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Network News • 28-06-2022

Malta – attracting investment in offshore renewables

Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 28th June 2022

Last year, government officially announced that it identified the EEZ (Economic Exclusive Zone), a zone of shallow waters around Hurd's Bank and a 6, belt around the island as two areas where it intends issuing concessions to private companies for the production of renewable energy, the production and storage of hydrogen and the establishment of "artificial islands".

It committed to fast-track planning permits for such projects to a maximum duration of three months from the submission of all required documents. Hurd's Bank is designated as Area 1 while the entire offshore belt, extending between 12 to 25 nautical miles, which spans over 6,500sq. km, is designated as Area 2.

The document suggests that the area around Hurd's Bank is characterised by its relatively shallow waters. It is the jewel in our crown. In fact the area of interest adjacent to Hurd's Bank has a depth ranging from 50m to 100m, with an area of 900sq. km. What are the benefits arising from exploitation of such exclusive zones? At a time when Europe is frantically looking for a greener alternative to burning fossil fuel, the next goal is the alternative use of such areas for renewables.

Hopefully, this signals government's intention to seriously explore local production of this energy sector, instead of relying exclusively on the hydrogen-ready pipeline linking us to Sicily. It came as no surprise that a Preliminary Market Consultation (PMC) was published on 2 May to invite internationally reputable companies to propose economic activities.

Why is offshore floating platforms becoming feasible in open seas? The answer is that while most offshore wind turbines are anchored to the ocean floor on fixed foundations, floating turbines are tethered to the seabed by mooring lines. These enormous structures are assembled on land and pulled out to sea by boats.

The ability to install turbines in deeper waters, where winds tend to be stronger, opens up huge amounts of opportunities. For example Germany is set to increase from 3 gigawatts this year to 10 gigawatts annually in 2027.  Solar expansion will go from 7 gigawatts to 20 gigawatts a year in 2028.

The country foresees capacity rising from 30 gigawatts in 2030 to 70 gigawatts in 2045. All this is happening amid an ongoing energy squeeze, a levy to finance the expansion of renewables will be scrapped at the beginning of July as part of government's efforts to ease the burden of higher prices on consumers. The proposed German law on a new national gas reserve will require owners of storage facilities to speed up investment in the aftermath of the Russian invasion of Ukraine. In fact, Germany is launching a series of measures to diversify its energy sources away from Russia after Moscow's invasion of Ukraine.

Germany relies on Russia for more than half its natural gas and a decision to phase out nuclear power - the last three reactors are set to go offline this year - has left Europe's largest economy vulnerable to disruption. In Germany, everyone is afraid of a lack of gas: this concerns consumers as well as companies and small- and medium-sized enterprises.

The worries have become even greater in recent days because Russia has cut back on gas supplies. Federal Economics Minister Robert Habeck (Greens) now wants to take measures to save gas.

Consumption in the electricity sector and in industry is to be reduced and storage facilities filled more quickly, the minister announced during the weekend. For example, the chemical giant BASF has close ties with Gazprom - supported by several federal governments. The German government and the German industry have so far rejected a complete gas boycott. Instead, gas imports from Russia are to be gradually reduced by 2024, as announced by Minister Habeck. Natural gas is indispensable for chemical production.

The chemical industry is considered particularly energy-intensive, but also needs natural gas as a raw material. According to BASF, 60% of the natural gas it purchases is used for energy generation in production and 40% as a raw material itself.

A shutdown would therefore have far-reaching consequences for many industrial sectors and areas of life. Natural gas as a raw material is also needed for fertiliser and medicine and the concern is that a complete shutdown could also cost jobs. Many companies are threatened as the chemical industry supplies the basic products for almost all manufacturing industries. In Ludwigshafen, for example, BASF produces substances for medical use, such as protective suits, disinfectants and clean agents or medical equipment.

These end products are also needed in large quantities in the fight against the Corona pandemic. But substances are also produced that are subsequently used for the manufacture of everyday goods, for example food, packaging or toilet and hygiene articles. If BASF fails in the production chain because there is no gas in Ludwigshafen to power the machines, then the materials for further processing are missing. The current burdens due to electricity and gas prices are already high.

At the same time, however, companies will have to invest billions in the green transformation in the coming years. BASF, for example, has set itself the goal of reducing greenhouse gas emissions by a quarter by 2030 and to be climate-neutral by 2050. To achieve this, the company wants to invest another €4bn in the medium-term while in the long-term, amounts of more than €10bn are planned.

The chemical company has already secured several large supply contracts for electricity from offshore wind farms, for example off the Dutch North Sea coast. This switch to renewable energy is now being pushed, says BASF CFO Engel, regardless of the burdens of the foreseeably expensive gas as the current number one form of energy for chemicals. Last month, BASF presented a project idea that shows how industrial production can become sustainable and future-proof.

The project envisions an additional offshore wind farm with a capacity of 2 gigawatts to provide the Ludwigshafen chemical site with green electricity and enable CO2-free production of hydrogen. The aim is to electrify the production processes for basic chemicals, which are currently based on fossil fuels.

The company has committed to buy electricity from multiple European wind and solar farms and has taken an equity stake in a Dutch offshore wind farm. It plans to use approximately 300MW of the power produced by the wind farm to produce green hydrogen.

The company has not yet decided the location of the electrolysing plant, but it intends to use the hydrogen as a chemical feedstock. Ideally, Malta Enterprise will succeed in attracting German investment in our EEZ to place floating wind turbines and PV platforms generating sufficient power to produce hydrogen for export.

Author: George Mangion - Senior Partner PKF Malta
Published on Business Today: 28th June 2022
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