The latest in the series of failed attempts to sell lignite power stations owned by Greek utility PPC and the recent publication of Greece’s long-term energy subsidies mechanism is one more opportunity to stress that the time for Europe to seriously decarbonise has already passed. In the face of the immense cost of the climate crisis, bankrolling fossil fuel power plants locks our own and the next generation in an unsustainable, high carbon pathway.
Claiming to aim at securing uninterrupted power supply, capacity mechanisms are a fundamentally problematic scheme: in reality, they support climate-killing fossil fuel power plants. The new electricity market regulation defines capacity mechanisms as “a temporary measure to ensure the achievement of the necessary level of resource adequacy by remunerating resources for their availability…”. Yet, the Greek scheme of subsidies is set to span through 2033. In reality, this is a system of long-term state support which allows big coal, oil and gas to cash in on subsidies that heavily distorts the dismal reality for fossil fuel assets.
In 2016, EU Competition Commissioner Margrethe Vestager stated that “capacity mechanisms need to match a problem in the market and be open to all technologies and to operators from other EU countries. They must not be backdoor subsidies for a specific technology, such as fossil fuels, or come at too high a price for electricity consumers.”
In 2018, a report by Greenpeace showed that in the EU “governments are already covertly adding almost €58 billion to energy bills to fund capacity mechanisms. Of these subsidies, 98% go to fossil fuels and nuclear energy.”The track record of the Greek capacity remuneration schemes to date is also CO2 intensive. A recent investigative report published by WWF Greece revealed that between 2006 and 2014 subsidies of at least €2.9 billion have supported the operation of fossil fuel plants through capacity remuneration schemes. This translates to €1.4 billion for lignite plants, €1.35 billion for natural gas and almost €180,000 for oil-powered units.
The risk of the currently debated capacity mechanism prolonging Greece’s dependence on fossil fuels is very real. The contracts supporting fossil fuel power plants would slow down Greece’s vital transition to a 100% clean electricity system by distorting the dismal financial outlook of coal and oil. For example, Ptolemaida V, the lignite giant currently under construction, could potentially obtain a capacity payment of up to €429 million over 10 years. Put into context, this colossal sum is equivalent to two years of the CO2 emissions costs incurred by the revised EU emissions trading system. The capacity mechanism can potentially also subsidise plants included in the PPC’s big lignite sale, in hope that it can make them attractive to prospective investors.
Capacity markets contradict carbon markets in their essence: whereas the aim of the EU ETS is to make high carbon emitters pay and dissuade fossil fuel power plants in favour of clean energy, capacity mechanisms reward high carbon emitters simply for existing. Capacity mechanisms could be tolerated in a world of limited alternatives to ensure a stable supply of electricity, yet coupled with the possibilities of EU-wide interconnections, both renewable generation and storage alternatives are now technologically feasible and economically viable.
As Greece heads for national elections, the country’s swift and smart shift to renewables does not seem to attract the necessary political attention. Greece must end the dirty and highly costly practice of subsidising fossil fuels. It is high time PPC shifts its business model away from high carbon electricity generation and retakes the lead in clean energy innovation, which it claimed in 1982 with the opening of Europe’s first wind park on the island of Kythnos but seems to have forgotten ever since.
There is no second reading of the IPCC’s 1.5oC report: humanity is going through a historically unprecedented climate crisis. It is high time for the European Union and all EU member states to fill in the empty shoes of a much needed global climate leader, instead of stubbornly defending catastrophic climate policies.