By Dr Andreas Procopiou

The launch of Cyprus’ Competitive Electricity Market (CEM) on October 1, 2025, marked a historic milestone for the island’s energy system. For the first time, electricity is traded through transparent bidding and clearing mechanisms, designed to reveal real costs, improve efficiency and foster competition at the retail level.

According to CyprusGrid analysis, the first month of operation unfolded smoothly on a technical level, with no major disruptions to the clearing or bidding systems.

However, beneath this stable surface, the market remains highly concentrated and shallow in liquidity, constraining the level of competition and limiting the scope for differentiated pricing in the retail sector.

Two-speed market dynamics

The weighted average Market Clearing Price (MCP) in the Day-Ahead Market (DAM) settled at €162.7/MWh. Around 5 per cent of all trading periods cleared at zero, while in 42 per cent of days, midday prices (11:00-14:00) dropped to or near zero, reflecting high solar output combined with limited storage or flexible demand.

Conversely, night-time prices averaged around €163/MWh, when demand relies almost entirely on conventional thermal units. The resulting pattern shows a market operating at two distinct speeds: very low prices during midday solar surplus, and significantly higher prices during night-time hours dominated by fossil generation.

Market composition: still conventional at its core

In October, about 86 per cent of all traded electricity came from conventional generation, while only 14 per cent originated from renewables. Specifically, 51 per cent of total energy was supplied by conventional units in the Day-Ahead Market, 34 per cent through the Forward Market, and the remaining 15 per cent from renewables, 7 per cent in the DAM and 8 per cent in the FM.

Despite the island’s substantial installed solar capacity, the actual absorption of renewable energy remains limited, constrained by low market liquidity, the absence of storage infrastructure, and the continued dominance of must-run conventional units, which reduce the system’s flexibility to integrate variable renewable output.

The ‘must-run’ effect: stability at a cost

For a typical supplier, the effective weighted cost of electricity during October reached about €171/MWh, roughly 7 per cent higher than the wholesale market average. This uplift stems from the mandatory inclusion of “must-run” conventional generation, which covered around 38 per cent of total energy volumes at an average cost near €190/MWh.

These units must remain online to provide inertia, frequency control, and reserve capacity, as Cyprus lacks storage systems, interconnections, or other technologies capable of providing these services.

The cost of this operation (while crucial for grid stability) is not recovered through a dedicated mechanism. Instead, it is socialised across suppliers, who are required to purchase their proportional share of this energy through the Forward Market.

While necessary for reliability, this structure embeds a systemic cost floor, limiting suppliers’ ability to transfer wholesale price reductions to consumers.

In other European markets, such costs are mitigated through service-based activation models, where conventional units are compensated only for specific activated ancillary services, improving both efficiency and renewable integration.

A market without storage or gas

Cyprus continues to operate with a single conventional producer, no grid-scale storage, and no gas infrastructure in operation. Without these, the system remains rigid, unable to absorb excess renewable output or respond flexibly to market price signals.

The experience of other European countries, including Greece, Ireland and Portugal, shows that newly liberalised markets typically require 18 to 30 months to develop liquidity, stability and genuine competition.

Cyprus is following the same path, but real progress will depend on how quickly storage capacity becomes operational and when natural gas finally enters the generation mix.

Outlook: from stability to efficiency

As utility-scale batteries and gas-fired generation will be gradually integrated, the market is expected to flatten its intraday price curve, reduce curtailments and lower average costs by 10-15 per cent within the next two years.

Cyprus’ Competitive Electricity Market is now operationally stable but economically constrained, a functioning framework that still requires time, transparency, and flexibility before competition can deliver its full benefits to consumers and the wider economy.

Dr Andreas Procopiou is a former Senior Research Fellow in Smart Grids at the University of Melbourne and Research Engineer at the Électricité de France R&D.

The views expressed are personal