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FINAL PAPER

Florence School of Regulation

Regulation of the Power Sector

Autumn 2015

“Proposal of 10 regulatory measures for Greece aimed at cutting greenhouse gas emissions by 40% over the next two decades

Vassilis Triantafyllos

Athens, 29.2.2016

A. Introduction

The present proposal seeks to explore new ideas for measures applicable to the energy sector in order to achieve the stated goal of significant GHG emissions reduction in the next 20 years. The research is undertaken at a very unfortunate juncture, both for the energy sector and the economy of Greece in general. The current difficulties cannot be ignored, of course, but they offered an interesting challenge in trying to incorporate them in the proposed policy changes. It would appear that the system could achieve the required goals if certain steps were taken. Those, in summary, would be:

1. Redesigning the generation mix with a steady reduction of dependence on coal and a simultaneous increase in RES, with gas as a “bridge fuel”

2. Investing in the transmission grid, both for domestic efficiency and access to regional markets.

3. Redesigning the markets and eliminate failures in order to increase efficiency.

4. Increasing consumer participation, both in generation and demand response.

5. Invest in new technologies in storage.

The aforementioned steps are expounded upon and ten particular aspects are identified and respective regulatory approaches advocated. Although the actual feasibility of the proposal is outside the scope of this Paper (as well as the expertise and capabilities of its writer), the overall planning endeavors to be cohesive and realistic, although without avoiding innovative approaches, where those are deemed necessary. If nothing else, this proposal proves that thinking outside the box, even as a theoretical exercise, can offer an interesting perspective and, perhaps, provide a valuable new point of view.

B. Proposed Measures

1. Reduction of national dependence on lignite

Greek energy production has traditionally been dependent on lignite. This dependence is in large part due to the domestic availability of the fuel (decreasing dependency in foreign procurement), low costs and better planning of fuel reserves. This dependency has reduced in the last years, from 51% in 2011 1 to 43,37% for January 2016 2 , but, perhaps more importantly, it sets the marginal system price for 59,54% 3 of the cost fluctuations. It’s easy to assume that coal is the backbone of Greek energy generation and still, despite reductions, retains a significant percentage of the energy mix. Even more importantly, the current economic crisis has reversed the trend to reduce coal dependence due to the obvious advantages to cheap energy it offers. In fact, the PPC intends to make an investment in a new 660MW lignite facility (Ptolemaida V), with a cost of 1.4$B, despite objections from many directions about the obsolescence of the particular technology and the severe environmental impact it entails, while at the same time reopening Ptolemaida III, an obsolete and extremely polluting lignite facility 4 . The fact remains though that the recent economic crisis must not be allowed to press upon us decisions that will mortgage our future in light of a short term gain. Instead, a clear regulatory decision to retain and expand the established dynamic of moving away from lignite should be evinced. The way to make this commitment clear could be by introducing measures of charging every polluter for the marginal damage produced by their pollution 5 . The preferable approach to achieve that effect would be a carbon emission tax on outputs, preferably in excess of a certain limit

1 Country Report Greece 2014 in Country Reports : Accompanying the document Communication from the Commission to the European Parliament, the Council, theEuropean Economic and Social Committee and the Committee of the Regions, , Progress towards completing the Internal Energy Market (13.10.2014 SWD(2014) 311 final), p. 98 and following for Greece, p. 99.

2 DAS Monthly Report for January 2016, Greek Market Operator LAGIE (in greek), p.16 graph 16.

3 Ibid p.11 Chart 3

4 Ibid. p. 4 Ptolemaida III is listed as a contributing facility, and PV Magazine Article “Greece turns to lignite”, 19 June 2015at . http://www.pv-magazine.com/news/details/beitrag/greece-turns-to-lignite-

