Fuel prices and electricity generation

Abstract

The price of crude oil has been on a price hike for almost a decade and it is highly volatile. The Maltese households and the industrial consumers had to burden the surcharge on electricity consumption and higher electricity tariffs. The purpose of this research is to determine the factors that are causing instability in the price of crude oil and why this had a negative effect on Malta's electricity tariffs when compared to tariffs charged in the European Union (EU) countries and other countries. This study also aims to calculate and compare the unit cost of electricity generated from fossil fuels, nuclear energy and renewable sources. The study utilised secondary data in order to perform comparative analysis such as longitudinal analysis, cross-sectional analysis and contextual analysis. The levelised cost of electricity (LCOE) for electricity generation technologies were calculated at net present value. Oil price fluctuations are the result of extremely high price volatility, the prominent role of the Organisation of the Petroleum Exporting Countries, (OPEC), which is considered as a major cartel, demand and supply and the link to economic growth, geopolitical factors, speculations, doubt about oil reserves and the value fluctuation of the U.S. dollar, amongst other factors. In 2012, the electricity tariffs for the household and industrial customers in Malta were the fourth and second highest respectively, when compared to all the EU countries and other four non EU countries. Malta is totally depended on heavy fuel oil and diesel for its electricity generation. The calculated LCOE highlights that even with emissions abatement systems included in the capital cost, some generating technologies that use fossil fuels and are energy efficient, produce electricity at the lowest unit cost. Renewable sources produce green electricity, but at a higher LCOE due to the high capital investment. The fuel mix and the plant generation efficiency are highly influencing parameters to the cost of electricity generation.