The New Golden Age of Greece’s Solar Energy Market

With €2.5 billion worth of PV projects earmarked for development by 2030 and investments yields that are, comparatively, close to 30% higher than its Northern EU counterparts, Greece’s solar energy market presents a “higher-risk”, high-reward scenario, says Sotiris Kapellos, President of the Hellenic Association of Photovoltaic Companies, while stressing that the key to reaching Greece's solar energy capacity targets is the simplification of its long-winded licensing procedure.

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GIG: The Hellenic Association of Photovoltaic Companies (HELAPCO) is the main voice of PV companies active in the Hellenic market. What are the objectives of the association?

Sotiris Kapellos, President of the Hellenic Association of Photovoltaic Companies

Kapellos: HELAPCO is a non-profit organisation, established in 2002, representing the major photovoltaic (PV) companies active in the production, trading, installation, and maintenance of photovoltaic systems in Greece. It represents the domestic market in international meetings and fora, and is a member of SolarPower Europe.

The association’s goal has always been to contribute towards the development of a sustainable Greek PV market, for the benefit of the Greek economy and end consumer. The main challenges we are facing relate to the simplification and acceleration of licensing procedures and the creation of a competitive, liberalised renewable energy market – considering landmark changes such as the onset of the EU target model and the impact of the energy exchange, for example – along with energy storage.

The energy market has been – and still is – undergoing a large transition during the last decade from conventional fossil fuel-based electricity production to renewables. Looking ahead, much is expected to change bearing in mind the impact of digitalisation, automation, and artificial intelligence, with the so-called 4th industrial revolution being imminent. The latter induces, among others, decentralised production and electricity consumption, e-mobility, and smart cities and homes. We have to be open and adapt to this revolution and HELAPCO is willing to play a key role in this.

GIG: Greece’s National Energy and Climate Plan (NECP) establishes ambitious renewable energy targets highlighting plans for 35% of energy to derive from RES by 2030 while the phase-out of lignite-based energy production by 2028 entails a drastic switch in the state utility’s power generation to clean energy. What does this mean for Greece’s solar energy investment landscape?

Sotiris Kapellos, President of the Hellenic Association of Photovoltaic Companies

Kapellos: According to the government’s NECP targets, the installed capacity of photovoltaics will be 7.7 gigawatts (GW) by 2030.

Since we currently have around 3 GW, and auctioned capacity totals 1.3 GW, this creates room for more than 4.4 GW of PV to be installed by 2030, creating an average of 400-500 megawatts (MW) of installed PV capacity per year.

This is very good for the Greek economy and for the solar market as well. The extra capacity entails more or less €2.5 billion worth of investments in solar energy alone.

Solar park in Northern Greece. Copyright: Ververidis Vasilis / Shutterstock

GIG: From a comparative perspective, how competitive is Greece’s solar market when we compare it to its EU peers?

Sotiris Kapellos, President of the Hellenic Association of Photovoltaic Companies

Kapellos: There are several pros and cons that should be considered by investors looking into the Greek PV market.

As for the advantages, Greece is a Southern EU country which means that solar radiation is much higher compared to Northern EU countries. As a result, the investment yield is also higher, and the performance of investments is comparatively better as well; we have higher income on the same capacity in Greece when compared to the North.

Another benefit is the cost of land for the development of PV projects. Whether this be through the acquisition or leasing of land, regardless of whether it is privately or publicly owned, the cost of land in Greece is lower compared to its Northern EU counterparts. As a result, the operational cost of PV investments with respect to land use and the installation of projects is lower.

Last but not least, and for the most part, project development costs are also comparatively lower in Greece vis-à-vis Northern countries.

Conversely, there are a number of challenges that still need to be overcome:

To begin with, we lack clear guidelines with respect to the possible uses of land. Greece does not have an official land registry yet. This is in the process of being clarified and a large number of maps have been produced over the past two years to clarify land usage across the country.

Secondly, the regulatory framework poses important strains due to frequent changes and a lack of stability in this respect, particularly when compared to other countries.

The third issue is the lengthy duration of licensing procedures due to which investors cannot predict when they will be able to obtain all necessary permitting and approvals required for a project’s development and implementation. While many other markets also suffer from slow processes, investors do know in advance how long the overall licensing procedure will last. Unfortunately, in Greece – at present – this is not possible.

