The price of Electricity in Cyprus after the Mari Event

Date: 20 Feb., 2012

The recently released statistics by Eurostat for the EU-27 countries regarding the electricity prices in the first half of years 2009, 2010, and 2011 demonstrate an upward trend from 0.163€/kWh to 0.167€/kWh to 0.178€/kWh, respectively. This tendency is, to a large extent, tied to the sources of power generation. For example Poland’s electricity production predominantly depends on coal while other EU countries such as Germany and the UK increasingly use cleaner hydrocarbons such as natural gas. Other countries, such as Denmark, have invested heavily on renewable energy sources such as (offshore) wind power. Spain on the other hand has capitalised on solar energy, namely, photovoltaics and solar thermal power plants. Although the energy mix of Cyprus in this period has diversified to include more wind and PVs yet the island’s power generation still dependent predominantly on heavy fuel oil (HFO) and diesel. By EU standards this is an exception to the rule.

With continuing increases in fossil fuel prices, Cyprus household consumers had no choice but to absorb some of the highest electricity prices in Europe. Not only is HFO more expensive than natural gas it also emits more heat trapping gases in the atmosphere. Effectively higher emissions translate into higher electricity prices as the Electricity Authority of Cyprus (EAC) has to recuperate the emissions penalty paid to the EU from electricity consumers. During the 2009-2011 period the price of electricity on the island rose from 0.156€/kWh to 0.186€/kWh to 0.205€/kWh or an overall increase of 31.4%. It might be the case that Cyprus is an isolated power (island) system still the Government and, to a lesser degree the EAC, have not taken adequate measures to transition to cheaper and cleaner fuels, such as natural gas.

Interestingly the latter price hikes occurred before the devastating explosion on Mari in the summer of 2011 which knocked out the island’s largest power generation plant. Left without choice the EAC has imported a large number of small scale diesel generators of about 100MW which are currently used to meet the island’s power deficit. As expected the cost of electricity increased dramatically ever since. This is, however, the subject of another article we will be publishing soon.

In the wake of Mari incident and to people’s amazement the Cyprus Regulatory Authority of Cyprus (CERA) has approved an increase of about 7% in the electricity price which did not depend on fuel prices. Clearly beyond their control of people and industry were forced to incur the extra costs. In at attempt to mitigate the impacts of the blast on the economy the Government could have absorbed the latter costs. Besides harming the competitiveness of the country it is striking to note that further increases in electricity were permitted by CERA at the beginning of the year 2012 casting doubt over its role to act in the interests of consumers. Scepticism surrounds the latter controversial decisions especially in light of the lack of appropriate justification let alone the absence of proper consultation with the public and the industry.

It is surprisingly to note that people have not turned to the streets to protest against unilateral decisions. Understandably in order for the EAC to survive it had no choice but to seek extra financial resources. In the post-Mari era, the next Eurostat statistical report will just confirm the latest rise in electricity price in Cyprus which ranks among the highest in Europe. In light of the dire economic situation that challenges the island, paying higher electricity prices will only lengthen the economic recovery period. In the meantime, fairer and more objective electricity market regulation will be vital as well as the introduction of natural gas– a matter we will cover in a future post.

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