Greece went to the polls yesterday and gave the center-right New Democracy party a clear 39.85% majority, 8.3% ahead of the incumbent left-wing Syriza party. As a result, Greece will have its first non coalition government since 2011.
The key question concerning solar investors is what the new government could mean for PV and wider renewables development in Greece and it is a topic best considered by treating large and small scale solar separately.
Large scale solar
Investors can expect little to happen regarding Greece’s large scale renewable energy policy. The tender mechanisms in place are a European Union policy all member states must comply with – the only possible change that may occur concerns the amount of capacity tendered.
New Democracy’s election manifesto stated Greece needs to continue decarbonization efforts and replace lignite coal electricity production with renewable energy – but did not provide capacity numbers. The policy pledge also suggested that by 2050 Greece should reduce carbon emissions by 60% from 1990 levels.
What is a potential game changer, however – and could affect the success of the tenders scheme – is the cost of capital.
The departing government was populist and had little attachment to a business world it blamed for the imposition of harsh, EU-driven austerity measures in return for bail-out loans. Syriza is a strong proponent of state-driven markets and as a result, Greece was trusted little by international markets, raising the cost of capital.
Since the New Democracy party won the European elections in May – paving the way to the snap election called by Syriza and the prospect of a return to a potentially pro-market government – the Greek stock market has rallied and borrowing costs have fallen.
With New Democracy securing a clear majority in the election, borrowing costs could fall even further – subject to the new government’s actions – and that could kick-start a new era for large scale solar including subsidy-free PV, an option which has proven unviable to date, thanks to financing costs.
Small scale solar could also experience radical change under the new government if it can remove hurdles to net metering development.
The fact the New Democracy government has promised to cut taxes could potentially lead to cheaper solar for homes and businesses, with new tax legislation promised for consideration by the Greek parliament as early as this month. As such, investors will not anticipate a fundamental change in net metering to happen from the top down but rather from the opposite direction if the Greek business environment improves.
State-owned power utility
There is little doubt the most urgent issue facing Greece’s electricity sector is the dire finances of state-owned power utility the Public Power Corporation (PPC).
The PPC has published losses of more than €218 million for the first quarter and last year suffered a record €904 million loss.
Syriza had started selling off a chunk of the utility’s lignite portfolio as a strict requirement of the bail-out loans secured from the European Commission, European Central Bank and International Monetary Fund, however the selling strategy may be amended because of the dire finances of the PPC, which was profitable when Syriza was elected four years ago.
Kyriakos Mitsotakis, Greece’s Harvard University-educated new prime minister had worked as a telecommunications consultant for international consultancy McKinsey and set up a financial firm, demonstrating his strong background in market economics.
It remains to be seen whether Mitsotakis and his government will be able to deliver on their election promises for the country’s business revival and infuse some of their business enthusiasm to the energy sector too.