Delays in liberalising electricity supply

3 mins read

Opening up the Cyprus electricity market, long touted as the only way that Cypriots can enjoy cheaper and greener supply as competition works in favour of consumers, is proving to be an unattainable goal.

Earlier this week, President Nicos Anastasiades said Cypriots would soon be paying less for electricity once the market opens up when receiving the annual report of the Electricity Authority of Cyprus (EAC) from its chairman Michalis Komodromos.

Based on a timetable set by the government in cooperation with the European Commission, the market should have been open to competition from 2017 the project was postponed for the sixth time earlier in October, taking its implementation date to February 2022 from October 2021.

The latest delay was announced by the Transmission System Operator, in charge of carrying out the country’s strategy to open up the electricity market.

TSO Chairman, Christos Triaros faced the anger of MPs when he told them that the process of opening up the market had once more been pushed forward, during a hearing on the matter.

“No, we do not trust that the Transmission System Operator will adhere to the new schedule,” said Andreas Poulllikkas, head of the Cyprus Energy Regulatory Authority (CERA), also present at the House hearing.

The TSO told the Financial Mirror that it will honour its commitment to see the project through by February 2022, attributing the delay to a lack of investor interest in a tender for a management platform during the first attempt.

The TSO said it signed an agreement with General Electric Solutions Grid in April 2020 for the project to be delivered in October 2021, but this was delayed by the coronavirus crisis.

However, it is another delay which will take its toll on consumers and investors alike.

Renewable energy

In comments to the Financial Mirror, Phanos Karantonis the vice president of the Association of Renewable Energy Companies said the delay means that Cypriot consumers will not see bills dropping any time soon and it will also hurt the economy.

“The purpose of opening up the electricity market is to offer consumers a variety of choices, creating a competitive environment, ultimately bringing down prices.

“And in the case of the electricity market, prices can only be brought down when producers of greener energy can join the market,” said Karantonis.

He said in the long run, once infrastructure costs have been paid off, the energy produced from RES will be cheaper.

Karantonis said his members are frustrated at the delay as projects worth billions of euros will not be able to join the market, putting their investments at risk.

“RES electricity producers have invested more than half a billion euros in infrastructure for which in the majority of cases loans were taken out.

“If this continues, not only our projects will be at risk, but banks will lose their confidence in such projects, we will find it more difficult to finance them in the future,” said Karantonis.

Other stakeholders in RES projects have at times warned authorities that further delays in opening up the market could drive away foreign investors seeking to invest in big RES projects in Cyprus.

Explaining why opening up the electricity is vital for RES projects and producers, Dr George Karagiorgis, Mechanical Engineering Professor at Frederick University, said that electricity producers need to have an agreement with a provider if they are to channel their production to the market.

“Without a framework, an open market, which will regulate providers and allow them to sell electricity to consumers, producers will have no access to the market.”

Karagiorgis noted that electricity prices may not drop during the first years of an open market, as other factors will come into play, such as the infrastructure cost of RES projects and network expansion works.

He said even when prices do drop, this may not benefit the society horizontally.

“Markets that have successfully liberalised appear to have reduced energy costs for industrial consumers rather than households in the long run.”

OEB’s Anthi Charalambous said that opening up the market could bring prices down after some years of operation as there are examples where prices for households have gone up.

“As a rule, liberalised markets are more efficient than monopolies.

“They allow, due to competition, the reduction of energy costs for final consumers, be it households or businesses.

“However, price analysis of liberalised markets shows that there has been an increase in retail prices, which is not the case for the wholesale market.”

Charalambous said that studies have shown, prices could also still be affected by decisions and investment policies made by companies who had the monopoly, such as state authorities.

“That is one of the reasons why achieving liberalisation requires strong political will and strong regulatory decisions and regulations to dismantle monopolies, completely separating production from transport and distribution”.

Charalambous argued that Cyprus should be looking at more ways of bringing down electricity bills, while at the same time ensuring the country’s energy security and competitiveness.

She said Cyprus should be looking to interconnect its electricity grid with mainland Europe, noting that wholesale energy prices are lower in EU countries with an interconnection with neighbouring countries than those without one.

“Cyprus is currently fully isolated without any electricity interconnections. A problem that could be solved by the introduction of interconnectors, which will connect the island with mainland Europe, such as the EuroAsia Interconnector.”