The recent launch of Cyprus’ competitive electricity market marks a significant step in modernising the island’s energy framework. However, energy expert Andreas Poullikkas, a professor of energy systems at Frederick University and former chairman of the Cyprus Energy Regulatory Authority (CERA), warns that strong regulatory safeguards remain essential to prevent market distortions and adequately protect consumers.

Strengthening The Regulatory Framework

Poullikkas emphasises that the transition toward a competitive operating model does not automatically guarantee fair pricing or stable market dynamics. The existing regulatory framework, formally known as the “Statement of Regulatory Practice and Electricity Pricing Methodology,” was designed to prevent cross-subsidisation while ensuring tariffs accurately reflect the actual cost of electricity services.

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At the same time, he argues that further refinements are still necessary, particularly regarding pricing mechanisms in the day-ahead market.

Addressing The Dominant Producer’s Market Influence

At the heart of the discussion is the method by which the dominant market player, notably the Electricity Authority of Cyprus (EAC), sets its prices in the day-ahead market. Poullikkas argues that because the EAC retains a key role in the country’s generation activity, its market bids cannot be equated with those of competitors in a fully mature market. He advocates for a clearly defined, cost-based pricing strategy that not only reflects actual variable costs and technical constraints but also guards against unpredictable cost transfers from regulated structures.

Transparent Rules For Must-Run Units

Regulatory concerns also extend to the handling of must-run generation units, which remain necessary for maintaining system reliability even when they are not the lowest-cost option available. According to Poullikkas, compensation for these units should be managed through separate and transparent mechanisms to avoid creating hidden costs within the market structure. He additionally stresses that physical allocation should take place before financial settlement so reliability-related costs do not unintentionally distort market outcomes or place additional burdens on consumers.

A Lesson In Gradual Liberalization

Poullikkas draws comparisons with electricity market transitions across the European Union, where liberalisation has historically depended on clear regulatory rules, effective supervisory oversight and carefully managed transitions away from monopolistic structures.

While he believes the core principles of Regulatory Decision 01/2021 remain solid, particularly those linked to cost-reflective tariffs and the prohibition of cross-subsidisation, he argues that their practical implementation in Cyprus still requires greater precision and clarity.

The Renewable Energy Debate And System Reliability

Beyond immediate pricing concerns, Poullikkas also challenges the assumption that increasing renewable energy capacity will automatically lower electricity prices. According to the expert, the long-term cost efficiency of the system depends not only on generation costs but also on investments in grid flexibility, storage infrastructure and energy interconnections. These issues remain particularly important for Cyprus because the island continues operating as a non-interconnected electricity system.

Conclusion: Clear Regulation For A Fair Market

In summary, ensuring that every cost is recovered just once, via the proper mechanism and with complete market transparency, is pivotal. The expert’s insights serve as a reminder that without a clear, segmented, and transparent regulatory approach, Cyprus risks creating a revenue recovery mechanism that falls short of developing a truly competitive market. The future success of the island’s energy transition hinges on these fundamental regulatory prerequisites.