Filenews 28 September 2025 - by Theodoros Zachariadis
From time to time, various estimates have been mentioned in the public debate as to the reduction in electricity prices that the use of natural gas in the electricity production of Cyprus will bring.
However, sufficient quantitative documentation of these estimates is not provided. On this occasion, we carried out calculations that can more clearly and transparently answer the question "How much would the price of electricity decrease today if there were sufficient quantities of natural gas available for use in the existing power plants of Vasilikos".
The following analysis mainly concerns the current situation, i.e. with the EAC steam turbine and combined cycle units in operation in Vasilikos.
In the detailed quantitative documentation below, we do not examine the future impact of the operation of additional power plants, nor of increased penetration of renewable energy sources, nor of changes in electricity pricing due to the operation of the competitive market.
In this way, we remove degrees of uncertainty and focus on the difference that the existence of natural gas would bring to the energy mix of Cyprus today. At the end of the analysis, we also make a qualitative reference to possible developments in the next few years.
2. Data
2.1. Retail price today
The basic tariff for residential consumers (tariff 01) consists of the following charges every two months (1/9/25):
– Cost of electricity production: 0.1034 euros/kWh
– Network Usage Cost: 0.0366 euros/kWh
– Cost of Ancillary Services: 0.0065 Euro/kWh
– Cost of Meter Data Management: 0.96 euros
– Procurement Cost: 6.88 Euros
– Fuel Price Adjustment: Depending on the cost of purchasing fuel
– Emissions Adjustment: Proportional to the cost of purchasing emission allowances
– Public Service Obligations: 0.00051 EUR/kWh
– Charge for the RES & EXE Fund: 0.00500 Euros/kWh
– VAT: 9% (temporary reduced charge by decision of the Council of Ministers)
– Converting the two charges for the supply and management of metering data into charges per kilowatt hour (considering household consumption of 1500 kilowatt hours per two months), and with data on the fuel clause and the cost of emission allowances from recent months, we estimate the final retail price of household electricity today at 28.3 cents/kWh.
2.2. Technical and financial data
- Average calorific value of the fuel mixture (fuel oil and oil) currently used: 40 GJ/ton
– Based on data from recent years: Electricity production in Vassiliko units on an annual basis accounted for 86% of the total production from thermal plants in Cyprus.
– Of the production in Vasilikos, 60% came from steam turbines (with fuel oil combustion and a 37% efficiency rate) and 40% from combined cycle units (with oil combustion and a 45% efficiency).
– Average EAC fuel cost in the period January-July 2025: €768/ton (last accessed 1/9/2025).
3. Technical and economic data and assumptions regarding natural gas calculations
- Calorific value of natural gas: 52 GJ/ton.
- 1 MMBTU = 1,05 GJ.
- Using natural gas, 50% of the production of Vasilikos will come from steam turbines (we consider from the literature a degree of efficiency of 40%) and 50% from combined cycle units (we consider from the literature a degree of efficiency of 52%)4
- 4 With natural gas as a common fuel, combined cycle units are more advantageous to operate because the fuel cost will be cheaper than that of steam turbines due to higher efficiency, which is why we believe that they will operate more compared to the current situation. Although these plants could operate even longer, we consider that various technical limitations may require the use of steam turbines to a greater extent than simple economic calculations would suggest. .
- Three liquefied natural gas (LNG) price scenarios: $8, 12, 19/MMBTU at today's prices, based on the fluctuation of LNG prices in Europe in 2023-2025.
- Exchange rate of $1 = €0.9.
- Carbon dioxide emissions at Vasilikos plants are reduced by 33% with natural gas compared to emissions with today's fuel oil and oil blend. Of this, 25% is due to the lower carbon content of the gas5
- 5 Emission factors based on IPCC Guidelines for National Greenhouse Gas Inventories: 0.0561 Mt CO2/PJ for natural gas, 0.0774 Mt CO2/PJ for fuel oil, 0.0741 Mt CO2/PJ for oil. and the rest to the highest degree of efficiency of the units when burning natural gas.
- The price at which natural gas will be sold in electricity generation is increased by €1.5-2.0/MMBTU in relation to the price of LNG, in order to achieve amortization of the capital investments of the gas infrastructure and to cover the operating costs of the floating LNG gasification unit (FSRU). This assumption is higher than those made by market players a few years ago (as shown by unofficial information), but it is probably more realistic with today's data, based on recent developments that lead to an increase in infrastructure costs, for the amortization of which there should be a corresponding charge.
– Based on the above, the scenario of high LNG prices (if the cost converts to an equivalent cost per ton of petroleum products) is close to 85% of the fuel costs that the EAC currently has, which, as mentioned above, amounted to €768/ton in the first seven months of 2025.
