Greece: Development continues

Author: | Published: 1 Oct 2008
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The regulation of renewable energy sources (RES) in Greece has developed significantly since 1985 (when the first national law on alternative forms of energy was passed) and since the first RES-specific Law 2244 of 1994 actually introduced environmentally-friendly means of independent power generation in the Greek energy market. Such means of power generation were further regulated by Law 2773/1999 on the Liberalisation of the Electricity Market. The recent Law 3468/2006 on Power Generation from Renewable Energy Sources and Combined Heat and Power Generation of High Efficiency (RES Law) is the statute that actually transposed EU RES Directive 2001/77 into national legislation. It provides the broad procedural framework for the licensing and operation of such power generation facilities in Greece.

Under Greek electricity industry legislation, the licensing, construction, commissioning and operation of any type of power stations using renewable energy sources (RES), for instance, wind, solar, small-scale hydro, geothermal, biomass, landfill gas and/or combined heat and power of verified high efficiency, is governed by numerous and extensive legal provisions and is subject to thorough mandatory licensing and approval procedures. Further, a number of secondary legislative acts adopted by various competent authorities, primarily the Minister of Development and the Regulatory Authority for Energy (RAE), regulate in detail such licensing, as well as the technical and commercial aspects with respect to the operational and economic integration of such power stations with the domestic electricity market.

The latter is achieved through priority dispatch of the RES electrical output into the electrical system of Greece pursuant to long-term standard power purchase agreements with the high-voltage transmission system operator or the non-interconnected (islands) medium-voltage distribution network operator against regulated feed-in tariffs adjusted annually. This primary RES support mechanism is supplemented by considerable public funding of up to 40% of a project's (eligible) capital expenditures depending on the location of the project and the size of the project company.

These national RES support mechanisms, together with EU-driven national targets on final consumption of energy from renewable sources by 2010 and 2020, as well as the prominent and abundant renewable energy sources available in Greece (especially wind and solar) motivate investors to overcome the admittedly burdensome and time-consuming licensing procedures and give them confidence in the continued growth of the domestic RES market. This comprises approximately 1,000 MW installed capacity and is projected to require almost three times as much (approximately 3,000 MW, excluding large-scale hydro) by 2010 and about 10 times more (approximately 10,000 MW) by 2020, from moderate projections, in order for Greece to be able to meet these targets.

Licensing renewable energy projects

The licensing process comprises three milestones, identified in all RES projects of significant scale. In chronological order, these are as follows.

  1. The generation licence, including the proposed project's preliminary environmental and planning clearance.
  2. The installation licence in conjunction with the final environmental licensing of the respective power station and related facilities, such as grid connection works.
  3. The operation licence, following completion of operating trials and on-site inspections.

These main licensing requirements are supplemented by various other secondary licensing requirements or equivalent authorisations, depending on the technical characteristics of the RES project concerned and the renewable source itself: for instance, building permits, water use permits and concessions over geothermal fields. Very small-scale projects enjoy a simplified licensing process.

Apart from grid connection technical matters where the system and/or the network operator are exclusively competent, each licensing stage is intended to be a one-stop-shop for investors, but in practice the parallel pursuit of the various licences, consents and approvals often occurs before various public bodies and authorities in order to expedite the process.

Generation licence conditions

Under national laws and regulations, any EU legal entity or individual willing to engage in electricity production in Greece with the use of RES must either obtain a generation licence or be granted an exemption in respect of very small-scale RES projects. Generation licences are granted by the Minister of Development for a term of 25 years and are open to renewal, based on recommendations delivered by the RAE, whereas said exemptions are granted by the RAE itself.

The procedures for obtaining a generation licence and its standard terms and conditions are set out in the RES Law and the subsequent RES Generation Licences Regulation of April 2007. Pursuant to these procedures, the prospective producer submits an application in the prescribed form, accompanied by the necessary supporting documents. The RAE assesses the application, taking into account criteria stipulated in the RES Law, such as system security, protection of the environment, energy efficiency, maturity of the proposed project in relation to its preliminary environmental licensing, the technical and financial capabilities of the applicant and the applicant's ability to secure land rights over the proposed project site, among other things.

During this assessment, the RAE also takes into consideration the environmental licensing authority's opinion on the preliminary environmental assessment and evaluation of the proposed project, which is a fundamental prerequisite, as well as the availability of transmission capacity in the grid. Following the long-anticipated enactment of the RES Special Planning Framework, which is expected to come into force during 2008, the RAE will also take into consideration the compliance of the proposed project with the provisions of this framework, which is considered to be a critical missing element for RES project development and implementation if they are not to have significant exposure to legal challenges. Subject to the relevant application folder being complete and pursuant to the time limits stipulated in the law, completion of the licensing procedures described above should not exceed six and a half months, but in practice this time framework should only be treated as indicative.