_100019886/#axzz41Alz34vK

5 P. Linares et al. in Regulation of the Power Sector, Ignation J. Pérez-Arriaga, Editor, Springer 2013, p.

545

rather than on total volume, and a provision that the limit will be lowered periodically, for example every 35 years, with future limits known in advance 6 . This would encourage PPC to adapt and plan its investment policy and slowly but steadily move away from the “easy solution” of relying on lignite for cheap energy. At the same time, it would not have detrimental effects on marginal system price since not all lignite production would be taxed and most other technologies (including gas) would remain unaffected. This of course would only serve as an intermediate measure, since to achieve such a drastic emissions reduction more substantial and innovative approaches would have to be implemented; moreover, the new auctioning approach to emission trading since 2013 in the ETS jeopardizes the economic sustainability of coal production and, combined with a carbon tax, could provide the catalyst for a move away from lignite. In order to move away from coal, in the sense of both not increasing installed capacity and actually phasing out existing installed capacity in time, an alternative approach to base load generation must be found. The option of nuclear, although presenting clear advantages (especially considering that further base load generation investment is scheduled, as explained above), might not be easily acceptable in the current environment, unless serious and targeted public campaigns that inform on benefits and risks can be undertaken. On the other hand, alternative approaches to base load generation through renewable sources (together with gas generation and demand side management during peak) are proposed 7 and deserve further scrutiny 8 . In any case, the proposed period of two decades in order to achieve the goal may indeed be sufficient for a radical redesigning of the base load generation question, of achieving goals without jeopardizing the overall security and stability of the system 9 .

6 Ibid. p. 551.

7 Supplying Baseload Power and Reducing Transmission Requirements by Interconnecting Wind Farms, Christina L. Archer and Mark Z. Jacobson, 2007

8 The Basics on Base Load: Meeting Ontario’s Base Load Electricity Demand with Renewable Power Sources, Roger Peters and Cherise Burda, 2007

9 Always an ongoing concern in any planned significant change. The relevant concerns described in the U.S. Clean Power Plan (introduced in October 2015 although currently suspended by the U.S. Supreme Court), with a balance sought, among other means, by a long compliance period, and phased-in reduction requirements, providing sufficient time and flexibility for the planning and investment needed to maintain system reliability, a basic design that allows states and affected EGUs flexibility to include a large variety of approaches and measures to achieve the environmental goals and a “reliability safety valve” for extraordinary situations where an affected power plant must provide reliability-critical generation notwithstanding CO2 emissions constraints that would otherwise apply.

2.

Comprehensive Gas – Electricity Policy

Gas generation, although not “clean”, is definitely cleaner than coal (about 50% less emissions per energy unit produced) 10 , making it ideal as a “bridge fuel” (although contrary opinions are also proposed 11 ). In the generation mix proposed in the present essay, gas has an increased importance in quickly covering stability and adequacy system requirements. The increased role of gas need not necessarily impose a much bigger cost on the system. Although marginal price based on gas variable costs would drive prices up in the short term compared to a mix primarily based on lignite, the long term commitment to renewables (with minimal variable costs) could, conceivably, drive to a much lower average price of the system. Furthermore, general benefits, not directly associated to generation but to the usage of gas in general, could help to offset the increase of generation costs as well. Under the proposed scheme, it is undeniable that a comprehensive energy strategy that associates gas and electricity must be drafted. Both systems must be studied jointly and the most efficient solutions for both must be promoted, providing added value to the total supra system that might not be easily manifest in each of the two sub systems. Gas is an underused fuel in Greece, which has relied traditionally more on oil (especially in residential and transport usage). Despite that, certain factors indicate that a switch might be desirable: geographical proximity to big gas exporters, conveniently placed existing 12 and planned 13 interconnector pipelines, a steadily increasing stake in LNG fleets owned by Greek interests 14 and strong geographical

10 How much carbon dioxide is produced per kilowatthour when generating electricity with fossil fuels?”, U.S. Energy Information Administration at http://www.eia.gov/tools/faqs/faq.cfm?id=74&t=11

11 The effect of natural gas supply on US renewable energy and CO2 emissions, Christine Shearer, John Bistline, Mason Inman and Steven J Davis, 2014

12 Interconnector Greece – Turkey:

https://en.wikipedia.org/wiki/Interconnector_Turkey%E2%80%93Greece%E2%80%93Italy

13 Interconnector Greece – Bulgaria:

https://en.wikipedia.org/wiki/Gas_Interconnector_Greece-Bulgaria

14 Article at Lloyd’s List “Greece grows its owned share of the global LNG fleet”, 29 May 2014

http://www.lloydslist.com/ll/sector/tankers/article442275.ece

presence of Piraeus as international shipping hub, all indicate that Greece has both the capability and the interest to promote increased gas usage, especially if said increase is planned and interconnected with the existing electricity concerns. To that effect, a series of measures could be adopted: joint expansion studies for both electricity and gas transmission grids, locational signals for electricity generation to be installed in locations with added benefits for both transmission systems, implementation of the planned upgrade of existing LNG terminal in Revithoussa 15 and expansion by investment in new LNG regasification facilities in northern Greece 16 , etc. This comprehensive strategy could provide security of supply, market integration and competitive prices for electricity while also securing added benefits for the environment and the economy in general.

