Is government controlling renewable energy to safeguard Enemalta’s ‘interests’?

A recent report in a local newspaper said that according to a ‘hypothetical’ analysis carried out by the National Audit Office, if Malta fails to reach EU renewable energy targets it could cost the country about €400 million.

‘The study was requested by Parliament’s Public Accounts Committee last year,’ goes on the report, ‘after Environment Minister George Pullicino warned that if the proposed offshore wind farm was not feasible, Malta would be ‘stuck’.” According to an EU directive, member states have to generate at least 10% of their energy from renewable sources by 2020 [see video].

Probably in reaction to this piece of news, the Malta Energy Efficiency and Renewable Energies Association (MEERERA) has issued a statement that Malta can fully meet the 10% mandatory target and even exceed it. This, however, was dependent upon whether the government chooses to consult on the matter before finalising its draft National Renewable Action Plan. To this end, the MEEREA has called on the government to hold a public consultation on its renewable energy plans before they are finalised. Such public consultation, it urges, should be carried out with all stakeholders – political parties, industry, commerce, NGOs, local authorities, and others – so that the end result is “a truly national commitment”.

The real problem is that government wants to go it alone and the Malta Resources Authority (MRA) has been dragging its feet to establish a realistic feed-in tariff that would encourage private industry to invest in these sources. In this scenario it would make more sense if, rather than owning the photovoltaic systems as it intends to do, the government simply leased its roofs to independent power providers (IPPs) after issuing tenders where the bids would just be for the rent of the available spaces. The same applies for wind farms.

I do not see why Government should fork out the capital outlay – irrespective of the source of funds that are always public funds – when private industry can easily do the same thing with Enemalta simply paying for the actual power being put into the national grid at the time that it is being used. Of course, the power could be used in the same building where a solar system is installed, with only excess power being fed into the grid; thus saving distribution costs. The reluctance on the part of the Malta Resources Authority (MRA) to establish a realistic feed-in tariff is the reason why there are no IPPs in Malta as yet.

The reasons for this reluctance could be two. One is the practical difficulty in establishing a feed-in tariff that would cover energy from both wind and sunlight. Power generated by these two renewable sources costs more than that generated by fossil-fuel plants due to the significantly higher capital outlay, particularly in solar energy.

Moreover there are significant differences between the costs of the power generated by the two renewables. The precarious financial situation of Enemalta Corporation is probably the real reason why government is reluctant to establish a meaningful feed-in tariff. Before the recent exorbitant hike in electricity tariffs, Enemalta’s revenue from electricity did not even cover up its total operating and financing costs and payment of interests on loans – hence its declared losses every year.

For a number of years, repayment of the original capital outlay has been foregone and is now probably out of Enemalta’s financial ‘equation’. Although few people know it, since joining the European Union, the Maltese government successfully negotiated a permanent derogation giving Enemalta a monopoly on distribution and supply of electricity. The small size of our country was probably the decisive reason why the EU acquiesced to Malta’s request. While it pays the country to consume less electricity produced from imported oil, paradoxically Enemalta would be better off if this consumption increases; more so at the increased tariff rates.

Giving the possibility to IPPs of feeding the grid with as much power as they can produce from renewable sources, would involve the private sector in the production of renewable energy. But this could lead Enemalta to a worse financial quandary. Has government, therefore, decided to control the production of renewable energy in order to safeguard Enemalta’s ‘interests’? Rather than encouraging and enticing private enterprise to invest in the generation of power from renewable sources, the government has practically restricted the ownership of this industry to itself. A very short-sighted policy indeed.