In principle, a licence may be revoked if the licensee is either in breach of the licence's terms and conditions and of the applicable laws and regulations or fails to implement the project, especially if he fails to obtain the relevant installation licence within 24 months of the issuance of the generation licence, save for specific cases where the above time period is suspended and/or extended.

The installation licence

The installation licence represents the second significant licensing milestone and is definitely the most critical for implementation purposes. This licence mainly provides for the planning, commissioning and environmental compliance measures of any RES project under development and is granted by the same authority in charge of environmental licensing.

In effect, and subject to building permits, where required, only after the project company has been granted the installation licence is it entitled to proceed with the construction works of the power station, enter into a grid connection agreement with the competent grid operator and execute the power purchase agreement that will guarantee the offtake of its electrical output.

The procedures for the granting of installation licences are also set out in the RES Law and the subsequent RES Projects Installation and Operation Licences Regulation of July 2007. Pursuant to these procedures, the project company is obliged to submit a significant quantity of data and particulars in order to obtain several consents and approvals that are also prerequisites for the installation licence itself. These prerequisites can be summarised as follows.

  1. Determination by the competent grid operator of the technical and economic terms for the connection of the project with the grid.
  2. Land rights over the project site, whether it is public or private, including the site where the necessary grid connection facilities will be installed.
  3. Environmental terms and conditions for the construction and operation of the project, including grid connection facilities, which constitutes the final environmental licensing. These are regulated by RES project-specific secondary environmental legislation that, where applicable, incorporates permissible intervention in forests and/or forestry areas.

The environmental licence is another critical stage of RES project development because it provides comfort that the project concerned meets the material requirements of environmental legislation. This should be contrasted with the preliminary environmental and planning clearance, which is solely provisional but is nonetheless a clear indication of the project's permissible integration with its natural and historical surroundings. Given the natural environment and historical heritage of Greece, these licensing aspects are fundamental for the successful implementation of any RES project if it is not to have significant exposure to litigation. Occasionally, however, they have resulted in excessively strict treatment of RES projects by the competent authorities.

Grid connection terms and conditions, on the other hand, secure the technical and operational integration of the project with the electricity infrastructure, given that in Greece large wind potentials and other significant renewable energy sources tend to be found in remote and/or isolated areas (mountains, islands, for example) with congested or sometimes non-existing transmission capacity.

Under the current licensing regime, the average time required to obtain an installation licence has been reduced to approximately one year from the filing of the generation licence application. Despite the imposition of specific time limits on the administration that, where applicable, should result in deemed approvals and therefore expedite the process, the above timeframe should also be treated as indicative only.

An installation licence is valid for two years but may be extended for up to the same period provided that, at least in terms of budget, 50% of the project has been implemented on time, or that commencement of works has not been initiated for reasons not attributable to the licensee, subject to the necessary contracts for the supply of the project's main equipment being in place. The latter is not required when there is a judicial suspension of the installation licence.

The operation licence

The operation licence follows the physical completion and successful operational testing of the RES project in question, as well as its connection with the grid. The corresponding licensing procedures are also set out in the RES Law and the aforementioned regulation of July 2007.

The basic requirements for this licence include, among other things, on-site inspections by various authorities, an executed power purchase agreement and several certificates demonstrating the licensee's compliance with the approved environmental terms and conditions, as well as with the terms and conditions of the electricity generation and the installation licences. The terms and conditions of the operation licence pertain primarily to the safe and efficient operation of the licensed project with respect to both industry and generally applicable laws and regulations.

The operation licence is granted by the same competent authority that grants the installation licence. Its term is for at least 20 years and may be renewed for up to the same period, provided that the total term does not exceed the term of the electricity generation licence or, in the case of small-scale hydro stations, the term of the water use permit.

Priority dispatch, PPA and feed-in tariffs

Return on investment is achieved through the following cornerstones of the RES support mechanism established in the framework of the Greek energy sector.

