Introduction

What follows is a presentation of trends and developments in relation to energy projects (renewable and thermal), green buildings and town planning.

Green Building & Town Planning

Green buildings

Until a few years ago, green buildings were a foreign concept in Greece, overshadowed by widespread issues such as haphazard construction and inadequate urban planning. Cities grappled with unauthorised constructions and numerous old buildings that were poorly maintained. These buildings often sat empty and were costly to operate, both financially and environmentally. As a result, Greek residential, office and hotel buildings have been notoriously energy inefficient.

However, this is changing rapidly due to several factors: there is increasing demand for sustainable, energy efficient and environmentally friendly offices, growing demand for modern and luxury housing, and interest from foreign investors in large projects like upgraded hotels, luxury villas, and new logistics and data centres. These pressures compel the Greek construction industry to evolve and align with global standards, catalysing a shift towards sustainable construction.

Such transformation is evident in recent major construction projects across Greece. Old buildings have been repurposed, primarily into hospitality spaces, while eco-friendly office buildings and logistics centres have sprung up, especially around Athens and other major cities. Notable developments include luxury accommodations in the Greek islands and eco-conscious office complexes in urban centres. These projects adhere to high sustainability standards, employing BREEAM and LEED Gold certification methods.

Looking ahead, new constructions in Greece are expected to have a significantly reduced energy footprint.

Town planning law developments

Two recent decisions by the Council of State, the Greek supreme administrative court, have affected the construction sector, mainly by creating ambiguity as to the buildability of certain areas and the total available building coefficient and heights for certain constructions: 

Decision 293/2024 by the Council of State

The Council of State ruled that specific provisions in the New Building Regulation Code (law 4067/2012) are unconstitutional. These provisions allow increases in building sizes and heights based on particular construction initiatives, including:

• increased building coefficient if building coverage is reduced;
• increased building height for reduced coverage;
• extensions to basements up to property boundaries;
• additional rooftop space for planting; and
• building coefficient increases for enhanced energy performance.

Such incentives are deemed to violate established constitutional urban planning principles and the protection of residential environments, as stipulated by article 24(2) of the Constitution. Additionally, the Court ruled that these changes conflict with EU Directive 2001/42/EC, which mandates environmental assessments for urban planning laws.

The case has been referred to the plenary session of the Council of State to consider a preliminary question to the EU Court of Justice about environmental assessments.

Notably, several Municipalities in the Attica region are already implementing the above (preliminary) decision of the Council of State and deny issuance of building permits applying the discussed incentives.

Decision 176/2023 by the Council of State

This decision clarified the rules for constructing on plots outside urban plans. The key points of the decision are:

• the required minimum plot frontage for building is 25 metres, adjusted from the previous 45 metres;
• this change applied only to plots created after 31 December 2003 – ie, the effective date of law 3212/2003;
• plots created before this law and after the presidential decree of May 1985 are buildable as long as they front onto a legally recognised common-use road, such as international, national, regional, municipal or community roads;
• roads of any classification are considered common property by law.

Considering that most of Greece is not covered by urban planning, this recent judicial decision, while beneficial in terms of policy, has led to a halt in the issuance of building permits that do not meet specified criteria. It is anticipated that the government will introduce new legislation after the upcoming European elections.

Key economic terms

Unlike some jurisdictions that utilise standardised contracts as the FIDIC forms, Greek building contracts are still tailored to the specific needs of each project and do not adhere to a uniform template.

Having said this, the building process typically unfolds in the following two stages: initially, employers establish agreements with civil engineers and/or architects who are responsible for the overall design of the project. This includes the creation of necessary studies and technical specifications. Following this, employers finalise contracts (main contracts and technical specifications contracts) with contractors who in turn pursue further contracts with various subcontracting professionals for the performance of works, such as earthworks, foundational works, building construction, and the installation of electromechanical, plumbing and fire safety systems, etc.

Contractor compensation may be set as a flat rate or a metered rate, depending on the project’s needs and the commercial agreement. A metered rate is often applied when the extent of the work and the materials used cannot be predetermined. In such cases, a maximum fee is agreed upon in the contract, with the final fee not exceeding this cap.

