Communities leading the Western Balkans’ clean heating transition

Author: Nataša Kovačević, CEE Bankwatch Network

Long overdue, the energy transition in the Western Balkans is well underway. The recent cancellation of the Tuzla 7 coal project in Bosnia and Herzegovina, not least following over a decade of civil society protest, is but the latest indication that the demise of coal in the region is now unstoppable. In parallel, next week’s Belgrade Energy Forum is evidence that renewable energy is gradually gaining a foothold in countries’ electricity systems.

Yet, fossil fuels still dominate heating in the Western Balkans. Coal and fossil gas still account for a staggering 97 percent of the energy for district heating in the region, a number that remained almost the same in 2021 as in 2019.  The share of renewables is negligible at around 3 percent.

The climate price tag of the continued reliance on these dirty fuels is not something to overlook. And this is not the only problem. From Sarajevo to Skopje, winters are increasingly marked by choking air pollution and exorbitant energy bills.

This needs to change. Powering district heating networks with geothermal energy, solar thermal, or other renewable energy sources can help make large-scale heating systems efficient, cost-effective, and flexible, especially when rolled out in tandem with small-scale systems.

National and local authorities recognize that the heating transition is a reality

National and local authorities throughout the Western Balkans recognize that the heating transition is a reality. In too many cases, however, they have prioritized substituting coal with either utterly unsustainable biomass, in particular in Bosnia and Herzegovina and in Serbia, or fossil gas, as is the case in North Macedonia.

Even the European Bank for Reconstruction and Development (EBRD), which has repeatedly been talking about aligning its investments with the Paris Climate Accord, is failing to make sustainable heating a priority in the region.

Despite producing numerous feasibility studies for renewable-based heating over the past five-six years, the EBRD has managed to secure financing for only one sustainable district heating project in the region, in Prishtina. Meanwhile, contracts for ten projects in Serbia are pending formal approval, and progress on projects in four towns in Bosnia and Herzegovina, as well as one in Montenegro, remains slow.

Several forward-thinking communities are working to overhaul their district heating systems

At the same time, several forward-thinking communities are working to overhaul their district heating systems. In a growing number of towns and cities across the Western Balkans, municipal decision-makers are determined to power local district heating networks with geothermal energy and heat pumps utilizing waste heat, solar, or wind energy. And their ambitions are firmly grounded in decades of experience with sustainable heating technologies that have proven to work across Europe.

In Žabljak, Montenegro, municipal policymakers have turned down an EBRD proposal for a district heating system based on biomass energy. What they want is to harness solar power and invest in large-scale heat pumps, energy efficiency, and energy storage. And it is not just visionary leaders. A fresh survey has found that 73 percent of households in the town center support this ambitious district heating project.

In Bosnia and Herzegovina, the municipality of Kakanj is looking to tap local geothermal resources to power its district heating system. To overcome the high investment costs required for the geological and hydrological research needed, they are currently seeking the support of geothermal experts and European financiers.

One of the main hurdles such municipalities are facing is access to funding

Indeed, one of the main hurdles such municipalities are facing is access to funding. Financial institutions such as the EBRD, the European Investment Bank, Germany’s KfW, the EU’s Western Balkan Investment Framework, and the Swiss State Secretariat for Economic Affairs are already investing in district heating in the Western Balkans, or considering such support.

But, so far, as a Bankwatch report released in October 2023 showed, financing for sustainable district heating systems in the Western Balkans is limited. In fact, funding for upgrading district heating systems is limited and mainly accessible to Western Balkan cities with well-established district heating networks, short-term investment return plans, and sound financial health.

This includes those with the capacity for debt repayment, or those benefiting from political and financial backing at the national level. However, the need to decarbonize the district heating sector throughout the region is critical to meeting decarbonization goals by 2050.

International financiers must not fund any district heating projects that run on fossil fuels

Smaller communities, particularly those currently dependent on coal for heating, must not be left behind. European financial institutions as well as municipalities and ministries have an important role to play to help accelerate a just and sustainable energy transition.

For one, international financiers must not fund any district heating projects that run on fossil fuels. They should also avoid enabling false solutions such as forest biomass, especially knowing that 64% of the forest biomass at the regional market comes from unregistered sources.

Their contribution should also take into account the particular local circumstances. Financial institutions that are willing to back the expansion of sustainable heating in the Western Balkans should also tailor their support to small and medium-sized communities where the technical capacity to develop such systems and handle international finance is especially limited. And there is no need to reinvent the wheel. Utilizing existing programs to increase technical assistance for feasibility studies and decarbonization plans can make a real difference.

Transitioning from fossil fuels to sustainable renewables for heating demands a multifaceted approach

Transitioning from fossil fuels to sustainable renewables for heating demands a multifaceted approach. It’s not merely a matter of allocating funds; rather, it entails overcoming political shifts by creating policy structures that can outlive short-term interests, implementing strategic urban planning, and enacting supportive regulations.

To ensure success, it’s crucial to tailor support to the specific needs of each city, increase the proportion of donations, provide state support for credit loans, and enhance local capacities to navigate obstacles.

Banks and the EU must mobilize resources to assist cities in building the necessary knowledge and operational infrastructure for sustainable heating systems. Many of these European development banks have long been branding themselves green finance champions. If they are serious, they now need to mobilize their financial resources to help unleash the Western Balkans’ heating transition.