Electricity subsidy extends to vulnerable consumers until February's end

With its metaphorical ''finger on the trigger,'' the Ministry of Finance is vigilantly tracking the anticipated surges in the current. However, it refrains from immediate intervention, deeming the spike in fuel prices insufficient to warrant swift action comparable to the ongoing fuel price subsidy and incremental electricity subsidy.

The ministry, represented here as "K," notes that fuel prices have yet to reach 2022 levels, thereby lacking justification for the continued support initiated in October, totaling a 196 million euro package.

Nonetheless, sources within the finance ministry, sharing insights with "K," affirm that the government possesses the capability to unveil a fresh package if deemed necessary based on meticulous calculations, particularly concerning subsidizing electricity prices. Following recent notifications on electricity price hikes, the ministry has reached out to relevant authorities for additional details, paving the way for a comprehensive assessment.

In the 11-month span of 2023, the state surplus (latest available data) burgeoned to 1 billion euros, constituting 3.4% of GDP. This contrasts with the corresponding period in 2022, where the surplus stood at 636.8 million euros, equivalent to 2.3% of GDP.

Temporarily setting aside potential ministry interventions to alleviate economic burdens for citizens, the proposed 6% increases for 2024 by the Electricity Authority of Cyprus (EAC) from the Regulatory Authority for Energy (CERA) remain shrouded in uncertainty. The motivations behind the EAC's renewed plea for a 2024 increase from CERA, and the ensuing impact on consumers, remain enigmatic.

Unfortunately, another potential increase looms pending a court decision. As Andreas Poulikkas, President of Regulatory Energy Cyprus, apprised Parliament, the EAC submitted a request last year for a 25% increase in the final kilowatt price, met with rejection by CERA. The EAC has since lodged an appeal, awaiting a court decision on CERA's stance. Should the increase be deemed justified, the consequential 25% surge in kilowatt costs will be borne by none other than the consumer.

In the realm of the ongoing electricity cost subsidy, active from November 2023 until the end of the current month for bills dated up to 29th February 2024, its embrace extends to residential, commercial, and industrial consumers. Vulnerable consumers enjoy the added benefit of a 100% subsidy, encompassing price increases.

The Fiscal Council of Cyprus, in its culminating 2023 report, sounded the alarm on electricity costs as a substantial macroeconomic vulnerability. These costs exert formidable pressure on inflation, impede growth, and compromise trade terms and Cyprus' competitive edge. The Council strongly advocates for the immediate formulation and adoption of a risk management policy to navigate the turbulent seas of fuel price fluctuations and the acquisition of emission allowances.

Despite Cyprus still grappling with one of the highest pollutant intensities in electricity production, emitting 589 gCO2/KWh, or 247% of the European average (221 gCO2/KWh), the Budget expresses palpable concern about the estimated costs of purchasing allowances for 2024, foreseeing noteworthy hikes in auction prices.

Delving into the EAC's budget note for late 2023, it unveils ambitious plans to escalate fuel oil consumption by 8.7% compared to 2023, coupled with a 20% reduction in diesel consumption. Foreseeing a surge in energy demand due to climate change's impact—warmer summers and colder winters—the note hints at a potential cumulative increase in pollutant volumes in the absence of a strategic approach to manage purchase costs, adhering to the prevailing "buy-as-you-pollute" philosophy.

The projections for reductions in the cost of purchasing allowances in the Medium-Term Financial Framework (2024-2026) appear, however, overly optimistic, lacking support from other spending projections related to pollutant reduction.

[This article was translated from its Greek original]