Energy Community Secretariat: Energy transition slows in Western Balkans

The Energy Community Secretariat’s Annual Implementation Report for 2021 revealed its contracting parties achieved only modest progress in reforming their energy and climate sectors. Montenegro, which still has the best score, was the only country that reversed its gains in the past year, as it is late with the reconstruction of the Pljevlja coal plant.

The overall pace of reform within the Energy Community was halved in the past year. The total implementation score increased to 56% from 53%. In the Western Balkans, only Albania and Serbia had growth above the overall average, both gaining five percentage points to 58% and 62%, respectively, the Energy Community Secretariat said in its Annual Implementation Report 2021.

Montenegro is still the most advanced, with 65%, but it was the only country that recorded a year-over-year drop, by four points. The document showed its track record was impacted by the non-compliance of coal-fired thermal power plant Pljevlja with pollution standards, and the lack of secondary legislation on renewables auctions.

Moldova, Georgia and Ukraine are the only contracting parties outside of the Western Balkans. Georgia was the best performer since the previous annual report, climbing by eight points to 45%.

Kopač: More contracting parties acknowledge there is no future for coal

“Despite the ongoing challenges posed by the pandemic, there is no doubt that the contracting parties are working on the actions outlined in the European Green Deal. An increasing number of contracting parties have formally or implicitly accepted that coal and lignite have no future in their energy mix,” the secretariat’s Director Janez Kopač said.

The Energy Community Ministerial Council is scheduled to meet on November 30 in Belgrade to adopt a decarbonization roadmap, incorporate key elements of the European Union’s Clean Energy Package and prepare for the adoption of targets for 2030, Kopač added.

Reforms in capacity allocation, balancing and system operation remain high on the priority list

The report shows that regional power market integration remains one of the biggest challenges. The gap in the implementation of the European legislative package on capacity allocation, balancing and system operation remains high on the priority list.

“Without the further integration of their power sectors, the domestic markets, which are all of small scale, with the exception of Ukraine, will remain sub-optimal and unable to facilitate the transition towards a decarbonized and decentralized electricity sector. The region must prepare for the large-scale deployment of variable renewable energy sources,” Deputy Director Dirk Buschle said.

For now, domestic lignite and coal-generated power are again in high demand, Kopač and Buschle warned and asked the contracting
parties to stay focused on decarbonization.

Small, isolated markets are more prone to price volatility

The report highlights the facts that Serbia recently had the highest electricity prices in Europe for several days on its day-ahead market and that it is not yet coupled. The secretariat said small, isolated markets are more prone to price volatility.

The contracting parties that have coal in their energy mix are still struggling to comply with the emission ceilings established under their national emission reduction plans (NERPs). Albania doesn’t have any coal mines or plants using the fossil fuel.

Interventions in the energy sector in response to the crisis must be limited

Nevertheless, there was at least some progress in all major areas in the Western Balkan contracting parties, with the exception of gas regulations in Bosnia and Herzegovina.

“Government announcements of possible interventions in their energy sector in response to the crisis could further fuel the energy prices. While interventions are legitimate to the extent they address the impact of the price hike and protect vulnerable customers, they become problematic when such interventions are not proportionate in scope or in time, and when the reforms of energy market governance, having sometimes only recently been aligned with the European Union’s, are being called into question,” the report reads.

Energy Community needs major support for energy transition

The secretariat acknowledged more support is necessary – a Green Marshall Fund for the Energy Community – to make sure that the transformation is feasible and just. According to the document, the contracting parties have ways to go carbon pricing, “arguably the most effective instrument in the Green Deal’s regulatory toolbox.”

The implementation of the Energy Community rules in the electricity sector is generally a strong suit for the contracting parties in the Western Balkans.

Carbon pricing is the most effective instrument in the European Green Deal’s regulatory toolbox

Most countries have weak performances in introducing renewable energy in transportation. However, Serbia reached a rate of 53% in the subsector and the secretariat said it recorded strong progress.

Serbia and Ukraine have the second overall score in climate and energy reforms, 62%, closely followed by North Macedonia’s 61%. Bosnia and Herzegovina again fares the worst, with just 45%. Kosovo* advanced by only one point, to 57%, while North Macedonia gained two percentage points.

Strengths vs. weaknesses for each contracting party in Western Balkans

Albania has yet to establish a spot market for electricity, the report notes. As long as there is no power exchange, competition is distorted by a public service obligation. All customers below 35 kV continue to be supplied by the universal supplier at regulated prices without the possibility of switching.

Transmission system operator unbundling in BiH is not in line with the provisions of the Third Energy Package. Legal unbundling of the distribution system operators in the Republic of Srpska was completed, but not in the Federation of BiH. The country almost completed implementation in the statistics sector. On the other hand, work in the gas sector is still at an early stage.

Serbia is far from its target share of renewables of 27%

Kosovo* ranks best in the infrastructure sector, where the implementation is almost completed, but the secretariat said market liberalization has stalled.

Montenegro’s progress in renewable energy in transport is relatively high, at 28% and implementation in the energy efficiency sector is almost complete. There are lags in the areas of oil, gas and infrastructure. However, Montenegro still has no gas network.

North Macedonia was praised for committing to phase out coal by 2028 but the report shows it has done little in terms of power market reform. Reforms in the infrastructure sector are yet to begin.

Serbia upgraded its legal framework in the sectors of climate, energy efficiency, electricity and renewables but its track record continues to be weighed down by its failure to unbundle all of its transmission system operators as required by the Third Energy Package, the Energy Community Secretariat said.

With a share of 21.4% of renewable energy sources in 2019, Serbia was still far from its overall indicative trajectory of 25.6% in 2019, and the target for 2020 was 27%. Reforms in the gas sector are at an early stage.