3. Rethinking Wholesale Market Design

First of all, it must be pointed out that the traditional, vertically integrated model might be considered more appropriate for achieving environmental policy goals, such as GHG emissions reduction. On the other hand, it is my belief that the liberalized paradigm and the market approach can also be a suitable method if it manages to properly internalize those extraneous objectives and it can achieve them more efficiently, by relying on the natural behavioural tendencies of the agents while steered discreetly by prudent regulation, which will identify long term goals and will allow the agents to decide the particulars of how to achieve them. Therefore, an efficient market design can help promote the required objective of GHG emissions and market tendencies will be a valuable tool in ascertaining the most efficient way to reach it.

15 Revithoussa LNG Terminal Extension Plan

http://www.eib.org/projects/pipeline/2011/20110269.htm

16 Article at Kathimerini “Greek-US plan for an LNG terminal”, 20 October 2015

http://www.ekathimerini.com/202699/article/ekathimerini/business/greek-us-plan-for-an-lng-terminal

The current state of the Greek wholesale market doesn’t foster true competition 17 . PPC, the formerly vertically integrated utility, retains exclusive access to the lignite deposits (which accounts for approximately 45% of total generation) and hydro (8% of total generation), leaving only gas at 33% as an effective fuel for competitors (excluding renewables) 18 . The total capacity mix as of January 2016 was 18.173,1MW, of which 4.456MW lignite facilities, 698MW oil, 5170MW gas, 3172MW hydro and 4676MW RES. PPC owns all lignite, oil and hydro facilities and about 50% of the gas facilities (the remaining is split between a handful of generators). Moreover, the market operates under a mandatory dayahead pool with unit commitment system. Various steps can be implemented to improve market function. A few are:

i. Finalization of the pricecoupling requirement of Directive 2009/72/EC and the ENTSOE Codes and general compatibility with regional and neighbouring markets

ii. Implementation of the proposed establishment of a new electricity company, which will be formed from the transfer of approximately 30% of the assets of PPC.

iii. Sale of 17% of the PPC’s shares owned by the Hellenic Republic Assets Development Fund (HRADF)

iv. Adoption of intra day market, ancillary services market and balancing market

v. Reevaluation of the proposed N.O.M.E. system approach in auctioning long term contracts from the PPC, rational calculation of price (lignite generation costs) and further curtailment of incumbent’s market power. True liberalization of the wholesale market with increased agent participation and easier access will allow agents to diversify while at the same time market forces and competition will ensure a more efficient mix and lower marginal prices. Additionally, compatibility of the domestic market with the EU Target Model will

offer competitive access to needed capacity during the long transition period from

17 For an extensive critique of the market by the major competitor of PPC, Liberalisation of the Electricity Market in Greece: Identification of distortions and proposals to address them - Requirements for the harmonization of the national legislation with community regulations, Mytilineos Holdings 2010. Despite being partisan and slightly outdated, most of the complaints put forth in pp.14- 17 are valid.

18 DAS Monthly Report for January 2016, p.16

coal to clean energy. Moreover, alternative approaches to the mandatory pool system (such as long term bilateral contracts between industrial consumers and generators or more elaborate products) can help reduce risks for both sides of the equation. In that way, a market operating under transparent rules, with efficient competition, a multitude of agents in both supply and demand and stable regulation can be an asset in the move steadily away from lignite which will also affect GHG emissions.

4. Capacity Investment, Security of Supply and Market Liquidity

In order to move away from coal dependence, capacity investment must be re examined. A comprehensive, feasible plan must be adopted, with specific targets for adequacy and strategic expansion policy, while at the same time maintaining security and firmness of the system. The last two parameters are more easily covered, since demand has been more or less stable and installed capacity is deemed sufficient to supply the required power. For the first two aspects, on the other hand, extensive planning must be undertaken The question of moving away from a certain fuel type and altering a specific generation mix is primarily a question of Security of Supply. At this point in time the regulator should definitely point the market towards the desired goal since the environmental concerns that form the basis of the present exercise are externalities that the market, left to its own devises, may not successfully take into consideration. The, already complex, problem of adequacy and strategic expansion planning is exacerbated by the significant and ongoing lack of liquidity in the Greek Market. A product of the financial crisis, lack of liquidity has brought the economy to its knees and is partly caused by a large number of unpaid electricity bills (by the “new poor”) as well as a large deficit in the Market Operator (partly caused by the large FITs for renewables) causing delays in payments. Moreover, combined with the high country risk, the failing banking sector and the uncertainty and bureaucracy traditionally associated with Greek regulation, makes new investment extremely difficult and

