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Greek renewables price cap creates problems for PPA contracts

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September 21, 2022

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Published:

September 21, 2022

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The low price cap set by the Greek government for renewables creates an issue for PPA contracts. The situation calls for urgent action.

The European Commission announced a price ceiling of EUR 180/MWh for all power production technologies except natural gas to utilize windfall profits and benefit consumers. However, the Energy Commissioner, Kadri Simson, specified that member-states are allowed to set lower price caps per technology if they wish to do so.

Since July, Greece has enforced price caps in its wholesale market for lignite plants, renewables and hydro. Specifically, the price cap for September was set at EUR 214/MWh for lignite, EUR 112/MWh for hydro and EUR 85/MWh for renewables. It should be noted that windfall profits before July have not been collected yet, except in the case of renewables, where they were already automatically returned to the national Energy Transition Fund, which supports consumers.

Greek wind farms’ remuneration is at EUR 94/MWh on average

The Greek government estimates that the EUR 85 price cap for renewables is more than enough to allow a healthy profit for the sector. In contrast, most renewable projects in Greece do not directly participate in the wholesale market and are reimbursed through stable prices through tariffs or other mechanisms.

According to the Greek wind energy association, ELETAEN, “wind farms have acquired low and stable prices through long-term contracts with the public operator, DAPEEP. The average remuneration for Greek wind farms is about EUR 94/MWh, which was only 22% of the wholesale price for August 2022. Therefore, the government’s price cap does not directly concern wind energy since these projects already return any windfall profits to consumers.”

The solution needed for PPA contracts

However, the EUR 85/MWh renewable price cap creates another problem: When Greece is trying to develop its PPA market, a logistical issue must be solved.

In recent months, the first PPA contracts have been signed between producers and large consumers in the country for renewable projects currently under construction. According to the existing mechanism, the PPA producer gets paid the total wholesale price from the market, for example, EUR 350/MWh, and the consumer buys at that level. Afterwards, the difference between that level and the price they have agreed upon is subtracted.

Now that there is a price cap for renewables at EUR 85/MWh, the producer gets paid EUR 85 instead of the total wholesale price (EUR 350), while the consumer buys at the total wholesale price. This creates a logistical imbalance and a problem that must be addressed.

There are two possible solutions to the issue: PPA contracts will have to be executed outside  will have to be executed outside of the wholesale market at the agreed price, or they will have to be excepted from the EUR 85 price cap inside the wholesale market.

In any case, Greek renewable companies warn that the issue must be resolved before new projects under PPA agreements become operational within the next months and 2023.

European renewable associations react to EUR 180/MWh price cap

The decision by the European Commission to enforce a EUR 180/MWh price cap for renewables and member-states right to set a lower cap has been met with negative comments by European renewable associations.

WindEurope: Patchwork of different price caps creates uncertainty

The wind energy association, WindEurope, said that “Europe needs more renewables as soon as possible to reduce its overreliance on Russian fossil fuel imports and to overcome the current energy crisis. A patchwork of different price caps, unilaterally introduced by the individual Member States, creates investment uncertainty.”

“An EU-wide cap on revenues from wind should be precisely that – a single EU-wide cap.”, said WindEurope’s CEO, Giles Dickson.

The solar association, SolarPower Europe, has also warned that if lower price caps are introduced, they could hit power purchase agreements, a vital tool in building out renewable energy capacity.

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