Gasoil fired Delimara plant will be cheaper than Marsa

Energy from the new power station will initially replace the 30% energy component currently produced by Marsa. This means that energy bills will not increase over present bills if gasoil is used in the new power station.

Government has so far has opted for Heavy Fuel Oil instead of the more environmentally friendly gasoil arguing that this is cheaper despite the environmental cost of having to dispose of 27 tonnes of hazardous waste on a daily basis. 

Enemalta’s own studies now show that although gasoil will be significantly more expensive than HFO when used in the new Delimara plant, its use will still be less costly than the present use of HFO in Marsa.

In a letter published last week in MaltaToday, Enemalta confirmed that Edward Mallia was right in saying that “generating one unit of energy using gasoil at the Delimara power station would be cheaper than producing one unit using Heavy Fuel Oil at Marsa but it would be unfair not to mention that generating one unit  of electricity at the Delimara extension using low sulpher HFO would be even cheaper.”

Enemalta was replying an article published in the Midweek edition of this newspaper in August, which referred to calculations made by Mallia showing that due to the fact that the Delimara power station is twice as efficient as the present power station in Marsa, using gas oil will still be cheaper than using HFO in Marsa.

Fenech qualifies 30% hike warning

In the same article, Mallia claimed that his calculation – now confirmed by Enemalta – had debunked Finance Minister Tonio Fenech’s claim that energy prices will increase by 30% if gasoil is used instead of Heavy Fuel Oil.

Mallia was referring to an article published on the Times in June 2010 in which Fenech claimed that “if we produced electricity from diesel rather than HFO, the electricity bills would have spiked up by 30%”.

But a spokesperson for the Ministry for Finance told MaltaToday that in his article, Fenech was not comparing the current cost of energy production in Marsa with the use of gasoil at the new Delimara power station as Mallia did, but was comparing the cost of operating the new power station on gas oil and operating it on HFO.

“On the contrary, the comparisons made by Prof Mallia were between Marsa sulphur fuel oil and Delimara if powered by gasoline”.

The Ministry spokesperson referred to different studies conducted by both Enemalta and the National Audit Office, comparing gasoil and heavy fuel oil. According to Fenech, all comparisons carried showed that the use of HFO produced cheaper tariffs for the consumer while still being fully compliant with EU environmental standards. These comparisons concluded that lower sulphur fuel oil is significantly the cheaper option to the consumer. 
Fenech also referred to  the conclusion of the Cost Benefit Analysis carried out by consultant Gordon Cordina for Enemalta, which clearly shows that using fuel oil at the Delimara Plant is more economically viable than gasoil.

Fenech refers to the cost-benefit analysis which concludes that operating costs would increase by 50% with gasoil firing compared to Heavy Fuel Oil. While the operating costs of a gasoil fired plant over a 20-year period amount to €997,352,398, costs drop to €662,564,568 when using Heavy Fuel Oil. 

But the Ministry spokesperson was non-committal when asked whether the government envisions a reduction in utility bills in view of its claim that an HFO fired plant will be substantially cheaper than the current Marsa power station, which is even more expensive than a gasoil fired plant.

“The electricity tariff is determined by a number of elements besides the fuel cost, which today is significantly higher than it was in 2008, and despite fuel being the most important contributor. Most notably, this includes the return on the investment that has been made”.

Asked whether the government or Enemalta has conducted any study on the impact of the choice of fuel (between gasoil and HFO) at the new DPSE on electricity bills paid by the consumer, the Ministry spokesperson replied that  an impact study on the choice of fuel has already been done in the Cost Benefit Analysis. The analysis made no direct reference to utility bills.

Fenech had made no such clarification when Mallia replied to Fenech’s article in 2010 on the assumption that Fenech was warning of a 30% spike in bills over present levels.

Impact on utility bills

A cost benefit analysis presented by Enemalta confirms that at current prices generating Energy by HFO is 50% cheaper than generating energy by diesel.

Over a 20-year period, Enemalta calculates that it would be saving 335 million in operational costs if HFO is used instead of gasoil.

But the same cost benefit analysis also reveals that the new Delimara Power Station Extension will account for 30% of energy demand in 2012, when DPSE will take over a third of total generation which is presently produced in the Marsa power station.

According to Mallia’s calculations, if the DPSE used gasoil instead of the present HFO used at Marsa at the same efficiency as Marsa, Heavy Fuel Oil will be 50% cheaper than diesel.

But since the DPSE has twice the efficiency of Marsa it will only use half the fuel currently used in Marsa.

According to Enemalta, the new plant will be 47% efficient compared to 23% efficiency level for the Marsa plant.

So the average cost of producing one unit of energy in the new power station extension will actually amount to 75% of the cost of producing one unit at Marsa today.

“The overall cost of electricity in 2012 should in fact go down through use of diesel in DPSE,” Mallia concludes.

This means that although diesel is more expensive than HFO, the increased efficiency of the new plant compared to the Marsa one will result in a reduction of energy costs for Enemalta over present levels.

Furthermore, in 2013, the Sicily Interconnector is expected to contribute 20% of energy demand. According to the cost benefit analysis, this is “expected to optimise costs from both the financial and emissions perspective.”

“Without firm figures for the SI nothing much can be said about average cost of units compared to present. But no great shock in the price of energy seems likely,” Mallia said.

The same situation holds for 2014, when Marsa would have stopped producing energy, the old Delimara Power Station would provide less than 1% and the SI a staggering 76% of energy demand.

Therefore, after 2014, the price paid for electricity by the consumer will largely depend on the price of energy imported through the interconnector, which remains unknown.

This story appeared in MaltaToday on Sunday.