articles | 05 April 2021

‘Cyprus will soon enter a new era for energy’ — Energy, Commerce and Industry minister Natasa Pilides

Natasa Pilides, minister for energy, commerce and industry, has kindly conceded to Dr. Charles Ellinas and Andrew Rosenbaum a major update on energy policy and legislation. The minister addresses nearly every important issue in the sector. 

Q: Cyprus’ energy sector appears to be fragmented. Your ministry in not in full control of all energy-related functions and activities on the island. This surely affects efficiency and effectiveness. Are there plans to lead to more effective coordination, or even more centralised planning and control? 

A: I would say that the organisation of the energy sector at the state level is fairly sound, in that policy setting and implementation lies with the ministry, while the all-important role of the Regulator is kept separate and independent, in the hands of CERA. Having said that, energy is necessary and present in all aspects of life, from our homes to every type of business and industry, and as such, it should be, and is, at the heart of strategy formulation, much more so in recent years when the transition to a green economy has become our primary focus. To this end, I completely agree that coordination with other government services such as the Ministry of Environment and the Ministry of Transport, is crucial. A high level of coordination in both policy planning and implementation is maintained through our newly revised Integrated National Energy and Climate Plan 2021-2030 (NECP), which is the outcome of the collective work by all competent ministries and authorities. The NECP maps out the action plan for the implementation of our national energy efficiency and renewable targets for the next decade and lays the foundation for an ambitious long-term strategy aiming towards the elimination of greenhouse gas emissions by 2050. In November 2020 the Council of Ministers established a National Governance System for the European Green Deal, which consists of a 5-member Ministerial Committee including, of course, the Ministry of Energy.

At the level of the Ministry of Energy there are a number of reforms in the pipeline which will not only simplify the current regulatory framework but will also increase competitiveness and reduce pollution:

  • Both new draft bills for the regulation of electricity and RES provide for the set-up of a one-stop licensing process. This will expedite the implementation of new projects in electricity and RES and will contribute to the achievement of our energy targets. Of course, Parliament’s role is crucial in passing such key bills.
  • At the same time, our Ministry is in the process of carrying out a Strategic Environmental Impact Assessment Study, due to be completed this summer, for the design of a sound siting plan for RES projects.
  • Together with CERA and the Transmission System Operator (TSO), the ministry is working very hard to complete the liberalisation of the energy market. As of 1 January 2021, we have already entered a transitional phase and a number of new entrants have entered and are planning to enter the market. The process is expected to be completed in early 2022 with the roll-out of the relevant software. Again, Parliament has an important role to play in voting through the relevant regulatory framework.
  • Crucial to the opening of the market is the completion of the FSRU facility through the EU-funded project “CyprusGas2EU”, which will allow natural gas to be introduced into our energy mix, reducing both pollution and the price of electricity.
  • Both storage and electricity interconnectors are important in increasing RES penetration. For storage, the relevant framework under preparation by CERA has been included in the RRF, while a funding scheme for projects is in the pipeline in collaboration with the Directorate General for European Programmes, Coordination and Development (EPSA).

Of course, energy also affects the competitiveness of business and industry in Cyprus. For this reason, the transition to a circular economy and green energy is a crucial element built into all our funding programmes for businesses and industry. Our ministry is in the process of designing funding programmes in excess of €400 million for the period 2021-2027 (some of which have already been announced), with more than half those funds devoted to green growth.

Gas development

Q:When do you expect resumption of exploration and drilling activities in Cyprus EEZ? Are all international oil companies (IOCs) expected to resume their obligations this year? What happens if any IOCs do not stick to the timetables envisaged in their production sharing contracts (PSCs)? What can Cyprus do to ensure these are followed?

