As we approach the second anniversary of Nikos Christodoulides’ government and his Cabinet, the energy sector remains one of the most problematic areas, with urgent needs for both policy and administrative decisions—and for swift implementation of those decisions.
The current government has already made several crucial decisions (removing CPP from the terminal project, new tenders, subsidy plans for electricity storage, upgrading the Dhekelia power station, and photovoltaics for all). Some decisions were made urgently, others out of necessity.
However, none of these decisions have been able to provide medium-term solutions to the outstanding issues. While some areas have laid the foundation for a change of direction, and there are clear intentions to change policy in others, the energy sector remains one of the most challenging in the economy and wider state.
The Priority That Will Make a Difference
For most of the public, the biggest pending energy issue is completing the Vasilikos gas re-gasification terminal. And it is indeed a critical task.
However, the most pressing need for electricity consumers and the economy is the adoption of decisions that can create prospects for substantial reductions in electricity charges in the medium or even short term. Maintaining prices at high levels through subsidies—whether for all or a select few—does not prove to be an adequate or functional solution for anyone.
Creating prospects for cheaper electricity requires a reassessment or even a revision of decisions made during the Anastasiades administration, involving the Cyprus Energy Regulatory (CERA) about the current and future structure of the electricity market.
President Christodoulides’ government has recognized the need to evaluate and take a stance—bearing the political responsibility—on whether the competitive electricity market, expected to begin in mid-to-late 2025 based on the EU’s Target Model, will indeed foster significant competition within the domestic market, thus leading to genuine price reductions for all consumers.
What the Energy Ministry Is Considering
According to Forbes, President Christodoulides and Energy Minister George Papanastasiou are seriously contemplating the EU Target Model’s ability to foster competition in Cyprus’ small, isolated market and reduce prices—not only for large commercial and industrial consumers but also for the vast majority of household consumers, who are still struggling with high charges.
Minister Papanastasiou has informed members of the Energy Committee that his ministry is examining a new formula for the electricity market’s operation, with hopes that it will be able to curb the unexpected profits of renewable energy companies, ultimately leading to lower prices for consumers.
The President Has Been Briefed
Forbes also reports that President Christodoulides has been fully briefed on the concerns and efforts of the Ministry of Energy in its search for a new pricing and sales model for electricity—particularly the electricity produced at very low cost by solar parks. He is also well aware of the serious dysfunctions within the current Transitional Regulation of the electricity market, which allows energy producers from solar parks, as well as private energy suppliers, to enjoy very high-profit margins.
The President understands that changing the competitive market framework under the EU Target Model and replacing it with a more functional model suitable for Cyprus’ small market will require coordination with the European Commission and exemptions from EU rules. Such exemptions are granted by the European Commission to many member states, but only if they are well justified and deemed necessary by Brussels’ technocrats.
Domestic Reactions
Suspending the Target Model in the Cypriot electricity market is not a decision that only has to overcome the hurdle of EU evaluation. For such a decision to be made, President Christodoulides must also overcome the resistance of private investors—producers and suppliers—who oppose any changes. The current Transitional Regulation and the planned competitive market, as set out by CERA, ensure significant profits for them for the coming decades.
Our information suggests that one of the options being considered by the Ministry of Energy is the abolition of the Transitional Regulation, which guarantees excessive profits for solar producers and electricity resellers. Another option under consideration is submitting a request to the European Commission for a derogation that would allow Cyprus not to implement the so-called Target Model for the competitive electricity market by the end of 2025.
The idea of seeking a derogation from this obligation under EU law is linked to the potential implementation of a model known as the Single Buyer Model, which requires all private electricity producers to sell their output to a central supplier (likely, though not exclusively, the Electricity Authority of Cyprus Supply in this case). This would involve a process similar to competitive tenders, aimed at excluding overpriced green energy from the grid while benefiting household consumers.
Should the government submit a request for such a derogation and it be approved by the EU—at least until the power interconnection with Crete becomes operational (something not expected until at least 2030 or possibly later)—technocrats estimate that there will be a significant reduction in electricity costs for household consumers (who are currently excluded from the benefits of the Transitional Regulation) as well as for commercial consumers (businesses) that currently have limited access to private production.
