I. INTRODUCTION

​From its inception, the Greek RES regulatory framework adopted the “produce and forget principle” by introducing (a) a fixed, guaranteed cost-based compensation to the RES producers, providing price certainty through dispatch priority to the Grid (RES Feed In Tarrifs/FITs); and (b) long - term electricity off-take contracts (PPAs).

Due to the increasing costs destined for the payments of energy produced by RES power plants, the Greek State has committed itself within the framework of the 3rd bail-out agreement to examine alternative options for altering its RES support scheme and develop a modern, economically viable support scheme for RES based
on a combination of Feed In Premiums (FIPs) and tenders in compliance with the recent European directives and principles relating to State Aid in the energy sector for the period 2014-2020 (EEAG). Within the above framework the Greek State voted on August 9, 2016 Law 4414/2016 establishing a new support scheme for RES and High Efficiency Cogeneration of Heat and Power (HECHP) power plants.

The guiding principle underlying the new RES support scheme adopted by the Greek State is to achieve greater cost-effectiveness and to incentivize better integration into the market of the electricity produced by RES, as set out in the EEAG, paving the way for achieving the RES objective by year 2030 in a cost-effective way through market based instruments.

In this regard the replacement of the currently applicable FIT scheme with a sliding Feed-in Premium (FIP) scheme is considered to be an appropriate approach in order to bring gradually RES as close as possible to real market conditions and balancing responsibilities preventing both over and under compensations of RES producers.

II. THE CORE CONTENT OF THE NEW RES SUPPORT SCHEME

​The FIP scheme is an operating aid used to incentivize the gradual market integration of RES. Therefore, the main two principles which characterize such a scheme are (a) the adaptation of a new market-based RES tariff mechanism, reflecting the decreased cost of RES technologies and therefore enabling the gradual integration of RES in the market and (b) the active participation of RES producers in the wholesale electricity market by bearing market risks linked to short term price fluctuations and balancing responsibilities.

A. The main features of the RES tariff mechanism​

i. The Reference Tariff

​Such operating aid scheme is practically based on a Reference Tariff, which for a transitional phase, i.e.
2 for 2016, will be set via an administrative act, whereas from January 1, 2017 same will be determined through bidding processes.

The Reference Tariff, applicable to a RES project categorized per technology, shall reflect the reasonable (average) cost for which the RES producers shall be compensated and shall be calculated mainly on the basis of (a) the total Levelised Cost of Producing Energy (LCOE) through the use of a RES technology and (b) a reasonable Internal Rate of Return (IRR) incorporated in the LCOE. The other standard parameters which are taken into consideration for the determination of the LCOE, apart from the reasonable IRR for the investor are the international developments in the supply prices of the necessary equipment, the investment maturity of the RES technologies, the financing conditions, the construction and interconnection cost (CAPEX), the stable and variable operation cost (OPEX), a capacity factor, the expected electricity production, as well as other technical and accounting parameters.

Since the LCOE is the basic parameter for the calculation of the Reference Tariff, it shall be regularly monitored and revised at least annually, in order to reflect each time the actual average production cost.

The target of the Greek State is to monitor the financing conditions in detail and, depending on the progress of the cost of technology and the particularities relating to the development of each RES technology, to update at least annually, the typical IRR and, subsequently, the LCOE and the Reference Tariffs. The Reference Tariffs applicable to each RES technology may therefore be amended through a Ministerial Decision issued following an opinion by the Regulatory Authority for Energy (RAE).

The Reference Tariff shall remain guaranteed until the plant has been fully depreciated according to standard accounting rules; i.e. the total duration of the relevant Power Purchase Agreements (PPA) remains 20 or 25 years, depending on the RES technology used.

The Reference Tariff applicable to certain RES technologies for the year 2016 is reflected in the following table:
http://www.seelegal.org/upload/documents/Greece/2016/Newsletter%20Energy_The%20new%20RES%20support%20scheme_07_10_16.pdf.

In cases where a RES project has received investment aid, the applicable Reference Tariff shall be accordingly reduced on the basis of a specific formula which, in general, deducts the investment aid received from the Reference Tariff applicable to the project.

On-shore and Off-shore wind parks as well as wind parks which are installed on islets and are connected to the Greek mainland through subsea cables may receive an increase of the applicable Reference Tariff by a percentage not exceeding 25% of the Reference Tariff. Such an increase may be granted to the relevant RES producers only through a Ministerial Decision following an opinion by RAE.

ii. The main components of the Reference Tariff
The Reference Tariff is granted in the form of a sliding premium added to the price of the electricity for RES producers in the wholesale market both of which comprise the Reference Tariff. The sliding premium is, therefore, intended to cover only the difference between the market price and the Reference Tariff. The higher the market price is, the less the difference which will be covered by the sliding premium will be.

