It is satisfying to note the high rate of growth in gross domestic product which brings with it a steady increase in demand for energy – having reached a peak demand of 430 Mw which is expected to shoot up to 530 Mw by 2030. The total combined nominal installed capacity of Enemalta’s plants is currently 599MW but from this amount it is necessary to deduct 155MW generated at the Marsa Power Station, which was shut down and put on cold standby, pending final decommissioning. The Malta-Italy Interconnector, inaugurated in April 2015, is capable of transferring to Malta an additional 200MW of electricity linked to the national grid.
Many lament how the existing plant has aged considerably so that, on average, the steam turbines at Marsa Power Station (now decommissioned) are 45 years old and the ages of the boilers range from 19 to 37. One could ask why no effort has been made in the past to scrap the whole set-up, given the heavy generating losses starting with Marsa at 27 per cent of efficiency compared with an average efficiency of the steam plant at Delimara of 32 per cent and of the combined cycle plant of 40 per cent. It came as no surprise that a new policy was urgently needed to reduce the carbon footprint and greenhouse gas emissions by replacing heavy fuel oil at the BWSC plant with natural gas and linking the island to an interconnector that will give us the best mix of energy.
The interconnector with Sicily offers additional security of supply and some spare capacity but, of course, it is vulnerable to the common faults and outages usually associated with such links. Naturally, the mix of power sources will, in the near future, result in gains never achieved in the past when using highly inefficient oil plants at Delimara and Marsa (not to mention the losses resulting from an ageing and decrepit distribution network).
In the near future, the revised blueprint for energy sources for the island will consist of four sources: ElectroGas Malta Ltd, Shanghai Electric Power, EneMalta plc and, to a lesser extent of five per cent, renewables from domestic and solar farms. Once it is fully operational, this combination will guarantee a significant reduction in emissions by cutting particulate matter by 90 per cent (associated with BWSC plant burning HFO) emissions by 50 per cent and a substantial reduction in harmful nitrogen oxides.
A big fuss was made in the newspapers when the Finance Ministry issued a bank guarantee to the ElectroGas consortium to secure a bank loan of €360 million. This guarantee follows the recent agreement by the government to allow the consortium to enter into a security of supply agreement (SSA) for 18 years which is currently being assessed and is expected to be cleared by the EU Commission. Certainly, the success in securing a substantial bridging loan from reputable banks is a testimony, if any is needed, to the credibility of the project to supply the island for the next 18 years.
As soon as the EU has ratified the SSA, the guarantee will be rescinded and the company will enter into long-term project finance agreements with its group of international banks. To ensure that there is no advantage gained in interest rates charged on the guarantee, the consortium made a one-time payment of €8.8 million. One could argue that the government could have opted to build the plant itself and finance it out of public debt, increasing it by seven per cent with the usual worries of cost overruns experienced in the past (prime example Mater Dei Hospital: budgeted at €198m – final cost €600m). Hot on the heels of this announcement came the lamentation by Shadow Minister Roberta Metsola.
Dr Metsola has called on the European Commission to investigate whether the guarantee constitutes illegal state aid. In an altruistic move to protect the interests of 17 applicants who bid last year to build the gas plant, she is asking the Commission to consider whether there has been any financial disadvantage suffered by such bidders, in case they were not informed a priori of the possibility of such a temporary guarantee as the one now being issued.
She is also urging the Commission to investigate whether the government made a mistake by binding itself to purchase electricity from Electrogas when it could acquire it for a cheaper price from the interconnector. Concurrently, Shadow Minister Marthese Portelli questioned whether the government should stop ElectroGas from completing the installation of the gas power station as, in her opinion, running the controversial BWSC plant together with the old Delimara plant and the interconnector is enough to secure lower tariffs –the same as those being charged today.
At this juncture, readers may ask if there is a wonder fuel that will improve our fortunes to secure cheap rates for future electricity generation. In short, the answer is Yes, natural gas (NG) which contains about 80 per cent methane and 20 per cent other hydrocarbons and can be found in on/off-shore oil and gas fields as well as shale oil deposits. The main source of NG is presently from the reservoirs in oil and gas fields where it is piped to the surface for processing to pure methane.
We may remember how, in 2009, the PN in government invested €33 million to drill onshore in Gozo for gas when it ordered the operator to drill deep – reaching impressive depths of eight kilometres in a project that involved the giant state-owned oil drilling company ENI of Italy.
The whole of Gozo was agog with high hopes that gas would be found in commercial quantities but, sadly, the drilling project was abruptly terminated and the authorities declared no positive results at the site, which had lovingly been named Madonna Taz Zejt. For the non-technical, there are three principal sources of gas: gas dissolved in crude oil or that is extracted from the top of the crude reservoir is known as ‘associated gas’; gas extracted from gas or condensate reservoirs that contain only trace elements of crude are known as ‘non-associated gas’ and then there is biogenic gas, which is formed by various organisms breaking down under high temperature conditions – mostly found in coal seams, landfill sites, and marshes.
Natural gas is mainly composed of methane and a small percentage of other hydrocarbons (e.g. ethane). This makes natural gas a valuable energy resource and a great asset for industrial, commercial and residential use, the generation of electricity, transportation, etc. For example, in industry natural gas is used to produce a wide range of products such as plastics, paints and ammonia for fertilisers.
Apart from the fact that it is considered to be more efficient, one of the main advantages of using natural gas is its cheap price compared to other fossil fuels. So if gas is so advantageous, why did we take so long to use it at EneMalta when we were totally relying on burning imported oil to run our turbines and, of course, faced the vagaries in the international price of oil – the main reason quoted in the past to justify high prices?
In conclusion, it is to be hoped that the ElectroGas project will meet its deadlines and next year begin supplying a constant flow of cheap electricity, defying the doomsayers. Not a moment too soon, replies Dr Metsola. At a press conference, she lamented the fact that the new guarantee created a burden equivalent to €2,500 per family, conveniently forgetting that the legacy in accumulated national debt reaches an astronomical figure of €34,000 per family. Never mind such heavy burdens – readers are advised to enjoy the lovely weekend break of Santa Maria – drinking cocktails and taking the sun at the beach with family and friends.
George M. Mangion
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The writer is a partner in audit and business advisory firm PKF