  1. Priority dispatch of RES stations' electrical output is regulated extensively under the RES Law. This covers all RES power stations and small-scale hydro (<15 MW), as well as CHP stations of high efficiency with use of RES or jointly with gas fuels, irrespective of installed capacity, whereas the RES units of hybrid stations are also dispatched by priority.
  2. Said priority dispatch is effected by virtue of the RES Law and the long-term standard power purchase agreements (with an initial term of 10 years that may be extended for another 10 years at the sole discretion of the RES power producer) entered into with the competent grid operator pursuant to the terms and conditions thereof and the procedural provisions of the relevant operation code against secured consideration, namely the following.
  3. Feed-in tariffs provided for by Article 13 of the RES Law that are adjusted annually and amount to €75.82/MWh ($105.76/MWh) in the interconnected transmission system and €87.42/MWh in the non-interconnected islands. Offshore wind parks would enjoy current feed-in tariffs of €92.82/MWh. Solar stations other than photovoltaics (solar thermal, for example) are entitled to energy prices three times the above prices, depending on location and installed capacity, with a threshold of 5 MW.

The feed-in tariffs initially provided for photovoltaic stations (five to six times the above) are under review by the Minister of Development and are very likely due to be amended shortly, most probably by monthly adjustment of these prices downwards until the end of 2014 and their correlation thereafter with the System Marginal Price (the clearing price) of the Greek Pool (essentially a mandatory wholesale power pool), as well as depending on the month that the relevant PV station comes into operation. This action has been taken because the initial energy prices for PV stations have resulted in an unprecedented surge in applications for power generation licences and exemptions therefrom (totalling almost 8,000 applications for approximately 3,800 MW) in the framework of the Photovoltaics (PV) Development Programme provided by the RES Law for the licensing of 640 MW in the interconnected system (which is suspended at present for any new applications) and another 200 MW in the non-interconnected islands until 2010. This immense interest has been interpreted as a signal of possible overinvestment in the Greek PV sector to the detriment of end consumers because of the relevant duty in favour of RES attached to their monthly electricity bills.

Financing RES projects in Greece

The financing of RES projects in Greece derives from the following three sources:

  1. Investor's own funds accounting for at least 25% of the project's eligible expenditures, as per the requirements of the national investment incentives legislation described below, which requires investors to demonstrate the availability of some minimum own funds and, when public funding is granted, the investor's subsequent participation in capital expenditures, substantially in the form of equity at the level of the project company and therefore commitment to the RES project in question.
  2. State financial support in various forms under Law 3299/2004 on Investment Incentives (cash grants and/or leasing subsidies, tax exemptions or employment cost subsidisation) with RES investors opting for cash grants and leasing subsidies ranging from 20% to 40% of the project's total eligible investment cost depending on the location of the project and the size of the project company, the latter being ascertained pursuant to Community legislation on small and medium-sized enterprises (SMEs). It should be noted that under Law 3299/2004 large investment projects (with eligible expenditures exceeding €50 million) are subject to further limitations on their public funding for the amounts exceeding the above threshold, whereas the public funds granted to each investor during a five-year period cannot exceed, on aggregate, €20 million for the same productive activity. The above limitations have resulted in the development of certain clusters of RES projects by the same investors (neighbouring wind farms, for example) under separate RES project companies, not only for reasons of optimised project finance structuring but also in order to maximise available public funding with due regard to these limitations. At present, Law 3299/2004 is the only available tool for public funding in Greece, as limited by the approved Regional State Aid Map of Greece, where those eligible expenditures relate primarily to expenditures incurred for purchasing new electromechanical equipment (wind turbines, for example), execution of necessary civil works (foundations and access roads, for example), grid connection costs and related equipment (substations, for example).
  3. Nevertheless, considerable public funding for RES projects is also expected to derive from the Greek National Strategic Reference Framework (NSRF) under the 4th Community Support Framework (CSF) for 2007 to 2013 and the relevant Operational Programmes due to be implemented by the competent authorities shortly, pursuant to Law 3614/2007 on the Administration, Monitoring and Implementation of Development Actions during the Programming Period 2007 to 2013. It should be noted that under the 3rd CSF for 2000 to 2006, 172 RES projects accounting for approximately 665 MW installed capacity and a total budget of €735.8 million were co-financed with public funds amounting to €252.7 million.
  4. Private funds from credit institutions for the balance of the necessary investment on the basis of non-recourse or limited recourse project finance, depending on the specific arrangements between lenders and sponsors. Such project financing is usually in the form of bond loans, as regulated by Law 3156/2003 on Bond Loans and Securitisation of Receivables. The choice tends to be tax driven, given that the issue of such bond loans, the provision of any kind of collateral and any other related agreements, as well as the repayment of the principal and the transfer of the bonds, are exempt from any direct and indirect taxes, duties and levies (including the contribution of Law 128/1975, stamp duty where applicable, transfer tax and/or capital gains tax). Under this financing structure, the borrower is required to have the legal form of a company limited by shares (société anonyme under Greek corporate law), which is the usual choice of special purpose corporate vehicle in Greece. Such bond loans usually include certain bridging loan facilities with regard to the subsidies and the VAT on construction works. Of course, this does not exclude other possible project finance structures (syndicated loans, for example) provided by domestic and/or foreign credit institutions, or the use of other types of corporate vehicles.

