Cyprus is undergoing a major overhaul of its energy sector with a strong focus on renewable energy systems to help achieve its goal to eliminate greenhouse gas emissions by 2050.
Fully committed to the EU’s Green Deal, supporting the development of Renewable Energy Sources (RES) and creating a more energy-efficient future is high on the agenda for Cyprus. The government is placing more focus on subsidising green initiatives and international companies have been investing in RES installations. The country’s top-tier universities and research institutes are doing their part by creating a more sustainable energy mix through innovation in smart tech and ways to battle climate change. Cyprus’ EU 2030 Renewable Energy goal is to achieve 23% of its energy consumption coming from renewables.
In a bid to introduce more flexibility to its power system, the country aims to introduce new and disruptive smart grid technologies, as well as state-of-the-art control and storage methods to be used in parallel with new electricity market approaches. With 340 days of sunshine a year, Cyprus has one of the highest potentials for solar power of any European Union country, and the island is already one of the highest users per capita in the world of solar water heaters in households, with over 90% of households equipped with solar water heaters and over 50% of hotels using large systems of this kind.
Cyprus submitted its final National Energy and Climate Plan (NECP) for the period 2021-2030 to the European Commission in January 2020. Among other things, its 10-year roadmap and 2030 targets focus on for example the implementation of a more sustainable transport sector through electric cars and on further promoting the use of RES in electricity production. According to the €1.3 billion roadmap, Cyprus plans to reduce greenhouse gases by an ambitious 24%. Agriculture Minister Costas Kadis, Energy Minister Natasa Pilides and Transport Minister Yiannis Karousos presented their vision for a greener future in 2021, confirming that over 40% of the €1.23 billion investments of the Recovery and Resilience Plan submitted to the European Commission has to do with Cyprus’ transition to a green economy.
Recovery and Resilience Plan
Energy Minister Natasa Pilides stated in April 2021 that around half of the Recovery and Resilience Plan (RRP) funds will be allocated to promoting the transition to green energy through RES, charging points for electric and plug-in hybrid vehicles, smart metres and energy efficiency measures in households, Small and Medium Sized Enterprises (SMEs) and governmental and municipal buildings.
The majority of the remaining half will go towards promoting greener entrepreneurship, through for example 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. A separate funding application is also planned for large energy storage projects.
Subsidising RES Projects
Cyprus currently operates a scheme for the production of electricity from RES for own use, which includes installations of net-metering photovoltaic (PV) systems with capacity of up to 10 kW for all consumers, net-billing RES systems (mainly PV and Biomass) with a capacity of up to 10 ΜW for commercial and industrial consumers, and off-grid RES systems with no limit in total capacity. For the installation of net-metering PVs in households, the government is offering subsidies intended to encourage further RES installations by reducing the recuperation period of their investments.
In addition, two successful support schemes for the installation of RES systems that will operate in the competitive electricity market have been implemented in the period 2017-2019. In the first scheme 114.5 MW PV systems, 2.3 MW Biomass systems and 12.5 MW from a wind park have been approved, and in the second scheme 259 MW from PV parks.
Cyprus’ energy policy has created financial support for RES projects, and a special fund was created aiming to support RES and energy saving investments in Cyprus, with revenue derived from consumers paying a ‘green tax’ levied on electricity bills (currently at €0.005 per kWh and €0.0025 per kWh for vulnerable groups).
The country’s national grid system needs upgrading as it has certain fundamental and technical limitations affecting RES penetration and reliability. However, studies by the International Renewables Agency (IRENA) concluded that using the existing system, renewable energy and mostly solar, could provide 25% to 40% of Cyprus’ total electricity supply by 2030 and bring costs down significantly. This can be increased further by implementing RES installations with storage capability through competitive bidding, with the Cyprus Energy Regulatory Authority (CERA) currently working on the required regulatory framework.
The country is also exploring ways to introduce smart grids in the national network and is on the look-out for projects that could facilitate energy storage, and ventures that have production on a 24-hour basis. In addition, the prospective EuroAsia and EuroAfrica Interconnectors could bring more solutions down the pipeline to help increase the use of RES in Cyprus.
Transition through LNG
A key hurdle for Cyprus to overcome is its high dependency on fossil fuels for energy – with one of the biggest shares within the EU. This makes it crucial for the country to develop both its renewable energy sources and natural gas, the cleanest of the fossil fuels, as a transitional fuel.
