Written by Angeliki Kutanto, Forrest Crellin, and Edward McAllister
ATHENS/PARIS (Reuters) – Christos Kapetanakis, an Athens restaurant owner, says rent has always been high but now faces what he calls a “second rent” as rising electricity bills drag down profits and force him to raise prices.
Kapetanakis pays between 3,000 and 3,800 euros ($3,083 to 3,905) per month for electricity, a 40% increase since Russia invaded Ukraine in 2022 and caused a European energy crisis. He said that it previously represented 3% of monthly business volume, and now it is 15%.
“The continued increase in prices, especially in the tourism sector… will lead to Greece becoming less competitive compared to other Mediterranean countries,” he said from his restaurant in the historic Plaka district.
His plight has reverberated across the continent since the Ukrainian war cut off gas supplies via Russian pipelines to Europe and forced countries like Greece to look for more expensive alternatives.
But southeastern Europe felt the impact much more than the northwest. Experts say that this will only expand with the advent of winter, and will have an indirect impact on economic growth.
Wholesale capacity in Greece and Italy in August was 12 times higher than in the Nordic countries, and was even lower in other southern European countries that were experiencing hot weather.
Highest in the European Union
Since 2021, Greece has spent €11 billion on energy subsidies in an attempt to protect customers. In 2022, spending reached 5.3% of GDP, the highest in the European Union and double that of second-place Italy, according to France-based energy consultancy Enerdata.
Despite Athens' efforts to protect citizens from rising energy costs, the situation has worsened Greece's cost-of-living crisis following the 2009-2018 debt crisis that reduced wages, pensions, and investments in energy production and transportation.
“The increase in energy prices and the negative impact on GDP is a redundant tautology,” said Nikos Maginas, chief economist at the National Bank of Greece.
“Rising prices have a negative impact on household consumption and on the cost structure of industries, airlines and shipping.”
Much of the contrast between southeastern Europe and its neighbors is due to investment. While the Northeast has electricity and gas lines that allow for easy transfer of energy between countries, as well as a strong mix of renewable sources, much of Southeast Europe is fragmented and isolated.
Energy storage, which is becoming increasingly important in northern European countries, is non-existent in parts of the southeast. Germany has 1,668 megawatts of large-scale storage capacity, compared to nothing in mainland Greece, according to data from LCP Delta, an Edinburgh-based energy consultancy.
“South-eastern Europe and the Balkans lack (electricity) connections,” said Henning Gloystein, Head of Energy, Climate and Resources at Eurasia Group. “Whenever there is an energy shortage and the production of renewables is low, they struggle to import the necessary quantities.” .
In contrast, renewable energy generation in Spain has risen dramatically in the past decade, partly due to EU funding. It produced nearly 60% of its electricity needs from renewable energy in the first half of this year, compared to 51% the previous year.
“If you don't invest, energy prices will stay high,” Gloystein said.
More to be done
Europe's energy grid is a great success in many respects. In 2022, France increased its imports from Germany when nuclear power production declined. When Russian gas supplies to Europe via Ukraine stopped last week, the impact on prices was mild because the bloc found alternatives.
But for some, there is more to be done. After energy prices rose in Greece last summer, Prime Minister Kyriakos Mitsotakis wrote to the European Commission demanding a resolution of “unacceptable” differences in electricity costs across Europe.
Greece is not alone. Much of the Balkan region relies heavily on fossil fuels and the regional energy system is weak. Last June, power went out in Montenegro, Bosnia, Albania and Croatia when the grid was overloaded due to air conditioning needs during a heatwave.
Kosovo, which generates more than 90% of its energy from coal, is struggling to catch up with the rest of Europe in installing more renewable energy sources.
In December, it launched an auction to install 100 megawatts of wind power. But the World Bank estimates it will need 100 times more than that – at least 10 gigawatts of new power – to achieve its goal of eliminating coal use by 2050. This transition is estimated to cost Kosovo €4.5 billion, This is a huge amount for a small economy.
Without sufficient cross-border integration or stockpiling, there is sometimes too much power for a single market, forcing producers to reduce supply.
“If the goal is to lower prices more clearly, the easiest way to do that is to increase the penetration of renewable or nuclear energy sources,” said Fabian Ronningen, an analyst at Rystad Energy, a consultancy.
While Greece has no nuclear plants, Aristotelis Ayvaliotis, Secretary General of the Ministry of Energy, is optimistic, noting that renewable energy production is on the rise, two new gas-fired power plants are scheduled to become operational this year, and battery storage will be built by 2028.
Plans also call for upgrading energy links with Italy, Albania and Turkey by 2031 at a cost of around €750 million.
“Wholesale prices will gradually decline… and this will definitely trickle down to consumers at some point,” Ayvaliotis told Reuters.
Greek customers are not convinced. Taxiarchis Vikas, who lives in a suburb of Athens, struggles to pay school fees and allowances for his three children due to high electricity bills.
He urges his children to use less laptops and tablets to save energy — a difficult request for young children glued to their devices.
“We are on the verge of becoming a family that is struggling financially,” he said. “The government needs to pay attention.”
($1 = 0.9730 euros)
