Great Sea Interconnector running out of time: Two EU countries taking another crack at negotiations

Greece and Cyprus are getting ready to hold talks, which are seen as a last shot to sort out the issues surrounding an interconnection project that will link the Cypriot-Greek electricity grids, allowing the multi-billion-euro subsea interconnector to connect Europe, the Middle East, and Asia by linking the electricity transmission dots for the Cyprus-Greece-Israel triangle.

With time slipping through the Greece-Cyprus link’s fingers like grains of sand, a meeting between Greek and Cypriot leaders has been scheduled for Thursday, September 19 at the office of Kyriakos Mitsotakis, Greek Prime Minister, in Athens. Many believe this to be a last-ditch attempt to reach a mutually beneficial agreement for the Great Sea Interconnector project.

The 1,240 km high voltage direct current (HVDC) interconnector project, previously known as the EuroAsia Interconnector, envisioned to connect the two European Union (EU) countries’ electrical grids, is estimated to require about €2.4 billion to be brought online by 2030, connecting the electricity grids of Greece via Crete, Cyprus, and eventually adding Israel to the transmission list. If the project links only Greece and Cyprus, the cost is forecast to be around €1.9 billion.

Even though the Cypriot cabinet was due to convene a meeting in Nicosia to approve the country’s agreement with Greek officials last week on September 9, the session was postponed until the following day, when the Greek side pointed out that Cyprus would need to enter the project as a stakeholder to ensure its development.

Before the meeting, Thodoris Skylakakis, Greek Minister of Environment and Energy, highlighted that developments had “not turned out as we expected,” confirming “the opportunity to discuss the issue on Tuesday at a meeting convened by the President of the Republic of Cyprus.”

The list of participants was expected to encompass European Commission representation and France’s Nexans since the cabling giant won a deal to develop the project’s power cable scope. Allegedly, Nexans intends to pull out of the contract if the issues, leading to delays, are not ironed out.

Based on so-called government sources, Cyprus aimed to secure assurances on all political and economic matters, planning to directly seek information from Nexans regarding the situation, including any potential issues with the cable contract’s implementation. The country also intended to address the broader geopolitical implications.

Greece’s electricity transmission system operator (TSO), Independent Power Transmission Operator (IPTO or ADMIE), which disclosed its intention to pour €160 million into the subsea link, underlines that Cyprus’ previously disclosed plan for the project’s revenue recovery period creates a funding deficit of more than €100 million, which stands in the way of the interconnector project’s development.

As a result, Greek officials said they would cut the cost recovery in half, from €250 million to €125 million, in exchange for prolonging the guaranteed return period of a weighted average cost of capital (WACC) of 8.3% on the project from 12 to 17 years in regards to the Cypriot side.

Should the attempt to agree on a path forward for the development of the Great Sea Interconnector turn out to be a bust, the European Commission will demand back its investment, amounting to €657 million in subsidies, which will make it difficult to find funding partners to start again from scratch.

Despite the dire straits in which this subsea interconnector project finds itself, there is no confirmation from Cyprus about accepting the Greek proposal to recover €125 million in total over five years at a rate of €25 million per year from 2025 up to 2030, rather than from 2030 onwards, which was Cyprus’ request. However, a decision to recover up to €125 million has been greenlighted.

The reason behind Cyprus’ hesitancy in backing the project is still unclear since the Greek government agreed to an even split of the project’s cost after a 63% share was initially allocated to Cyprus, as the primary beneficiary of the subsea interconnection.

Notwithstanding the previous, deep-rooted objections, RAEK, the Cypriot energy regulatory authority, recently agreed to approve the revenue recovery during the project’s development, beginning in 2025, until its launch, which is planned for 2030. However, this agreement still needs to be approved by the Cypriot cabinet.

The latest delay in the Great Sea interconnector comes months after the U.S. International Development Finance Corporation (DFC) handed over a letter of intent (LoI) to the Greek TSO, expressing its interest in investing in the project.

A few days later, Meridiam, a Paris-headquartered investment management company, also entered into the shareholding structure of the company responsible for implementing the electric interconnection project. Julie D. Fisher, U.S. Ambassador to the Republic of Cyprus, recently discussed the critical nature of the Great Sea Interconnector project and emphasized the importance of Cyprus’s connection to Europe’s energy grid.

As a country isolated in terms of electricity, Cyprus faces a precarious situation that could hinder its development and stability. This project is said to offer a path to energy sustainability, which is vital not only for Cyprus’s energy independence but also for its growing technology sector.

Fisher added: “Cyprus stands alone in terms of its electricity connection, and it’s in a very precarious place. Now is the time to be thinking about the geopolitics around this kind of project, how important it is to see Cyprus connected to Europe via this opportunity, and to recognize that Cyprus has struggled for quite some time with major energy projects. Now is the time to get it right because these opportunities will pass by, and Cyprus will get left behind.

“There is the positive side of what a sustainable electrical connection will offer to Cyprus: the ability to attract more tech talent, the ability to draw those who are developing AI and other kinds of technology. They need that reliable and sustainable electricity connection. Cyprus has a burgeoning tech industry for many reasons related to regional dynamics. It will not be able to attract them without reliability of the electricity grid. And the challenge is how to bring everybody along.”

According to Reuters, an official, who wanted to remain anonymous, confirmed Cyprus made up its mind to support the Great Sea Interconnector at a cabinet meeting on September 17, however, the level of the government’s involvement remains unknown as the source said that part would be decided another time.

Recently, Skylakakis emphasized the crucial role of high-voltage networks in achieving the green transition, with resources reaching €1.2 billion annually. Alexandra Sdoukou, Deputy Minister,  points out that the IPTO is capable of implementing national and international interconnections, thanks to its technical capacity and high expertise.

Manos Manousakis, Chairman and CEO, noted: “The new pillar of our strategy is international interconnections. IPTO also supports the implementation of Greece’s strategy, serving as the ‘executive arm’ of the nation’s energy planning.”