With that said, it should be noted that Greece’s country risk has been reduced drastically compared to what it was two or three years ago as a result of the financial crisis, and this is reflected by the fact that the market’s attractiveness has increased tremendously.

The number of foreign investors that are considering investing in the market and actively seeking projects is, to a certain extent, unprecedented surpassing the so-called golden period between 2010 and 2013, when we had a surge of investments in installed capacity.

We also have a mature market in terms of know-how and human capital, with qualified people who fully understand these investments and can support the development of photovoltaic projects in all their phases.

Likewise, we have manufacturers that can produce the equipment needed for PV projects ranging from structures and cables across to electrical interconnections.

GIG: When we weigh out the pros and cons, is it fair to say the benefits of investing in the sector outweigh the challenges at this point in time?

Sotiris Kapellos, President of the Hellenic Association of Photovoltaic Companies

Kapellos: I don’t think it’s a matter of an absolute assessment; it depends on the profile of the investor. If you’re seeking a comparatively lower risk and income, you would be more inclined to invest in Northern or Central Europe. However, if you are willing to take on a relatively greater risk and, in exchange, reap a higher income then Greece is a lot more attractive.

GIG: So, we could basically say it’s a higher risk, higher reward situation.

Sotiris Kapellos, President of the Hellenic Association of Photovoltaic Companies

Kapellos: Yes, but not a very high risk, although it is comparatively higher than other markets. Five years ago, Greece was a very high-risk market; now, it’s simply higher. And this is reflected in the investment outcomes.

For example, the unlevered internal rate of return (IRR) of a project in Greece is more than 6% for renewables, much higher than in Northern Europe. This difference covers the higher cost of financing in Greece. While in Germany financing ranges between 0-1%, in Greece it’s closer to 3-4%, depending on the investor at hand.

GIG: What are the biggest hurdles in meeting Greece’s solar energy targets by 2030?

Sotiris Kapellos, President of the Hellenic Association of Photovoltaic Companies

Kapellos: The greatest barrier to reaching Greece’s PV target is the licensing procedure. There are projects that applied for a production license two years ago – in June 2018 – and have still not received an answer. And while a few months ago the regulatory authorities announced that all production licenses pending from 2018 would be soon processed and either accepted or rejected, there is not a clear plan as to when this issue will be resolved.

Nevertheless, the process has been accelerated thanks to new legislation that was passed this Spring. While we haven’t seen very noticeable results – yet – we are optimistic that by the end of the current year we will see many projects receiving the necessary approvals to pass this initial licensing stage. This will then be followed by environmental licensing and the connection terms, which could entail another year for projects to mature.

As for other issues, particularly concerning medium-sized project investors – entailing projects between 500 kilowatts and 1 MW – the issue is that there are not many available connection points for these smaller projects to connect to the medium voltage grid. And while this is a major issue for this level of investment, it could be tackled by unifying projects to buffer the additional costs associated with the construction of a substation to enable them to connect to the high voltage grid. However, this is not a very easy task and is something that has never been done (yet). But it could work.

For the moment, and hopefully for the next two to four years, there won’t be any problems in this respect for large project investors – encompassing projects greater than 40 to 50 MW – because these power plants can connect to the high voltage grid and the construction of a substation could be easily absorbed within the cost of the project, leveraging economies of scale.

Solar panels, Greece. Copyright: Ben Schonewille / Shutterstock

GIG: 2019 was a landmark year for the sector in terms of increased capacity and investor interest, and this was further exemplified by the fact that the market saw a considerable increase in applications to the Regulatory Authority for Energy. What do you attribute this to?

Sotiris Kapellos, President of the Hellenic Association of Photovoltaic Companies

Kapellos: The new cycle of photovoltaics started towards the end of 2016 with the first pilot auction, and the next one having taken place in 2018. There was an increasing interest during the following two years. This trend has led to a growing attractiveness of the Greek market during this period.

In 2019 things had matured for the wider Greek renewable energy market and investors realised there were good prospects.

The reality is that there are only a few markets (industries) that can compare to renewables, from an international perspective, where you can find such a comparatively low risk (mainly still regulatory) combined with the low levels of investment required to develop projects.

This is especially true when you look back five years; investment costs have dropped significantly. Medium-sized domestic investors, in particular, have seen a drop in investment costs and income, while their return on investments has remained the same.

