Αρθούρος Ζερβός: Ομιλία του Προέδρου & Διευθύνοντος Συμβούλου της ΔΕΗ Α.Ε. σε εκδήλωση του European Business Press

It’s a pleasure to be here amongst you today and take the opportunity to briefly present to you our strategic priorities and operational goals, within the new environment that is emerging, with many regulatory, market and economic challenges. 

Allow me to begin my speech by addressing two important issues which are critical for the positioning of Pubic Power Corporation in the future:

•                     Our role and contribution towards the country’s goal for energy sustainability while maintaining security of supply and

•                     PPC’s position in the new liberalized energy market which is shaping up today. The issue of energy sustainability is an international one. We all

know that in the last decades the unprecedented global economic growth was heavily depended on fossil fuels. This use of fossil-fuels has lead to an increasing concern over the environmental impact of green house gas emissions.  Furthermore, the reliance on a relatively small number of petroleum producing countries has posed additional issues relating to energy security and the cost of assuring adequate supply to meet demand. 

Moreover, in a globalised market, with largely unpredictable commodity price volatility and, as a result, multiple economic implications on national and international level, States and energy companies has started to come up with energy solutions that effectively manage such price volatility and ensure economic development and growth for their societies through affordable and environmentally-friendly energy.

The road to sustainable energy however does not necessarily mean the immediate abolishment of fossil fuels from the energy mix, but it rather allows the partial dependence on fossil fuels as green technologies develop, with the long term goal being the full use of renewable energy sources. Furthermore, technologies that improve energy efficiency are also equally important for the accomplishment of this objective.    

Within this context, new energy investments in Greece, but also internationally, should aim at meeting in a balanced manner three key targets

•                     Security of supply 

•                     Environment protection and necessary measures to address  climate change implications 

•                     Economic efficiency and appropriate risk sharing 

Security of supply on a national level requires the best use of the country’s resources, i.e. lignite, water and renewables. Especially the use of lignite should be coupled with investments in high efficiency thermal plants, using available modern technologies and complying with the strictest environmental provisions. 

Towards the achievement of the above targets, governments through the appropriate policies can create and support the development of new investment initiatives and the creation of new energy markets, while balancing the risks and allowing for  acceptable rates of return for the investors. To this direction, it is also important that the public and private sectors work closely together using their respective advantages and aligning their goals.

On an international level, the economic and environmental challenges are getting more and more complex, while on a national level, the urgent need for radical reforms and initiatives to get the country out of the current sovereign crisis, is directly related, amongst others, to the new energy landscape and the energy investments that are required to take place in Greece in the next decade. This also means that a well planned and well defined long-term and sustainable national energy policy is more critical than ever.

Today, PPC has already shifted its strategic focus, aiming to develop a large program of investments in the renewables sector, while at the same time developing new thermal plants that will replace old and inefficient capacity. This investment strategy is fully aligned to both support sustainable economic development as well as security of supply and environmental protection, for the benefit of the company, its shareholders, the country and its consumers. 

The role of PPC in supporting economic growth in Greece, and especially economic activity in the periphery is evidenced throughout its 60 years history.

To give you an idea:

•                     in the years 2005-2009, PPC has invested up to 4.4 billion Euros, of which 1.33 billion in power generation and 2.35 billion Euros in transmission and distribution projects, while

•                     in 2010, and despite the difficult economic environment, PPC secured funding and invested almost 1 billion Euros.

Through these investments, PPC directly and indirectly supports employment; just think of the thousands of jobs in Greek companies that do business with PPC as sub-contractors or suppliers, in addition to the approximately 21,500 of PPC’s employees today.

With regards to the ongoing investment plan of PPC, the Company aims to push through with targeted large investments in generation, to increase efficiency and competitiveness of our power generation portfolio, taking into account the critical environmental issues and related costs. Indicatively I would like to mention that 

•                     investments for gas-fired stations currently under development are in excess of 750 million Euros . 

•                     We are also in tendering process for a large lignite-fired plant in Ptolemaida with a budget of 1.3 billion Euros. 

•                     Furthermore, for the non-interconnected islands, where there are many infrastructure limitations, operational costs are high and there are also serious energy demand requirements, we have planned investments for the next 5 years period in excess of 500 million Euros. 

In parallel, PPC is proceeding with the decommissioning of old, inefficient and polluting units. Specifically, a year ago, PPC decommissioned Ptolemaida I unit, with installed capacity of 70 MW, whereas PPC plans to decommission until 2015 seven more lignite-fired units with a total installed capacity of 843 MW. In addition, old oil-fired plants in the interconnected system, along with old natural gas-fired plants of low efficiency will be decommissioned over the next five years, with a total installed capacity of approximately 1,280 MW. 

On the renewables front, PPC seeks to accelerate investments of at least 2 billion Euros by 2015 with a target to reach 20% of the total renewables capacity in Greece by 2015 and 30%-35% by 2020, thus making PPC a leading player in this sector as well. I would like to highlight amongst others some of our actions

-We will soon select the EPC contractor and start the construction of the Megalopolis 50 MW photovoltaic park. 

-PPC has completed the first phase for the selection of a strategic partner in order to jointly develop a 200 ΜW photovoltaic park in the lignite center of West Macedonia as well as the construction and operation of a plant for solar panels. 21 proposals have been submitted, highlighting the international investment interest for this project, which is the biggest photovoltaic park in the world.

