Commissioning of power station on time would have cost the country € 138 million

If the new Delimara power station had been commissioned 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, according to an independent analysis commissioned by the Nationalist Party seen by this newspaper.

The study estimates the addi- tional costs the country would have incurred in 2015 and 2016 if the country’s energy requirements had been met by the new Electrogas power plant instead of the electricity interconnector.

In actual fact, the study finds it was the use of the interconnector, which was commissioned in March 2015, which had been responsible for keeping the prices of electricity down over the last two years.

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, it would have cost the country €54 million more in 2015.

Using the same yardstick for 2016, when over 70 per cent of the country’s energy needs were purchased from the interconnector, the Electrogas power station would have cost the country €84 million more in 2016.

Moreover, the expert analysis also calls 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 three-quarters 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.

2015

According to data from the National Statistics Office, during 2015 Malta bought electricity from the interconnector amounting to a grand total of 1,053,981 Mwh, since the project was commissioned in March 2015.

The workings estimate the extra production costs Malta would have incurred if the equivalent amount of energy imported from the interconnector in 2015 had been produced by Electrogas.

Employing the total 2015 energy volume of 1,053,981,000 kWh, the additional cost of producing the same volume by Electrogas would have been (x €0.051 per kWh), or €54 million. • Electrogas rate €0.096 per Kwh • Interconnector rate €0.03c – €0.06c per Kwh (the study uses an average price of €0.045c per kwh) • The difference in rates is of €0.051 per Kwh

2016

Figures from Eurostat, the European Union’s statistical arm, show that 72 per cent of Malta’s energy requirements over the course of 2016 (January through August 2016) were imported from the interconnector. This was the case this year because the BWSC plant was switched off so that the conversion to natural gas to take place.

The figures clearly show that the interconnector on its own is able to satisfy almost threefourths of the country’s total energy requirements.

Assuming that in 2016 the required total production was close to 2015’s levels (i.e. 2.3 Megawatt hours), the additional costs that would have been incurred by sourcing electricity solely from Electrogas have been estimated as follows: • If energy was produced by Electrogas: 0.72x 2,300,000,000 kWh x €0.096 = €159 million • Interconnector: 0.72 x 2,300,000,000 kWh x €0.045 per kWh = €75 million

As such, the study finds that the projected additional costs for 2016 would have been €159m - €75m, or €84 million.

As such if Electrogas had been in operation in 2015 and 2016, it would have cost the country (€54m + €84m) €138 million more to satisfy its energy requirements, compared with energy being sourced from the interconnector.

Comparing costs

The study compares the costs of the Electrogas plant operating at full potential capacity and the cost of electricity from the interconnector.

The Electrogas plant’s capacity is of 200MW. As such, the potential output in one year is 200MW x 365 days x 24 hours a day – i.e. 1,883,400 MWH.

While in reality the actual chargeable output would be less, because of inefficiencies, for cost purposes the potential output was taken into consideration. • The potential annual output using the Electrogas plant would cost €180 million • The same output using the interconnector (€0.045c per Kwh) would cost €85 million

The study finds that, “Although it is understandable that Malta needs to have its own power plant to safeguard its political interests, which understandably suffers from the lack of economies of scale, it is high time that the country starts evaluating the annual costs of running two isolated local power plants.

“Irrespective of the high level of efficiency reached, local energy production will remain costlier when compared to larger power plants which are found in Malta’s proximity. Cases in point are Italy, Sicily and France.”

Methodology

The study relies on official data on the total power generated in Malta and imported energy during 2015 and 2016. The equivalent of imported energy in Kwh via the interconnector was costed using the established rate of (€0.096 per Kwh), the same rate with which Electrogas won the tender to supply Enemalta with electricity and liquefied gas.

The rate applied for importing energy from the interconnector ranges between €0.03c and €0.06c per Kwh. For the scope of undertaking the costings, the mean rate of €0.045c per Kwh was used.

Background

• An international economic environment characterised by historic low oil prices (with latest prices hovering at around $49 a barrel). • Following a €200 million investment, as from 2015 the utilisation of the interconnector between Malta and Sicily was possible. The utilisation of the interconnector in 2015 amounted to 47 per cent of the total energy production. In 2016, the utilisation factor was the equivalent to 72 per cent of Malta’s energy needs. • Total investment outlays on energy projects amounted to €730m. If this outlay is amortised over 20 years, this figure will be the equivalent to almost €0.02 per kWh (or per unit) produced. • The cost-efficiencies earned from the new BWSC plant ranges between €30 and €40 million a year, and are expected to increase with higher utilisation and energy prices.