Greece’s economy was once powered by lignite. Today, continuing to invest in this most polluting fuel threatens to render Greece’s energy market uncompetitive, writes Eleni Diamantopoulou and Simon Holmes.
Greece is at an energy crossroads. Decisions taken by the Greek government and the European Commission in the coming weeks and months will decide whether Greece is locked into an anti-competitive lignite world until at least 2030, or whether it can embark on a cheaper, cleaner, low carbon energy future.
Investing in a fuel of the past
For six decades, lignite – the dirtiest and once the cheapest form of coal – has been the driving force of Greece’s economy. The Public Power Corporation (PPC), Greece’s dominant energy company was at the heart of growing the sectors. Its low cost of electricity production and the number of jobs it supported were deemed to outweigh its devastating impacts on people’s health and the environment.
However, in 2008, PPC’s exclusive rights to generate, transport and supply electricity throughout Greece were challenged by the European Commission. To enhance competition in Greece’s distorted electricity market, the Commission decided that PPC had to divest 40% of its lignite assets. This obligation was enshrined in Greece’s latest bailout agreement through the European Stability Mechanism with the European Commission, the European Central Bank and the International Monetary Fund, also referred to as the European Troika.
The divestment aimed to open up competition for lignite in Greece so that other generators, wholesale traders, retail suppliers and consumers could benefit from more competitive, cheaper electricity prices. But today, as the energy transition accelerates, the divestment threatens to run contrary to the principles of effective competition and consumer welfare, as well as the EU’s energy and environmental policies.
High costs, high carbon, high folly
To meet the new, stricter environmental standards, PPC’s lignite assets require extensive and expensive retrofits. They are also confronted by skyrocketing CO2 prices. This renders lignite-fuelled power production one of the most expensive, uneconomic and uncompetitive sources of energy in a country brimming with renewable potential.
The financial unattractiveness of PPC’s assets is reflected in the major delays in the divestment procedure. The deadline to submit bids has already been postponed several times – due to the lack of investors willing to buy assets that are running at a loss. In spite of this, Greek and European authorities are still trying to force the conclusion of this anti-competitive deal.
The cost of protecting lignite
To make the lignite sale more attractive, the Greek government passed a law abolishing two levies on lignite. A new bill plans to impose a CO2 levy on all household electricity bills, to help alleviate the lignite industry’s losses. This contradicts the spirit and purpose of the Emissions Trading Scheme Directive, which aims to reduce greenhouse gas emissions by forcing producers to bear the cost of every tonne of CO2 they emit in line with the “polluter pays” principle. The Greek government will instead force consumers to foot this bill.
Even worse, the Greek government is negotiating with the European Commission a new tailored “capacity mechanism” for lignite to subsidise the operation of what would otherwise be economically unsustainable power plants. This scheme requires approval under State aid law – and under the circumstances, it is unthinkable that the Commission should approve these high carbon subsidies. Unfortunately, the unthinkable may happen.
Without these measures, lignite does not have a long-term future in Greece’s energy market. But with them, PPC – and potential bidders for its lignite assets – will receive a competitive advantage to the detriment of clean energy players. This is a dirty, expensive, and fundamentally anti-competitive way to prolong a flagging industry.
Pushing for new lignite plants – at a time of climate crisis
The consequences of the divestment for consumers, and the planet, do not stop there. To meet the sale threshold of 40% of PPC’s lignite assets, the Commission’s divestment decision allows construction of Meliti II, a new 450 MWe lignite power plant. It also proposes to extend the exploitation of the lignite mines by up to 40 years to ensure fuel to feed the divested plants.
These decisions would lock lignite into Greece’s energy mix at least until 2050. This is unconscionable in a time of climate crisis, and calls into question the sincerity of the EU’s – and Greece’s – intentions and abilities to comply with its Paris Agreement obligations.
Time to reassess
This anti-competitive divestment risks having the exact opposite impact on competition to that intended in 2008. It distorts the Greek electricity market against alternatives to lignite, such as renewables, the use of interconnections, storage, demand response and their suppliers. And this distortion has a knock-on effect on fair and cheap electricity prices, ultimately harming the Greek consumer, who foots the bill.
There is still time for the Greek government, European authorities and the Troika to avoid this impending mess. Letters recently sent to Commissioners Vestager and Cañete and Vice President Šefčovič from environmental organisations urge them to take a step back, reflect, and recognise that the overriding need to support the energy transition and promote a competitive energy market requires the sale to be stopped.
This opinion piece was written by Eleni Diamantopoulou, a Greek energy lawyer at ClientEarth and Simon Holmes, a member of the UK’s Competition Appeal Tribunal, and former Head of King & Wood Malleson’s global competition law practice.