The Green Pivot: Cyprus and the regional market
Cyprus is heavily relying on fossil fuels; only 15% of Cyprus’s electricity was generated by renewables in 2021. Meanwhile, Cyprus is not currently interconnected with other countries, although there are plans for the EuroAsia Interconnector to become operational in 2026. A competitive electricity model is also expected to be introduced in Cyprus by the end of 2022.
Alma Economics, commissioned by the Peace Research Institute Oslo (PRIO) and under the auspices of the Mediterranean Growth Initiative (MGI), reviewed the existing state of play in Cyprus and set an indicative pathway for the future of the Cypriot energy market and interconnectivity in the region. The Nordic model was also examined to identify key differences between the Norwegian and Cypriot power markets, as well as any lessons learnt from the Norwegian power market that could be applied in Cyprus.
Although Cyprus is already on a path to achieving decarbonisation, interconnectivity, and competition in the power market, it is important that it develops a national, long-term strategy covering the following elements:
successful completion of current plans to achieve physical interconnectivity.
increase in availability of energy storage installations.
upgrading the Cypriot electric power grid to a smart grid.
completion of the full liberalisation of the Cypriot electricity market. Further arrangements could include the decentralisation of the shares in the electricity market, so there is no dominant player, as well as transparent, fast and easy provision of licenses for renewable electricity generation and supply.
arrangements for cross-border electricity trading.
governance and transparency (e.g., equal access to information for all parties involved in the power market, using the common European algorithm to calculate market prices).
Cyprus faces significant challenges in moving toward a green interconnected market-based model. Firstly, it is a small country with a small energy market, which limits the number of potential electricity suppliers and hence the level of competition. Secondly, due to its geographical position, grid interconnectivity is more technically difficult and costly. Finally, geopolitical tensions in the Eastern Mediterranean region make it more difficult to achieve the level of interconnection between Cyprus and its neighbours that is enjoyed by Nordic countries. Despite the challenges Cyprus has to deal with, the potential gains in terms of the cost of electricity, reduction of emissions and security of supply are large.
As a result of moving toward a green interconnected market-based model, energy production generated by renewables (e.g., solar power and offshore wind farms) would increase, resulting in less dependence on fossil fuels and lower emissions. Increased interconnectivity in the greater region of Cyprus would also result in increased security of energy supply for all interconnected countries. Reliable connections between countries will help deal with electricity deficits by allowing electricity to be transported.
As a result of grid interconnectivity, there can be large economies of scale in both power generation and transmission. In particular, interconnectivity can allow the introduction of big-size units in the power systems, thus, increasing efficiency in production and leading to increased competition and reduced electricity bills. Additionally, economies of scale in transmission can also be significant, as higher voltage cables cost less per MW of power transferred than lower-voltage lines.
Increased interconnectivity in the greater region of Cyprus could reduce the cost of electricity substantially. Under a set of reasonable assumptions, we estimate that each electricity consumer could save €200 per year through lower energy bills.
Our research findings were presented at the Cyprus Forum 2022.
Read our report here.