Energy accuracy and coping strategies

Energy accuracy is a reality that we live every day, leading to a reduction in disposable income (up to energy poverty) for citizens and a reduction in competitiveness (up to sustainability) for businesses.

Despite what is usually said, the source of the problem is not the war in Ukraine. In fact the dramatic increase in energy prices started long before February 2022. The war certainly exacerbated the problems.

In our opinion, the root of the problem is the strategies applied and in particular the dominance of markets, especially financial markets, in energy, which has turned it into a financial product of speculation. A simple example is the notorious TTF natural gas exchange in which the volume of financial transactions is more than 100 times the size of physical transactions. Does anyone realize what «air gambling» is going on that results in price spikes. A similar situation exists in the other stock exchanges.

In Greece the problem is exacerbated by the policies pursued especially in the last 4-5 years in energy, as a result of which Greece has the ninth most expensive petrol price in the world, the third highest in Europe, among the highest wholesale electricity prices and (despite subsidies) retail prices above the EU average in purchasing power terms. (Data available from ELSTAT, Eurostat, HEPI, IEA, etc.).

In summary, we believe that a crucial role in the soaring energy prices in Greece was played by:

• Forced de-lignification - emphasis on Natural Gas - delaying renewables and infrastructure
• The incorrect / inadequate application of the Target Model in the Greek Energy Exchange
• Lack of market control - Market shallow and uncompetitive
• The privatisation of PPC, which plays a leading role in maintaining high prices, and the management of HelleniQ Energy - Hellenic Petroleum (which could play a regulatory role in stopping the price of liquid fuels)
• The setbacks in the exploitation of domestic hydrocarbons

The wrong strategy of dealing with the accuracy with personalized passes of all kinds (which ended up subsidizing accuracy), leaving profits and tax revenues essentially untouched, and which highlights other, ideological aspects of the applied policy:

1. The dogmatic commitment to the operation of the market and trickledown economics
2. The bleeding of the broader strata of society through indirect taxes
3. The gradual decline of small and medium-sized enterprises through economic strangulation
4. The formation of a relationship of peculiar «dependence» on the central power of citizens and businesses.

Some, of course, take advantage of the situation. The profits of the energy groups in 2022 soared to incredible heights. But taxes followed. For example:

• In oil products (Hellenic Energy and Motor Oil) they had an increase in pre-tax profits from 665 million in ‘21 to 2.976 billion in ’22 - an increase of 445%!
• In Electricity and Gas. Mytilineou Group from 147 million to 373 million (increase 153%), PPC + 9% to 954 million EBITDA, Heron from -22 million to + 66 million etc.
• Finally, the state, through VAT and Excise Taxes, increased its revenues by over 1 billion Euros from 5.7 to 6.7 billion (+18%)

But is there another way that will both address poverty and punctuality and shift the energy mix towards the Green Energy Transition? In our opinion there is.

Α. Short prefix

Electric Energy

• Control of the price formation mechanism - Caps on profit margins (e.g. 5%)
• Moderate activation of lignite units
• Control of the operation of the stock exchange
• Return of «20/»21/’22 ’Hypercards" to society
• Decoupling / Acceleration of RES investments (especially of RES)
• Formulation of a framework for long-term bilateral contracts (Pappas) for a wide range of consumers (and OK!)

Natural gas

• Disengagement from electricity prices
• Imposition of a margin cap on marketing
• Taxation of «sky-high» profits
• Transnational supply agreements
• Petroleum Products / Liquid Fuels
• Excise duties at EU minima
• Support for particularly affected sectors (e.g. farmers, transport, etc.)
• Reduction of VAT on Diesel in 13%
• Restoration of HELPE to Public Control so that the State can play an interventionist role in market conditions

Notes: The financing of measures will come at least to a significant extent from the taxation of «sky-high» profits in refining, the elimination of smuggling, fraud and under-deliveries, and from halting the decline in consumption.

Β. Long term

There is no doubt that the energy future is the Energy Transition towards Renewable Energy Sources (RES), and the Single Energy and Climate Plan (SCCP) (first formulated in 2018) is the key strategy for its implementation.

The critical issues are both the process of transition (so as not to create imbalances, shortages and inaccuracies) and that the transition should be fair, i.e. the benefits should be shared by the whole of society and not just by a few large energy groups (which of course have their own separate and critical role to play in the transition and benefit from it).

Unfortunately, many questions arise in relation to the pending revised NDEP (not yet completed) which should provide guidance on the transitional and final energy mix, costs and expected benefits. This will also largely determine the actors and the size of the companies that will implement the energy transition

A small example of this is the allocation of expenditure in the growth and stability fund where expenditure is practically directed to one-handed energy companies in the complete absence of the public sector.

Besides, the largest energy companies that have historically shaped the energy landscape in Greece (PPC, HELPE) are no longer owned or controlled by the state.

From this point of view, both the infrastructure and the final costs that will be passed on to the consumer raise legitimate questions as to whether or not the Government Energy Transition will lead to energy exclusion and poverty strata of the population and closure of small and medium enterprises.

The management of the energy issue so far unfortunately reinforces these fears.

The note is beyond the scope of the analysis of this huge subject. We will limit ourselves to the main strategic directions that we see as critical:

• Energy strategy in relation to the climate strategy
• Emphasis on Green technologies (PV, Wind, Geothermal, Biomass, etc.) o Formulation of a spatial framework for RES
• Energy Democracy
• Emphasis on self-production/self-consumption - Energy Communities (without the restrictions imposed by the recent Skreka County.

Balanced interventions for:

• Generation, storage, infrastructure (the TEN-T finally needs to invest in dramatic improvement of the networks to enable the connection of RES)
• Energy savings - productivity (in buildings and businesses)
• Realistic transition strategy
• Realistic planning - utilising domestic sources in the transition (and domestic hydrocarbons)
• Addressing social impacts, supporting households and businesses

• Development and integration of domestic know-how
• Universities, Public, Companies (to avoid a new «Dependence»
• The public sector in a regulatory, executive and operational role. Such a critical issue cannot be left to the «Market Forces»

We believe the above considerations can provide a solid basis for a different, short- and long-term approach to precision and energy transition for the benefit of society.

Gregory Stergioulis, Acting CEO, Hellenic Petroleum Group SA

Spyros Michalakakis, President and CEO, BP Hellenic SA

October 2023

It was published in the insert of the Journal of Journalists (14.10.23).