The Malta Independent 15 April 2024, Monday
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Renewables: Stop playing to the gallery

George M Mangion Sunday, 17 March 2024, 08:30 Last update: about 1 month ago

Minister Dalli said the government is continuing to incentivise families and businesses to adopt more renewables.  These calls for offers, she said, are encouraging more enterprises to invest in the green economy, with projects that contribute to Malta's decarbonisation objectives. 

One may ask, what has been offered to date.  Recently, REWS announced grant schemes and feed-in tariffs to help families and businesses invest in smaller renewable energy systems. 

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The first scheme, aimed at residential buildings, offers grants of up to €3,000 for photovoltaic systems, and up to €7,200 for battery energy storage systems.  The government is doubling this grant, up from €3,600 in 2023.  Observers may question what tangible progress was achieved during the Labour administration, now in its eleventh year to generate green energy. 

Ideally, government policy gets focused to turn away from burning fossil fuels (aka Electrogas and BWSC plants) by offering grants for wind farms, tax credits, low interest funding and favourable feed - in tariffs.  As the European Central bank is focused on keeping the economy stable by controlling inflation through high interest rates, it resorted to aggressive increases in rates which have disproportionately hit the renewable energy sector and made it harder for people and governments to raise money for measures that would otherwise, help cut emissions or adapt to climate change.  

From a long-term perspective and from a climate-justice lens, this is counterproductive.  Rather than continuing to focus narrowly on inflation to determine economy-wide interest rates, European Central Bank can create different interest rates for different kinds of investments - establishing high interest rates for carbon-intensive sectors like construction and tourism, including types of local manufacturing units.  What is the true grit from authorities to plan serious reduction of greenhouse gas emissions and active promotion of renewable energy sources.  

One such strategy is Green Finance, this includes promoting investments and Green Bonds in low carbon energy generation and sustainable infrastructure.  These are not available yet locally.  Additional national carbon footprint, based on ESG taxonomy will come into force this year and this on its own will set the cat among the pigeons.  

By contrast, in the US, funding for low carbon industries is backed by solid legislation.  President Joe Biden has proposed and supported various fiscal incentives and policies aimed at promoting clean energy, addressing climate change, and encouraging green investments. Some of the key initiatives and proposals include tax credits.  These are intended to incentivize investment in clean energy technologies and infrastructure.  

Such a drive resulted in substantive investments in infrastructure, including modernizing the electric grid, expanding renewable energy capacity, and supporting the development of clean energy technologies.  It includes legislation to extend tax incentives and grants for renewable energy production, energy storage, and electric vehicles.  Back home, we can report that our energy minister announced a new PMC concerning an offshore site four nautical miles off Delimara. 

This has been identified as a possible location for a floating solar farm, with a potential for the creation of a mere 50 megawatts of clean energy.  In the context of the total island electricity peak of 870 megawatts, this is just tinkering on the surface.  Ing Cutajar explained that another PMC is aimed to solicit proposals from operators for the deployment of larger floating wind projects, including photovoltaic farms, extending up to 12 nautical miles off the coast of Malta and Gozo. 

This process will facilitate the evaluation of investor interest, allowing the government to assess the current market preparedness for such projects and support the ongoing technical studies to proceed with a competitive call for offers.  Based on a PMC issued in May 2022, one expects Malta to open its EEZ waters for the exploitation of offshore, strategically to scale down LNG use, to green energy.  It is an ambitious dream if we can open the gates for export of hydrogen in canisters for export.  

So far, a high percentage of energy imported from Italy via the inter-connector is sourced from non-renewable sources. Therefore, the penny dropped that Malta has focused entirely on generating electricity using LNG imported from Socar - a State agency owned by the Azeri state.  Ideally, this needs to change with a higher source of clean energy. This liberates islanders from the nightmare of extended power cuts - experienced last summer.  With hindsight, we recall how Finance Minister Clyde Caruana has declared an Exclusive Economic Zone (EEZ) in the central Mediterranean, with the potential of extending its responsibilities by as much as 71,446 square kilometres beyond territorial waters.  He said an EEZ could hold huge economic potential in the coming years, not just for fisheries but for creation of artificial islands, wind farms, solar farms, wave-generated electricity and revenue from shipping movements.  Clyde Caruana said Malta has a continental shelf of around 71,000 square kilometres, while the proposed exclusive economic zone would comprise the area between 12 and 25 nautical miles from Malta's shores, or around 7,500 square kilometres.  The zone could be used to introduce projects in emerging technologies such as carbon storage and hydrogen production via the Melita TransGas Hydrogen-Ready Pipeline, which has been identified as a project of common interest by the European Union.  

Since capital investments in onshore energy infrastructure, tend to be long term, so one would not be surprised if MDB can step in the water.  Offshore energy investments are not only crucial to meet increasing demands in domestic energy, but also to stabilize production capacity.  The offshore energy sector in most countries has been primarily controlled by multinational energy companies operating under long-term exploitation concessions and production-sharing agreements. 

Malta is a safe bet for investors, as it guarantees full protection during commissioning period.  In some countries, the investors are exposed to considerable political and regulatory risk, due to unforeseen changes in the legal environment of the host country.  Such factors may seriously undermine their financial feasibility or even result in the expropriation of the investment altogether. So far, Malta's tax code has no specific tax incentives to attract investors in EEZ, as is the case with other sectors such as aviation, financial services, pharmaceuticals, tourism, fintech and gaming. 

One hopes that a serious attempt is made to lobby Castille to draft financial incentives fine-tuned to attract international investors.  Remember we did it before when a deal was struck with Electrogas (a large power plant burning fossil fuel) with the Azerbaijan's regime, three local investors and Siemens.  Hope springs eternal but in such instances; the early bird catches the worm. 

 

 

gmm@pkfmalta.com

 

George M Mangion is a Senior Partner at PKF Malta

 


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