How long will current prices remain sustainable?

Official figures published yesterday show that the country has been relying heavily on the Malta-Sicily interconnector for its energy supply, both last year and the year before. But now that the Delimara gas-fired power station has been commissioned, the question is how long will the current electricity rates be sustainable?

Yesterday’s statistics show how in 2015, the year in which the interconnector was commissioned, Malta had sourced 47 per cent of its electricity from the European grid while last year that amount had increased to no less than 68 per cent. Now that the Delimara power station is online, Malta will incur fines of an unspecified nature if it does not purchase a certain amount of electricity from Delimara.

Earlier this year, our sister Sunday newspaper had reported a study that showed how if the power station had been up and running in 2015 as per the Labour Party’s electoral pledge, it would have cost the country an extra €138 million over the last two years.

The study estimated the additional costs the country would have incurred in 2015 and 2016 if the country’s energy requirements had been met by the new Delimara power plant instead of the electricity interconnector. In actual fact, the study found it was the use of the interconnector, which was commissioned in March 2015, that had been responsible for keeping the prices of electricity down.

According to the study, if the Electrogas power station had been up and running as originally planned, as per the government’s electoral programme, and had begun to supply the same energy purchased from the interconnector then, it would have cost the country an additional €54 million more in 2015. Using the same yardstick for 2016, when close to 70 per cent of the country’s energy needs were purchased from the interconnector, the sole use of the Delimara power station would have cost the country €84 million more in 2016.

The expert analysis had also called into question the actual need for a new power station in the first place, given that energy production data for 2016 shows that the interconnector is able to cope with threequarters of the country’s energy needs and that the BWSC plant would have been more than enough to cater for the remainder of the country’s energy requirements.

According to the analysis, the additional cost of producing energy locally, as opposed to sourcing it from the interconnector, is in the region of €138 million, almost €70 million a year, over 2015 and 2016 together.

The study bases its findings on the agreed price that Enemalta will purchase electricity from the Delimara facility, 9c5 per unit, and compares and contrasts usage with the cost of electricity from the Interconnector rate (€0.03-€0.06, and using an average price of €0.045 per unit).

It is, of course, necessary to have redundancy in the electricity supply system because if something were to befall the interconnector and without the new Delimara power station being available the BWSC plant would not be able to take up the entire slack.

The problem, however, is that given the significant price differential between the interconnector and the power station, with electricity from the latter costing as much as twice as much as the former, how sustainable will electricity prices remain?

No one has a crystal ball and it is very difficult to predict future oil and gas prices, but the fact of the matter is that the government has still placed itself into something of a straightjacket.

Whatever happens to those prices, the government has contracted the country to purchase its electricity from Delimara at 9c5 for the first five years of the installation’s lifespan and for a total of 18 years from the Azerbaijani state corporation SOCAR.

The best the consumer can hope for is that the government has not painted itself into a corner and that it will somehow be able to negotiate new gas prices, more like those that we have seen from the interconnector, once the first five-year term is up.