– A common practice in the market is that the price agreed for the supply of fuel is slightly lower than in the current situation. Thus, if it entails a cost 15% lower than the current cost of the EAC, the scenario of high LNG prices could be likely. However, given that large quantities of LNG are expected to be available on the international market in the next few years and there will be a large supply, it is also possible that the Cypriot authorities will be able to negotiate a lower LNG price, corresponding to the low price scenario.
Natural gas today would cut prices by 17%, to 23.4 cents per kilowatt hour
In any case, since our study focuses on the current situation, we will emphasize the intermediate price scenario, which corresponds to the price currently observed in the prices of LNG imported into Europe, i.e. around $12/MMBTU.
– For the formation of the retail price of electricity, we believe that only the adjustment due to emission costs and the adjustment due to fuel costs will change – compared to the current situation. The other charges included in the retail price, including the "Cost of Electricity Production", which covers the basic fuel cost of €300/ton as well as the administrative costs of the EAC, we consider that they do not change significantly.
Since, as mentioned above, we focus on the intermediate scenario under the current conditions, we conclude as a central estimate that the entry of natural gas today would reduce prices by 17%, to 23.4 cents per kilowatt hour.
The cost of fuel and emissions in the case of natural gas penetration with an intermediate price of LNG amounts to 27% of the retail price of electricity, compared to 40% today with the use of petroleum products in electricity production. In the case of low and high LNG prices, the cost of fuel and emissions reaches 23% and 34% of the retail price respectively.
Finally, it is pointed out that a similar percentage reduction should be expected in the tariffs of commercial and industrial electricity consumers, which may lead to a reduction in their production costs and thus to a slight improvement in their competitiveness. The reduction in them could be greater if they can negotiate electricity supply contracts from private producers/suppliers using natural gas – but these larger reductions will not concern the vast majority of household consumers.
4. Conclusions from the study
4.1. In the current circumstances:
The use of natural gas in electricity production, if it were possible today, would bring a reduction in retail electricity prices for consumers by 15-20%. This benefit may not be impressive, but it is not negligible.
Any reduction in the price of electricity is positive, both for the reduction of electricity expenditure by households and businesses, and for the slight containment of inflation.
4.2. In the near future (if the infrastructure in the Vasilikos area is completed):
The use of natural gas will have additional benefits for society. Thanks to the reduction of emissions of air pollutants (nitrogen oxides, particulate matter, sulfur dioxide), because natural gas is a cleaner fuel, the air quality in the area of Vasilikos will be improved and in addition Cyprus will be able to achieve some of its environmental commitments. Also, due to the higher degree of efficiency of power plants when burning natural gas, the productivity of the power sector will increase, which will be further improved by the planned operation of new thermal plants that burn only natural gas.
The entry of natural gas may be even more beneficial in a few years compared to today – when the corresponding infrastructure in the Vasilikos area is expected to be ready – if, as estimated by analysts, the global supply of LNG will increase and fuel costs can be further reduced, and to the extent that it will be possible to negotiate lower fuel prices by the Cypriot authorities.
In the future, it is possible that some large consumers will be able to benefit from lower prices following agreements with private electricity producers/suppliers – but this will not apply to the vast majority of household consumers.
With the operation of the competitive market, the benefit may be greater or smaller, depending on whether the EAC units in Dhekelia, which are part of the Compulsory Integrated Units of the system, will be included in the electricity market.
A greater reduction in electricity prices may be possible in the future, if domestic natural gas is used from the deposits of the EEZ of Cyprus. However, this possibility requires another study and is subject to great uncertainties.
Main points of the research and its findings
➢ This note provides quantitative documentation, with transparency in the data and assumptions it uses, to answer the question "How much would the price of electricity decrease today if sufficient quantities of natural gas were available for use in the existing power plants of Vasilikos".
➢ The use of natural gas in electricity production, if it were feasible in today's conditions, would have modest but tangible benefits (retail price reduction of 15-20%) for consumers who do not have installed photovoltaics with a net metering system, i.e. for 75-80% of household consumers.
➢ Consumers with a net metering system would have very little benefit, but they have in any case much lower electricity costs, thanks to their self-production.
➢ Any reduction in the price of electricity is positive, both for the reduction of electricity costs for households and businesses, and for the slight containment of inflation.
➢ The use of natural gas will have additional benefits for society thanks to the reduction of air pollution and the improvement of the productivity of electricity production.
➢ The entry of natural gas may be more beneficial in a few years, to the extent that it will be possible to negotiate lower fuel prices by the Cypriot authorities.
➢ In the future, it is possible that some large consumers will be able to benefit from even lower prices after agreements with private electricity producers/suppliers, but this will not concern the vast majority of household consumers.
➢ In addition to the effect of natural gas, the formation of the retail price of electricity will also depend on the way the electricity market operates.
*Professor at the Cyprus Institute
