May 12, 2023
May 12, 2023
Countries in Southeast Europe have no doubt that decarbonization is inevitable, but those that are members of the European Union (EU) have more money to implement it than those outside the bloc. Obtaining financing is key for the Western Balkan countries to carry out a just energy transition, so they must work together on securing the EU’s help, according to the panel Energy system of Southeast Europe – strategies for overcoming the crisis.
The two-day Belgrade Energy Forum 2023 (BEF 2023) brought together representatives of governments and major companies to discuss the energy transition in Southeastern Europe. Four hundred participants from 28 countries including representatives of international organizations attended the biggest energy conference in the region.
Coal phaseout not going smoothly in EU, let alone Western Balkans
Mirza Kušljugić and Rossen Hristov
Romania has passed a law envisaging thermal power plants to be shut down by 2030, but keeping certain backup facilities until 2032. George Agafitei, State Counsellor in the Government of Romania, said that coal will be replaced with nuclear power plants, gas-fired power plants, as well as solar parks and wind farms.
Romania plans to build two more units at its Cernavoda nuclear power plant, but also a small modular nuclear reactor, perhaps the first in Europe, according to Agafitei.
Bulgaria, according to Minister of Energy Rossen Hristov, is in talks with the European Commission on revising the emissions reduction target set in its national recovery and resilience plan. The target was set by the previous government, but has been rendered unreachable by the energy crisis, he said, adding that the plan envisages a 40% emissions cut in the energy sector by 2026.
Bulgaria is negotiating a revision of its emissions reduction target for the energy sector, while North Macedonia is updating its energy strategy
The negotiations with the European Commission include linking the national plan with REPowerEU and with just transition plans and creating a coherent whole to ensure that coal phaseout is carried out in a socially fair and economically viable way, he stressed.
The proposal includes, among others, doubling the renewable energy targets, from 3.5 GW to 6.5 GW – 7 GW, with a view to reaching the EU’s decarbonization goals, ensuring energy security, and utilizing Bulgaria’s natural resources.
The country’s plan is to build four nuclear reactors, new hydropower plants, as well as renewable energy plants.
North Macedonia initially set 2027 as a coal exit date, but later revised it to 2030. Viktor Andonov, energy advisor to the Prime Minister of North Macedonia, recalled that the original deadline was set in 2018-2019 in line with the European Green Deal. The plan relied on wind farms and solar power plants, whose integration would have been ensured by pumped-storage hydropower plant Čebren.
Đokić: The current approach will endanger BiH citizens and economy
The plan also involved gas-fired power plants with a combined capacity of 450 MW, since gas was seen as a transition fuel, but that required the country to start diversifying its supplies of gas, all of which still comes from Russia via Bulgaria. This year is expected to see the launch of construction on a gas interconnector with Greece, Andonov said, recalling that North Macedonia is also part of a project to develop a new liquefied petroleum gas (LNG) terminal in Alexandroupolis, which is under construction.
North Macedonia is currently updating its energy strategy to take into account the energy crisis. The new targets are yet to be set, but the government’s intention is to comply with the REPowerEU plan, according to Andonov.
The authorities in the Republic of Srpska, one of the two entities of Bosnia and Herzegovina, are fully aware of the need to decarbonize and carry out an energy transition, but, according to Minister of Energy and Mining Petar Đokić, it needs to be done at an optimal pace so as to avoid adverse impacts on the state, and particularly the people.
Đokić believes that enough solar, wind and hydropower plants could be built in the next five years to reduce the share of fossil fuels from 60% to 30%.
Petar Đokić and Giles Dickson
The value of all energy projects planned in the coming years is BAM 3.15 billion (EUR 1.16 billion), and the state power utility will play an important role, providing security of domestic supply, according to Đokić.
He highlighted the problem of emissions, not only in the energy sector but primarily in industry. Industry in BiH has only recently entered a development stage, following the necessary consolidation due to the 1990s crisis, and that is why it still lags far behind EU countries, but also those in the region.
With the heavy burden imposed by the national energy and climate plan (NECP), including carbon pricing, coupled with the EU’s upcoming cross-border carbon tax, it is uncertain whether the country’s energy system will survive, Đokić noted.
That approach, he believes, is wrong because it will put BiH in a very unfavorable situation, affecting citizens and creating energy poverty. This is why it is necessary to discuss these issues extensively and ensure understanding for the measures that BiH will take, according to Đokić.
Professor Mirza Kušljugić, from RESET, who moderated the panel, summarized the participants’ comments by asking whether the Western Balkans might need a plan similar to REPowerEU or a way to join the EU’s plan.
Renewables development schemes: what you subsidize is what you get
The problem of financing the energy transition is already visible in the existing models for green energy development.
The number of prosumers in Romania tripled in 2022, to 40,000, and is expected to reach 100,000 this year! Asked what contributed to this, George Agafitei, State Counsellor in the Government of Romania, said the number is expected to increase by 87,000 this year thanks to a program that provides subsidies of EUR 4,000 for consumers. The idea is to allocate higher subsidies to regions with more sunshine hours.
When it comes to grid development, Romania intends to boost its capacity to integrate 5 GW of power plants and has allocated EUR 400 million for that purpose.
Andonov: A successful energy transition requires a balance between large and medium-size investors and consumers
Bulgaria is applying similar models for subsidizing prosumers, but is also preparing a pilot project to develop virtual power plants, where citizens would rent roofs to install solar panels and create a single power plant that would sell electricity on the market.
When it comes to subsidies, the plan is to attract private capital in segments with developed technologies, such as wind and solar, and to provide subsidies where this is not the case, such as geothermal energy and batteries, said Minister Rossen Hristov.