In addition, in the Spring of 2019, a new feed-in tariff scheme was introduced for medium-sized projects that attracted mainly domestic investors. This last route to the market has further heated up this second cycle of the Greek PV market.

GIG: Since the implementation of the auctions system, the market has seen a considerable reduction in tariffs with PV, in fact, capturing the lowest prices. Why is this? How do these lower prices impact the wider market?

Sotiris Kapellos, President of the Hellenic Association of Photovoltaic Companies

Kapellos: The lower prices are very beneficial to consumers because the cost of the production of energy is lower compared to what it previously was. If we look back at the feed-in tariff era, the cost of the electricity generated by producers was remunerated towards the end of 2014, on average, at a rate of €250 per MW hour. Now, based on the last auction in July 2020, the cost has reduced to €45, representing a fivefold decrease while posing a remarkable improvement for end consumers in terms of pricing.

Solar panels installed in the roof of a house. Copyright: kostasgr / Shutterstock

As far as the investor side is concerned, investment costs have fallen as much as 90% compared to 2010, as a result of the decrease in the cost of PV panels. So, the decrease of the cost of electricity production and the reduction in the remuneration of producers has been complemented by a decrease in investment costs, creating a balance between investment costs and remuneration. Yet, this decline favours consumers the most because investors’ income and the performance of these investments is positive.

While the landscape is still appealing to investors, returns are not what they were five years ago when there was a double-digit internal rate of return (IRR) on unleveraged investments in renewables in Greece. This currently oscillates between 6-7%, with projections set on the IRR of projects converging with Northern European levels, which is half of the current figure.

So, the cost and return on investments has decreased and this is beneficial to consumers, while still presenting an interesting opportunity for prospecting companies.

GIG: How would you quantify the impact of solar energy investments on the wider economy?

Sotiris Kapellos, President of the Hellenic Association of Photovoltaic Companies

Kapellos: In 2019, €80 million worth of investments were directed towards the development of 150 MW of installed capacity, and this year expectations are set on investments reaching €150 million.

PV jobs in Greece followed the development of the market. Direct, indirect, and induced jobs reached a high of 58,000 back in 2013 when the annual market was over the GW level, to drop to a few thousands when the crisis hit. Currently PV supports some 10,000 direct, indirect, and induced jobs in Greece, with a potential to increase with the expected growth of the market.

GIG: What impact do you expect the implementation of the EU target model to have on Greece’s PV sector?

Sotiris Kapellos, President of the Hellenic Association of Photovoltaic Companies

Kapellos: Since 2019, all new operating PV power plants have established agreements with an aggregator that is in turn participating in the energy exchange on behalf of producers. While producers have the right to represent their own projects directly with respect to the energy exchange, this doesn’t make commercial sense unless producers have a critical mass of power plants (e.g. 50 MW or more). Through aggregators’ participation in the market, the electricity market will become increasingly more open and liberalised, pushing down production costs and, consequently, consumer retail prices.

But in order for these effects to materialise, including the financial products associated with the energy market (futures, options etc.), it is expected that at least two years will have to elapse for the market to mature and levels of liquidity to be sufficient.

In the near future, besides the market transitioning into a free market, producers will be able to sell energy directly through the energy exchange, which means they will bid in terms of both capacity and price.

Now, projects that participate through the auctions system only bid on the energy capacity they’re going to produce.

Secondly, there will also be business-to-business (B2B) contracts that enable producers to directly sign contracts with large consumers. This will be done either through the over the counter market, bilateral agreements, or through the energy exchange. Alternatively, renewables’ producers will be able to directly sell their produced energy to retail energy suppliers, by establishing long term agreements, with suppliers then selling power to final consumers on a retail basis. Ultimately, the idea is for these transactions to become increasingly more frequent, which means the cost of energy will continue to decline as a result of greater competition.

GIG: How do you see the structure of the solar energy market evolving in the mid to long term?

Sotiris Kapellos, President of the Hellenic Association of Photovoltaic Companies

Kapellos: There is obviously an apparent move towards bigger projects (mega-projects), which is reflected in the project licence applications that were submitted in 2018 and 2019. Hence, on the one hand we have very big projects, with each one contemplating several hundred megawatts of installed capacity, and the medium-sized sector on the other.

