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EAC hikes: a perfect storm

ΑΗΚ ΣΥΓΚΕΝΤΡΩΣΗ ΠΡΟΣΩΠΙΚΟΥ

Electricity prices will not be coming down for the foreseeable future

By Elias Hazou

Electricity prices will not be coming down for the foreseeable future due to a perfect storm of confluences that will ensure consumers, with the resulting knock-on effects on goods and services, will be hit hard in their pockets this coming winter in almost every respect.

The hike, that people will see on their bills is a combination of higher global fuel prices, the axing of the 2020 pandemic discount, and most of all, massive EU emissions charges, which have more than doubled.

The Electricity Authority of Cyprus (EAC) says it has no leeway to reduce its utility bills at the moment – but it hopes, in general, that electricity prices can come down with the transition from liquid fuels to natural gas for power generation. This however, at a minimum, is almost two years away.

It’s the familiar refrain from years past where the state-run power company and the government – i.e. the state versus the state – play a shadow blame game even as consumers fork out more and more to keep cool or keep warm.

The same talking point got rolled out recently, after the news that electricity bills for last month would see a 38 per cent hike compared to August a year ago.

Admittedly the steep rise was partly due to the scrapping now of a 10 per cent discount – in force from April to September 2020 providing households some relief amid the coronavirus situation – but that still works out to a net 28 per cent increase.

Quick on the ball, the EAC attributed the swelling utility bills to the fact that fuel prices are bouncing back from the historic lows of 2020. Invoices today, the company said, are at the same levels as in 2018 and 2019.

The other key reason cited, related to the substantial rise in the price of greenhouse gas emissions allowances.

The EAC went on to add that emissions would be cut by about 25 per cent with the use of natural gas plus more renewable energy.

Small consolation – the earliest date for the use of natural gas in power generation in Cyprus looks like 2023.

To be fair, it’s easy to bash on the EAC whenever prices go up. So the Sunday Mail sought some data from the power company to try and find whether its narrative holds up. Broadly speaking, it does – but caveats apply.

From the data supplied by the EAC, the average annual price per kilowatt-hour in the period 2017-2020 went as follows: 14.121 cents; 16.015 cents; 16.893 cents; and 14.420 cents. The latter number pertains to 2020.

The figures exclude VAT and the Renewable Energy Sources (RES) charge, which is a fixed 0.5 cent per kWh.

For comparison, the average price for August 2021 (domestic use tariff, again excluding VAT and the RES charge) stood at 17.6 cents per kWh – higher than 2018 and 2019, albeit slightly.

What of the emissions allowances?

In 2017 the EAC paid €12.2 million for these allowances. This skyrocketed the next year to €38 million, and rose to €67 million in 2019, and €74 million in 2020.

According to the company, two things are occurring simultaneously; as of January 2020, the EU has terminated access to free allowances, meaning all greenhouse gas emissions carry a price tag; and the price of the allowances has steadily risen.

For example, an allowance that cost €6 in 2013 went for €25 in 2020.

During the current timeframe, EAC spokesperson Christina Papadopoulou said, prices have more than doubled – they’ve just paid €60 per allowance for the month of September.

A look at the company’s annual electricity generation – likewise over the last four years – confirms that the issue lies with the price of the emissions allowance.

For example, during 2017 the EAC generated 4.56 million megawatt-hours; 4.54 million megawatt hours in 2018; 4.62 million megawatt hours in 2019; and 4.25 million megawatt hours in 2020.

“Unfortunately for consumers,” commented energy analyst Charles Ellinas, “the explanation provided by the EAC for the 38 per cent rise in the electricity price at the end of August is based on real increases in the price of oil and emission allowances. The price of Brent crude was $72.5 a barrel on 1 September, while exactly a year ago it was $46 a barrel. Also over the same period the price of EU emission allowances more than doubled, and is still rising.”

But he said from his own analysis, comparing the present time to the pre-Covid period, the biggest change lies not in the oil price but in the price of EU emissions allowances (EUAs).

In 2019, when the EAC paid €67 million for EUAs, that accounted for about 8.6 per cent of total costs.

“By September 1, 2021 the EUA increased to €60 per tonne. As a result the EUA cost to EAC in 2021 is likely to exceed €125 million, comprising about 15 per cent of total costs, even after allowing for the increase in the oil price over the same period. All of this is passed onto the consumer.”

But the EAC’s default talking point of relying on natural gas to drive prices down, leaves a lot to be desired, opines Ellinas:

“Sadly, without a massive increase in renewables this will get substantially worse. The import of LNG on its own will not be enough. By the time gas becomes available to the EAC, its benefit will be eroded particularly as a result of the coming changes to EU’s climate change targets and the EU emissions trading system, announced in July. These changes are already driving the price of EUAs to new highs, now expected to exceed €100/tonne by 2030.”

The answer, according to the analyst, “lies in a complete change in direction, with emphasis on fully embracing renewables. The measures announced so far are only tinkering with the issue. Cyprus should aim to produce at least 50 per cent of its electricity from renewables by 2030. The technology needed to do so is available. Incidentally, Greece’s target is 61 per cent. If Greece can do it, what is preventing us?”

Last year Cyprus generated about 11 per cent of its electricity from renewables, while the EU average was 20 per cent.

“Expressed in terms of purchasing power parity, Cyprus electricity is now one of the most expensive in Europe. Fully embracing renewables can bring this tumbling down,” said Ellinas.

Earlier this week, the EAC said its development plans include large renewable energy projects. Work will start soon on the construction of the photo-voltaic park in Akrotiri which will provide 12 MW of clean energy in about two years, while a time-consuming process to license two large photo-voltaic parks in cooperation with the archbishopric in the Ahera area is underway. These two are expected to add 66 MW.

Asked by the Sunday Mail if the EAC has any scope to trim down its rates, Papadopoulou said no – the corporation’s balance sheet for the year is already set and approved by regulators.

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