Medium- and Long-Term Effects of EU-Electricity Enlargement

Transcription

1 Medium- and Long-Term Effects of EU-Electricity Enlargement Berlin SESSA conference Ensuring Sustainable EU Electricity-Enlargement (WP 5) Hans Auer, Nenad Keserić, Reinhard Haas *, Gustav Resch, Claus Huber, Thomas Faber Energy Economics Group, Vienna University of Technology * Corresponding author: Hhaas@eeg.tuwien.ac.atH Keywords: EU enlargement, European electricity markets, electricity supply, transmission capacities, congestion, renewable energy sources, wholesale electricity prices. 1

2 Contents 1 Introduction Method of approach and data sources Method of approach Data collection and compilation Current state of electricity generation capacities vs peak load in Europe Perspectives for electricity demand Decommissioning of existing thermal and nuclear capacities Future perspectives for the development of electricity generation in EU-10+ and Candidate Countries Czech Republic Hungary Baltic countries Poland Slovakia Slovenia Bulgaria Croatia Romania Turkey Russia Ukraine Perspectives for electricity prices Transmission issues Cross-border congestions in south-eastern Europe Cross-border congestions between UCTE and Turkey Perspectives for future interconnection of EU and Russia Prospects for electricity from Renewables Conclusions...63 References...65 Annex A: Predicted new generation capacities

3 1 Introduction The ongoing liberalization process has changed the Western European electricity supply structures significantly. After the EU enlargement it is likely that the electricity systems of the New Member Countries (EU 10+) and Candidate Countries (EU-CC) will also undergo considerable structural transformation processes. Market liberalisation, potential investments in new production capacities, upgrade and extension of transmission lines and reconnection to the main UCTE transmission grid are major challenges within this process. Moreover, the EU directive for the promotion of electricity generation from renewables (EU, 2001) will also impact the electricity policies of these countries. From EU-15 to EU-25 and Beyond Tomorrow's Europe + + in 2007 and Figure 1.1 The enlargement of the European Union (EU) The core objective of this paper is to provide a critical appraisal of the development of electricity supply in EU 10+ countries and CC in the light of the implementation of the EU directive and corresponding transformation processes. In this context it is necessary to analyse issues of demand development as well as aspects of supply-side generation and transboundary transmission capacity development. This analysis is also important for the future development of electricity supply in EU 15 countries because potential available excess capacities in Eastern and South- Eastern countries might also contribute to supply in EU-15 countries given adequate transboundary transmission capacity would be available. In detail in this report the EU 10+ countries (Cyprus, Czech Republic, Hungary, Baltic countries (Estonia, Lithuania and Latvia), Poland, Slovakia, Slovenia) as well as the potential CC (Bulgaria, Croatia, Romania, Turkey) are analysed. In addition we also try to cover Russia and Ukraine as far as possible because we expect that these countries may in the mid-term also impact the electricity supply structure of the EU countries. 3

4 The paper is organised as follows: In the next section the method of approach and the data sources are described. Section 3 provides a comparative insight in the current situation of generation capacities and peak load in different EU and Candidate countries. The following Sections 4 and 5 discuss the developments of future demand and existing generation capacities. Based on the analyses in these sections in Chapter 6 the current status and the future perspectives of electricity supply are investigated for the single countries. Section 7 provides a discussion on perspectives for electricity price developments. The transboundary aspects of transmission are analysed in Section 8. Prospects for electricity generation from renewable energy sources are discussed in the next Section. Conclusions complete the analysis. 4

