European Commission publishes detailed report on Cyprus Energy sector, commenting on plans and targets

On the occasion of the 3rd review of the completion of the Energy Union, the European Commission published today 28 national sub – reviews, including one on Cyprus. The report on Cyprus notes the lack of diversification of the local market mix, quotes dependency on oil and comments the low utilization of the vast potential the island has on renewables. It also describes recent plans and upcoming large project investments.

According to the basic findings, for Cyprus energy and transport are key sectors for the overall functioning of the economy as they provide important input and service to other sectors.

The report states that “the decarbonisation of the energy and transport sectors will require significant investments and economic activity beyond the remit of these sectors themselves.”

Moreover the energy transition implies a structural shift in economic activity. “Energy-related investment and jobs will in part migrate from traditional fossil fuel based activities towards construction, equipment manufacturing and other services related to the deployment of low carbon and clean energy technologies”, says the report.

The report is also critical on renewables market share: “the share of direct and indirect renewable energy related employment in total employment of the economy in Cyprus was at about 0.17%, well below the EU average of 0.54%”. The turnover of the renewable energy industry in the same year was estimated at around EUR 65 million, with wind and photovoltaic contributing most.

The report also states that Cyprus is nearly fully dependent for its energy consumption on the imports of fossil fuels, currently almost exclusively refined petroleum products. This dependency has led to a much larger trade deficit in energy products than for the EU as a whole. The energy trade deficit as share of GDP in 2015 is 4.1% of GDP, and thus almost 1 percentage point of GDP lower than in 2006 (5%).

Renewable energy (wind, solar and biomass) represented a share of 6.5% of primary energy gross inland consumption for Cyprus in 2015; the rest comes essentially from oil products (92.8%). This unbalanced energy mix exposes Cyprus economy to the fluctuations of international oil prices, and creates vulnerability.

The report states that Cyprus has no known oil resources and no refineries; therefore all oil products are imported. Developing Cyprus substantial RES potential would certainly improve dependency as well as trade deficit, air quality and employment in renewable energy industry.

A significant gas field (Aphrodite) was discovered a few years ago within Cyprus Exclusive Economic Zone (EEZ). However no final decision on exploitation of the Aphrodite field has been made public to date. Further exploration activity is in progress.

It also states that the island is not interconnected with any other country; there is no wholesale electricity market either, since the public electricity supplier (EAC) operates as a de facto monopoly.

Given its geographical location and isolation from EU grids and in line with EU energy policy and the goals of the Energy Union, Cyprus identified four projects within the Project of Common Interest (PCI) process since 2013.

Since 2014, a total EUR 15.8 million has been granted under Connecting Europe Facility (CEF) to investigate the feasibility of a subsea electricity cable, “EUROASIA Interconnector”, composed of three sections connecting respectively: Israel to Cyprus; Cyprus to Crete and Crete to continental Greece.

When materialized the project will end Cyprus electricity isolation and greatly improve grid reliability and stability and enhance security of energy supply. It could also facilitate the transmission of electricity generated using gas from the fields in the Eastern Mediterranean and electricity produced from Renewable Energy Sources.

As far as natural gas is concerned CEF supports three projects:

a) a pipeline from offshore Cyprus to Greece mainland via Crete, known as the EastMed Pipeline

b) an LNG storage facility, currently known as the Mediterranean Gas Storage

c) an action aimed at removing internal bottlenecks in Cyprus to end isolation and to allow for the transmission of gas from the Eastern Mediterranean region.

It is also noted that the largest share of Cyprus electricity is generated in oil burning power plants; as a consequence retail prices depend, although indirectly on fluctuations in world oil prices, by means of a “Fuel Adjustment Clause” incorporated in the tariff structure. Prices dropped substantially in 2016, and are now below prices paid in most EU countries.

Transport (road and aviation) represents the largest share (52%) of Cyprus final energy consumption.

Transport policy merits attention as Cyprus is highly reliant on private road transport, as it is among the Member States with the highest motorisation rate in the European Union. The country is aiming to fulfil the commitments on GHG emissions through the reduction of its dependency on fossil fuels, including in transport. This involves the promotion of renewable energy sources, energy efficiency and climate-friendly technologies. Cyprus is currently promoting the use of LPG in vehicles.

The report stats that according to its projections, Cyprus will achieve in 2020 its greenhouse gas emission reduction target in the sectors outside the EU ETS by a margin of 9.5 pps. CO2 emissions from road transport are 56% higher than in 1990 in Cyprus. They have only slightly decreased since 2005. Average CO2 emissions from new cars registered in Cyprus have decreased by around 29% since 2005. In 2016, average CO2 emissions from new cars were 123,5 g CO2/km (EU fleet-wide target is 130 g CO2/km since 2015 and will become 95 CO2/km from 2021 on).

With a renewable energy share of 9.4 % in 2015, Cyprus appears on track to reach the target (13 % of gross final energy consumption) for 2020. It has met the third interim target of 7.45 %.

With 2.5 % share in 2015, Cyprus is lagging behind in the use of renewable energy sources in transport and could have difficulty to reach the binding 10 % target by 2020; at the moment, there is no support scheme, or no public incentive, for the promotion of renewable energy in the transport sector in Cyprus.

Concerning Air quality, the report notes that the situation in Cyprus is reported to be generally good, with some only, exceptions. Nevertheless, for the year 2013, the European Environment Agency estimated that about 450 premature deaths were attributable to fine particulate matter concentrations.

In 2013 Energy costs shares in total production costs for industry and services were more than twice as big as EU 25 despite the lack of energy intensive industries. Lack of natural gas forces all industry and services to rely on oil and oil products; Cyprus economy is therefore vulnerable to oil price volatility. Electricity prices paid by industrial users were in 2016 above EU average.

Regarding the competitiveness in wind and solar energy technologies, the 2017 report states that “Cyprus seems to have underutilised its potential to become a major player in the solar energy sector”.

The text reads “this comparative advantage has been concentrated in the sub-sector of solar component production. Cyprus relative export success in this niche has been fading however with the strong rise of China (together with Taiwan and Malaysia) as major exporters”. The relatively late installation of solar power generation capacity (despite Cyprus excellent conditions for solar power generation) does not seem to have played a major role in view of the relatively tiny size of its “home market for solar components”.

Source: Cyprus News Agency