Energy Efficiency Policies and Measures in Cyprus

Abstract

This report presents the case study of Cyprus for the IEE project “Monitoring of energy efficiency in EU 27, Norway and Croatia (Odyssee-Mure)”. Firstly it provides the economic and energy background to energy efficiency and then presents an assessment of energy efficiency trends in Cyprus in the period 1995-2010. Finally the energy efficiency measures and policies are presented and evaluated. The report is based on indicators produced from the Odyssee database and the measures extracted from the Mure database both available on line. Cyprus economy has grown by 32% in the period 2000-2010, an annual increase of 2.9% in the GDP. Value added increased in all sectors except agriculture. The most important sector which is services has increased by 40% and this explains the overall economic growth. The value added of industry increased by 12.5% over the same period, and the private consumption of households increased by 38.4%. The fiscal deficit initially deteriorated from 2.3% of GDP in year 2000 to 4.1% of GDP in 2004, became a surplus in years 2007 and 2008, and then deteriorated again strongly and reached 5.3% of GDP in 2010. Cyprus has adopted the euro in 1/1/2008. The euro zone has further stimulated economic growth. The economy is mainly services driven depending heavily on tourism but also on banking services and companies operating in Cyprus using the beneficial tax and credit system. The accession of Cyprus to the EU had a negative impact on agriculture, due to the cheaper agricultural imports from other EU countries and because of the long term water shortage which the Government has not resolved yet (desalination plants are currently expanded for this purpose) but also due to the common agricultural EU policy. The expansion of the value added of industry after 2001 is attributed to the construction of buildings (foreign demand). Private consumption has increased by 38.4% which is explained by low unemployment and increase in the disposable income of households. The conclusion is that Cyprus is a services-dominated economy with good macroeconomic indicators which has managed to enter the euro zone by implementing strict policies in public finance. The Cyprus energy system is small and isolated with no interconnections and no natural gas yet. Since 1995, primary energy consumption has increased by 40% - from 1970 ktoe in 1995 to 2769 ktoe in 2010. During the same period final energy consumption has increased by 35% - from 1409 ktoe to 1909 ktoe in 2010. Oil remains the dominant energy source of final consumers (72%). The shares in the energy balance of 2010 are: transport 56% (15% aviation), 17% households, 12% tertiary, 13% industry, 2% agriculture. During the period 1995-2010 primary energy intensity has decreased by 0.9%/year. In the same period final energy intensity has also decreased by 0.9%/year. The ratio of final to primary energy intensity has decreased slightly from 72% in 1995 to 71% in 2010. This essentially stable ratio is due to the transformation sector which has a low efficiency of 32%. Renewable energy sources (RES) have started to develop due to the relevant EU directive, and now comprises about 5% of final consumption. The decrease of the energy intensities suggest that improvement in energy efficiency has taken place although structural changes have also played a major role. During the period 2000-2010 the total energy efficiency index (Odex) has improved by 13% compared with 12% of the EU 27. The reasons for the improvement is the energy efficiency improvement of the industrial sector (mainly from the installations subject to the EU Emissions Trading system – ETS) and also the contribution from the transport sector (56% of final energy consumption) which has improved its efficiency thanks to new clean and fuel efficient vehicles. The efficiency index of the industrial sector has improved by 29% in the period 2000- 2010. The improvement is attributed to the non metallic mineral branch, which is subject to ETS, but also to some other branches which implement energy saving measures. The ETS sector consumes around 70% of industrial energy consumption. The other energy consuming branch is the food/beverage sector. Between 2000 and 2010 the household sector shows improvement 23% in the global Odex and 11% in the technical Odex. Even though the quality of data in this sector is not very good we can justify the improvement after the year 2004 when Cyprus entered the EU and the measures implemented have started to create energy savings. Prior to accession no significant policies existed. The very important EU directive for the energy performance of buildings has not been implemented fully yet and therefore the large savings potential is still unexploited. The transport sector shows an improvement of 9% in the Odex in the period 2000- 2010. Since in this period passenger traffic using public transport has decreased drastically, the improvement should mainly be attributed to the penetration of new clean and fuel efficient vehicles. Until 2004 diesel fuel prices for transport were subsidised. Therefore the large engine capacity private vehicles were replaced gradually when prices were liberalised. Another factor affecting the efficiency of this sector is energy consumption of aviation (15% of total national final consumption). From the jet fuel consumption per passenger a decrease of 17% has taken place in the same time period. In Cyprus public transport is not well developed. There is no rail infrastructure or water transport. However in 2009 a new Law was enacted for the regulation and development of public transport. The entire bus fleet will be gradually replaced and increased with new and environmentally friendly vehicles together with other infrastructure. Total CO2 emissions from fuel combustion in Cyprus have increased from 4.77 Mt CO2 in 1995 to 8.4 Mt CO2 in 2010. The increase is mainly caused by the low energy efficiency of the electricity generation which is 32% in the time period and is oil based since there is no natural gas. Natural gas will not reach Cyprus before 2015. The total direct CO2 emissions from all final energy consuming sectors have increased by 18% between 1995 and 2010, from 3.6 Mt CO2 in 1995 to 4.2 MtCO2 in 2010, while they had peaked in year 2007 to 4.7 Mt CO2 and then declined as a result of the economic downturn of years 2008-2010. Cyprus has significant potential for energy savings in buildings and then in transport. Since the accession in 2004 all European policies in energy efficiency have been transposed and started to be implemented gradually. It is expected that a few more years are required until all the measures synergistically will deliver significant energy savings. In this respect the second National action plan (ESD 2006/32/EC) has been submitted by the Ministry of Commerce and Industry (www.mcit.gov.cy) in 2011 to the Commission with all the measures necessary for achieving a target of 10% in year 2016. The emphasis is two fold firstly to implement fully the EPBD directive, provide incentives to existing buildings for efficiency improvements and then to develop an efficient, environmentally friendly public transport system. Two more elements have occurred in the recent years which will affect drastically the energy policy in Cyprus. Firstly the major catastrophic accident of the biggest power station in Limassol in July 2011 after the explosion at a near-by naval base. The capacity was 700 MWe (50% of total). This has resulted in severe problems to cover the demand and significant increase of electricity prices. The second is that Cyprus is exploiting its economic exclusive zone (EEZ) for hydrocarbons and has completed two rounds of authorising rights in the 12 sea blocks of the EEZ. Thus far the results from the research drilling (first round of licensing from one block) have proven significant reserves of natural gas whose recovery is expected to start by 2017. The gas will be transferred to land via a pipeline with the construction also of an LNG terminal.