5 2 Method of approach and data sources In this Section the method of approach and the corresponding data sources for deriving an appraisal of the development of electricity supply in EU 10+ countries and CC are described. 2.1 Method of approach The method of approach to provide an overall appraisal of the development of electricity supply in EU 10+ countries and CC consists of the following steps for the countries investigated (see introduction): Firstly, a comparison of the current state-of-the-art of peak load and installed generation capacities is conducted; Next an analysis of the future development of electricity consumption is provided; Then, based on historical data on the age structure and the projected life time of the plants and data on nuclear decommissioning of generation capacities and forecasts for electricity demand the developments in the European electricity sector up to 2020 for the countries described in the introduction are discussed (as far as sound data and information is available). However, sometimes estimates have to be made especially with respect to the age structure of the power plants in the Eastern countries; Next a comparison of load and consumption forecasts with development in generation capacity (from existing power plants as well as from new ones) is conducted and a documentation of the growing gap between demand and generation capacities is shown; Furthermore, the analysis is extended to transboundary transmission grid capacities to explore current and possible future congestion and excess capacities; Finally, to take into account also the EU directive for electricity from RES the potentials for electricity generation from renewable energy sources are analysed. 2.2 Data collection and compilation Data used for this analysis are based mainly on Green-X database [1], but also on online databases available from UCTE, EURELECTRIC and ETSO. The quality of data was quite different for different countries regarding demand, generation and transmission capacities. For current electricity generation structure and capacities data were available from UCTE (2005) and EURELECTRIC (2004) for all countries with the exception of Ukraine and Russia. The data for the age structure of existing power plants are collected from different sources: national, UCTE, EURELECTRIC, NEA, IAEA. However, some estimates regarding age structure are made especially for the Russia, Turkey and Ukraine. The decommissioning of existing thermal power plants is based on the Grenn-X model and calculated from the projected life time. Although the values for projected life time vary in different studies we perform calculations assuming the average life time for coal plants of 40 years. 5

6 The data for decommissioning of nuclear power plants are taken from IAEA reports. For the new member and candidate countries the time limits for decommissioning of nuclear plants should be in accordance with the European Union accession requirements, but it remains unclear whether these promises will be fulfilled. Because the research has tended to provide the early warning signals concerning security of supply but also to highlight the investment opportunities in the East, only new projects, considered as firm and capacities under construction or commissioned from the Platts market reports are taken into account. The current electricity consumption for new member and candidate countries can be found in UCTE (2005) except for Baltic countries, Malta, Russia and Ukraine. As a reference for peak load development the recent UCTE (2005) forecast of peak load till 2015 are included: As a forecasts for electricity demand the official EU energy trends [2] for EU 10+ and candidate countries till 2030 are presented. The expected future generation structure for the year 2020 is presented also according to EU (2003). The data for Russian power sector are mainly collected from Unified Energy System of Russia (UES) and demand development are estimated based on the trends from 2000 to The forecasts concerned Ukrainian power sector were not available. The wholesale electricity price levels are collected from German EEX which serve as a central European reference and compared with the prices in Polands Gielda Energii SA, Slovenian Borzen and Federal (all-russian) Wholesale Electric Power and Wattage Market (FOREM). The data concerning current transboundary transmission capacities are collected from national TSO s and presented according to actual ETSO definition standard for available and net transfer capacity (ATC & NTC). The expected future development of transmission capacity takes into account the new interconnection projects according to national plans and UCTE forecast from The potentials of renewables for electricity generation in mew member and some candidate countries except for Croatia, Turkey, Russia and Ukraine are based on current EU research project FORRES 2020 (see [15] ). 6

7 3 Current state of electricity generation capacities vs peak load in Europe To analyse the future development of electricity generation capacities, firstly, the current starting point has to be analysed. This is done in the following by looking at the currently installed capacities and peak load demand. In the EU-15 countries the total installed generation capacity at the end of the year 2003 was highest in Germany with around 125 GW followed by France, UK and Italy, see Fig The peak loads depicted in Fig. 3.1 are the maximum values recorded in 2003 for every country. For most countries it is in fact the highest historical peak load reached. It can be seen that especially in the largest countries still some 30% of excess capacity exist Installed and available capacity in EU-15 vs. peak load in 2003 Renewables Thermal Nuclear Hydro Available capacity Peak Load 2003 [GW] Austria Belgium Denemark Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain Sweden UK Figure 3.1. Installed generation capacity in EU-15 vs. peak load in Source: UCTE In the New Member Countries Poland is the largest market with a generation capacity of about 32 GW followed by Czech Republic, Hungary and Slovakia, see Fig The peak load in 2003 is also presented in Fig. 3.2 and the difference between installed capacity and load can be used as an indicator for existing overcapacity in power systems of every country. 7