A: As you very correctly note, all operators are acting under the provisions of the production sharing contracts (PSCs) they have entered into with the Republic of Cyprus. All operators in Cyprus’s EEZ are planning to continue exploration and drilling activities in the 4th quarter of 2021 and within the timelines set out in the PSCs. In this regard, our Ministry has designed, in collaboration with the Ministry of Health and the Shipping Deputy Ministry, a protocol for people involved in such activities, whether it be crew working on drilling platforms or persons working onshore. The Contracts signed by our licensees provide for steps that the Republic can take to ensure that timeframes and obligations are followed, but also allow for a certain degree of flexibility when needed, in order to mitigate any risks that may arise. Our aim is to work with the operators in close collaboration to ensure progression of the projects in a way that benefits all parties.

Agreement with Israel

Q: The agreement of a framework with Israel to settle the Aphrodite/Ishai unitization dispute is a positive development. What are the next steps and by when do you expect agreement to be reached?

A: Indeed, the joint proposal to the Aphrodite and Ishai licensees, signed by my colleague the Energy Minister of Israel and myself, is a positive development which provides a flexible yet defined framework for the licensees’ discussions, including specific timelines and expert participation, if needed. A joint letter has been sent to the licensees, who have since been in touch with each other in order to commence the discussions. The letter proposes a 6-month period of discussions with the aim of reaching an agreement based on the available technical data that resulted from the wells drilled in both EEZs. If said discussions do not reach a conclusion in the set timeframe, the companies should make use of an expert consultant in order to resolve any remaining issues. At the end of the day, any agreement between the companies will be subject to approval by the two Governments.

Q: With this out of the way, how are the negotiations to sell Aphrodite gas to Idku progressing? Are these going to plan and do you still expect exports to start by 2025? If not, what other plans are you considering to monetize Aphrodite? 

A: The development of the “Aphrodite” field is based on the agreed and approved Development and Production Plan that provides for a specific timeframe. The field’s consortium is now in the process of conducting the necessary appraisal work and technical studies, which together with international gas prices and prevailing conditions in the oil and gas industry, will lead to the eventual Financial Investment Decision. To facilitate their work, we have agreed with the Egyptian Petroleum Minister, during our bilateral meeting held on the sidelines of the recent EMGF meeting, to activate the joint technical working group provided by our pertinent intergovernmental agreement and tasked to go over the details of the construction of the gas pipeline from “Aphrodite” to the Idku LNG Plant.

East Mediterranean Gas Forum

Q: How important is and how can EMGF contribute to the development of regional energy markets?

A: The EMGF is a regional forum aiming to design and implement a comprehensive strategy for the development of regional natural gas resources. The forum has succeeded in bringing together many countries of the region (Cyprus, Egypt, Greece, Israel, Italy, Jordan and Palestine) which, putting aside their differences, are now sitting around the same table for a common purpose. That in itself is important. But beyond that initial success, the level of attention and support that the Forum has attracted internationally, from countries such as the USA and France – now members of the Forum – the USA as observer and France as a full member – indicates its great potential.

During last month’s Ministerial Meeting in Cairo, the seven Founding Members reaffirmed their commitment to unlock the full potential of gas resources in the Eastern Mediterranean, developing them in the most environmentally responsible way and in full respect of Members’ rights over their natural resources, in accordance with international law. In this respect, the EMGF’s Gas Advisory Committee is in fact currently working on a very useful study on Gas Supply and Demand in the East Mediterranean. Other EMGF activities include working towards Gas Decarbonisation and LNG as a fuel for vessels. In addition, a dedicated working group has been mandated by the ministers to develop a Long-Term Strategy to achieve the objectives of the EMGF.


Part II:

This is the second part of two parts, addressing:

  • LNG Imports
  • Renewables
  • Transport
  • Deregulation
  • Interconnectors
  • EU Recovery Funds

LNG imports

Q: How is the LNG import project progressing? Is it still scheduled to start operations by end of 2022? How confident are you that this will lead to much lower electricity prices than now? How soon may Cyprus expect gas from its own gas fields to be available on the island? 

A:The “CyprusGas2EU” project should be completed, as scheduled, by the end of 2022, whereby Cyprus will receive first imports of LNG, to be re-gasified and used initially for electricity production.