The way forward to 2020

Although Greece was a pioneer in the regulation and installation of RES projects worldwide, the pace of RES project development and commissioning during the last 15 years has not been as originally anticipated. Approximately 1,000 MW installed capacity to date is a small figure and does not represent the country's significant potential, especially for wind and solar power. The burdensome, complex and time-consuming licensing procedures largely remain in place and constitute a substantial barrier to RES project development, despite several legislative and policy efforts to reshape and simplify the regulatory framework. Moreover, Greece's varied geography and limited electricity transmission infrastructure present natural obstacles to grid connection, especially in areas of significant RES potentials.

On the other hand, investors and local developers acknowledge not only these potentials but also the favourable RES support mechanisms available in Greece and therefore consistently pursue the development of domestic renewables. This has resulted in approximately 10,000 MW being licensed for power generation from RES and further licences for approximately 40,000 MW having been applied for (about 85% of this figure representing wind farms) and therefore still at an early stage of development, with only approximately 1,000 MW already licensed for installation and therefore considered mature projects.

Moreover, the EU-driven high national targets on final consumption of energy from renewable sources provide an additional incentive for investment as they essentially guarantee that such RES support mechanisms will remain in place. Based on the pace of RES development to date, achievement of the 2010 target will be difficult, though there may be a significant increase in installed capacity given the number of projects licensed so far and the investments committed during the last five years, not only by big international RES investors such as Iberdrola, Acciona, Endesa, EDF EN, Enel and Babcock & Brown, but also by domestic participants such as Terna Energy, Ellactor Copelouzos, Mytilinaios and PPC RES, either in joint ventures with foreign investors or independently.

Therefore, the 2020 target seems more feasible, though much remains to be done in this respect. It is in connection to this that the RES Special Planning Framework, despite the limitations that it introduces, will be essential for the further development of many projects that are pending final environmental and installation licensing if they are not to be exposed to legal risk, and it will give clear signals for the licensing of additional generation capacity. Moreover, transmission system expansions envisaged and/or scheduled by the transmission system operator in the following years will definitely boost the development of wind farms in certain areas of Greece with great wind potentials, such as Thrace, Lakonia, South Evia and especially the Aegean Islands, if they are eventually connected to the mainland system, as planned under the latest transmission system development study prepared by the system operator.

Author biographies

Dimitris Assimakis

Norton Rose LLP

Dimitris studied law at the University of Athens and received his master's degree from the Free University (Vrije Universiteit) of Brussels. Dimitris has been a qualified lawyer admitted to the Athens Bar since 1995 and joined our office in 2007. Before joining our office in Athens, Dimitris worked at the European Parliament and the Commission, as well as in the energy practice of a leading Greek law firm in Athens. He is fluent in Greek and English, has a good knowledge of French and a basic knowledge of Italian.

Dimitris is a senior associate in the corporate finance team. His main areas of practice are energy (power and gas), infrastructure projects, clean energy and the environment. Dimitris has advised on electricity and gas sector regulatory matters, power purchase and gas supply contracts, M&A transactions, project financing and a number of capital markets and privatisation deals in the energy sector.

Tel: +30 210 94 75 415
Email: dimitris.assimakis@nortonrose.com

Minas Christos Kitsilis

Norton Rose LLP

Minas studied law at the University of Athens and received his master's degree in EU energy and natural resources law and policy from the Centre for Energy, Petroleum and Mineral Law and Policy (CEPMLP) at the University of Dundee, Scotland. Minas has been a qualified lawyer admitted to the Athens Bar since 2001 and joined our office in 2008. Before joining our office in Athens, Minas worked as in-house assistant counsel to a large group of shipbuilding companies in Elefsis, Attica, as well as in the energy practice of a leading Greek law firm in Athens. He is fluent in Greek and English and has good reading skills in French.

Minas is an associate in the corporate finance team. His main areas of practice are energy (power and gas), infrastructure projects and regulated industries, clean energy and the environment. Minas has advised on electricity and gas sector regulatory matters and infrastructure development, on power purchase, gas supply and gas tolling agreements, M&A transactions, project financing and capital markets deals in the energy sector.

Tel: +30 210 94 75 408
Email: minas.kitsilis@nortonrose.com