The array of institutional investors circling the renewables market in Greece indicates a rich vein of natural energy resources just waiting to be exploited. The government, by tearing down long existing barriers to investment, could unleash a simmering green revolution that would put the troubled country on track for a solid economic recovery
A COUNTRY AT RISK
With around 6000 islands, Greece is one of the countries most at risk of feeling the effects of catastrophic climate change
COAL FREE
Plans to phase out coal from its energy mix place a spotlight firmly on renewables, but time is short if Greece is not to default on its EU carbon reduction obligations
KEY QUOTE
All state bodies need to cut red tape procedures for investments to go ahead, not just the energy ministry
Greece is fast opening up its renewable energy sector after long being an EU laggard in transitioning from black to green power.With abundant wind and solar resources on the mainland and throughout its over 220 inhabited islands, Greece has been able to adopt one of Europe’s more aggressive plans to reduce the country’s carbon footprint. The plan paves the way for €9 billion of investments in renewable energy projects over the next ten years, says the country’s energy minister Kostis Hatzidakis. Numerous challenges remain, however, including bureaucratic red tape, limited power infrastructure for green electricity delivery, and a lack of transparency on upcoming renewable projects, all of which are harming investor confidence. Even so, green power is one of the few bright spots in the Greek economy. “The economy may have come to a standstill due to the pandemic but momentum in renewables remains strong due to its growth capacity,” says Pantelis Kostis, at the Athens University. “Renewables are set to be among the sectors that will lead Greece back to a recovery path.” As the covid pandemic hit, Greece’s economy plunged into deep recession, contracting by 15.2% in the second quarter of 2020. The outlook for the whole of 2020 remains grim, with gross domestic product seen shrinking by 9.5%, compared with a projected EU average of 7.6%, according to the International Monetary Fund. Against a backdrop of plunging investments, demand for renewable energy is holding its ground as the power sector adjusts to tougher carbon reduction emission goals imposed by the government. In a bid to achieve a climate neutral economy by 2050 and meet its obligations under the EU’s common carbon reduction goal, Greece increased its core objective of reducing greenhouse gas emissions by more than 56% by 2030, compared with 2005 levels, versus an initial 49% target, based on its revised National Energy and Climate Plan (NECP).
WHAT IS AT STAKE
As the planet heats, a growing sense of just how much damage the country will suffer is emerging. Greece stands to lose some €750 billion from the effects of climate change through to 2100, about four times the size of the economy, with farming and tourism hardest hit, according to a report put together by Greece’s central bank. Prime minister Kyriakos Mitsotakis says the coronavirus and climate crises are demanding new thinking. “It is urgent that Greece be present on this front with a dynamic and attractive investment profile,” he told its parliament recently.
COAL PHASE OUT
A few months after winning the 2019 elections, the ruling Conservative party decided on one of the biggest changes seen in the energy sector in decades. A plan was announced for Greece to be lignite-free by 2028. With coal accounting for about 34% of gross electricity produced in 2018, the announcement has switched the focus on to renewables. The process to shutdown all of Greece’s 14 lignite plants owned by the state-controlled Public Power Corporation (PPC) has started. So far two units in Amyntaio, northern Greece, have been shuttered, with most of the remainder to go offline between 2022 to 2023. The final one will close in 2028, ten years before Germany retires its coal power production. To make up for the inevitable shortfall in generation, Greece revised its plans for the share of renewable energy in gross final energy consumption by 2030, pushing it up to at least 35%, from a previous target of 31%. The contribution from renewables for 2020 is 18%, supplied by around 10.5 GW of installed capacity, about two-thirds of that from wind power. To reach 35% will take 19 GW of additional green power Alexandra Sdoukou at the environment and energy ministry describes investor interest as robust. “At this moment, projects with a total capacity of 26 GW are maturing, with five of these at a very mature stage. Permit applications have been submitted for additional projects with a capacity of 35 GW,” she says.
GRID EXPANSION
Investments in green power go beyond deals for new gigawatts of generating capacity. Greece’s Independent Power Transmission Operator (IPTO) is laying cables under the Aegean Sea to connect the mainland power grid with the country’s islands as part of a €4.3 billion, ten year investment plan. The new cables will facilitate better power system management, according to IPTO, which is 24% owned by China’s State Grid Corporation, the world’s largest electricity utility. The Chinese have expressed an interest in acquiring a stake in one of IPTO’s key projects, a €1 billion undersea cable linking the island of Crete with the Attica region on the Greek mainland.
