Greece and Cyprus Reinforce Energy Cooperation with New Interconnector Project
The ambitious energy interconnection between Greece and Cyprus, with future plans extending to Israel, is back on track following a significant memorandum of understanding that was signed by the energy ministers of both countries on Friday. This memorandum coincides with the approval of a €125 million investment in the Great Sea Interconnector (GSI) by the Cypriot energy regulatory authority.
The Cyprus Energy Regulatory Authority (CERA) has sanctioned an annual investment recovery plan of €25 million for the GSI, which will be co-funded by the European Union, covering the period from January 1, 2025, until December 31, 2029. CERA also established a regulatory framework lasting 17 years starting from 2025, setting a weighted average cost of capital (WACC) premium of 3.7% on the investment made in this critical project.
In a notable turn of events, CERA rejected a plea from Greece's Independent Power Transmission Operator (ADMIE)—the entity responsible for implementing the project—to amend a prior decision made in July. This earlier decision stipulated a four-year regulatory audit cycle for the interconnector's commercial operations and confirmed that no changes were required regarding the methodology for adjusting permitted revenues and prices associated with the initiative.
CERA’s announcement, made available on its official website, underscores the approval for recovering actual investment costs during the construction phase while also stipulating that no extra costs would be passed on to the electricity consumers, unless the requisite government funding is not allocated. If the fixed fund of Cyprus fails to contribute the necessary funds for any particular year, consumers will not incur additional expenses.
The authority emphasized the financial assurances from ADMIE and Nexans Norway—the contractor tasked with laying the cable—highlighting an overall construction cost estimated at €1.939 billion. However, there is a potential for this cost to rise by up to 5% subject to the finalization of a dredging study.
CERA has requested complete transparency regarding the reporting of costs associated with the project; however, it acknowledged the necessity for finalizing various contracts, particularly those concerning the construction of substations.
Later in the day, Greek Minister of Environment and Energy, Thodoros Skylakakis, alongside Cypriot Minister of Energy, Commerce and Industry, George Papanastasiou, formally signed a framework of understanding to promote the GSI project. This signing event followed a recent meeting in Athens between Greek Prime Minister Kyriakos Mitsotakis and Cypriot President Nikos Christodoulides.
The GSI project is expected to begin its preliminary activities shortly. As outlined in the joint announcement from both nations' energy ministries, this interconnector is pivotal for abolishing Cyprus’s energy isolation by linking its national electricity transmission system to the trans-European systems.
The announcement also highlighted the strategic significance of this initiative, not only for Cyprus and Greece but for the entire European Union. It aims to integrate Cyprus into the European electrical grid, aiding in the nation’s energy transition while concurrently supporting Greece's ambition to become a corridor for the transportation of clean energy.
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