Next government will see electricity prices rise again

The government elected after the next general election due in 2022 will be presiding over an increase in electricity prices: first as a result of the expiry of current gas hedging agreements, and then because of increased carbon prices resulting from the EU’s Emission Trading Scheme.

Malta’s National Energy and Climate Plan for 2030 includes forecasts of electricity prices based on current projections of gas and the EU ETS (Emission Trading Scheme) prices.

Wholesale electricity costs are projected to increase by 23%, from €0.078 per kilowatt hour in 2022 to €0.096/kWh in 2030.

Projected wholesae electricity and gas prices 2017-2030 in € per kWh

Previously as a result of investments in the energy infrastructure, electricity costs had declined from €0.12/kWh in 2011 to €0.071/kWh in 2017, a decrease of 41%.

This suggests that by 2030 the price of electricity will still be slightly less than in 2011.

According to the National Energy Plan, Malta’s electricity prices are expected to remain relatively stable until 2021 as a result of gas hedging agreements. But from 2022 onwards, electricity prices will be subject to changes in international gas prices as well as rising EU ETS carbon prices, and are therefore projected to increase.

Between 2020 and 2030, the ETS is expected to see carbon prices rise substantially from €13 per tonne of carbon dioxide (CO2) to €33.5 per tonne.

While the increase between 2021 and 2022 is attributed to the expiry of Malta’s hedging agreements on gas, the effect of the growing ETS carbon price will become more prominent between 2025 and 2030, “when a substantial increase in carbon prices is expected” – a change that is expected to make solar energy more attractive for industry.

From 2025 onwards, “the declining costs of PV systems together with a slight increase in electricity prices” are projected to render PV systems a more financially attractive investment in the non-residential sector, “both as small-scale rooftop systems and solar farms”. As a result, the pace of installation of new installations is expected to increase.

How do emission trading schemes impact on pricing?

The European Union’s Emissions Trading System (ETS) charges power plants and factories for every tonne of carbon dioxide (CO2) they emit.

The cap-and-trade scheme is the EU’s key tool to meet its goal of reducing greenhouse gas emissions by 40 percent by 2030 compared with 1990 levels.

Each member state has a set number of permits it can auction each year which are then purchased by companies to cover their emissions.

The ETS suffered from excess supply following the financial crisis, which kept prices low and rendered the scheme ineffective, but in an effort to revive the scheme, the EU agreed on reforms in 2017 to curb oversupply.

The first of these reforms, a Market Stability Reserve (MSR), comes into effect in 2019, which will take excess permits from the market. Over the years 2019-2023, the analysts forecast a total of almost 1.5 billion permits will be withdrawn.

This means there will be fewer permits available to buy, driving up the cost. High carbon costs make fossil fuel power generation more expensive, which mean they also affect wholesale electricity prices.