Issue link: https://maltatoday.uberflip.com/i/1513149
8 OPINION 7.12.2023 An RFP to receive competitive bids on a power purchase agreement George Mangion George Mangion is a senior partner at PKF, an audit and consultancy firm, and has over 25 years' experience in accounting, taxation, financial and consultancy services. His efforts have made PKF instrumental in establishing many companies in Malta and established PKF as a leading professional financial service provider on the Island G rowth in the use of renewable ener- gy sources (RES) has diverse ben- efits for society such as mitigating climate change, reducing the emission of air pollutants and improving energy security. e concept is topical given that the EU formally adopted an update of the Re- newable Energy Directive. is paves the way for commercially produced hydro- gen – that is hydrogen separated from oxygen in water, through solar-powered electrolysis. Naturally as was the case in the past decade with the polemical Elec- trogas electricity plant built by a private consortium, readers may now be familiar with the drill. is power purchase agreement in- volves a huge infrastructure investment and requires years before revenue starts to flow. Most are aware about wind and solar initiatives by the number of coun- tries and corporates that have committed to back a 'green recovery' . But too often, these operators are being undermined by lack of funds and prob- lems with project bureaucracy and state permits. Renewable power plants require larger upfront investments than fossil fuel equivalents, albeit their main advantage is lower running costs. is also means investors in renewables have to wait far longer to see returns. Consider for example, Hyphen, a Ger- man-led consortium, is planning a $9.4bn investment in a solar and wind-powered green hydrogen plant in Namibia, after the German government provided finan- cial backing. Another case is that of the UAE. It has promised $4.5bn to develop 15 GW of clean energy capacity in Africa by 2030 and guide investors in its poten- tial for long term returns. e UAE also launched the Gulf region's first Green Bond in 2017, encouraging individuals and institutions to provide $587m of up- front finance for green projects in return for regular interest payments. Let us recall how the private sector in Malta financed the Electrogas electric- ity plant in 2014, fired by LNG supplied from a floating vessel. It is a 215MW pro- ducer equally owned by Siemens Project Ventures GmbH, Socar Trading SA, and GEM holding Limited. Faced with loan difficulties, the State provided a bankers guarantee to the consortium, first on an €88 million bridge loan, and later on a major €360 million loan. With hindsight, a default on the con- sortium's part could have left the govern- ment with a large hole in its pocket. But the project did not default and the guar- antee itself generated €12 banking fees for the State. Another guarantee which Konrad Mizzi as Energy Minister signed with Azeri gas supplier SOCAR for the State was to cov- er any debts left by Electrogas. A critical report investigating the entire process of adjudication procedure which nominat- ed Electrogas as the winning consortium was conducted and published by the Na- tional Audit Office. So far, based on published accounts, we note how Electrogas registered a positive result of €19million profit which comes after four consecutive years of losses, in- cluding €56 million in 2021, €15 million in 2019, €32 million in 2018, and €23 million in 2017. Now, let us examine the scenario lead- ing to a offshore wind and solar project located in EEZ, with the aim of generat- ing hydrogen in pressurized canisters set for export. Quoting an engineer from Energy ministry, he explained that the six zones for hire in the EEZ, were identified during a preliminary consultation with stakeholders. Several factors were taken into ac- count including: airport buffer zone and harbour approaches, aquaculture farm boundaries, submarine cables and pipe- lines, exploratory oil wells and potential oil and gas prospects, fishing aggregation devices zones, marine facilities and ma- rine and bird species in the area. Considering our highly mobilized com- munity, the advent of a booming tourism industry and our 100% dependency on fossil fuels, it is about time that stakehold- ers in Malta wake up and seriously start investing in renewable sources with the eventual generation of Green Hydrogen. With serious planning, and tax incentives, one can imagine visions of a green hydro- gen-fuelled future, the liquified fuel that powers everything from cars to aviation and heavy machinery with zero emis- sions. In this vision, the sheer scale and va- riety of export demand means that the supply question solves itself: investors will be happy to finance schemes to gen- erate green hydrogen, because they are confident there will always be buyers. For now, Malta has been a laggard as regards renewable energy reaching a mere 12% mainly on home use of PV panels. Most ask: would the electricity pro- duced by solar panels and wind turbines be cheap enough to compete with coal or gas? e answer is yes. Now that we saw the end of the pan- demic tunnel, economies are facing new obstacles to growth. Both the Russian and Middle East wars have distorted com- merce in Europe and racked up consumer prices. However, apart from the atrocities of war, Europe faces huge uncertainty of supply chains caused since the start of hostilities. At the latest COP28 conference, one is noticing a global drive to fight climate change amid new incentives to activate de-carbonisation policies. Major oil pro- ducers have been wary of the turbulence in the markets and prudently did not seek new upstream projects resulting in a spill over effect on the production of natural gas, which is often a by-product of drill- ing for crude. Still this is no panacea for renewables future as some governments started getting cold feet before allocating huge sums. is is one reason for the shortfall in fi- nance due to government inaction. Previ- ously, wealthy countries pledged $100bn per year in 2009 to help fund climate change mitigation in poorer countries, but this money has not fully materialized. To fast-track the shift to a resilient net-zero economy, a new framework on climate finance is needed, alongside cru- cial reforms that match the magnitude of climate finance required. Pledged com- mitments, meanwhile, must be met with international co-operation, a global shift to a green economy could create a net 18m jobs. Another bottleneck to finan- cial flows has been the failure to catalyse private capital flows for the net-zero tran- sition. e global financial system is not fully geared with climate action in mind, con- sequently international financial institu- tions and multilateral development banks (MDBs) need to take bold steps to use public finance more effectively to unlock private capital flows to where these are most needed. As had happened locally for Electrogas' nuanced selection saga, next year one ex- pects the finance ministry to issue an RFP in a call to attract competitive bids on a power purchase agreement.