Malta is at the forefront of countries that have carried out sweeping power sector reforms. The island had long relied on the import of oil for electricity generation and the then state-owned power generation company was on the brink of bankruptcy. However, the sector has now been completely re-engineered. Electricity production has been shifted away from fuel oil generation towards a cheaper, cleaner, gas-powered energy matrix, which has helped persuade the private sector to invest. A new power station – including a floating storage unit and a regasification facility – has been constructed, while private investment has helped to steer the sector on a more sustainable path. In addition, a sub-sea interconnector between Malta and Sicily for the import of electricity has linked Malta’s once small and isolated power market to the European grid. But this is just part of the solution and plans for the future include a gas pipeline, which would allow the country to import and export gas from and to European markets. The power of the future also looks increasingly green, with government being confident that Malta will hit its 2020 EU renewable energy targets.
Time to Break from the Past
Throughout its history Malta had no domestic energy sources to fall back on. The first coal-fired power station was built in 1864. In tandem with rapid economic growth after the country gained independence in 1964, energy demand skyrocketed. The opening of industrial estates as well as the building of hotels and tourist zones required the continuous development of the country’s generation facilities. In the late 1980s the island took the decision to phase out coal-use and introduce oil for electricity generation. Throughout the years Malta made several attempts at oil exploration to reduce its dependency on oil imports. The most active period for oil exploration was in the 1970s and 1980s. Even today, commercially viable reserves have still not been found. The import of oil has put significant pressure on the energy sector and the country in general, and after the hike in oil prices in 2008, the government stopped subsiding the sector. Many believed that Malta was heading straight into an energy crisis. Maltese consumers were faced with some of the highest electricity tariffs in Europe, while the financial situation of the then state-owned electricity company Enemalta continued to worsen due to inefficiencies and a lack of tariff adjustments. In addition, Malta’s ailing generation infrastructure caused frequent power cuts.
"There have been more than 32,000 LNG deliveries in the past 50 years with no major incidents. These tankers are used all over the world and this industry has all the necessary experience in keeping such operations safe. The tanker itself is designed for maximum safety and security, even in storm conditions."
Catherine Halpin, former Commercial Director at Electrogas Malta
A Model for Energy Investment
In 2012, Enemalta’s total debt reached more than €830 million, accounting for 12% of GDP. While a restructuring plan was put in place to prevent the company from default, which included the sale of assets to a Special Purpose Vehicle and the refinancing of loans, it became clear that this would not resolve Enemalta’s longer-term solvency issues. However, it paved the way for private investment. Malta’s Labour Government, which came into power in March 2013, decided to open the market to third parties. Efforts began to reach out to potential investors, and an agreement was eventually signed with Shanghai Electric Power of China for the sale of a 33% minority stake in Enemalta, as well as one of Malta’s power plants for a total of €320 million. Another key part of the reforms was a deal with a consortium of foreign and local investors known as ElectroGas Malta, to not only build and operate a new gas-fired power station, but also to ensure the supply of LNG, including the construction and operation of storage and regasification facilities. This was the result of an open and competitive process.
International bodies such as the European Commission and the International Monetary Fund, as well as the main credit rating agencies, who have often pointed to Malta’s energy sector as a threat to the island’s competitiveness, have already acknowledged the government’s efforts to reform the sector and the progress achieved. Various credit rating agencies have upgraded both Enemalta and Malta’s credit rating. Significant investment activity due to the construction of new energy infrastructure has also supported the country’s record GDP growth in 2015. For many, Malta serves as an example of what a strong political will to transform the energy sector can achieve. The island has not only tackled energy supply and production, but also developed a financing and structuring plan for a holistic gas to power cycle, which could well become a model for future energy investment elsewhere. The vision for the years ahead centres around the further internationalisation of the sector by turning it into an exportable services industry.
"We will give priority to the upkeep of Malta’s and Gozo’s rural environment and launch a new organisation ‘Environment Malta’ to champion our efforts. Waste separation, reduction and recycling are also high on our agenda."