8 [GW] Cyprus Installed capacity in new EU-10 vs. peak load in 2003 Hydro Nuclear Thermal others Renewables Peak Load 2003 Czech Rep. Hungary Estonia Latvia Lithuania Malta Poland Slovakia Slovenia Figure 3.2. Installed generation capacity in new EU-10 vs. peak load in Source: UCTE, own investigations To give an impression of the major fuels Figure 3.3 and Figure 3.4 shows the percentage of installed generation technology in EU-15 and new member countries in year % Generation mix of EU-15 in % Renewables 80% 70% 60% Thermal [%] 50% 40% Nuclear 30% 20% 10% Hydro 0% Austria Belgium Denemark Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain Sweden UK Figure 3.3. Installed generation mix in EU-15 in

9 100% Generation mix of New Member Countries in % Renewables 80% 70% others [%] 60% 50% 40% 30% 20% 10% 0% Thermal Nuclear Hydro Cyprus Czech Rep. Hungary Estonia Latvia Lithuania Malta Poland Slovakia Slovenia Figure 3.4. Installed generation mix in New Member Countries in 2003 Figure 3.5 provides an overview on how the installed generation mix after the integration of EU 10+ countries changed. We see that the share of fossile plants has increased slightly. Moreover, a further extention of the EU towards candidate countries (Bulgaria, Romania, Croatia and Turkey) would enhance the fossile share slightly more but also the share of hydro power. A major conclusion of this comparison is that the overall final energy mix for electricity generation has not changed significantly after the EU enlargement to 25 countries and will not change significantly after a possible EU enlargement to 29 countries. 100% Generation mix of EU-25 & Candidate Countries 90% others 80% 70% Renewables [%] 60% 50% 40% 30% 20% 10% + = + = Thermal Nuclear Hydro 0% EU-15 New EU-10 EU-25 Candidate Countries EU-25+CC Figure 3.5. Resulting installed generation mix of EU-25 and Candidate Countries 9

10 4 Perspectives for electricity demand To get a reliable picture of future electricity supply in a region it is of core relevance to get an impression of likely future development of demand. For the Whole European Union as well as for the CC in the report EU(2003) a comprehensive analysis of future electricity demand is provided. In the following some summarised highlights of this study are compiled Fig. 4.1 depicts the aggregated expected electricity demand growth for the three categories EU 15, EU 10+ and CC. It is evident that up from 2005 the expected growth rates of electricity demand are, for new member states and especially for CC, on average higher then in EU-15. A major reason for these differences is that the increase of electricity demand is linked to the development of the entire economy (e.g. GDP). This is especially true for lower developed countries like the new member and candidate countries are. The electricity consumption in these countries is currently far below the average electricity consumption in industrialized countries of EU-15 and hence the higher is the expected future growth. 5,0% Forecasted development of electricity demand in EU-25 and CC until ,0% 4,1% 3,7% 4,2% 3,7% 4,0% European Union 15 3,0% 2,8% 2,0% 1,0% 1,5% 1,8% 1,4% 1,7% 2,4% 1,4% 1,2% 2,2% 1,1% 1,3% 1,1% 0,9% European Union 10+ Candidate countries 0,0% Figure 4.1. Forecasted development of electricity demand in EU 15, EU 10+ and Candidate Countries till 2030; Source: EU (2003) Figure 4.2 depicts the details of the forecasts for electricity demand in EU 10+ and candidate countries for the period till 2030 by country. Fig. 4.3 shows the aggregated forecasted development of electricity demand in EU 10+ and Candidate Countries till As Fig. 4.3 depicts, the rapid increase in electricity demand is expected mainly due to high economic growth rates in Poland, Romania, Ukraine and Turkey. As a country with an emerging and rapidly growing economy, Turkey is expecting to face a highest growth of its demand for electricity by 5% per year in period whereas the average in EU-15 states is about 1.7%. The major conclusion regarding demand development is: The considerable differences in expected demand growth between former EU 15 countries on the one hand and especially CC on the other 10

