Greece Revises Cyprus Cable Returns

Greece has opened a consultation on the money model behind the Great Sea Interconnector, the proposed undersea electricity cable linking Cyprus to Greece. On paper, it is a regulatory adjustment. In practice, it is about who gets paid, when they get paid, and how much risk ends up on household electricity bills.

The lever is a small-sounding financing assumption: how much of the project is treated as debt and how much as equity. ADMIE, Greece’s grid operator, wants the formula changed in a way that makes the project easier to take to banks. Lenders like predictable regulated income. Consumers may be less keen if the same formula allows higher returns to be recovered through grid charges, especially if construction drags or disputed costs are later admitted into the bill.

What gearing changes and why it matters for bills

The consultation was opened on 21 August by RAAEY, Greece’s energy and water regulator, and covers the revenue formula for the Greek share of the cable (iEnergeia). Submissions are due by 11 September. The project itself is a 1,208 km, 1,000 MW undersea electricity link that would end Cyprus’s position as the EU’s last member state cut off from the European electricity grid (European Commission).

The key word is gearing, meaning the share of a project assumed to be funded by borrowing. Regulators use it to calculate the weighted average cost of capital, or WACC, which blends the assumed cost of debt and equity. That figure then helps set the annual revenue cap: the amount the operator is allowed to collect through grid charges on electricity bills.

ADMIE wants gearing set at 50–60% during construction and 40–50% after the cable is operating, as the asset is gradually written down. The existing formula reportedly assumed 60–80%, above the 45–60% used for ADMIE’s normal grid business (Sigmalive). Lower assumed debt means higher assumed equity. Equity is dearer because investors take more risk than lenders. The result is a higher allowed return, and therefore a higher annual amount the project can collect.

That stream of regulated income is what banks will scrutinise before signing loan agreements. For ADMIE and Meridiam, the French infrastructure investor that took a 66% stake in August, a more generous formula makes financial close easier to reach (Politis, iEnergeia). For electricity users in Greece and Cyprus, it means the cost left after the project’s EU grant of roughly €657m is recovered through network charges (CINEA).

Cyprus disputes the bill

Greece can adjust the Greek side of the formula. But this cable only works if both ends accept the economics. Under the current cost split, Cyprus carries 63% of the remaining costs on the Greece-Cyprus section, despite having a much smaller base of consumers to spread them across (Cyprus Mail).

The disagreement is not marginal. Cyprus’s regulator, CERA, has reportedly recognised only about €82m of the roughly €251m ADMIE says it has spent so far, or around 32% (Proto Thema). The Cypriot government has also withheld the first of five promised €25m annual advance payments. Its position is that payment comes only once a NAVTEX, the maritime notice needed to authorise seabed surveys, is issued and physical work resumes (Philenews). No such notice has been publicly confirmed (Cyprus Mail).

Who gains, who is exposed

If the cable is built on time, Cyprus is the clearest winner. A link to a larger grid would improve security of supply and open access to cheaper power. ADMIE and Meridiam would own a long-life regulated asset. Greece would gain a strategic role as the grid bridge between Cyprus and the wider European electricity system.

If delays mount and the approved cost base grows, bill payers become the backstop. Former CERA chairman Andreas Poullikkas has argued that grants and market revenues should be deducted before anyone talks about higher bills (Cyprus Mail). As accounting, that is right. But the European Court of Auditors has warned that cross-border electricity projects repeatedly run late, delaying revenue, increasing financing costs and forcing the same awkward question back on to the table: who pays? (European Court of Auditors).

Greece can make the model look better to banks. It cannot regulate away Cyprus’s refusal to accept the cost base. Until both regulators agree what has been spent and what can be recovered, the cable is more financeable in a spreadsheet than it is in cash.