Opinion
By Yiannos Stavrinides
The crisis triggered in Europe by Russia’s invasion of Ukraine stands as the most severe since the 1970s. It was driven largely by Europe’s heavy dependence on Russian natural gas, which disrupted about 45% of demand. In the period immediately following the pandemic, warning signs were already emerging as rising demand from Asia pushed prices higher. A few months later, the situation escalated further when Russia invaded the Donbas.
Today, Europe faces a similar situation as a result of the war in the Gulf. The European Commission is aiming to stabilize prices and reduce demand. To do so, it plans to reactivate the tools introduced during the earlier gas and oil crisis. One of the measures under consideration would require member states to fill storage facilities to 90% of expected demand by November.
In 2022, the Commission also called for a voluntary 15% reduction in demand compared with the average of the previous five years. Member states not only met this target but exceeded it by making the necessary adjustments.
To help control prices, the Commission introduced a voluntary 10% reduction in electricity use along with a mandatory 5% cut during peak hours. A revenue cap was placed on alternative energy producers, with excess earnings redirected to support households and businesses. In addition, a temporary 33% windfall tax was imposed on fossil fuel companies. Excess profits were calculated based on the average of the previous four years, with a 20% margin added.
In the current crisis, whose full scale remains uncertain, the Commission is strongly encouraging remote work as a way to reduce costs. Early data suggest that within the first 30 days of the conflict, oil prices rose by 60% and natural gas prices by 70%.
As new measures are being considered, attention is increasingly turning to the need to modernize and upgrade electricity grids so they can absorb more renewable energy. This could give our country a second chance to improve its electricity network after missing the significant opportunity provided by the Recovery and Resilience Plan.
Oil and natural gas prices have surged as a result of the war in the Middle East. Lower-cost alternatives include renewables, nuclear energy, and lignite. Our country, which has spent years unsuccessfully trying to bring in natural gas, is no exception. The current data challenge the assumption that electricity prices will become competitive once natural gas is finally introduced and used.
The energy and economic crisis ahead is likely to be both severe and long-lasting. Cyprus, which still operates within an energy framework shaped by the 1970s, now has a rare opportunity. It can use this moment to move decisively toward an energy transition and reduce its reliance on fossil fuels. Interim solutions that have been tried and failed should be set aside. The priority now should be the full expansion of renewable energy, along with investments in storage and stronger electrical interconnection.