11 hand leave the questions open who might finally be the importers and who the exporters among these countries. 5% Forecasted growth rates of electricity demand in new EU-10 + CC until % 3% 2% 1% 0% Cyprus Czech Republic Estonia Hungary Latvia Lithuania Malta Poland Slovakia Slovenia Bulgaria Romania Turkey Figure 4.2. Forecasted growth rates of electricity demand in EU 10+ and Candidate Countries till 2030; Source: EU (2003). Gross electricity demand [TWh] Turkey Romania Bulgaria Slovenia Slovakia Poland Malta Lithuania Latvia Hungary Estonia Czech Republic Cyprus Year Figure 4.3. Aggregated forecasted development of electricity demand in EU 10+ and Candidate Countries till 2030; Source: EU (2003) 11

12 5 Decommissioning of existing thermal and nuclear capacities The first years of liberalization of electricity markets in Western Europe were characterized by low electricity prices due to excess capacity in generation and, to some extent, also in transmission. Yet, soon the perception emerged, that plants are getting older and older and that there is a necessity for the replacement of old power plants and transmission lines. Today the European electricity market is facing a continuous decrease in excess capacity. As a result of high age the capacity will reach the end of their design life. Moreover, due to economic or political decisions of nuclear phase-out a large part of the decommissioned plants will be nuclear plants 1. Therefore, since 1999 a lot of power plants have been closed in Europe. Figure 5.1 shows the planed decommissioning of power plants for Europe until Note, that this Figure does not include plants being closed for economic reasons despite having some technical life remaining! Power plant decommissioning in EU-15 ( ) [GW] Austria Belgium Denemark Finland France Germany Greece Ireland Italy Luxemourg Netherlands Portugal Spain Sweden UK Figure 5.1. Power plant decommissioning in EU-15 till 2020 Source: [1] As can be seen from Figure 5.1, most of the overall capacity in EU-15 is expected to go offline in Germany. As a consequence of nuclear phase-out in Germany the total nuclear capacity of more then 20 GW will be shut down until 2020, but also nearly half of France's 58 reactors, generating 78% of the country's electricity, will reach the end of their initial planned lifetime by In United Kingdom and Italy mostly old coal burning power plants will be closed. With these 1 Remark: Despite in many EU-25 countries movements to close down nuclear power plants are under way there is also a considerable number of countries where the opposite a resurge in nuclear power prevails. Moreover, the planned decommissioning of nuclear power plants in some countries, e.g. Germany, is subject to stable political conditions. 12

13 thermal plants being closed down in 2010 will go 29 GW and in 2020 more than 80 GW off-line in the EU-15 countries. The projected life of hydro power plants is longer than for thermal technologies, but however, most of the European countries do not have enough water availability to compensate the decommissioned thermal conventional capacity with run-of-river or storage plants. Of course, to fill this increasing capacity gap new power plants are under construction. The construction of new nuclear power plants seems to bee at the time too difficult as a result of the increased conservationconscious in Europe. The decommissioning of power plants in the 10 new member countries is presented in the Figure Power plant decommissioning in New Member States and Candidate Countries [GW] Cyprus Czeh.Rep. Estonia Hungary Latvia Lithuania Malta Poland Slovakia Slovenia Bulgaria Romania Figure 5.2. Power plant decommissioning in EU-10+ and CC till 2020 The need for capacity renovation in central and eastern European countries is for a vital interest of now enlarged European Union regarding security of supply and establishment of an efficient and sustainable electricity sector. This issue was identified as the main reason behind investor interest and involvement in this region, especially in the top three ranking countries in central and Eastern Europe, these being Poland, Czech Republic and Hungary. Altogether some 35 GW of new capacity is needed by all new member countries by 2020, the bulk of which is needed by Poland, some 15 GW by The enlargement of the European Union will have a significant impact on the energy industry in both old and New Member States of the EU. The acceleration of the liberalisation of Europe s energy market with the implementation of the latest energy market Directives adds further changes to both the structure and operation of the sector. Therefore, the commercial opportunities in Central and South-East Europeans electricity sector fall into two major categories. First, the privatization of state-owned capacities and as a second, the upgrade of existing generation assets and transmission infrastructure as well as the 13

