The government today explained the background of its analysis of proposals by Sargas AS to building a power station.
It said that Sargas had proposed a 30 year power purchasing supply agreement to Enemalta.
Pre-feasibility reports by KPMG indicated six major issues, namely opportunity cost issues; the fuel used (coal and biopaste); the carbon capture and storage technology; maritime issues, environmental considerations and certain uncertainties including the sale of green certificates, the sale of CO2 and the sale of bed ash and fly ash.
As a result, the Government informed Sargas SA that for it to consider its proposal further it required Sargas SA to provide a full feasibility study which analyses and addresses the major issues identified by KPMG.
THE PROPOSAL
The government explained that the Sargas proposal was made up of a power plant, composed of a coal-fired barge-mounted steam plant (dry docked at Marsaxlokk Bay) complete with emissions abatement and equipped to capture CO2 emissions for eventual storage. This proposed plant would be fuelled with coal or a mix of coals and bio-fuels. The transportation of the CO2 to a storage facility (still to be identified) would be carried out by tankers; this CO2 would possibly be stored in depleted oil wells outside Malta as part of an Enhanced Oil Recovery process.
The Government asked KPMG to carry out a pre-feasibility study on the project proposal. This pre-feasibility study was conducted in two distinct but inter-related phases.
In the first phase, KPMG were required to carry out a qualitative analysis on the promoters' profile and track record, and on the extent of world-wide commercial implementation of the technology. In the second phase, KPMG were required to develop a financial model in order to test the projections of the proposal. In particular, KPMG were asked to examine claims concerning the pricing of electricity in such a plant's initial year of operation.
Two reports were drawn up by KPMG. The Government has no problems with publishing these reports but requires Sargas SA's agreement to do this due to the Non Disclosure Agreement it asked Enemalta to enter into in March 2011.
As a result of these reports, the Government identified a number of issues which needed to be further addressed by Sargas SA, including:
(i) Opportunity cost issues – that is, how would this new plant fit into the existing mix of energy generation facilities which are already operational or will become operational in a short period of time? One has to bear in mind that the Delimara extension which was purchased following a tender issued in 2007 (three years before Sargas SA put forward their proposal) is expected to be operational for another 25 years, as is the original Delimara power station."
(ii) Fuel – Coal and Biopaste - The price of coal and the price as well as the availability of biopaste over a 30 year period are pivotal in Sargas SA's business model. It is evidently clear that the evolution of coal prices and biopaste would have a significant impact on the viability of the project as a whole. More importantly, this has to be seen in the light of relative prices for alternative fossil fuels, such as oil and gas.
(iii) Carbon Capture and Storage (CCS) - The CCS component is pivotal in the success of the project. Studies (including those by EU Commission) indicate that there are a number of factors including public acceptance, adequate carbon prices, as well as the need to prove that CCS can work on a large scale, for CCS to be viable in the long term.
(iv) Maritime considerations - One of the key variables in the Sargas SA proposal is related to the marine environment (with respect to plant site dry docking and shipment of coal and CO2 ), The main concerns here relate to any potential impact on Marsaxlokk village, the Freeport, wave climate as well as vessel turning/manoeuvring and commercial maritime congestion.
(v) Environmental considerations - Considerations regarding the environment, require detailed studies including issues related to storage of CO2, biopaste and coal as well as any negative aesthetic impact; impact on wave formation, flora and fauna, and marine topology; noise pollution; and possible odours.
(vi) Other issues including:
a. the sale of green certificates since the market for Renewable Energy Certificate System (RECS) in the EU is currently limited in size. The success of such a sale is contingent upon various factors including Member States reaching their 'renewable 2020' targets; the possibility of revising renewable energy targets post-2020; and administrative costs of issuing green certificates by the relevant local authorities;
b. sale of CO2: Sargas SA have proposed to export the captured carbon dioxide to be disposed of in depleted offshore oil wells for Enhanced Oil Recovery. Initially, this was included in the business proposal as a zero revenue item. Eventually it was included at €8 per tonne. Moreover, one should note that there was some public opposition with respect to underground storage of CO2 in certain European countries;
c. Sale of bed ash and fly ash: Sargas SA assumes it will sell the by-product ash to concrete producers at a starting price of EUR60/tonne and EUR40/tonne respectively; the reasonableness or otherwise of this assumption could not be verified.
THE NEXT STEP
"Due to the length of the period covered by the proposal (30 years), there was a degree of uncertainty about future developments concerning elements that are integral to the proposal. The uncertainty prevailing in the current global economic climate might also reflect upon the speed of sourcing equity and debt finance as required by this project.
"As a result of KPMG's findings, the Government has informed Sargas SA that for it to consider its proposal further it requires Sargas SA to provide a full feasibility study which analyses and addresses the major issues outlined above," the governemnt said.