The Terminal Is Not a Solution for Today
For now, it is unclear whether the radical changes being considered by the Ministry of Energy will be approved by President Christodoulides, allowing the necessary consultations with the European Commission and the preparation of new drafts of decisions or legislation to proceed. What is certain is that President Christodoulides knows he cannot count on satisfactory energy price reductions for households and businesses from the introduction of natural gas or the expansion of solar energy use.
Completing the Vasilikos terminal and starting the re-gasification of liquefied natural gas is unlikely to happen by 2025, even if all the efforts being made by the Ministry of Energy, ETYFA, and DEFA are successful. The processes for selecting a new project manager for the terminal project, tendering, evaluating, awarding new construction contracts, implementing the remaining works, and purchasing and importing the necessary quantities of LNG are all very time-consuming. The President is likely convinced that there is little chance of using natural gas for cheaper electricity production in the next two years. He also knows that the Cyprus-Greece electricity interconnection will not be operational during his term, which means there will be no new competition to bring prices down. It is uncertain whether even the next President will see the interconnection in operation!
Therefore, alternative options must be considered—which likely involve revising the framework established by the previous government and CERA for the structure of the competitive electricity market in the coming years.
Profits through Market Distortions
Government and civil service officials share the observations of Cypriot and other European energy and economic technocrats regarding significant distortions in the electricity market that allow private producers and suppliers to engage in speculative practices. These distortions are directly linked to the Transitional Regulation for the electricity market, established by CERA in 2017, which remains in effect today and allows substantial excess profits for private participants. It provides a small discount of 8-10% off Electricity Authority of Cyprus (EAC) prices for some industrial and large commercial consumers, while preventing all household consumers from accessing cheap solar energy.
At the same time, household consumers are burdened with additional costs on their kilowatt-hour price due to the significant costs incurred by the EAC to support the electricity system during sharp fluctuations in renewable energy production, particularly in the afternoon or when weather conditions change.
The Target Model Is Under Review in the EU
All of the above, combined with concerns about the ongoing processes for completing the LNG terminal at Vasilikos and bringing natural gas, which is practically impossible to complete by 2025, have led the Ministry of Energy to work on a proposal for deviation from the energy model currently applied by most EU countries. This proposal also invokes the delay in implementing the power interconnection (which, it is hoped, will create real competition in the domestic market after 2030) and the lifting of the isolation of Cyprus’ electricity system.
Moreover, there are growing voices within the EU—from governments, political forces, consumer associations, and trade and industry associations—against the Target Model, blaming it for the evident overpricing of green energy and the linkage of its price to the most expensive electricity, which is that generated from fossil fuels.
Electricity Market Association (EMA)
As mentioned, there have been reactions to the Ministry of Energy’s thoughts on revising previous decisions regarding the competitive electricity market.
The Electricity Market Association (EMA) has issued a statement saying that the blame placed on the “Target Model”—the unified wholesale electricity market model applied across all EU countries—for high energy costs is misplaced.
“The remarks made by Energy Minister George Papanastasiou about potential changes in energy planning, hinting at the adoption of the Single Buyer Model, are particularly concerning,” EMA states, adding that the discussion is heading in the wrong direction and only serves to distract from the structural issues of the energy system and the real reasons consumers face high costs today.
It points out that the reasons for high electricity prices are the reliance on conventional generation, the lack of strategic planning, the failure to upgrade the grid, and the enormous delay in introducing natural gas to Cyprus.
EMA also notes that the view that the EU Target Model is responsible for the high prices in the wholesale market over recent years is not supported by scientific data. On the contrary, the philosophy of the Target Model, which has been adopted by all EU member states, including Cyprus since 2012, is based on studies, scientific data, and experts in the energy sector. “It is unacceptable, at the very least, to hastily challenge this model by those without specialisation in the wholesale electricity market”, it adds.
Additionally, EMA points out that implementing the Single Buyer Model raises the question of what will happen to conventional generation, whether from EAC production or other energy producers, once there is ample production capacity. It asks what criteria will be used to decide which units participate in the market.
“Arbitrary changes to the Target Model, after a decade of substantial investments in the energy sector—by both the private and public sectors (TSOC, DSO, personnel, software, etc.)—based on long-term energy planning, send the wrong message, suggesting a country with an uncertain investment environment and chain consequences for the economy itself”, EMA emphasises.
“Deviation from implementing the Target Model undermines the principles of competition and creates serious distortions, which we have experienced in the past when there was no free competition in the market”, the statement concludes.
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