OVER THE next fortnight, the Electricity Authority of Cyprus (EAC) will most likely hike its electricity rates by about three per cent to pay carbon emissions “penalties.”
Cyprus has already started paying “fines” for its greenhouse gas emissions. The tab is being picked up not by the government, but by industry which is causing the pollution–such as power plants and cement facilities. Essentially, industry will “buy out” the quota, and will pass the cost onto the consumer.
Before the EAC can up its rates, it first has to get permission from the local regulatory authority, CERA.
“We expect to issue a decision sometime in the next 10 days or so,” CERA director Costas Ioannou told the Mail.
Although Ioannou refused to be drawn on the question, approving the EAC’s request for an increase in rates is all but a done deal. It is usually extremely difficult for the regulator to deny the EAC, especially when the latter argues that it will go bankrupt unless it’s allowed to raise its charges.
In this case, the EAC is technically correct when it argues that the emissions penalties are the result of the government’s energy policy. On the other hand, that may be little consolation for the consumer.
The EAC buys out the quota on emissions by participating in the EU’s Emissions Trading Scheme.
Sometimes called cap and trade, emissions trading is an approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants.
This means that Cyprus, like any other EU country, as a whole has a cap, or limit, on how much carbon dioxide it can emit; the cap is divided up between all the participating companies within the country. The companies can then use this cap, or allowance, to offset their own CO2 emissions, sell excess carbon credits which their emissions output does not require or buy more credits to account for their emissions release over the allowance.
The anticipated three per cent rate increase applies to both households and industrial plants. For the EAC, this translates into an extra cost of between €13 million and €15 million.
It could be a lot worse. Because of the currently healthy excess of carbon credits—most likely the result of falling consumption linked to the global financial crisis—their price on the trading market has dropped. Over the past couple of months, the EAC has been able to buy these credits at relatively low prices.
Not to worry, says the EAC.
“The three per cent increase should be offset by dropping crude oil prices,” said EAC chairman Harris Thrasou.
“The next invoice sent to households will reflect this drop, so at the end of the day things will balance out,” he added.
But that may be just a stay of execution for consumers, because if crude were in the meantime to go up again the electricity bill for May or June would be bad news all the way.
Thrasou dismissed the notion the EAC had any share of the blame for Cyprus’ failure to comply with greenhouse gas emissions regulations.
In fact, he said, the EAC was a step ahead when it came to plans to switch to Liquefied Natural Gas (LNG).
Under a controversial law passed in 2007, the government set up a Public Natural Gas Corporation (DEFA), which is the only company legally entitled to buy LNG for the island’s needs. DEFA is owned jointly by the state and the EAC, which has a 44 per cent stake.
DEFA is in charge of negotiating deals to procure natural gas supplies, while the EAC’s role will be to run the land-based LNG power plant.
“Soon we shall be inviting tenders for the consultant for the terminal. We are trying to make up for lost time,” said Thrasou.
The most optimistic estimates place an LNG facility on the island no earlier than 2013.
