The Auditor General reported to Parliament on Malta’s potential contingent liability in the event that renewable energy targets, outlined in Directive 2009/28/EC on the promotion of the use of energy from renewable sources, are not attained. This study was undertaken following a request raised by the Public Accounts Committee during its deliberations of the performance audit report Renewable Energy and Energy Efficiency in Malta, which was published in September 2009.

As an EU Member State, Malta is required to produce 10 percent of its energy consumption from renewable energy sources by 2020. In June 2010, the Malta Resources Authority updated this position and outlined in its draft National Renewable Energy Action Plan various measures that will enable Malta to marginally exceed its obligatory renewable energy targets.

Through the consideration of different presumed scenarios and assumptions this study sought to estimate Malta’s contingent liability in the event that this mandatory EU target is not attained. This report estimated Malta’s contingent liability on the bases of financial penalties that could be imposed by the European Court of Justice, statistical transfers and cooperation agreements.

For each of the three approaches indicated in the preceding paragraph, a best and worst case scenarios were presumed. The best case scenario presumes that Malta will only marginally fail to attain the relative renewable energy targets and thus will produce nine percent of the gross final consumption of energy from renewable sources by 2020. This implies that Malta’s contingent liability will relate to one percent of gross final energy consumption. The worst case scenario presumes that in 2020 the exploitation of renewable energy sources would have reached one percent and thus the contingent liability will relate to nine percent of gross final energy consumption.

The results and conclusions presented in this study are subject to significant qualifications which render the estimates and conclusions presented strictly hypothetical. A major limitation of this study related to certain overseas scarce data and information available on the subject matter. Another major limitation related to the unknown potential impact of technological advancements in the renewable energy field. Moreover, assumptions were made with regards to the duration of Malta’s non-compliance with the relevant Directive and the gravity assumed by the European Court of Justice in imposing financial penalties on Malta. Other major assumed situations related to Malta’s energy demand and the potential impact of future fossil fuel prices on statistical transfers, the impact on the statistical transfers market and green energy tariffs through the potential surplus or deficit of renewable energy generated by Member States in relation to the EU’s overall targets.

The report presents a range within which the contingent liability will fall in the presumed best and worst case scenarios when estimated on the basis of financial penalties, statistical transfers and cooperation agreements. At the top end of the range of the presumed worst case scenario it was estimated that the contingent liability could amount to around €2.9 million (based on a five-year lump sum penalty and a subsequent periodic payment based on a presumed five-year period of non-compliance), €6.5 million, and €36.1 million respectively for a one percent shortfall from the renewable energy targets. Additionally, in the event that renewable energy targets remain unattained, the risk also exists that Malta would face further non-compliance costs, in terms of other EU Directives, such as Directive 2001/81/EC regarding carbon dioxide emissions.

Despite its inherent limitations, this study provided an indication as to the potential range of Malta’s contingent liability under various scenarios. The Government entities responsible for the implementation of the Renewable Energy Directive evidently need to keep abreast of developments to ensure that the provisions of the Directive are fully respected while keeping Malta’s contingent liability to a minimum.

To view report (.PDF) please follow link.