11-04-2013

Production Of Electricity From The Private Sector In Cyprus: Renewable And Conventional - Towards A Competitive And Diversified Market?

What does the Law on the Regulation of the Electricity Market 2003 (no. 122(I)/2003) cover?

The Law on the Regulation of the Electricity Market 2003 (Law no. 122(I)/2003 - hereinafter “the Law”), lays down the applicable legal framework for the regulation of the Electricity Market in Cyprus. The legislation has recently undergone reform via the amending law no. 211(I)/2012 resulting to certain modifications, especially on the front of enhanced consumer protection and striking a fair balance for the vulnerable fractions of society.

The Law establishes the Cyprus Energy Regulatory Authority (“C.E.R.A.”) as the supervisory body for the smooth implementation of the Law and the regulation of the market. The Law also provides for the creation of a Transmission System Operator (TSO), the introduction of obligations of public utility, it shall regulate matters relevant to the protection of consumers and must ensure the production of sufficient energy for the satisfaction of all reasonable needs for electricity while safeguarding the stability and security of the system. This Law harmonizes local legislation with EU Directive 96/92/EC.

What is the role of the Cyprus Energy Regulatory Authority (CERA)?

CERA must ensure that the Law is observed, issue licenses, approve tariffs, encourage competition within the electricity market, monitor the viability and sound financial standing of license holders, ensure that protection of the environment is of primary importance and to promote the use of Renewable Energy Sources for the production of energy. CERA is also the competent body for the resolution of disputes between license holders.

What is the mechanism for Market Monitoring.

CERA is responsible for controlling, either of its own motion or after the submission of a complaint to CERA, whether there has been a violation of the Law or a License that has been granted or of any Regulations or Regulatory decisions issued by CERA. Under s. 96 of the Law, CERA delivers a notice to any interested person with regard to the License terms that are allegedly being infringed and the time span within which the License holder must submit his/her written objections. In the event of failure to rectify any infringement, the interested party may be liable to:

  • An Administrative Fine analogous to the severity and duration of the violation.
  • Be liable to owe the sum for an Administrative Fine depending on the infringement.
  • Be liable to have his License revoked by CERA.

What is the role of CERA in the natural gas market?

CERA is also responsible for the regulation of the Market for Natural Gas. It can provide for:

  • The authorization for the construction and functioning of natural gas piping systems, including direct pipe lines.
  • Issuing of Licenses for the production, transfer, retrieval or storage of natural gas.
  • The provision of all necessary measures to allow interested parties to achieve access to natural gas piping systems and other easements including the terms for such access.
  • The provision of advice to the Republic of Cyprus on natural gas matters.

Why do I need a License issued by CERA?

CERA is the Authority vested with the responsibility of issuing, controlling, revoking and modifying Licenses for activities related to the Electricity Market including both production from conventional and renewable energy sources. Under s. 35 of the Law, a person must be in possession of a valid License issued by CERA, in order to be permitted to undertake any of the following tasks:

  • Construct an Electricity Power Station or be involved in the production of electricity.
  • Supply electricity to eligible or non-eligible consumers
  • Execute any tasks relating to the TSO as under s. 59 or the Transmission System Owner under s. 46 or of the Distribution System Owner under s. 52 of the Law.

Who is eligible to apply for a License issued by CERA?

A person is eligible to apply for a License only if:

  • He is a natural person, a citizen of the European Union and resides in an EU Member State.
  • If the License is to be issued for a legal person, it must be established in an EU Member State and if a company it must have been incorporated with the laws of a Member State and have its registered office, and/or management and control within the EU.

Must I submit anything further alongside the Application for a License by CERA?

An application submitted for a License shall also include, but is not limited to:

  • Recent account statements of the Applicant in relation to any business or trade oriented undertakings he is currently directing.
  • General provisions as to the business proposal of the applicant’s undertaking with which the License is related to, for the coming five (5) years.
  • If applying for a License for production of electricity, further requirements may include the timetable for the construction of the plant, details on the energy efficiency expected to be achieved by the proposed plant, certified by documented calculations coming from the manufacturer of the plant.
  • CERA has issued standard templates of application documents which specify all requirements, however CERA reserves the right to request further information.

What are the main criteria considered by CERA when evaluating a License application?

