It is the key measure needed to reduce reliance on pricey fossil-fuels

Increased grid flexibility is critical if we are to produce more than 25 per cent of our electricity from variable renewable energy sources (RES). Smarter, more flexible, electric grids not only can cut energy losses, but they also are critical to integrating variable renewables. ‘Flexibility’ is the ability of an electricity system and grid to adjust to the variability of RES generation and consumption patterns, in order to cope with demand and supply fluctuations over both short and long timeframes.

The European energy commissioner, Kadri Simson, identified grid flexibility as the key measure needed to “reduce reliance on pricey fossil-fuels.” It has been included in EU’s proposal to reform the rules for ‘Electricity Market Design’, issued on March 14, and in EU’s proposed ‘Net-Zero Industry Act,’ that aims to aims to promote the use of clean technologies within the EU and equip it for the clean-energy transition.

Maroš Šefčovič, the European Commission vice-president in charge of foresight, went further. He said power grid flexibility is vital to “avoid blackouts,” adding that “increased flexibility will be key to adapt our electricity system further towards variable and distributed renewable electricity generation.”

The proposed reforms task the regulatory authority to “monitor the removal of unjustified obstacles to and restrictions on the development of consumption of self-generated electricity and citizen energy communities, including related to the connection of flexible distributed energy generation within a reasonable time.”

It puts the onus on the regulatory authority to “evaluate the need for flexibility to integrate electricity generated from RES in the electricity system and consider, in particular, the potential of demand-side response and storage to fulfil this need, both at transmission and distribution levels.” The importance attached to this by the European Commission (EC) is demonstrated by the fact that the word ‘flexibility’ appears 55 times in the 49-page proposal.

The EC hopes that the reforms will “accelerate a surge in RES uptake and the phase-out of gas, make consumer bills less dependent on volatile fossil-fuel prices, better protect consumers from future price spikes and potential market manipulation, and make EU’s industry clean and more competitive.”

As the share of renewable electricity increases, the reforms aim to reduce the impact of fossil-fuels on consumer electricity bills, as well as ensure that these reflect the lower cost of RES. It is also expected to boost open and fair competition in the European energy markets by enhancing market and price-setting transparency and integrity.

In order to make sure this is achieved, the reforms will strengthen the role of ACER, the EU ‘Agency for the Cooperation of Energy Regulators’, “in investigations of potential market abuse cases.” The EC hopes this will step-up the protection of EU consumers and industry against any such abuse.

Cyprus should heed these reforms. Within the EU, natural gas has a limited shelf-life. It is already diminishing and, according to the RePowerEU strategy, by 2030 it will be even less. The future is renewables and green energy. The new climate change targets being adopted by the EU, which Cyprus will have to implement, push energy use in that direction.

By 2030, the EU aims to reduce greenhouse gas emissions by at least 55 per cent compared to 1990 levels and source 42.5 per cent of its energy from RES, as well as reduce final energy consumption by 11.7 per cent from current levels. The EU also agreed that sectors covered by the Emissions Trading System (ETS), such as EAC, will have to cut their emissions by 62 per cent below 2005 levels by 2030 – a significant increase on the 43 per cent target applicable previously. Replacing oil by natural gas in power generation will help, but the main thrust in achieving these targets can only come from massively increasing RES electricity in comparison to current levels.

What is Cyprus doing?

Earlier this week, the minister of energy, Giorgos Papanastasiou, announced a number of initiatives that, if and when implemented, could move the dial in the right direction.

First is the establishment of a Single Service (one-stop-shop) to expedite faster licensing of RES projects. The minister also announced a grant of €80 million for the promotion of large energy storage systems, as well as €100 million for investments in the electricity network, to address issues related to its safe operation. In addition, a €35 million fund has been established for the installation of smart meters in homes.

Rooftop solar panels and electric cars are expected to increase significantly in the coming years, all requiring smart meters installed in people’s homes.

The measures announced by the minister could certainly help, but more is needed:

  • A detailed 5-year energy action plan is needed to act as a blue-print to ensure coherent policies, compliance with EU climate targets and policies and project coordination. This should be based on a study to define what is needed, in view of EC’s new proposals and climate targets, to be led by the energy regulator
  • Immediate introduction of transparent, competitive, bidding for RES and green energy projects
  • Completion of energy market reforms, including the much-delayed market liberalization
  • A detailed audit of the LNG import project to assess the reasons for the delay and propose measures to expedite its completion. This should include the placement of LNG purchase contracts. It should be carried-out independently of those who are already involved in the project, preferably by the auditor-general.

Import of natural gas is not going to be a panacea. Price forecasts show prices rising to over €70/MWh by the end of 2023 and remaining high until 2026, mostly because of tight supplies and competition from a growing Chinese economy. This price is equivalent to $130/boe (barrel of oil equivalent). Over the same period the oil price is expected to remain at around $80-$90/barrel. As a result, any benefit that might have accrued from switching to gas and lower emissions is likely to be eroded due to the high gas price.

If Cyprus is to significantly reduce emissions, achieve the new climate targets agreed by the EU, and make energy more affordable, priority must be given to expanding RES and especially rooftop solar. As I said in earlier articles, Cyprus must increase uptake of renewables four-fold in comparison to today’s levels, massively improve energy efficiency and switch power generation from oil to natural gas as soon as possible.

That requires urgent upgrading of the grid, battery storage and smart meters so that it can accept a higher integration of RES without the risk of blackouts. As and when the Euro-Asia electricity interconnector is ready, it will also contribute to this process.

Dr Charles Ellinas is a Senior Fellow at the Global Energy Centre, Atlantic Council