The energy reality of Cyprus does not allow us any more illusions. For years, citizens have been paying dearly for electricity, small businesses have found it difficult to stand on their feet and the economy is suffocating.
The reason is not only the international fuel prices, but also the fact that Cyprus has followed a model of electricity market organization that does not suit it. The so-called "Target Model", adopted in the hope of competition and price reduction, proved unsuitable for a small and isolated market like ours.
The discussion is not academic, it concerns the daily life of every household. When electricity is expensive, everything becomes expensive: from food to services. The electricity bill is actually a "tax on life". And this tax is paid by the many, while market distortions create super profits for the few.
Why the Target Model Failed
The specific model of the "competitive market", which the government wants to implement, is based on the theory that, when there is competition from many producers, prices fall. This may be the case in large countries, where dozens of production units operate, there is access to different energy sources and electrical interconnections with neighbouring states give flexibility.
In Cyprus, however, we have none of this. We are an island, without interconnection, with little consumption and a limited number of producers. Reality shows that instead of competition lowering prices, it has had the opposite effect: few players control the market and profit from distortions.
In the Target Model, the price is not determined by the actual cost of production, but by the last and most expensive price offered. Thus, while Renewable Energy Sources now have a very low cost, they are charged to consumers based on the price of expensive conventional production. It's like putting a Ferrari and a truck in a race and in the end awarding Ferrari for "competing" with the truck. A parody, but it costs the people dearly.
The European Union itself made wrong assessments. When this model was designed, the market prices of photovoltaics were very high. They didn't calculate that removing tariffs on Chinese imports in 2017 would dramatically lower costs. A framework that may have made sense at the time, today it acts as a burden, producing distortions and excess profits at the expense of consumers.
The Cypriot peculiarity
Theory aside, the facts of Cyprus are relentless:
- Small and isolated network: There is no room for real competition. In practice, 80% of RES production is in the hands of a few who are also suppliers. They do not exceed the fingers of one hand!
- Limited players in conventional production: With the advent of natural gas, the base units will belong to only two entities: EAC and PEC. Is it reasonable to believe that a private company will be satisfied with EAC's low profit margins? Or will it take advantage of the circumstances to increase its profits?
- Price volatility: The selling price of energy based on the target model will be constantly changing, even though the cost of energy from renewables remains stable. This volatility in energy prices will cause problems for the economy, as well as increase the cost of financing RES investments.
- RES cuts: In isolated grids there are increased cuts, as there is no way to export the excess energy. The experience of recent years has shown us that private individuals were unable to provide the necessary storage infrastructure and – despite all the needs of the grid – preferred to throw away green energy as an alternative.
- Residential photovoltaics at risk: Based on the Target Model, in the future they will also participate in the market through accumulative representation bodies. The complexity of the energy market will only act as a deterrent, instead of exploiting the ceilings.
- Bureaucracy and costs: Also, to date, the complexity of the proposed model has led to continuous postponements and exorbitant costs, while all the distortions of the transitional market remain.
Why Monopsonium is the logical solution
Faced with this reality, the only realistic answer is the single buyer model. A central buyer – in Cyprus EAC – buys all the energy produced by private individuals and makes it available to consumers based on the actual cost of production. Thus, price stability is ensured and "games" in the market are avoided.
Monopsoni is not an experimental idea; was successfully implemented in Malta and ensured stability and low prices. Any profits from the supply will be returned to the consumer through the public body, while the state, if necessary, has the ability to regulate the market and proceed smoothly with any investment it deems necessary. This model also gives a stable perspective to RES, encourages investment and protects citizens from distortions.
Decision time
The dilemma is clear: either we continue on the same path, with prices that strangle households and businesses, or we dare to change. The Monopsoni is not a panacea; however, it is the fairest and most reasonable solution for Cyprus, the only model that can restore confidence in the market and lay the foundations for a true energy democracy.
Energy is not a luxury; It is a right. And we must defend this right with courage, today – not tomorrow.
* CEO of Dracoudis Energy & energy expert
