Interviews

EPS’ transformation through development of new renewables capacities guarantees secure electricity supply in Serbia

ProfesSor Nikola Rajakovic

Photo: Balkan Green Energy News

Published

September 21, 2022

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Published:

September 21, 2022

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The energy sector in Serbia is at a historic turning point after breakdowns in obsolete thermal power plants of the state power utility, reduction of production in hydroelectric power plants caused by drought and extremely high electricity prices on the power exchanges. All eyes are on the EPS as the dominant electricity producer and supplier in the current regime of regulated prices.

If the State wants to continue implementing the model of secure electricity supply at an affordable price, it will have to support a serious transformation of EPS and the renewal of its production capacities, with significant participation of new and clean technologies, says Professor Nikola Rajaković in his interview given to Balkan Green Energy News.

The current energy crisis has imposed the solution to the energy needs for the next winter season as the highest priority. Are we, in this manner, moving away from the objectives of the energy transition, that is, from gradual decarbonization?

It only seems so at first glance because some countries are resorting to the option of restarting coal-fired power plants. This crisis has simplified the problem and even the ultimate sceptics now understand that without a radical shift towards renewable sources and the application of energy efficiency measures, the task of sustainable energy cannot be solved. Therefore, energy independence becomes a priority that can be solved in parallel with the transition from fossil fuels to renewable energy sources.

The electricity price paid by end consumers in Serbia is significantly lower than that paid by consumers in the European Union. Is this a sustainable model for our energy sector?

It is well known that the price of electricity being paid by end consumers in Serbia is more than four times lower than that being paid by, for example, consumers in Denmark. All analyses show that the electricity price in Serbia is lower than the economically justified price, and certain price adjustments are necessary.

Current electricity prices in the European Union do not reflect the actual costs, but represent the legitimate but speculative character of this market

However, the current electricity prices in the European Union do not reflect the actual costs, but represent the legitimate but speculative character of this market, which has brought extremely high profits to many electricity generation companies in the EU, in fact, to all those that did not use natural gas as the primary energy source, in the second half of last year and the first half of this year.

All electricity consumers, especially industrial consumers, for whom such prices reduce competitiveness on the global market, are at a loss

The fact is that one man’s gain means another man’s loss. And all electricity consumers, especially industrial consumers, for whom such prices reduce competitiveness on the global market, are at a loss. Therefore, some governments of EU member states are considering administrative measures contrary to the basic postulates of the open market, such as the introduction of an additional tax to companies in the energy sector that have made an extra profit, or administrative restrictions on the energy price for specific categories of consumers.

To summarize, the model of regulated prices existing in Serbia, with the note that prices need to be adjusted to reach an economically sustainable level, can be extremely important for surviving the energy crisis, which will last, now it is pretty certain, at least five to ten years, with a high probability that energy prices on the European stock exchanges will never return close to the level before the commencement of this crisis. This model can survive in the long run only if the Power Industry of Serbia, as a public electricity generation company, can fully cover domestic needs, or most of them. If EPS has to buy significant amounts of electricity on the market at prices that are several times higher than the regulated selling price, I am afraid that there will be no sustainability.

Does it mean that you support a more significant role of EPS?

I have to admit that the current energy crisis has strengthened my attitude that the role of public electricity generation companies must  be reconsidered. It takes years to obtain a concrete signal about the disturbed balance between supply and demand and to turn to the construction of a new power plant for electricity generation. During the period of electricity shortages , electricity generation companies operating on the open market try to increase their profits as much as possible through high prices. Although completely legitimate, this model can have serious social and economic consequences, and this is exactly what is happening in the European Union.

If the dominant share in domestic needs comes from a public company, the Government of that particular country can limit its company’s desire for extra profit, maintain affordable electricity prices and thereby preserve the standard of citizens, the functioning of public services and, most importantly, the competitiveness of the domestic economy.

If the State wants to continue implementing the model of secure electricity supply at an affordable price, it will have to support a serious transformation of EPS and the renewal of its production capacities, with significant participation of new and clean technologies

For many years, EPS has not invested in the construction of new production capacities. If the State wants to continue implementing the model of secure electricity supply at an affordable price, it will have to support a serious transformation of EPS and the renewal of its production capacities, with significant participation of new and clean technologies. For these reasons, all EPS projects (independent or in the form of a partnership) shall have priority when connecting to the network. Even in case of private investors, as a criterion at tenders, the State should set the percentage of energy thet will  remain in Serbia at a long-term guaranteed price.

What do you think is the best technology in our conditions?

It is clear that there is no technology dominant in all important parameters. Therefore, it is first necessary to define those key parameters, prioritize them and compare all available technologies:

Locally available energy and energy sources in our country are all types of renewable energy sources (sun, wind, hydropower, biomass, biogas, etc.) as well as coal (lignite)

Local availability of primary energy sources. The current energy crisis has clearly shown how important it is for securitu of supply  to have energy resources or sources of energy in one’s own territory.  This is especially important for small countries like Serbia, which are not in a position to impose their own rules. Locally available energy and energy sources in our country are all types of renewable energy sources (sun, wind, hydropower, biomass, biogas, etc.) as well as coal (lignite).  What we do not possess are natural gas, oil and oil derivatives and nuclear fuel.