All these state bodies need to cut red tape procedures for investments to go ahead, not just the energy ministry. Focus should be given in the acceleration of approvals for the modifications of mature projects, such as projects which have been selected through auctions
TRANSITION FINANCING
Credit to support the €9 billion of projects is coming from a mix of EU and national funds, the European Investment Bank (EIB) and local and foreign sources, government officials say. Greece is also set to benefit from the EU’s Green Recovery Plan, part of the bloc’s spending to ease the economic pain of coronavirus lockdowns. The plan includes a Just Transition Fund of €150 billion to help cushion the blow to workers in dying energy industries. The EIB has also pumped €1.7 billion into Greek renewable energy over the past five years, mostly targeting wind power projects and the national power grid. The bank expects to provide similar funding for further green projects in the next five years.
INVESTOR APPETITE
Investor interest has remained strong despite the pandemic, attracted by the probability of steady returns on renewable energy projects amid enormous uncertainty in the global economy. In the first half of 2020, 300 MW of new wind power went online in Greece, representing investments of some €300 million. Compared with 750 MW of new wind for the whole of 2019, activity would seem to have slowed, but the six-week lockdown in Greece in March and April 2020 hampered project completion. Moreover, 300 MW is more than double the annual average over the past ten years. A growing number of global financial players have been scouting Greece in a bid to broaden their energy portfolios, spurred on by demands from more environmentally conscious shareholders. Among them are US funds Blackrock, Quantum and Cubico, and Denmark’s Copenhagen Infrastructure Partners. The national utility has also attracted interest, with Italy’s Helikon Investments, a hedge fund launched in 2020, buying a 5% stake in PPC in October 2020 in a deal worth about €60 million. Some large energy players are also increasing their exposure in Greece. In March 2020, Germany’s energy giant RWE hooked up with PPC to work together on jointly developing photovoltaic and wind projects in areas where lignite plants are being shut down, while Spain’s EDP Renewables signed a deal with Greek construction group Ellaktor to jointly develop renewables. On the Athens stock market, investors have pushed up the price of shares in energy companies that have added green credentials alongside corporate restructuring efforts. In a sign of increasing investor confidence in Greece’s energy sector, shares in PPC soared by 114% in the six months to October 2020, while stocks in domestic renewables developers Terna Energy and Mytilineos each grew by 47%, outstripping gains of 5% in the broader Greek stock market and a 17% crash in the MSCI Europe Energy index for the same period. Nikos Papapetrou, from Mytilineos, points out that the company’s expanding renewables portfolio is helping boost its environment and social governance rating.
STICKY RED TAPE
Despite the positive signs, bureaucratic hurdles continue to be a major impediment to renewables development, although reduction of red tape has started. In 2020, legislation slashing years off project permitting was introduced and gave the energy ministry a key role in helping to speed the approvals process. More action is needed, say developers. “The development of a wind project touches on an array of laws involving different public services, such as forestry services, archaeologists, and spatial planning authorities,” says Panagiotis Papastamatiou from trade body Hellenic Wind Energy Association (HWEA). “All these state bodies need to cut red tape procedures for investments to go ahead, not just the energy ministry. Focus should be given in the acceleration of approvals for the modifications of mature projects, such as projects which have been selected through auctions,” he adds. The renewable energy auctions procedure is an area of concerns for investors. The Greek energy regulator has yet to publish the auction schedule for 2021. Ministry officials say it will soon be announced, but as of early November 2020 investors were still in the dark. “We need increased visibility. This is a big problem for Greece,” says Christoph Zipf at WindEurope. “We do not know how much new capacity will be auctioned and when. This is harming investment decisions.” Also unsettling the market is talk of a new levy being introduced to help cover a shortfall in a state fund that pays green energy producers. Beyond such immediate problems, experts question whether enough is being done in the way of transmission infrastructure development to facilitate exports of green power. Greece is interconnected with Bulgaria and Italy, but the wind association’s Papastamatiou says more will be needed in the next ten years. Solar energy sales are also hampered by lack of sufficient medium voltage grid capacity, adds Stelios Psomas at the Hellenic Association of Photovoltaic Companies. Without a grid fix, the risk is that investors will pull the plug on thousands of projects, he says.
TEXT Stelios Bouras