The criteria considered by CERA when evaluating an application for a License, include, inter alia, the following:

  • The safety of the system, the premises where production of electricity shall take place, the electrical cabling/lines and all other technical considerations.
  • Protection of the environment, including the emission limits to the atmosphere, or adverse implications for water or land.
  • The location of the production plants and the relevant lawful use of the land.
  • The efficient production and use of energy.
  • The nature of the primary source used within the production plant.
  • The qualifications of the Applicant including his technical knowledge and financial standing so as to be considered capable of undertaking the task for which a License is requested.
  • Any objections that may be filed with CERA by any party whose legitimate interests are affected by the application, following its publication in the press.
  • The Liabilities of Public Utility as under s. 88 of the Law.
  • The views of all other competent authorities including, but not limited to, the Town Planning Permit Department, the local authorities and the Department of Environment.

What are the relevant timelines for the consideration of my application by CERA?

Within three (3) months (in limited situations however, CERA may decide to extend this time limit) from the date that an application is considered full and valid under the Law and existing Regulations, CERA shall decide on whether an applicant is approved or not. The applicant will receive a written notice of CERA’s decision and the fully reasoned decision by CERA shall be published. If an applicant is successful, CERA shall supply the former with a License within forty-five (45) days from its decision of approval of the application. The duration of the License shall be defined in its terms. Under certain circumstances, such Licenses may be revoked at CERA’s discretion, provided that certain requirements under the relevant Regulations are satisfied.

What are the exemptions from the obligation to obtain a License by CERA?

CERA is also vested with the authority to provide exemptions to the obligation of receiving a license for all aforementioned tasks and processes. An exception may be granted for:

  • Auto-production of Electricity of power not exceeding 1 MW.
  • Production of Electricity originating from Renewable Energy Resources of power not exceeding 5 MW.
  • Supply of electricity by a specific person, when total power does not exceed 0,5 MW for every production terminal.

General responsibilities of CERA in relation to tenders, rates and charges:

CERA is responsible of notifying the relevant Minister when the existing potential for electricity production is not sufficient to ensure a satisfactory supply of electricity within the Republic of Cyprus. After consulting with CERA and the Transmission System Operator, a tender submission process will be set and CERA undertakes to realize this new required supply of electricity. In relation to rates and charges, any License holder under the current Law shall ensure that all rates and charges collected for the services provided have been set based on the Regulations and methodology determined by CERA, have been approved by CERA and have been publicized accordingly. CERA ensures that all Licensed persons involved are capable of recovering all the expenses they have reasonably incurred during the industrial process on an efficient basis, including, but not limited to:

  • The cost of fuel, salaries and other operating and maintenance expenses.
  • Provision for capital depreciation.
  • Expenses emanating from the Obligations of Public Utility.

What are the responsibilities of the Transmission System Owner?

The Transmission System Owner is responsible for:

  • Setting up and maintaining an efficient, organized, harmless and reliable transmission system.
  • Taking up maintenance works and construction tasks as per the Transmission Control Protocol, and any other relevant works required by the Law, ensuring that consistent care is taken to avoid damage to the environment.
  • Collecting charges for the use and connection with the Transmission system in accordance to the rates and charges approved by CERA under ss. 32 and 85 of the Law. Any income gained by the Transmission System Owner is used for the execution of the Transmission System Owner’s duties.

What are the responsibilities of the Transmission System Operator?

The Transmission System Operator is exclusively responsible for:

  • The functioning of an efficient, organized, safe, reliable and economically viable Transmission System.
  • Ensuring the development and maintenance of such Transmission System able to absorb the current and upcoming production.
  • The operation of a system for load distribution and use of the Transmission System using objective criteria s under s. 34 of the Law.
  • The functioning and operation of the trading of electrical power.
  • Charging for the use and connection with the Transmission System under s. 85 of the Law.

The Transmission System Operator will prepare a schedule for the Transmission System’s development, aiming to ensure the required supply of electrical power. This schedule shall cover a 10-year time span. However, the Transmission System Operator is not allowed to engage oneself in activities relating to the production, distribution or the supply of electrical power within the Republic of Cyprus. Furthermore, he shall not be guided or directed, in any way, by the Transmission System Owner in relation to any of his delegated competences.

What are the Electricity Market Rules?

These Rules govern all the mechanisms, prices and other terms and conditions in cases where Licensees buy or sell electrical power based on arrangements set up by the Transmission System Operator. Furthermore, these Rules ensure that Licensees who are asked to participate in the buying and selling of electrical power based on these arrangements shall not be subject to adverse discrimination, and they promote the efficiency and economy and facilitate competition within the electricity market based on the aforementioned arrangements.

