LNG import to diversify Cyprus energy market

Natural gas viewed as solution to high cost of electricity.

The use of liquified natural gas (LNG) for electricity generation is the only option for Cyprus to diversify its energy mix and avoid stricter fines on emissions from power generation, the chairman of the electricity authority (EAC) Andreas Marangos has said.

In an interview with CNA, Marangos said the EAC was ready for the two major challenges, namely the liberalisation of the electricity market and the use of natural gas for electricity generation.

He acknowledged that fluctuations in electricity bills which often cause reaction from the public and businesses but are “a reality” dependent on international oil prices, as 90 per cent of power generation is dependent on imported liquid fuel.

“The way to have lower and more stable prices is the introduction of natural gas in energy generation. A reduction in the electricity bills will depend on the natural gas purchase price but also on the introduction of solar plants and renewable source of energy to the system,” he said, as the Cyprus Natural Gas Company has launched a call for tenders for LNG import terminal.

Maragnos explained that the use of natural gas was necessary not only on the grounds of electricity price stability but also to avoid increased fines to stricter limits imposed by the EU concerning air pollutant emissions by power plants such as particulate matter and Sulphur dioxide emissions.

He said that the EAC with capital expenditure amounting to millions of euros has implemented anti-pollutant technologies to reduce sulphur emissions and to curtail particulate matter “but that is not enough.”

“The use of natural gas is a one-way street,” Marangos stressed, noting that “if we fail to use natural gas, we will be forced to buy low Sulphur diesel which is very expensive.”

“Therefore,” he added, “with the introduction of natural gas we could achieve two aims: cheaper fuel and lower emissions.”

Following a decision by the Council of Ministers, the EAC will participate with a holding of up to 30 per cent in the Natural Gas Infrastructure Company, a subsidiary of DEFA, which will be responsible for the LNG import terminal in Vasiliko.

The project is estimated to cost €300 million, while €101 million will be provided by EU funds, EAC will cover approximately €100 million, while the European Investment Bank is expected to provide financing for the remaining amount.

Furthermore, DEFA is expected to launch a separate tender for the LNG supply contracts. Although Cyprus made numerous efforts to import LNG for power generation, so far efforts failed due to high prices. DEFA believes that it separating infrastructure from LNG supply contracts will achieve the target of lower LNG price.

“As the EAC we have given DEFA every possible assistance so that we could import LNG at the lowest possible price,” Marangos added.

Concerning new power production facilities, Marangos said the EAC applied to the Cyprus Regulating Authority (CERA) for a new combined cycle production unit in Vasiliko utilising both natural gas and diesel, while it is considering an additional combined cycled production unit in Dhekelia power plant only if the production of natural gas at Dhekelia is made possible.

The DEFA plans provide that LNG will be transferred to the Vasiliko FSRU and from there to the nearby EAC power plant.

“EAC aims to decentralise production and not to have all facilities in the area of Vasiliko. We hope that the transfer of LNG to Dhekelia will be made possible,” he added.

The EAC is also planning a “project of national significance” concerning solar plants.

It is about to concluded the licensing process for a 20 Megawatt (MW) solar plant in Akrotiri and has agreed with the Church on the construction of a solar park in Ahera which could amount to 90 MW, while the organisation has entered an agreement with the education ministry to install solar panels in all public schools. It will also assist the University of Cyprus in the construction of Apollon solar park.

Marangos said the EAC was ready to assist all private solar park owners who obtained licenses but could not construct the licensed solar parks and would be ready to consider acquiring any private solar parks for sale. “Our aim is to have stable electricity prices,” he said.

Concerning the liberalisation of the electricity market next year, Marangos said the EAC does not fear competition as this would help it to further improve.

He said that EAC operates as vertically separated organisation while at the directions of CERA is implementing an operational unbundling which stipulates that regulated activities function independently and will have separate accounts.

Transmission and distribution are considered as monopoly activities, allowing prospective private electricity companies to use the EAC’s network, while generation and supply will be considered as competitive activities, he said.

“Therefore, anyone who enters the market will receive equal treatment from the EAC.”

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