risky 19 . The recently implemented and envisaged measures (e.g. daily clearance and weekly settlement of payments for trading) will probably not provide enough liquidity to move ahead and additional measures will have to be considered. Regarding the adequacy question, the Capacity Mechanism of Greece is currently re examined 20 . The existing regime of capacity payments is undergoing change towards a more efficient and cost effective system, moving from capacity payments to auctioned flexibility services and a discreet market 21 . For the very long term goals, more targeted products will have to be designed that will address the risk high environment currently permeating the economy with evidence of the regulator to allow the market to operate in a transparent, fair and efficient way. Those products, possibly reliability products with extensive lag period and duration of commitment with a focus towards technologies compatible with the desired goals of GHG emission reduction and the general reexamination of the generation mix, as well as clauses for regulatory deviation to provide safeguards from the increased regulatory risk, could possibly instill interest and attract funding opportunities.

5. Transmission grid expansion

The Greek transmission grid is owned by ADMHE, under the same ownership regime as PPC. In light of the proposed rethinking of the whole electricity system, grid investments must be oriented towards measures that promote this objective. Therefore, investment should be targeted towards the following directions:

i. The transmission grid must be strengthened and significant efforts must be dedicated to modernize, improve and expand it, in order to reduce grid loss

19 This problem is identified and explained in the RAE Market Report, July 2014 (in Greek), p. 4 par. 12, as well as in the Country Report Greece 2014, supra fn. 1 p. 100.

20 For the preexisting regime Reform of Capacity Remuneration Mechanism in Greece, A Report to RAE, Pantelis Capros, July 2014

21 The envisaged system described in Electricity Generation Adequacy Study Report for the Greek Interconnected System for Years 2015-2024, Commissioned by the Independent Power Transmission Operator (ADMIE S.A.), November 2014 AND RAE Final Proposal for the Restructuring of the Capacity Mechanism in the Interconnected System (in Greek), which was submitted for public consultation.

and congestion and, indirectly, reduce generation. Moreover, the deeper penetration of RES (which will be relied on for part of the base load as well) requires adaptation of the transmission grid to better cope with the added technical burdens that intermittent generation imposes.

ii. Particular attention should be given to interconnections with different national and regional markets since access to those markets can provide an outlet to sell superfluous RES energy as well as a source to ensure supply that may be jeopardized by the gradual move away from coal. Moreover, the fact that Greece’s peak periods (due to timezone differences, climate and different employment and living conditions) can differ from the big energy consuming countries of central and northern Europe, interconnection can facilitate in selling cheap energy from RES in periods that have low domestic need but peak foreign consumption. In particular, current projects for interconnections (for example the EuroAsia Interconnection Project, a 1.000km submerged cable connecting with Cyprus and Israel) must be concluded and similar expansions also implemented when appropriate.

iii. A specific issue is the status of non interconnected islands (NII). In those islands, generation depends on renewables and diesel generators. Although the case has been made for energy autonomy through RES for small islands 22 no significant progress for autonomy has been made and this approach is too difficult to implement and too risky to sustain. In the same vein, the approach exercising market functions for NII through an Energy Management System 23 is not an efficient solution since it fragments the market which is critically small in NII and cannot function. This is an issue that could be resolved by expanding the grid to incorporate the NII in the continental system 24 . Such an

22 Investigating the energy autonomy of very small non-interconnected islands, A case study:

Agathonisi, Greece, J.K. Kaldellis , Ant. Gkikaki, El. Kaldelli, M. Kapsali in Energy for Sustainable Development 16 (2012), 476–485.

23 Energy Management in the Greek Islands, Nikos Hatziargyriou et al., CIGRE 2012.

24 This idea has been repeatedly examined and evaluated for costs/benefits and technical feasibility. RAE has commissioned many studies, among which: Strategic Study for the Interconnection of Autonomous Island Electric Power Systems- Final Report (Summary), National Metsovio Polytechnic on behalf of RAE, December 2006 (in Greek) AND Update of the Strategic Study for the Interconnection of Islands with the System, National Metsovio Polytechnic on behalf of RAE, November 2008 (in Greek). The project seems to repeatedly meet with resistance from many entrenched, local and national, interests and, lately, lack of available funds.

