Comments on the Greek Capacity Mechanism

The Green Tank submitted to the Greek Ministry of Environment and Energy detailed comments in the public consultation on the Greek government’s proposal for a permanent, market-wide capacity mechanism.

The proposed capacity mechanism has several problems, which the Green Tank urges the Greek government to remedy in close collaboration with all participants of the Greek electricity market and the European Commission. Specifically, the proposed capacity mechanism:

  1. does not prove the necessity of its existence since:
    • absolutely necessary market reforms have not been implemented yet,
    • a resource adequacy assessment does not accompany the proposal, while the most recent, publically available resource adequacy assessment by the Greek TSO fails to adequately prove a security of supply problem for Greece that cannot be remedied without a permanent market-wide capacity mechanism, such as the one proposed,
    • alternative forms of a capacity mechanism, such as a strategic reserve, have not been considered and comparatively evaluated with the proposed one.
  2. Attempts to unduly support lignite plants at the expense of other technologies and by violating the recently agreed new Electricity Market Regulation, as well as the Guidelines on State aid for environmental protection and energy.

According to the proposed scheme, lignite plants could secure capacity contracts until 2033 regardless of their emission performances. This is contrary to the EU’s climate objectives, and its commitments regarding the Paris Agreement. Moreover, it directly contradicts EU’s objective of phasing out fossil fuel subsidies prescribed by the guidelines on State aid for environmental protection and energy, as well as the agreement between the Council of Ministers of Energy, the European Parliament and the European Commission to set an emissions performance standard as a prerequisite for participation in capacity mechanisms in the recast Electricity Market Regulation.

Moreover, it is highly questionable whether contracting capacity from historically unreliable lignite plants is an appropriate means to meet the objective of ensuring security of supply for Greece. The Greek authorities themselves have identified in the context of the prolongation of the interruptibility scheme “outages of lignite plants due to ageing and weather conditions” as a factor contributing to resource adequacy problems in the coming years.

The pressure by PPC and the Greek government to obtain a swift approval by the European Commission for the proposed capacity mechanism is linked to the efforts to render PPC’s lignite assets that are up for sale more attractive and to improve the dismal economics of PPC’s yet unconstructed new lignite plant “Ptolemaida V”. However, a capacity mechanism should not aim at rescuing a specific electricity producing technology; it is supposed to ensure energy security for the Greek citizens and businesses that cannot be achieved in a different, less distortive manner.

You can read the detailed comments here.