By Elias Hazou
Electricity consumers will likely pay the lion’s share of a ‘green tax’ to plug the deficit in the Renewable Energy Sources (RES) fund under the latest proposal from the energy ministry.
The RES fund covers the difference between the per kilowatt-hour (kWh) price at which the Electricity Authority of Cyprus (EAC) buys energy from RES producers according to avoidance costs and the producers’ overall production costs, which is a stable tariff set out in their contracts.
To date, the RES fund has been solely funded through a special fee on all electricity bills, fixed at €0.005 per kWh.
The power utility pays RES producers the total amount owed and subsequently files for compensation from the fund.
In order for the RES fund to be viable, the avoidance cost – essentially the cost of fuel – must be 11 cents per kWh. But due to the global drop in crude prices, the avoidance cost currently stands at 7.44 cents per kWh.
RES operators signed long-term contracts with the government, at fixed tariffs, and are unwilling to be taxed.
Now, the ministry’s latest formula would see the special RES fund jacked up for consumers, to around €0.0075 per kWh for the remainder of the year. This will raise an additional €5.72m until the end of 2015.
Energy ministry officials told MPs on Tuesday that the extra cost to the average household would come to roughly €8.
For their part, producers will ‘contribute’ €1.5m toward the RES fund. Essentially the producers will waive the €1.5m payable to them from the electricity utility this year, but the government will refund them the full amount later, by the end of 2017.
In addition, the government will tap the carbon emissions fund – managed by the Department of Environment, ministry of agriculture – raising another €2m for this year.
“Even though each consumer will pay very little extra, I’m finding it very difficult to vote for €6m in taxes in order to prop up the RES fund,” Green Party MP Giorgos Perdikis told reporters.
“There is cash in the emissions fund, but instead of using this the government is again resorting to taxation.
“There are times this government’s rationale is truly unfathomable,” he added.
The €2m from the emissions fund, plus the contributions from consumers and RES producers, will enable the RES fund to post a surplus of €7.8m for this year.
A €7.8m buffer is considered the absolute cut-off, as anything below that would make the RES fund insolvent. That’s because the RES almost always runs into deficit, and needs a surplus to keep it going.
The energy ministry itself concedes that all this is but a quick fix. Moreover, fuel prices are not expected to significantly pick up in the foreseeable future, meaning that the EAC’s avoidance cost will remain low.
The ministry has drafted ordinances – which need parliamentary endorsement – for raising the RES fee temporarily until the end of the year.
The House commerce and finance committees will review the ordinances next week, with a view to putting them to a vote at the last plenary session on July 9.
Lawmakers are aware, though, that a more permanent solution is needed for the RES fund, and plan to revisit the matter once parliament reopens in September.