initiative, despite its high capital costs (estimated at 1.5B)€, would prove substantially more beneficial in the long term since it would reduce generation costs in those islands, it would be combined with existing and new initiatives for investment in renewables in those islands (which have some of the best performing renewable plants for solar and wind due to the microclimate) while at the same time reducing the higher FITs that NII RES currently enjoy from not being interconnected (this will help offset part of the grid expansion costs). The most important benefit, though, would be that the vast renewable generation resources of the Aegean would be available to the whole grid, on one hand, and would present opportunities of exporting the surplus on the other 25 . An added source of funding could be the public service obligation levy that is currently imposed on consumers to recover the higher cost of power generation in the non interconnected islands. If the grid is expanded in this way, the options to install RES facilities in some of the hundreds of uninhabited islands of the Aegean or even offshore installations could be examined as well. Finally, another issue to be examined is privatization of the network which currently belongs to ADMHE, an entity under same ownership as the incumbent PPC. Although not strictly required by the Third Legislative Package, ownership unbundling (as opposed to only legal / management unbundling) can help remove the obstacles often posed by the grid operator’s bias towards the incumbent. With that unbundling network investments can proceed more quickly and, if proper regulatory measures are adopted, towards a direction compatible with the GHG emission reduction that is required 26 .

25 Energy Development in the Non-Connected Islands of the Aegean Sea, Filippos Rodger Tsakiris, Internship Report for the National Energy Authority of Iceland, 2011, p. 19-20.

26 PV Magazine Article “What next for Greece's energy sector?”, 16 July 2015.

http://www.pv-magazine.com/news/details/beitrag/what-next-for-greeces-energy-sector_100020252/

6.

Rethinking the RES Policy

The RES policy of Greece has to be reconsidered. Although at first the policy was a big success 27 in certain respects it has led to very specific failures 28 , particularly a growth in penetration that was financially unsustainable (although environmentally beneficial). The model followed was perhaps suitable for the initial phase of the technology’s introduction in Greece, but it must now be re examined and re introduced under new principles. Moreover, the regulatory uncertainty caused by the subsequent burdens imposed on RES generation (“solidarity tax”, retroactive cutback of contracted, “guaranteed” FITs, even the latest “disconnect tax” 3,6% on gross income voted on January 2016) have evaporated trust in regulatory stability and rationality, making attraction of investment extremely problematic, especially given the current liquidity issue and the high country risk factor. Due to those reasons, the current state of RES investment is in shambles (10MW installed in 2014 versus 1GW installed in 2013). In order to reverse this trend, specific measures must be undertaken. Firstly, one of the problems with previous RES policies was that, for solar, it allowed for very small generators (usually around 100Κ W) to participate in the system, which guaranteed purchase of all power produced at fixed prices (feedin tariffs). Those small facilities, owned and operated by a multitude of small individual investors with no knowledge or prior participation in the market (there was even a program to encourage farmers to install) was not efficient, since the operating costs (monitoring, bookkeeping) and part of the investment costs (surveys, environmental studies, licensing) associated with each small facility were multiplied by the number of agents. This approach was clearly not sustainable and, combined with generous

27 The program has already reached, and sometimes overshot, the goals for 2020 as described in the National Action Plan: Greece, submitted in the scope of Directive 2009/28/EC, p. 21-24.

28 For a detailed description of the RES system of 2008-2014 instead of many: Integration of electricity from renewables to the electricity grid and to the electricity market – RES-INTEGRATION, National report: Greece, Georgios Maroulis et al. for DG Energy, December 2011 AND The Development of Renewable Energy Governance in Greece. Examples of a Failed (?) Policy, Antonis Metaxas and Michael Tsinisizelis in Renewable Energy Governance - Complexities and Challenges, Editors: Evanthie Michalena, Jeremy Maxwell Hills, Springer 2013.

FITs and overinvestment, led to the collapse of the renewables account and the New Deal Law which reduced “guaranteed” FITs retroactively as well as for the future 29 . A new policy could emphasize on bigger investment units in solar and wind, a more marketoriented approach since the technologies have become a lot cheaper and more efficient than during the initial phase of the RES bloom (20082012) and more marketoriented conditions. The abandonment for the FIT in favour of the marginal price, perhaps with premiums when certain conditions are met could conceivably work in this phase of the market’s maturity, especially if combined with a stable commitment of the regulator to distance the system from coal 30 . Moreover, RES generators could be encouraged to participate in regional trading, taking advantage of favourable weather conditions in Greece and regional peak differences. Secondly, a serious examination of geothermal energy as a source must be undertaken. This includes the conclusion of investments planned by PPC Renewables (the PPC subsidiary focusing on RES) in four scheduled facilities for a total 23MW in Kimolos, Lesvos, Nisyros and Methana 31 , as well as research for other sites by other generators. The most important high enthalpy geothermal fields (Milos, Nisyros) are located in the Southern Aegean along the active volcanic arc with proven geothermal potential 25 MW and estimated possible potential >250 MW whereas the known proven and possible geothermal fields exceed 40 in 30 different areas (in some cases proven and possible fields in the same area) and they are located all over the country 32 .

