Electricity

Energy Community Contracting Parties pour EUR 2.4 billion annually into coal power plants, mines

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Published

March 26, 2019

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Published:

March 26, 2019

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The Energy Community Contracting Parties support electricity generated from coal with some EUR 2.4 billion in direct and certain types of indirect subsidies annually, the preliminary results of the Energy Community Secretariat’s study reveal. The study concludes that with the elimination of state aid via direct subsidies to coal and introduction of a carbon price, not a single coal power plant in the EnC would be able to operate without significant losses.

The EnC Secretariat has invited all interested stakeholders to comment on the results of the study and improve the database, in particular concerning the amount of coal electricity production-related direct subsidies in each Contracting Party. The public consultation will run until April 25, 2019 and the results of the public consultation will be taken into consideration by the Secretariat in finalizing the study results.

A recent report by the Health and Environment Alliance (HEAL), Sandbag, Climate Action Network (CAN) Europe, CEE Bankwatch Network and Europe Beyond Coal also showed that 16 outdated coal power plants in the Western Balkans are a public health and economic liability for the whole of Europe.

Serbia, BiH, Kosovo* paid EUR 160 million to the coal sector from 2015 to 2017

Direct subsidies in the context of the study are fiscal support-type subsidies, public finance support subsidies, and State Owned Enterprises (SOE) investment support subsidies, while indirect subsidies are non-payment of CO2 emissions, and operation at a low or negative level of profitability, uncomparable to conditions for other market participants.

The total sum of direct subsidies during 2015-2017 exceeded EUR 1.2 billion.

The study also shows that without direct and indirect subsidization of electricity generated from coal and other market distortions, in particular, cross-subsidization between industry and households, the price of electricity to supply households would need to be increased by some 23% in Kosovo*, 29% in North Macedonia, 31% in Bosnia and Herzegovina, 37% in Montenegro and 49 % in Serbia.

Under such conditions, prices for industrial consumers would have to be increased by 36% in Montenegro, 34% in North Macedonia, 30% in Bosnia and Herzegovina, 18% in Serbia, while in Kosovo* they would be decreased by 9%.

According to the study, subsidies allow coal electricity producers to supply electricity to the market at prices that are below the real cost or at prices that allow producers to minimize their losses or generate profits.

A frequent motivation for subsidization is the government’s intention to maintain low electricity prices for the final customer, in order to avoid potential economic, social or political problems.

In 2015-2017 alone, Serbia, Bosnia and Herzegovina, and Kosovo* paid more than EUR 160 million to the coal sector from the state budget and public social funds in order to keep a fragile social peace, the analysis finds.

The companies that are regularly subsidized have no incentive to improve their own operation, to cut costs or operate on market principles.

Loss-making state-owned enterprises

Coal power producers in BiH and Montenegro made operational losses in 2017, whereas all other utilities reached positive results from a regular operation.

If all relevant costs had been taken into account, all utilities with coal-fired power plants would have incurred losses from operation in 2017, the study reads.

This scale of losses is incurred only to maintain dominance and low prices in the domestic market. Sound economic reasoning for such policy is still not clear.

Widening energy policy gap will move Contracting Parties further away from the EU

Coal is becoming an obstacle for the EnC Contracting Parties on their path towards EU accession, the study concludes.

The EnC Secretariat calls on the Contracting Parties to rapidly remove direct subsidies, to secure normal market behavior from their electricity incumbents, to establish carbon pricing, and to ensure compliance with emission limits for coal power plants set by EnC legislation.

Otherwise, the widening energy policy gap will move the Contracting Parties, especially those in the Western Balkan region, not closer to the EU, but further away.

* This designation is without prejudice to positions on status and is in line with UNSCR 1244/99 and the ICJ Opinion on the Kosovo declaration of independence.
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