Nicolas Koutsokostas/NurPhoto via AP
A protester chants slogans demanding cheap electricity in front of the offices of the Public Power Corporation, in central Athens, Greece, September 13, 2022.
The island of Paros, with its classic whitewashed houses, lush olive trees, and insatiable tourist demand that has driven the price of a swank Airbnb past $4,000 a night, looks something like a poster child for the supposed prosperity that led The Economist to anoint Greece its number one “economic winner” of 2022. Which is why a friend who resides on the island was struck last winter by a massive protest banner hanging over the windows of a much-beloved family-owned bakery there.
“We are on strike against the robbery,” blared the sign in bold red letters. “Daily energy cost: €500. From August 4 to October 4, we were asked to pay an electricity bill of €28,538.56.”
Nikos Zoumis, the bakery’s chef and owner, hung the sign and shuttered the shop for the day in solidarity with a movement led by the country’s two largest labor unions, which staged a series of one-day general strikes last year protesting the post-COVID run-up in the price of basic goods that has hit Mediterranean countries with special ferocity. In more recent weeks, Greece has been consumed by much larger protests organized by the same unions in response to the head-on collision of a passenger train and a freight train that killed 57 people in Thessaly on February 28. Perhaps unsurprisingly, the railroad tragedy and Zoumis’s energy bills share a culprit: The center-left Syriza government privatized the railroads and grudgingly agreed to begin welcoming free-market efficiencies into its energy sector back in 2018, and the reforms have proceeded in maximalist “shock doctrine” style under the current center-right leadership of Prime Minister Kyriakos Mitsotakis.
Nikos Zoumis
A sign hangs in front of a bakery belonging to Nikos Zoumis on the Greek island of Paros protesting the high cost of energy, which has hit Greece particularly hard among EU countries.
It’s a pattern to which Greeks have become accustomed over the past decade and a half; what shocks guys like Zoumis is how endlessly his economic station seems to get worse. His electricity bill began surging back in 2020, when energy prices elsewhere hit rock bottom and carbon emissions fell for the first time in recorded history. By 2021, Greek electricity prices were the highest in Europe; how was Zoumis to know they would surge again the following year? (One calculation estimates the average Greek business has seen its electric bills rise 781 percent since 2020.) “I didn’t even know beforehand, so I could prepare,” he said.
A DECADE AGO, GREEK ENERGY PRICES were among the cheapest in Europe. The entire supply chain was dominated by a monopoly state-owned utility, the Public Power Corporation, which primarily fueled its plants with lignite, a form of coal that is somehow more harmful to the environment and workers than traditional coal, and which is dirt-cheap and plentiful in Greece, where PPC also owned most of the lignite mines. The European Commission had been pressing member nations since 1996 to “liberalize” energy markets by “unbundling” mines from plants, plants from grids, and grids from bill collectors; then forcing all to buy and sell kilowatt-hours using mechanisms designed by bureaucrats to mimic stock exchanges. About a decade ago, the EC unveiled a streamlined market structure for facilitating its integrated market; they called this new regime the “Target Model.” At the time, many experts expressed bewilderment over both the design of the model, which seemed rigged, according to one paper published by the Oxford Institute for Energy Studies, to bankrupt renewable and nuclear energy producers while enriching fossil fuel extractors. But critics of the model observed that Commission bureaucracy seemed strangely unwilling to deviate from its original vision of an ideal market structure, with the Oxford researchers concluding: “The attachment of the Commission to its particular version of a single market is likely to be the source of serious future difficulties.”
Greece instituted the Target Model in November 2020; electricity bills doubled practically overnight.
And so it was. Countries adopting the Target Model found that its implementation came with high rates of market manipulation and supply hoarding. Backers of the Target Model insisted that countries should grit their teeth and endure the volatility, since breaking up state-run energy monopolies could ultimately bring down costs—though lower costs were quite tellingly never the result of any of the shenanigans to which the model was vulnerable. Following a long period of resistance, the Syriza government agreed to implement the regime in 2018, just months after it sold the railway system to an Italian company for 45 million euros and the (quickly forgotten) promise of a half-billion more in capital investments and maintenance costs.
