Economic rationale / Business Model
The EU Directive 2009/72/EC concerns common rules for the internal market in electricity. The aim of the directive is to secure competition, the supply of electricity at the most competitive price and to facilitate cross-border access for new suppliers of electricity from different energy sources and new providers of power generation.For the Cyprus electricity law to comply with the EU Directive and promote freedom in the electricity market, CERA (the National Independent Regulatory Authority for Energy) aims to achieve this through the Net Pool model, the new market model designed to enable more efficient players to penetrate the market. There is a compelling business case for a new entrant using fossil fuels to enter the market, if the thermal efficiency exceeds EAC’s gas turbines efficiency which currently stands at around 45 46% (thermal efficiency of PEC’s gas turbines will be around 53%).Currently, EAC is the dominant electricity producer locally. Furthermore, EAC is expected to decommission the Dhekelia Power Station in Larnaca in 2024 which will lead to a gap in supply of electricity locally. Finally, due to economic prosperity,energy demand in Cyprus is forecast to increase from 5.277.000 MWh in 2019 to 6.765.000 MWh by 2027.
Project financing secured: EUR 0 million (0 %)
Financing source: Private
The project is seeking EUR 185 million financing, with an equity to debt ratio of 35% to 65%. The IRR for the project for the period 2017-2021 is 4.6%. The business plan and feasibility study were prepared as duty of care for a specific bank in Cyprus which the company is currently in discussions with, but they can be used to indicate the project’s financial viability for the purposes of securing financing from any source.
The promoter has received / applied for EU / EIB financing support related to this project.
Existing or potential bottlenecks for the realisation of the project / Potential risks
The project faces some risks given its scale, which are: delay in starting operations;difficulties penetrating the market; faster refurbishment of EAC’s existing plants; delay of natural gas becoming available in Cyprus; unforeseen changes in the energy market regulatory regime; RES penetration; discount in pricing. These could potentially have high impacts if they did materialise, but the probability of materialising is low and the management team’s experience and expertise will limit any exposure.
Project additional information
For the purposes of this development, Cyfield Ltd has acquired 100% of P.E.C., making P.E.C. part of the Cyfield Group of Companies. The project has obtained all the necessary licenses from CERA in regards to construction and operation and has already started construction. It is expected to be in full operation within 26 months, by Q2FY2021, in line with the arrival of liquid natural gas for Cyprus. Having the first mover advantage and being more efficient overall from the competitor will enable P.E.C. to grow significantly and be profitable, in line with projections. The Group of companies can help P.E.C. meet its debt obligations and repay the loan in full by FY32F.
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