System forces PPC to watch profits drop

The considerable fall, by 53.6 percent, in the profits of the Public Power Corporation (PPC) in the first quarter of the year has turned the spotlight on the distorted liberalization model in the country’s electricity market. The infamous «system marginal price» has become a bleeding wound for PPC’s finances, while it has kept out possible alternative suppliers, the very idea behind liberalized markets. In the year 2007, when all EU markets have been liberalized and domestic consumers have the right to choose who will supply them with the power they consume, this choice is not available in Greece even for major consumers (big industries and companies). Of these large consumers, about 3.5 percent were supplied with energy by contracting it from importers. This year the market has no importers for these clients to turn to, as the system marginal price stands at high levels and provides greater benefits to importers who prefer to sell to the Electric Power Transmission System Operator (DESMHE). Only PPC buys from this system, but it is obliged by law to provide power to anyone who asks for it. Regardless of the price it pays to buy power, it sells according to rates regulated by the government which takes into account the effects on inflation and households. The system marginal price represents the price of the last power unit that entered the system in order to cover demand on a daily basis. DESMHE uses this price at the end of the day to charge participants. As a supplier, PPC is paid at that rate for the kilowatt-hours it has supplied to the system and pays DESMHE for the purchases it has made from the system in order to satisfy demands by clients. Other producers, that is, just the Hellenic Petroleum (HELPE) plant in Thessaloniki and importers (since the TERNA unit operates under special contract) sell power to DESMHE at the same price, which fetches them greater profits as the price rises, without them having any supply obligations to clients. In 2005, PPC paid -240 million for power purchases from the system, which rose by 118.3 percent to 523.8 million euros in 2006. In the first quarter of 2007, it paid -151.7 million, which is 67.8 percent higher than in the first quarter of 2006. The model of the Greek electricity market and the high wholesale rates create opportunities for profiteering. For instance, importers, having the certainty of a high marginal price, offer imported kilowatt-hours to the system at a price close to nothing, thereby securing sales, while at the end of the day, they are paid the marginal price. Another major distortion is the rise in the operation costs of the system, as it works in such a way as to leave out of operation some lignite plants of low cost while including in the system oil or natural gas plants of old technology, such as that in Lavrion. It actually adds the latter in the end, pushing the marginal price even higher. Price soaring The average system marginal price has doubled since 2002, while 2006 saw a major rise from 2005: The mean marginal price rose from 35.67 euros per megawatt-hour in 2002 to 43.14 euros/MWh in 2005, and soared to 64.09 euros/MWh last year, reaching 69.96 euros/MWh in the first quarter of 2007. The huge rise between 2005 and 2006 is due to the change in the way the system marginal price is calculated by the Regulatory Authority for Energy (RAE) as of January 2005. This change facilited the entry into the system of the HELPE plant in Thessaloniki which had just begun operation. The unfair treatment of PPC in the way the marginal price is formed has been raised by the new CEO of the company, Takis Athanassopoulos. It has also been recognized to an extent by the Development Ministry. Minister Dimitris Sioufas recently committed himself to making changes in the way the price is set, while since April 1 RAE has begun applying new rules that will have limited costs for PPC. The issue, however, remains open, as both the PPC management and the company’s trade union (GENOP) believe that this should be revised in order to put an end to the unfair treatment of PPC.

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