reducing merchant risk, as the new producers will be able to recover part of the cost through the capacity availability services. A further reduction in risk is achieved through contracts safeguarding the independent producer from risks associated with the absorption of the power produced. The possible adoption of tolling contracts (according to which the main distributor assumes a large part of the risk by supplying the fuel and, at the same time, buying the energy produced by paying a «tolling fee» to IPPs) could facilitate the funding and establishment of IPPs, the review says. Kantor Capital believes that the latest legislative provisions favor the integration of new producers and suppliers into the power market system. However, only two IPPs are expected to enter it by the end of 2007. The Public Power Corporation (PPC) is expected to maintain its dominant position until then, at least, and the transition to an integrated market is not projected to take place before the end of the decade. Petroleum industry After last year’s absorption of Petrola Hellas by Hellenic Petroleum (HELPE) and the resulting higher degree of market concentration, the Greek companies of the sector must redefine their role and their strategic targets, Kantor Capital argues. The oligopoly in refining and the distortions in retail prices will lead to pressures for a stricter monitoring of the market and an increase in competition and consumer protection, it says. The prospect of a slowdown in demand for petroleum products as a result of partial substitution for natural gas is already an issue of concern to HELPE, the country’s biggest refiner, which reported a drop in diesel sales in the first half, mainly due to PPC’s rising use of natural gas.