The project has a number of very important objectives which include, as you mention, the reduction of electricity prices, but also, crucially, a reduction in emissions from electricity production of 26 per cent – 30 per cent. The project is also central to the success of electricity market liberalisation, because it will ensure that all energy producers are provided with natural gas at the same price for 10 years following the operation of the FSRU. The extent to which electricity prices will drop depends, of course, on the prevailing prices of natural gas from 2022 onwards. Generally speaking, natural gas is cheaper and cleaner than the heavy fuels we currently rely on for energy production. Also, since the project is aimed at encouraging healthy competition in the electricity sector, this element in itself is expected to lead to lower electricity prices.

About a week ago I had the chance to visit the construction site at Vasilikos, together with the President of ETYFA (Natural Gas Infrastructure Company), Mr. Kassianides. Engineers from the consortium developing the key energy infrastructure updated us on the progress of the project and assured us that work is progressing steadily and within the set time frame. The €289 million project will include a floating unit for storage and re-gasification (FSRU), a pier for the mooring of the floating unit, a pipeline on the pier and other relevant infrastructure.

The future use of natural gas from our own markets is, of course, part of our strategy for the future, which we have been discussing with our EEZ licensees in order to design the best and most cost-efficient way in which this can be achieved.

Renewables

Q:Europe is committing to a 55 per cent cut in emissions by 2030 and net-zero by 2050. Do you expect this to lead to updating Cyprus’ emissions, renewables and efficiency targets upwards in its 2021-2030 NECP and by when? What measures are you taking to achieve the new targets? How confident are you that we can have cheaper and cleaner electricity and upgraded systems that help Cyprus comply with European clean energy targets?

A: Cyprus’s National Energy and Climate Plan (NECP) was prepared according to the previous target set by Europe for 40 per cent emissions cut by 2030. With the new EU target for a 55 per cent reduction in emissions, new EU targets for RES and Energy Efficiency will need to be determined. The EU has been working to revise targets for each member state and, once these have been determined and communicated to us, Cyprus will need to work swiftly and efficiently to update the various underlying targets so that the new overall target can be reached, as well as the action plan for reaching those targets.

The various legislative reforms and actions in progress mentioned under the first question are crucial to meeting our targets. The successful implementation of our various funding programmes, the introduction of natural gas in our energy mix, as well as plans for storage of energy and interconnectors are central to our efforts. There are a number of projects running in parallel and, once these are brought to fruition, Cyprus will enter a completely new era in energy where it can confidently aim not just to meet, but to exceed set targets. For this to happen, each and every one of us has a role to play – from people saving energy and upgrading the energy efficiency of their households, to businesses revising their practices towards a more circular model, to regulators and government services streamlining their processes and Parliament voting through the crucial bills relevant to energy and RES regulation. Naturally, a host of responsibilities falls under the scope of the Energy Ministry, which is why we need to work harder than ever before to achieve our targets and to act as an agent for positive change.

Transport 

Q:The biggest carbon dioxide emitter in Cyprus is transport. What measures – such as biofuels, EVs, etc. – are being taken to reduce transport emissions and comply with EU clean energy targets, including clean air in cities?

A: The promotion of electromobility in Cyprus is one of the most important factors that will contribute to reducing greenhouse gas emissions in the transport sector and, therefore, to climate neutrality by 2050. For the smooth transition to electromobility, targeted incentives and, of course, the preparation of the appropriate legislative framework, including the location, licensing and operation of electric vehicle recharging points is required. We are working closely with the competent Ministry, which is of course the Ministry of Transport, Communications and Works, as well as the Deputy Ministry of Innovation, in order to prepare a comprehensive strategy for electromobility.

The Ministry of Transport has included a comprehensive proposal in the Recovery and Resilience Fund, to finance actions amounting to €40 million for the promotion of electric vehicles (subsidy for the purchase of an electric vehicle and investment for the installation of public recharging points). In addition, the Ministry of Energy has prepared a €1 million co-funded support programme to promote electric vehicle charging systems with RES for households. Under this funding programme, which is already available, owners of electric or plug-in hybrid vehicles, can receive a grant of as much as €2.250 for the installation of up to 2 kW photovoltaic systems, a charging point and a smart meter. A similar €1 million co-funded support programme aimed at local authorities and public bodies is being prepared.

