Interconnecting Malta's isolated electric power system to the european market-institutional challengees and implications for maltese electricity consumers

Abstract

In light of European electricity market liberalization this master‘s thesis addresses the envisaged grid interconnection – a high voltage subsea cable with 200 megawatt transmission capacity – between the two EU member states Malta and Italy. So far, Malta‘s electric power system has been isolated and therefore electricity supply in the small European island state has heavily relied on imported fossil fuels. Consequently, Malta‘s exposure to volatile fossil fuel prices inherently impedes to reliably predict electricity generation costs. This motivates to investigate whether and to what degree the vulnerability to distinct oil price scenarios can be overcome with the new interconnector that is expected to be operational as of 2014/2015. Generally, an isolated power system like in Malta implies peculiarities. This master paper thoroughly examines whether the interconnection cable to Sicily breaks up the Maltese market and potentially threatens the privileges of the incumbent utility Enemalta. It presents the drivers that have forced the small EU member state to radically revise its hitherto energy policy. Primarily our Malta-Sicily case study i.) discusses the cable‘s qualitative implications – in particular institutional challenges – and ii.) numerically determines potential consequences for Maltese electricity consumers. Our numerical sensitivity analysis defines the merit order for both Malta‘s isolated and the future generation setup differentiating between three distinct oil price scenarios. Based on the constructed marginal cost curves, we then simulate the interconnection case. Malta‘s quantity imports and the cable‘s total capacity utilization indicator are two key findings. Moreover, the algorithm enables to determine the average electricity spot price with interconnector and the computation of rents for both the supplier and cable owner. Our analysis demonstrates that the submarine interconnector does not inherently reduce the electricity price level for Maltese consumers. It thus renders whether and in which of the presented generation setups and distinct oil price scenarios Malta‘s interconnected power system benefits. The study concludes that the cable‘s impact significantly depends on the considered generation setup, the oil price scenario and the market design. In sum, this thesis simulates how the theoretical concept of market liberalization practically applies to the EU island‘s micro power system. Its added value originates from both a qualitative and quantitative analysis which shows that the cable‘s impact for Maltese end consumers is importantly co-determined by Enemalta‘s future positioning. Although the link will certainly promote the creation of a single European electricity market, this paper suggests to thoroughly rethink infrast