Greece considers new retroactive PV cuts

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According to statistics published this week by Greece’s electricity market operator LAGIE, the country has reached 2,603 MW of cumulative solar PV capacity. Of this, 2,229 MW is ground-mounted and 374 MW are rooftop PV systems.

The same report says that the deficit of LAGIE’s renewable energy sources fund, used to pay renewable energy (RE) generators in Greece, stood at €58.11 million at the end of March and is going to climb to €249.3 million at the end of this year, if the government does not introduce new austerity measures in the sector.

The story is nothing but familiar. In 2014, the former Greek government introduced severe retroactive feed-in tariff (FIT) cuts to existing PV installations to eliminate LAGIE’s RE fund deficit, which was escalating. Other policy measures had also been introduced, for example a special levy on PV parks.

The rationale was this: Greece had implemented an irrational solar energy policy, which remunerated PV systems with sky-high FITs along with other subsidies that led to projects with internal rates of return (IRRs) higher than 40%. And this was happening amid a severe economic crisis that has affected millions of Greeks.

Greek PV stakeholders have argued that the deficit was also due to electricity market distortions, and to a large extent this is correct. Nevertheless, one can barely justify project IRRs around 40% (if not higher) when the case in Europe is around 12% and much lower for new installations.

Why new cuts?

The emerging question is why new cuts? And why LAGIE’s deficit remains so after brave retroactive cuts were introduced in 2014?

LAGIE’s report says this is due to the factors that determine the fund’s income. These include the number of RE installations, a fee that is paid by all electricity consumers in Greece (via electricity bills), income through the carbon dioxide emissions auctions and the electricity system’s marginal price.

Of these, the number of RE installations has increased only slightly, the fee on electricity bills is recently reduced very little, the income from the carbon dioxide emission is very low (and this is a significant issue that applies to all European Union member states) and the system marginal price is also lower than it used to be, due to the reduction of the oil and gas prices in the international markets.

Therefore, the most immediate solutions to reduce LAGIE’s fund deficit is either to increase the fee in consumer electricity bills or reduce the PV projects’ FITs. Most possibly, the government will apply a combination of both.

Why still high IRRs?

A crucial element in the case of Greece’s retroactive PV tariff cuts is that the ministry never published its modeling for the FIT reduction and the calculation of the project IRRs. It only said that it took into account a number of factors such as the technology used, the time of project development, the cost of the installation and its location. Also, projects that had received any additional form of aid (e.g. direct subsidy, tax exemption) received sharper tariff cuts.

It appears though that even following the retroactive cuts in 2014, some PV projects IRRs remain very high and the new retroactive measures will target specifically them. Should Greece’s government decide to implement new cuts, it should make its model public, allowing transparency and engaging PV stakeholders in a fruitful dialogue.

Greece needs more PV

Greece’s new actions need to establish a sustainable solar PV sector and allow it to grow further. According to LAGIE’s statistics, from January to April this year, the country imported 24.3% of its electricity. Another 28% came from lignite plants. Greece is in dire need of new clean power investments.

The news that the country is going to allow its first solar PV tenders in the following months transmit some hope that the country might, at last, design a rational, market-based PV policy.