Filenews 2 April 2024 - by Chrysanthos Manoli
The Cypriot Government wishes to update all the technical-economic data composing the ambitious project of the electricity interconnection between Cyprus and Crete, with the realization of a new cost-benefit study by the current implementing body, ADMIE, but also the examination of the possible need for a new cross-border cost sharing agreement between consumers in Cyprus and Greece, in order to take its final investment decision to participate in the share capital of the company that will carry out the connection (Great Sea Interconnector), according to information provided by Phileleftheros.
What has changed?
In general, ADMIE is invited to submit to the energy regulatory authorities of the two countries a new cost-benefit study (CBA), in order to make clear the benefits for each of the electricity systems (and economies) of the two countries and then, if necessary, to make a new distribution of the costs that consumers of the two countries will pay. through a small fee per kilowatt hour over about three decades.
What makes the new study and possibly the new cost allocation necessary for the Cypriot side is, according to "F" information, the strong view of many energy actors, in Cyprus but also in Greece, that from the interconnection the benefits for the producers of (surplus) green energy in Greece and more broadly for the country's electricity system will be greater -or at least at the same level- than the benefits for producers in Cyprus and the local economy, as they can expect energy exports to Cyprus, but later perhaps also to Israel. Therefore, the proponents of this assessment consider that the reasons that led, in 2017, to the decision to repay the capital cost by 63% by Cypriot consumers and 37% by consumers in Greece, as at that time there was an impression that the cable would be mainly exported from Cyprus to the European network, do not exist today.
On the other hand, many energy stakeholders in the two countries stress that in addition to the very important – and invaluable economic value – lifting the energy isolation of Cyprus, which is ensured by the cable, the great benefit of the possible injection into the Cypriot network of much cheaper European green energy should be counted, compared to the energy currently sold at very high prices in Cyprus. The same sources claim that the Cypriot production of electricity from photovoltaics (which is already "suffering" with energy rejection rates at rates of 60-70% for several months a year) maintains many sales prospects in European countries, taking advantage of its excellent solar potential and interconnection.
From 2017 to 2024
The first agreement to calculate the construction cost of the interconnection project and allocate the costs to consumers of the two countries was reached by the regulatory authorities (CERA and RAE) in October 2017.
Based on that decision, the cost for the Cyprus-Crete interconnection was estimated at €1.57 billion 63% will be paid by Cypriot electricity consumers and 37% by consumers in Greece, as it was judged that the project primarily serves the Cypriot electricity system, removing its isolation, increasing its safety and stability and allowing the development of much more energy from renewable energy sources.
This was followed, in July 2023, by an update of the 2017 decision, with the two regulators accepting the revised construction cost of the project, as submitted to them by the then implementing body, EuroAsia Interconnector. The revised cost was estimated at €1.94 billion. from €1.57 million. which was the calculation in 2017. The cost allocation rate (63% and 37%) remained the same. From the cost must be deducted €657 million that will be granted as a sponsorship by the EU.
Based on the updated CBCA agreement of last July, the cost of the project was calculated as follows:
Construction, supply and installation of the voltage converter station, costing €374.8 million, up from €230 million originally budgeted.
– Supply and installation of submarine cables for a capacity of 1,000 megawatts, costing €1,411.7 million from €1.165 million originally calculated.
– Other expenditure on land infrastructure, cost €152.7 million, compared to €180 million previously specified.
– Total cost, €1,939.2 million instead of €1.575 million provided for in the 2017 regulatory decision.
The Government's Conditions
Following the agreement made in October 2023 with EuroAsia Interconnector, for ADMIE to become a new project promoter, the Cypriot Government expressed, mainly through Energy Minister George Papanastasiou, in a clearer way in favour of the geopolitical and energy importance of the interconnection, but also in favour of the country's participation in the project, in particular by acquiring a share capital in the special purpose vehicle established in the meantime by IPTO. to advance the interconnection (Great Sea Interconnector).
This was followed in February 2024 by a decision of the Council of Ministers of Cyprus, confirming the intention of the Republic of Cyprus to participate in the construction company of the project with €100 million. euros, but under certain conditions. As Mr. Papanastasiou had stated after the ministerial meeting, "the studies will be carried out jointly with other interested parties, such as ADMIE (Independent Power Transmission Operator of Greece), as well as a due diligence study on the legal and financial aspect of the issue. After they are completed and the green light is given from these studies, Papanastasiou added, the Minister of Finance and the Minister of Energy will bring to the Council of Ministers the proposal for a final investment decision.
That decision of the Cabinet had caused some surprise to competent government authorities in Greece, as they considered a final – binding decision by the Cypriot Government certain, without the queue of new studies.
Reports in Greece referred to a preliminary agreement between the Greek and Cypriot states, prior to the purchase of EuroAsia Interconnector by IPTO, for Cyprus' participation in the project. The press reports claimed that Cyprus' participation with a significant percentage of shares in the special purpose vehicle for the execution of the project was a condition that had been set in order for ADMIE to proceed and become the implementing body of the interconnection.
According to information provided by Phileleftheros, a crucial role in postponing the final investment decision by the Cypriot Government was played by the many reservations in the Ministry of Finance, especially on the part of Director General George Pantelis, which are at least partially shared by Minister Makis Keravnos.
Greek pressure but also Cypriot insistence
This was followed by the exertion of pressure, in various ways and through many channels, by Greece – with the involvement of Prime Minister Kyriakos Mitsotakis, according to some information – to close the issue as soon as possible and to announce the final decision of the Republic of Cyprus. In the context of contacts that took place in person but also through teleconferences and telephone conversations, ADMIE and the Government of Greece stressed the need for the decision to be taken quickly, as the financial obligations of the current implementing body are running and should be undertaken by the company, within the framework of a new shareholding structure.
Phileleftheros reports that although the pressure was and remains intense, the Cypriot government did not give in to the withdrawal of the conditions set by the Council of Ministers in February. That is, it is still considered necessary to carry out a new cost-benefit study (CBA) by ADMIE itself, to submit it to the regulatory authorities CERA and RAE for evaluation, to approve a possible new calculation of the final cost of construction and laying of the interconnection cable and, of course, to take a new decision, if the new study so requires, for the sharing of costs between consumers in the two countries.
Obviously, the request of the Cypriot Government and the local regulatory authority for a new study and a new CBCA decision does not satisfy the Greek side, as it requires sufficient time for the necessary procedures. ADMIE has already complained about delays it believes exist on the part of the two regulatory authorities regarding the official transfer of the project from EuroAsia Interconnector to the Great Sea Interconnector.
ADMIE also objects to the decision taken by CERA last October (immediately after the undertaking of the project by the Greek Transmission Operator) to recover the capital expenditure of the project in 35 years from the actual commencement of the works (cable laying) instead of 25, as foreseen by CERA's previous decision. ADMIE demands the revision of the decision and the redefinition of 25 years as the time period for recovering the cost of the interconnection through the fee paid by electricity consumers.
