Who is responsible for the high electricity prices?

The criticism of the EAC is justified, but private companies are making profits at the expense of consumers.

This week, the Electricity Authority of Cyprus and private energy producers have been in a heated exchange over who is exploiting consumers and who is responsible for high electricity prices. So what's going on – is the EAC the 800-pound gorilla in the room, squeezing customers by exploiting its dominant market position? Or are private suppliers raking in profits from renewable energy that isn't even connected to the grid? The truth lies somewhere in the middle, analysts say.

The head of the Electricity Markets Association, Fanos Karantonis, sparked the duel by launching a full-scale attack on the state-owned utility, accusing it of stifling competition. The next day, the EAC countered by saying that private renewable energy producers were charging their customers 27 cents per kilowatt hour, while they were only paying 5-7 cents for electricity production.

“They do not want the EAC to [RES] “They could hinder competition because they would then have to charge lower prices,” said EAC Chairman Giorgos Petrou.

A sure-fire success for the EAC? Perhaps.

According to Constantinos Hadjistassou, a professor specializing in energy at the University of Nicosia, there is enough “debt” for everyone.

“Karantonis claims that private producers would help lower electricity prices… OK, that’s partly true,” says Hadjistassou.

However, he adds that they could reduce electricity prices much more if they reduced their commercial tariffs. Instead, they sell their electricity at just 10 percent cheaper than the EAC, thereby reaping windfall profits.

“And is it true what the EAC says, that private providers sell to private customers and do not feed their electricity into the grid? Yes, that is largely true.”

While the EAC dominates conventional power generation, private producers hold a fairly large share of the renewable energy market. The end result is a bizarre situation where there is a lack of competition in both sectors, albeit for different reasons.

“The number of companies in the renewable energy sector is relatively small, and at the same time capacities are limited,” the expert points out.

“I think regulators should take a closer look at this. They should be more careful about who they give permits to for photovoltaic parks, because in some cases these permits go to companies that already have a strong market presence. And in the meantime, companies like Cyfield are trying to get involved in the conventional power generation business.”

PV parks and wind farms are sold mainly to private customers and companies. And they sell to customers who are geographically close to these power plants because they lack a grid like the one the EAC has. So they cannot sell to the whole of Cyprus. If they were to sell to the grid, they would have to pay a fee to the EAC.

On the other hand, says Hadjistassou, the EAC must commit its own “sins”.

“It is a cumbersome organisation, not as agile as a private company. And we all know about the high salaries paid to EAC employees, that is a whole other problem. But even though it is not an efficient organisation, they still manage to make profits.

“If you leave everything to the private sector, they will eat it up. And if you leave everything to the public sector, they will delay investment for a very long time.”

“You have to find a balance.”

Criticism of the EAC is therefore entirely justified. At the same time, however, as a public utility company, it is responsible for keeping the grid stable and, so to speak, ensuring that the lights stay on.

In his push against EAC, Karantonis demanded that private manufacturers be given the opportunity to submit bids for the two new turbines that EAC plans to buy for the ageing Dhekelia power plant.

However, the EAC immediately rejected this idea, saying that the power plant was a public good and that it therefore made no sense for private companies to want a piece of the pie.

But there is also the technical aspect, says Hadjistassou.

“As far as I know, the private operators would like to build a brand new power plant to replace Dhekelia. And they are not wrong when they say that Dhekelia is an inefficient power plant that emits a lot of pollutants… that's pretty bad. But building such a power plant from scratch would require it to be built next to high-voltage power lines. And those don't grow on trees.”

Energy analyst Charles Ellinas points out another technical aspect: the transmission/distribution system is outdated and cannot absorb additional renewable energies without comprehensive modernization without causing stability problems.

In this sense, private renewable energy providers are quite right when they complain that at certain times of the year up to 30 percent of the energy they generate is “thrown away” by the system.

However, these deficiencies cannot be addressed by attempting to exclude the EAC from the renewable energy business.

“There are problems on both sides,” says Ellinas. “The EAC has not kept up with the times and the private providers are making untaxed super profits at the expense of consumers. As a result, electricity prices in Cyprus are among the highest in Europe.”

In his opinion, “this debate between private operators and the EAC is pointless because it does not address the root of the problem and does not lead to a reduction in prices.”

And he stresses that this problem can only be solved once the Cypriot electricity market is fully liberalised.

“But unfortunately, despite years of promises, there is still a long way to go. Without them, there will be no real competition. To bring down prices, we need natural gas and we need open tenders for new renewable energy projects. Super profits should also be taxed, and the money should be used to help vulnerable consumers.

“New renewable energy projects must be competitively tendered, with the most important prerequisite being the price of the electricity produced. The artificial and non-competitive setting of renewable energy prices at 10 percent below the price of conventional electricity will not significantly reduce consumer prices.”

Ellinas calls for a “rules-based system, otherwise we risk throwing the whole thing out of balance and creating even more problems.”

Hadjistassou sums it up: He says it is time for the government to renegotiate the contracts with the photovoltaic parks.

“These long-term contracts – around 20 years – were signed when operating photovoltaic systems cost between 17 and 20 cents per kilowatt hour. Today, thanks to technological advances, it is much cheaper. The contracts should be flexible to take this changed reality into account.”