ECONOMY

Deregulation of power market needs real long-term planning

The enactment of Law 2773/1999, which deregulated and brought about fundamental changes in the organizational framework of the Greek power production market, was done without a prior public debate dictated by the importance of such a move. Some official quarters did not wish such a debate, others preferred to keep silent and most probably did not realize the crucial nature of the issue. The voices which tried to draw attention to the many and serious obstacles were few and rather ignored. Today, almost three years later, the power production sector is at an impasse: Neither is competition advancing nor are new plants being constructed. Weaknesses Officials, however, have slowly come to realize the weaknesses of the law and are attempting to amend it. This article tries to explain why this effort will also fail, as the amendments essentially retain the same failed competition model, and proposes a solution. The competition model adopted in 2773/1999 has two major weaknesses: First, it is not compatible with the «long-term energy planning» on which the law bases «safeguarding the country’s energy supplies.» Secondly, it is a model with significant uncertainties for producers and consumers, unnecessarily complex and difficult to implement, which ignores the special characteristics of the Greek power system and is not conducive to the creation of new plants. Contradiction As regards the first weakness, it is worth noting at the outset that the concepts in the law of long-term energy planning and of the «daily electric power market» are contradictory and incompatible, referring to different competition models. Long-term planning requires the granting of licenses for power production, following tender procedures, on the basis of capacity and geographical location of the power plants for programs of five to 10 years. By contrast, the «daily market» option implies the granting of production licenses not on the basis of tenders but upon other «objective» criteria, and sales competition on a daily basis. In practice, officials attempted to circumvent the incompatibility of the two concepts with the silent abolition of the provisions for long-term planning, granting licenses without the required ministerial decision for such planning. Regarding the second weakness, the absence of medium- to long-term contracts for the purchase of electric power imposes high risks on producers which are not covered by the proposed mechanism of «certificates of capacity availability.» The high returns on capital required to face such risks presuppose power rates unacceptably high for Greek society, which sees electric energy as a «utility service» of crucial importance and as a basic factor of production, and considers even current prices as too high. The recent proposal for priority to be given to integrating 70 percent of the capacity of the new plants into the system is doubtful of ever being implemented. For one thing, it violates the principle of equal treatment of producers and, moreover, is meaningless to those producers that have not secured clients. Under such conditions of great uncertainty, there can be no new producers if they cannot convincingly offer continuity in power supply at low prices. Five guidelines The only realistic solution today is the abandonment of the competition model introduced by Law 2773/1999 and the adoption of another, more «conservative» and simpler model which takes into account the particular characteristics of the Greek power market and is compatible with long-term planning (such as the «Central Buyer System» proposed by consultants NERA to the Public Power Corporation in 1997 as equivalent to the failed model). Such a model should be based on the following guidelines: First, a primary target of the power market is to meet the country’s requirements in the long term at reasonable prices, and this target must take precedence over any others. Second, this primary target is secured through long-term planning and does not exclusively depend on the assumption of entrepreneurial risk by private producers (a proposal by the Energy Regulatory Authority on February 27, 2002). Third, the aim of long-term planning is mainly to forecast demand, the determination of the capacity necessary to meet it and the selection of the fuel to be used and the geographical location of the production plants. Fourth, competition is exercised within the framework of long-term planning for quantities, location and fuel, with tenders for the purchase and sale of electricity on the basis of medium- to long-term contracts (in other words, competition is exercised before the assumption of serious economic obligations by producers and is not attempted in a way that leads to its self-negation due to the limitations of the Greek system). Fifth, the development of private electricity production is facilitated via long-term sale and purchase contracts of electric power. The government needs to urgently make a bold political decision toward a change in the competition model for the power market. There is no more leeway for mistakes. The country has already entered a period of large shortfalls in electric power. (1) Raphael M. Maïopoulos is a mechanical engineer and economist, as well as a former assistant general manager of the Public Power Corporation.