Electricity: Europe’s single grid cut in two – 10 questions and answers about rising prices

Although the transmission network of electricity produced by the production units is unified in the European Union, the first two weeks of July appear to have been divided into two parts.

According to data from energy stock markets across Europe, wholesale electricity prices have been on fire in countries from Hungary and Ukraine to Bulgaria and Greece, while conversely, electricity prices have fallen from Finland and Austria to Spain and Portugal.

electricity

The weak low-capacity connections in the networks between the Balkan countries and the rest of Europe, combined with the prolonged heat wave, have led to severe market distortions and high electricity prices.

It is common that even though Greece is located 1000 kilometers from Hungary, local market prices are set by players in the Central European country.

Evening hours

As you can see from the map and charts, prices in Greek and Balkan markets skyrocket in the evening hours, especially from 20:00 to 22:00.

Then, European countries need large quantities of electricity, and as a result they import it from the Balkans, and pay the same electricity prices.

10 Questions and Answers

Earlier in the morning, the political leadership of the Ministry of Environment and Energy presented measures to relieve households from potential electricity increases in August.

Through 10 questions, it also seeks to provide answers to the problem of high electricity prices and the need to restore the support that will be granted by imposing a special fee on electricity producers at natural gas stations.

1. Why have wholesale prices in the Greek electricity market risen?

The increase in wholesale prices in Greece is due to a number of events. These include:

• A prolonged heat wave in Greece, which was expected, but above normal levels,

• Heatwave of unexpected duration from Ukraine to Greece, worse than the one Greece experienced,

• Increased demand from Ukraine as the Russians continue to destroy electrical infrastructure.

• The growing demand that has arisen, especially in Hungary, does not expand to the West. Due to the poor connections to the West (for example, the connection between Austria and Hungary), we are fed Hungarian prices while we are about 1000 km away. But the prices of neighboring Austria are surprisingly low, because it has exported as much as it can to Hungary and its prices are decoupled.

2. How are wholesale electricity prices in Greece affected by the corresponding prices in other European countries? Does this happen only when wholesale prices rise or when they fall?

Wholesale prices are mainly influenced by the interconnected Balkan countries, which do not have good connections with the rest of (Central) Europe. This happens when prices rise and when prices fall. In particular, interconnections affect demand and supply. We seek connections – we have improved them – for the most efficient operation of the system. However, this means that there may be periods when energy leaves abroad and prices rise due to demand abroad, and vice versa, periods when prices fall due to cheap energy supplies coming from abroad.

The increase in wholesale prices in Greece is due to a combination of events.

The above refers to wholesale prices. To these are added charges related – mainly – to the operating costs of the networks and the social services we provide, either with low fees for vulnerable groups or with very large amounts of electricity subsidies in Crete and the islands, through YKOs. These amounts will be reduced decisively when the connections are completed.

3. Why did retail electricity prices rise in July?

Retail prices followed, with a lag, wholesale prices, which rose for the reasons we mentioned above. However, the government showed immediate reactions, and took measures to ensure that consumers did not see increases in their August bills.

4. When will retail electricity prices return to normal levels for this season?

The decline in retail prices depends on the type of invoice. It is immediate in yellow, with a delay of at least one month in green, and blue is not affected during the term of the contracts concerned. August futures prices, i.e. market estimates of future prices, show a decline in wholesale prices for Greece.

5. Will these increases in consumer bills be repeated in the future?

We are taking the necessary measures to prevent this phenomenon from recurring. In this direction, we are adopting policies to increase the penetration of renewable energy sources, install electricity storage plants, and strengthen their interconnections, to avoid the need to operate expensive thermal units that lead to higher electricity costs. The government has proven, time and again, that when there is a need, it intervenes and helps consumers, even though European instruments are very limited and European commitments are strict. This is what we have done now with the exceptional measures we have announced regarding energy costs.

6. Are there any special arrangements by the government so that consumers can meet the increased costs?

Through an amount collected from the special tax on electricity producers for the Energy Transition Fund, electricity consumers with a contract for fluctuating electricity tariffs and affected by the expected sharp increase in tariffs next month for the month of August will be supported. The maximum consumption support for household consumers will be 500 kWh per month. The beneficiary circle and the exact amount of support in euros/MWh for each category will be announced immediately after the announcement of the final prices of the special (green) tariff in the first days of August.

7. Will you take necessary measures to help farmers financially?

We have already put in place the GAIA tariff, which applies to rural electricity connection holders. Through this, they can access low electricity prices, in the long term, for 10 years. Following recent developments, no farmer should be left out of GAIA until the end of July. They are guaranteed pre-crisis prices for all their electricity needs for two years.

8. Have you taken into consideration that the rise in electricity prices will also affect the prices of products? What are you going to do about it?

We consider last month’s increases to be a temporary phenomenon, with no significant impact on production costs, to justify any concern about rising inflation. Global inflation has been contained recently.

9. Will the government take action to address energy costs that will be a concern for businesses? What initiatives will the government take to prevent SMEs from returning huge amounts of ETMEAR?

One very important measure we are taking in favour of businesses concerns the fact that there will be no refunds of any kind with regard to ETMEAR. This backlog will not be resolved at the expense of SMEs, because it is not their fault that its implementation was delayed. There will therefore be no retroactive effect. The decision benefits hundreds of millions of euros for SMEs.

10. What benefit will consumers gain from the actions taken on their bills and when?

These days, the measures are quantified so that the exact benefit to consumers can be extracted. They will see the benefit on their next electricity bill (August bill).