At the same time, we have already introduced important legislative measures, falling within the competence of the Ministry of Energy, Commerce and Industry, for the promotion of the installation of charging points in new buildings.

Deregulation

Q:How are deregulation and liberalisation of electricity market progressing and by when will they be completed? What measures are you taking to upgrade Cyprus’ electrical system, including the grid, integration of RES, and electricity storage systems? What is the timetable?

A: The hardware and software needed for the full operation of the market by the TSO will be completed by early 2022. This will increase competition between suppliers and producers, as well as the penetration of RES. Until then, a transitional phase is already in effect, allowing bilateral contracts between producers and suppliers, with a number of new entrants already in operation.

As far as the country’s national electricity grid system is concerned, studies by the International Renewables Agency (IRENA) concluded that using the existing system, renewable energy -mostly solar- could provide 25 per cent to 40 per cent of Cyprus’ total electricity supply in 2030 and significantly reduce costs. This can be increased further by implementing RES installations with storage capability, through competitive bidding. As mentioned, we are working together with CERA and EPSA to introduce both a framework (CERA) and funding programmes (Ministry of Energy) for the introduction of large storage systems. It is worth mentioning that our current funding programme for households already funds storage units which can be used in combination with PV systems. As far as smart meters go, we have set a target to install around 400.000 units by 2025. Of course, the EAC’s role is crucial in achieving this objective.

Interconnectors

Q:Recently we had welcomed progress in the interconnector projects. How are these progressing? Are they still expected to be completed by end of 2023, including the Israel and Egypt connections?

A:Indeed, the projects have been progressing well recently with the signature of the relevant MoU between Cyprus, Israel and Greece for the EuroAsia Interconnector and intensified discussions between the Ministry, the European Commission, the European Investment Bank and the Project Promoter regarding the project. A number of technical difficulties have been overcome, which have lifted some significant obstacles, while the licensing process in Cyprus is effectively complete. Based on the latest updates by the project’s operator, the EuroAsia Interconnector is expected to be operational within 2025. However, crucial to this timeline is the successful submission by the Project Promoter of a funding application to the Connecting Europe Facility (CEF) of the EU. The submission will be made in the next few months as part of CEF’s next call and examination by the EU is expected to be completed before the end of the year. This is the most important step in the project’s trajectory, as it will effectively determine its feasibility.

If the project is successful, it will increase energy security, lift Cyprus’s energy isolation and enable a much faster integration of RES into our energy supply mix, allowing us to set far more ambitious RES targets and to even export electricity produced in Cyprus.

As far as the EuroAfrica Interconnector is concerned, which will connect Egypt to Cyprus and Greece, we are now in the final stages of discussion for the signing of an MoU between Cyprus, Egypt and Greece.

EU Recovery funds

Q:How will the €1 billion Cyprus is about to receive from EU’s recovery package be used address the issues raised in this interview? What green projects are being developed?

A:As mentioned, the Ministry of Energy, Commerce and Industry has prepared proposals for new Funding Programmes, co-funded by the EU, of around €400 million, for the greening and recovery of the economy.

Around half of these funds will be allocated to promoting the transition to green energy through RES, charging points for electric and plug-in hybrid vehicles, smart meters and energy efficiency measures in households, Small and Medium Sized Enterprises (SMEs) and governmental and municipal buildings.

The majority of the remaining €200 million will go towards promoting greener entrepreneurship, e.g. through targeted programmes for transitioning to a circular economy, the digital upgrade of enterprises, the creation of business clusters and the enhancement of the competitiveness of SMEs in the manufacturing sector. Moreover, a dedicated Business Support Centre, as well as a one-stop centre for licensing commercial RES projects, will be set up. As mentioned previously, a separate funding application is also planned for large energy storage projects.

Source: Cyprus Mail

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