Legal framework
Implementation and further regulation
October 2017 auction
Comment
In 2016 Law 4389/2016(1) introduced the sale by auction of electricity forward products with physical delivery by the Greek vertically integrated Public Power Corporation (PPC) to eligible electricity suppliers (so-called 'NOME' auctions, after the French acronym for such models). The purpose of these auctions is to:
- reduce, by the end of 2019, the PPC's retail market share in the area covered by the interconnected system (the electricity sold on the islands that are not connected to the mainland grid is not included) from 95.24% (as of August 2015) to less than 50% by providing access to electricity produced by lignite-fired and hydropower plants;
- enhance competition among alternative suppliers (other than the PPC); and
- provide better quality products and lower prices to consumers.
The annual quantity of PPC-generated electricity to be sold at the auctions should gradually increase from the quantity sold by the PPC in August 2015, from 8% in 2016 to 13% in 2019. These auctions should give alternative suppliers direct access to cheaper electricity acquired beyond the mandatory pool of the day-ahead wholesale electricity market. The initial price of the electricity sold at the auctions comprises a mixture of the variable costs of electricity production incurred by the PPC from lignite and hydropower.
The auctions are organised by the market operator, LAGIE, which issued the Code on the Auctions of the Forward Electricity Products (the NOME Code)(2) in September 2016 following approval from the Regulatory Energy Agency (RAE). The RAE sets:
- the annual quantities of electricity;
- the quantities to be sold at each auction; and
- the dates for each auction.
The Ministry of Finance and the Ministry of Environment and Energy, at the RAE's proposal, regulate the methodology for calculating the initial auction price.
Implementation and further regulation
The first auction was held in October 2016 when 460 megawatt hours per hour (MWh/h) of forward annual product was sold.
In December 2016 the RAE determined(3) the quantities to be sold at the 2017 auctions. According to this decision, the total annual quantities amounted to 681 MWh/h, divided as follows:
- at each of the first three auctions – 145 MWh/h; and
- at the fourth auction – 246 MWh/h.
The first three auctions took place in January, April and July 2017. At all of the auctions, the electricity prices were significantly lower than those of the mandatory pool (although at the last auction, they were substantially above the initial price), thus enabling suppliers to offer lower prices to their consumers.
However, the PPC's retail market share was not reduced to 75% in 2017 as planned in order to achieve the target, but instead remains at approximately 85%. As such, in May 2017 Law 4472/2017(4) – which amended NOME Law 4389/2016 – increased the total quantities of electricity to be sold during the 2017 NOME auctions from 12% to 16% of the total electricity available in the interconnected system in 2016.
Since the quantity sold at the July 2017 auction remained at 145 MWh/h, the October 2017 auction faced a major increase in quantities. Finally, in September 2017, the RAE issued Decision 817/2017, determining that the quantities of annual products at the October 2017 auction would be 718 MWh/h. These vast amounts attracted significant attention from eligible suppliers and traders.
To date, the NOME Code and the auction rules have been amended several times.
In March 2017 the RAE issued Decision 184/2017,(5) which limits not only the quantities of electricity that suppliers may purchase at future NOME auctions, but also the annual forward products purchased during the previous two auctions (ie, the electricity which was scheduled to be delivered after issuing this decision). Suppliers must purchase all of the additional quantities that they need in addition to that purchased at the NOME auctions from the mandatory pool.
After these amendments, participants must pay the mandatory pool price for the quantities above the base load tolerance, as calculated by LAGIE. LAGIE first calculates the hour with the lowest total consumption (load base) for each supplier and each day. After that, it increases the results by 10% in order to calculate the base load tolerance.
If the quantities purchased at the NOME auctions are above the base load tolerance, the auction price is calculated and paid up to the base load tolerance, while the supplier must pay the mandatory pool price for the quantities above that price.
In July 2017 the RAE issued Decision 571/2017(6) to amend the NOME auction rules further by suspending the application of the 'all or nothing' option.
The winning bidder is selected on the basis of the following criteria:
- price;
- quantity; and
- the time of submission of the offer.
Thus, where two bidders offer the same price (and after submission of the improved offers, the price remains equal), the winning bidder is that which offered to purchase the greater quantity. The winning bidder commits all of the requested quantities, while the other party, unless it has used the 'all or nothing' option, receives the reduced quantities. If the losing party uses this option, it does not commit any quantity and the bidding for such quantity may start from the beginning (ie, from the initial price).
In October 2017, the RAE issued Decision 850/2017 after a brief public consultation.(7) This decision introduced the following major amendments to the NOME auction rules:
- Participants which have failed, during the three months before the auction, to purchase the specified quantity of electricity (ie, the regulated proportion of use of the committed NOME products) from the NOME auctions are prohibited from participating. According to this new decision, the regulated proportion is:
- 30% for 2017;
- 50% for the first half of 2018; and
- 70% of the quantities of the forward annual product purchased at the NOME auctions for the second half of 2018.
For new entrants into the market, the regulated proportion for 2018 is 30%.
- The 'all or nothing' option has now been reinstated. However, once used, the participant must submit a new – and increased – offer (in terms of either price or quantities).
The NOME auctions – particularly the October 2017 auction, due to the increased quantities of electricity – have gathered increased interest from participants in the Greek electricity market. At the same time, discussions about the future of the auctions continue with the same intensity. This is because the NOME auctions, which are scheduled to continue until 2020, may be affected by the restructuring of the Greek energy market – in particular:
- the creation of the electricity market in compliance with the EU Target Model, which is expected to become operational in 2018 and will likely replace the mandatory pool; and
- the sale of approximately 40% of the PPC's lignite-fired electricity production units.(8)
These production capacities are, at least as far as prices are concerned, an important source of electricity sold at the NOME auctions.
For further information on this topic please contact Mira Todorovic Symeonides at Rokas Law Firm by telephone (+30 210 361 6816) or email ([email protected]). The Rokas Law Firm website can be accessed at www.rokas.com.
Endnotes