Opinion
By Yiannos Stavrinides
Cyprus has a small, remote and open economy built around services. Those services rely on electricity every hour of every day to operate without interruption. It is no exaggeration to say that affordable power is the oxygen of a service economy. Countries that depend on services need low electricity costs if they are to remain competitive in healthcare, hospitality, professional services and technology.
Tourism is no exception. Hotels consume large amounts of electricity for air conditioning, desalination, laundry facilities and swimming pools. Energy can account for as much as 25% of a hotel's operating costs. Unfortunately, electricity in Cyprus remains expensive, putting the country at a competitive disadvantage compared with its neighbors. A kilowatt-hour costs €0.28 in Cyprus, compared with €0.16 in Israel, €0.20 in Greece, €0.04 in Egypt and €0.11 in Turkey.
Every government has promised to reduce electricity prices. So far, every effort has fallen short after first adding significant costs to the final bill. One example is Prometheus, the floating storage and regasification unit that has been sitting in Malaysia for some time at a monthly cost of $200,000. The vessel is part of the Vasilikos energy project, which has become associated with delays, scandals and mounting cost overruns.
The current government also pledged to deliver cheaper electricity and made the issue a top priority. Yet its term is also nearing an end without achieving that goal. In a Sunday interview with Kathimerini, the energy minister said consumers should expect only a modest reduction in electricity prices once battery storage systems are installed, allowing greater use of renewable energy. He added that a more substantial reduction will depend on completion of the Vasilikos infrastructure project, including the FSRU. The terms of the tender are expected to be finalized by the end of the year, allowing the Electricity Authority of Cyprus to begin generating power with natural gas.
Over the past seven years, consumers have paid €1.25 billion for emissions allowances under the European Union's Emissions Trading System. Most of those costs are linked to the continued use of heavy fuel oil and diesel at power stations. The reasons behind Cyprus' high electricity prices are therefore complex. Every time a solution appears to be within reach, it is followed by delays, higher costs and another increase in the price consumers ultimately pay.
The minister also made an important point about the planned Cyprus-Crete undersea electricity interconnector. As he acknowledged, the cable is not expected to reduce electricity prices. Instead, it will improve energy security and ensure a more reliable supply. According to the latest update, the European Investment Bank will determine the project's final implementation cost. After deducting the €637 million already awarded in grants, the remaining cost will be shared between Cyprus and Greece on a 65:35 basis.
Electricity bills in Cyprus remain stubbornly high and have been weighed down for years by ambitious ideas, feasibility studies, costly mistakes, oversized projects and emissions penalties. The next one to two years will be critical in determining whether the country can finally move beyond heavy fuel oil and diesel and enter a new phase of electricity generation.
If this effort fails as well, Cyprus will lock itself into the position of an uncompetitive destination. No company such as Amazon is likely to build a data center in a country where electricity costs are two to three times higher than in neighboring markets.
