Malta-Sicily interconnector alone cannot bring energy prices down, LSE scientists say

A new study published in the journal ‘Utilities Policy’ has suggested that the Malta-Sicily interconnector would not be sufficient 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 Environmental Sciences at the University of Geneva in conjunction with the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science.

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 generator used by Enemalta.

They also calculate the “scarcity rent” of importing electricity: 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 scenarios 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 systems are run without natural gas.

They added that in the absence of natural gas, the interconnector only reduced the price of energy 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 without it – is made slightly cheaper, while rents to Enemalta are higher. This trend no longer remains 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.”

Calculation of energy cost in different oil price scenarios

Exporting energy

Another finding was that owing to the high cost of fuel generation in Malta, the interconnector will be used mainly for importing electricity with very little exportation taking place.

The only scenario where the model envisages Malta exporting more electricity than it needs is one where the electricity generating systems are running on natural gas during a period of low oil prices. 

In principle, the interconnector 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 position.

The authors also warn against over-dependency on electricity imports, insisting that Maltese policy-makers must ensure sufficient availability of standby generation capacity “so that Malta’s insular power can operate autonomously under emergency conditions.”