Greek PV market remains idle, defined by paradox

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Greece invented drama and the Greek photovoltaic market is no exception to it. From a dramatic rise in Greece’s PV market last year, installing more than 1 GW, the country experienced a dramatic fall in photovoltaic installations this year, installing a miniscule 5.5 MW.

According to the latest statistics published by Greek electricity market operator LAGIE this month, the country installed 1 MW of rooftop projects (up to 10 kW each) and 4 MW of ground-mounted PV projects (each larger than 10 kW) between January and August 2014.

For the month of September, LAGIE published a separate report providing some preliminary data regarding Greece’s photovoltaic installations in the mainland grid only. According to this report, an additional 0.5 MW of solar PV was installed in Greece in September, excluding the islands grids.

The dramatic fall was a direct consequence of a combination of factors. The most important of all was the Greek government’s decision in August 2012 to suspend the approval process for photovoltaic systems, including pending applications. A second reason was Greece’s huge financial crisis, which dried its banks of cash for new projects. And a third reason was that international investors grew scared of the Greek government’s policy jeopardizing potenitial projects and lost confidence in Greece’s market stability.

The Greek PV market paradox

Greece’s PV market is defined by a paradox. Domestic PV installations enjoy one of the best internal rates of return (IRR) in Europe, still local developers struggle to make ends meet.

The Greek government has said it was initially forced to impose on PV plants a retroactive levy and later retroactively cut their feed-in tariffs (FITs) — the so-called "New Deal" — due to the uncommonly high investment returns of these projects. The government argued that such high IRRs, some reaching above 36% and among the highest in the world, had led to a huge and unsustainable debt in Greece’s special fund for supporting renewable energy projects. After the cuts, the Greek government said, IRRs were brought down to around 12-13%.

All Greek PV stakeholders seem to agree IRRs needed to be rationalized. Hellenic Association of Photovoltaic Energy Producers (SPEF) Chairman Stelios Loumakis told pv magazine that solar PV tariffs prior to the "New Deal" were giving IRRs about 20 to 25%. Stelios Psomas, policy advisor at the Hellenic Association of Photovoltaic Companies (HELAPCO), also told pv magazine that solar PV projects’ IRRs before the FIT cuts were beyond 20%, while today they have been reduced down to 12 to 15%, "which remain higher than in other [European] countries, but we should also take into account the high country risk." Even Antonis Metaxas, a lawyer whose firm represents Greece’s biggest PV developers in the Greek courts, told pv magazine that IRRs were very high, however, the way they were cut was harsh.

So, compared to the photovoltaic business in Spain, where after recent measures PV plants receive an average 7.5% IRR, or compared to the U.K.’s market, where the government’s state aid guidelines for 2015’s FIT review foresee an IRR of about 5 to 8%, the Greek plants have been rather fortunate.

Reality bites

Reality bites, though. In trying to correct its own policy fallacy, the Greek government devised a package of measures in the same clumsy way it has thus far developed its energy policy.

Greek PV investors were simply left alone to deal with the cuts, while the banks and the state continued business as usual. In Italy for instance, the recent PV austerity legislation also provides assistance to operators suffering a diminished cash flow resulting from the implementation of the cuts, including the possibility of bank financing for up to the difference between the current FIT and the reduced rate resulting from the changes.

In contrast, Greek PV owners are obliged to continue paying the banks high interest rates and meet their state tax obligations on time, while the state, for its part, delays photovoltaic plants payments extortionately.

On October 22, LAGIE published a press release saying it was paying PV plant owners for the electricity generated in June. This is a four-month delay, which is rather good compared to longer delays in the past.

One of Greece’s huge problems is that a lot of its households are unable to pay their electricity bills due to the ongoing economic crisis and massive unemployment. This leads to a huge gap in the Greek renewable energy fund, which is also partly subsidized by electricity consumers. The Greek Public Power Corporation expects unpaid electricity bills at the end of 2014 to reach €2 billion.

There is hope that as Greece’s finances slightly improve, its relatively stable financial situation will signal new investments in the energy sector. Since the country appears to have totally left behind the danger of bankruptcy, it will be no wonder if foreign investors also step in, snapping existing installations. International investors with comfier cash flows from abroad will gain IRRs mostly higher than elsewhere in Europe.