Payments are usually structured in instalments, beginning with a down payment at the time the contract is signed. This is followed by monthly instalments that are contingent on the project’s progress, as verified by the employer or project manager. In response to recent inflationary pressures largely attributed to the war in Ukraine, advance payments to contractors have escalated, sometimes comprising up to 10% of the total anticipated fees. This increase in upfront payments enables contractors to secure stable pricing for materials and labour.

For large-scale projects with significant fees, contractors often provide a bank letter of guarantee as security for their performance, to be returned or forfeited under the terms outlined in the contract. Additionally, a small percentage of each payment (typically 5% or 10%) is withheld as an additional guarantee of timely project completion. These withheld amounts are returned to the contractor, without interest, after the project’s delivery and the signing of the delivery-acceptance protocol, assuming no grounds for forfeiture exist.

Lastly, it should be noted that due to the recent great increase in construction activity, the market is observing a shortage in available personnel and small-scale subcontractors for particular works.

Energy Projects

Renewable projects: from single EPC to multi-contract

The contractual arrangements applied to the construction phase of a project have a significant influence on the total construction cost of a project and the management of design, construction and procurement risks, factors that affect both the returns of the project sponsors and the project’s ability to tap senior debt.

Greek banks, although preferring the conventional (but more expensive) lump sum EPC model involving a single contractor who assumes all responsibility for the design, procurement and construction, are open to negotiate different contractual structures that involve multiple construction and procurement contracts. These structures may achieve significant cost savings on the construction budget at the “expense” of foregoing the single liability point offered by the single contractor approach. To that end, Greek banks tend to rely heavily on the technical due diligence, proven track record and expertise of each of the multiple contractors to deliver on time and within budget, rather than the creditworthiness of a general EPC contractor who would fully underwrite all construction risk.

A typical multi-contract structure for a renewable energy project could include:

• balance of plant (earthworks, electromechanical works and installation of solar panels and inverters for solar projects);
• supply of equipment (wind turbines which are installed by the supplier, solar panels and inverters);
• substation construction; and
• grid connection works (other than the substation).

To mitigate the co-ordination and interface risk inherent in a multi-contract structure, lenders may require the appointment of an experienced construction manager.

In solar projects, where the project company procures the main equipment (modules, inverters) directly from their original equipment manufacturers (OEMs), special attention is to be given to enforcement of warranty claims. If the rights under the OEM warranties remain with the project company, the latter will be required to pursue and enforce warranty claims in the jurisdiction of the OEM which they may not be familiar with (ie, China in cases of the supply of solar project equipment). The project lenders will also be concerned about the likelihood of recovery of warranty claims in foreign jurisdictions against distant counterparties. To address this, the rights under the OEM warranties and the liabilities of the OEM manufacturer are sometimes transferred to the balance of the plant contractor during the construction period, so that project company has recourse against the local creditworthy contractor which is preferred by the project lenders.

Documentation: Construction agreements in renewable project financed transactions in Greece do not necessarily follow standard forms, such as FIDIC. The specific form of such agreements will depend on the selected contractor and the sponsor. Such construction agreements are adjusted to reflect the market practice in Greece and ad hoc particularities. Provisions related to the grid connection process require scrutiny to ensure that the contractor’s undertakings are fully aligned with the applicable legal framework and that the employer’s obligations towards the grid operator are passed down to the contractor. For renewable energy projects entitled to operating aid, the employer may not be entitled to the operating aid if it fails to achieve commercial operational readiness by a specified date. Therefore, attention is required in structuring critical milestones and providing for longstop date to achieve such milestones. Certain local health and safety related provisions require the alignment of health and safety provisions with the applicable legal framework, such as the appointment of a contractor as safety engineer and health and safety co-ordinator. Extra-contractual (ex lege) obligations which apply as mandatory law pursuant to the Greek Civil Code require special treatment in construction agreements. As an example, indemnity provisions are customarily included to cover situations where the contractor’s employees exercise their rights to demand payment of their accrued wages directly from the employer, or that the contractor waives its statutory pledge over the equipment it procures.

