The Malta Independent 15 April 2024, Monday
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Floating wonders

George M Mangion Sunday, 3 March 2024, 08:30 Last update: about 3 months ago

PKF took the plunge last year and hosted, in collaboration with the Times of Malta, an international conference at the Hilton focusing on renewables.

Sixteen local and foreign speakers discussed how Malta can take hold of its destiny to become an exporter of clean electricity and green hydrogen.

To Castille and the business community, this may seem like a pipe dream, but soon there will be influencers encouraging business leaders to align their actions with their words by investing in it. Malta's decarbonisation journey simply cannot accelerate, if we don't have a well-researched road map, the right technology, low-cost capital and political expertise to deliver the right solutions.

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In offshore wind, it is encouraging to observe how right now northern countries are standing at the epicentre of an enormous seismic shift for a global energy system. A decade from now, the industry will have grown into a well-oiled machine, with industrial processes ticking along at great scale. At present, pioneers are just embarking on this journey, and actively participating in this moment feels both exhilarating and daunting for Europe's decarbonisation endeavour. Quoting John Cassar White (a retired banker) writing in the Times of Malta, he was cautious about the relatively high cost for Malta to consider investing in one-gigawatt windfarms. He warned that developing off-shore projects is capital-intensive. His theory is that energy policymakers will do well to be realistic in their expectations of returns and quotes Susan Gourvenec, a British geoscientist, who is a professor of offshore geotechnical engineering and deputy director of the Southampton Marine and Maritime Institute at the University of Southampton. Four years ago, she was reported to have stated in an article sponsored by the World Economic Forum about the challenges investors encounter in "offshore" floating wind farm investments.

This report was written before the Russian policy in 2022 to turn off all gas supply to Europe and a recent collective promise by COP 28 in the Middle East to stay away more investment in LNG. Susan argues: "Unfortunately, while floating wind farms are technically feasible, they are not economically viable. Doing anything offshore is expensive. To build a one-gigawatt fixed-bottom wind farm, the cost of completing the necessary site survey is in the region of €16m. Installing and commissioning the farm would be about €708m, while the ongoing costs for operation and maintenance would be roughly €81m. At the end of its life, in about 25 years, another €324m is necessary for decommissioning."

These expenses may have risen by at least 20% over the past three years as a result of significant inflation. By comparison, Malta has four electricity plants generating total combined installed capacity of 537.2 megawatt (burning fossil fuel supplied exclusively from a rented floating tanker). Electrogas, as a private company, owns a LNG plant producing a flow of 200 MG. 

The flow of electricity over a sub-sea cable linked to Sicily has a capacity of 200 megawatt (this accounts for an average of 23% of electricity used - mostly fossil fuel not from a renewable source). Carbon emissions reach over 438gCO2/kwh while Eurostat statistics show renewables from Mozura wind farm in Montenegro and local PV panels reach a mere 13.4% (lowest in the EU). The unofficial cost of Electrogas plant is €370m to which we need to add an assumed cost of €200m in Enemalta and another €320m invested by Shanghai Electric. Include an additional €200m for the cost of a sub-sea cable. Therefore, besides the expenses for distribution and annual operation, the capital expenditure required to generate 737.2 megawatts amounts to approximately €1,090m. This compares to €724m for a 1,000 megawatts fixed-bottom wind farm (excluding decommissioning).

Therefore, the costs are comparable, except if Malta succeeds in utilising Hurd's Bank with its shallow waters and engages in negotiations with influential shipowners to relocate profitable ship chandelling and fuel bunkering activities elsewhere in other sea banks. Abundance of clean power is not a dream. We can have a good source to start producing hydrogen in canisters for export. Regrettably, two PMCs issued by the energy minister omit reference to hydrogen production and exclude the use of Hurd's Bank, thus making the transition to offshore cost prohibitive. Malta holds a favourable position, being surrounded by waters within its Exclusive Economic Zone (EEZ) and blessed with over 300 days of sunshine.

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The ideal area for renewables is in shallow waters close to Hurd's Bank - this is almost three times the island's acreage. PKF has been making the rounds with international operators to discuss forming such a consortium. If it plays its cards well, Malta could generate 2.5GW of green power by 2050 provided it starts in earnest. A potential for exporting green power to the European grid can be facilitated by use of a second gas pipe linked to Sicily. Obviously, at its peak, this export potential will in money terms lift GDP and may exceed revenue from other economic stalwarts such as gaming, tourism and financial services sectors combined.

Talking to a number of international leaders, one can mention giants such as Ørsted, Vestas and EVP Renewables. Starting with Ørsted, they plan to install 50 GW renewable energy capacity by 2030 - the vast majority of which will be wind energy. Some of this energy will be fed directly into the grid, while some will be used to produce renewable hydrogen and e-fuels (ammonia for fertilizers). Here, one needs to mention how the demand side has led to future design of green ships, while Ørsted, for example, is building production capacity for green marine fuels. Operators are encouraged by the promulgation of the Renewable Energy Directive III, Fuel EU maritime and ReFuel EU aviation.

Another major player is Danish Vestas. They are planning for scale-up at every corner of its business. There is essentially one question that keep operators up at night; how are they to scale-up the offshore industry in time to meet the EU's net-zero targets? The wheel grinds slowly, but it grinds.

 

gmm@pkfmalta.com

 

George M. Mangion is senior partner at PKF Malta


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