Jose Herrera, Minister for the Environment, Sustainable Development and Climate change
While Enemalta previously had a monopoly on electricity generation, a number of experienced and high-profile companies have now entered the Maltese market. ElectroGas Malta shareholders (each with 33.333%) are Germany’s Siemens, Azerbaijan state-owned Socar Trading, and privately owned joint venture GEM Holdings, owned by Maltese companies Gasan and Tumas. ElectroGas, however, is not operating the power station it built, but has instead contracted out that service to the international arm of the Irish Electricity Supply Board (ESB). The Electricity Supply Board International (ESBI) has been working in the international power sector for 40 years and employs over 700 staff across its operations in Europe, the Middle East, Africa and Asia. It operates in 20 countries and has completed projects in over 120. Malaysian company Bumi Armada has been contracted to build the LNG tanker, which holds a storage unit. The Armada LNG Mediterrana is still owned by its Malaysian builders, with ElectroGas chartering the vessel. While the gas is supplied by Shell, a Spanish company, Reganosa has been contracted to operate the LNG terminal.
Enemalta has also moved forward on its internationalisation journey. As part of the strategic alliance established between Enemalta and Shanghai Electric Power, the two companies have set up a new company: International Renewable Energy Development Limited. The company seeks to realise renewable energy projects across the European region and has already won a contract for the development of a 46 Megawatt wind farm in Montenegro.
From an environmental perspective, the sector is regulated by the Environment & Resources Authority (ERA), while energy policy is developed within the Ministry for Energy and Water Management. Oil exploration, however, falls under the Office of the Prime Minister.
The long-term vision for Malta's energy sector also includes a gas pipeline to Italy. While the main purpose of the pipeline will be the import of gas, it also offers Malta the opportunity to establish itself as an energy hub in the Mediterranean.
Malta’s electricity requirements are currently met by three different sources. Electricity is generated at the Delimara Power Station, operated by Enemalta plc and its strategic partner Shanghai Electric Power. It is situated at Marsaxlokk Harbour in the south-east of the island. The total generation capacity of this station stands at 444MW. While several other small-scale domestic and industrial renewable energy installations also provide electricity, Malta has laid an interconnector cable to Sicily to import electricity. The Malta-Italy Interconnector, inaugurated in April 2015, is capable of transferring an additional 200MW of electricity to Malta. The electricity generation plants and the interconnector are linked to the national electricity grid, which is also managed and maintained by Enemalta plc. Until recently, the island also had a back-up capacity of 155MW from the Marsa Power Station, which was disconnected in March 2017.
Plugging the Energy Gap
Once the new 200MW gas-fired power plant and related LNG storage and regasification facilities within the Delimara Power Station that are currently being developed by ElectroGas Malta are fully operational, the country will be able to stop using its older oil-fired plants. A newer, more modern section of the plant, which was being constructed in 2012 by Danish company BWSC, has been converted to run on natural gas. When all these projects are completed, Malta will have a capacity of some 550MW, while the older oil-fired parts will remain on standby as backup run on gasoil.
Consumption and Tariffs
Another element in the government’s power plan was a 25% reduction in electricity bills for both households and businesses. Tariffs, which for many years were among the highest in the EU, are now third cheapest according to Eurostat. Over the past years, Maltese consumers had cut down significantly on their energy consumption as a result of the high cost. In 2015 though, the average maximum electricity demand reached 351MW – the highest since 2008.
Approximately one third of electricity generated in a year is used between July and September, when switching on the air-conditioning unit to beat the summer heat is a must. In 2015, August registered the highest peak demand at 426MW, while May saw the lowest peak demand at 295MW. However, cold weather meant that on 9th January 2017, Enemalta registered a new all-time seasonal high of 410 MW. The previous peak of this season, 402 MW, was registered in February 2005. The winter peak is now nearing the overall all-time peak of 438 MW, reached in July 2015. Despite a rise in demand, carbon dioxide emissions from power station operations were reduced because the Marsa Power station was switched off, the interconnector was introduced and the shift to gas was initiated. Once the ElectroGas plant will be fully operational, emissions will be reduced by a further 50% and particulate matter by 90%.
