Filenews 8 June 2025 - by Christakis Hadjilaou
In the context of the continuous information of the Cypriot consumer through "Liberal" on electricity issues, an updated analysis of the price of electricity is presented today, as it results from an up-to-date tariff of the Electricity Authority of Cyprus (EAC).
The analysis focuses on the short-term for the next few years (with increasing penetration of RES but without storage, natural gas and interconnection) and captures the key components of the EAC tariff, as well as the factors that affect or may affect the price of electricity and are related to the management of the electricity system.
It should be noted that EAC currently bills the majority of Cypriot consumers, which at a rate of more than 85% of electricity demand. The remaining percentage (mainly large commercial and industrial consumers) are invoiced by private electricity suppliers in the context of the transitional arrangement for the electricity market.
EAC tariff structure (April-May)
The electricity price for a bi-monthly household consumption of 1000 kWh amounts to 282 Euros (28.2 cents/kWh) and is based on gravity percentages, as recorded in the following components of the EAC tariff and presented in the relevant chart:
⦁ Production cost: 74.5% (21 cents/kWh)
It includes costs for fuel, management of production plants and emission allowances (19%).
⦁ Cost of network management: 13% (3.7 cents/kWh)
Covers the cost of network management (operation, maintenance and development of the electrical system).
⦁ Taxation: 10% (2.8 cents/kWh)
Includes VAT (9%) and the special RES & RES fee (0.5 cents/kWh). On this invoice, VAT is reduced, from 19% to 9%, following a decision of the government.
⦁ Supply Cost: 2.5% (0.7 cents/kWh)
Includes the cost for electricity supply and customer service.
Personnel costs are estimated at 8–10% of the total cost of EAC (~2.1 cents/kWh) and are incorporated into the above categories.
The dominant factor
The cost of production, which corresponds to 74.5% of the total price, is the determining factor in shaping the price of electricity. An important component of production costs is the cost of emission allowances, which amounts to 19% (5.4 cents/kWh) and significantly burdens the final price.
What affects the price
1. Continuation of Operation of Obsolete ProductionUnits The delay in the advent of natural gas as well as the integration of new units into the electricity system, led to the mandatory maintenance of the operation of obsolete conventional production units and the use of liquid fossil fuels. The combination of obsolete units with the use of liquid fossil fuels (instead of natural gas) translates into high operating costs and increased pollutants, which significantly burdens the price of electricity costs for the Cypriot consumer.
2. Planned Installation of Gas Turbines at the Dhekelia
Gas Plant The planned installation and operation of two gas turbines with a capacity of 40 MW each at the Dhekelia Gas Plant has caused technocratic concern. These units are high cost of purchase, installation and operation and are intended for peak coverage and not for continuous operation. Therefore, they will further burden the price of electricity without preventing the dangerous supply of the electricity system almost exclusively from the area of Vassilikos. In our technocratic view, the secure supply of electricity in Cyprus requires the existence of economic base units (for continuous operation) in the Dhekelia HP, which ensure that in the event of a loss of production in the area of Vassilikos, they will prevent the cause of a generalized blackout and will continue to supply the system with electricity.
3.Increasing penetration of RES without storage
The uncontrolled penetration of RES without storage increases the cost of electricity due to the uneconomical operation of conventional units. Despite the increased penetration of RES (for 2024 they have covered an electricity demand rate of 25%), pollutant emissions, compared to previous years, remain almost unchanged. This fact demonstrates the wrong way of RES penetration and the need for immediate measures to improve the situation.
4. Storage – Necessary but...
Storage systems serve to store and dispose of surplus RES electricity within the electricity market.
In addition, it is possible to offer auxiliary services (e.g. reserves) for stability and coverage of peak demand in the electricity system. Therefore, their operation is primarily for the benefit of RES producers, who through storage systems (central or dispersed) will have the ability to store and exploit the surplus energy as well as to offer ancillary services to the system. Taking into account the above positioning, the coverage of the costs of purchase, installation and operation of storage systems should not be passed on to consumers but should be integrated into market mechanisms. For example, the planned central storage could be financed by imposing a proportionate storage fee on RES producers.
As regards the full opening of the competitive electricity market with the implementation of the target model and a delay of many years, it is estimated by several technocrats in the electricity sector that it will maintain distortions in the electricity market and will not contribute to the reduction of the price of electricity (at least in the first years of its operation). In place of this outdated model, a radical reform of the electricity market is proposed that will benefit the many.
Conclusions and proposals
Production costs remain the dominant factor in the formation of the price of electricity by EAC, accounting for 74.5% of the total tariff.
The price of electricity for the majority of consumers billed by EAC – currently at more than 85% of electricity demand – is estimated to continue its upward trend in the next few years due to the
- continued operation of obsolete units and the use of liquid fossil fuels
- Uneconomic operation of the conventional generation system due to increased penetration of RES without storage
- Distortions in the electricity market
- Tax reduction: Measures, such as reducing VAT, can provide immediate relief to consumers. This measure has recently been implemented by the Government, with a reduction in VAT from 19% to 9%.
- Subsidy of bills: Utilization of state revenues from pollutant allowances for subsidizing electricity bills.
- Restructuring of the electricity market: Radical reform, which will benefit the many.
