Cyprus electricity market sends conflicting price signals as oil exposure drives costs
Cyprus has two parallel electricity-pricing mechanisms that produce sharply different cost signals. More than 90% of market value depends on oil-fired generation, while mandatory units are priced through a mechanism dominated by one bidder.
Two price tracks shape the market
Cyprus operates two parallel electricity-pricing mechanisms that follow different economic logic. The main wholesale price closely tracks international oil markets, while a second price applies to generating units that must remain in operation for system purposes. According to SBC TV, the latter is based on declared operating costs and an auction with effectively one bidder, rather than directly reflecting oil prices or electricity demand.
The distinction matters because more than 90% of the value moving through Cyprus’s electricity market comes from burning petroleum products. Most generating units are old and inflexible and must continue operating at their minimum technically feasible output even during sunny periods. With no electricity storage or cross-border interconnection available to absorb fluctuations, changes in international oil prices pass almost automatically into domestic generation costs and consumer bills.
Wholesale prices remain volatile
SBC TV reported that wholesale electricity traded at about €150-180/MWh in late 2025 before rising to €250/MWh in March. It subsequently declined, then returned to €243/MWh in August and reached €257/MWh in September. The average over the period was €203/MWh. These swings illustrate the direct exposure of households and businesses to petroleum-market shocks.
Cyprus cannot currently counter a rise in fuel costs with cheaper electricity imports. Renewable generation also cannot be used as fully as it could be because conventional plants must remain online and the system lacks storage. The result is a small, isolated power market in which petroleum prices continue to set much of the cost base, even as solar production may temporarily reduce demand for thermal generation.
For producers and large electricity users, this creates a cost structure that is difficult to hedge within the domestic system. Generators remain tied to imported fuel, while industrial and commercial consumers face wholesale movements driven by events outside Cyprus. Investment in renewable energy, storage and interconnection could reduce that exposure, but the existing pricing structure still determines current bills.
Mandatory units produce a different signal
About one-third of the market concerns Mandatory Integrated Units, which are kept available to support system operation. Their price is intended to reflect the cost of maintaining readiness rather than short-term supply and demand. In practice, SBC TV said the mechanism relies on declared costs that are not checked against actual fuel invoices, while the auction has essentially one bidder.
The same combination of four units entered this category in October 2025, June 2026 and September 2026. Their prices were €189.52/MWh and €227.37/MWh in the first two months, about 17% above the respective wholesale price. In September, however, the wholesale market reached its annual high of €257/MWh while the price for the same units fell to €75.77/MWh, turning the previous premium into a discount of about 70%.
The divergence raises questions about how the declared costs are calculated, verified and ultimately passed through to consumers. The Cyprus Energy Regulatory Authority faces pressure to clarify whether those costs are independently checked and whether the results will be disclosed. For market participants, transparent verification would help distinguish genuine system-security expenses from pricing outcomes created by limited competition.