Cyprus introduces energy storage subsidy scheme

Cyprus has introduced its first ever energy storage subsidy scheme concerning large-scale renewable energy plants, targeting a 350 MWh rollout. The scheme has a competitive character, offering EUR 35 million ($36 million) for the purchase and installation of energy storage units alongside existing solar PV, wind and biomass power plants.

Under the new legislation, solar PV, wind and biomass plants that receive FiTs up to EUR 166/MWh can claim capital expenditure (capex) for the purchase and installation of storage capacity up to EUR 100,000/MWh. However, there is a subsidy cap of EUR 300,000/MW for solar PV and wind farms and EUR 115,000/MW for biomass installations. Equipped with EUR 25 million, this category will receive the scheme’s largest portion of funding.

Furthermore, solar PV and wind parks that receive FiTs larger than EUR 166/MWh and up to EUR 250/MWh are eligible for the maximum amount of subsidy of EUR 50,000/MWh of storage. There is a subsidy cap of EUR 100,000/MW of solar PV and wind power farms. The scheme will finance this category with EUR 2.5 million.

The third category comprises solar PV and wind parks that receive FiTs larger than EUR 250/MWh and up to EUR 340/MWh. The maximum amount of capex subsidy for these plants is EUR 25,000/MWh of storage and the subsidy cap now drops to EUR 50,000/MW of solar PV and wind power capacity. This category has also a budget of EUR 2.5 million.

Finally, renewable power plants that operate under net billing – practically these are all PV installations – constitute the final group. The program will dedicate EUR 5 million for this category and has set a maximum subsidy of EUR 75,000/MWh of storage. However, for this category only, the subsidy scheme provides only up to 70% of the capex storage costs. On the contrary, plants that belong to the other three categories are eligible for 100% of capex compensation.

The subsidy scheme runs until 2027, in which time the ministry will be running open calls for bids. The first call will run from February 14 to March 28, 2025 and interested parties need to apply electronically.

The primary goal of the new subsidy scheme, argues the ministry, is to reduce the cost of electricity on the island. This goal, adds the ministry, will be met because storage units will absorb power that is currently been curtailed and inject it to the grid, supplying it with cheap electricity.

Indeed, Cyprus faces an acute electricity curtailment issue. A year ago, the local transmission grid operator forecasted that Cyprus was set to curtail 28% of green electricity in 2024.

Technical requirements

The subsidy plan sets various technical requirements regarding the charging durations of the batteries, their degradation characteristics, and others.

Regarding the operation of the hybrid renewables and battery projects, the subsidy scheme splits the projects according to their maximum injection or absorption to the local grid. Thus, installations over 120 kW, excluding self-consumer projects; installations up to 120 kW, excluding self-consumers; and self-consumer facilities are treated differently.

The first group, over 120 kW, need to connect to the local grid network’s SCADA system. The grid network will be able to flex and operate those plants curtailing their power output, deciding when to inject power to the grid, and activate or deactivate grid services (frequency response and grid stability services are required). The plan says “it will be intended that the operation of the storage system is limited to one charge/discharge cycle every 24 hours.” Also, “eligible installations will be able to absorb energy from the grid up to 25 % con am annual net-metered approach, while the charging of storage systems for at least 75 % will be done exclusively with energy produced by the RE unit that is part of the same installation.”

FiT supported RE plants smaller up to 120 kW do not need to connect to the grid’s SCADA system, however they must not absorb power from the grid and must follow a predefined load curve which requires one cycle per day. “The mode of operation of installations below 120 kW is determined by the investors themselves,” says the ministry.

Energy storage units that are added along net billing systems more specifically must absorb energy only from the PV panels and cannot inject it in the grid, unless asked to do so by the network operator. Therefore, the subsidy plan allows storage systems along net billing projects in order to increase the self-consumption of the premises and not to exchange power with the grid. Islanding mode (off-grid operation) is also prohibited.

The above operation rules are valid for five years, which is the contract duration under the new subsidy scheme.

Fierce competition

The Cypriot ministry says it aims to install about 150 MW (350 MWh) of energy storage capacity through the subsidy scheme.

It has also introduced measures to make the scheme very competitive and reliable. Therefore, there are specific subscription levels set for the allocation of subsidies across all four subsidy categories (e.g. participants can only apply for certain storage capacity and for each subsidy category a certain level of competition is required), while all participants need to provide guarantee letters from financial institutions proving their financial robustness.

Candidate projects won’t only be ranked according to their Capex bids. Participants to each subsidy category of the competition also need to make offers concerning the price of electricity to be injected in the grid and the scheme has set a ceiling for it at EUR 0.11/ kWh. The agreed price cannot change over the duration of the subsidy contract. Also, small projects are preferred to larger installations in order to encourage competition.

The emerging question is whether investors will show interest in Cyprus’ new energy storage subsidy scheme. It is an open question why investors who receive such high FiTs will want to take the risk to add energy storage units, injecting electricity to the grid for much lower prices than their guaranteed FiTs.

The scheme is funded by the European Union’s Just Transition Fund.