ECONOMY

Caution urged in transition to deregulated power market

The recent changes in the legal framework of the Greek electrical energy market must be implemented carefully so that the transition from the monopolistic to the competitive market model is successful, recommends a report by the Foundation for Economic and Industrial Research (IOBE). Titled «The Electrical Energy Market,» the report suggests that the energy market liberalization has not brought the growth of competition in the production and supply domains, as the entry of new suppliers in the sector, despite strong interest, is either delayed or unfulfilled. The reasons cited are high capital requirements, the dominant position of the Public Power Corporation (PPC), the low capacity of international connections and the insufficiency of the legal framework. The new Code of Management of the electrical energy transaction system combined with the new law will contribute in the growth of competition in the domestic power market, the study argues. It adds that consumption of power has risen from 23,833 gigawatt-hours in 1985 to 48,505 GWh in 2003, registering an annual rise rate of 4 percent. The total final consumption in 2003 was shared by the domestic sector by 33.8 percent, the trade and service sector by 30.8 percent, the industry by 29.1 percent, the agricultural sector by 5.7 percent and the transport sector by 0.5 percent. The average price of electricity for domestic use has dropped at an annual rate of 0.3 percent in the 1991-2004 period. However, in the last three years there was a 3.3 percent rise recorded, while developments have been similar in prices of electricity for industrial use. In real terms, though, electrical energy prices have dropped in the 1991-2004 period, and are lower than the EU-15 average by 40 percent, while the average price of power for industrial use in 2004 was just 1 percent higher than the EU-15 average. IOBE’s report notes that ensuring energy sufficiency is one of the most important problems of the domestic electricity system. It also highlights PPC’s position in the market and the possibility of a serious problem in power sufficiency if power additions are delayed. Priority must go to enforcing measures managing electrical energy demand to avoid loss-making investments in units operating just a few hours per year, while important initiatives are needed for the growth of renewable energy sources (RES). The study further notes two positive developments in the market: the operation of the Hellenic Petroleum electricity-producing unit in Thessaloniki and the liberalization and competition in the natural gas market, which will allow new electricity-producing units to get natural gas from alternative suppliers, facilitating the drop in production costs and their competitiveness. PPC, the main electricity utility, produces about 96 percent of the country’s total electricity output and owns the domestic carriage and transmission systems. The total net installed power of the electrical energy production stations in Greece came to 12,057 megawatts in 2003. Thermoelectrical stations accounted for 71 percent of that, producing 91.9 percent of the 54,608 GWh of net production of electrical energy the same year; hydroelectric stations participated with 26 percent, taking a 9.8 percent share in total net production, and the remaining 3 percent came from electrical energy production units from RES, with a 1.9 percent share in total net production. New business plan Separately, sources said yesterday PPC is drafting an aggressive business plan for growth to meet the challenge of a deregulated and more competitive power industry in the 2006-2010 period. The new strategy will be mainly based on an expansion in the RES domain, with a parallel cost reduction drive and an improved organizational structure. The drafting of the new business plan will be assigned to a consultancy firm, among Booz Allen, Boston and McKinsey, which submitted their competitive bids last weekend. The cost-cutting drive will involve a lowering of the number of staff, while the corporation is considering partnerships with private enterprise in the tapping of RES.