GSI’s strategic benefits extend well beyond economics

Recent developments suggest the project is now closer to realisation than at any time since it was first proposedThe Great Sea Interconnector (GSI) has entered a new phase. The recent decision by French infrastructure investor Meridiam to become the project’s 66 per cent majority shareholder has renewed confidence that the interconnector can move from concept towards implementation. More importantly, it provides an opportunity to reassess the project on its broader merits. GSI is not simply an infrastructure project. It is an investment in the future structure of Cyprus’ electricity market. Its value lies in three complementary layers of benefit: economic, operational and strategic.Taken together, these provide a compelling long-term case for GSI. Competition is the principal economic benefit The greatest economic contribution of GSI is not just that it allows Cyprus to import cheaper renewable electricity, it is also that it fundamentally changes how electricity prices are formed. By exposing Cyprus’ isolated market to competition from the much larger European electricity market, wholesale electricity prices are no longer determined solely by domestic producers. Domestic generators – including renewable generators – must increasingly compete with electricity imported from neighbouring markets. That competitive pressure is likely to become the project’s single biggest economic benefit. Consumers therefore benefit not only from imported electricity but also from the discipline that competition brings to the domestic market. For decades, Cyprus has operated as an isolated electricity island. Even after the introduction of a competitive electricity market, it still remains relatively small with high prices, and restrictive with no serious competition. The interconnector changes that fundamentally. Electricity will increasingly flow according to market conditions, allowing Cyprus to benefit from competitively priced renewable electricity elsewhere in Europe while encouraging greater efficiency from domestic generators. Rather than simply adding another source of electricity, GSI will transform the way the electricity market functions. System efficiency delivers additional savings Competition, however, is only part of the economic story. The interconnector also enables Cyprus’ electricity system to operate more efficiently. Reserve, standby, generation requirements can be reduced because neighbouring systems are available to provide support during unexpected outages or periods of exceptionally high demand. Excess renewable electricity can be exported instead of being curtailed. System-balancing becomes more efficient, operational flexibility improves and generating plant can be dispatched more economically. Together, these operational improvements are expected to generate additional net savings equivalent to around 1-2 c€/kWh for consumers. Equally important, even under pessimistic assumptions – including higher project costs and more modest operational benefits – the direct impact on consumer electricity prices is expected to remain broadly neutral. In other words, even if the financial benefits prove smaller than anticipated, consumers are unlikely to bear a significant long-term cost for obtaining the much wider strategic benefits the project offers. Strategic benefits extend well beyond economics Some of GSI’s greatest benefits cannot be measured in cents per kilowatt hour. The project will end Cyprus’ complete electrical isolation for the first time. It will significantly strengthen energy security by providing access to neighbouring electricity systems during supply shortages or equipment failures. It will improve system resilience, facilitate higher renewable energy penetration by reducing renewable curtailment and enable Cyprus to participate fully in the European electricity market, something every other EU member state already enjoys. As Cyprus continues to electrify transport, industry and heating and increases desalination over the coming decades, these strategic benefits are likely to become increasingly valuable. Meridiam and EIB could become the catalyst Meridiam’s investment has already changed the project’s dynamics and financial landscape. Unlike government support, private infrastructure investors commit capital only when they believe a project is commercially viable and capable of generating acceptable long-term returns. Meridiam’s decision therefore represents an important commercial endorsement of GSI. The forthcoming European Investment Bank (EIB) assessment is now the project’s next important milestone. Its importance lies not simply in evaluating the project’s technical and economic merits, but in determining whether it supports the requested financing of around €1 billion from EIB. Meridiam’s participation has significantly improved the project’s prospects and makes EIB financing more likely. Meridiam has already strengthened the project’s commercial credibility, making participation by TAQA, Masdar, the US DFC and, potentially, Israel increasingly likely. Approval of the proposed €1bn EIB financing could effectively clinch international financing and the project. GSI is progressively evolving from a Cyprus-Greece interconnector into a genuinely multinational strategic investment. Strengthening geopolitical resilience This broader international participation has implications that extend beyond financing. Discussion has often focused on whether Turkey could obstruct construction of the interconnector. That risk cannot be dismissed. However, the geopolitical balance has already begun to change. The project already benefits from the largest European Commission grant ever awarded to a Project of Common Interest, reflecting its strategic importance in ending Cyprus’ electricity isolation. The commission has repeatedly reaffirmed its political support, while Greece has consistently maintained that the project is fully consistent with international law and has made clear its determination to protect lawful implementation activities. Meridiam’s participation further strengthens that position. Together with Nexans, France now has two major companies directly involved in the project. While this does not constitute a security guarantee, it increases France’s political interest in the project’s successful completion and raises the diplomatic and commercial costs of any attempt to obstruct it. If EIB financing follows, Europe’s principal public investment institution would itself become one of the project’s principal stakeholders. Combined with the European Commission, Greece and potentially additional international investors, the coalition supporting GSI would become progressively broader and more influential. None of this totally eliminates geopolitical risk. But it does make the political, diplomatic and commercial costs of obstruction progressively higher. Looking beyond today’s debate GSI should ultimately be judged not as an electricity cable, but as a long-term investment in the future structure of Cyprus’ electricity market. Its principal economic contribution is introducing genuine competition into the domestic electricity market, creating sustained downward pressure on wholesale electricity prices through access to the wider European market. Its operational benefits provide additional measurable savings through a more efficient electricity system. Its strategic benefits strengthen energy security, improve resilience and fully integrate Cyprus into Europe’s electricity market. Recent developments suggest the project is now closer to realisation than at any time since it was first proposed. Meridiam’s investment has already demonstrated commercial confidence. If this is followed by the proposed €1bn EIB financing and broader international participation, GSI will become not simply an interconnector between Cyprus and Greece, but a strategic European infrastructure project with strong international backing. Viewed through that wider lens, GSI becomes much more than an infrastructure project. It becomes an investment in a more competitive electricity market, a more secure energy system and a stronger strategic position for Cyprus within Europe for decades to come. Cyprus must not remain a bystander. Dr Charles Ellinas is a Senior Fellow of the Global Energy Center of the Atlantic Council