-In parallel, PPC has formed new strategic partnerships with some of the leading international renewable players, such as EDF Energies Nouvelles and Sinovel.

Furthermore, new infrastructure investment projects are planned for Transmission and Distribution in order to provide high quality and reliable energy services to all consumers and users of the network and grids, while at the same time allow for high penetration of renewables. For example, in 2010, investments in transmission and distribution amounted to 552 million Euros.

Furthermore, it is important to promote investments in automation for optimum network management and system monitoring, which also allow for cost optimization in favor of the consumer, while promoting many environmental advantages. Such projects may include amongst others tele-metering and smart grids.

All the above investments need to be viable in the long term and thus a number of risk factors have to be carefully assessed and mitigated, especially given the current difficult economic environment as well as the regulatory challenges.

As you know, 2010 was marked by the signing of the Memorandum, which includes amongst others material developments in the regulatory environment and in the Greek energy sector, leading to imminent and significant changes in the organisational and operational structure of PPC.

Within this framework, PPC today is committed to actively support and timely implement all those necessary regulatory changes. In reality, the new conditions are helping the Company to break through from the past as a natural monopoly and to establish a new Group structure, with better operational efficiency and better energy services to end users, while securing compliance with the European directives for market liberalisation.

With regards to the degree of market opening achieved up to date in the Greek energy market, I would like to note the following :

On the generation side, the market liberalization is being evidenced through the entrance of Independent Power Producers (IPPs), resulting in the reduction of PPC’s market share, which, including imports, covered 72.8% of total demand in Q1 2011. 

Looking at the retail sector, I would like to point out that since 2001, all middle and high voltage customers have the possibility to choose their power supplier, while for high voltage customers PPC can negotiate with them on their appropriate tariff depending on their energy profile. Since 2009, with the approval of separate charges for the use of the Transmission System, Distribution Network and PSOs, the retail electricity market is practically 100% open to competition.  

The liberalization of the retail market is observed through the loss of PPC market share during the last years, and, as PPC is repeatedly pointing out, those new suppliers are focused on attracting high margin customers, taking advantage of the tariff distortions which existed as a result of cross subsidization between different customer segments.  

The liberalization of the retail market on non-equal terms has given excessive advantages for cherry picking, providing significant profits to our competitors, especially since the System Marginal Price remained at relatively low levels during 2009 and 2010.   

As a result, in 2010, with total electricity demand remaining almost stable, domestic PPC sales were reduced by 3.2%, with PPC’s market share dropping to 95.8% at the end of 2010. Similarly, at the end of Q12011, the respective market share was 93.4%. 

Regarding the future, the application of new tariffs from 1.1.2011 partially addresses the cherry picking issue, whereas additional adjustments are anticipated in 2012 for further containing tariff distortions. Tariffs are expected to be fully deregulated by the beginning of 2012 for all customers, except households and small enterprises, whereas they should be cost reflective at the latest by June 2013. To cater for economically vulnerable customers, the Social Residential Tariff was introduced with effective implementation as of the beginning of 2011.

At the same time, and further to the expected tariff regulation, the Company is also making significant efforts for reversing the trend of market share loss, through the adoption of new, customer oriented sales philoshopy, offering new services which will set the bar higher for all electricity market players.

I will give you some examples of actions taken recently

-Simplification of procedures and service upgrading through telephone and internet applications.

-Also provision of energy saving products and services, which are among the most important priorities in the energy agenda not only of the EU but also of our country, and which constitute for PPC a new activity sector, mainly through selective co-operations.  

Last but not least, and as you probably know, a draft bill, which basically incorporates the third energy package and specifically the Directive 72/2009 in the Greek Law, has been recently set under consultation. This draft bill includes regulatory measurements that assure and enhance the full development of competition in the electricity market of the country.

Among others, the bill includes the establishment of two independent subsidiaries for the operation and management of the Transmission and Distribution networks with new increased requirements in order to assure the accounting, legal and operational unbundling of these activities as well as the equal and transparent access to networks by third parties.

For distribution, PPC has decided, at the end of 2010, that the whole activities of Distribution will be transferred to a 100% subsidiary company of PPC. Although the Directive imposes the unbundling only for the Network Operator, PPC decided – in order to further contribute to its autonomy and effectiveness – the unbundling of all the Distribution activities and keep only the ownership of the fixed assets of the networks.  

As far as the activities of Transmission are concerned, in December 2010, the Greek State decided to apply the Independent Transmission Operator (ΙΤΟ) model, transferring to the Independent Market Operator all the activities of the market operation. 

The ΙΤΟ model must be certified and implemented no later than March 2012. Within this strict timetable, PPC has mobilized all its resources in order to assure the timely establishment of the independent Transmission subsidiary, while the list of personnel transferred from PPC

S.A. to the subsidiary has already been determined.  

The closing part of my speech will focus on our performance, main challenges ahead and prospects. As you know, in 2010, and despite the difficult economic environment and increased competition, PPC achieved satisfactory financial results with EBT reaching € 741 million. At the same time, in 2010, PPC funded and successfully implemented its investment program which reached almost € 1 billion, maintaining at the same time sufficient liquidity and leverage ratios. It is worth mentioning that, despite the difficult financial conditions, PPC repaid €1.5 billion of maturing debt within 2010, while assured at year-end liquidity of approximately €2 billion.