Pafos Live 6 November 2025
Dr Andreas Prokopiou
Former Senior Researcher in the field of Smart Grids, University of Melbourne and researcher at Électricité de France R&D in France
October 1, 2025 was a milestone for the Cypriot energy sector, with the launch of the Competitive Electricity Market (IEE). For the first time, electricity in Cyprus is traded through bidding and clearing mechanisms, a framework that aims at transparency, cost optimization and enhanced competition in the wholesale market.
According to the analysis of the data, the first month of operation went smoothly on a technical level, with the clearing and bidding systems operating without major failures. However, behind this positive picture, the market remains concentrated and limited in depth, which limits the intensity of competition and the possibility of price differentiation in retail.
The price and market behavior
The weighted average Market Clearing Price in the Anteday Market (DAM) stood at €162.72/MWh, with prices moving from zero levels up to €500/MWh.
Almost 5% of all trading sessions showed zero prices, while in 42% of the days of October there were zero or almost zero prices in the midday hours (11:00–14:00). In contrast, the average night price (18:00–06:30) stood at €163/MWh.
This fluctuation reflects a market that operates at two speeds:
● low or zero prices when solar production exceeds demand,
● and high prices when demand is met exclusively by conventional units.
Market Structure and Energy Shares
The data show that 86% of the energy traded in October came from conventional production and only 14% from Renewable Energy Sources (RES).
More specifically:
● 51% of the energy came from Conventional in the Pre-Day Market,
● 34% from Contract to Futures Market,
● 7% from RES in the Pre-Day Market, and
● 8% from RES in the Futures Market.
This ratio shows that, despite the significant installed capacity of RES, the actual uptake of energy from renewable sources remains limited, due to the low liquidity of the market, the lack of storage systems and the 'must-run'), which limit the available scope for RES integration into the system.
The cost of "must-run" units
For a supplier that operates exclusively in the Ante-Day Market and covers through the Futures Market only its mandatory share of the "must-run" production, the actual weighted energy cost is approximately €171/MWh, i.e. approximately 7% higher than the average wholesale market price.
This difference is due to the fact that about 38% of the energy supplied by suppliers comes from the so-called "must-run" units, with an average cost of around €190/MWh.
Cyprus, in the absence of storage systems, interconnections and other technologies that can offer inertia and redundancy, still relies on conventional generating units that must remain in operation continuously for reasons of stability of the electricity system.
This forced operation, known as "must-run," ensures that the grid has the necessary frequency and dynamic response to absorb changes in production and demand.
The cost of this service, although essentially related to systemic stability functions, is not reimbursed through a separate mechanism. On the contrary, it is socialized to suppliers, who are obliged to procure their share of the energy produced by the "must-run" units, through the Forward Market (FM).
The operation of these modules is essential for the operational safety of the system, as they provide inertia, redundancies, and the ability to regulate frequency. However, when they remain in continuous operation, without their activation being linked to the real needs of the network, a structural cost is created that limits the ability of suppliers to offer competitive tariffs to consumers.
International experience shows that the transition to a dynamic model of service activation (market-based activation), where the operation of the units is not fixed or predetermined, but is activated only when the system really needs specific services, such as inactivity, redundancy or frequency regulation, leads to a substantial reduction in costs, a more rational use of available resources and greater energy absorption from RES.
The next day: storage, gas and diversification
Cyprus still has only one conventional producer, without the entry of a second or third player yet. Gas projects are lagging behind, and no storage system has yet entered the market. Without these elements, the flexibility of the system remains limited, and the market is unable to fully exploit the potential of renewables.
The experience of other countries, such as Greece, Ireland and Portugal, shows that it takes 18–30 months after the launch for the market to gain depth, liquidity and meaningful competition.
Cyprus is on the right track, but progress will depend on the speed of implementation of storage projects and the introduction and use of natural gas in electricity generation.
Outlook for 2026–2027
As energy storage and production from natural gas are gradually integrated into the system, a normalization of the daily price profile, a reduction in RES cuts and better utilization of clean energy, and a drop in the average cost of electricity production by 10-15% over the next two years, is expected.
The Competitive Electricity Market is functional but still immature.
It takes time, transparency and targeted interventions to turn competition into a real economic and environmental benefit for the consumer.
The opinions expressed are personal.
