Filenews 19 October 2025 - by Andreas Poullikkas
Cyprus is at the beginning of a new energy era with the implementation of the competitive electricity market from October 1, 2025. The debate around consumer benefits remains intense and divisive, while many are either positive or negative about the immediate benefits that will result. But it is important to understand that, as in other European markets, it takes time for the system to mature before the real benefits become visible to consumers.
The experience of the European electricity markets provides valuable lessons for the case of Cyprus. The process of liberalization of the European electricity markets began in 1996 with the first European directive and went through four successive energy packages, with the last one being implemented in 2019. This gradual transition has allowed Member States to adapt their systems to the new realities and to meet the challenges of the competitive market.
The first markets that opened in Norway and Great Britain in the 1990s showed that market maturation is a process that requires time and patience. Great Britain, for example, experienced significant fluctuations in market performance during the first years of operation. In the period 1999-2001, about 32% of consumers (8.5 million) chose to switch suppliers. However, after 2002, there was a decline in switching activity, as many independent suppliers faced difficulties in maintaining their viability.
Germany presents one of the most mature models of the European electricity market. The liberalization of the German electricity market began in 1998, as its goal is to meet 80% of its electricity needs from renewable energy sources by 2030. The country has implemented measures, such as requiring operators of new wind and solar power plants to independently sell their energy on the open market. The German experience demonstrates how a mature market can effectively integrate renewable energy sources. Until 2016, renewables accounted for around 30% of total electricity production in Germany, and today they have become the most important source of electricity in the German energy industry.
The liberalisation of the electricity market contributes to the integration of renewables, as operators of renewable installations are now more incentivised to provide forecasts for their production and to actively participate in the market.
The Nord Pool market is the largest and most mature single market for electricity in Europe. It has been operating since 1996 and covers the Nordic countries, the Baltic States and many countries of continental Europe. This model began when Norway liberalized its electricity market in 1991, becoming the first country to provide universal market access. The success of the Norwegian initiative attracted the attention of neighbouring Sweden, which was facing its own challenges with market concentration. After extensive political consultation, Sweden decided to cooperate, leading to the integration of the Swedish market in 1996. The integration process continued as Finland joined in 1998, followed by Denmark in 1999-2000, culminating in a fully integrated Scandinavian market. The model proved so successful that in 2010, the United Kingdom sought to replicate it, entrusting the operation of its market to Nord Pool.
The Spanish experience of electricity market liberalisation, which began in 1998, provides important lessons for Cyprus. The reforms in Spain made between 2013-2014 have helped to address some of the operational problems of the electricity sector.
Specifically, two important changes were introduced: (a) the new system for calculating the cost of electricity for the final consumer and (b) the new system of incentives for the production of renewable energy. These measures solved some of the operational problems related to the price-setting system for consumers in the retail segment.
Market coupling is one of the main pillars of the EU's energy policy. The completion of the coupling of markets across Europe was planned for 2014. Today, 98.6% of the EU's electricity consumption is coupled. The coupling of markets leads to price convergence, increased competition, market efficiency, incentives for investment and innovation. An integrated pan-European electricity market allows for efficient management of supply and demand fluctuations across the continent, mitigating risks due to unexpected disruptions in the primary energy supply chain.
Developments in Cyprus
The transition of Cyprus to the competitive electricity market is one of the most important steps for the harmonization of Cyprus with the European energy model.
The need to decouple renewable energy prices from fossil fuel volatility is a key element to avoid systemic weaknesses and promote price transparency and stability. The benefits and positive effects of the competitive market will not be immediately apparent, but there will be benefits in reducing the cost of electricity by definition through competition.
The Cyprus Energy Regulatory Authority (CERA) has a key role in shaping and maturing the Cypriot electricity market. Its objectives and responsibilities include ensuring effective competition, protecting consumers' interests, promoting the development of an economically viable market, and ensuring electricity adequacy.
Cyprus' electricity market faces unique challenges due to its distinctive characteristics as a small and non-interconnected market. These challenges include energy isolation, lack of interconnection to the European grid, and dependence on imported fossil fuels.
The creation of a competitive electricity market prepares Cyprus for its future participation in the EU's internal electricity market, through the planned electricity interconnection, where it will allow Cyprus to trade electricity not only at national but also at European level, creating greater opportunities for economic benefits and energy security.
Experience from the Nordic countries, which exemplify mature markets with high switching rates, shows that success takes time to develop real competition and educate consumers about the new possibilities offered to them. Maturation is a process that requires time, patience and constant adjustments.
Real benefits for consumers come with the maturation of the market, the development of real competition and the integration of innovative technologies. When the negotiation processes mature and become more efficient, then the real benefits for consumers will begin to be seen.
Cyprus is at a critical point of transition. The process of learning and optimization is key to the success of the system and requires patience and continuous adjustments from all stakeholders involved. The conditions for the development of healthy competition are now starting to take shape, ensuring that maturation takes on a European dimension, allowing Cypriot consumers to benefit from the benefits of mature and transparent markets.
* Professor of Energy Systems
Frederick University
