The Energy Community Secretariat has sent letters to national authorities of six Contracting Parties urging them to reassess coal subsidies as to their compatibility with the European Union’s (EU) state aid rules. The letters come on the heels of a new study on coal subsidies in Bosnia and Herzegovina, Kosovo*, Montenegro, North Macedonia, Serbia, and Ukraine, which pinpoints both direct and hidden subsidies channeled to the coal sector.

The study, authored by Damir Miljević and published in December 2020, revealed that all six Contracting Parties observed provided direct aid to electricity generation from coal and lignite during 2018 and 2019, and that these subsidies totaled more than EUR 900 million. In absolute terms, coal subsidies were the highest in Ukraine, Serbia, and Bosnia and Herzegovina.

Moreover, state guaranteed loans amounted to nearly EUR 2 billion in 2019 alone, according to the 2018-2019 study, which builds on previous research covering the 2015-2017 period.

Subsidies per electricity output were the highest in Ukraine and Bosnia and Herzegovina

The average amounts of subsidies per electricity output, which is the best measure of the impact of subsidies on coal-fired electricity generation costs, were the highest in Ukraine and Bosnia and Herzegovina, closely followed by Serbia and Kosovo*, according to the report.

Even though there was an absolute decline against the 2015-2017 period in the amount of direct subsidies in all observed Contracting Parties except Ukraine, their use remained high, posing a direct obstacle to the energy transition and to meeting carbon neutrality goals, according to the Energy Community’s report.

Coal subsidies distort energy markets and send wrong signals to investors and consumers

Subsidies to electricity generation from coal and lignite often sustain unprofitable and inefficient thermal power plants and coal mines, significantly distorting the energy markets and sending wrong signals to potential investors and consumers. These subsidies also adversely impact decision-making about the future development of the electric power sector, the Energy Community noted.

The Energy Community Secretariat also recalled that the Contracting Parties have repeatedly committed to fully implementing and enforcing the EU’s state aid acquis regarding coal-fired power plants, for instance in the Conclusions of the Ministerial Council from December 17, 2020.