Cyprus is reliant on heavy fuel oil and diesel imports for its electricity needs and spends over 8% of its GDP to cover the costs. However, the country has embarked on a plan to import LNG for power generation by end of 2022 over a 20 to 30-year period so that it can reduce carbon emissions in response to EU targets, and until it can exploit its own gas reserves. The EU agreed in January 2018 to partially fund the cost to build infrastructure at Vassilikos for this purpose to the tune of €101.5 million, constituting about 40% of the eligible amount. The rest of the financing comes from the European Investment Bank and the European Bank for Reconstruction and Development.
The Natural Gas Public Company (DEFA), as the sole importer and distributor of natural gas on the island, announced tenders in 2018 for the construction of the required infrastructure at Vassilikos. This was successful and in December 2019 DEFA signed a landmark deal with a Chinese-led consortium to build a €290 million LNG import terminal at Vassilikos. Construction was supposed to start in 2020, but the project has experienced severe delays. This was followed by a separate tender for the procurement of LNG with 23 companies expressing interest to participate, of which five bidders qualified for the Master Sales Agreement (MSA) award process. Cyprus intends to import approximately 0.5 billion cubic metres (bcm) through Gas Sale Purchase Agreements (GSPAs) for three to four years, with the option to purchase LNG from SPOT markets – markets where commodities are traded for immediate delivery. Progressively, the project will include the introduction and use of natural gas by the transport, industry and energy sectors in Cyprus.
Over the last several years, solar energy projects have become a thriving segment for Cyprus. The European Bank for Reconstruction and Development (EBRD) alone has financed five solar parks across the island with an investment of €10.85 million to increase photovoltaic capacity in Cyprus by 12%. Scandinavian Solar Parks, a Cyprus company with Swedish investors, has established nine solar power generation parks with a capacity of around 1,300 KW of energy. Local Cyfield runs a 3 MW PV park in Ayios Ioannis, while the Electricity Authority of Cyprus (EAC) operates its own PV park in Tseri with a nominal capacity of 3 MWp, generating some 5,000 MWh per year and avoiding 3,600 tonnes of carbon dioxide emissions per year. The state power company also has an ambitious project planned to self-finance and operate a 20 MW photovoltaic (PV) power station inside the Sovereign Base Area (SBA) of Akrotiri. In addition, a solar field on the island’s southern coast in Pentakomo aims not only to generate electricity but to provide fresh water by powering energy intensive desalination plants. The research facility is a result of a partnership between the Commonwealth Scientific and Industrial Research Organisation (CSIRO) and the Cyprus Institute (CyI), which is pioneering research in renewable energy systems.
These are all positive developments, but there continues to be untapped potential in terms of renewable energy production, and international interest in developing the sector in Cyprus is expected to increase considerably in the coming years. This investment is also crucial in order for Cyprus to achieve its targets – and further open up the field for companies with expertise in renewables.
Cyprus’ largest PV park, an 8 MW facility, started subsidy-free operations in February 2020. This was developed by the Vassiliko Cement Works Company Ltd to supply around 10% of the annual electricity needs of its cement factory. Under subsidy-free rules, the power will be bought by the EAC at a ‘cost-avoidance rate’, based on the average price it would have paid if the electricity had come from fossil fuels.
These developments have also prompted the EAC to say that the Electricity Authority is ready to move into a new energy era with the use of natural gas and renewable energy sources, confirming that when natural gas comes to Cyprus, the company will be ready – underlining that EAC’s longer term vision is a green energy future.
Innovation in Energy Storage
A limitation in realising the full solar power potential of the island is lack of electricity storage. There is a drive to increase use of battery systems, to store excess energy and create a ‘powerbank’. The first energy storage system, 30 kW/50 kWh, was connected to the electricity system in Nicosia in 2018. Cyprus became the testing ground for an innovative community project delivered by a German electric utility company Autarsys, where 30 kW/50 kWh was connected to a conventional distribution substation in Nicosia. The project provided the opportunity to interact with real battery systems and gather knowledge about their operation, branding the efforts as a success. State-of-the-art high-voltage lithium-ion batteries were used, and the battery system provided services to the distribution network – such as power balancing, network and frequency support – as well as essential services that stabilise and protect the seamless operation of the power network. The project received funding from the European Union’s Interreg Mediterranean research and innovation programme under the project StoRES.
