Thanks to a number of important reforms and its geographical position, Greece may play a role as an energy hub in the South East. What are Greece’s main policy priorities in terms of both domestic and Mediterranean energy policy?

Nowadays, Greece’s energy sector still depends largely on fossil fuels, most of which are imported.

Domestic energy sources include lignite, which accounts for around 50% of electricity generation, as well as renewable energy sources (RES) such as hydro-power, wind, solar energy and biomass. RES currently account for 13.8 % of gross final energy consumption and a national target of a 20% share by 2020 has been set.

However, a number of important reforms aiming at a further liberalisation of the energy market, as well as its integration with neighbouring countries and the privatisation of public companies are currently being implemented. There are also plans for large infrastructure projects in the electricity, gas and petroleum sector that are supposed to strengthen Greece’s position as an energy hub in the South-East of Europe.

What is going on in the Greek Energy Market and what are Greece’s main policy priorities in terms of both domestic and Mediterranean energy policy?

The Time of Political Superstitions and Domestic Resistance Is over for the Greek Energy Market

The Greek energy market is currently going through fundamental restructuring, finally leaving behind political superstitions and domestic resistance.

Beyond gas market, the new bill on renewables and strategic pipelines are eventually progressing. Thus, the next big front is the electricity market; new “Target Model”, new Capacity Payments scheme, 3rd party access to hydro and coal-fired power generation, creation of daily and intraday balancing market are shortly getting en route.

Around 61% of Greece’s energy needs are covered through imports with the remaining 39% being covered through national energy sources, mainly lignite (77%) and RES (22%). Imported energy sources are mainly petroleum products that account for 44% of total energy consumption and natural gas with a share of around 13%.

Furthermore licenses for the exploration and exploitation of onshore gas blocks in Western Greece have been awarded to Hellenic Petroleum (HELPE) and Energean. This development follows an earlier tender of 3 offshore fields awarded to JV’s led by HELPE and Energean. The tender for the concession of 20 blocks in the Ionian Sea and South Crete is still under evaluation with 3 bids submitted.

Greece became the first EU country to buy Iranian oil after the lifting of sanctions. The country’s biggest oil refiner, Hellenic Petroleum (HELPE), has resumed purchases of crude from the National Iranian Oil Co.(NIOC) under a long term agreement. HELPE is planning to cover 20% of its crude oil demand via a swap for clean petroleum products with Iran. Negotiations are also conducted for cooperation in the gas and LNG sectors.

The existing LNG import terminal in Revithoussa is currently under expansion (completion due mid-2017), involving the construction of a 3rd storage tank, the upgrade of marine facilities, the installation of additional cryogenic send-out equipment and the upgrade of the metering system. This upgrade (+73% storage capacity, +40% faster re-gas rate, Q-max suitability) will not only increase security of gas supply and balancing capability for the natural gas system but will also enhance 3rd party access to physical flexibility and competition in the domestic natural gas market.

The proposed LNG plant in Vassilikos and the Mediterranean regasification terminals. Source: Middle East Economic Survey (2013).

The Mediterranean, an Energy Region Highly Interdependent for Electricity and Gas

Currently Mediterranean countries, Greece included, are mainly concerned with two priority corridors: the North-South electricity corridor and the Southern gas corridor. These projects should also take into account future energy demand, which is expected to substantially rise.

The Mediterranean energy region, where Greece plays a key role, has a high degree of interdependence, both for electricity and gas. Constant contacts and strong cooperation among Mediterranean countries are therefore necessary to ensure countries with proper flows of energy, both for commercial use and to guarantee proper security of supply.

Currently, several cross-border interconnections exist in the region. As for electricity, the three Maghreb countries (Algeria, Morocco and Tunisia) are interconnected and further linked with the European Union. As for the Eastern side of the Mediterranean, the interconnected grids of Jordan and Egypt form the South East Pool.

The main gas interconnections of the region lay on the South shore – North shore axis. It is foreseeable that diversification of supply will pave the way for more intense transport infrastructures along the East-West corridor. Current interconnections are not sufficient to guarantee a proper development of the region.

Electricity and gas interconnections around the Mediterranean region need to be substantially improved in order to allow an effective and well integrated regional energy market. It should also be considered that investments in energy grids and generation facilities require a medium-to-long term commitment on the part of companies, regulator and the political power, so to create a stable and well governed environment where payback is guaranteed in due time.

Moreover, Mediterranean national energy markets are today at very different degrees of maturity.  Utilities on the Southern shore are state-owned and operate either based on vertically integrated service providers or using a single buyer model. Most of these utilities are running at high degree of subsidies, which do not provide a right price signal for private investors.

Therefore, most of the investments are financed by the state. However, states face increasing difficulties in keeping the current level of subsidies. Reform of the electricity and gas sectors are being discussed in various Southern countries. Egypt, for example, is currently designing a substantial reform of its electricity sector. The presence of independent regulators is pivotal to guarantee that the reform balances between the needs of investors and consumers, and to subsequently provide investors with a clear framework of rules.

The EU Neigbourhood Policy (ENP) Map. Copyright EU 2013.

Several initiatives are active in the region to increase investments in the energy sector and enlarge their scope: governments, regulators (MEDREG), TSOs (Med-TSO), operators (Observatoire Méditerranéen de l’Energie, – OME, Res4Med, Medgrid, Desertec – Dii and others), as well as international financial institutions (IFIs). Also, the EU implements a programme of financial and technical assistance to the region, such as the Neighbourhood and Partnership Instrument (ENPI).

In particular, international financial institutions (such as the European Bank for Reconstruction and Development – EBRD, the European Investment Bank – EIB, the African Development Bank – AfDB and the World Bank – WB) are today in a key position to support energy investments, most notably in infrastructure, provided that appropriate cooperation takes place among the different actors involved. Regulators are among those actors.

Indeed, regulators should dedicate increasing attention to enhance the level of efficiency interoperability and the quality of planning of energy infrastructure. Cross-border infrastructures are crucial to boost the upgrade of internal grids and overcome the actual fragmentation of the Mediterranean energy system.

Priority and top objective of Greek Energy Policy and of a Mediterranean Energy Policy

Given this picture, the priority and top objective of Greek energy policy and of a Mediterranean energy policy are to safeguard and manage energy resources in a manner that secures the smooth, uninterrupted and reliable supply of the nation’s energy needs and access for all users to affordable, secure energy.

The second objective is to secure energy stocks, through alliances and alternatives energy sources and routes in order to ensure the supply of the domestic market and protect consumers in the case of emergencies.

The third objective is the viable and sustainable development of the energy sector from the stage of production to the end-use while protecting nature and safeguarding the environment.

Last but not least objective of Greek energy policy and of a Mediterranean energy policy is the creation of adequate, integrated and reliable energy networks that is a prerequisite to deliver a properly functioning energy market that will enhance security of supply, integration of renewable energy sources, energy efficiency and will enable consumers to benefit from new technologies and a smart use of energy.