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Energy Sector

Regional Energy Indicators:
Electricity Generation (TWh) 440.7
Electricity Consumption (TWh) 411.3

Energy Consumption per Capita (kgoe/cap) 1786
Energy Import Dependence (%) 61%
CO2 Emissions per Capita (kg CO2/cap) 5231
Note: kgoe – kg oil equivalent

Greeks and Italians Developing Southeastern European Regional Electricity Trade

by Ioannis Michaletos*

Perception of an emerging Southeastern European electricity market is providing impetus for the creation of new companies seeking to take advantage of regional trade, and especially an increase in demand. In this pursuit, Greek and Italian interests are proving especially active.

Already, the Italian energy company Edison has made the first step into this field. Edison has entered into a strategic partnership with the semi-state-owned Hellenic Petroleum Company. The partnership is aimed at developing a strong presence in the electricity sector.

Edison, and its Greek partners, are also interested in the ongoing liberalization of the domestic market. By 2014, the Greek Power Corporation will have to decrease its market share below 70% of the currently 90% it holds.

A Company in the Making

Currently, both companies have applied to the Greek regulatory authority on energy in order to change the production licenses for the ‘Thesaloniki energy’ unit that belongs to the Greek company, and the ‘Electroparagokiki Thisvi’ that belongs to Edison.

The first one is a facility that operates using gas in Northern Greece, with a power capacity of 390 MW; the latter is a unit (currently under construction) using gas in Southern Greece, which will have a 420 MW capacity.

The new business scheme will be as follows: 75% of both units will be transferred to the Edison Nederland BV, a joint venture between the Greeks and the Italians. Moreover, in the ‘Thesaloniki’ unit, another two Greek companies named HE&D and Halcor will have shares of 22.5% and 2.5% respectively. Regarding the ‘Thisvi’ unit, HE&D will also own 22.5% and the remaining 2.5% will be acquired by Halcor.

The EU has already decided that the new company conforms to the existing rules regarding competition and the commencement of its operation will take place around March 2009, as soon as the regulatory authority gives the green light for the changes requested, and the name of the company is publicly announced.

The agreement also contains future plans for the creation of a trade company owned 100% by the holding company, and the acquisition or construction of units with a capacity up to 2,000mw.

The Edison CEO, Mr. Umberto Quandrino recently stated in a press conference in Athens that “this cooperation creates the second largest electricity company in Greece and Edison firmly roots its presence in Greece aimed at expanding into neighboring countries.”

According to an independent source closely monitoring the proceedings, “Edison’s entrance into Greece [through] siding with state companies and major private ones clearly illustrates their success in penetrating the local market, which is characterized by frequent changes of plans. Moreover, they gain a serious advantage for expanding in the Balkan region.”

Electricity Trade

The electricity trade is an important factor influencing the aforementioned agreement. Ioannis Soukioroglou, a Greek energy consultant, tells Balkanalysis.com that this trade “hasn’t been developed mainly due to the Greek regulations. It reaches a maximum of 500 MW a year. In case a 2,000mw production is established by the new company it may have the necessary export capacity, but it will have also to deal with the complex regulations of the Greek network management authority. The Greek electricity system is severely affected by the summer season due to the substantial increase in consumption, thus there are restrictions on sales.”

Presently, the export rates from Greece to Italy for August 2008 went from a minimum 84.25 euros/MWh (on 12 August) to a maximum of 107.56 euros/MWh (on 28 August), with a mean average of 97.514 euros/MWh. In some cases, significant earnings could be made, up to 100% net profit, but the auction prices fluctuate by hour; therefore, any attempt to establish an export electricity base in Greece to Italy has to be meticulously planned in advance.

On the other hand, there are significant earnings to be made in the mid-term if one takes into account the potential of the region. A World Bank report notes that the Southeastern European market in 2005 consumed 215TWh and that will increase to 315TWh by 2020. For the Greek market the values were 50TWh in 2005 and an estimated 80TWh in 12 years.

Furthermore, the electricity prices in the Greek market will increase by approximately 20% between 2008 and 2009, and this is a serious incentive for foreign firms to invest in electricity commerce for household clients and businesses alike.

Lastly, Albania is a neighboring state that is in need of electricity imports, and is experiencing a steady increase in consumption that can be met by Greek-based production facilities in the future.

For the moment, the Italians are the first to have established a production base in the country. But the likes of RWE, Gaz de France and Gazprom are lining up too.

Strengths and Weaknesses

A corporate presentation recently held in Athens provided interesting points regarding the potential of the electricity trade. First of all, present cross-border transmission capabilities are now deemed to be insufficient, due to national bottlenecks caused by regulations and seasonal load variations. Furthermore, there is a general estimation by industry professionals that security criteria are often not completely followed, and that there are insufficient monitoring, metering and communication facilities.

On the other hand, the available power capacity and service performance are both seen as satisfactory at present, comparable to the EU criteria.

The future projections are optimistic, since there are continuous deregulation efforts in the areas of generation and supply by all countries, but competition on internal markets has not been fully effective yet.

Further, this presentation revealed, there are growing net imports of electricity in the region, split between exporters such as Bulgaria and Romania, importers such as Albania, Montenegro and Bosnia, and countries more or less in between like Serbia, Greece and Italy.

One of the main obstacles is the political pressure exercised with a variety of methods on regulators, causing uncertainty for prospective investors in the regional electricity trade. There are plans for further infrastructure investments, although funding constraints have to be dealt with quickly.

Further, network manager authorities, as in the case of Greece, are often accused by businesses of hindering the electricity trade due to lack of perception of the availability of their own electricity networks. On the other hand, the organizations responsible for the operation of the networks point out that it is their task to make sure that the electricity keeps flowing, unconstrained by commercial dealings that may hinder market supply when most needed.

The bottom line, it can be said, is that there is still a long way to go before a “fully functional regional electricity network” can be created. However, for analysts such as Soukioroglou, the energy consultant, such a network “is a feasible target though.”

All industry experts in Greece agree that once regulation and infrastructure issues are dealt with in the next few years, the electricity trade will multiply within Southeastern Europe- a crucial aspect for the success of the new Greek-Italian business endeavor.

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*Frequent Balkanalysis.com contributor Ioannis Michaletos is a Balkan security analyst for the RIEAS Institute in Athens, Greece. He is also Southeastern European Coordinator and Editor for the World Security Network Foundation.