29 PV Magazine Article “NEW DEAL : Greece brings new retroactive measures; cuts FIT by 30%”, March 2014

http://www.pv-magazine.com/news/details/beitrag/greece-brings-new-retroactive-measures-cuts-fit-by-

30_100014491/#axzz3g3f1ZwTW

30 Apparently, the proposed greek policy in this matter seems to be leaning somewhat towards the same principles. Indeed, days before the finalization of the present Essay (which arrived at its proposed measures independently), . a new approach offering feed-in-premiums for systems >500 kWp aswell as an auction scheme for larger RES generation (with the first pilot auction expected in 2016). Articles in

English: Hellenic Association of Photovoltaic Companies Article “A brand new support scheme is expected to reboot the Greek PV market”, 10 February 2016 http://helapco.gr/en/the-greek-pv-market/ AND in Greek: Article at Energypress “Reduction in wind – hydro tariffs, increase in solar – What does the new RES support plan provide” 22 February 2016

http://energypress.gr/news/meiosi-stis-tarifes-aiolikon-ydroilektrikon-ayxisi-sta-fotovoltaika-ti-

provlepei-neo-shedio

31 Geothermal planned investments by PPC Renewables (in greek)

http://www.ppcr.gr/Energy.aspx?C=28

32 Geothermal Potential in South-East Europe, Prof. Michael Fytikas - Dr. Apostolos Arvanitis, Presentation at 3rd South East Europe Energy Dialogue, 18 – 19 June 2009, Thessaloniki, Greece

Thirdly, biomass (currently only 52MW installed) must also be explored as an option. This, again, requires the conclusion of the planned 25MW investment in Kozani 33 34 as well as expansion in other sites by other generators. Fourthly, small hydro (currently 223MW installed) is a very interesting technology that is well suited to Greece 35 and, some claim, it can be introduced as an abatement technology for GHG emissions at a negative cost 36 . Therefore, the conclusion of the planned capacity by PPCR for 18MW 37 and further investment both by PPCR and private investors seems appropriate. Concluding, it must be stated that the main regulatory measure that must be undertaken is to abstain from sudden, and especially retroactive, intervention. The fact that the recent measures (New Deal Law) managed to reverse the imminent collapse of the renewables account (driving its deficit down to approximately 3040 million from more than 550 million at the end of 2013) should not be construed as evidence of correct regulatory policy but, rather, an issue of “two wrongs not making one right”. The problems with overinvestment and high FITs, which caused the collapse, could have been easily prevented by proper rationing of applications, a more dynamic adjustment of FITs and other, rational measures. In any case, renewables, especially solar and wind, are now mature enough as technologies to be included in the market without (significant) subsidies since grid parity has been achieved, and the new renewables policy must be oriented towards this approach.

7. Distributed Generation and Net Metering

Similarly to RES investment, distributed generation was also increased during the last few years, only to crash as a combination of the economic crisis and the New

33 Biomass planned investments by PPC Renewables (in greek)

http://www.ppcr.gr/Energy.aspx?C=82&EnergyID=19

34 PPCR Presentation for the Kozani Biomass Facility

http://www.bioenarea.eu/sites/www.bioenarea.eu/files/9_PPC_Renewables.pdf

35 Abating CO2 emissions in the Greek energy and industry sectors, George Halkos and Nickolaos Tzeremes and Stavros Kourtzidis, Department of Economics, University of Thessaly, December 2014,

p.15

36 Ibid., p. 32-33

37 Small hydro planned investments by PPC Renewables (in greek)

http://www.ppcr.gr/Energy.aspx?C=26&EnergyID=7

Deal tariff cutbacks. Currently, 350MW are installed in rooftop solar, mostly residential. At this point in time, new investment in DG is frozen due to the uncertainty caused by the New Deal Law. Moreover, net metering was introduced last year 38 (after years of stakeholders’ lobbying) and reexamined this past October 39 , but response has been lukewarm at best. Again, the issue revolves around trust and liquidity. In this particular case though, liquidity might be less of a problem (low capital costs of DG) and trust a much bigger one. The current example of net metering introduction to the market is not without certain flaws that have been present in past regulatory approaches (e.g. overgenerous compensation) that might not be sustainable. Moreover, no substantial research on the impact of large penetration of DG on the grid has been conducted, once again initiating a situation of possibly “sowing the wind and reaping the whirlwind”. Concluding, DG and net metering can be useful tools in the move away from coal and reduction of emissions. Measures to increase penetration must be undertaken in a planned and cohesive manner though, not in a haphazard way that satisfies certain stakeholder interests in the short term while jeopardising the whole system in the long term.

