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Until recently Greece has lagged in terms of share of NG in the energy mix and gas penetration, due to a variety of reasons ranging the economic crisis, geographical and population density, lack of competition at the retail market etc. However, the gas market restructuring and the planned grid expansions are expected to result to a notable increase of NG in the coming years. In order to assess the prospects of the gas market in Greece and the subsequent need for network expansion one has to better understand the following areas that broadly formulate the playing field in which DEPA infrastructures shall operate:

  • key drivers of natural gas demand in the residential segment focusing on the correlation of demand with climate conditions and demographics,
  • evolution and interplay between electricity and gas markets,
  • structural relation between gas infrastructures, wholesale and retail gas markets,
  • the prospects and feasibility of EDAs expansion plans,
  • role of natural gas in the light of the new national energy and climate change strategy and European strategy (decarbοnization to 2050, new gases) and finally
  • the emerging role of Greece as a regional natural gas hub.

Factors affecting the penetration rate

The penetration degree of natural gas at the distribution level in Greece is comparatively low compared to countries with similar climate. The penetration rate in the regions of Thessaloniki and Thessaly was 51% and 50% respectively, whereas in Attika it was only 39% in 2019. The EU average penetration rate in 2018 was around 55%, whereas in Italy the relevant figure is substantially higher at 82%. Penetration is the result of many factors such as average temperatures, population density and also contractual/PPP obligations of the licensee/concessionaire, promotion strategies carried out by the government, enabling the competitiveness of gas over alternatives. The impact of a dense population in the penetration rate can be observed in larger cities (i.e. Thessaloniki and Attika) where costs for grid expansion can be considerably lower leading to higher penetration levels. Temperature differences may also partially explain why Attika with higher temperatures is less penetrated by the natural gas network compared with Thessaly and Thessaloniki which are in the northern part of Greece and usually experience lower temperatures. The same pattern can be obtained for Italy where the local transportation network is much denser in the north than in the south. In any case, the low penetration rate of Attika is also related to the terms of concession agreements and distances to be covered.

In order to explain the relatively immature natural gas market in Greece, a deeper analysis is required. Undoubtedly, the economic crisis had a considerable impact on its development. More specifically, a steep decline in natural gas consumption occurred during the first years of the crisis especially during the period 2011-2014. Moreover, distortions in the electricity market related to the increased use of lignite (essentially due to the dominant role of PPC) and RES being injected with priority dispatching in the generation mix, did not favor natural gas for electricity generation until recent years. This in return did not allow for a liquid natural gas market at the wholesale level. Since 2014 natural gas demand has been increasing and is estimated to reach 5.5 bcm until 2025 mainly due to its increased penetration in the power generation mix as it becomes more competitive and lignite phases out.

Other reasons for the sluggish development of the natural gas market can be found in the delayed opening of the wholesale market and structural competition issues. Until recently, at the wholesale level there have been limited supply options with subsequent effect on prices and portfolio diversification. Similarly, the limited competition at the supply side has also delayed the retail market opening, as retailers could not diversify their supply portfolio, having practically the option to purchase gas only through DEPA until recent years, with the exception of LNG shipments. With the upgrade of critical gas infrastructures natural gas entry points are expected to increase in order to facilitate bi-directional flow of gas with neighboring countries and more opportunities for other companies to participate in this market will emerge.

Expansion Plans of the DSOs

All DSOs have approved (by the Regulator) 5-year expansion plans for the period 2019-2023 targeting a notable growth of their markets. Moreover, they have launched a promotional campaign for new connections, as per which the connections costs (related to the DSOs) are not born by the customers. Very low or zero connection costs are expected to increase the penetration rate, and this translates to increased revenues for the DSO through inclusion in special RAB, however with no additional WACC. EDA THESS in its 5-year plan has designed a grid expansion of 297 km (158km in Thessaloniki and 139km in Thessaly until 2023) for the low-pressure network and 4.4 km for the medium pressure network in Thessaloniki with a target to reach 62k new connections. The distributed quantities at the end of 2023 are estimated to reach around 436 mcm (equivalent to 4.9 TWh) compared to 383 mcm at the end of 2019. The cost of the total investment of the network expansion is estimated at 87.5 million euros. EDA ATTIKI has included in its 5-year plan, a grid expansion of 557 km for low-pressure network and 9 km for the medium-pressure network which will result to an estimated number of 75k new connections. The amount of distributed quantity is estimated to exceed 4.6 TWh by the end of 2023 and the estimated investment cost is 47 million euros. DEDA has prepared an ambitious plan of grid expansion mainly in the east Macedonia and Thrace regions. The regions of West Macedonia, West Greece and Peloponnese of the continental regions do not have grid infrastructure and there are plans for grid expansion either through the construction of medium and low-pressure pipelines or through the use of CNG/LNG via virtual pipelines. As general remark, it can be argued that whereas there are some concerns related to the feasibility of certain aspects of the expansion plans (mostly sparkled by delays in their implementation), their technical and operational readiness for deploying new network and limited capital availability, prospects for network expansion are positive.

