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THE CHALLENGES OF THE NEW LIBERALIZED ELECTRICITY MARKET OPERATION IN CYPRUS

THE CHALLENGES OF THE NEW LIBERALIZED ELECTRICITY MARKET OPERATION IN CYPRUS. DR STELIOS STYLIANOU, EAC GENERAL MANAGER 3 rd Energy Symposium, 28 March 2014. CONTENTS. INTRODUCTION MAIN CHALENGES OF NEW LIBERALIZED ELECTRICITY MARKET OPERATION REGULATION AND MARKET DESIGN

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THE CHALLENGES OF THE NEW LIBERALIZED ELECTRICITY MARKET OPERATION IN CYPRUS

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  1. THE CHALLENGES OF THE NEW LIBERALIZED ELECTRICITY MARKET OPERATION IN CYPRUS DRSTELIOS STYLIANOU, EAC GENERAL MANAGER 3rd Energy Symposium, 28 March 2014

  2. CONTENTS • INTRODUCTION • MAIN CHALENGES OF NEW LIBERALIZED ELECTRICITY MARKET OPERATION • REGULATION AND MARKET DESIGN • INTEGRATION OF RENEWABLE ENERGY SOURCES • AVAILABILITY AND USE OF NATURAL GAS • CONCLUSIONS

  3. THE CHALLENGES OF THE NEW LIBERALIZED ELECTRICITY MARKET OPERATION IN CYPRUS Regulation and Market Design • Liberalization of the electricity market in 2004 • Three phases, 2004-2009-2014 • Market model based on • Bilateral contracts - Supplier of electricity owns adequate generation capacity • Parallel Operation of a Balancing Mechanism by TSO • Operation of a mechanism for the Provision and Compensation of Ancillary Services and Capacity Reserve • Independent Cyprus Energy Regulatory Authority (CERA) • Independent Transmission System Operator (TSO) • Distribution System Operator - EAC • Ownership of Transmission and Distribution Systems – EAC

  4. THE CHALLENGES OF THE NEW LIBERALIZED ELECTRICITY MARKET OPERATION IN CYPRUS Regulation and Market Design • Generation and Supply open to Competition • No competitors in conventional generation have joined the market yet • Result of insufficient market design or a result of the small electricity market size or highly uncertain investment climate? • Electricity Law – Transposition of the EU Directive 2009/72/EC into the national law was completed in 2012. Main changes are: • Large non domestic consumers – More than one supplier • Suppliers not required to have their own capacity • CERA appointed a consultant to review the Electricity Market Model in order to • Comply with the overall requirements of the 3rd Energy Package • Facilitate the entry of new participants in the electricity market • Comply with the new conditions relating to the availability of Natural Gas which seriously affect any investment decisions in generation capacity • enable more effective integration and participation of Renewable Energy Sources (RES) in the electricity market

  5. THE CHALLENGES OF THE NEW LIBERALIZED ELECTRICITY MARKET OPERATION IN CYPRUS Regulation and Market Design • The new environment must enable EAC to remain competitive . This can be made possible as follows: • Consider the characteristics of the small isolated system and distribute evenly the inherent adversities to all the players in the market . • Develop the appropriate compensation mechanisms for the provision of Ancillary Services and Capacity • Provide flexibility for EAC in setting tariffs, in short time, according to the time of demand and the profile of each customer so as to be able to compete with other generators on a fair ground • Appropriate integration of RES in the market

  6. THE CHALLENGES OF THE NEW LIBERALIZED ELECTRICITY MARKET OPERATION IN CYPRUS Integration of Renewable Energy Sources • Energy from RES in Electricity Generation currently exceeds 7%. • According to 2010 RES National Action Plan the minimum target for RES-E Energy in 2020 is set at 16% of the total electricity energy. Individual targets for the capacity from each RES technology for 2020 are: • Wind Parks -300MW • Photovoltaics -192MW • Biomass -17MW • Concentrated Solar Power -75MW • The National Action Plan for RES is currently being revised and its individual targets for the capacity from each RES technology are expected to change