8. Demand Response and Energy Efficiency

A move away from coal mandates serious demand side management, in order to make up for the problems associated with base load deficit. To compensate, serious educational campaigns focusing on consumer involvement must be undertaken. The focus should be to reduce peak consumption and spread it during the periods where

38 PV Magazine Article “Greece applies generous net-metering”, 12 January 2015

http://www.pv-magazine.com/news/details/beitrag/greece-applies-generous-net-metering-_100017732/

39 PV Magazine Article “Greece begins second round of net metering applications”, 28 October 2015

http://www.pv-magazine.com/news/details/beitrag/greece-begins-second-round-of-net-metering-

applications_100021754/

intermittent generation produces the most, with a clear daily, monthly and yearly allocation of optimal consumption scenarios. Smart metering is an indispensable tool in managing demand response. Although various declarations have been made (the plan is to proceed with a large scale rollout of smart meters to 80% of consumers by 2020 and a pilot program involving the replacement of 160,000 old electricity meters with smart metering systems was scheduled for completion in 2015 40 ) smart metering is still underutilised. The importance of the benefits lost from lack of proper demand side management is apparent if we consider that demand has been more or less stable since 2013 and energy efficiency in general has stabilised after a reduction of approximately 30% after 2008 41 (admittedly, in part due to the decreased economic activity deriving from the economic crisis), although meters to ensure consumer involvement and education have been lacklustre, to say the least. This stability could allow for proper management of the demand with a high probability of success in both reduction and reallocation to beneficial time slots, if consumers were educated and incentivized to participate more 42 . The added value of energy efficiency is, of course, that it reflects to other aspects apart from electricity consumption; it offers, therefore, value added social benefits 43 . Moreover, temporal and locational signals must be introduced for larger industrial consumers. In fact, successful implementation of demand side response for the industry depends on the synergy of many proposed measures: industry located in places with added benefit for both electricity and gas grids, with DG installations to minimize costs, capable of securing long term energy contracts under efficient market conditions and, most importantly, enjoying a stable and rational regulatory environment, can adjust its long term energy policies to the added benefit of the industry itself but also the electricity system at large.

40 Country Report Greece 2014, supra fn. 1, p.102

41 For the status quo ante 2008 regarding the Greek energy profile and energy efficiency: Greenhouse Gases Emissions and the Energy System of Greece, C. Koroneos, E.Nanaki, G.Xydis, Proceedings of the Global Conference on Global Warming 2011, 11-14 July, 2011, Lisbon, Portugal

42 Measures adopted to increase energy efficiency (to various degrees of success) that could be expanded and re-examined at Energy Efficiency trends and policies in Greece, KAPE Centre for Renewable Energy Policy and Saving, September 2015, p. 16 and subsequent.

43 An in-depth analysis of energy efficiency and emission reduction programs in Greece can be found at National State-of-the-Art Analysis –GREECE, Low Carbon South East Europe, 2011, esp. pp. 11-19 for various programs and initiatives (including RES, DG, etc) and pp. 20 – 26 for the actors involved.

9.

Retail Market Reorganization

The retail electricity market is assessed fourth lowest in the EU, with a score which is almost 7 points below the EU average (65.2 compared to 72.0). In addition, the market is considered to be the worst of all 31 domestic services markets. Overall consumer satisfaction is the 2nd lowest in the EU and the incidence of consumer complaints is the 2nd highest 44 . Over 97% of consumers are supplied by PPC. In order to alter that effect, retail market must be further liberalized, the market power of the incumbent must be reduced and safeguards and guarantees for regulatory stability must be offered in order to reduce risk of new players. To that effect the NOME system currently introduced may facilitate liberalization, if implemented correctly. Additionally, the ownership unbundling of the distribution system, currently owned by DEDDHE which is under the same ownership regime as the incumbent, would facilitate impartial accessibility to the market. The importance of retail in emissions reduction would mainly constitute in presenting a sound counterpoint to supply and facilitate proper functioning of the market. Moreover, a rational regulatory regime would provide instruments to hedge risks both for supply and demand, lowering the general costs and increasing the stability of the system. Additionally, retail can be trusted with introducing new concepts and paradigms, such as advanced metering, demand side management and energy efficiency measures for the final consumers, for example the socalled “white certificates”, like Energy Efficiency Portfolio Standards in the U.S., the certificates issued in Italy, France and Denmark or the Energy Efficiency Commitment of the U.K. Finally, an interesting approach would be the marketing approach of the “green energy retailer”, for example a retailer sourcing electricity through local bilateral agreements with renewables generators ( for example Enova Energy in Australia 45 ).