Incentives for new connections

In most countries, the driver for growth of the retail market is the demand of residential consumers. In Greece, regulatory barriers related to fuel switching in large apartment blocks, seem to have contributed to the slow penetration of natural gas in large cities. According to the 2011 census, a significant part (44.7%) of the national building stock is multi storey buildings with 96.1% of these in large cities. Out of the total building stock, 60% has central heating. Regulatory amendments (i.e. Law 4495/2017, art. 127) have been introduced for improving energy efficiency and autonomous heating in buildings. Through that Decree a resident who is interested to switch from the central heating system to an autonomous is allowed to do so with or without approval of the co-owners majority, however being obliged to pay for any future maintenance costs of the existing central heating system. The increased “degree of freedom” introduced by this legislative act has led to a considerable increase in new connections. On top of that, a subsidy program has been introduced by EDA ATTIKI (on-going) for attracting new connections, covering their natural gas installation costs by a current subsidy range starting from €400 for a single apartment and reaching €3000 for a large multi storey building.
Shift of the national energy policy
At the policy level, Greece recently published its Integrated National Energy and Climate Plan, setting out a detailed roadmap regarding the attainment of specific energy and climate objectives by 2030. Natural gas plays a significant role in the NECP as a contributor to energy efficiency improvements and energy security objectives. The planned phase out of lignite is an earth-breaking change in the national energy map. Apparently, all measures for the penetration of RES in power generation, heating and transport contribute to these objectives also the substitution of diesel or lignite with natural gas is an intermediate policy step forward in reducing GHG emissions given the lower GHG emissions of gas. Natural gas is additionally expected to be the intermediate fuel for switching to a low GHG emissions model in all final consumption sectors (i.e. residential, transport, industry) leading to improved energy efficiency and lower energy costs replacing part of the current consumption of petroleum products in these sectors. More specifically, according to the projections, the final energy consumption of natural gas is expected to increase in 2030 compared to 2020 levels by 56% in the residential sector, 31% in the tertiary and 264% in the transport sector.

Τhe role of Greece as a regional player

A key priority of the energy policy in Greece is to upgrade the country’s geopolitical status as a regional player in the natural gas market, by enhanced existing and new interconnections with third countries, and subsequently reducing energy dependency and securing energy supply. Greek gas exchange has clearly a great potential for becoming a regional player. In general, the availability and diversification of supply sources will support the development of the exchange considerably whereas physical infrastructures such as TAP, IGB, FSRU, UGS have a significant contribution in this direction. The development of critical infrastructures will make large quantities of NG available in the Greek market. The interconnection agreements with Bulgartransgas and the one with TAP that will soon be signed are expected to facilitate flows and further promote market liquidity. Another important element is also the interconnection with Turkey. A hub and a wholesale market in Turkey will affect positively the Greek market because it will provide more trading options and available trading amounts in the area. The establishment of an organized wholesale Bulgarian market will increase competition in the Greek NG market because there are agreements currently active and there is also the potential for new connections with other NG sources.

After a steep drop during the financial crisis the Greek natural gas market is rising again and is slowly but steadily transformed to an open and liberalized market. Ambitious plans for network development will allow natural gas to be a key fuel for all consumption sectors on the way towards decarbonization. On top of that, the creation of a Gas Exchange together with planned significant expansions in infrastructures will provide the appropriate conditions for Greece to become an important regional player strengthening the security of supply both in Greece and in the broader region of South East Europe. Conclusively, it can be argued that the current and the anticipated market landscape constitute a very promising environment for the realization of the planned transactions of DEPA Infrastructures and DEPA Commercial.

Authors:

Ioannis Stefanou - Senior Consultant in Energy Markets and Regulatory Affairs (ist@ldk.gr), LDK Consultants*

Maria Alexandra Aslanoglou (aas@ldk.gr) - Energy Consultant, LDK Consultants*

*The LDK Group is a trusted partner of international funders, investors and policy makers and is contributing with its blend of expertise in engineering and policy advice; its constant collaboration with the public and private sector is undoubtedly promoting the sustainability of the economy and environment worldwide.
The Group’s Energy sector constitutes one of the 6 major lines of service, along with Engineering & Project Management, Environment, Transport Infrastructure, Socioeconomic Development Consultancy and Information Dissemination. LDK Consultants is a Group of 10 consulting and engineering companies with offices in Greece, Belgium, Cyprus, Ethiopia, Jordan, Kenya, Romania and Serbia.

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