B. Participation in the wholesale electricity market
According to the draft proposal, RES producers will undertake the obligation to fully participate in the wholesale market and are expected to assume the relevant obligations (incl. balancing) once the new wholesale electricity model is implemented.

The introduction of such obligation has created though certain challenges identified by market participants mainly relating to the currently applicable operating model of the wholesale electricity market which is based on Day-Ahead Scheduling without providing for an intra-day market thus constituting the participation of RES
producers in current market rules and conditions almost impossible since RES producers are not in a
position to make long term production estimations. The Greek State has, therefore, decided to apply a transitional mechanism for accurate electricity production forecasts until the full implementation of the new wholesale electricity model, which is expected to provide also for an intra-day market. Under certain conditions, RES producers will also be subject to penalties in case of deviations from their electricity production projections.

Since RES producers are not aware of the market participation rules and related conditions RES operators shall undertake, on behalf of RES producers, the obligations relating to their participation in the market, whereas the relevant charges deriving from such participation obligations will be covered through the grant of a management premium to the RES producers. The level of the management premium, as well as its duration, shall be examined annually taking into consideration the process and the participation cost of such projects
in the wholesale market.

C. Conduct of competitive bidding processes for RES and HECHP power plants
As from January 1, 2017, the Reference Tariff, which is currently being determined administratively, shall derive through a competitive bidding process which shall mean that RES power plants which will finally be selected through the competitive bidding process will be remunerated for the electricity they produce on the basis of the Reference Tariff resulting from the submission of bids in the context of the bidding process.

The responsibility for the organization and the conduct of the relevant competitive bidding processes is assumed by RAE whereas two Ministerial Decisions which shall be issued following an opinion by RAE shall determine in more detail the structure of the bidding processes as well as any other issue which is necessary for the relevant process to take place.

More specifically, a first Ministerial Decision shall determine:

  • the RES and HECHP power plant technologies​and/or categories which shall be allowed to take part to the competitive bidding process;
  • the characterization of the competitive bidding processes as “technology neutral” or not;
  • the methodology and power-sharing procedure provided for the participation, under certain conditions, of RES plants installed in countries within the European Economic Area; and
  • any other issue relating to the planning and conduct of the competitive bidding process.

The final deadline for submission of such RAE’s opinion to the Minister of Environment and Energy has been set for November 30, 2016.

A second Ministerial Decision which shall also be issued after RAE’s relevant opinion shall determine:

  • the participation fee, in favour of RAE (RAE, by​means of a decision, may allocate a percentage of the said fee to the special RES Special Account), the payment of which shall be a condition for participation in the competitive bidding process;
  • the installed capacity, per RES and HECHP power plant technology and/or category, which is auctioned through the competitive bidding processes, including also under certain conditions plants installed in countries within the European Economic Area;
  • the minimum number of the competitive bidding processes that shall be conducted each year; and
  • the maximum and/or minimum allowed bid price for each competitive bidding process.

i. The structure of the competitive bidding processes

The competitive bidding processes are organized and conducted by RAE, which in this framework issues a Notice (Announcement) which shall determine the following:

  • the eligibility and evaluation criteria;​
  • any geographical and land planning restrictions;
  • the time schedule for the construction and operation of the selected power plants;
  • the letters of guarantee;
  • any reduction of the Reference Tariff which may come up in the framework of a competitive bidding process particularly with regard to RES power plants installed on an Non Interconnected Island following its interconnection with the Grid on the mainland; and
  • any special clauses and any other necessary detail related to the process.

Upon completion of the competitive bidding process, RAE shall issue and post on its website a table of results, including the weighted average Reference Tariff per category of power plant.

Especially for the year 2016, RAE shall issue until November 9, 2016 (within three (3) months from the entry in force of the relevant legislation), an Announcement for a competitive bidding process concerning only new photovoltaic (PV) power plants, hereinafter referred to as the pilot competitive bidding process.

ii. The structure of the pilot competitive bidding process

Especially with regard to the pilot competitive bidding process the following shall apply:
a. The participation fee is set at €500 for each participant;
b. The auctioned capacity shall be at least 40 MW;
c. The auctioned capacity is allocated between photovoltaic installations that are under the obligation to obtain a Production License (>1 MWp) and PV installations that are exempted from such obligation (<1 MWp) on the
condition though that the auctioned power for the second category of PV installations may not exceed the 20% of the total auctioned power;
d. The maximum allowable bidding price is set at 94 €/MWh for PV installations which are under the obligation to obtain a Production License, and at 104 €/MWh for the ones that are exempted from this obligation;
e. The maximum allowed capacity per bid submitted is set at 10 MWp;
f. PV installations which will finally be selected through the pilot competitive bidding process shall commence their commercial or trial operation (electrification) within:
- 18 months after the final award for PV installations with a capacity ≤1MWp; and
- 24 months after the final award for PV installations with a capacity > 1MWp.

