Greece’s energy transition at a crossroads: risks of deviating from the NECP
Greece’s ambitious National Energy and Climate Plan (NECP) outlines a comprehensive roadmap to decarbonize its energy system by 2050. Central to this vision is the decarbonization of the power sectors which includes a balanced deployment of renewable energy sources (RES) – notably solar photovoltaic (PV), onshore and offshore wind – and a robust expansion of electricity storage to manage variability and provide flexibility.
However, an in-depth analysis of the current market trends reveals growing signals that actual investment may diverge from the NECP’s optimal trajectory. Ricardo’s Electricity Market Outlook’s latest quarterly report deep dives into this divergence and, specifically, identifies two critical risks: an accelerating overinvestment in solar PV without corresponding storage capacity, and significant delays in offshore wind development. These issues could make the energy transition more expensive, less reliable, and slower than intended. Such uncoordinated investment pathways may affect anticipated revenues of different market revenues greatly.
The Central NECP scenario: a delicate balance
The Central NECP scenario assumes a synchronized rollout of solar PV, wind (onshore and offshore), and storage technologies. This configuration is designed to mitigate the “duck effect” – the steep ramping needs caused by solar generation peaks during the day and sharp declines in the evening. While wind power has a smoother hourly distribution, it cannot fully compensate for the Duck Effect on its own. Therefore, storage plays a pivotal role in absorbing excess solar output and redistributing it to periods of high demand, thereby reducing curtailment and stabilizing market prices.
Under this scenario, solar PV capacity is projected to reach 13.5 GW by 2030, supported by 4.8 GW of storage (including batteries and pumped hydro). Onshore wind and offshore wind are expected to grow by 8.9 GW and 1.9 GW respectively by 2030, growing steadily thereafter. This balanced mix ensures that variable RES can be integrated without excessive reliance on gas-fired generation, keeping emissions and costs in check.
The deviated NECP scenario: a growing mismatch
The Deviated NECP scenario explores the possible divergence of investment strategies from the optimal configuration presented in the official NECP, and paints a more troubling picture. It projects that solar PV investments can exceed NECP targets by up to 37% by 2030, while storage capacity will be 54% lower. Offshore wind development is also delayed, reaching the 2030 target only by 2034. These deviations, though hypothetical, are grounded in observable market trends: solar PV continues to attract investment due to declining technology costs, while storage and offshore wind face financial, regulatory, and logistical hurdles.
Consequences of the solar-storage imbalance
The most immediate impact of the solar-storage mismatch that our Deviated NECP scenario presents is a sharp increase in curtailment. Without sufficient storage to absorb midday solar surpluses, curtailment rates for solar PV rise to 10-18%, compared to just 5% under the Central NECP. This not only wastes clean energy but also erodes the financial viability of solar projects. Capture prices for solar PV – i.e., the average revenue per MWh generated – drop by up to 50% by 2030, making it difficult for investors to recover capital costs through wholesale market revenues alone.
Moreover, the lack of storage exacerbates price volatility. Daytime prices plummet due to oversupply, while evening prices spike as gas plants ramp up to meet demand. This widening price spread benefits existing storage operators, who can profit from arbitrage, but it introduces uncertainty for all market participants and increases reserve costs. Reserve-up prices rise by 30-40% and reserve-down prices by 35-45% until 2030, reflecting the system’s growing need for flexibility.
Offshore wind delays: a missed opportunity
Offshore wind, with its high-capacity factors and complementary generation profile to solar, is a cornerstone of the NECP’s long-term strategy. The assumed delayed deployment in the Deviated NECP scenario has far-reaching implications. Between 2031 and 2034, the shortfall in offshore wind leads to a 30% increase in carbon emissions and a 20% rise in electricity costs compared to the Central NECP. Gas-fired generation fills the gap, driving up market prices and emissions at a time when Greece is trying to meet its climate targets.
The delay temporarily boosts the financial performance of gas plants and existing storage assets, which benefit from scarcity rents. However, this comes at the expense of consumers, who face higher electricity bills, and the environment, which bears the brunt of increased fossil fuel use.
Financial implications for investors
The financial analysis of the Deviated NCEP scenario highlights the uneven impact of these deviations across technologies. Solar PV sees its internal rate of return (IRR) drop to near zero, rendering it unviable when financed through wholesale markets without policy support. In contrast, wind energy – both onshore and offshore – proves more resilient, demonstrating a modest enhancement in their IRR leading up to 2040, and benefiting from elevated market prices and their uniform generation profiles.
Storage technologies, particularly batteries, emerge as unexpected winners. The scarcity of storage capacity drives up arbitrage opportunities and reserve revenues, pushing IRRs for batteries to 20% by 2040 – well above the 8% hurdle rate. Pumped hydro, however, remains financially marginal due to lower efficiency and higher fixed costs.
Conclusion
Greece’s energy transition is at a critical juncture. While the NECP provides a sound roadmap, real-world investment trends are diverging in ways that could undermine its success. By examining those trends and their projected implications, and comparing them to the Central NECP target achievement scenario, the latest Electricity Market Report highlights the urgent need to rebalance the deployment of solar PV, storage, and offshore wind to maintain system stability, economic efficiency, and climate ambition. Without coordinated investment, impacts will vary – some actors may benefit from market shifts, while others could face significant challenges. Without timely intervention, the costs of inaction – both financial and environmental – could be substantial.
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The Electricity Market Outlook is Ricardo’s one-stop-shop for electricity market intelligence, providing medium to long term electricity projections and robust insights, in the form of regular market reports, market outlooks and expert analysis.
