Cyprus desperately needs some solar energy storage to be deployed, but here’s why the energy ministry’s new scheme will not work

If you’re lucky enough to have rooftop solar, check your energy app one of these days and you might be surprised to see ‘data interrupted’ or some other error instead of your usual solar production stats.

What’s happening here is that the system operator is forcibly switching your PV system off. This, as we’ve written about previously, is to protect the network, which as of today has no way of absorbing excess power and is plagued by old, inflexible generation equipment at the island’s oil burning power stations. 

Curtailment has for some time now been affecting utility-scale solar farms (the system operator generally curtails them first). Now, however, the problem has gotten so bad that almost all utility-scale PV is curtailed and there is still the need to curtail more power, meaning households are increasingly affected. 

Thanks to data from CyprusGrid, we can see that last January, 15.9 per cent of solar power was curtailed – none of this from households. This year, curtailment in January jumped to 47.1 per cent, with a hefty 894MWh coming from residential solar – enough to power about 150 Cypriot households for an entire year.  

What’s more, the instrument applied to households is frustratingly blunt. Say you’re generating 5kW but using 7kW, resulting in a net consumption. Here, the system operator is blind to the balance, lacking the type of smart metering infrastructure necessary to facilitate a more measured approach to curtailment, and having no option but to cut your entire production. 

So what now?

Cyprus desperately needs some energy storage to be deployed. Luckily, the energy ministry has a plan!

Last week, applications opened for Cyprus’ first energy storage subsidy scheme. The scheme, funded with €35 million from the EU joint transition fund, is aiming to add 350MWh of batteries to existing solar, wind & biomass. 

But will it actually work?

The first surprise is that the scheme is only available to renewables currently selling their power through a Feed-in-Tariff (FiT). In other words, only those contracted with EAC. 

This immediately excludes the 294MW of solar capacity that operates in what is known as the ‘transitional market’. This was the first step towards energy market liberalisation, where generators for the last five years have been allowed to contract power purchase agreements (PPAs) with a selection of newly licensed private suppliers.

These sites and their investors have suffered just as badly from curtailment as the EAC-contracted FiT sites, but they are excluded from subsidy eligibility nonetheless. Perhaps for the sin of believing in free markets.

For the 163MW of PV capacity contracted directly with EAC, the subsidy provides for up to €100,000 per MWh of installed capacity. 

Say a 2MW operational solar farm wants to install a battery. Typically, this would have around the same power as the solar system (2 MW) and be able to discharge that over a few hours. The subsidy provides for up to three-hour systems, so here we’d be looking at a 2MW, 6MWh system. You can think of this like engine power vs fuel tank capacity. 

Based on some recently obtained quotations, overall cost for this system would be around €1.8m, of which €600,000 would be covered by the subsidy. Sounds good, but things start to fall apart when we look at how the system is supposed to actually generate revenue. 

The proposal would see EAC control and operate any systems built.

It’s critical to point out here that, still lacking a liberalised energy market that might allow for a tradable intraday price spread, the only possible incentive for installing these systems is to limit curtailment from the accompanying PV. 

In other words, investors must contemplate incurring the capital expenditure to install these systems alongside their existing PV plants for the sole purpose of continuing to realise revenues that they would initially expected when they financed and built their projects. It’s a tough pill to swallow.

So, is curtailment bad enough?

We can actually do some calculations here to estimate how much curtailment is required in order for a battery investment to make sense. 

Assuming the system cycles (charges and discharges) once per day, we get a levelised cost of storage (LCOS) on discharge, after the subsidy, of around €0.113 per kWh. LCOS tells us the real cost of each unit of energy a battery stores and delivers over its lifetime, making it a useful metric for assessing financial viability. 

This suggests that, if the battery can earn more than €0.113 per kWh that it exports, then it will be viable. 

The actual ‘earnings’ are more like ‘savings’, resulting from the solar PV system not being curtailed. Taking solar systems on a Feed-in-tariff of €0.166 per kWh or less (70 per cent of the battery subsidy is allocated for plants in this category), we can see that the effective ‘saving’ would be €0.166 per kWh (resulting from a unit of generated power either being exported at the agreed FiT price, or curtailed and lost forever).

As this ‘saving’ is actually a bit higher than the LCOS, we are hypothetically in the green if the battery cycles once per day. In fact, we can calculate that it would need to achieve exactly 0.68 cycles per day on average to break even. 

Looking at some curtailment data for a 2MW solar farm, we find that average daily curtailment is around 2.3MWh, meaning our battery system would cycle about 0.46 times on average, well below the 0.68 breakeven rate. 

This may sound complicated, but the simple deduction is that, even with curtailment as bad as it is today, the subsidy alone is not enough to make battery storage a worthwhile investment. 

In fact, if the ministry’s figures are even remotely similar to what we’re modelling here, the logical deduction is that they know (and expect the market to anticipate) that PV curtailments will get considerably worse, jeopardising the solvency of operating projects.

The government is under a lot of pressure to ‘fix’ high energy prices and rapidly worsening curtailment. Their recently proposed single buyer model seems to indicate an intention to continue business-as-usual on the operational side while compelling private investors to foot the bill.

It appears, while masquerading as a helpful subsidy, this is much of the same approach. Batteries remain unviable under current market design. Instead of reforming it (as has been promised for over a decade now), their plan is to hold PV investors over the barrel of potentially crippling curtailment, forcing them to put their hands in their pockets again just to stay afloat. 

Go battery, or go broke. 

A more detailed analysis of the subsidy scheme and economics is available here. 

Karim Arnous is the founder and managing director of Neura Energy, an energy tech startup with a presence across Europe