The agreement to implement the Target Model was made amid a whirlwind of other “reforms” consuming the Greek energy sector. The monopoly energy conglomerate PPC was in the process of being broken up and sold off to investors; stakes in its grid operator ADMIE and its subsidiary HEDNO were sold off to Chinese and Australian investors along with local conglomerates. Then in 2019, the newly elected Mitsotakis dropped another bombshell on the country’s nascent electricity markets, announcing the country would aim to go almost entirely lignite-free by 2028, then accelerating the timeline to 2025, decisions that threatened to halve economic activity in the already-bleak “Detroit of Greece.” The move was a boon for the country’s powerful shipping industry, which controls close to a quarter of the global ocean transport of liquefied natural gas, as well as powerful corporate interests the Mytilineos conglomerate, owners of a natural gas plant Mitsotakis visited the month after the lignite announcement to extol the company for offering a “soft transition to the era of green energy.”
Into this “everything everywhere all at once” bonanza of privatization, Greece instituted the Target Model in November 2020. Electricity bills doubled practically overnight. By December 2020, electricity on an ultra-short-term exchange called the “balancing market” was trading at an astonishing 14 times the continental average. Ostensibly designed to “balance” the supply-demand mismatches arising out of sudden, unpredictable temperature swings or catastrophes, the “balancing market” exchange also exempted energy sellers from the auction rules of the traditional markets, which essentially permitted them to set prices as high as they wished—which in turn drove up prices across the board, thanks to another market mechanism called “marginal cost pricing.” By the final months of 2021, electricity was regularly trading in Greece at more than 400 euros per MWh; it had rarely if ever exceeded 50 euros before 2020. On social media, Greeks incredulously circulated a map of European electricity spot market prices that showed their countrymen were paying the highest prices for electricity in all of Europe.
But experts were quick to point out that the reality was far worse than the map suggested, because in every other EU country, retail energy companies buy the vast majority of their wholesale electricity long in advance, using bilateral contracts, and only supplement those purchases using the spot markets regulated by the Target Model. Poland, for example, buys just 1 percent of its electricity consumption through the spot market; Italy buys 11 percent, and France and Germany purchase less than 30 percent of their electricity this way. In Greece, by contrast, the spot market is all there is. While the exchange charged with making markets in day-ahead and intraday electricity prices was ostensibly charged with also establishing a market in forward fixed futures contracts, that market for whatever reason never materialized in 2020; today, with natural gas prices at all-time highs, there’s little demand from energy retailers to “lock in” those prices for the long term.
Thanassis Stavrakis/AP Photo
A Greek flag waves over the country’s largest lignite mine outside the city of Kozani, June 2, 2022.
Miltos Aslanoglou, the chair of the Energy Retail Companies Association of Greece, says the country’s lack of bilateral fixed contracts has left the nation exposed to the whims of natural gas traders. “Greece is a very easy market to crack,” says Aslanoglou. “Since everything goes through the spot market, prices are known to international traders and they know how to maximize their benefit. If most of the transactions were sealed inside contracts, this could not happen.” But where Aslanoglou argues that the absence of those contracts was an accident caused by the relative stability of natural gas prices before the recent crisis, others suspect a deliberate choice on the part of New Democracy to launch the Target Model without any mechanisms for facilitating bilateral contracts—or, for that matter, incentivizing the development of renewable-energy production whose supply by definition cannot be hoarded to manipulate its price—possibly as a means of enriching their allies in the shipping and gas industries. “The government permitted manipulation, profiteering, and excess profits in the electricity market, with [PPC’s] ‘blue’ management as a champion,” says former Deputy Minister of Environment and Energy and Syriza MP Sokratis Famellos.
Energy policy professor Haris Doukas of the National Technical University of Athens agrees, noting that the patterns of price movements suggest price-fixing by the Big Four conglomerates that control the vast majority of the nation’s electricity production capacity. “There is the suspicion [that] the companies are coordinating,” Doukas says, adding that only regulators could “prove” such a suspicion, and that the proverbial ball is in the courts of the Regulatory Authority of Energy and the Competition Board.
