Energy: RES

Investing in RES

With new investment and projects in the pipeline, along with a government determined to develop renewable solutions, Cyprus can finally harness its natural potential to become far more energy efficient.

Cyprus has prioritised work for both the reduction of energy costs and the further exploitation of the national potential of renewable energy and energy efficiency. In this context, based on the ambitious EU reform packages REPowerEU and Fit-for-55, the government has intensified its efforts to revise its National Energy and Climate Plan (NECP) for the period 2021-2030, the final version of which is due to be submitted to the European Commission by the end of June 2024. The revised plan will aim to provide a detailed map of the country’s transition to a more competitive, lower greenhouse gas emissions energy system, by establishing adequate policies and measures to enable Cyprus to successfully meet its new, more ambitious energy objectives for 2030. 

According to the €1.3 billion roadmap, Cyprus plans to reduce greenhouse gases by an ambitious 32%. Cyprus’ Energy Minister George Papanastasiou has confirmed that as much as 45% of the €1.23 billion investments of the Recovery and Resilience Plan (RRP), approved by the European Commission, will be devoted to measures to support Cyprus’ transition to a green economy.

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 has been updated to achieve 31%-34%% 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. 

Recovery and Resilience Plan

Recovery and Resilience Plan (RRP) funds are being allocated to promote the transition to green energy through RES, charging points for electric and plug-in hybrid vehicles, smart metres and energy efficiency measures in households, rooftop solar for all, Small and Medium Sized Enterprises (SMEs) and governmental and municipal buildings.

The majority of the remaining funds 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, is being set up with completion expected by the end of 2024. 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 were 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 is providing financial support to 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. However, with inflation and the rise in fuel prices the implementation of the ‘green tax’ has been delayed until early 2024.

Cyprus has announced a plan to upgrade its national grid system to promote higher RES penetration and reliability. 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. In addition, the Energy Ministry has announced a plan for the installation of central energy storage systems and has allocated a budget of €40 million for that purpose. In addition, the Great Sea Interconnector project (formerly known as the EuroAsia Interconnector) is now progressing to construction and is expected to 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. Plans are afoot to achieve that.

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 is implementing a well-advanced plan to import LNG for power generation by end of 2024 over a 20-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 Vasilikos 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, is managing the construction of the required LNG import infrastructure at Vasilikos by a Chinese-led consortium. The project experienced severe delays, some of them caused by the Covid-19 pandemic, but DEFA has confirmed that the project will be completed by the end of 2024. Following the launch of a separate tender for the procurement of LNG, five bidders were selected 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), with the option to purchase LNG from SPOT markets – markets where commodities are traded for immediate delivery. Once completed, progressively, the project will include the introduction and use of natural gas by the transport, industry, and energy sectors in Cyprus. 

Focus on Solar

Over the last several years, solar energy projects have become a thriving segment for Cyprus. The International Renewable Energy Agency (IRENA) has been working with Cyprus assessing the country’s potential in its transition to renewable energy and noted that Cyprus has the potential to meet 40% of its energy demand through solar power by 2030. 

There was significant progress in 2023. Solar photovoltaic (PV) installation installed capacity increased by almost 40%, from 342 MW in 2023 to 476 MW by April 2023. This is about 32% of conventional power installed capacity, quite significant for a small country like Cyprus. And there is huge potential. The target is to achieve 812 MW solar PV capacity by 2030.

The latest scheme, dubbed ‘photovoltaics for all’, received the green light from Cyprus cabinet of ministers in January 2024. The government has set aside an initial budget of €30 million to fund it. The Minister of Energy said that for those opting to join, the solar panels will be installed, inspected and connected to the grid within the space of two-and-a-half months. A typical installation will involve 4.2 kW of power and an annual consumption of 6,000 kWh. It could ultimately cover about 30,000 households. There is already a great deal of interest from the part of the public.

Cyprus Electricity Authority’s (EAC) latest 12 MW PV park was inaugurated in January 2024, underlining the company’s longer-term vision to transit into a green energy future.

Another important development in 2023 was the issue of Cyprus’ first ‘green bond’ which will be listed on the Cyprus Stock Exchange by Scandinavian Solar Parks, seeking to raise €5 million with maturity in January 2028. Scandinavian Solar Parks is an independent power producer that has built, operates and maintains nine solar parks in Cyprus. Through this, new opportunities emerge for retail and institutional investors to diversify in a low-risk domestic industry with a sound track record.

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. 

Solving the Energy Storage Issue

A limitation in realising the full solar power potential of the island is lack of electricity storage. As a result of it, the volume of excess clean power wasted daily on the island rocketed in 2023, with clean energy curtailment reaching 70% on some days between January 1 and the end of April. Cyprus’ grid operator curtailed a daily average of 21% of the clean power generated during the first four months of 2023, up from a daily average of 3.35% during the same period in 2022.

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. 

In 2023, the Energy Ministry released a general policy framework for energy storage systems. Following this, Energy Minister George Papanastasiou announced that Cyprus secured a €40 million grant from EU’s Just Transition Fund for the financing of centralized energy storage systems on the island. The preparatory work for this project has been completed and is being submitted to the European Commission for approval. The Minister hopes to launch it this year and expects completion within 18 to 24 months after receiving the required approvals.

Innovation Leading the Way 

The University of Cyprus (UCY) is set to realise a 10 MW PV park with added battery storage to achieve energy independence. The scheme was announced in November 2023. The Apollo PV facility, to be completed in ten months, initially targets 5 MW power and 2.35 MWh storage capacity with a €6 million budget, doubling later to meet the campus’s entire energy needs. 

Set to become the island’s first ‘green area’, the photovoltaic park will be the island’s largest self-sufficient renewable energy facility. The University already covers around 15% of its electricity needs through PV power 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. 

Another key player in Cyprus’ RES research is Cyprus Institute, an internationally recognised research institution. Its PROTEAS Solar Research Facility, that is part of the EU-SOLARIS and Solar Facilities for the European Research Area (SFERA), is pursuing research and development of solar technologies. Located adjacent to the sea on the south coast of Cyprus near Limassol, it provides an optimal facility to develop and test in situ these technologies, optimised for an island-coastal environment. The facility is the largest research infrastructure in Cyprus and offers laboratories and supportive infrastructure for research, development and testing of technologies related to Concentrated Solar Power (CSP), Solar Thermal Energy (STE) and thermal Desalination of Sea Water (DSW).

Electricity Market Liberalisation

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). CERA’s target date to achieve full electricity market liberalisation is autumn 2025. This has been a moving target, but when achieved it is hoped that it 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.

Climate and Zero-Carbon Goals

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. The plans and targets to do so are embodied in in the updated ‘Consolidated National Plan of Cyprus on Energy and Climate’ submitted to the European Commission in July 2023.

Apart from eventually contributing to lower electricity prices, an 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. The required 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 interconnection 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. 

January 2024

For more information, contact Cyprus' investment promotion agency, Invest Cyprus.

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