Contracts for connection with, and use of, the Transmission and Distribution Systems:

When an application is submitted by any electrical power-related business, the Transmission System Operator shall suggest the conclusion of an Agreement with the said business. The same applies when an application is submitted to the Transmission System Owner. CERA will then decide on:

  • Specific matters relating to individual contracts for connection and use of the System.
  • The relevant terms and conditions for connection with the Transmission or Distribution Systems.
  • The methods for determining the analogy between the expenses burdening the person submitting an application and the expenses burdening the Transmission System Operator or Owner.

In relation to rates and/or charges, the Transmission System Operator shall consult with the Transmission System Owner and prepares a study for approval by CERA which shall determine the basis for charges and rates with regard to the use and connection with the Transmission System.

Are there any other obligations or rules as to Renewable Energy Sources?

Under s. 88 of the Law, such arrangements may be required to be performed by the Licensees so that they can ensure that within any calendar year, they shall have available for use a specified quantity of electrical power that comes from power plants which use Renewable Energy sources as their primary source of fuel. Rules relating to the above, shall involve the recovery, in the form of surcharges imposed on consumers, of the additional expenses that the Licensee has undertaken based on the requirements of these Rules.

What are my obligations in relation to submission of Annual Reports or business accounts?

Electricity-production businesses shall, whatever their legal nature, submit and publicize their Annual Reports as under the Companies Law (Cap 113). Those businesses that have no legal obligation to submit Annual Reports must retain copies of the Reports that are available for inspection by the general public at their registered offices. Integrated electricity-production companies shall keep separate accounts for their electricity production, transmission and distribution processes and where necessary, consolidated accounts for any other activities that are not related to electrical power, as if these activities where conducted by separate companies.

What does the “Law on the Promotion and Encouragement of the Use of Renewable Energy Sources and Energy Conservation’ (no. 33(I)/2003), hereinafter ‘the 2003 Law on Renewable Energy Sources’” cover?

The 2003 Law on Renewable Energy Sources establishes a Repository (the ‘RES Fund’) which shall be governed by a relevant Authority (set up under the same legislative instrument), from which Repository the following activities shall be subsidized or funded:

  • The production or, depending on the scenario, ‘purchase’ of electrical power produced by Renewable Energy Sources (RESs).
  • The premises, equipment and other activities for the conservation of energy
  • The programs for the promotion of RESs, conservation of energy including the cogeneration of heat and electricity, and briefing of the general public.
  • The Repository’s expenses.

The Authority shall decide, amongst other things, for the:

  • Subsidization or funding of various activities aiming at the encouragement of the use of RESs or aiming at the conservation of energy , including the cogeneration of electricity and thermal energy.
  • Examination of Application for a funding or subsidization request.

Surcharges on consumers in relation to the subsidization of Renewable Energy Sources:

Under the 2003 Law on Renewable Energy Sources, every consumer of electrical power that is delivered by an authorized provider, independently of the rates/charges of the said provider, shall incur a surcharge of 0,005 Euro/kwh (or equivalent) that is calculated based on the relevant energy bill that is issued by a provider. Every authorized provider is under the responsibility of recording, charging and collecting the above amounts owed to the RES Fund via the electricity bills issued to consumers by the monopoly utility i.e. the Electricity Authority of Cyprus. These funds are submitted to the RES Fund at the end of every calendar month after the month that they have been collected by the provider on behalf of the RES Fund. The Republic of Cyprus has negotiated a reduced percentage of RES production from the one applicable pursuant to EU Law, i.e. 13% instead of 20%. The determination of feed-in tariffs for renewable energy production is governed by the provisions of a scheme for the subsidization of electricity production from large commercial wind farms, solar/thermal and photovoltaic systems and the exploitation of biomass. This scheme is issued by the Committee for the Administration of the RES Fund.

What are the entry prospects in the Cyprus electricity market?

The existing monopoly of the EAC in conventional production seems to refrain, due to large debt exposure of the government-owned utility. Also, there seems to be huge room for investments, especially in the fields of photovoltaic systems due to the weather conditions in Cyprus and biomass due to the attractive feed-in tariffs and the lack of restrictions on the maximum capacity to be installed for biomass under the recent Schemes.

Note: The Universal Service Provider within the Republic of Cyprus is the ‘Electricity Authority of Cyprus’ and this includes the production, supply and distribution of electricity.

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