For its part, RAE chair Athanasios Dagoumas says he has been working with ACER, the association of European regulators, to roll out an algorithm to monitor the wholesale markets for signs of a cartel. “Based on these, there have been no indications of coordination between the [big] four producers,” Dagoumas insists. But the regulator has found evidence of market manipulation in the balancing market, and it is conducting probes into various retailer abuses as well. The ultimate solutions to the nation’s power crisis, he says, are the development of bilateral contracts and further investment in systems for storing the renewable energy that is so abundant in Greece. “This way, the cost of energy will be far cheaper than that of conventional units.”
But the government’s policy response to the energy crisis it created has consisted primarily of blaming “Putinflation” for its problems, while doling out billions and billions of euros in subsidies to energy producers to soften the blow of consumer power bills. (Zoumis’s electricity bill would have been closer to 40,000 euros if not for these subsidies.) Perhaps inevitably, Mitsotakis a year ago slammed the brakes on the move away from lignite, though he continues to tout himself as a global leader in decarbonization, recently submitting a “non-paper” in which he proposes an ambitious “overhaul” of Europe’s electric grids to “lay the foundations” for the transition to renewable energy and loudly trumpeting the news of a period last fall during which Greece operated on renewable energy alone.
The government’s policy response to the energy crisis it created has consisted primarily of blaming “Putinflation” for its problems.
Perhaps most depressingly, for all its virtue-signaling about decarbonization, the Mitsotakis government has in many respects aggressively slow-walked the development of renewable-energy storage projects, going so far as to ban permit applications for certain storage projects altogether in 2021, in a move critics blamed squarely on New Democracy’s coziness with natural gas interests.
And while Mitsotakis finally agreed over the summer, as the cost of a single megawatt-hour of energy soared to an all-time record of 697 euros, to tax “windfall” energy profits to help pay for the subsidies, the vast majority of Greece’s energy crisis bailout funds come from money originally earmarked for renewable-energy investments.
All is going according to plan, says Yanis Varoufakis, the MP, former finance minister, and founder of the fledgling political party MeRA25. Energy deregulation typically produces “a so-called electricity market, behind which are five or six local oligarchs and predatory multinational companies,” Varoufakis says. “When this happens in a country where the state and the majority are bankrupt, then the so-called electricity market turns to a neocolonial tool of intensive plunder.”
As Varoufakis sees it, the Ukraine War merely caused new strains of this plunder to spread into the decidedly non-bankrupt quarters of the EU like France and Germany. While both countries have historically kept electricity prices low by incentivizing the sort of long-term bilateral contracts Greece never developed, those contracts backfired on companies like Uniper—which relied on Russian gas to fulfill them—and Electricité de France, a supplier of nuclear power that had been forced to take much production offline due to privatization-imposed maintenance cuts. Both companies had been nationalized by the end of the year, part of a string of ad hoc energy crisis bailouts estimated to have cost EU nations a collective $657 billion since the second half of 2021, as multinational oil and gas producers have raked in record-setting profits. The problem is obvious to Greeks who have followed the country’s catastrophic adoption of the Target Model: Energy markets are a market failure—the “scam of the century,” as Varoufakis puts it. And while gas prices have recently plunged to an 18-month low in the aftermath of the milder-than-anticipated winter, they will inevitably begin to spike again right before the May 21 elections, when the Mitsotakis government faces off against an electorate that has become increasingly disillusioned with his political brand—but also has no surfeit of alternatives.
There are signs, at least, that the EU is re-evaluating its orthodoxies, says Doukas. “The liberalization of the energy market in Europe did not go well. When we design policies we have to assess their results. Liberalization wanted to drive down prices and bring in a lot of players in competition. Neither happened. I think that the EU has realized that and is re-examining its stance—at its well-known slow pace, but it is doing so.”
While European and Greek authorities are debating solutions, Nikos Zoumis is awaiting the verdict on a class action lawsuit he joined against his electricity provider. It is the first of a series of lawsuits by consumer associations in Greece in which they will try to prove in court that excess charges were taken away from them through electricity bills. “I’ve done all I can,” he says. “We’ll see how it turns out.”
