Government wants to postpone electricity distribution liberalisation to 2035

Malta is seeking to extend an exemption it has from EU rules requiring competition in electricity distribution, Energy Minister Miriam Dalli has strongly hinted.

Electricity distribution is today the sole prerogative of Enemalta, a state majority-owned company.

Dalli was speaking on TVM’s Xtra last Monday in a debate with Opposition spokesperson Mark Anthony Sammut, when she hinted government will seek an extension beyond the 2027 deadline.

The issue came to the fore after the Opposition proposed the liberalisation of the electricity distribution network in its reaction to the recent spate of electricity outages. The government has criticised the proposal, insisting it will lead to higher utility bills.

Malta’s derogation from Article 4 of a directive regulating the energy market, which obliges member states to ensure consumers can “purchase electricity from the supplier of their choice” will expire on 5 July 2027.

But Article 66 of the same directive specifies that this period may be “extended for a further additional period, not exceeding eight years”. The extension will still require the seal of approval from the European Commission.

Malta was the only country in the EU to be granted this derogation.

On Xtra, Sammut accused the government of “burying its head in the sand” by not preparing for the 2027 exemption deadline.

But Dalli accused the Opposition of “having given up already” on making a strong case for extending the derogation. Dalli insisted liberalisation in the distribution sector would result in higher utility bills.

The minister also referred to past occasions where the EU had heeded Malta’s arguments exempting it from other rules in the energy sector due to the country’s exceptional circumstances.

Sammut argued that in view of the 2027 deadline the government should focus on regulating the liberalised sector by imposing conditions on private operators like automatic compensation in the event of power cuts.

The PN’s call to liberalise energy distribution echoed a similar call made by the Chamber of Commerce in its budget proposals which also referred to the expiry of the derogation in 2027.

Malta’s EU exemptions

Malta along with Cyprus and Luxembourg was also exempted from Article 43 of the directive which bans energy providers like Enemalta from involvement in the distribution of energy. The latter derogation which has no expiry date ensures Enemalta can continue producing and distributing electricity even if the sector is liberalised.

Back in 2008 when Malta was negotiating the derogations, government sources had told the Times of Malta that liberalisation in the sector is “economically unfeasible due to economies of scale”.

The report had quoted a European Commission spokesperson saying that Brussels had accepted Malta’s arguments “that the island cannot have more than one supplier and distributor given its small size”. The directive which amended previous EU regulations was approved in 2019.

Apart from the derogations granted to Malta, Cyprus and Luxembourg the directive allows the Commission to grant exemptions to member States “which can demonstrate that there are substantial problems for the operation of their small connected systems and small isolated systems”.

The directive specifically mentions Corsica, a French island, as a region which can apply for a derogation from Article 4.

How energy markets work

In liberalised energy markets, different companies can access and use the shared grid infrastructure to deliver electricity to customers.

The energy consumers receive will be the same, regardless of the chosen company as it all comes from the same grid.

The UK was a pioneer in the process of liberalisation, which began in the late 1990s. While initially liberalisation led to a reduction in electricity prices, this was followed by a rapid increase.

Energy companies were also accused of using deceptive tactics to persuade consumers, particularly vulnerable groups like the elderly to switch to their services. These tactics included misleading pricing information, false claims about potential savings, and aggressive or misleading sales techniques.

The current hike in energy prices following the Ukraine war has also thrown the spotlight on the EU’s energy policies.

In March the European Trade Union Confederation which represents 45 million members, had called on the EU to reconsider the liberalisation of the sector, which it claims has “contributed to exacerbating the energy price crisis.”

The ETUC called on the EU to enshrine the right of access to affordable energy as a human right and to consider the distribution infrastructure “as a common good and not as a market commodity”.

Instead of the liberalised market the ETUC proposed a “single buyer model” consisting of a publicly owned entity that would purchase electricity from energy producers through long-term power agreements, allowing a planned approach to the energy transition and stable prices for consumers.

The Commission is currently considering a new directive aimed at increasing protection for vulnerable customers from being disconnected from the distrubution system but is not reconsidering the liberalisation of the sector.

There are currently more than 2,500 distribution system operators across Europe ranging in size and scope from a few thousand to over 10 million customers and from small geographic areas up to whole countries. But the electricity market in the smallest EU member states is still dominated by larger companies.

Although energy distribution in Cyprus has already been formally liberalised, with the possibility of retail supply firms operating in a competitive market, the Electricity Authority of Cyprus (EAC) still holds most of the retail supply. In Luxembourg Encevo the main energy company controls the two main energy retailers; Enovos and LEO as well as Creos, the grid operator.

Like Malta Cyprus and Luxembourg were exempted from an article in the directive which precludes energy providers like Enemalta from having a stake in the distribution of electricity.