Filenews 21 April 2023 - by Chrysanthos Manoli
With a new decision of the Cyprus Energy Regulatory Authority (CERA), which was published on its website, EAC Supply will no longer have the unreasonable obligation to buy electricity produced from renewable sources (RES) at the skyrocketing amount of avoidance costs (i.e. the cost of production from oil), but at a maximum price (cap) of 11 cents per kilowatt hour.
This means that EAC Supply will have, as of May 1, 2023, when the decision will come into force, significant savings per kilowatt hour purchased from RES systems (including self-generation net billing), as it will buy it at 11 cents per kilowatt hour (when the avoidance cost is higher than 11 cents) or cheaper, if the avoidance cost is below 11 cents.
For April '23 the avoidance cost is 22.71 cents per kilowatt hour (last July it was almost 26 cents!), which means that, if CERA's decision were in force today, EAC would buy electricity from renewable sources at about half the price of before CERA's decision. Roughly the same data will apply from May 1.
The significant reduction for EAC in the price of kilowatt-hour from RES will also have a positive impact on the retail price of electricity, benefiting EAC customers, who for the last two years have been heavily overcharged for green energy, due to the skyrocketing price of oil, to which the purchase price from EAC of kilowatt-hour from photovoltaics and wind was linked.
According to CERA, the maximum price of kilowatt hour from renewables was set at 11 cents, because this is the average price of avoidance costs of the decade December 2012 - February 2023 (minimum price 4.46 cents in April '16, maximum 25.85 in July '22).
The producers, the same
CERA's decision does not reduce producers' revenues from RES systems included in state support schemes. Producers will continue to be paid each kilowatt hour at the level of the price set out in the support plans, i.e. on the basis of the tariff agreed. Various tariffs are in place, all over 11 cents. These private producers will continue to collect the agreed tariff, but now the difference between 11 cents / kilowatt hour and the tariff (for wind is 16.6 cents, for old photovoltaics it exceeds in some cases 30 cents) will be paid by the (state) RES and Energy Saving Fund and not EAC Supply, nor its customers.
Initially, CERA's decision to decouple the purchase price of green kilowatt hour from the price of energy produced from oil does not directly affect the prices and superprofits of private producers and suppliers in the transitional competition arrangement. However, gradually, while the price of EAC's kilowatt hour will decrease slightly (due to lower RES costs), there may be a corresponding -small- reduction in the prices charged by private suppliers to their customers, as they link the charge they impose for their (cheap) production with the (expensive) production of EAC, minus a discount of about 10%.
It may be necessary to increase the renewable energy levy slightly
As mentioned above, CERA's decision will increase the cost of the RES and Energy Saving Fund, which will be required to pay RES producers the difference between the (highest) tariff applicable per system and production technology and the 11 cents per kilowatt hour set by CERA. For example, in the case of wind farms, the Fund will pay the producer 5.6 cents per kilowatt hour, so that along with the 11 cents paid by EAC, the tariff of 16.6 cents per kilowatt hour will be completed. For photovoltaics (tariffs vary) the charge to the Fund will be greater.
The Fund is financed by electricity consumers through a very small charge per kilowatt hour (half a cent per kilowatt hour). Due to the large increase in EAC's fuel costs, the Fund had benefited with substantial revenues, as the difference between the increased price paid per kilowatt hour by EAC and the RES tariff ended up in the Fund. In December 2022, the Fund's reserves were estimated at around €60 million. euro. However, it is possible, due to the imminent increased costs of the Fund, that an increase in the RES fee paid by consumers will be needed in the next phase.
POINT OF VIEW
It does not solve the problem
CERA's decision could and should have been taken earlier. As we were informed by the Authority, a study and a lot of consultation were needed to decouple the price of RES production sold to EAC from the price of oil and to set the ceiling of 11 cents for parks included in state support schemes (tariffs). The EU set this ceiling at 18 cents, which allows for significant super-profit. Despite CERA's welcome decision, the complete decoupling of the electricity price of (many more) photovoltaics in the transitional competition regulation from their real production costs still needs to be addressed. Neither the transitional arrangement has solved this, nor is the competitive market expected to close the gap.
