Dr Charles Ellinas
Energy was constantly in the news in 2024, but serious progress was limited.
By far the biggest success was the ‘Photovoltaics (PV) for All’ scheme. With the failure of utility-scale renewables (RES) projects to contribute constructively to Cyprus’ energy mix so far, ‘Photovoltaics for All’ has enormous potential to increase RES penetration and significantly reduce the cost of electricity to those that participate, as well as reduce emissions into the atmosphere. This scheme will continue and household demand to participate in the scheme will increase in 2025.
But where Cyprus really needs to see progress is in the perennial problem of high electricity prices. These remain some of the highest in Europe.
Based on purchasing power parity, in 2024 Cyprus had the second highest household electricity price in Europe, largely due to taxation. Tax accounted for just under 35 per cent of the price, the fourth highest in Europe and well above the corresponding EU average, of about 23 per cent. In Greece this percentage was only around 15 per cent. Bringing taxes and levies down to Greece’s level, could slash electricity prices from 33 cents/kWh to 25 cents/kWh.
Collecting higher taxes contributed to Cyprus’ fiscal surplus in 2024, as well as its upgrading in the global credit-ratings, but at the expense of the consumer, who is getting poorer and is increasingly squeezed economically. A recent headline was: “Purchasing power in Cyprus is declining – Below the EU average.” This is not surprising given high taxes, making high energy prices even higher. A large percentage of Cypriots, more than 23 per cent and increasing, cannot make ends meet and about 30 per cent are at risk of poverty and social exclusion.
Clearly this should not be considered to be an acceptable situation. Cyprus needs an energy transformation and substantially lower energy taxes and prices in 2025. But can that be achieved?
The price of electricity is unaffordable for an increasing number of households and unfortunately this will continue in 2025. The import of natural gas will be delayed and utility-scale RES projects do not contribute to reducing the price.
Utility-scale renewables in Cyprus have, in effect, become a monopoly and they are not contributing to the reduction of electricity prices. Restrictive trading practices have led to a situation where RES producers appear to be interested only in collecting super-profits.
In terms of renewables uptake, Cyprus was ranked 16th, below the European average of 23 per cent. EU’s target is to achieve 42.5 per cent by 2030. Cyprus revised National Energy and Climate Plan (NECP) lacks ambition, hoping to achieve only about 33 per cent renewables by 2030.
In theory, the competitive electricity market, scheduled to be implemented in the second half of 2025 – after a delay of more than 10 years since the decision to adopt it was taken – could help bring electricity prices down. But private RES electricity producers are showing reluctance to cooperate with the Cyprus Transmission System Operator (TSO) for the commercial operation of the competitive market. They appear to be determined to continue with the existing market model in order to carry-on raking super-profits, which will make a solution difficult in 2025.
In order to deal with this, the energy minister said he is considering a different model to rein in super-profits, and more suitable for the small market of Cyprus. This will require private electricity producers to sell their production to a central supplier – probably EAC Supply – through a competitive process. But the RES producers are currently rejecting this.
Clearly, in order to achieve changes, political will be needed from the president. Not only the model must be changed in 2025, but it must also include retroactive recovery of super-profits.
It is also important that the much-discussed grid upgrade and battery-storage progress to implementation in 2025, to facilitate increased RES penetration.
It is understood that the natural gas infrastructure company (Etyfa), under the direction of the ministry of energy, is in the process of retaining a pre-eminent international engineering company with proven expertise in this area to oversee and manage the recovery and completion of this project. It is also in the process of retaining a contractor to complete construction of all facilities at Vasilikos.
This process must also include a review of the project scope and design to ensure it is focused on the main purpose of the terminal, which is to receive and regasify LNG and deliver it to the electricity generation plants. Additional requirements that were included in the original design, such as the ability to export LNG, should be removed. Not only do they add to the already exorbitant costs, but they will also delay completion of the terminal.
As and when Cyprus is in a position to consider exporting LNG – from gas produced in its EEZ – the oil and gas companies will decide on the size and form of an LNG export plant, that will require its own dedicated facilities and will depend on the amount of gas discovered and the scale of LNG exports.
It is important that the process of recovering the Vasilikos LNG import project is completed ASAP, with construction activities resuming in January, if the minister’s laudable target to have the LNG terminal up and running at the end of 2025 is achieved.
But it is not just this and the arrival of Prometheas. Much more needs to be done for the transition of electricity generation from heavy fuel oil to natural gas to proceed smoothly. This includes enacting the necessary regulation, entering into LNG purchase contracts, appointing an operator for the terminal and readiness by EAC to accept natural gas. And all of this must be in place before the end of 2025. At the current pace, there is a risk that this will not happen until later in 2026.
The good news is that with the recovery of the FSRU Prometheas, the construction of the necessary infrastructure at Vasilikos can now continue. With the electricity interconnector unlikely to start operation before 2030, this is the most important project in terms of reducing the price of electricity during the rest of this decade. But it is becoming critical that inefficient and time-consuming state practices and procedures in its handling are recovered and expedited if it is to start operating end of 2025.
Dr Charles Ellinas, @CharlesEllinas, is a councilor for the Atlantic Council
Energy was constantly in the news in 2024, but serious progress was limited.
