The electricity market consists today of the competitive field which is to produce electricity and supply, namely sales of electricity, and the monopoly sector, which is the transmission and distribution networks. Although the market has been liberalized since 2004, EAC still has a dominant position and owns almost 100% of the market in all areas. The main obstacles to developing a competitive market are:
(A) The absence so far of clear and simple market rules that will determine how the market will operate and to make it attractive to potential producers and the accurate calculation of production costs.
(B) The expensive fuel coupled with the delay in the arrival of cheaper fuel such as natural gas, which is expected to reduce production costs.
(C) The high investment required.
(D) The difficulty for market penetration to ensure the required minimum number of clients to be a viable investment.
(E) The small size of the market and non-interface of the transmission system with other countries, namely the small and isolated system in Cyprus.
For the first one there are recent efforts by the Cyprus Energy Regulatory Authority (CERA) for introduction of a revised plan and for the introduction of new regulations and Electricity Market Rules.
At an early stage it is introduced a substantial liberalization of the production field by adopting a previous-day market system, where the producers of all technologies will submit the day before, bids to generate electricity for the next day. The units will be implemented in the production system in ascending order and will be remunerated in accordance with the price offered and not the maximum offered price of the most expensive unit, which is embedded in the system, as provided in this consultation proposal.
The network which is a natural monopoly remains under the jurisdiction of the transmission system and the EAC, which is the distribution system, as provided in the proposal.
However, the supply remains at this stage in the EAC, namely EAC-supply after the separation of activities. In this way in addition to the network usage fees also the tariffs remain under the jurisdiction of CERA.
With strict control of the EAC expenditure and strong and effective regulation of fees and tariffs, prices for consumers will be at the lowest possible level.
This is because the implementation of this proposal energy will be channeled at the lowest possible price, because the EAC is obliged to purchase energy from third parties when their costs are lower than their production costs.
Finally, and this combined with appropriate regulatory measures will result in lower electricity prices to the consumer.
Furthermore this model introduces competition because it gives incentives for new investments that will allow the entry of new independent producers mainly from photovoltaic systems and private investors for production of conventional plants, their production costs are lower than existing units, mainly because it exceeded the obstacle to the difficulty in penetrating the market supply, which until now was deterrent and one of the reasons for the non-arrival of competition.