North Macedonia has so far signed contracts for premiums for 130 MW of capacity at several auctions, which, according to Viktor Andonov, has sent a signal to investors that the government is on the path to decarbonization and that it will support investments.
He believes that if the country wants the energy transition to be successful, it must create a balance between large and medium-sized investors and consumers.
To this end, the country has adopted a law on strategic partnership for large investors, and has already signed contracts with companies such as Akuo, wpd, Mytilineos. The state has also launched auctions for medium-sized investors, and streamlined procedures for prosumers, who are eligible for subsidies of EUR 1,300.
Đokić: Wonderful ships without the sea
The Republic of Srpska still does not have a completed regulatory framework for citizen energy, but state power utility Elektroprivreda Republike Srpske (ERS) has launched a subsidy scheme for citizens to install solar panels.
The results, as Minister Petar Đokić said, have not matched expectations, partly because many thought the subsidies had something to do with the election campaign that was under way when the program was launched.
He believes the scheme will take off once the first panels are installed and people see how it works in practice. The reason why the regulatory framework has not yet been fully defined is the tax treatment of prosumers is, he explained.
Đokić believes that the transmission network will be a problem because the region has the potential to produce much more electricity, but will not be able to transmit it to consumers, primarily in Europe.
Planned investments in power plants will not produce results, and we will have wonderful ships, but without the sea, Đokić said.
“Financing is not a problem in the EU, but it is in the Western Balkans”
Asked to give advice to the region regarding the energy transition financing, Giles Dickson, CEO of European wind industry association WindEurope, admitted that the transition requires a lot of money, but he added that from the economic point of view, financing the energy transition is cheaper than doing nothing.
There is a lot of money in the EU’s funds, primarily in national recovery and resilience plans, some EUR 200 billion, and there are also structural and cohesion funds, as well as funds for candidate countries and partners. Then there are loans from the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB).
There are enough sources of financing, and there is also private capital, which needs the prospect of steady income, he said, noting that this can be ensured through contracts for difference (CfDs) and power purchase agreements (PPAs).
Dickson: More and more companies want to decarbonize by using renewable energy
Until just five years ago, they thought wind and solar were expensive, unstable, that they complicated the stability of their supply, and now they are asking investors to build power plants, Dickson said.
Commenting on the advice from the EU, Viktor Andonov said briefly: There is no shortage of money in Europe, but there is in the Western Balkans, and that is obvious.
He admitted that money from the EU is coming, but only about 20-30% of what is needed. As an example, he cited the coal regions of Bitola and Kičevo, for which a preliminary plan was prepared under a diagnostic project for a just transition, which was financed by the EBRD and the EU.
“It’s a good start, we have to understand that it will happen, whether in 10 or 15 years. That’s why we have to make smart decisions, and in a timely fashion, or it will end up being both more difficult and more expensive,” he said.
Andonov: We all share the same goals, but not everyone has the same funding
Andonov believes the Western Balkans should follow the REPowerEU plan, but that it needs special funds for a just transition, which should be ensured through a joint regional initiative.
It is quite straightforward, given that North Macedonia has 20-30% more sunshine hours than Romania and will certainly have more prosumers if it increases subsidies from EUR 1,300 to EUR 4,000.
“We all share the same decrabonization goals, but EU countries have more resources than the region, and it would be good to launch this initiative through the Energy Community because that way the results would be much better,” Andonov suggested.
Hristov: There is no free lunch
Minister Petar Đokić believes that financing the transition in BiH should be discussed with a specific approach, added that it is not good that financiers have doubts about political stability in the country.
Private capital makes up a majority of the agreed investments in the Republic of Srpska, as much as 70%, and this is the best possible ratio at the moment, he said, stressing the importance of state power utility ERS for new investment projects.
Speakers from Romania and Bulgaria had a slightly different view of the situation.
George Agafitei stressed that political stability and predictable regulation are key to attracting private capital, while Minister Rossen Hristov noted that it is not very accurate to say that EU members have billions of euros at their disposal, because there is no free lunch.
The EU budget is filled by member states, which then get some of the money back, as is the case with national budgets, he noted.
Hristov said that Bulgaria has not yet submitted plans for a just transition because it is guided by the principle “measure twice, cut once.”
EU implementing four measures to speed up investment in wind and solar
The share of wind energy in the EU’s total consumption is currently 17%, and the goal is to reach 43%, which requires installing twice as much wind capacity annually – 30 GW instead of the current 15 GW.
Giles Dickson, CEO of European wind industry association WindEurope, said that four measures are currently being implemented to achieve this goal.
The first measure is to treat the construction of new renewable energy power plants as the prevailing public interest when issuing permits, which is set out in EU laws. The idea is not, as he said, to protect every bird or fish, but rather their populations. Changes are already taking place in Germany, for example, where permits for 2 GW of onshore wind farms were issued in the first quarter of the year, which is three times as much as three years earlier.
The second measure is a new approach in transmission network development, which shifts the responsibility for ensuring grid connection from investors to transmission and distribution network operators. Investors, of course, are responsible for balancing, and the provide system services.
Supply chains are the third area, and the EU, he said, has made it clear that it does not want to replace its dependence on Russia with reliance on China. The message is that new wind farms should be built using turbines from the EU, not China, he added, recalling that a new industrial strategy was launched for this purpose.
Finally, the EU has also called for strengthening market signals to investors. In that sense, the EU has commended Serbia’s intention to introduce contracts for difference (CfD), which the bloc believes will ensure the right signals to investors because they provide steady revenues, while there are also power purchase agreements (PPAs).
In all this, and of course in auctions, it is important that the price reflects actual costs of equipment and that there is indexing to inflation, according to Dickson.
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