Cyprus to Decouple Renewable Energy Prices from Conventional Units

Cyprus is considering implementing mechanisms to decouple renewable energy sources (RES) prices from conventional unit prices in the electricity market. This move aims to address challenges arising from the small market size, energy isolation, and dependence on imported fuels.

Two mechanisms are proposed:

• Ex-ante market power mitigation mechanism: Using default energy bids (DEBs) based on short-run marginal cost.
• Price shock absorber: Activated when the accumulated inframarginal rent of RES reaches a predetermined level, temporarily limiting the influence of conventional units on prices.

These mechanisms will be applied exclusively to the day-ahead market and will not affect bilateral contracts. Modifications are required in the market management software and the legislative framework, including the Electricity Market Rules approved by RAEK.

The implementation is expected to reduce electricity costs, improve competitiveness, and create a more stable investment environment.

* Professor of Energy Systems, Frederick University