Filenews 3 November 2024
By George Siammas*
My intervention will deal with the major issue of the "Energy Future of Cyprus", with emphasis on the electricity issues of our country, to which I have devoted some decades. Starting from the word "Future", it is obvious that we need to see where we are in the present, where we want to go in the future and specifically in 2050, with the goal of zero carbon emissions, and most importantly how to go from today to the future, in a technically feasible and economically viable way.
The energy targets for 2050 and, above all, the steps that need to be taken to achieve them, are part of the energy planning that the State must have.
The formulation of a Long-Term Energy Strategic Planning, focusing on the Roadmap until 2050, is necessary in every EU Member State. A plan that will cover all aspects of energy strategy in electricity, gas, transport and economy. A Strategy that will cover transparently and adequately the issues of competitiveness, environment, climate change, renewable sources and sustainable development, energy efficiency and security of supply to the country.
We have to be honest. Over time, for many years, it had been established by all involved, Parliament, political forces and energy-related organizations, that a scientifically formed, lively, dynamic and under regular review long-term national energy planning had not been prepared by the State.
You will be surprised, I believe. The two previous paragraphs, on the need for an integrated energy planning published with transparency, which unfortunately has not yet been prepared by our State, are identical to a speech I made ten whole years ago at an energy symposium in Nicosia. The situation, ten years on, has not changed.
The unprecedented EU move
The dominant issue of energy and especially electricity, which concerns households and businesses, especially in recent years, is the issue of cost.
It started with the global energy crisis in 2021, shortly after the covid pandemic and even before the Russian invasion of Ukraine. Prices of fossil fuels, including natural gas, have risen uncontrollably, and this has also led to a significant increase in electricity prices.
The European Commission, in an unprecedented move, leaving behind the long-standing position that everything can only be solved by the functioning of the market, adopted the need for Member States to intervene, with a reduction in VAT and direct support for consumers, especially the vulnerable.
Along the way, natural gas prices fell to levels below a third of the gas prices that prevailed in 2022 during the crisis, resulting in wholesale market prices of 40 and 50 euros per megawatt hour in EU countries today, while in small Cyprus, which remained captive to oil, Fuel costs alone are currently in the order of 200 euros per megawatt hour, having reached 300 euros in 2022.
And while consumers and the economy suffer from unbearable energy electricity costs, there is also a big winner. This is the Cyprus State. VAT receipts, only due to increased fuel costs, are up by about one hundred million euros per year, compared to 2019, before the crisis.
The competitive market
The strict monitoring of the operation of the market, when it starts in the coming months and the intervention of CERA and/or the State, where deemed necessary for the benefit of consumers, is absolutely necessary. The competent Ministry of Energy has repeatedly said that it expects the competitive market to function to reduce prices, but, as the energy crisis in Europe has shown us, this is not always the case, even where the market is mature.
As shown in the EU, high gas prices in 2022 determined marginal costs and RES were also remunerated, while they have much lower production costs, resulting in sky-high profits.
Also, the competitive market did not manage, even in countries that opened the market first, to solve the issue of production adequacy, so there was state intervention to ensure the necessary additional power through a tender, which ensures certainty to investors, with so-called annual capacity payments.
As an EU Member State, we should examine in depth the issue of the changes required in the functioning of energy markets in order to contribute substantially to the debate taking place in the EU. I believe that there is now an obvious need to revise the model of the electricity market after 2030, in order to make it better adapted to a system where variable production costs, i.e. variable production costs, i.e. variable production costs, are not very high. Basically, fuel costs have little effect on most of the electricity produced, which is expected to be from renewables after 2030.
Adequacy of electricity, RES and change of market model
In addition to the suggestions mentioned in this intervention, I would like to highlight three issues of great importance, which are the result of the absence of integrated energy planning by the state.
PRODUCTION ADEQUACY:
Cyprus will face in the coming years a serious problem of production adequacy and security of supply to the country. The main reason is the delay in the arrival of natural gas, which is necessary for the operation of the new production units of EAC and PEC. For this reason, the operation of the old and polluting units in Dhekelia is still continuing, the withdrawal of which, due to emissions, will further exacerbate the problem of Production Adequacy.
DIFFICULTY IN ACHIEVING RES PENETRATION TARGETS FOR 2030:
The major weaknesses of the Transmission and Distribution Networks, as well as the long delay in the installation of storage systems, make it very difficult for renewables to penetrate further into the system and significantly increase cuts in spring and autumn. There has been a very long and unjustified delay in advancing the installation of storage systems.
DIFFICULTY IN ACHIEVING POLLUTANT EMISSION REDUCTION TARGETS FOR
2030: The difficulties that exist, resulting in delays in the integration of RES into the system until 2030, as well as the unacceptable delays in the arrival of natural gas, significantly increase the likelihood that the main pillar of energy policy, which is the reduction of greenhouse gas emissions, will not be achieved by 2030.
It is certain that the great energy crisis of 2021-2022, which for Cyprus continues, will bring about significant changes in the way energy issues are managed by the EU, which will affect all Member States, with the most important, in my opinion, the need to change the market model, despite the reactions that will occur.