For each technology, the full lifetime costs of construction and maintenance have to be considered

The electricity generation price is certainly one of the most important factors in selecting the most suitable technology. It is not easy to make a fair comparison. First, for each technology, the full lifetime costs of construction and maintenance have to be considered. For example, for the construction of a new lignite  power plant , it is necessary to include the costs of opening new opencast mines, expropriation of the necessary land, the economic value of that coal, as well as the costs of remediation of ash pits and remediation of opencast mines at the end of the life of these plants. In addition to the revenues from the sale of electricity, there are or will certainly be some additional revenues or expenses, depending on the technology applied. Thus, for example, power plants using renewable energy sources will have additional revenue by selling certificates of guarantee of origin on the domestic or regional market, but also additional costs related to balancing. On the other hand, power plants fired with fossil fuels (coal, gas,  oil) will pay so-called environmental taxes.

Impact on the environment. In addition to the emission of gases causing the global warming of our planet, the reduction of which is part of the international obligations of the Republic of Serbia, I would like to draw special attention to the effects of air, soil and water pollution in the immediate vicinity of energy facilities, especially thermal power plants. Our nation’s awareness of the harmful impact of these pollutions is growing more and more. There are serious studies and models that express this negative impact through the additional costs that a society has to pay for the treatment of diseases caused by these pollutions, as well as the costs of absence from work of working population. The studies conclude that these costs are very high.

Impact on the power system. One of the few weaknesses of the leading renewable energy technologies, which are run-of-the river hydroelectric power plants, wind power plants and solar power plants, is the complete dependence of their production on the availability of water, wind and sun and not on the demand for electricity at that moment. This weakness can be overcome by construction of an  energy storage system.

In a situation where the electricity market price is many times higher than the real generation price, the speed of putting the power plant into operation becomes one of the key parameters

Speed of project implementation. At other times, this factor might not be so important. However, in a situation where the electricity market price is many times higher than the real generation price, the speed of putting the power plant into operation becomes one of the key parameters. According to available data, in the last 10 months, Serbia spent 1.5 billion dollars for electricity import. It is estimated that at least another 2 billion dollars will be necessary to “survive” this winter. There are serious indications that the situation will not significantly improve and that the price on the electricity market will be extremely high for the next few years. This actually means that every month of shortening the deadlines for the construction of new production capacities means tens and hundreds of millions of dollars more in the State Treasury.

When I add and subtract all these factors, my vote definitely goes to renewable energy sources. If we put aside the small hydro-power plants, which are under certain type of moratorium, the remaining available hydro-power potential in our country is not great. What remains, and what could be the backbone of the future electrical power in Serbia, are solar and wind power plants. Some studies show that it is optimal to have an approximately equal ratio of these power plants. However, I give a slight preference to solar power plants.

First, due to a slightly lower electricity generation price, and then due to a better correlation with the form of daily consumption, especially in the case of solar power plants where the panels are installed on systems to track the sun movement. And finally, due to the possibility of distributing solar power plants evenly across the territory of our country. This is very important in order to preserve the reliable and safe operation of our system. All existing wind farms, as well as most wind projects in development, use the Košava wind as their energy source. This actually means that all these power plants will act as one large concentrated  power plant, which significantly complicates the conditions for balancing this type of generation.

All solar and wind projects should be equipped with their own balancing systems

However, due to the possible negative impact on the power system operation, all solar and wind projects should be equipped with their own balancing systems, or their start of  operation should be time-coordinated with larger electricity storage projects, such as projects that EPS is already developing.

Balancing is a word that has been used a lot lately. Do we use it correctly? What is your opinion on balancing needs and what do you think is the best technology?

It is noticeable that the word balancing has been used a lot in recent months and I have the impression that everyone uses it from the perspective of their own tasks and objectives. Primarily, this means the deviation between the short-term production plan of the observed power plant (for a day ahead or within that day) and the actual production of that power plant. However, it is also necessary to think about the equilibrium when analysing the total production plan and the total consumption plan in the system on an annual (or seasonal) level. Then it is more appropriate to use the word balance creation.

The need for balancing and balance creation also exists in systems without renewable energy sources, but it certainly grows significantly with the increase in the share of renewable energy.

In the next decade, hydrogen and ammonia storage is expected to become a commercially justified technology

There are currently two commercially viable technologies for electrical energy storage: pumped-accumulation power plants and energy battery systems. In the next decade, hydrogen and ammonia storage is expected to become a commercially justified technology. In addition, load  management and demand response, as well as the so-called “electrification” of the transport and heating sectors, can be effective ways to achieve a balance between production and consumption.

There are views that pumped-storage power plants and energy batteries are competitors and that there is no place for both technologies in the system. In my opinion, that is a wrong attitude. Due to their flexibility, better efficiency of charging and discharging cycles, and speed of response, batteries represent a better solution for very fast, short-term, daily balancing needs. For multi-day and even seasonal energy storage, pumped storage power plants are still a more cost-effective solution.

Installation of energy batteries is very fast. Plants of a few hundred megawatt-hours can be installed within 3 month period. Unfortunately, for the construction of larger pumped-storage power plants, in addition to difficult tests and overcoming the obstacles of ecological sustainability, it will take over 10 to 15 years to construct and put such plants into operation.

Finally, I would emphasize the need to create an appropriate model that would encourage investments in facilities for providing balancing and other system services. In European practice so far, it has been shown that the short-term market for system services is far more unstable than the “ordinary energy” market and that these huge fluctuations introduce too much risk and uncertainty of financial projections to potential investors. Therefore, in order to provide these services, long-term capacity contracting models have been used even in some of the most developed countries, such as the UK.

 

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