Climate change and power cuts

Last Updated on Thursday, 27 July, 2023 at 1:06 pm by Andre Camilleri

The recent abnormal scorching temperatures of 43 degree Celsius amplified the demand for electricity, not just here in Malta, but also in Europe. Locally, we experienced, and are still experiencing, long hours of power cuts in several areas around Malta. Greece followed Malta’s steps a few days later.

At first, I thought that it was a supply side problem. However, it transpired that several underground cables around Malta failed. Media quoted Enemalta’s CEO saying that over 50 faults were reported. Some residential areas experienced even three to four days of uninterrupted power cuts. Beyond business loss, it is indeed an inconvenience for everyone, as we need to care for the elderly, as well as those who are vulnerable. Clearly, such power cuts have been the order of the day both in my childhood as well as in my adulthood. My contemporaries, surely remember such power cuts around Malta.

Obviously, it is not a consolation or an excuse to justify the recent power cuts. Definitely, we need to fix our distribution network now more than before, especially to mitigate the problem of climate and environmental risks. The physical risks of climate change are clearer today than we actually thought. During the past year I wrote about the physical risks of climate change including the heat stress and water stress problems for the southern Mediterranean region. Besides, I also wrote about the transition risks associated with energy companies. Understandably, such transition risks must be mitigated by transitioning to new methods and advanced technologies that produce cleaner energy. Recently, we learnt that the government is planning to set up offshore floating wind farms in Malta’s Exclusive Economic Zones. However, in tandem to transiting to cleaner energy, we must fix our distribution network system. Unquestionably, the transitioning to a greener economy certainly brings additional demand for electricity.

Let’s for a minute focus on the electrification of our public transportation and our private vehicles. Obviously, I am not an engineer. However, it is logical that if we are to transit to a greener economy, using electrified means to reduce CO2 emissions, we require an upgrade in our distribution network. We can spend weeks and months debating whose fault it is and why Malta did not upgrade its system. However, we won’t solve anything, and we will surely end up in petty partisan political arguments. We require the same upgrade, as that invested in the shore-to-ship connections of the cruise liners.

Demand for electricity increased not just as a result of a surge in the population of foreigners living and working in Malta. When temperatures rise, demand for electricity surges. Obviously, there is a positive correlation. And when electricity is highly subsided, thereby not reflecting the true market price, demand exceeds supply in a disproportionate manner. We can continue discussing demand and supply and artificial prices ad infinitum. However, it is an important factor in the equation.

This is why we require an immediate distribution network upgrade. Even if we are to build a metro system, or other means of transportation, Malta requires additional investments in this area. Demand for electricity is set to increase not just because of the positive correlation between temperature increases but also because of other factors affecting demand, including the green transition.

Let’s assume that Malta requires new means of transportation. Personally, I think that an overground tram system is required on the eastern part of Malta. We can design one from the north of Malta to Marsa with a direct connection and stop to other means of transportation, including electrified buses, as well as water transportation systems in the port area. We can seize the green transition opportunity and transform Marsa in a green transportation hub. Then from the south of Malta to Marsa, we only need underground multicar park stations, close to the tram station platforms and electric buses and bus shuttle services. And we must provide charging points for the provision of electric vehicles, underground. It’s quite a futuristic concept but it is already happening on mainland Europe. A few weeks ago, I had a discussion with a private investor and was told that what Malta requires is a tram system akin to that of Manchester, with private vehicles making use of the tram carriageway, too. It is cheaper than building an underground system.

Clearly, we can use EU funds and leverage private capital. Unless we rope in the private sector, it will take longer to provide additional productive green investments. We need a clear Transition Financing Mechanism which ropes in the private sector similar to the financial engineering of the Junker Plan. I know how it works because I participated in the negotiations as a former Budget and Economy Attaché in Council. In a world hit by persistent high inflation, the rate of return must be generous to attract private retail investors. Technically, the Junker Plan functioned in a way that private retail investors were roped in to create a multiplier effect on private capital. Then, the financial engineering worked in a way that the EIB assumed the risk through the EU budget guarantees. Certainly, we can use a similar financing mechanism. The EIB can work with private banks, as well as private retail investors to provide a reasonable rate of return on equity investments.

The way it must be executed is by roping in the National Development Bank. The latter provides capital at a trivial interest rate backed by the EIB’s guarantee. The equivalent sum can be provided by private banks through private capital. Private banks would charge the market an interest rate. However, the interest rate to retail investors would obviously be lower by charging the average interest rate; the market interest rate and the one backed by the EIB’s guarantees. Logically, the risk would be halved to provide a better rate of return to retail investors. Moreover, we can even fractionalise contracts to leverage additional private capital. Certainly, I have more ideas on how to finance the green transition. I will be writing about them in the coming weeks.

When I sat for Jon Mallia’s podcast, I wanted to send a signal to the public. Surely, I wanted to bring new ideas to the table. Last week I uploaded an excerpt from the interview. I stated that we must think of a regulation that compensates consumers that are affected by those who build higher floors adjacent to solar investments. The right to solar is not a new concept and there are even research papers associated to property rights and compensation. We must collect proceeds and channel them to those affected. People are not upset about sustainable development; they are only upset about the disregard and haughtiness of others, especially when their property rights are affected. It is a matter of planning. And efficient planning from a top to bottom approach.

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