Filenews 2 May 2023 - by Evagoras Prokopiou
The "green" goals, the competitive energy market and the hydrocarbons that can be made from coal treasure - Difficult and at the same time easy to map the energy on our island.
In a difficult period due to Russia's invasion of Ukraine, we will attempt to read the present and future of the energy map of Cyprus. The island's energy market has peculiar variables that make it difficult for many big players.
The energy system of Cyprus is small and isolated without interconnection with the trans-European electricity and gas networks and relies almost exclusively on imports of liquid fuels. The only alternative form of energy that exists today is Renewable Energy Sources (RES) with a contribution of just over 17% to the country's gross final energy consumption in 2022.
The energy isolation of Cyprus, in combination with other factors, significantly limits competition. The cost of electricity in Cyprus is at the highest levels compared to the rest of the European Union. This hampers the recovery of the economy and reduces the country's competitiveness.
Cyprus is the only Member State that has failed to meet the European target of 10% electricity interconnection by 2020. In fact, it is the only state that, to this day, remains condemned to energy isolation, as it is cut off from all EU energy networks, recording 0% energy interconnection.
NATURAL GAS AND DOMESTIC MARKET
Receiving the Ministry of Energy, Commerce and Industry, George Papanastasiou noted emphatically in his first statements that: "We should go to green energy, but we should first go through a transitional period in which natural gas should be used, showing its immediate goals."
The development of the natural gas market is expected to start in the first stage for power generation purposes and then expand to other sectors. The long-term goal is to create a functioning and competitive natural gas market in Cyprus with a level playing field. This is at least demonstrated by the very recent statements of the new Minister of Energy George Papanastasiou, who, among other things, said that he is preparing with his partners for a new overall plan around the utilization of natural gas produced in our neighbourhood, but also that which may be extracted from blocks in the Cypriot EEZ. He also noted that in the next short period he will invite for joint consultation the companies involved in the energy of Cyprus and the wider region, but generally companies that may be interested in cooperating with the Cypriot state. We are informed that the promoted new planning of the Ministry of Energy also provides for the examination of the prospect of exploiting Cyprus, the only EU member country in the Eastern Mediterranean, as a centre for liquefaction of natural gas (with onshore or floating infrastructure) and its transportation to markets in Europe as a priority or Asia.
However, the EU has revised its financing rules for cross-border energy infrastructure projects to meet its climate objectives. The new rules, which entered into force in June 2022, foresee phasing out subsidies for gas projects and redirecting funding to hydrogen production infrastructure and carbon capture and storage projects.
LOW RENEWABLE ENERGY FOOTPRINT
Although Cyprus' targets for the contribution of Renewable Energy Sources to energy consumption have been met for previous years, as stated by the Ministry of Energy, and interest in installing photovoltaics is particularly strong, however, the latest Eurostat data show that Cyprus' performance in this area is not as expected, based on these data. Eurostat data for 2021 show that Cyprus is at the bottom of the EU in RES consumption and in the first places in fossil fuel consumption.
Specifically, for 2021, Cyprus' share of energy consumption from RES is at 14.8% and is in23rd place out of 27. Also at the bottom are Czechia (14.5%), Luxembourg (14.2%), Hungary (13.7%) and Malta (9.7%).
At the same time, our country is one of the first in Europe in the consumption of fossil fuels. Eurostat data ranks Malta in 1st place with 96% and in 2nd place Cyprus and the Netherlands with 89%.
As noted, the EU has set a target for this share to reach 32% by 2030. With its proposal in 2021, the Commission pushed for the change of the target to 40%, and in 2022 through the REPowerEU plan proposed a new increase to 45%. Energy production accounts for more than three quarters of the EU's greenhouse gas emissions. It covers electricity generation, heating and transport. Increasing renewable energy plays a crucial role in reducing emissions in the power sector and achieving the EU's ambitious goal of climate neutrality by 2050. More than 20% of the energy consumed in the EU comes from renewable sources. It has more than doubled compared to 2004.
