Reducing our oil dependence is the best investment in the prosperity of Cyprus

By Theodoros Zachariadis, professor at the Cyprus Institute

Imagine that meat prices rise by 30 per cent, whether due to foot-and-mouth disease or energy costs. This creates serious inflationary pressures throughout the economy. If you are a vegetarian, how much does this affect your cost of living? Not at all!

Suppose your electricity bill goes up by 20 per cent due to higher oil prices, and instead of 300 euros every two months, you end up paying 360. But if you have solar panels on your roof and have reduced your bill to 50 euros every two months, you’ll now pay 56 euros. How much has your cost of living been affected? Negligibly!

Suppose you have an electric car, which has much lower charging costs than your old gas-powered car. If the price of gasoline rises by 40 per cent, how much will your cost of living be affected? Much less than if you had your old car: the new one consumes comparatively little, and the cost of electricity to charge it will increase by a much smaller percentage than the price of gasoline.

Not to mention how little you’ll be affected by higher fuel prices if you get around by bike and only use a car for rural trips: virtually no change in your cost of living. (Don’t laugh—many of us could give up the car more easily than we think.)

Obviously, this doesn’t mean we all have to become vegetarian cyclists. But it does point to the direction in which our economy should be moving more quickly when it comes to energy issues. Because all these fluctuations in oil prices, which affect both the real economy and the economic sentiment in Cyprus, could have a much smaller impact if our economy had already become less dependent on petroleum products.

Well, we know all this, you might say. But are you sure we know the full extent of these implications? Let’s look at some figures.

Last September, we published a study with results that surprised me. The renewable energy sources installed in Cyprus between 2015 and 2024, mainly solar panels, about which we complain because their deployment didn’t grow faster—have already yielded net benefits of 450 million euros to the Cypriot economy to date. These benefits will continue to grow in the future, as photovoltaic systems have a lifespan of at least 15–20 years, meaning that the total benefit is expected to reach 2.7 billion euros by 2035.

We have also calculated every euro the Cypriot economy spent to import photovoltaic systems from abroad, along with the equipment needed to expand the electrical grid to support these systems, yielded over ten euros in direct benefits for the economy.

How did this happen? Because of the electricity generated by the renewable energy sources installed between 2015 and 2024, and despite the curtailments in recent years, we saved ten times the amount of money we would have spent on additional oil products that the Electricity Authority of Cyprus would have purchased to generate the same amount of electricity. Furthermore, since using more fuel would further increase our emissions, we would have to pay even more for the EAC to purchase (and pass on to consumers) additional emission allowances. We have now avoided this because part of our electricity is generated from renewable sources.

At the same time, this (albeit limited so far) reduction in dependence on oil helps reduce air pollution and protect public health. If we factor in these benefits as well, then we saved 17 euros for every euro the country spent on importing solar panels.

These are the immediate benefits. However, the 450 million we saved on fuel imports—money we would have sent to oil-producing countries and refineries abroad— improved our trade balance, which helped reduce our external debt and freed up resources for increased consumption and investment. In addition, even the slight relief provided by the purchase of emission allowances helped us avoid certain increases in electricity prices, thereby saving businesses and households some money.

Just because we don’t see these benefits immediately doesn’t mean they don’t exist. Not to mention the increase in economic activity and employment resulting from investments in renewables—otherwise, we’d be wasting our money by burning more fuel oil and petroleum. The 450 million euros we saved, combined with the multiplier effects I mentioned, are estimated to have generated 1.4 billion euros in added value for the economy. Especially after 2020, when the installation of solar panels accelerated, the impact on GDP ranged between 0.5 per cent and 1 per cent annually, creating more than 25,000 jobs.

And what about natural gas? Things will be somewhat better than with oil, and we would do well to start using gas for power generation as soon as possible, but let’s not expect miracles. Energy crises will always exist and will also affect liquefied natural gas prices (as is the case today), so we will once again be vulnerable to international political crises over which we have no control. Even if we use domestic natural gas, the extent to which we will be protected from international crises depends on the agreements we make with the extraction companies.

Let us clarify something, however: These benefits of the green transition have not been distributed equally across the economy and society. The main beneficiaries to date have been many investors in solar farms, as well as 25–30 per cent of Cypriot households that were able to install solar panels. Most citizens and businesses have benefited to a much lesser extent. With more renewable energy, perhaps some careful interventions in the electricity market, and through more widespread initiatives such as energy communities, the benefits of the green transition can be more widely shared throughout society.

The electrification of the economy and the use of renewable energy sources, along with all the additional infrastructure required—mainly energy storage— can protect us from most of the shocks to inflation and fiscal stability caused by future fluctuations in fossil fuel prices. This safeguards the country’s competitiveness and energy security. We know this, but have we realized just how much they benefit us, now that we’ve started talking again about fuel subsidies and other extremely costly measures?