Seven months after the full implementation of the "target model" in the electricity market of Cyprus (October 1, 2025), the results are significantly far from the expectations that had been cultivated in the world.
Instead of more choice, increased competition and a gradual reduction in prices, consumers are faced with a market that produces more expensive electricity and intensifies distortions. According to Eurostat data for the second half of 2025, Cyprus ranks second most expensive in the European Union for non-household consumers.
According to Eurostat data for the second half of 2025, Cyprus remains in the second most expensive position in the European Union in electricity prices in relation to the purchasing power of citizens. The review of the functioning of the competitive market is no longer a theoretical debate; it is a question of economic and social necessity.
The weaknesses of the Cyprus market
The main problem is that the European "target model" was implemented without substantial adaptation to the specificities of the Cypriot electricity market: a small, isolated and energy-immature market, without storage systems and electricity interconnection with neighbouring states.
In practice, the wholesale price of electricity is determined almost 24 hours a day by the EAC's most expensive conventional production unit, which still controls more than 90% of production.
At the same time, while renewable energy sources (RES) cover about 26% of annual demand, their participation in the wholesale market remains limited, between 4% and 7% of daily demand. In addition, RES producers are often compensated by the high prices set by expensive conventional units in the context of the implementation of the "target model". The result is an electricity market that operates virtually as "competitive", but without producing substantial competition for the benefit of the consumer.
Wholesale prices on the rise
The data of the "CyprusGrid" platform for the market record an alarming trend of increase in the wholesale prices (MCP Price -DAM-) of electricity.
∙ October 2025: €162.7/MWh
∙ February 2026: €180.2/MWh (+11% from the start)
∙ April 2026: €224.6/MWh (+38% from the start)
Part of April's increase is certainly linked to geopolitical developments in the Middle East and rising fuel prices. However, the steady upward trend in prices also points to a deeper problem: the market is still distorted, without the necessary corrective tools applied in other European countries with similar challenges.
Who benefits and who pays the cost
The current functioning of the market essentially creates two categories of consumers. On the one hand are large businesses and residential consumers who have photovoltaic systems and can significantly reduce their energy costs.
On the other hand, there is the vast majority of households and small and medium-sized enterprises that remain in the EAC and bear the burden of the increases.
In practice, the costs of the "transition to competition" are mainly passed on to those who cannot afford to invest in photovoltaics or secure special commercial agreements for the supply of electricity.
What can be changed
The experience of other European countries shows that there are interventions that can limit distortions and reduce costs for consumers.
1. A cap on the wholesale price: The example of the "Iberian Exception" in Spain and Portugal proved that a temporary cap on the wholesale price can act as an effective tool to contain electricity costs. For a small and isolated market such as the Cypriot one, a similar measure could act as an immediate "brake" on extreme price fluctuations.
2. Contracts for Difference (CfDs) for RES: New investments in RES could be included in contracts for difference through competitive tenders. With this model, producers agree on a fixed price with the state for a long period.
If the wholesale price, in the context of the AAR operations, is lower than this fixed price, the State pays the difference; if it is higher, the producer shall refund the difference transferred to the consumer. The model is already being implemented in several European countries with positive results for both price stability and investment security.
3. Rationalization of pollutant costs: Today, the high cost of emission allowances of pollutants is directly transferred to the wholesale electricity price, affecting the entire market. The transfer of pollutant costs to a separate regulated charge in the retail market - as applied in Italy - could significantly reduce the wholesale price and create fairer compensation conditions for RES.
The electricity market needs reform now
The "target model" is not wrong as a philosophy. However, its implementation without substantial adaptation to the particularities of the Cypriot market creates serious distortions. The expectation that the market will "mature" on its own in the coming years can hardly justify the increasing costs that households and businesses are currently shouldering.
Cyprus cannot stand another lost five years. Taking immediate measures, such as the imposition of a ceiling, contracts for difference and fair management of the cost of pollutants are the only way to a truly fair, competitive and sustainable electricity market that will serve the citizen.
* Electrical engineer, with many years of experience in the operation of the Electrical System
