Filenews 16 January 2023 - By Christakis Hadjilaou*
The purpose of this analysis is to summarize the cost of electricity, as well as to evaluate key events in the management of the electrical system, in order to study possible ways of intervention, with the aim of determining whether there is scope for reducing the price of electricity, for the benefit of the Cypriot consumer.
The analysis of the cost of electricity is of a short-term nature and concerns the coming years. During this period, the existing conventional units of EAC will remain in further operation and the electrical system will continue to have increased RES penetration and no substantial changes will occur in relation to the installation of storage and interconnection systems.
Summary of the cost of electricity
The main components of the electricity price, presented with an indicative percentage weight in the price of electricity in relation to the pricing of a domestic consumer within the second half of 2022, concern the cost of production, the cost of network management, the cost of supplying and recording electricity and taxes.
Production costs (70%): It concerns expenses for the management of the production system, the purchase of fuel and the purchase of emission allowances (25%).
Network management costs (10%): It concerns expenses for the management (operation, maintenance and development / strengthening of networks), aiming at the safe transmission and distribution of electricity to the consumer.
Cost of supply and recording (2%): It concerns expenses for the management and supply of electricity to the consumer.
Taxes (18%): They concern VAT (19% of the total cost of electricity) and the special RES & ES fee, based on electricity consumption (€0,005/kWh).
In relation to the cost of production, it is noted that the consumed electricity is currently produced at a rate of 81% from conventional production and 19% from RES production, which in the coming years is not estimated to exceed 30%.
Therefore, the cost of electricity is basically determined and will continue to be determined for the coming years by the cost of conventional production, which consists of the cost of managing the conventional production system, the cost of fuel and the cost of pollutants. It is noted in this regard that the personnel costs, which are included in the individual components of the cost of electricity, are estimated to be in the range of 8-10% of the total cost of electricity.
Electrical system management incidents, which affect the cost of electricity incrementally
Important management incidents of the electrical system that affect or may affect the cost of electricity in the coming years, are the continuation of the operation of the steam turbines of the Dhekelia Power Station, the increasing penetration of RES and the operation of the Competitive Electricity Market.
Continuation of the Operation of the Steam Turbines of the Dhekelia Power Station
The inability of the competent bodies for the timely connection of new conventional producers to the electrical system resulted in a shortage of production for 2022, resulting in the need to continue the operation of the aging, costly and polluting steam turbines of TH Dhekelia. In view of this development, the Republic of Cyprus was obliged, having no other option to cover the secure supply, to submit a request to the European Commission to maintain the operation of the steam turbines until 2029, which results in unbearably increased operating costs and emission of pollutants beyond the permitted limits. Therefore, the continuation of the operation of the steam turbines of TH Dhekelia contributes to the increase of the cost of electricity.
Increasing RES penetration
Studies and operational data of the small and isolated electrical system of Cyprus have shown that RES penetration increases the cost of electricity, as it contributes to the uneconomical operation of the conventional production system. It is noted in this regard that the increasing penetration of RES requires the frequent connection / disconnection of economic base units, their operation in low uneconomical loads and the frequent use of costly fast-start production units. In addition, it is noted that the majority of RES producers are compensated and will continue to be compensated for the coming years with prices multiple of their operating costs and therefore make excessive profits at the expense of the consumer.
In connection with the increased RES penetration, the possible cost of strengthening the electrical system for connection and operation of RES installations is also highlighted. Therefore, the increased penetration of RES (with the existing production units, the existing way of compensation and without storage / interconnection systems) contributes to the increase of electricity costs.
Operation of the Competitive Electricity Market
The implementation of the "target model" for the operation of the Competitive Electricity Market (AAH), without taking into account the particular conditions of the small and isolated electricity system of Cyprus, has now been understood to cause distortion conditions in the market (eg sky-high profits of RES producers), resulting in a further increase in the price of electricity. This position is also reinforced by the statement of the President of the European Commission that this model, which small Cyprus is going to implement at a huge cost, no longer works, as it does not meet the needs of the times.
In connection with the above, there is a strong concern whether this model, as proposed for the small and isolated electricity system of Cyprus, will lead to the reduction of the price of electricity. The assessment is that, at least in its first years of operation, the Competitive Electricity Market will cause an increase in the price of electricity.
* Electrical Engineer, with many years of experience in the operation of the electrical system