  7. THE CHALLENGES OF THE NEW LIBERALIZED ELECTRICITY MARKET OPERATION IN CYPRUS Integration of Renewable Energy Sources Minimum load shifts and is further reduced by the introduction of more PV in the System Peak Load becomes more sharp demanding more responsive and flexible generating units

  8. THE CHALLENGES OF THE NEW LIBERALIZED ELECTRICITY MARKET OPERATION IN CYPRUS Integration of Renewable Energy Sources Possible solutions are currently being studied and need to be implemented soon: • Promotion of RES technologies which match the demand profile of Cyprus • Addition of more flexible generation in the system – Flexible generation not as efficient and environmentally friendly as large CCGT plants • Introduction of storage technologies in the system such as the pumped storage. • Load Curtailment of RES Energy when the system reaches its limits regarding its stability and safe operation • Fair compensation for the provision of Ancillary Services so that conventional generation can continue to support increased RES penetration

  9. THE CHALLENGES OF THE NEW LIBERALIZED ELECTRICITY MARKET OPERATION IN CYPRUS Integration of Renewable Energy Sources The main challenge is the formation of the appropriate legal and regulatory framework which will enable the smooth integration of RES in the electricity market. The following could be adopted: • RES generators with mature technologies must be incentivized to progressively enter into the market on a level playing field with all other generators. • RES should be made responsible for procuring their own balancing power and ancillary services • All the above measures should lead to the phasing out of fixed feed-in tariffs and to their replacement by the market price and some form of support mechanism

  10. THE CHALLENGES OF THE NEW LIBERALIZED ELECTRICITY MARKET OPERATION IN CYPRUS Import and Use of Natural Gas • 2003 - 2013: Numerous efforts have been carried out for NG import unfortunately without any conclusion. • EAC has supported these efforts and has materially contributed towards this goal. • EAC has installed 2 x 220MW Combined Cycle Gas Turbines at a cost exceeding €400million and will have its 3 x 130MW Steam Units converted to burn natural gas by the time NG will be available. • In the process in 2010 for the import of NG EAC was given the mandate to select a strategic partner for the development, financing, operation and maintenance of an on shore Regas Terminal in parallel to the mandate given to DEFA to secure LNG supply through a long term contract. The 2 processes had been successfully concluded and were subject to Government approval.

  11. THE CHALLENGES OF THE NEW LIBERALIZED ELECTRICITY MARKET OPERATION IN CYPRUS Availability and Use of Natural Gas • The discovery of Natural Gas reserves in Israel and the prospects of discovery of Natural Gas in our own Exclusive Economic Zone led to the premature and unjustified suspension of the two processes. • August 2012 – DEFA, the Cyprus Natural Gas Company was authorized by the Council of Ministers to prepare in cooperation with EAC a Request for Expression of Interest for the fastest supply of gas (without restriction in technology) for electricity generation purposes. • In the negotiations that followed it was not possible to agree terms for a gas supply with any of the respondents to the RFP. • In December 2013 DEFA was mandated by the Minister of Energy, Commerce , Industry and Tourism to issue an Invitation for proposals for the Supply of Natural Gas for 7+1+1+1 and for 10 year periods and for increased volumes compared to the previous invitation.

  12. THE CHALLENGES OF THE NEW LIBERALIZED ELECTRICITY MARKET OPERATION IN CYPRUS Availability and Use of Natural Gas • EAC has been cooperating with DEFA with all the necessary information and data and will participate through DEFA in the negotiations with the preferred supplier. • The conclusion of a good NG deal with DEFA/NG Supplier will enable EAC to fully utilize its more efficient generating units and reduce generation cost and emissions.

  13. CONCLUSIONS • Electricity and Gas Markets taking into consideration the small size and the isolated nature of the Electricity System of Cyprus • Make use of the derogations and exemptions provided by the European Union through its directives • Concentrate efforts for having low price natural gas the soonest possible – Reduce dependence on liquid fuels, reduce electricity prices and emissions • Aim and work towards a healthy balance between conventional and RES Generation and towards the smooth integration of RES in the Electricity Market.

  14. Thank you for your attention!

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