Cyprus said the state would take over a large portion of the increase in energy costs to cushion an expected bill hike of up to 25% in the fall, Reuters reported.

Finance Minister Konstantinos Petrides said the state would cover all additional costs for so-called vulnerable households and introduce a phased subsidy for other consumers ranging from 85% to 50% depending on consumption.

The phased subsidy was designed to encourage users to save on their energy consumption, Petrides said.

The new measures will affect nearly half a million households and 111,500 businesses.

Despite abundant sunshine and the discovery in the last decade of natural gas reserves that are still untapped, Cyprus generates most of its electricity from fuel oil.

Last week, American energy giant Chevron and the Cypriot energy ministry said they would accelerate the development of an offshore gas field discovered in 2011.

Cyprus is not part of any network with mainland Europe. Cyprus, along with the island nations of Ireland and Malta, were recently exempted from the voluntary 15% reduction in gas consumption negotiated for other member states.