Ceilings but also subsidies
A permanent mechanism to deal with emergency situations – like the one we are going through – created by the imperfect functioning of the internal electricity market the government establishes, in addition to subsidies to deal with the price increases expected in August.
As pointed out by the Minister of Environment and Energy Th. Skylakakis and the deputy minister Alexandra Sdoukou during the presentation of the measures for price restraint in Augustthe existence of extreme differences in prices in neighboring markets certifies the imperfections of the internal market which cannot be addressed by the current Directive 1711/2024.
This directive enables governments to impose ceilings on electricity prices but with very strict conditions which are:
- The existence of very high average prices in the wholesale electricity markets, multiples of at least two and a half times the average price in the previous five years, and of at least EUR 180/MWh, which are expected to be maintained for at least six months; for calculation of the average price during the previous five years does not take into account those periods for which a regional or Union electricity price crisis was declared;
- The sharp increases in retail electricity prices of around 70%, which are expected to continue for at least three months.
As it appears that the electricity market will increasingly experience regional or short-term crises like the current one, the government is adopting a response formula that will be activated when needed, with less stringent conditions, with the approval of the European Commission and will allow the imposition of a ceiling on its wholesale electricity in a manner analogous to that which applied during the energy crisis. The relevant arrangements will be established with the law for the integration of Directive 171 1/2024 into the national legislation which is expected to be done immediately and in any case before the end of the deadline in January 2025.
The main causes for the launch of wholesale prices not only in Greece but in the wider area of SE Europe was the increase in demand due to the prolonged high temperatures and the inadequacy of cross-border interconnections to transfer energy from countries where costs remain lower.
According to the data presented, wholesale prices on the Greek Stock Exchange shot up at certain moments last week above 750 euros per megawatt hour with an increased (over 40%) participation of natural gas in the electricity generation mix, at a time when the international price of natural gas ranges at 33 euros per megawatt hour. In comparison, during the energy crisis, the wholesale price did not exceed 700 euros per megawatt hour, when the price of natural gas exceeded 160 euros.
The average wholesale price in Greece during the first fortnight of July was 131 euros, i.e. significantly higher than in the first half of the year when it ranged between 60 and 100 euros. The aim of the government intervention is to prevent wholesale price increases from being passed on to August retail tariffs by introducing a subsidy whose amount will depend on the level at which suppliers’ tariffs will be set next month. The financing will come from the imposition of a tax on natural gas used for power generation, the amount of which will be determined accordingly in the coming days.
Subsidies will be given to households with floating tariffs (“green” and “yellow”) for August consumption up to 500 kilowatt hours.