44 Retail Market: 10th Consumer Markets Scoreboard p. 90

http://ec.europa.eu/consumers/consumer_evidence/consumer_scoreboards/10_edition/docs/consumer_

market_brochure_141027_en.pdf

45 Which aims to “[…] support the local renewable industry where possible. Initially there will not be enough renewable energy generated locally to meet all the needs of Enova Energy, therefore we will have to source renewable energy from beyond this region, but as new sources come on stream locally,

This business model could prove a strong marketing point in the low margin retail market in a homogeneous commodity and, given the appropriate regulatory regime that would both allow the necessary agreements and monitor for cases of consumer defrauding, it could appeal to consumers’ environmental reflexes and prove commercially and environmentally successful.

10. Research and Investment in Storage

The issue of storage is at the heart of the energy system. If significant breakthroughs are demanded to the energy system, the question of storage must be answered. This point is even more important in plans to remove dependence on coal for base load generation and substitute it (partially or wholly) with renewables, since dispatchability of intermittent generation is a serious drawback to the proposed exercise and advanced storage solutions can turn intermittent generation into dispatchable. The main storage methods can all be examined: pumped water storage, advanced battery storage, compressed/liquid air storage, superconducting magnetic energy storage, flywheel storage and hydrogen storage could all provide solutions depending on the particulars of each facility. From the advancing field of battery storage with concrete applications today 46 47 to more radical (some would say futuristic or utopic) approaches, such as electric vehicles acting as temporary storage / grid reserve (they would draw energy during periods of abundance due to overproduction from renewables and carry a steady reserve for situations of low production / high demand, 48 ) grid storage is a field to be closely followed.

we will enter into supply contracts which are both supportive of the local industry and affordable for our customershttp://www.enovaenergy.com.au/

46 Batteries for Large-Scale Stationary Electrical Energy Storage by Daniel H. Doughty et al., The Electrochemical Society Interface, 2010

http://www.electrochem.org/dl/interface/fal/fal10/fal10_p049-053.pdf

47 Utility Dive Article “5 battery energy storage projects to watch in 2016” ,30 November 2015

http://www.utilitydive.com/news/5-battery-energy-storage-projects-to-watch-in-2016/409624/

48 Sustainable transportation based on electric vehicle concepts: A brief overview, Ulrich Eberle - Rittmar von Helmolt in Energy & Environmental Science, June 2010

In order for the plan to work as envisaged, though, Greece would need to pioneer research and development in those areas, to invest in innovation and to become a technological leader, applying new technologies domestically as well as exporting them. This could be a field that would help finance the whole transformation, would offer desirable expertise and competitiveness and would help put Greece in the global energy map for something positive, for a change.

C. Conclusion

It would appear that, despite the current situation as well as the state of the electricity system, certain measures can be adopted towards achieving the desirable goal. The main caveat in this proposal would be that a comprehensive long term strategy must be adopted and adhered to, based on research and analysis and having clear objectives, in order to instill regulatory stability and trust in the agents. Once that strategy is in place and the means to achieve it have been introduced, the market (where applicable) should be allowed to implement the means to achieve those goals in the most efficient way. Despite the boldness of the approach, I would consider it viable at least as a basis for study. After all, boldness in the face of adversity is not something new to the Greek people and sometimes big and ambitious ideas find better room for growth than conventional ones.

D. Resources and Bibliography

Books

1. Regulation of the Power Sector, Ignatio J. PérezArriaga, Editor, Springer 2013

2. The Development of Renewable Energy Governance in Greece. Examples of a Failed (?) Policy, Antonis Metaxas and Michael Tsinisizelis in Renewable Energy Governance Complexities and Challenges, Editors: Evanthie Michalena, Jeremy Maxwell Hills, Springer 2013

Reports & Scientific Articles

1. Country Report Greece 2014 in Country Reports : Accompanying the document Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, , Progress towards completing the Internal Energy Market (13.10.2014 SWD(2014) 311 final), p. 98 and following for Greece http://ec.europa.eu/energy/sites/ener/ files/documents/2014_ie m_communication_ann

ex2.pdf

2. DAS Monthly Report for January 2016, Greek Market Operator LAGIE (in Greek) http://www.lagie.gr/fileadmin/groups/E DRETH/DAS_Monthly_Reports/201601_DAS_M onthly_Report.pdf

3. Abating CO2 emissions in the Greek energy and industry sectors, George Halkos and Nickolaos