The new targets will impact all energy sectors, including transport, heating and shipping, in addition to electricity

By Charles Ellinas

EU’s gas policies are embodied in its RePwerEU strategy: to reduce gas consumption by 30 per cent by 2030 and carry on reducing it on the way to achieve net-zero emissions by 2050.

The recently adopted ambitious climate targets to 2030 not only support this but depend on it: reduce carbon emissions by 55 per cent in comparison to 1990 levels, increase renewables share of final energy consumption to 42.5 per cent and reduce final energy consumption by 11.7 per cent. These targets cannot be achieved without reducing fossil-fuel consumption.

The new targets will impact all energy sectors, including transport, heating and shipping, in addition to electricity. The share of renewables in the latter will have to increase to 62 per cent.

Cyprus will be called to increase its own targets in its 2021-2030 National Energy and Climate Plan in response to Europe’s new targets. And, similarly to the EU, Cyprus will not be able to achieve the new targets without massively increasing renewables uptake and reducing fossil-fuel consumption.

Cyprus is currently locked in a debate around natural gas, be it imports or development of its own gasfields, initiated by the new Energy Minister George Papanastasiou. But even though this is important in terms of switching away from the use of oil in power generation, in view of EU’s energy direction the priority should be renewables.

European Commission’s (EC) suggestions to Cyprus earlier this week on energy point the way forward. I repeat these because they provide an important blueprint for development over the next few years. “To reduce dependence on fossil-fuels and to diversify the energy supply. To better exploit all the untapped potential of renewable energy production, to accelerate the development of renewable energy sources by using appropriate financial instruments and by making further investments to upgrade and modernize the electricity grid, including energy storage facilities. To accelerate the development of electrical interconnections. Expand and accelerate energy efficiency measures, also to tackle energy poverty, as well as the shift towards sustainable transport. To intensify policy efforts aimed at providing and acquiring the skills needed for the green transition.”

EU gas usage

According to Eurostat, natural gas consumption in the EU fell by 17.7 per cent in the period August 2022-April 2023, compared with the average gas consumption for the same period between 2017-2022.

Studies show that gas demand will continue declining, even if energy gets cheaper, with the EU well on the way to reduce gas and oil consumption by 30 per cent by 2030, as envisaged by RePowerEU.

Europe is on an ‘irreversible’ path away from fossil-fuels. This is what prompted Ursula von der Leyen to state in the European Parliament that the “growth model centred on fossil-fuels is simply obsolete”.

As a result, the EU does not need any new gas supplies and does not support building any new gas import infrastructure. European energy utilities are no longer entering into long-term gas supply contracts.

A study by Strategic Perspectives, published this month, showed that the push for renewables, to meet EU’s new climate targets, would mean energy bills would decrease by at least 25 per cent by 2030. As renewables take-up a greater share of electricity production, they increase the share of zero marginal cost energy and bring prices down – solar power generation, and wind, involves up-front capital investment, but few if any operating costs for generating the power. As a result, renewable electricity prices should be based on the recovery of this up-front capital plus reasonable profit. There is no justification for prices to escalate, resulting in super-profits. Accrued super-profits must be recovered by the state.

Cyprus could see similar benefits if it follows a similar route, provided renewables projects are awarded on a competitive basis.

What this means for Cyprus

Cyprus has no control over gas. LNG imports and prices are at the mercy of global markets. Due to increasing demand in Asia, forecasts show LNG prices in Europe remaining over €50/MWh (equivalent to about $75/barrel of oil) over the next few years. But right-now the price is under €25/MWh due to low demand.

Production of natural gas and transportation to the island depends on international oil and gas companies (IOCs), their commercial priorities and willingness to invest and global market prices. Whether it happens, and when, is in their hands.

What Cyprus has under its full control is energy production from renewables, of which the island in blessed in abundance. The EC strongly recommends this and will support it.

The energy minister is right when he said earlier this week that the state is at fault for high energy prices. Tying EAC’s hands, not only hasn’t worked, but could also be a factor in the high electricity prices. As I said many times, EAC should be a party to competitive bidding for new renewables generation.

The aspiration to utilise natural gas both from the gasfields within Cyprus’ EEZ and the wider region is sensible. But, while pursuing that, the emphasis and priority should be on removing all the obstacles that limit the uptake of renewables. This is where the main thrust should be, as a means of lowering electricity prices and emissions.

Rooftop solar should feature high on the list of such priorities. Cypriots have awoken to its benefits and those lucky enough to install rooftop solar have seen big reductions in their electricity bills. This should be positively encouraged and facilitated.

And finally, the EastMed

Mr Descalzi’s comments that building the EastMed gas pipeline requires Turkey’s geopolitical support are unjustifiable. This is based on the untenable Turkey-Libya Maritime MoU, that, other than Turkey and Libya, nobody else recognizes.

In any case, even though the EastMed gas pipeline continues to receive attention, it is only from politicians. Europe does not need any new gas and there is no gas to feed it in Israel. Chevron has committed to double gas exports to Egypt to 20 bcm/yr by 2027 and is considering LNG exports through an FLNG to be placed over Leviathan.

However, Mr Descalzi has touched a raw nerve. And that is Turkey’s, unjustifiable, continental shelf demands that impinge on Cyprus’ EEZ, as well as Turkish Cypriots’ demands regarding Cypriot gas, that Turkey supports. Turkey’s aggressiveness, and demonstrated readiness to pursue this through belligerent action, is seen by the IOCs, and more importantly by banks and financial institutions that will have to foot as much as 70 per cent of any gasfield development, as a geopolitical risk. Without solution of the Cyprus problem, this may impact any such development plans.

But we should be able to see how IOCs respond at the 29 May meeting organized by the minister in Nicosia. Cyprus’ energy needs a plan.

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