The establishment of the Hellenic Energy Exchange (HENEX) has been a crucial step in Greece’s goal to develop a transparent, fair and investor friendly energy sector that will lead to less expensive and more stable prices for wholesalers and end consumers – as well as in the nation’s goal to become a regional energy hub in the coming years. CEO, Professor George Ioannou, discusses the role HENEX will play within the evolving energy landscape in Greece, his ambitions to make the exchange a regional hub for power and gas transactions in the region, as well as new opportunities and improved security that the exchange will provide for foreign investors
The Hellenic Energy Exchange is an essential part of the reforms in the energy sector. Can you tell us more about the role of the Hellenic Energy Exchange and how it is expected to help Greece move towards a centralized financial model in the energy sector?
The energy exchange was established in 2018. From the beginning it was 51% owned by the private sector, meaning it was forward thinking in terms of new markets, new tools and new products. So that was a very important step even from day one. The percentage of the private sector share now is 58% and that advances further the influence of the free market practices since it forces the company to follow guidelines on corporate governance, on procedures and on processes that are acceptable by multinational companies’ standards and are not the typical realities in a public sector enterprise.
So that is the history of the energy exchange. Now, why was it established? It was set-up to change the electricity market and the energy market in general by creating and operating platforms that would allow the seamless integration of suppliers, producers, retailers and wholesalers in a transparent way – providing the best possible match between supply and demand and the same information across the board for all participants. We want one price – not multiple prices in contracts that are everywhere, anywhere and nowhere – one price at any given time, transparent for everybody.
And the consumer end is not just individual households and small businesses, but also industries within Greece.
Of course. Energy contributes significantly to the overall product cost and it is imperative to address this issue. It’s a critical point for companies that want to sell products abroad and to have exports in demand, so we had to tackle it. And I strongly believe that the Hellenic Energy Exchange will provide the basis for generating such a lever because the platform will be open, the players can freely participate, their transactions have to be reported, and the price would be transparent.
You mentioned before new markets, new tools and new energy products. Would you like to elaborate on these innovations that the exchange will implement?
Well I would not say it is innovation exactly, since most of these things already exist outside Greece. But I suppose for Greece it is a new playfield indeed… The next big step will be gas; we already have liquidity in this market, without a single dominant player, and that is important for the operations of an exchange. Establishing the Natural Gas market within HENEX would be a huge step for the energy sector, that would build upon of the new developments in Cyprus, northern Greece (TAP) and all the other new pipelines, etc.; the new landscape, the multiple players, the dynamic changes all of this will give a boost to the transactions at the exchange level.
Thus, for me it’s a very challenging project, it’s a project that will guide us after 2020. And it would bring to our group many transactions and many interesting developments. And this will allow stronger interaction with our northern neighbors, with Bulgaria, for example. That is very important because they have pipelines and an energy exchange. I believe that we can try to build the hub for all exchanges and for all transactions in the region – for me that is the vision.
Four new markets will replace the previous mandatory pool model. Can you elaborate on the characteristics of those four markets and how appealing they are to participants at different levels?
Number one is the Day Ahead Market (DAM), which is the major platform and the majority of transactions will take place there; all producers and wholesalers must interact in DAM to make sure supply and demand are matched. That’s where you have the majority of the deals.
Now this will generate some forms of matched supply and demand that must materialize. But then we have the Intraday Market (IDM). This is the second market that is realized within each day with multiple options in order to better balance the position of the market participants. So players basically say “I need a little more or I need a little bit less. I have to make these transactions in order to better match my needs”, and this happens within IDM.
The third Market is the Derivatives Market, which is what comes before the actual physical energy delivery. It allows hedging against the risk because if one day I have reduced supply, prices will go up considerably; but with derivatives I can balance that, I’m not exposed to that risk.
The fourth market is the Balancing Market, which will be operated by the Hellenic Transmission System Operator. This is the level at which energy is delivered, consumed and measured. This will be the only market that will not be operated by the Exchange.
You mentioned before how you would like to establish collaborations with different exchanges. I would like to know more about what kind of synergies you’re looking for in the future, with the banks and financial sector, for example?
The banks have to be part of the energy exchange from day one. We can’t operate without the banks because they provide the finance aspect to complete transactions. I think most of them will be looking forward to our operation because it is a new market, it’s going to generate revenues, and it will create financial transactions that are pretty much sought after in order to produce growth. It is a new area in which they may have to invest a bit in terms of resources, but the returns would be very good for them. So the banking sector has to be not only part of this, they will be members of the Exchange.
Greece has a lot of potential to become an energy hub especially when it comes to gas. What are your thoughts on this and how do you see the role of the exchange in helping Greece to fulfill its mandate to become an energy hub?
I believe that Greece must be an energy hub. It is something that will be realized. Why do I say that? It’s because of the location, because of the current political situation, and all recent international agreements (e.g. East Med). Gas has been discovered in the Southeast Mediterranean – it’s there and we know it. Looking back to 2013, in the middle of the financial crisis in Greece, when I was leading the MBA International of the Athens University of Economics and Business and advising the MBA Energy Club, we had a conference on energy- there, the Israeli Ambassador, Aryeh Mekel, was one of the main speakers; a very experienced diplomat in various posts around the world that mentioned to us that the gas of South East Mediterranean would flow through Greece irrespective of second thought or peripheral decisions.
TAP was another decision, thank has indeed happened. So now if you merge those two (SE gas and TAP), everything we need to become an energy hub is there. The key thing is to realize that and take all the steps necessary in order to achieve it.
There are vast investment opportunities in the energy sector in Greece. Renewables is one area, the possible privatization of the PPC is another area, and the list goes on. How do you think the establishment of the exchange will impact how foreign investors see the energy sector in the future?
For me the most important thing is confidence because you have an energy exchange, operational and within a liquid market, that will attract investors. The goal is to have sixty percent of electricity demand covered by renewables by 2030. It is a feasible goal because of our location, our climate, because of wind, sun, etc. Confidence in a market that properly performs all these transactions and provides a basis for interaction among all market players, without any intervention by the state, and without abusing the resources of the Greek people, I think that would give a boost to foreign investors. Gas and other products, like guarantees of origins could be traded here.
Therefore it is very important to see in Athens at 11am on Monday morning, that the price of electricity is this, then I will know the price and it would be the same for gas, and for every product for which we have transactions at the Exchange. The same thing that happens with stock prices and every time there is a transaction, you see the change in price.
At a time when Greece is trying to reposition itself as a business and investment destination in Europe, to have such dynamic institutions already in place is very important for the country as a whole to transmit to investors that Greece is back on track.
Yes, I would agree 100% and I believe that this puts a lot of pressure on us to complete everything on time – to have all the tools ready, to have everything running, operational, to meet the deadlines, and satisfy this thirst of the country and the investors that want to come here. And the plan is to be operational by the summer of 2020.