Doubts cast on PL’s plan to fix electricity price and timescale
Labour’s plan to fix the price of electricity for 10 years has been questioned by a former chairman of Enemalta .
Engineer Robert Ghirlando said long-term agreements for the sale of electricity normally included mechanisms to cater for fluctuations in production costs.
“Power purchase agreements do not normally work on a fixed-price formula but they would have built-in mechanisms that cater for fluctuations such as the price of fuel,” Prof. Ghirlando said.
The PL’s tariff-reduction plan is based on private sector investment in a new power station run on gas.
The company will operate the plant and sell electricity to Enemalta, with Labour saying the price will be fixed for 10 years.
Different models are used internationally when drafting power purchase agreements like the one proposed by the PL.
An industry expert, who asked not to be named, said a fixed price was a possibility but the operator is likely to include in the formula any future risks and price fluctuations to anticipate losses. This will probably up the price at which the electricity will be sold to Enemalta, he added.
Finance Minister Tonio Fenech put forward both these scenarios when squaring off with PL candidate Konrad Mizzi on current affairs television programme Bondiplus on Tuesday.
He insisted it was impossible to forecast the price of gas over a one-year period, let alone 10 years, unless the operator factored into the equation some form of insurance that would up the cost for Enemalta.
Mr Fenech tore into Labour’s energy plan, branding it unrealistic with timelines that were impossible to achieve.
Labour, however, is saying that the new power station and liquefied natural gas terminal, including the call for expression of interest, will be ready and commissioned within 23 months.
Yesterday the Labour leader addressed this point during a business breakfast dealing with the proposal, saying that he understood scepticism expressed by some quarters on the timeframes because the country had “become accustomed to mediocrity”.
Nonetheless, he defended the plan, pointing out that even the current administration had found ways to fast-track some permits and change local plans for prioritised projects.
However, Prof. Ghirlando said that while it made sense to replace the old Delimara plant with a combined cycle gas turbine facility, the proposed timeframes sounded “too optimistic”.
The short timeframe was an issue of concern raised by Michael Falzon, a former PN infrastructure minister responsible for the building of the Delimara power station in the early 1990s.
“The Labour proposal is certainly not a gimmick and it is interesting but I believe that a period of between 30 and 36 months to build and commission is more realistic,” Mr Falzon said.
He noted that Mr Fenech cast doubts on the estimates included in the PL plan to build the necessary infrastructure and this had to be clarified by Labour.
Another issue raised by Mr Fenech was the location of the two gas storage tanks in the artist’s impression provided by Labour of how the Delimara site will eventually look.
He said the area located for the tanks was a mound of rubble on reclaimed land that could not simply be removed without making a hefty investment – some €40 million – to strengthen the foundations.
The minister’s concern was shared by Prof. Ghirlando.
“I recall an Enemalta architect, now dead, who used to insist that the rubble mound had to remain there as a counterweight to prevent the cliff face from collapsing.”
Any infrastructural works in the area will have to take into account the stabilisation of the cliff face, he added.
Another issue raised by Mr Fenech was what he described as over-supply. He insisted the country did not need to build a new 200MW power station as proposed by Labour when the electricity interconnector to Sicily will come on line.
However, Mr Falzon said it is a question of two different policies.
“The Government will primarily rely on the interconnector to supply electricity while Labour’s proposal uses the interconnector as a secondary source of supply.”
Mr Falzon believes people are already suffering from an indigestion of figures barely two days after the proposal was made.
“Ultimately it all boils down as to whether people trust Joseph Muscat or not to deliver on his pledge.”
Issues of concern
Power purchase agreement: Labour is proposing having a 10-year agreement with the private operator to buy electricity at a fixed price. It has been queried whether this is possible with international gas prices fluctuating from time to time.
Timeframes: Labour is saying that the new power station and LNG terminal, including the call for expression of interest, will be ready and commissioned within 23 months. There are concerns of whether this is too optimistic, with 36 months being mooted as a more realistic period.
Gas tank location: An artist’s impression supplied by the Labour Party placed two huge gas storage tanks on the Delimara foreshore, which is currently occupied by a mound of rubble. Questions have been raised as to the capital expenditure involved to put the tanks there since infrastructural works may be required to stabilise the area, which is built on reclaimed land.
What’s the difference?
Household vs power station gas
A gas-fired power station will not run on the type of gas used every day by families to cook and heat their homes.
The bottled gas used by households is liquefied petroleum gas (LPG) and is a product derived from oil. It can be stored under low pressure and this is why it is available in relatively light, metal cylinders.
The gas used by the power station is liquefied natural gas (LNG), which is extracted directly from the ground. It has to be stored at high pressure and so cannot be supplied in bottled form to households.
However, it can be supplied for domestic use through a pipeline system as is done in the rest of Europe. LNG, which is a very clean alternative to oil, is cheaper than LPG.