Issue link: https://maltatoday.uberflip.com/i/734031
maltatoday, SUNDAY, 2 OCTOBER 2016 4 News 1 2 Interconnector alone cannot bring energy prices down, LSE scientists say Study concludes that interconnector will not necessarily bring down electricity prices and warns against over-dependence on it YANNICK PACE A new study published in the journal 'Utilities Policy' has sug- gested that the Malta-Sicily in- terconnector would not be suffi- cient to lower electricity prices, and that besides the installed generation capacity, the price would still be dependent on the price of oil. The study was carried out by the Institute for Environmen- tal Sciences at the University of Geneva in conjunction with the Grantham Research Institute on Climate Change and the Envi- ronment at the London School of Economics and Political Sci- ence. The authors examined whether Malta's vulnerability to the price of oil can be overcome with the Malta-Sicily interconnector. Using electricity consumption data for the period between 2007 and 2010, they calculated the cost of electricity per kilogram of fuel, for each electricity gen- erator used by Enemalta. They also calculate the "scar- city rent" of importing electric- ity: that is, the cost of "using up" a finite resource whose benefits would be unavailable to future generations. Since most energy is generated using imported fuel, three sce- narios were considered – a base oil price scenario, and a high and low oil price scenario. The study found that the cost of electricity generation when natural gas is included in Malta's system, would be lower than when the country's existing sys- tems are run without natural gas. They added that in the absence of natural gas, the interconnec- tor only reduced the price of en- ergy as well as the rent paid to Enemalta, if the cost of oil is not low. In low oil price scenarios, the cost of electricity generation remains the same and the rent paid to Enemalta increases. When the use of natural gas is included, the interconnector "achieves a win-win situation" where the price of electricity generation – which is already lower than in a scenario with- out it – is made slightly cheap- er, while rents to Enemalta are higher. This trend no longer re- mains if the price of oil is high. These results, say the authors, validate their hypothesis that "the interconnector does not inherently favour electricity prices for Maltese consumers even if Malta is integrated into the competitive EU electricity market." Exporting energy Another finding was that ow- ing to the high cost of fuel gen- eration in Malta, the intercon- nector will be used mainly for importing electricity with very little exportation taking place. The only scenario where the model envisages Malta export- ing more electricity than it needs is one where the electricity gen- erating systems are running on natural gas during a period of low oil prices. In principle, the intercon- nector should reduce Malta's dependency on oil prices and considerably lower the average generation price, bringing prices close to the EU-28 average. But the authors say that in the short-term this is unlikely due to Enemalta's monopolistic posi- tion. The authors also warn against over-dependency on electricity imports, insisting that Maltese policy-makers must ensure suffi- cient availability of standby gen- eration capacity "so that Malta's insular power can operate au- tonomously under emergency conditions." Former Prime Minister Lawrence Gonzi, with Italian premier Matteo Renzi and Prime Minister Joseph Muscat at the launch of the Malta-Sicily interconnector. The 200MW cable was started under the PN administration, and will be supplemented by the 200MW gas plant that Labour is building 2015 Electric Power Systems Low oil price Base oil price High oil price Electricity generation price (€/MWh) Without interconnector €85 €150 €215 With interconnector €85 €105 €125 Rent to Enemalta (€ millions) Without interconnector €275m €450m €660m With interconnector €325m €180m €250m 2015 Electric Power Systems (Natural Gas) Low oil price Base oil price High oil price Electricity generation price (€/MWh) Without interconnector €65 €100 €145 With interconnector €70 €95 €110 Rent to Enemalta (€ millions) Without interconnector €160m €250m €390m With interconnector €350m €270m €235m