The figures show that the market is moving towards the former – big projects. And while there is still room for the development of mega-projects, as long as the number of projects increase so will competition and, consequently, the associated investment risk. And while this risk is disproportionately higher when compared to medium-sized projects – and difficult to manage –it can be better managed in the case of mega-projects.

The latter have the means to hedge or mitigate this risk; the bigger the company the wider the spectrum of mechanisms it has available to mitigate the risk.

Another change we’re going to see in the market relates to energy storage. While I’m confident many incoming investments will include storage facilities, this is an area that is likely to attract big investors to enable producers to boost their production when there’s no light or the sun doesn’t shine. This will allow producers to achieve better pricing during periods of lower electricity demand.

On the other hand, market aggregators are also going to play a major role within the scope of consolidation. Medium-sized projects are going to become concentrated into clusters, either through aggregators or by way of their acquisition by investors seeking to increase their portfolio.

GIG: The government has set out to slash the licensing period for investments in RES and reduce red tape in a bid to ease investments. What is your assessment of the work that has been done so far?

Sotiris Kapellos, President of the Hellenic Association of Photovoltaic Companies

Kapellos: There was a push and an urge from the government at the end of 2019 and the beginning of this year to simplify and accelerate the licensing procedure for PV projects. And this was reflected by new legislation that was passed in May of this year concerning RES production licences, which were abolished and substituted by a Certificate of RES Producer. Based on these changes, the licensing procedure should indeed accelerate. We are now awaiting the implementation of this new system that, unfortunately, has taken more time than we expected.

Based on the new legislative framework, there will be an electronic platform for the submission of Certificate of RES Producer applications, and an ongoing approval of those production licences that were submitted two years ago resulting in the clearance of the current backlog within six to eight months.

Taking into consideration that new applications were put on hold at the beginning of 2020, we expected submissions to resume in December of this year with any new applications thereof set to receive their production license within three months, which is a standard period.

While this is what we expected, this transitional period has lasted longer than initially foreseen highlighting an underlining issue with respect to the implementation of the new regulation.

On the other hand, there is a second stage to the simplification and acceleration of licencing procedures which concerns both installation and operation licenses. These two licenses represent the stage following the environmental licence and the connection terms, and we were expecting modifications in this area as well.

Consultations in this respect are currently ongoing, so this is another area where we are experiencing delays.

Nevertheless, all efforts should be currently placed on the implementation of new legislation concerning the first phase, while we hope that the simplification of procedures concerning the next stages of the licensing procedure will follow shortly.

GIG: What other regulatory reforms are required to enable the sector to leapfrog ahead?

Sotiris Kapellos, President of the Hellenic Association of Photovoltaic Companies

Kapellos: Firstly, we need the simplification of procedures with respect to installation and operation licenses. These two licenses need to be simplified or combined, based on our recommendation as an association, because the requirements that differentiate them are scant.

Secondly, the central government needs to take steps to ensure the proper functioning of state organisations; they need be assessed based on their performance. And we also need to improve the quality of the services that are being provided by state authorities. And this doesn’t only concern organisations like IPTO, DEDDIE, or the regulatory authority RAE; I’m referring to regional and municipal bodies. We need an alignment in this respect between central, regional, and municipal authorities in an effort to accelerate procedures, because while decisions may be made at a central level, their implementation at a local level can be challenging.

Last but not least, we are awaiting specific legislation to be enacted regarding energy storage. This is expected in the first half of 2021 and will regulate both small and large storage systems, often called behind-the-meter and in-front-of-the-meter, respectively. While storage behind the meter enables producers to boost their production towards hours when renewables cannot produce, storage in front of the meter caters to companies that would like to support the energy grid, to avoid blackouts, circuit cuts, and other technical issues.

GIG: Greece’s floating solar capacity is yet to be developed. What potential do you see in this space? What are the biggest challenges?

Sotiris Kapellos, President of the Hellenic Association of Photovoltaic Companies

Kapellos: Greece doesn’t have any floating Solar PV plants and this is an area that hasn’t been contemplated within our current regulatory framework. Usually, floating Solar plants can be installed in lakes and reservoirs (natural or artificial), but I think it will be difficult to overcome the environmental prerequisites associated with the potential installation of a solar PV park in natural lakes. On the other hand, this may be a lot more feasible in reservoirs that are already being used for the production of electricity, such as hydropower electricity production plants operated by the state utility PPC.

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