Risk of antiquities and permits: There are certain characteristics in Greece that need to be considered when structuring and negotiating risk allocation principles under the construction agreements, such as the risk of discovery of antiquities, delay from public authorities in issuing project licences or delays from the grid operator in the grid connection process. Due to historical reasons, the risk of discovery of antiquities in Greece is high compared to other countries and contractors are reluctant to assume it. This risk is mitigated (but not extinguished) by obtaining opinions from the antiquity authorities confirming that the project site is in an area of no archaeological interest. Contractors may also be reluctant to assume the risk of delays in the issuance of all project permits and certificates that are required for the start of the commercial operation of the project, or of delays from the grid operator in the grid connection process. In these cases, lenders may require delay in start-up insurance or completion guaranties from the sponsors.

Performance Security: Customarily, the contractor will deliver and advance a payment bond in favour of the employer equal to the amount of the advance payment. The contractor will also be required to furnish a performance bond for a fraction of the contract price (typically 15%-20%). Both bonds are granted as security for the performance of the contractor’s obligations to complete the works. Finally, the contractor will be required to provide a warranty bond (typically half the performance bond) as a condition to the acceptance of the works. The warranty bond will remain in place until the lapse of the defects notification period, which is usually two years from take-over of the works, and in certain cases can be extended for up to three years for defects on remedial works.

One of the latest trends is that the contractors request the flexibility to furnish bonds issued by insurance companies instead of banks. A limited number of insurance companies operating in Greece do currently provide such bonds in large-scale renewable energy projects but the lenders are still sceptical on the preferred treatment of such bonds from a bankability perspective. They assess such requests depending on the project and the insurance company which is proposed to issue the relevant bonds. One challenge associated with this new trend is the evaluation of performance risk of the insurance companies in the event that those bonds are forfeited. Certain insurance companies operating in Greece are not rated by independent agencies (such as Moody’s, S&P and Fitch). Additionally, there is no long-standing track record demonstrating that recourse against insurance companies is no different compared to the traditional option of bonds issued by credit institutions.

Gas fired plants

As part of its transition towards cleaner energy sources and reduced reliance on coal-fired power plants, there has been a shift in Greece toward natural gas as a cleaner alternative. The latter can also serve as a backup, given the intermittent character of renewables. CCGT technology consists of combining a gas turbine with a steam turbine which uses the exhaust gas from the operation of the former. This leads to higher efficiency compared to a traditional single-cycle power plant. Per the latest (as of January 2024) available data on the website of the Regulatory Authority for Waste, Energy and Water, there are six production licences for CCGT plants using natural gas in Greece, at various stages of development or operation. Five of them are of a nominal capacity over 820 MW. CCGT plants constitute costly and complex projects presenting various challenges for sponsors and lenders. Certain trends have been noted in their development, as follows:

Single EPC contract: Sponsors and banks prefer single point lump sum EPC contracts, enabling them to transfer all risks to a single contractor, thus enhancing the bankability of the project. Such contracts are usually drafted under the FIDIC Silver Book template or follow other precedents familiar to the sponsor with essentially a “FIDIC-like” (or stricter) liability allocation. EPC contractors are predominantly large Greek construction companies, but there have been also cases involving foreign entities. Both single entities and consortia have been employed as EPC contractors. In the latter case, typically joint and several liability applies with regard to all entities comprising the consortium. What has been said above about matters of interest relating to the documentation and risks applicable to renewable projects apply by and large for gas fired plants as well.

Onshore and offshore split in main equipment procurement: In the context of the aforementioned EPC contracts, the supply and installation of turbines are the subject of a subcontract between the EPC contractor and a specialised manufacturer. Such subcontract is usually split into an offshore scope and an onshore scope. The former involves the supply of the equipment and is undertaken by an EU non-Greek party belonging to the manufacturer’s group. The installation and related services are undertaken by a Greek subsidiary (or branch) of the manufacturer’s group. This split ensures that no VAT is paid on the equipment imported and also provides a better interface with the local employment and construction regulations on the part of the local entity.

Network connections (gas and electricity): Works connecting the plant to the electricity grid and the gas network are usually the subject of a separate subcontract, entered into between the EPC contractor and a local contractor with a relevant track record. Occasionally however, project sponsors manage to persuade lenders that these works are left out of the EPC scope and be the object of a separate agreement. This may create some interface issues, but we have seen the approach being accepted by lenders if they are given comfort about the expertise of the relevant contractor.