PPC deems Greece’s Yankee-style electricity auctions ‘ill-designed’

Greece’s new power auction system is “ill-designed” and “not a sustainable model for the medium-term”, state-owned incumbent supplier PPC has told ICIS.

Earlier this month, the utility filed a court appeal over the so called NOME auctions, also dubbed “Yankee style” power auctions, which oblige PPC to sell electricity to rival producers at a discounted price.

PPC’s appeal is based on a number of issues including the starting price and sale volume obligations, according to a source at the incumbent.

Increased competition

The new auction system is part of a wider range of energy reforms, launched in September 2014, which aim to bring the design of the Greek electricity market in line with the EU target model.

The plan is to increase competition in the retail market by diminishing the role of PPC, which currently owns the majority of the coal-fired and hydro generation assets in the country and is the main retail supplier.

The first auction took place on 25 October when PPC sold 460MW of electricity to be delivered between 1 December 2016 and 30 November 2017, at a starting price of €37.37/MWh.

PPC court appeal

The state-owned utility objected to a number of points of the new system in its appeal to the council of state earlier in November.

One of those points is the methodology used to derive the starting selling price of €37.37/MWh, which PPC says does not fully consider its generation costs.

For example, the full fuel cost, lignite, is only taken into consideration if bought from a third party. If produced at PPC’s own mines, the methodology does not include costs such as the mine personnel’s salaries.

“The methodology picks up only some of the relevant true and verifiable costs in a discriminatory way … so PPC is in fact forced to sell below its cost and is not in the position to recover its full variable cost from the sale of this product,” the source said.

Separately, PPC objected to the volume it was obliged to sell in the first auction. The source deemed the quantity of 460MW “huge” and said it did not comply with requirements of a memorandum signed with the EU in 2015. The quantity was calculated based on the market conditions at the time of the signing of the memorandum, as opposed to current condition, the source said.

“For example, around 15% of the best paying customers had already switched supplier at the time the auction took place and this was not taken into account,” the PPC source said.

Moreover, looking ahead, PPC is obliged to auction its allocated volume without any risk clauses, including unexpected outages or droughts limiting hydro generation in the country.

Another point of controversy, according to PPC, is that suppliers that are allowed to take part in the auctions can use the purchased electricity for exports. As the price is already discounted, this puts PPC in a less competetive place when selling abroad.

“From all the above it is obvious that these new products already auctioned are ill designed, they constitute a sort of a state subsidy for the IPPs [independent power plants] and some suppliers,” the source concluded. “This is not a sustainable model for the medium-term, and problems exist even in the short-term. It will lead our market and PPC to even bigger troubles.”

Regulator RAE and Greece’s ministry of energy were unavailable for a comment on Monday afternoon.

Traders have expressed doubt that PPC will be successful in its appeal. yana.palagacheva@icis.com