EU must block Greece’s desperate attempt to subsidise coal power

Energy transition| Financing the transition

Greek consumers could end up footing the bill for new coal plants well beyond 2050 under a proposed government scheme, despite recently agreed EU electricity market rules specifically designed to call time on coal subsidies, write Joanna Flisowska and Nikos Mantzaris.

Joanna Flisowska is a senior coal policy coordinator at Climate Action Network (CAN) Europe, an environmental organisation. Nikos Mantzaris is a senior policy analyst & partner at The Green Tank, a think tank specialised in environmental issues.

Originally published by EURACTIV on 25 June 2019.

On 7 June, the Greek government won a parliamentary vote on setting up a new capacity mechanism to subsidise coal power. This is clearly designed to get the European Commission to turn a blind eye before new rules in the EU’s Clean Energy Package, which prohibit such practices, enter into force in the coming weeks.

It must not succeed.

The Greek state-controlled Public Power Corporation (PPC) is trying to sell some of its coal power plants and prolong the life of the lignite-based electricity model. In addition, the company is trying to improve the dismal economics of Ptolemaida V in Western Macedonia, a 660 MW coal plant currently under construction which will cost at least €1.4 billion, making it by far the most expensive energy investment in Greece.

With the failure to obtain free emissions allowances through the Emissions Trading System two years ago, the project was rendered a basket case. The annual CO2 costs of the plant alone will vary between €110 and €130 million.

PPC and the Greek government are simply in denial and this latest effort is little short of madness, given that the recently-agreed EU rules on Electricity Market Reform have been specifically designed to call time on coal subsidies.

Nevertheless, if the European Commission approves the capacity mechanism proposed by the Greek government, Greek consumers will end up footing the bill for coal plants they neither want nor need, plants which will go on polluting Europe and poisoning our air well beyond 2050. Worse still, these plants will continue to block cleaner (and cheaper) alternatives from accessing the market.

This bizarre situation has come about partly because Greece is so badly behind on implementing reforms intended to open its electricity market. Because of this, the Commission requested PPC to divest 36 per cent of its coal assets – including one of the proposed new plants (Meliti II).

This was ill-advised given the drastic deterioration of lignite economics over the last decade but PPC now seems committed to finding a buyer.

However, coal investors are hard to find these days and the second deadline for offers has already been postponed to the 15th of July, after the failure of the first divestment attempt back in February.

To sweeten the deal, the Greek government is now trying to gain approval by DG COMP for a new, market-wide capacity mechanism which will subsidise Greek coal long into the future.

Capacity mechanisms are still common in the EU with the vast majority of payments going to old, unprofitable and polluting fossil fuel generators and their cost added to consumer bills. A recent estimate by Greenpeace found that European governments are covertly adding almost €58 billion to energy bills in this way.

This is why the EU agreed to prohibit any more subsidies to power plants emitting more than 550gCO2/KWh, as part of the regulations coming into effect in 2020.

With regard to the Greek case, as the environmental lawyers ClientEarth have pointed out, “the proposed scheme fails to include the carbon intensity criterion of 550gCO2/kWh, which runs contrary to the spirit and purpose of the new law.

Secondly, it would allow 10-year long contracts for new lignite capacity, directly contradicting the new regulations on electricity market reform, which do not allow any capacity payments for new lignite plants. If contracts are signed before 31 December 2019 payments will potentially run until 2033”.

The Greek environmental think tank “the Green Tank” has also pointed out that there is absolutely no evidence that a new, market-wide capacity mechanism is actually needed to keep the lights on in Greece. Before even considering such a scheme, the long-awaited Target Model measures should be implemented first.

The stakes are too high for the Commission to just roll over and allow new coal plants to be built in the EU, paid for by Greek taxpayers and businesses. The EU has its global climate credibility to worry about. As CAN Europe and Sandbag reported recently, the fight against coal is by no means over in Europe.

The Competition Commissioner, Margarethe Vestager, is running a spirited campaign to be the next Commission President on the basis of her green credentials and has regularly insisted, including on this site, that “the Commission’s state aid rulings have helped renewable technologies compete with one another, which has enabled a faster transition to renewable energy [and that] her decisions on capacity mechanisms have also involved environmental calculations”.

One could question these claims, especially given the challenges to the Polish and British capacity mechanisms brought by UK company Tempus Energy. Both of these were approved by DG COMP.

Now would be an excellent opportunity to learn from such past mistakes and for the Commission to open a formal investigation into the proposed Greek capacity mechanism. An 18 day consultation at national level is clearly not a substitute for a full phase II investigation led by the European Commission.

If the EU is to achieve the target of net-zero greenhouse gas emissions in the coming decades, it needs to phase out coal, not fund it. It is time to draw the line.