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Reassessing Cyprus’ Competitive Electricity Market: Structural Distortions and Pathways to Reform

Two months ago, Cyprus embarked on its journey with a competitive electricity market model, promising enhanced competition, increased consumer choices, and lower prices. However, the real-world implementation under the so‐called “target model” has revealed significant distortions that are driving up costs for the end user.

Market Distortions in a Small, Isolated System

The fundamental issue lies in the wholesale market’s pricing mechanism. Specifically, the clearing price is determined by the most expensive conventional generation unit of the Electricity Authority of Cyprus (EAC), which must meet the entire demand. This single pricing benchmark is then applied across all market participants, including renewable energy sources (RES). In a market characterized by just two main players—the EAC and limited RES providers—the distortions become inevitable. Moreover, Cyprus’ lack of interconnection with neighboring countries further exacerbates the situation, reinforcing a de facto monopoly where the EAC controls over 90% of production.

The Timing of Price Setting and Its Implications

An analysis of the hourly operations in the wholesale market reveals the inherent biases. During night and early morning hours (00:00-06:30 and 16:00-24:00), the EAC operates exclusively, setting prices solely in its favor. In contrast, during peak morning and afternoon periods, both the EAC and RES are active, benefiting both groups. It is only during brief midday windows, usually spanning 2-4 hours, that RES might operate alone, potentially lowering costs for consumers. However, given the modest share of RES operations (only 3.4% of daily demand), the overall pricing mechanism remains steeply skewed towards EAC’s most expensive units, leading to higher bills for consumers.

Data Insights From November 24, 2025

The Cyprus Grid platform data for November 24, 2025, offers a clear illustration of these distortions. For 22 hours of the day, the wholesale price is dictated by the highest-priced conventional unit, while RES participation remains marginal. Even when a small portion (1.2%) is negotiated at a zero wholesale price during low-demand periods, the remainder (2.2%) is still subject to the expensive pricing mechanism. Consequently, both conventional and RES operators are remunerated based on the EAC’s highest cost, further inflating consumer expenses.

Toward a Sustainable Solution

Immediate and long-term reforms are essential to realign the market with the interests of consumers. Two critical measures have been proposed:

1. Immediate Relief: Implementing a Wholesale Price Cap

Setting a ceiling based on thorough analyses of actual production costs could protect consumers. Any excess pricing over this cap would be automatically rebated as reduced bills. This approach, similar to the successful Iberian Exception mechanism implemented in Spain and Portugal from June 2022 to December 2023 for gas-powered generation, would provide immediate consumer relief without disincentivizing investment in storage and flexible generation units.

2. A Permanent Solution: Contracts for Difference (CfDs)

CfDs have gained prominence across Europe and in markets such as the United Kingdom, France, Poland, and Greece. Under this model, renewable energy producers secure fixed prices via competitive tenders for extended periods (typically 15-20 years). When the wholesale price falls below the fixed price, a dedicated CfD fund compensates the producer, and vice versa—if the wholesale price exceeds the fixed rate, the surplus is returned to the fund, ultimately reducing consumer bills. This approach not only stabilizes long-term electricity prices but also enhances investor confidence and ensures an equitable distribution of any premium charged.

Implementation Roadmap and Final Thoughts

Pragmatic steps must be taken immediately:

  • 2026: Launch a pilot CfD program targeting 100 MW of new projects in solar and storage.
  • 2027-2028: Transition to mandatory CfDs for all new renewable, storage, and hybrid projects.
  • 2026 Summer: Amend the relevant legislation to incorporate these reforms.

The experience of markets like Greece and the UK shows that a well-organized, closely monitored tender system for hybrid projects (combining RES and battery storage) can ensure a fairer, more efficient market. The misfit of the current target model in Cyprus does not necessitate its abandonment but rather its rapid recalibration to suit local conditions.