By far the biggest success was the ‘Photovoltaics (PV) for All’ scheme. With the failure of utility-scale renewables (RES) projects to contribute constructively to Cyprus’ energy mix so far, ‘Photovoltaics for All’ has enormous potential to increase RES penetration and significantly reduce the cost of electricity to those that participate, as well as reduce emissions into the atmosphere. This scheme will continue and household demand to participate in the scheme will increase in 2025.
But where Cyprus really needs to see progress is in the perennial problem of high electricity prices. These remain some of the highest in Europe.
Based on purchasing power parity, in 2024 Cyprus had the second highest household electricity price in Europe, largely due to taxation. Tax accounted for just under 35 per cent of the price, the fourth highest in Europe and well above the corresponding EU average, of about 23 per cent. In Greece this percentage was only around 15 per cent. Bringing taxes and levies down to Greece’s level, could slash electricity prices from 33 cents/kWh to 25 cents/kWh.
Collecting higher taxes contributed to Cyprus’ fiscal surplus in 2024, as well as its upgrading in the global credit-ratings, but at the expense of the consumer, who is getting poorer and is increasingly squeezed economically. A recent headline was: “Purchasing power in Cyprus is declining – Below the EU average.” This is not surprising given high taxes, making high energy prices even higher. A large percentage of Cypriots, more than 23 per cent and increasing, cannot make ends meet and about 30 per cent are at risk of poverty and social exclusion.
Clearly this should not be considered to be an acceptable situation. Cyprus needs an energy transformation and substantially lower energy taxes and prices in 2025. But can that be achieved?
The price of electricity is unaffordable for an increasing number of households and unfortunately this will continue in 2025. The import of natural gas will be delayed and utility-scale RES projects do not contribute to reducing the price.
Can renewables bring energy prices down?
The immediate answer is that without a massive change in policy, NO.Utility-scale renewables in Cyprus have, in effect, become a monopoly and they are not contributing to the reduction of electricity prices. Restrictive trading practices have led to a situation where RES producers appear to be interested only in collecting super-profits.
In terms of renewables uptake, Cyprus was ranked 16th, below the European average of 23 per cent. EU’s target is to achieve 42.5 per cent by 2030. Cyprus revised National Energy and Climate Plan (NECP) lacks ambition, hoping to achieve only about 33 per cent renewables by 2030.
In theory, the competitive electricity market, scheduled to be implemented in the second half of 2025 – after a delay of more than 10 years since the decision to adopt it was taken – could help bring electricity prices down. But private RES electricity producers are showing reluctance to cooperate with the Cyprus Transmission System Operator (TSO) for the commercial operation of the competitive market. They appear to be determined to continue with the existing market model in order to carry-on raking super-profits, which will make a solution difficult in 2025.
In order to deal with this, the energy minister said he is considering a different model to rein in super-profits, and more suitable for the small market of Cyprus. This will require private electricity producers to sell their production to a central supplier – probably EAC Supply – through a competitive process. But the RES producers are currently rejecting this.
Clearly, in order to achieve changes, political will be needed from the president. Not only the model must be changed in 2025, but it must also include retroactive recovery of super-profits.
It is also important that the much-discussed grid upgrade and battery-storage progress to implementation in 2025, to facilitate increased RES penetration.
Natural gas is the answer
In the immediate term and at least for the rest of this decade, Cyprus only serious prospect to bring electricity prices down significantly is through the import of LNG. With the floating storage and regasification unit (FRSU) Prometheas unshackled and on the way, this requires completion of the LNG import terminal at Vasilikos as a matter of priority.It is understood that the natural gas infrastructure company (Etyfa), under the direction of the ministry of energy, is in the process of retaining a pre-eminent international engineering company with proven expertise in this area to oversee and manage the recovery and completion of this project. It is also in the process of retaining a contractor to complete construction of all facilities at Vasilikos.
This process must also include a review of the project scope and design to ensure it is focused on the main purpose of the terminal, which is to receive and regasify LNG and deliver it to the electricity generation plants. Additional requirements that were included in the original design, such as the ability to export LNG, should be removed. Not only do they add to the already exorbitant costs, but they will also delay completion of the terminal.
As and when Cyprus is in a position to consider exporting LNG – from gas produced in its EEZ – the oil and gas companies will decide on the size and form of an LNG export plant, that will require its own dedicated facilities and will depend on the amount of gas discovered and the scale of LNG exports.
It is important that the process of recovering the Vasilikos LNG import project is completed ASAP, with construction activities resuming in January, if the minister’s laudable target to have the LNG terminal up and running at the end of 2025 is achieved.
But it is not just this and the arrival of Prometheas. Much more needs to be done for the transition of electricity generation from heavy fuel oil to natural gas to proceed smoothly. This includes enacting the necessary regulation, entering into LNG purchase contracts, appointing an operator for the terminal and readiness by EAC to accept natural gas. And all of this must be in place before the end of 2025. At the current pace, there is a risk that this will not happen until later in 2026.
The good news is that with the recovery of the FSRU Prometheas, the construction of the necessary infrastructure at Vasilikos can now continue. With the electricity interconnector unlikely to start operation before 2030, this is the most important project in terms of reducing the price of electricity during the rest of this decade. But it is becoming critical that inefficient and time-consuming state practices and procedures in its handling are recovered and expedited if it is to start operating end of 2025.
Dr Charles Ellinas, @CharlesEllinas, is a councilor for the Atlantic Council