However, the President of the Regulatory Authority for Energy (CERA), Dr. Andreas Poulikkas, said that in 2022 the electricity market of Cyprus experienced a foretaste of the future, with higher penetration of renewable electricity sources. In Cyprus today, approximately 407 megawatts of photovoltaic systems, 157 megawatts of wind systems and 13 megawatts of biomass systems are in operation, i.e. a total installed RES capacity of 577 megawatts and a total installed capacity of conventional power plants of 1483 megawatts.
That is, 28% of the installed capacity concerns RES systems. The real transition to green energy goes hand in hand with the real effort to provide consumers with cheaper electricity. The operation of the open competitive electricity market is also running in this direction.
THE QUESTION MARK OF THE COMPETITIVE MARKET
The competitive electricity market in the EU is based on the "Target Model" adopted by all EU Member States, except Cyprus, where its implementation is expected soon. The rest of the countries have opened their markets to competition to the benefit of consumers. An example to avoid is Cyprus in the EU for the current form of the energy market on the island. In order to cover the period until the full commercial operation of the new electricity market model, a relevant Regulatory Decision has been in force since 2017 for the implementation of a transitional regulation in the electricity market, which concerns "Bilateral Contracts between Producers and Suppliers". Five independent suppliers are already active, which have attracted end consumers and consumers can now have a choice. Today, the retail market share held by independent suppliers is around 2.5%.
It is noted that the largest share in the market of a member state by the largest energy production company is recorded for 2021 in Cyprus (88%) due to the dominance of EAC, according to Eurostat data, while at the same time there is a decrease in the share of the national market for the largest electricity and gas production companies in most countries of the European Union.
As regards the functioning of the competitive market, the failure of the second trial period confirms the justified concerns of several electricity stakeholders who put forward their own interpretations of the matter. The absence of storage space to store excess energy production is an important factor that the operator must find a way to overcome in order to be able to operate the whole system as well as the independence of the operator itself from the Electricity Authority of Cyprus. Already the first problems occurred when the energy manager was forced to release photovoltaic park units to keep the system running, while warning that this will continue in the near future if solutions are not found. This sparked a confrontation between the former Minister of Industry, Commerce and Energy, Natasa Pilides with RES entrepreneurs and the system operator.
However, the operation of the transitional competition regulation in the electricity market is de facto extended for an indefinite period, as the commercial operation of a permanent competitive market is postponed from year to year and it is now doubtful whether it can be implemented before 2025. Inevitably, the distortions observed in the operation of the transitional arrangement are also extended, whose presence does not allow effective competition and keeps electricity sales prices high, with excessive profit from private producers and suppliers. In the coming period, CERA will attempt, with its recent circulars, to put some order in the data prevailing at that time, giving special importance to the effort to find a way to store excess electricity.
THE THREE MAJOR PROJECTS THAT WILL CHANGE CYPRUS
Cyprus participates in three Projects of Common Interest. Two in the natural gas sector, CyprusGas2EU – Cyprus LNG Import Terminal and EastMed Pipeline and one in the electricity sector, the EuroAsia Interconnector.
The Republic of Cyprus has been promoting three PCIs since 2013. Two Gas PCIs in the Southern Gas Transmission Corridor ("SGC"), CyprusGas2EU and EastMed Pipeline, and one PCI in Electricity in the "North-South Power Interconnections in Central Eastern and Southeastern Europe ("NSI East Electricity"), the "EuroAsia Interconnector".
The implementation of energy infrastructure related to PCIs will contribute to the lifting of Cyprus' energy isolation through the interconnection of the island with the Trans-European Energy Networks. At the same time, it will contribute to achieving the objectives of the Energy Union for 2030, energy security, completing the EU's internal energy market, reducing carbon emissions, diversifying energy supply sources and achieving at least 15% electricity interconnection for 2030 (PCI EuroAsia Interconnector).
