A new economic analysis by Professor Theodoros Zachariadis of the Cyprus Institute has shed light on what electricity prices in Cyprus could look like if natural gas were already in use for power generation. Under current conditions, prices would drop by approximately 15-20%, offering significant financial relief, particularly to low-income households.
Zachariadis, who coordinated the impact analysis of Cyprus' National Energy and Climate Plan and advised the previous government on green tax reform, cautions that claims of a 30-40% price drop are overstated. However, a 17% reduction appears plausible with current fuel market prices and infrastructure assumptions.
Electricity prices: From 28.3 to 23.4 cents/kWh
Based on the study's modelling, if Cyprus had access to natural gas today:
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With current average fuel costs of €768 per tonne (January-July 2025), a typical household consuming 1,500 kWh every two months pays around 28.3 cents/kWh.
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If imported LNG averaged $12/MMBTU (the current European rate), electricity prices would fall by 17%, reaching 23.4 cents/kWh.
These calculations include the amortisation of natural gas infrastructure investments. The study assumes other pricing components, such as administrative costs, network charges, and green levies, remain unchanged.
Fuel costs would drop from 40% to 27%
Professor Zachariadis explains that fuel and emissions costs currently account for 40% of the final electricity price, including VAT. With gas replacing oil-based fuels at the Vasilikos power station, that portion would fall to 27%, thanks to:
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Lower carbon emissions from natural gas, which reduce the need to purchase expensive EU emissions allowances.
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Better energy efficiency of gas-burning units compared to existing fuel-oil systems.
For an average household with bimonthly consumption of 1,500 kWh, a 17% price cut would reduce bills from €425 to €351, saving €74 per period, or €444 annually.
The reduction is partly due to a 33% drop in carbon emissions when using gas instead of heavy fuel oil, resulting in lower environmental compliance costs passed on to consumers. Of this drop:
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25% stems from the lower carbon content of natural gas.
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8% comes from higher energy efficiency of modern gas units.
Bigger impact on lower-income households
Electricity cost reductions would disproportionately benefit lower-income households, which spend over 5% of their net income on electricity, compared to just 1.4% for wealthier households.
“A 17% reduction could boost the purchasing power of low-income households by nearly 1%, or €100-150 per year,” Zachariadis notes. “While that may seem modest, it is not insignificant for vulnerable families.”
However, the impact would be less visible among households with rooftop solar panels, which now account for 20-25% of consumers. Those without such systems, often due to financial or spatial constraints, would see the greatest benefit.
Additionally, cleaner air from lower NOx, SOx and particulate emissions would improve public health in the Vasilikosregion.
Commercial and industrial benefits
Businesses would also benefit from similar electricity tariff reductions, potentially lowering production costs and improving competitiveness.
Still, Zachariadis warns, “A 10-20% drop in electricity costs is unlikely to result in major reductions in the prices of goods or services.” The savings would provide relief, but not necessarily trigger consumer-level price drops.
Asked whether a liberalised electricity market could further ease the burden on consumers, Zachariadis said that some large-scale users such as industrial firms might strike better deals with private suppliers.
“However, this wouldn’t apply to the majority of households,” he added. The final consumer impact would also depend on how state-owned Electricity Authority of Cyprus (EAC) units, such as those in Dhekelia, are integrated into the competitive market.
Notably, the ageing and inefficient Dhekelia units, currently burning fuel oil, are being replaced with new diesel-fuelled plants, at a cost exceeding €150 million. Yet, diesel is more expensive than fuel oil, let alone natural gas, raising questions about the long-term cost-efficiency of this strategy.