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Greece transitions power market to lure renewables investors

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A wind farm in Kefalonia, Greece. Aside from breezy and sunny conditions, investors are also drawn in by continued subsidy support and a high power price.
Source: Ellaktor

The Greek renewable energy market is set for a wave of new development and investment, as high power prices and generous subsidies lure international players.

Developers are benefiting from a shift in political resolve toward decarbonization and climate action, both of which have been brought into sharp focus in recent days as devastating wildfires ravaged the country's second-largest island, Evia, after record temperatures.

Historically reliant on lignite coal, Greece is phasing out its last coal plant by 2025 and eyeing 95% renewables in its power mix by 2050. Wind and solar already make up 23% of the mix, and smoother permitting processes and grid reinforcements could unlock more of the sun-drenched hills and windy islands in the eastern Mediterranean nation over the coming years.

Major European utilities like Iberdrola SA, Enel SpA and Electricité de France SA are developing renewables projects in the country.

"Greece is now becoming much more interesting," said Luis Adao da Fonseca, managing partner at asset manager Exus Management Partners and former CFO at EDP Renováveis SA, adding that the market has "changed significantly" in recent years.

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As other governments in Europe phase out subsidies for renewables, Greece continues to offer support. The country's renewables auction program, which runs to 2024, is dominated by large local players like Mytilineos SA, Ellaktor SA and Terna Energy SA, but the likes of Iberdrola and EDF have also been successful.

Lightsource BP Renewable Energy Investments Ltd., another recent entrant to Greece, won solar contracts at an auction in May worth an average of €38.50 per MWh — more than double certain solar prices in Spain and Portugal, for instance, where heated competition from local and international players has pushed down prices.

Greece's regulatory framework is also becoming more favorable for renewables development. In late 2020, the government introduced electricity market reforms that align the country with EU plans for an integrated European power market.

The introduction of this so-called "target model" for the electricity sector, along with Greece's adoption of EU state aid rules and its program of capacity auctions, are important drivers allowing for the development of new large-scale renewables projects, according to Thanasis Tsantilas, chairman and managing director of Rokas Renewables, Iberdrola's Greek subsidiary.

"Greece is finally becoming a contemporarily advanced electricity market," Tsantilas said in an email.

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Corporate PPA market to emerge

Aside from auctions, Greece is also drawing in investors keen on exposure to wholesale power prices, Adao da Fonseca said. Greek power prices averaged about €64/MWh in 2019 but, fueled by rising gas prices, the monthly average reached more than €83/MWh in June this year, improving the picture for merchant renewables.

There is also growing interest from industrial corporates in signing power purchase agreements, or PPAs.

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For now, utilities and power retailers dominate the renewables PPA market in Greece, but corporate PPAs are "going to start happening this year," according to Virginia Murray, a partner at law firm Watson Farley & Williams in Athens.

Iberdola expects PPA interest from energy-intensive industries and is already looking at potential counterparties. "We see large-scale metal and building material industries, communication and data center companies, agriculture, consumer products industries and touristic units to be the potential clients," Tsantilas said.

Greece relies on electricity imports from other regions. Exus, which is eyeing an entry into the market this year, sees value in merchant projects given Greece's structural power shortness and limited transmission capacity. "The trend will always be high prices," Adao da Fonseca said. Price volatility will also allow projects to leverage battery storage solutions to boost returns.

Funding will be available for good projects. Amid the yearslong debt crisis in Greece, international banks left the scene and since then local lenders have dominated renewables financing, Murray said in an interview. The European Investment Bank and European Bank for Reconstruction and Development, as development lenders, also remained active in the country.

"Greek banks are well-funded and keen on the work. They know the market and the risks better and are more flexible than international banks," Murray said. But with the economy recovering in recent years, Murray expects international banks to reenter the fray over the next 12 months.

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The Acropolis in Athens. Many Greeks are worried about the visual impact of wind turbines on the country's historic landscape.
Source: Thinkstock

'Time for implementation'

Onshore wind capacity in Greece has more than doubled since 2015 to over 4.3 GW. Further growth aimed at tackling the country's climate targets, including a 95% greenhouse gas emissions reduction by 2050, will largely come from existing projects that have already received permits.

"There is a critical mass of projects that have matured, and now is the time for implementation," Panagiotis Papastamatiou, CEO of the Hellenic Wind Energy Association, said in an interview.

Most of the projects are set to renew their design since the original paperwork was approved, because larger turbine designs have since come to market. But Greece is a mountainous country with many narrow, winding roads, which Papastamatiou sees as a key constraint for turbine scaling. "Probably we have achieved the limit; transport of [turbines of] of more than 5 MW will be difficult," he said.

Permitting has also been a constraining factor for onshore wind. Papastamatiou likened Greek society to Janus, the Roman god with two faces, because it is simultaneously deeply aware of climate change and concerned about the landscape changes brought by wind farms. But a constant dialogue with stakeholders and continued protection of historic vistas have allowed for balance. "Of course we will not put wind turbines on Acropolis," Papastamatiou said.

For solar developers, licensing is less burdensome. At the same time, land rights are much more complex because projects are often developed on farm land with multiple land ownership, Murray said.

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High-stakes investments

As Greece shuts its lignite-fired coal generation hubs in the north of the country, the decentralization of the power mix will mean substantial investment is required in interconnections and grids. The government has declared the issue a priority, and part of its €30.5 billion COVID-19 recovery plan is set to go toward grid upgrades.

Meanwhile, the country is eyeing offshore wind development in its wind-rich waters, and a regulatory framework to designate areas and design auctions is expected. With mostly deep waters, Greece will need to bet on floating wind turbines, a nascent technology on the verge of commercial-scale projects. However, the country faces a challenge in bringing its fishing, tourism and maritime transport industries on side, while conflicts with neighboring Turkey, which have previously been ignited over energy projects in the Aegean Sea, will also be on lawmakers' minds.

The Hellenic Wind Energy Association predicts 1 GW of wind capacity could be deployed offshore by the end of this decade, and Iberdrola's Tsantilas said the government must learn from past mistakes if it is to achieve its climate targets.

"Offshore wind as well as networks upgrading will be extremely important to support such policies," the executive said. "As we have experienced in the past, doing only small and faltering steps giving priority to small players to feebly perform on such a high-stakes call on investments, will leave Greece once again out on the fringe."