Dalli secures derogation for €400 million gas pipeline to be eligible for EU funding

Malta has obtained a derogation from the European Commission that will allow a proposed hydrogen-ready pipeline to be finally recognised as a Project of Common Interest by the EU, after failing to obtain funding earlier in the year.

The negotiations were led by energy minister Miriam Dalli.

The importance of the derogation is that the project is now eligible for EU funding under the new legal framework.

“The derogation agreed upon the Energy Council meeting in Luxembourg will apply for Malta and Cyprus. The EU energy ministers met on Friday to reach a general approach on the Review of the Trans-European Energy Regulation before negotiations with the other institutions kick off. This agreement must now be confirmed during the trialogues,” Dalli said.

The European Commission had shut the door to any funding for Malta’s gas pipeline earlier in 2021, after informing the government that its proposal for a €400 million “hydrogen-ready” pipeline fell short of a sufficient justification.

Malta had already failed to obtain financing in 2019 from the Connecting Europe Facility (CEF) funds due to the Commission’s de-prioritisation of gas projects in its bid to move fast on climate change targets. In 2020 it proposed to have the gas pipeline be able to procure hydrogen in a bid to placate EC decision-makers, but its proposal did not provide a detailed assessment of alternative options for renewable gases and other decarbonisation objectives.

During the week’s discussions in Council, Dalli argued that member states such as Malta should be linked to the European grid, allowing access to new energy markets such as hydrogen. She insisted that the European Union should understand the realities of small states such as Malta.

“This is the first step in making sure that when hydrogen becomes available in Europe, we would be able to apply for infrastructure securing connectivity to the European networks,” the minister said.

The pipeline would help Malta cut emissions from shipping, as the aim is to slash emissions by at least 50% by 2050. The news comes on the back of plans for a second electricity interconnector between Malta and Sicily.

Revision of TEN-E regulation

The Council will now revise the Trans-European Networks for Energy (TEN-E) Regulation, identifying 11 priority corridors and three priority thematic areas to develop and interconnect through PCIs financed by the Connecting Europe Facility for 2021-2027.

The revised regulation will emphasise decarbonisation and adds a new focus on offshore electricity grids, hydrogen infrastructure and smart grids.

There will be no support for new natural gas and oil projects, but during a transitional period until 31 December 2029, dedicated hydrogen assets converted from natural gas can be used to transport or store a pre-defined blend of hydrogen with natural gas or biomethane.

The projects must however demonstrate how such pipelines will cease to be natural gas assets and become dedicated hydrogen assets.

In the case of Cyprus and Malta, that are still not interconnected to the trans-European gas network, PCIs from the previous regulation will maintain their status until the interconnection is complete.

“The purpose of this exception is to end the isolation of these two member states and to give them access to future energy markets, including hydrogen,” the European Council said in its decision.

2020: change in priorities

Malta had originally planned to procure natural gas from the European mainland instead of the floating liquefied natural gas (LNG) vessel in Delimara.

But the EC had claimed the Maltese proposal did not sufficiently substantiate the claim that a gas pipeline can improve security of supply or a more competitive gas supply in Malta. “The expected impact on security of supply beyond Malta appears.. marginal. The rationale behind the switch from LNG to pipeline gas should have been explained more in detail, also due to the uncertainty concerning future price developments. The H2 ready design cannot be considered innovative as the technology is available on the market and can therefore not be considered as a positive externality.”

Malta’s bid for an EU-funded gas pipeline had been overshadowed by a European Ombudsman’s inquiry on the gas projects that were included in the 2019 list of PCIs, because the EC’s assessment of gas projects had been “suboptimal due to a lack of data” – so under a proposed reform, the EC ruled out gas projects from funding.

That mean billions in CEF cash to be spent on renewable and low carbon gases, such as smart gas grids, and green gases, typically biogas and biomethane, but also hydrogen transmission pipelines and related equipment.

Malta’s 159-km natural gas pipeline between Gela, Sicily and Malta was expected to be operational by 2024. It has been a high priority in the ongoing effort to link Malta to Europe’s energy network, and will end Malta’s “gas isolation”. In 2020, the government modified its pipeline project in the hope of winning the EC’s favour by proposing a hydrogen-ready pipeline.