Investors in Cyprus are becoming increasingly upbeat about the opportunities that its energy sector offers in both the oil and gas and renewable markets, not to mention developments that could drive down the price of the island’s notoriously expensive electricity supply.

There have been a number of recent multilateral agreements, including the signing of a deal to connect Israel, Cyprus and Greece with an underwater electricity supply. “This will also enable us to connect to the European grid and not be isolated any more,” says Yiorgos Lakkotrypis, Cyprus's minister of energy, commerce, industry and tourism. “Another possibility is connecting to a natural gas pipeline with the eastern Mediterranean and Greece.”


Green solutions

Cyprus's total electricity capacity from renewable energy sources reached 181 megawatts (MW) in May 2013. The renewable energy mix includes wind farms, photovoltaic systems, solar thermal plants, and biomass and biogas utilisation plants. “Solar is a top priority as it is more predictable than wind, so gives us more stability,” says Mr Lakkotrypis.

Georgios Shammas, chairman of the Cyprus Energy Regulatory Authority, agrees: “We have regular meetings with potential investors. We've seen very good progress in investing in solar, wind and biomass. Our main target now is to achieve integration of renewable sources in the electricity market with the minimum cost and without jeopardising the operational security of the system.”

Over the past couple of years the authorities have stepped up the pace of tender projects for photovoltaic parks. At the end of 2012, they announced 18 photovoltaic park licences, and earlier this year they licensed 23 projects of varying sizes producing a total of 50MW following an online tender. The government has also targeted 5000 disadvantaged families for a photovoltaic power installation programme, which ends in December 2013.

The Ministry of Energy, Industry, Commerce & Tourism’s goal is to reach a minimum generating capacity from renewables of 584MW by 2020, which will account for 16% of the country’s total electricity production and will be 3% higher than the EU target. This all means that there are opportunities for significant investment.

“Renewables are changing system operational decisions significantly,” says Mr Shammas. “As they make up an increasing part of the system, it makes the electricity system as a whole more difficult to operate and forecasting is not easy. But we’re gradually improving our knowledge and have currently better forecasting for wind parks, which is the renewable source whose generating capacity is the most difficult to predict.”

Oil and gas

The presence of deepwater natural gas reserves in the Cyprus Exclusive Economic Zone is attracting interest from global investors. The Cyprus Investment Promotion Agency believes that with energy developments in neighbouring countries, there could be an opportunity for Cyprus to become an energy hub in the eastern Mediterranean. Additionally, the government hopes to create a knowledge-based economy around oil and gas and export that expertise.

Noble Energy, Delek Drilling and Avner Oil Exploration have signed a memorandum of understanding with Cyprus for a liquefied natural gas (LNG) terminal in June 2013. Initial construction is expected to take four years to complete, and additional production lines will also be constructed for major energy companies currently exploring offshore. Building work is expected to last for 15 years and investment in the production of LNG will run into billions of euros. “We have opportunities upstream, midstream and in the LNG plant that we are planning to develop to monetise our reserves,” says Mr Lakkotrypis. “We also have opportunities in downstream with buyers of gas."

Energy has the potential to make an increasingly important contribution to the island’s GDP. “In the mid-term, the effects of energy on GDP will be indirect,” says Mr Lakkotrypis “We see companies using Cyprus as a base to serve the whole of the eastern Mediterranean. There will also be prospects for logistics and offshore rig servicing. In the longer term, the revenue from the natural gas itself will have a positive impact. It looks very promising. However, we are not depending on those revenues to turn the country around. We must do what we need to do to turn things around and then the revenues from the reserves will be like the cherry on the cake.”

Distribution hub

An 858,000-cubic-metre private petrol storage and distribution terminal is being constructed by VTT Vasiliko (VTTV) Cyprus, in the port of Vasilikos. According to VTTV general manager George Papanastasiou, this €300m foreign investment project is equal to 1.7% of Cyprus’s GDP. Phase one of the project, with a capacity of 357,000 cubic metres, is scheduled for completion in 2014. Phase two will add a further 186,000 cubic metres, and a third phase will bring it up to its full planned capacity. A marine jetty capable of handling all oil products is being constructed as part of the project. Extending 1200 metres offshore, it will have two berths with a draft of 18.1 metres and two with a draft of 13.2 metres.

“This will make ship-to-ship operations safer, and will help to dramatically increase trans-shipments of fuel in Cyprus,” says Mr Papanastasiou. “In addition the project can serve the local market and act as an option for the storage of Cyprus’s compulsory stocks of fuel.

“Cyprus is very well located for transporting fuel oil from the Black Sea to Asia, gasoline from Europe to the eastern Mediterranean and the Red Sea, and middle distillates from the East to the West. Our parent company evaluated other locations, but some have a less stable political environment, while others were a no-go for security reasons. Cyprus offered a favourable tax environment and bonded warehouse. It also has deep seawater close to the shore to accommodate large ships.”

The government says it is putting together a mechanism that will fast-track large projects. “All ministers who are involved issuing permits are working together to try to get it done,” says Mr Lakkotrypis. “We need to put together structures that are able to handle large projects and this is something that we’re working on right now. Having said that, we are handling a few very large projects which we are trying to expedite with the relevant government agencies and ministries. So we’re not waiting for this mechanism – it is just going to put it on a more solid legal footing and make it part of the regulatory environment.”