Worth considering an independent agency to procure low-cost electricity, storage and system services through transparent auctions

The lack of visible benefits from Cyprus’ Competitive Electricity Market has reopened debate over the single buyer model.

Under a conventional single-buyer arrangement, one body purchases electricity through tenders or long-term contracts and supplies it at a blended price. Renewable producers would compete on price, preventing low-cost solar electricity from being sold at rates linked to expensive oil-fired generation.

But returning to a compulsory single buyer would be legally and institutionally difficult. A better option may be a hybrid model: retain the EU-compatible market but establish an independent agency to procure low-cost electricity, storage and system services through transparent auctions.

Why the single-buyer model is difficult

Malta is frequently presented as the example Cyprus should follow. It has retained a substantially centralised electricity structure under derogations granted by the European Commission.

But Cyprus cannot simply copy Malta. Malta’s principal derogation dates from 2006 and reflects its particular legal and market history. Under Article 66 of EU Directive 2019/944, derogations may be granted where small connected or isolated systems face substantial operational problems.

Brussels would be unlikely to approve replacing a newly launched market with an EAC-controlled purchasing monopoly, with EAC remaining the dominant generator, network owner and default supplier. Making it the sole buyer would concentrate even more power within the incumbent, something unlikely to be approved by the European Commission.

A genuinely independent single buyer might be more defensible, but eliminating wholesale and retail competition would still conflict with the direction of EU electricity policy. Securing a derogation could take considerable time, with no certainty of success.

It would also carry economic risks. A central buyer might obtain low auction prices but still procure the wrong technologies or excessive capacity.

The hybrid alternative

Cyprus could strengthen transparency, market power controls and competition enforcement. But regulation cannot manufacture competitors in a market too small to support them. Price caps might discourage investment, while bilateral agreements may simply lock in prices marginally below EAC’s tariff.

Competitive auctions are more promising. Producers would compete for long-term contracts, with the lowest qualified bids winning. But an institution is needed to organise these auctions, sign the contracts, manage the financial flows and ensure that the benefit reaches consumers.

Cyprus could therefore establish an Independent Energy Procurement and Contracting Agency, separate from EAC generation, EAC supply, the transmission system operator and private market participants.

It would neither buy all electricity nor supply customers. It would procure renewable electricity, solar-plus-storage, dependable evening supply, battery capacity, demand response, flexibility and, if justified, strategic reserve capacity.

Using forecasts approved by Cyprus Energy Regulatory Authority (Cera), the agency would determine system requirements and conduct open, technology-neutral auctions. EAC and private companies would compete under identical rules.

A fullyimplemented hybrid model could potentially reduce electricity prices by as much as 10-15per cent compared with today’s levels. It could also deliver wider long-term benefits through greater transparency, lower investment risk, improved use of renewable electricity and stronger protection against fuel and carbonprice volatility.

Electricity would still be traded competitively

The Day-Ahead, Intraday and Balancing Markets would continue. Producers could enter commercial bilateral contracts, while suppliers would continue competing for customers. The agency would deal principally in long-term contracts rather than purchasing and dispatching every unit of electricity.

For renewable generation receiving public support, the main instrument should be a two-way contract-for-difference (CfD).

Suppose an auction established a ‘strike-price’ of 8.5 cents/kWh. The generator would continue selling into the wholesale market. If the ‘reference-price’ fell to 6 cents, the agency would pay the 2.5-cent difference. If it rose to 14.5 cents, the generator would repay 6 cents.

The producer would receive predictable revenue and cheaper financing. Consumers would be protected from excessive returns when oil or carbon prices raised wholesale prices. This is consistent with the EU’s reformed electricity market design, which promotes long-term power purchase agreements and two-way CfDs for publicly supported low-carbon generation.

Its legislation should specify that net receipts belong to consumers. They could fund electricity bill credits, lower regulated charges, support vulnerable households or investments proven to reduce future costs. Distribution must be automatic and independently audited, not absorbed into the government budget.

Existing and new projects

New projects receiving grants, guarantees, public land or other support should compete for two-way CfDs. Cyprus should no longer subsidise construction and then allow producers to retain the full oil-linked upside.

Existing projects are more difficult. Valid contracts and legitimate investor expectations must be respected. The agency could offer voluntary conversion to CfDs in exchange for longer revenue certainty, clearer curtailment compensation, access to shared storage or refinancing support.

Projects remaining outside the scheme would continue trading commercially, but bilateral prices, related party contracts and aggregation margins should be disclosed confidentially to Cera and published in aggregated form. Where original subsidy agreements contain overcompensation or clawback provisions, these should be enforced.

Governance will be decisive

The agency must not become another monopoly. It should have an independent board, fixed terms, strict conflict rules, Cera supervision, auditor-general scrutiny, published auction rules, ring-fenced accounts and annual financial reporting.

Government would establish energy-security and decarbonisation objectives. The agency would translate them into measurable services. Competitive auctions – not ministers or officials – would determine the successful provider and, wherever possible, the technology.

Obtaining European approval

Cyprus should develop the proposal with the European Commission rather than present Brussels with a completed scheme.

First, an independent study should demonstrate the market failures: concentration, vertical integration, bilateral contract opacity, inadequate pass-through to consumers, isolation, curtailment and missing flexibility.

Second, it should consult the commission’s directorate-general for energy to preserve supplier choice, wholesale trading, balancing responsibility and non-discriminatory market access.

Third, it should pre-notify the schemes to the directorate-general for competition. Auctions and CfDs must prevent overcompensation and minimise distortions.

Schemes should be approved separately and include volume limits, reviews and sunset provisions. This would reassure the commission that the agency did not possess unlimited intervention powers.

No broad derogation should be necessary because Cyprus would retain the Target Model while adding the long-term contracting architecture the EU now encourages.

The bridge Cyprus needs

The hybrid model would combine central coordination with competitive procurement. It would capture the main advantage of a single-buyer – the ability to procure long-term electricity near its real cost and distribute the benefit widely – without closing the market or restoring an EAC monopoly.

It would also retain the strongest features of the Target Model: open entry, short-term price signals, balancing responsibility, supplier choice and competition between technologies.

The choice need not be between an ineffective small-market version of the Target Model and a legally difficult return to a single-buyer. A properly designed hybrid could provide the bridge: European in its legal structure, competitive in procurement and adapted to the realities of Cyprus’ isolated electricity system.