The most important thing is to make changes that reduce costs for the economy and consumers but also lead to the achievement of environmental goals, with emphasis on drastically reducing greenhouse gas emissions.
In order to achieve the above, our State should finally prepare a comprehensive long-term energy planning, which will be reviewed on a regular basis and will cover all issues, but especially the long-term strategy for the difficult electricity sector. Let us hope that in the long-term planning of the State, apart from purely energy issues, the most important pillar for a sustainable and sustainable future of our island will be included, which is the planting of trees in all bare lands, urban and interurban roads, schools and all public buildings.
NINE SUGGESTIONS FOR REDUCING ELECTRICITY COSTS
We have proposed a series of actions in previous years to reduce energy costs for consumers, but very little has been done.
Here are some suggestions.
1) Direct import of Natural Gas for Power Generation – Unfortunately, the Government unjustifiably delayed for almost ten years to import cheap natural gas, which would also reduce emissions, for which we pay significant costs. DEFA's process for the floating dehydration terminal in Vasilikos, which was supposed to be ready by 2020, was a resounding failure and is perhaps the biggest scandal in the history of the Republic, which is being investigated by the European Public Prosecutor's Office.
At the moment we do not yet know if there is any plan for the rapid introduction of natural gas, which is the most important way to immediately and substantially reduce electricity prices. The State should seek the immediate acquisition of the ship "Prometheus" located in China and complete the onshore works in Vasilikos, and in case of further delay, alternative proposals should be examined, based solely on the cost and time of arrival of natural gas.
We should also promote the arrival of cheap gas from our own fields for electricity production.
2) The rapid integration of Renewable Energy Sources into EAC's production mix, which is the only way to directly reduce EAC's wholesale price (apart from the use of natural gas), which will essentially determine the price in the imminent operation of the competitive market.
The restriction imposed on EAC by CERA for the inclusion of RES in its production mix, with the blessing of the previous Government, as well as the prohibition on concluding contracts with private individuals for the purchase of energy from RES is not in the interest of the consumer and has led EAC to a disadvantage vis-à-vis its competitors. It should be noted that EAC has also been negligent in this matter.
3) Immediate launch of tenders for the purchase of energy from renewable sources, without exclusions, with the resulting benefit being passed on directly to consumers.
All European countries have held competitions with excellent results (Portugal/Spain 1.5 cents/KWh). Germany went ahead with a new tender for 6,000 MW in 2022. Greece has conducted very successful tenders, both on the mainland and on isolated islands. Our Ministry of Energy has always followed a clearly wrong position on this issue, since the only tender it held, with excellent results, was in 2012. Now that the electricity system is already saturated with renewables and there are increased cuts in renewables, they are more difficult to make.
4) Launch inclusive tenders for RES projects with storage, as well as for energy storage projects, to enable the achievement of the green transition targets for 2030, 2040 and 2050.
5) Discussion either to restore the reduction of VAT on the electricity bill to 9%, a policy implemented during the crisis by other countries in the EU, or to use the increased VAT revenues, due to the excessive cost of electricity, for financial relief of consumers.
6) Direct support to vulnerable consumers by the State, to combat energy poverty and remove the relevant taxation from other consumers, because social policy must be exercised directly by the State.
7) Use 50% of revenues from sales of CO2 allowances to cover the budget of the RES Fund, which will be renamed Green Transition Fund. Use this Fund to support energy storage projects and upgrading electricity transmission and distribution networks, projects that are absolutely necessary to achieve the green transition.
8) It is also proposed to expand and expand the net-metering installation program for homes (Photovoltaics for all, as it has been renamed), which should take priority over commercial installations when there is a limitation due to the inability of the grid to receive RES, as well as the installation of photovoltaic systems in all public buildings and schools. My opinion, which will certainly not be popular, is that for the installation of residential PVs with the net-metering method, no subsidy is needed, but only securing the financing and its gradual repayment. A subsidy should be given to residential PV systems with storage.
9) It is also proposed to immediately adopt the policy implemented by many other EU Member States to tax the sky-high profits made by some companies with RES projects, due to the energy crisis and high fossil fuel prices.
Conventional units and cable
Despite the dominance of renewables, there will remain a need for conventional production units that will ensure stability and safe supply of the system. By 2050, conventional plants, depending on advances in technology, may work with hydrogen, which will produce no pollutants.
Time does not allow me to go into detail about the very big project of interconnection
Cyprus – Crete (Great Sea Interconnector), which is strategically important because it will end the energy isolation of Cyprus. It should be ensured that there is no increase in costs for consumers, but instead there should be a benefit. At the same time, it is important to ensure the safe supply of the State in case of cable failure, with the existence of installed production capacity on the island, covering the maximum demand for electricity.
Also, a limit should be placed on the percentage of coverage of energy consumption by cables, in order to avoid the creation of an energy import monopoly.
* Former President CERA
(Extensive excerpt from his speech at the 3rd Economy Forum, AKEL)