Conclusion

By implementing a temporary price cap for immediate relief and transitioning to CfDs as a long-term solution, Cyprus stands to lower consumer bills, foster investments in renewable energy and storage, and build a fairer, sustainable electricity market. The time to act is now—not after another expensive five-year cycle of high electricity costs, but today, to build a more resilient and cost-effective energy future for every household and business in Cyprus.

Bank of Cyprus Upgrade Signals Fresh Optimism For Greek And Cypriot Banks

Regional Banks Enter A More Favorable Cycle

Bank of Cyprus and Eurobank are well positioned to benefit from a renewed re-rating of Greek and Cypriot bank stocks, according to Cyprus-based investment firm Roemer Capital, which upgraded Bank of Cyprus to a buy rating and reaffirmed its positive view on Eurobank.

The firm cited easing geopolitical tensions, resilient economic growth in Greece and Cyprus, lower funding costs and Greece’s expected transition to developed-market status as the main factors supporting the sector.

Roemer Capital also lowered its cost of equity assumptions, updated its forecasts following first-quarter 2026 results and extended its valuation horizon to the end of 2027, raising target prices across its banking coverage.

Bank Of Cyprus Gets The Largest Upgrade

Bank of Cyprus received the biggest revision, with Roemer Capital upgrading the stock from hold to buy and setting a target price of €11.10, implying potential total upside of 27%.

The firm highlighted the bank’s strong capital generation, profitability and projected 100% dividend payout, describing it as the strongest capital-return story among the banks under coverage. Roemer Capital maintained its buy rating on Eurobank, assigning a target price of €4.90 and forecasting potential upside of 28%. The report said the bank is well placed to benefit from loan growth, improving operating performance and merger-and-acquisition synergies.

National Bank of Greece and Piraeus Bank also retained buy ratings, with expected returns ranging from 25% to 36%. Optima Bank was upgraded to buy, while Alpha Bank remained at hold on valuation grounds.

Why Growth Still Sets The Region Apart

According to Roemer Capital, Greek and Cypriot banks continue to benefit from stronger economic fundamentals than many western European peers. The report pointed to faster economic growth, healthier balance sheets, low levels of non-performing exposures, capital ratios approaching 20% and strong customer deposit bases.

Analysts expect performing loans across the sector to grow at a compound annual rate of 6% to 8% through 2028, supported by private investment, digitalisation, green manufacturing, supply-chain expansion and a gradual recovery in household lending.

The report also said the conclusion of lending under the EU Recovery and Resilience Facility is unlikely to materially affect credit growth, as banks have already shifted back towards traditional commercial lending. Roemer Capital expects Euribor to remain between 2.2% and 2.5%, a level it believes should support both lending activity and net interest margins.

Geopolitics, Valuation And Market Structure Support The Case

The report said improving geopolitical conditions have strengthened the investment outlook, noting that Brent crude prices have largely returned to pre-war levels while Greek government bond yields have stabilised at around 3.5%. Although geopolitical risks remain, Roemer Capital believes the likelihood of a major inflationary shock or significant pressure on bank profitability has eased.

Another important catalyst identified by the firm is Greece’s expected promotion to developed-market status by FTSE Russell, STOXX and MSCI over the coming months.

According to the report, the reclassification should improve liquidity and attract a broader base of international investors. Roemer Capital also said Euronext’s acquisition of the Athens Exchange is expected to strengthen market infrastructure and increase international visibility, particularly for Bank of Cyprus and Optima Bank.

The firm noted that Bank of Cyprus has already benefited from its Athens listing, with average daily trading value increasing from less than €400,000 before its September 2024 move to nearly €6 million afterwards.

Economic Momentum Remains A Core Tailwind

Roemer Capital said both Greece and Cyprus have moved beyond post-crisis recovery and are now supported by private-sector-led growth. For Cyprus, the report highlighted recent tax reform and efforts to simplify the legal and regulatory framework, while also noting that limited foreign banking competition continues to support domestic lenders.

Overall, Roemer Capital expects Greek and Cypriot banks to remain well-positioned for profitable loan growth over the coming years.

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