Filenews 3 September 2023 - by Christakis Chatzilaou
Recently, we have witnessed a fierce public confrontation, involving the Electricity Market Association, the Cyprus Wind Energy Association, the Electricity Authority of Cyprus (EAC) and the EAC Scientific Staff Guild, in relation to the General Framework Support Plan for the Construction of Storage Systems in combination with Renewable Energy Sources (RES) Projects, which has been announced by the Ministry of Energy for public consultation.
The most important thing that interests the general public is to assess, with arguments, which position of those involved in the public debate is to the benefit of the majority of Cypriot consumers, since in the final analysis they all claim that they aim to reduce the price of electricity.
General framework of the support plan
The General Framework Support Plan of the Ministry of Energy supports the construction of central storage, owned by the Distribution System Owner (EAC) and operated by the Cyprus Transmission System Operator, and scattered storage downstream of the meter, in existing and future RES systems, whose energy will be purchased by EAC Supply.
The Ministry's rationale, regarding the construction of central storage, focuses on the fact that the Electricity System of Cyprus is small and isolated and therefore central storage could contribute optimally, on the one hand, to enhancing its safe and economical operation, by offering ancillary services and energy during peak periods and, on the other hand, to the safe absorption of excess RES production.
In relation to the purchase of the electricity of the hybrid module (storage system in combination with RES projects) by EAC Supply, the Ministry probably prefers that in this way any benefit from the operation of the hybrid configuration will end up in the majority of Cypriot consumers.
The "opponents" of this General Support Scheme Framework, and in particular the Electricity Market Association, claim that this General Framework "introduces unjustified and disproportionate discrimination in favour of EAC, leading in practice to the implementation of the Single Buyer Model". In addition, they claim that "the implementation of this Model, apart from the collapse of the Transitional Electricity Market Arrangement, will render the Competitive Electricity Market obsolete".
Competitive Electricity Market
For the management of electricity systems within the framework of the Electricity Markets, special models are applied, aiming at the development of competition and the reduction of electricity prices for the benefit of consumers. In the Electricity Market of Cyprus, the competent bodies have decided to implement the Target Model, as well as the guidelines of the European Union, with the aim of reducing the price of electricity through the development of competition.
However, this Model, as it is planned to be applied in the small, isolated and immature Electricity Market of Cyprus, is estimated by many to cause a short-term and rather medium-term increase in the price of electricity, which is not to the benefit of the Cypriot consumer. As we have mentioned in a previous article through Phileleftheros, this Model should be substantially modified, by disengaging the cost of conventional production from the way RES production is compensated.
Transitional Electricity Market Regulation
The Transitional Regulation of the Electricity Market (forward market of the Target Model) has been operating temporarily since 2017, on the basis of bilateral contracts between private suppliers and producers (Regulatory Decision CERA 04/2017). Suppliers, under the Transitional Arrangement, have the obligation to find consumers in order to dispose of the energy produced through bilateral contracts. It is noted that according to CERA's decision, EAC Supply is not allowed to participate in the Transitional Arrangement and therefore its operation does not directly affect EAC's tariff, which concerns the majority of Cypriot consumers.
Taking into account that it has not been possible to include large conventional producers in the Transitional Arrangement, it covers only 6-7% of electricity demand and concerns almost exclusively electricity produced from RES. The failure to integrate large conventional producers into the Transitional Agreement is mainly due to the inability of the competent bodies to connect and operate large conventional units of private producers in a timely manner.
As a result, the Transitional Arrangement operates almost exclusively with suppliers and producers of RES and cannot fulfil the purpose for which it was designed, namely the development of healthy competition and the reduction of the price of electricity.
Therefore, the question arises whether the average Cypriot consumer benefits from the operation of the Transient with electricity produced almost exclusively from RES. It is natural that participating RES suppliers and producers will benefit mainly from the operation of the Transitory Plant, since they are given the opportunity to dispose of the electricity produced at prices many times higher than the actual cost of RES production for a small percentage of electricity demand from consumers (currently around 6-7%).
In view of the above realities in relation to where the benefit of the operation of the Transitional Plant is channelled, it is concluded that the average Cypriot consumer, who constitutes the majority of demand over 90% and is invoiced by EAC Supply, has no benefit from the operation of the Transitional Plant, as it operates today, but on the contrary a charge, as a result of the increase in operating costs of conventional production, due to increased RES penetration. It is noted that the low cost of RES production could, under different conditions – e.g. through tenders – be channelled into EAC's energy mix and bring benefits to the majority of Cypriot consumers.
Evaluation of the General Framework of a Support Plan
Based on the declarations of those involved in the electricity sector, they all aim to reduce the price of electricity, for the benefit of the Cypriot consumer.
Regarding the Target Model, which is to be fully implemented (when is still unknown) in the Electricity Market of Cyprus, it is estimated by many that, without substantial modifications concerning, among other things, the unblocking of contractual costs from the way energy produced from RES is compensated, it will bring about a short- and medium-term increase in the price of electricity.
This is already proven in practice with the current mode of operation of the Transitional Regulation (futures market of the Target Model) with electricity produced almost exclusively from RES. This mode of operation benefits the producers and suppliers of the Transient, as well as a very small portion of consumers (mainly large commercial and industrial consumers), who are linked by agreements through suppliers, included in the Transition. It is noted that the operation of the Transient Fund indirectly burdens the price of electricity, as a result of the increase in the operating costs of conventional production, due to the increased penetration of RES.
In our technocratic view and according to what is mentioned above, the inclusion of hybrid formations of the General Framework of the Ministry of Energy (storage systems combined with RES projects) in the Transitional Arrangement would not benefit the majority of Cypriot consumers, but mainly to the benefit of the suppliers of the Transitional Scheme, who would be able to make the energy of hybrid configurations available to certain selected consumers, with prices much higher than the cost of installations.
The regulatory decision says otherwise
The conclusion that emerges from this analysis, namely that the operation of the Transitional Electricity Market Regulation does not benefit but burdens the majority of Cypriot consumers, contradicts the following provision of Regulatory Decision 04/2017 on Transition, which states:
«-Final Consumer Cost: Benefit to the Cypriot consumer and the national economy. Avoiding an increase in the price of electricity to consumers. Taking into account that this arrangement is a transitional arrangement for the operation of the electricity market before the implementation of the Final Model, this should not entail additional costs for the consumer."
Tenders will give low prices
Therefore, as can be concluded from the analysis above, the intention of the Ministry to award the purchase of the energy produced by hybrid structures by EAC Supply following tenders, on the basis of the General Framework, as it was submitted for public consultation, is considered to benefit the majority of Cypriot consumers. The low prices that are expected to be secured in the context of the tenders will be introduced into EAC's energy mix, resulting in the maximum possible benefit for the Cypriot consumer, who in the vast majority (over 90%) is charged based on EAC pricing.
In addition, and depending on the ministry's intention to build a central storage, it is considered that this will contribute to enhancing security and economy, something that is urgently needed by the small and isolated Electricity System of Cyprus. It is noted, in this regard, that we have dealt in detail with the benefits of central storage in the context of a previous article through Phileleftheros.
* Electrical Engineer, with many years of experience in the operation of the electrical system
