Analysis of the electricity market pricing structure in Cyprus

Recent reports from Dr. Andreas Prokopiou highlight the vulnerability of the Cypriot electricity market, noting that over 90 percent of generated power relies on oil combustion. This heavy dependence causes local electricity bills to fluctuate significantly in response to global geopolitical tensions and oil market volatility.

The electricity market operates on two distinct pricing systems. The first is the wholesale price, which is directly linked to global oil prices due to the aging and rigid nature of Cyprus's production units. The second pricing mechanism relates to Must-Run Units (YEM), managed by the Cyprus Transmission System Operator (TSMK). These units are kept operational through a auction process that, in practice, suffers from a lack of competition, as it typically involves only one bidder. Consequently, while the primary market price reacts to external geopolitical developments, the pricing for Must-Run Units follows a completely separate economic logic detached from fuel costs.

This structural analysis underscores the challenges in the energy sector, where outdated infrastructure necessitates mandatory operational requirements that limit efficiency and expose consumers to direct global market shocks.