The above deadlines shall not apply in case that after the final award any of the project licenses required for the lawful implementation of the project is suspended by means of a court order. In such a case the deadlines are extended for as long as there is a suspension.

Condition for the participation of PV installations in the pilot competitive bidding process is the existence of a Connection Agreement, or of a Final Connection Terms Offer on the condition that the relevant letter of guarantee required by law has been also been submitted.

D. Grandfathering provisions​

As expected, and in line with previous legislative​changes in existing RES support scheme, the ministry’s proposal on the new RES support scheme has recognized the direct impact that such a reform is expected to have on capital financing and has therefore included grandfathering transitional provisions for investments which have reached a certain stage of licensing maturity aiming at not undermining investor confidence and reducing investments in the sector by frustrating investor’s legitimate expectations. In accordance with the
above principles, the new RES support scheme, as proposed by the Greek State, is intended to apply only to new RES projects for which a PPA is signed with the electricity market operator after January 1, 2016.

There are certain cases where projects will not fall within the scope of the proposed RES support scheme reform, and will continue to be compensated on the basis of the existing FIT scheme. These cases are:

  • RES projects which are already in an operational​phase; and
  • RES projects which:
    a. exceed the capacity thresholds introduced by EEAG (i.e. over 500kW for all RES technologies and 3MW for wind parks); and
    b. are currently under development; and
    c. have signed PPAs by December 31, 2015.

The RES projects falling under b and c, in order to be compensated on the basis of the existing FIT scheme, they will have to have commenced their trial operation period until a certain date. This date is June 30, 2018 for wind parks and small hydroelectric power plants, and December 31, 2017 for all other types of RES technologies. All of the above RES projects are granted with the option to fall under the proposed FIP scheme on a voluntary basis (opt-in system).

E. The restructuring of the RES Special Account

​The Greek State signed on June 16, 2016, an MoU​with its European partners undertaking the obligation to amend the current legislation on the RES Special Charge and/or the structure of the RES account while respecting existing contracts in line with European Union rules, to ensure that the debt in the RES account is eliminated over a 12-months forward looking horizon (not later than June 2017); the account will be kept annually in balance onwards.

In accordance with the above, law 4414/2016 adopted RAE’s proposals on the amendments in the current legislation on the RES Special Charge and the structure of the RES Special Account and introduced a new funding source of the RES Special Account relating to the revenues generated from the imposition of a charge (expressed in €/MWh) on all load representatives. The imposition of such a charge is primarily intended to lift existing distorting practices in the calculation of the System Marginal Price (SMP) due to the participation of RES in the DAS. More particularly, the Greek State’s intention is to oblige the electricity suppliers benefiting from the lower SMP (due to RES participation in the DAS), to cover the deficit caused in the RES Special
Account due to such low SMP, rather than further “penalizing” the consumers to cover lower SMP prices through ETMEAR surcharge hikes.

III. CONCLUSION

The new RES support scheme which was adopted by the Greek State does not seem to alter significantly the currently applicable FIT mechanism, at least at the initial stage of its application, until the implementation of the bidding process for the determination of the Reference Tariff. The FIP mechanism also provides for a tariff
which although is expected to be slightly lower than the currently applicable FIT, it still remains guaranteed for the whole duration of the PPA, an element which is of significant importance for financing institutions in order for them to make funds available for investments in RES projects.

The main difference between the two support schemes though is related to the obligation of RES producers to participate actively in the wholesale electricity market which shall lead to the gradual integration of the RES technologies in wholesale market conditions. The transition, however, is not expected to be easy, since despite the provision of transitional mechanisms, RES producers falling under the FIP scheme are required to participate in a wholesale electricity market on the basis of unknown operation rules and the exact obligations
they will have since the new operating model of such market has not yet been determined.

Finally, the restructuring of the RES Special Account and the lift of any existing distortions are expected to contribute gradually to the elimination of the debt of the RES Special Account which will in return remove uncertainties caused to investors and financing institutions in favor of investments in RES projects.

Contact

Gus J. Papamichalopoulos, Partner
E-mail: [email protected]

Tel: +30 210 817 1571