Filenews 24 March 2024 - by Christakis Chatzilaou
Although we have written articles in Phileleftheros regarding the Transitional Regulation in the Electricity Market and the urgent need for its substantial modification, for the benefit of the majority of Cypriot consumers, it is nevertheless appropriate to further develop certain aspects and provide clarifying comments on issues related to the role of the Transitional Authority regarding the formation of the price of electricity.
The main objective of this analysis is to specify any distortions in the operation of the Transitional Agreement and to suggest improvement measures for the benefit of the Cypriot consumer.
Data and comments on the Transitional Arrangement
⦁ The Transitional Regulation of the Electricity Market (forward market of the Target Model, to be implemented by Cyprus for the Competitive Electricity Market) has been operating temporarily since 2017 (for how many more years?) on the basis of bilateral contracts between private suppliers and producers (CERA Regulatory Decision 04/2017).
⦁ It is noted that the Transitional Arrangement, according to CERA/TSO, is foreseen (if in the meantime there is no need for a new extension) to continue its operation within 2025, as a result of continuous postponements and long delays in the start of operation of the Competitive Electricity Market.
⦁ Under the Transitional Arrangement, suppliers have the obligation to find consumers in order to dispose of the energy produced through bilateral contracts.
⦁ According to CERA's decision, EAC Supply is not allowed to participate in the Transitional Arrangement and therefore its operation should not affect EAC's tariff, which concerns the majority of Cypriot consumers.
⦁ The Transitional Arrangement covers approximately 8% of electricity demand and concerns almost exclusively electricity produced from RES, offered to a number of large commercial and industrial consumers.
⦁ The failure of the integration of large private conventional* power plants into the Transitional Agreement is mainly due to the inability of the competent bodies to set and implement timetables for the binding inclusion of private producers for adequacy purposes in the production of the electricity system, regardless of the arrival of natural gas.
⦁ In essence, the integration of new large conventional production units and, by extension, the adequacy of production, was left to be conditional on the arrival of natural gas, resulting in the need to continue the costly and polluting operation of the steam turbines of the Dhekelia Power Station.
⦁ The report of the managed electricity under the Transition is applied every month. The energy produced by the participating producers/suppliers in the Transient is offset every month against the energy consumed by the participating consumers.
⦁ In case of surplus energy, it is compensated at the cost of avoidance**, while for deficit energy the wholesale market price is paid. Linking the compensation of excess RES production to the cost of conventional production (avoidance cost) is considered wrong and already distorts the price of electricity.
Conventional is a power plant that runs on fossil fuels. ** The avoidance cost refers to the estimated cost that EAC Generation avoids spending, in case it would have produced the same amount of electricity as RES, but using conventional production units.
Distortions of the Transitional Arrangement
The main distortion of the Transitional Arrangement, as mentioned above, concerns the compensation of surplus electricity in avoidance costs, combined with the offsetting of produced and consumed energy each month. It is noted that this distortion in the Transitional Agreement is already burdening the price of electricity, so its operation is not to the benefit of the majority of Cypriot consumers.
Measures to remove the basic distortion
In order to remove this basic distortion, the following arrangements could be made, which would make a significant contribution to the reduction of the price of electricity, as currently priced by EAC for the majority of consumers:
- Extension of the power of the ceiling to the compensation of 11 €/kWh for the surpluses of the RES production of the Transitional Authority, just as it happens for the compensation of the RES production contracted with EAC Supply (see Decision of CERA 112/2023). It is noted that the compensation of € 11 / kWh, which is mentioned in the aforementioned Regulatory Decision and is linked to the contractual avoidance costs, could be determined even below, taking into account that EAC is able to offer its own produced photovoltaic production of RES around € 6 / kWh.
- In the context of the Transition, the netting of energy produced and consumed should be applied on an hourly basis.
Reduction in the price of electricity
Based on the above arrangements and in combination with the completely different daily fluctuation of the power curve of the systems compared to the consumer demand profile of the Transient, significant hourly surpluses and deficits are expected to arise, which do not appear in the case of the monthly report. The management of surpluses and deficits resulting from the implementation of these arrangements will lead to the achievement of the following:
- Cheaper electricity on the EAC tariff, as a result of the purchase of hourly surpluses at the compensation price of 11 € s/kWh (perhaps below), as well as the sale of electricity by EAC to cover the hourly deficits of the Transitional Authority at the wholesale price.
- Significant reduction of sky-high profits of RES production participating in the Transition.
Harmonization with the Regulatory Decision
The proposed amendments for the operation of the Transitional Agreement for the benefit of the majority of consumers become even more urgent, if we take into account the following provision of the Regulatory Decision 04/2017 on the Transition, which states verbatim "-Final Consumer Cost: Benefit to the Cypriot consumer and the national economy. Avoiding an increase in the price of consumers' electricity. 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 impose additional costs on the consumer."
General conclusion
In view of the data analyzed in this text, it is concluded that there is a feasible way for the Cypriot consumer to have cheaper electricity in the short term, by modifying the way RES production is compensated under the Transitional Arrangement. What needs to be regulated is for the account of the managed electricity to be done on an hourly basis and the compensation of surplus energy to be set at 11 € s/kWh (perhaps below).
In this way, cheaper electricity will be achieved in the short term for the majority of Cypriot consumers, accompanied by a significant reduction in the sky-high profits of RES production in the Transition.
Electrical Engineer, with many years of experience in the operation of the electrical system