Another innovative EU project, also under the StoRES initiative, involving Cyprus, Greece, Italy, Spain and Portugal is supporting the development of optimal policy for the effective integration of energy storage systems. It aims to boost photovoltaic (PV) self-consumption in the Mediterranean region, while solving market, technical, grid and tariff issues without compromising grid stability and reliability. Meanwhile, the University of Cyprus (UCY) is developing a 10 MWp photovoltaic park inside the United Nations buffer zone in Nicosia, supported by European funds. The first stage of the project will include 5 MWp of PV capacity with 2.35 MWh of battery storage, with plans to conduct testing for a blockchain program.
In July 2020, Alfa Mediterranean Enterprises signed the contract with the government to build its CY CSPc EOS Green Energy project, the first concentrated solar power (CSP) plant, with storage, in Cyprus. It will have 50 MW capacity and will be installed in Alassa near Limassol. The European Investment Bank (EIB) is financing the project, which is also backed by EU’s NER300 programme.
Academia Cooperating with Industry
The University of Cyprus (UCY) is set to construct its second solar panel park ‘Apollon’ with assistance from the EAC to establish UCY as completely energy self-sufficient. Set to become the island’s first ‘green area’, the photovoltaic park will have a peak output of 10 MW coupled with battery storage of 2 MWh capacity, making it the island’s largest self-sufficient renewable energy facility. The University already covers around 15% of its electricity needs through photovoltaics with around 400 kWp already installed on a number of university buildings and the ‘Phaethon’ PV park made up of 1,645 solar panels with the capacity to produce 632,000 kWh of electric energy annually.
Central to this flagship project is the work of the University’s FOSS Research Centre for Sustainable Energy, which carries out cutting-edge research in the field of renewable sources of energy, with emphasis on solar energy, smart grids, smart buildings, grid integration and enabling technologies. FOSS has been highly successful in competing for funds, so far securing €16 million from more than 50 EU, national and industrial-funded projects. Well-known international players in the field of energy such as Honeywell, Hanwa Q Cells, Gantner Instruments, and IBM amongst other leading international brands are already collaborating with FOSS and are testing their products in Cyprus.
FOSS strives to promote cooperation between academia, industry and business sectors, as well as contributing to the transfer of knowledge from advanced European clusters to the region. A key aim is to make Cyprus a hub for solar innovation, technology transfer, industry start-ups and job creation where ideas can grow and achieve their full potential.
Liberalising the Electricity Market
Currently, Cyprus is in a transitional step before full electricity market liberalisation, which is being driven by the binding timetable of the Cyprus Energy Regulatory Authority (CERA) to ensure the full opening up of the energy market and granting consumers the right to choose their own supplier.
CERA’s proposition is a ‘net pool’ model, where the operations of the state power company, EAC, are unbundled and the production and supply operations separated. EAC production would then enter into bilateral agreements with suppliers for the sale of energy at regulated prices. CERA foresees establishing an electricity exchange where suppliers’ bids for quantities of electricity will be updated every half hour. The exchange will match supply and demand and fix the price for a contract. This will be operated by the Transmission System Operator (TSO). The target date to achieve full electricity market liberalisation is expected in late 2022, a move which will further open up the market for renewables, clean energy and lower prices.
Cyprus will also be providing smart electricity meters to 400,000 consumers by 2025, replacing conventional ones. This is expected to become an important energy-saving tool that provides detailed information on how they consume electricity, helping consumers enjoy significant economic benefits in the process.
With new investment and projects in the pipeline, along with a government determined to develop renewable solutions, Cyprus can truly harness its natural potential and become far more energy efficient in the years to come. Another economic benefit from high RES penetration is that according to estimates renewables have the potential to create between 11,000 and 22,000 jobs in Cyprus by 2030. This is a significant number of new jobs for Cyprus and would be a sign of a thriving new industry on the island with multiple positive knock-on effects in the economy. Cyprus Energy Minister Natasa Pilides stated in 2021 that legislative reforms and actions are in progress. These, along with the successful implementation of various funding programmes, the introduction of natural gas in Cyprus’ energy mix, as well as plans for storage of energy and interconnectors are central to the island’s efforts to comply with European clean energy targets. 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 these targets.
For more information, contact Cyprus' investment promotion agency, Invest Cyprus.
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