Consumers in Cyprus should not get carried away by a 10% discount on their next two electricity bills, due to rising penalties the Electricity Authority has to pay for the right to pollute, say experts.
Last week, Energy Minister Natasa Pilides announced a 10% discount for households and businesses over the next four months, pledging to further introduce savings from renewable energy schemes, saying that natural gas from Cyprus reserves is soon to come online.
Energy experts say that if authorities do not make good on their pledges to turn towards green solutions, occasional discounts will not go far with Cypriot consumers doomed to continue paying a high price for energy.
In August, Cypriots dug deeper into their pockets to pay their electricity bills after rising fuel prices pushed annual costs up by 38.17%, reaching the pre-coronavirus price levels of 2018 and 2019.
Energy analyst Charles Ellinas told the Financial Mirror that the project of bringing down prices with the introduction of natural gas are being hampered by long delays.
The longer it takes, the less the benefits from natural gas will be, but even when introduced, benefits will be wiped out by the high penalties Cyprus is paying for CO2 emission rights.
“Even though natural gas could reduce EAC’s emissions roughly by 25%, by the time it comes the price of emission allowances will be close to three times higher in comparison to the level at the start of the project – and increasing,” said Ellinas.
He explained that by then, EAC’s emissions cap will be about 10% lower and will carry on being lowered by over 4% per year, so the impact of gas inherently lower emissions will be eroded.
The state-owned natural gas company, DEFA, recently said that the LNG terminal project at Vassiliko is continuing within its timeframe and will be ready with a floating FSRU and onshore gas distribution facility by October 2022.
However, the current penalty paid by EAC for a tonne of emissions is around €60, while projected to reach €100 next year. In 2019 the penalty stood at €15 per tonne.
“And then, on top of that, will also be the cost of LNG and gas as-delivered to EAC. The latter will have to allow for recovery of the LNG import terminal and project costs, EAC’s conversion costs, terminal operation costs, etc, and of course the cost of the as-delivered LNG,” said Ellinas
The energy expert also warned that with the EU gradually adopting hydrogen fuel and by moving away from all hydrocarbons, including natural gas, exports will get more difficult, unless Cyprus adopts strategic planning to combine LNG with renewables.
Green Deal targets
“The best way to go forward would be maximisation of the proportion of renewables. In any case, soon Cyprus will be asked by the EU to increase its 2030 renewables and emissions targets, from where they are now, to meet the new EU targets in the Green Deal,” he added.
Asked what needs to be done to bring down prices, Ellinas pointed out that, “RES should be a major part of the solution. More needs to be done to facilitate a more ambitious uptake of renewables. Like Greece, Cyprus should aim for a higher proportion of renewables by 2030, to comprise as much as 40-50% of final energy”.
Sadly, as he pointed out, this would require serious investment to upgrade our electricity grid to accommodate energy produced by RES, which is not included in the Recovery and Resilience Package.
Echoing Ellinas’ concerns over the need to invest in infrastructure, energy analyst Sotiris Kyprianou said that the problem lies with the concept we have in Cyprus when it comes to introducing RES into our lives.
“We think that because we have sunshine 300 days out of 365, we should be packing fields with photovoltaic systems, without taking into consideration what infrastructure will be needed to accommodate energy produced by solar panels,” said Kyprianou.
He explained that the Cyprus Transmission System Operator has said that the current electricity grid cannot support a large load of energy produced from RES. He explained that the current setup can allow up to a 20% participation of RES in the island’s energy mix.
Kyprianou said that would require Cyprus installing battery storage solutions, a smart grid, and policies friendly to renewables.
The energy analyst said that Cyprus will need to solve the issue of having a small isolated system with no storage capacity.
“What could be done is to install batteries which are now commercially viable, to store the excess energy produced by RES, which cannot be added to the grid at real time,” said Kyprianou.
He said that battery technology has come a long way in recent years, with the industry finding solutions to producing viable solutions for power storage.
There are storage solutions for households, which the state could include in incentive packages for the installation of photovoltaic systems, and energy upgrades.
“The US state of Hawaii has introduced such schemes, pushing up the RES participation in the island’s energy mix to 40%”.
Kyprianou added that the EAC could also get smarter by introducing a ‘demand response’ scheme to adjust consumers’ power consumption to better match the demand for power with the supply.
He explained that there are limits to what can be achieved on the supply side, because some generating units can take a long time to come up to full power, some units may be very expensive to operate, and demand can at times be greater than the capacity of all the available power plants put together.
Adjust demand for power
“Demand response seeks to adjust the demand for power instead of adjusting the supply” said the energy analyst.
“Utilities may signal demand requests to their customers in a variety of ways, including simple off-peak metering, in which power is cheaper at certain times of the day, and smart metering, in which explicit requests or changes in price can be communicated to customers,” he said.
Kyprianou explained that the customer may adjust power demand by postponing some tasks that require large amounts of electric power, or may decide to pay a higher price for their electricity.
Commenting on arguments that electricity prices could be brought down once the electricity market is opened up, Kyprianou said that the most likely scenario is that during the first years into the liberalisation of the market, prices will go up rather than down.
“My advice is to leave behind talk about bringing down the prices with opening up the market, and discounts, and move ahead with RES projects, freeing the electricity market and the economy from its dependence on fossil fuels,” concluded Kyprianou.
Supporting his arguments, Anthi Charalambous, head of the Environmental Department of the Employers and Industrialists Federation (OEB) said that opening up the market could bring prices down after some years of operation
She argued that there are numerous examples where prices for households have gone up, due to the administrative cost during the first years of operation.
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.