Now that we are seeing the end of the pandemic tunnel, economies are facing new obstacles to growth as the Russian war has distorted commerce in Europe and racked up consumer prices.
This is another obstacle for a fast recovery and return to normality. However, apart from the atrocities of war, this resulted in huge uncertainty of supply chains since the start of the Russian invasion of Kyiv. Recall how the war saw temporary shortages of grains, fodder and fertilizers.
This has punched inflation to the sky beyond the 2% safety threshold. Other emergencies affected the energy sector to replace Russian gas once the taps were turned off by Putin. In the past months, one is noticing a global drive to fight climate change amid new incentives to activate de-carbonisation policies. It goes without saying that sanctions on Russian oil have led to a shortage of oil, rather than an abundance of it, even though the fracking oil producers in the US have upped their output. Major oil producers have been wary of the turbulence in the markets and prudently did not seek new upstream projects resulting in a spill over effect on the production of natural gas, which is often a by-product of drilling for crude.
One reads about frantic attempts to build new terminals in Europe to liquefy natural gas from sources alternative to Russia. This has pushed the price for LNG to record highs (although there is an early sign of calming down). Turn to Asia and shortages have led to power cuts in parts of China, this time, not due to shortage of fossil fuel at the utilities but from attempts to curb emissions by repeated curfews. It does not rain but pours and with dwindling coal stocks at power stations in India, these conditions led to a surge in the price of imports of the commodity.
Back home, the price hike does not augur well for Enemalta, which is buying electricity from the Electrogas monopoly contracted on a fixed term. Electrogas buys its LNG exclusively from Socar (a State company in Azerbaijan and equity shareholder), which in turn, not having its own supply of LNG, procures it on the international market. As a temporary measure the finance ministry is subsidizing Enemalta to the tune of €1.6m daily to buttress energy prices for electricity and fuel for cars. Some speculate that the problem to de-carbonise will solve itself when the planned gas pipeline to Italy is ready to supply us with cheaper green hydrogen. Obviously, plans must be put in place to convert existing electricity plants to run on the green fuel.
As can be expected, the EU favours the use of clean fuel and wants us to cut down on the burning of fossil fuel. By sheer contrast, investment on renewables in Malta is modest with a mere 8% to 10% of electricity generated from clean energy such as PV panels but no turbines are in use (except for a forsaken investment of a wind farm in Montenegro). For an island, which is almost 100% reliant on transport powered by fossil fuel, this situation calls for a plan encompassing a scientific but speedy plan to de-carbonise.
An ideal option is to use renewable energy to produce green hydrogen by attracting foreign investors to set up in the EEZ (particularly Hurd's bank) installing a sophisticated infrastructure. Renewable green hydrogen is created by using electricity to split water into hydrogen and oxygen through a process known as electrolysis.
The hydrogen is collected and used, primarily in industry, while oxygen is released as the by-product or captured for use by others. Advances in technology has made possible a new technology to de-carbonise the fleet of cars by retro fitting internal combustion engines with a hydrogen fuel cell. This uses hydrogen as its power source. There are many reasons that speak for hydrogen to replace fossil fuels which compelled me to attend a three-day conference in Hamburg. I was surprised how Germany, in 2020 started early to upgrade its national hydrogen strategy which focuses on highlighting the potential and the opportunities of green hydrogen.
Germany's core mission is to replace fossil fuels particularly gaseous and liquid energy sources, which at present are an integral part of Germany's energy supply. The Federal Government has been aware of the potential of hydrogen technology for many years and has made available considerable funding and subsidies. Under the National Innovation Programme on Hydrogen and Fuel Cell Technology, a total of €1.4bn in funding is currently being provided and €310m will be provided under the Energy and Climate Fund for practice-oriented basic research on green hydrogen. Germany adopted a package for the future which makes available another tranche of €7bn for speeding up the market rollout of hydrogen technology and another €2bn for fostering international partnerships. This article highlights efforts being made by the German government to succeed with its hydrogen strategy. In the east of Germany, the hybrid power plant in Prenzlau produces hydrogen with surplus wind and solar kilowatt-hours and uses it as storage.
In Brandenburg, the coal-dominated energy region of Lausitz is to become a hydrogen region. There are plans for a further 800 wind turbines to drive forward the production of green hydrogen. Hydrogen technology also seems very promising in terms of Co2-free inland navigation. Since 2015, the Berlin-based company H2Mobility has been building a Germany-wide filling station network for hydrogen particular of interest for bus operators and haulage companies. Most notably, more states are building and installing hydrogen-ready pipelines to be connected to the nationwide supply network in the future. Even though hydrogen technology is expensive and not affordable for all, by comparison the trend of prices of fossil energy and natural gas prices is upwards.
Optimists predict that hydrogen will be the more affordable solution in the long run. How does Malta feature in this sphere? The short answer is the issue of a PMC last May which attracted many investors willing to set up infrastructure in the EEZ (particularly Hurd's bank) installing sophisticated production facilities in relatively shallow waters. At PKF we are currently working on an exciting initiative regarding sustainability and renewable energy.
An interesting conference is planned for business leaders, the academia and the energy ministry to come and collectively map future initiatives. In a nutshell, PKF will soon be circulating a brochure for interlocutors willing to participate in a conference on the subject. Green is the colour - our future depends on it.
gmm@pkfmalta.com
George M. Mangion is a partner in PKF Malta, an audit and business advisory firm