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Cyprus

Viability of renewable energy fund under threat

By Elias Hazou

Lawmakers have preliminarily given the nod to the Renewable Energy Sources (RES) budget but have voiced concerns over the fund’s long-term viability.

MPs will study the 2014 RES budget submitted by the energy ministry yesterday. The budget is to be put to a vote at the plenum next week, and is likely to pass.

However, at a joint session of the House finance and commerce committees, MPs cited fears that within the space of three years it may not be possible to balance the RES budget.

For 2014, expenditures are estimated at €38m, of which €23m will be covered by the special RES fee of €0.50 per kilowatt-hour (kWh) charged to consumers. The remaining €15m is to be essentially subsidised through the fund’s surplus, which currently stands at €22.5m.

Following a briefing by energy ministry officials, finance committee chairman Nicholas Papadopoulos (DIKO) said that in 2015 the fund’s revenues are expected to be €20.2m and expenditures €23m; and €20m and €22m, respectively, the following year – meaning that in three years’ time the fund’s surplus will have vanished.
Thereafter, the fund will in all likelihood operate on a deficit.

“For the next 20 years we will be tying down consumers to prohibitive tariffs,” DISY MP Lefteris Christoforou said.

The fund has prior financing obligations for RES projects, and as the electricity utility’s cost of production drops, the financing burden shifts to the RES fund. Currently the EAC’s production cost is 11.5 cents per kWh, whereas overall production costs for RES are 33 cents per kWh. The difference will have to be paid out of the RES fund.

As AKEL MP Costas Costa explained to the Cyprus Mail , the government – and ultimately consumers – are “stuck” with the old contracts awarded to wind farms and photovoltaic parks.

The contracts were struck when the avoidance cost was much higher; it has since dropped considerably. For example, investors in wind farms had secured 24 cents per kWh, while photovoltaic parks (not net metering) got a guaranteed price of 31 cents per kWh.

The long-term contracts did not include a tariff renegotiation clause, so the government still has to pay the agreed price despite electricity production costs going down since.
“We’re paying for mistakes of the past,” Costa said.

Indicatively, it’s understood that out of the entire RES budget for this year, the lion’s share – some €22m – is tied to such old contracts. And €12m has been allocated to wind farms alone.

At least MPs got reassurances that domestic net metering systems are not being scaled back, as it initially appeared.

For 2014, the energy ministry has allocated 15MW to household net metering, the same capacity as last year. In addition, 5MW goes to net metering for small businesses (these do not sell the electricity to the power utility), and another 5MW to small-scale photovoltaic parks (20kW to 150kW capacity range).

A new net metering scheme is to be launched this week, with the government accepting applications as of Thursday, MPs were told.

However the amount set aside this year for financially vulnerable households has been slashed to €1m, from €4m allocated to the first net metering scheme in 2013.

Last year’s scheme subsidised vulnerable households to the tune of €900 each. Some 2,000 households were targeted, but only 400 applied.

The reduction in the amount for 2014 took into account this poor response as well as the fact that already half the year has gone by.

Meanwhile it’s as yet unclear whether the licenses for two solar thermal parks will be granted. The energy regulator is still considering its position.

Recently the government informed the Cyprus Energy Regulatory Authority (CERA) that it had revised its RES plan, by downgrading the total capacity of PV systems for homes and small businesses to 13.5 megawatts (MW) from about 30MW as initially planned for 2014.

The reason cited for the policy change was a recent decision by the cabinet approving the construction of two solar thermal parks of a combined capacity of 100MW. It was feared that the increased penetration of solar thermal energy would crowd out domestic net metering systems.

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