A Greener Malta
The need to reach EU targets on the contribution of alternative energy technologies required an expansion of renewable energy sources. The island is committed to ensuring that 10% of energy is generated from renewable energy sources (RES) and to cut down its CO2 emissions. Malta had achieved a 5% renewables share, half of its 2020 goal. Grant schemes are being given out to residents installing photovoltaic panels on their homes, while the first solar farm will be set up shortly, in which people who do not have access to roof space to install panels can invest. There are plans for more solar farms, which could be installed on factories as well as in disused quarries. Malta also operates three small-scale waste to energy sites. The European Commission has adopted proposals to boost recycling of waste and reduce the percentage of household waste that can go to landfills by 2030. This means this area could see significant investment in the years ahead.
"There are a number of initiatives promoting Malta as a test bed for green technologies, such as renewable energy sources, which we feel have tremendous potential. This is particularly relevant and applicable in the transport sector. Malta can be an ideal location for the mass promotion of electric cars."
James Bonello, Managing Director at KPMG Crimsonwing
The long-term vision for Malta’s energy sector also includes a gas pipeline to Italy. Studies are currently being undertaken on the best route between Delimara and Gela, Sicily. Once this project is completed, the pipeline will replace the floating storage unit in the Marsaxlok harbour. While the main purpose of the pipeline will be the import of gas, it also offers Malta the opportunity to establish itself as an energy hub in the Mediterranean. The reverse flow mechanism of the pipeline comes as an add-on cost, but the island will continue tapping into EU funds. Malta’s energy hub ambitions in the future also include physical links between North Africa and Europe.
"We completely overhauled our generation infrastructure and shifted generation from oil to gas. We are now focused on producing more energy from renewables; we want to make sure that we reach our EU targets. Our biggest challenge is that we only have limited land for photovoltaic systems. We are also looking at LNG bunkering as the shipping and maritime sector is gearing up for stricter environmental regulations."
Joe Mizzi,Minister for Energy and Water Management
The Next Level
While Malta’s energy sector has seen significant investment in generation infrastructure, the island’s distribution network is also in need of modernisation. Enemalta is already working on the final stages of a €100 million five-year investment to upgrade and expand major nodes of the national electricity network and improve the quality of service to its customers. This was only possible after Enemalta’s financial turnaround. Efforts should also be concentrated on so-called last mile projects and the burying of above-ground power lines. The abundance of overhead power lines is something that most visitors to Malta notice, with thick, black cables crisscrossing streets and buildings. The industry rule of thumb is that it costs about 10 times as much to bury wire as to string wire overhead. However, Malta is densely populated and denser areas require less wiring; if this investment is undertaken as part of a larger infrastructure overhaul, which includes water, sewage and telecoms, it would become a much more attractive option.
"The implementation of our long-term plan for Enemalta to achieve financial sustainability is not only a matter of cutting down long-standing debts and reducing dependency on government guarantees. This transformation is about establishing a self-sufficient company capable of maintaining an efficient and reliable electricity distribution system that meets customers’ service level expectations."
Ing. Fredrick Azzopardi, Executive Chairmain of Enemalta plc
Predicting the Future
While the recent performance of the energy sector is impressive, a few worries remain. Malta’s population is growing; high-rise buildings are being planned. Even if one factors in that many devices will become more energy-efficient, there is little doubt that in the future, more energy, not less, will be needed. The island estimates that the modernised generation capacity will serve it for the coming 10 years. It might not be long until a new round of new big energy projects will have to be realised. A long-term plan for supply, generation and distribution is required to bring more clarity for the next decades.