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Cyprus

‘Green tax’ options under discussion at House committee

By Elias Hazou

The government on Tuesday unveiled details of a mooted ‘green tax’ designed to keep afloat the deficit-ridden Renewable Energy Sources (RES) fund.

In a bill shown to MPs on Tuesday, the energy minister would be able to issue decrees, applying a mathematical formula that calculates the tax on consumers and RES producers.

Lawmakers panned the proposal, saying the move would bypass parliament and grant the minister excessive powers.

At the House commerce committee, a senior energy ministry official presented three alternative scenarios under consideration.

The first distributes the tax burden equally among consumers and RES companies. For the average household, it would entail an annual increase of €5.13 on bills. Commercial consumers would contribute €29, industrial consumers about €100, farmers €13.5, and a €12 hike would be seen on street lighting.

The second scenario sees consumers covering 60 per cent of the new tax, 40 per cent coming from RES producers, with the average household paying an extra €6.13 a year.

Finally, under a 70-30 split, the annual increase for an average household would come to €7.17.

According to commerce committee chairman Zacharias Zachariou, for this year the RES fund has projected revenues of €21m and expenditures of €34.7m. The fund’s reserves currently stand at €15m.

Officials estimate that for the RES fund to be solvent, the production cost – known also as the avoidance cost – must be 11 cents per kWh. But currently it stands at 7.4 cents per kWh.
So far, the RES fund is funded through a fixed fee of €0.005 per kWh on utility bills.

Under the government’s new proposal, the energy ministry would have the right to adjust the fee according to the fund’s needs.

The change is deemed necessary since the RES fund is deemed non-viable in the long run, for two reasons: a sharp decline in electricity consumption in the last two years, negatively affecting proceeds, and the decrease of the EAC’s avoidance (production) costs due to falling fuel prices.

The fund has prior financing obligations for RES projects (wind farms, photovoltaic parks) and as the electricity utility’s cost of production drops, the financing burden shifts to the RES fund.

As things stand, the difference has to be paid by consumers, because the other side of the equation – RES producers and operators – is inflexible.

The government – and ultimately consumers – are stuck with the old contracts awarded to wind farms and photovoltaic parks.

The contracts were struck when the production cost was much higher. These long-term agreements did not include a tariff renegotiation clause, so the government still has to pay the agreed price despite electricity production costs going down.

To placate the RES producers, the energy ministry now proposes a trade-off: any tax they would be called to pay would be compensated through a contract extension.

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