Europe's power price divide hits southeastern economies
Angeliki Koutantou, Forrest Crellin and Edward McAllister
5 min read
By Angeliki Koutantou, Forrest Crellin and Edward McAllister
ATHENS/PARIS (Reuters) - For Athens restaurant owner Christos Kapetanakis, rent has always been high, but now he faces what he calls "a second rent" as soaring electricity bills slash profits and force him to raise prices.
Kapetanakis pays between 3,000 and 3,800 euros ($3,083-$3,905) a month on power, up 40% since Russia invaded Ukraine in 2022 and triggered a European energy crisis. Electricity used to amount to 3% of monthly turnover and now it's more like 15%, he said.
"The continuous increase in prices, especially in the tourism sector...will lead Greece to become less competitive compared to other Mediterranean countries," he said from his restaurant in the historic Plaka neighbourhood.
His predicament has been echoed across the continent since the Ukraine war interrupted Russian pipeline gas supplies to Europe and forced countries like Greece to seek more expensive alternatives.
But southeast Europe has felt the impact much more than the northwest. Experts say that will only widen as winter hits, and will have a knock-on effect on economic growth.
Wholesale power in Greece and Italy in August were 12 times higher than in Nordic countries and even dwarfed other southern European countries which were experiencing hot weather.
HIGHEST IN THE EU
Since 2021, Greece has spent 11 billion euros on energy subsidies to try to protect customers. In 2022, the spend amounted to 5.3% of GDP - by far the highest in the EU and double that of second-placed Italy, according to France-based energy consultancy Enerdata.
Despite Athens' efforts to shield citizens from the energy cost rises, the situation has exacerbated a cost of living crisis in Greece in the wake of a 2009-18 debt crisis that slashed wages, pensions, and investments in power production and transport.
"Increased energy prices and a negative impact on GDP are a tautology," said Nikos Magginas, a senior economist at Greece's National Bank.
"Increased prices have a negative impact on household consumption and on the cost structure for industries, airlines and shipping."
Much of the contrast between southeast Europe and its neighbours comes down to investment. While the northeast has power and gas lines that allow the easy transfer of energy between nations, as well as a strong mix of renewable sources, much of southeast Europe is fragmented and isolated.
Power storage, which is becoming increasingly important in northern European countries, is nonexistent in parts of the southeast. Germany has 1,668 megawatts (MW) of large-scale storage capacity, versus none in mainland Greece, according to data from LCP Delta, an Edinburgh-based power consultancy.
"Southeast Europe and the Balkans are lacking in (electricity) interconnects. Whenever there is a power shortage, and renewables output is low, they struggle to import the necessary volumes," said Henning Gloystein, head of energy, climate and resources at Eurasia Group.
In contrast, Spain's renewable power generation has skyrocketed in the past decade, in part thanks to EU funding. It generated almost 60% of its electricity from renewable energy in the first half of this year, up from 51% a year before.
"If you don't invest, energy prices will stay high," Gloystein said.
MORE TO BE DONE
Europe's power network is in many ways a great success. In 2022, France increased imports from Germany when nuclear power output dipped. When Russian gas supplies to Europe via Ukraine were halted last week, the price impact was muted because the bloc had found alternatives.
But for some, more needs to be done. After power prices spiked in Greece last summer, Prime Minister Kyriakos Mitsotakis wrote to the European Commission demanding a solution to the "unacceptable" differences in electricity costs across Europe.
Greece is not alone. Much of the Balkans relies heavily on fossil fuels and the regional power system is weak. Last June, a power outage hit Montenegro, Bosnia, Albania and Croatia when the grid was overloaded by air conditioning needs during a heatwave.
Kosovo, which generates more than 90% of its power from coal, is struggling to catch up with the rest of Europe in installing more renewables.
In December, it launched an auction to install 100 MW of wind capacity. But the World Bank estimates that it needs 100 times that - at least 10 gigawatts of new capacity - to meet its target of eliminating coal usage by 2050. This transition is estimated to cost Kosovo 4.5 billion euros, a daunting sum for the small economy.
Without enough cross-border integration or storage, sometimes there is too much power for one market, forcing producers to curtail supply.
"If the target is more concretely to reduce prices, the easiest way to do that is to increase penetration of renewables or nuclear," said Fabian Ronningen, an analyst at consultancy Rystad Energy.
While Greece has no nuclear plants, Aristotelis Aivaliotis, secretary general of the Energy Ministry, is upbeat, noting renewable output is on the rise, two new gas-fired power plants set to come online this year, and battery storage to be built by 2028.
Plans also call for power links with Italy, Albania and Turkey to be upgraded by 2031 at a cost of about 750 million euros.
"Wholesale prices will gradually fall ... and this will definitely get passed on to consumers at some point," Aivaliotis told Reuters.
Greek customers are not convinced. Taxiarchis Fekas, who lives in a suburb of Athens, struggles to pay school tuition and allowances for his three children because power bills are so high.
He urges his kids to reduce their laptop and tablet use to save power - a tough ask for young children glued to their devices.
"We are on the verge of becoming a financially struggling family," he said. "The government needs to pay attention."
($1 = 0.9730 euros)
(Reporting by Angeliki Koutantou and Edward McAllister in Athens and Forrest Crellin in Paris; additional reporting by Lefteris Papadimas in Athens and Fatos Bytyci in Pristina; writing by Edward McAllister; editing by Jason Neely)