Greece’s Plan to Overhaul Its Energy Market and Tackle High Electricity Prices
For years, Greece has faced some of the highest wholesale electricity prices in Europe, with average prices reaching €276.9 per MWh in December 2022, even though more than 50% of its electricity comes from renewable sources like wind and hydro.
Despite this strong renewable energy share, the cost to consumers remains disproportionately high. The culprits? Natural gas and lignite—fossil fuels that, while contributing to a smaller portion of the energy mix, continue to drive up prices due to their role as marginal technologies in determining the overall market price. This reliance on expensive fossil fuels in an otherwise renewable-heavy system creates a paradox where green energy’s benefits are yet to be fully felt by consumers.
In an effort to break this cycle, the Greek government is working on a new energy market model, to be introduced by the end of the decade. According to Greece’s revised National Energy and Climate Plan (NECP), the country aims to reach 76.8% renewable energy generation by 2030. In pursuit of this goal, coal power plants are being decommissioned, and 6 GW of energy storage capacity will be added to the grid. However, experts warn that this storage alone may not be enough to stabilise the system.
The Role of Natural Gas: A Necessary Evil?
As Greece phases out coal, natural gas is expected to retain a crucial, albeit smaller, role in the country’s energy mix. By the end of the decade, natural gas-fired capacity is slated to grow from 7 GW to 7.8 GW. However, these plants are becoming increasingly costly to run due to rising CO2 costs, with the price of European Union Allowances (EUAs) projected to hit € 80 per tonne by 2030 and a staggering € 290 per tonne by 2040. These costs will make gas plants financially unsustainable without government support, specifically through a “capacity mechanism” that ensures they operate only when absolutely necessary.
A New Market Model: Can It Deliver?
The core of Greece’s strategy lies in changing the market model itself. The current system allows fossil fuels to dictate prices, even though renewable energy is often cheaper to produce. Greece’s vision, outlined in its NECP, involves creating a market where the benefits of renewable energy are passed directly to consumers. This could involve separating renewable and conventional energy sources into different pools, ensuring that the lower costs of green energy translate into lower bills.
This idea isn’t new. Greece previously submitted a proposal to the European Union during the recent energy crisis, seeking to establish two separate price formations in the energy exchange—one for conventional units and one for renewables. While the proposal was rejected at the time, the Greek government is now exploring whether to revisit the same approach or present a new plan altogether.
Challenges Ahead: EU Cooperation and Market Changes
The road to a new power market model won’t be easy. Greece will need to navigate both internal challenges and push for changes within the European Union. It remains unclear whether EU regulators, like the Agency for the Cooperation of Energy Regulators (ACER), are open to a revised market architecture that prioritises renewable energy. Nonetheless, with energy prices remaining high and renewables becoming an increasingly dominant part of the energy mix, Greece is determined to push forward with reforms.
