Labour’s energy roadmap: the good, the bad and the ugly
For a number of years now I have been foreseeing that the subject of energy will surely be a key topic that will influence the public at the next general election.
Last Tuesday the Labour Party unveiled a clear roadmap indicating how a future Labour government would tackle the very sensitive issue of reducing the price of electricity and water and fulfill its promise to make public, when, how and by how much water and electricity tariffs would decrease.
I feel particularly compelled to share my thoughts in public on what was released by the Labour Party as I am one of the few locals, if not the only one, who has had both direct first-hand experience in the local energy scene as a former chairman of Enemalta, as well as a former chief executive of the Care Malta Group which established a very successful track record of elderly care projects under the public private partnership concept, which has been mentioned as one of the cornerstone of Labour’s new energy proposals.
I am sharing both positive and negative reactions to some of the key principles made by the Labour Party. May these serve as further food for thought not only for both political parties, but most importantly for the public who needs to form a clear opinion on what is a complicated, delicate and extremely important matter influencing our daily lives, our economy and our future.
The positive principles I see in Labour’s proposals are:
1) The fact that the Labour Party kept to its promise to publish its proposals of how much a future Labour government will reduce electricity tariffs is a key message that Labour seems to express a strong determination to tackle the issue of the price of energy as one of its highest political agendas. The declaration that Joseph Muscat will take personal charge of these proposals, as well as the appointment of a minister dedicated to energy, are clear signs of the resolve that Labour strives to achieve the ambitious goals it has now set out to deliver.
2) The involvement of the private sector in the generation of energy is another positive proposal as I truly believe that if public private partnerships are structured in a correct and balanced manner, they will provide a win-win situation for both the government and the private sector. I have witnessed the success of PPPs at close quarter in the elderly sector in Malta and have seen how both the government and the private sector have benefited in delivering services faster by increasing operating efficiencies, as well as reducing government costs and creating jobs in the private sector.
3) It is also positive that solar energy has been identified to play a key role in the renewable energy mix for Malta instead of wind, under Labour’s plans. For the last three years I have worked with a multinational solar company developing, building and operating solar plants across Europe and have seen the benefits solar can bring in the promoting a decentralised electricity distribution network, bringing the generation of electricity closer to consumers.
I trust that if a fair feed in tariff is introduced in the proper manner for both residential solar applications, large roof top installations and yet to be developed ground mount solar plants, this should provide the opportunity for the general public to really benefit from this renewable energy source considering Malta’s high levels of solar irradiation.
The negative principles I see in Labour’s proposals are:
1) The reality is that the energy sector worldwide does not allow any person to accurately forecast and promise what might happen in the future regarding gas prices. The only way one can fix future energy prices is through the establishment of an energy hedging mechanism. It is a well known fact that such hedging is purely dependent on what the conditions of the energy market are at the time a hedge is made. I have personal experience in this when Enemalta entered into hedge decisions and commitments for foreign energy traders. Any long term energy hedging of significant amounts of electricity will come at a high cost since various market risk factors will be taken into consideration by the respective counterparts selling the energy.
Unfortunately, there is no long term alternative solution in seeking a levelled cost of electricity over time, without the need of periodic and systematic hedging of future gas prices. The exception here would be if Malta discovers a huge abundance of natural gas reserves in its territorial waters and for this to take effect, it would take many years.
2) The decision to change the Delimara Power station to operate with natural liquified gas is by no means an issue to be taken lightly. In my opinion, the Labour Party has come across making this change seem very simple to undertake and too quick to deliver. Past experience has revealed that building a major infrastructural energy project such as the proposed 200MW combined cycle plant by 2015, is not realistic. This proposed short timeframe surely does not take into consideration all the various planning and environmental permits required, as well as European Union directives on such tendering procedures. Notwithstanding any complications that may arise during the whole process.
3) The decision to establish an LNG storage terminal and a regasification plant at Delimara has significant consequences especially for a small country such as ours. This would involve the assessment of serious health and safety issues, not only for the Marsaxlokk area but also for the whole southern region of Malta. Although accidents and explosions at LNG terminals around the world are rare events, however, adding Malta to the list of countries where such potential hazards exist needs further in-depth risk assessment analysis before making such a crucial decision. Malta cannot afford to experience even one mistake in this respect, as this consequence could expose our country to catastrophe.
From an environmental as well as from a health and safety point of view, the alternative to an LNG terminal is a gas pipeline solution, which will provide a safer option to transport and store natural gas in Malta. A gas pipeline is also eligible for EU funding since it could form part of the EU’s energy strategy to interconnect its member states to the European gas network as opposed to the suggested combined cycle plant which will not be eligible for EU funding.
4) Under Labour’s proposals, the future of Enemalta employees is a matter of concern. Muscat has declared that there will be no consequences for Enemalta employees. It is a known fact that Enemalta has over 1,500 employees who are all doing an excellent job operating and maintaining Malta’s old and new electricity generation and distribution assets. The Labour Party has proposed that the new 200MW plant, the LNG storage terminal and regasification plant will be operated by the private sector. This will leave Enemalta responsible for only the Delimara BWSC Plant. It is therefore difficult to understand where the hundreds of Enemalta employees in the generation section will be utilised under such a scenario.
Clarity of Labour’s intentions here is needed as the obvious choices to safeguard jobs would be to either redeploy Enemalta employees back into government ranks, or to transfer Enemalta employees to the private sector entrusted with the operation of the proposed new generating plant and LNG storage facilities. We already have proof that the acceptance of the latter option by Enemalta employees will not be easy, taking into consideration previous experience of what transpired in the recent concession of Enemalta’s Gas division activities to the private sector.
5) Under the Labour Party plan, the utilisation factors of Malta’s future energy generation assets will consist of
a) The new 200MW combined cycle plant being utilised 100 per cent of the time;
b) The BWSC plant used 50 per cent of the time;
c) The interconnector used 20 per cent of the time.
From an engineering point of view as well as from a financial point of view, the low utilisation factor of 20 per cent is an extremely inefficient use of such a vital and expensive energy interconnection asset. This will surely come as an additional cost to be borne by the consumer.
It would be highly undesirable to envisage the scenario whereby, as a result of the long-term commitment to purchase electricity locally from the private sector, the use of the interconnector to the European grid will be restricted. There will undoubtedly be possibilities in the future, when imported electricity from abroad will be cheaper than the cost of local electricity generation. In such a case it should be better to expand the capacity of the interconnection link to the European grid by the laying of an additional cable between Malta and Sicily.
A proper detailed assessment of the proposals made by the Labour Party in relation to the declared reductions in both electricity and water tariffs can only be achieved if the details and assumptions are made public by Labour in order toverify whether their declarations are indeed realistic and achievable within the stated timeframes.
Alexander Tranter is a former chairman of Enemalta Corporation.