14 construction of new power plants and interconnection lines. The following country profiles describe the current state and the opportunities in some of the region s individual markets. 14

15 6 Future perspectives for the development of electricity generation in EU-10+ and Candidate Countries Based on the analyses in the preceding Sections in this chapter the current status and the future perspectives of electricity supply are investigated for the single countries. In detail the current status of market opening and current policy objectives are presented. Moreover, based on the method of approach described in Section 2 scenarios for the development of generation capacities in comparison to peak load development are derived. Finally, specific issues with respect to transmission and the prospects for renewable energy sources for electricity generation are discussed. A comprehensive survey on basic information on these countries is provided by von Hirschhausen/Zachmann. Note, that the islands of Cyprus and Malta are not included in this analysis because it is not likely that they will be connected to the Continental European grid in the next years. 6.1 Czech Republic Introduction: Market opening, liberalisation The government law on energy in Czech Republic envisages the progressive liberalisation and the market should be opened for all end customers in The administrative authority for regulation -Energy Regulatory Office (ERO) has been set up at the beginning 2001 in order to support competition and price stability, to protect consumers and to monitor the application of the law on energy. The State Energy Policy approved by Government Decision No. 211 of March 2004 determines the objectives that the state wants to achieve in influencing the development of energy sector in the horizon of the next 30 years. The three basic priorities of the State Energy Policy are: Independence from: foreign energy sources, energy sources from risky regions, reliability of supplies from foreign sources. Safety: Safety of energy sources including nuclear safety, Reliability of supplies of all kinds of energy, Reasonable decentralisation of all energy systems. Sustainable development: Environmental protection, Economic and social development. In January 2005 began the second regulatory period in Czech Republic bringing into force new regulatory methods until end of The revenue cap regulatory method has been selected for the electricity and gas transmission and distribution activities. 15

16 Generation The main electric producer in the Czech Republic is the power utility CEZ generating an estimated 75% of the country s electricity in 29 power plants of which are 9 thermal, 2 nuclear, 16 hydro, 1 wind and solar. The Temelin nuclear power plant has been extensively modernised and is now online, but there is still strong public acceptability problem, particularly in neighbouring Austria concerning its old design and recurred faults. Currently possesses the state 66,3% of the shares of the electricity company CEZ. The anti-monopoly office gave in 2003 the permission to CEZ to acquire the majority in four distribution companies. The CEZ announced an increase of 11% for the wholesale electricity price for the year 2004 trying to justify it with rising price trends for electricity on the European market. The Czech transmission operator CEPS is responsible for transmission system which links major entities operating within the power supply system and across which the majority of crossborder exchanges are carried out. It is responsible for real-time dispatch in the country s supply system and also for preparing and testing a Defence Plan to prevent failure spreading and a Restoration Plan to restore the power supply after major system failures Historical Forecast New Capacity? Cap. in construction WIND OIL GAS [MW] NUCLEAR COAL HYDRO Hist. used Capacity Load EU Capacity Forecast Figure 6.1. Generation capacity and peak load and development in Czech Republic till 2020 Source: EU, UCTE Renewable energy According to the Czech Ministry of Environment had biomass the biggest growth potential among renewable energy sources in the country. Of the 8% target set for 2010, biomass would form 40%, small and larger hydropower plants would each produce 21%, followed by wind at 18%. Transmission By virtue of its design, the Czech Republic s transmission grid (400 kv and 220 kv) fully complies with the n-1 criterion. Further development of the transmission system is planned in accordance with technical and strategic standards set in the rules for transmission system operation given by the Grid Code. 16

17 Investment projects currently under preparation are phase shifter transformer in Nosovice, which should improve the cross-border net transfer capacity (NTC) with Poland. There is still the need to construct the 400 kv line between the substations in Bohemia and complete the last section 400 kv north-south link. These projects also respond to changes in transit flows due to reconnection to UCTE and requests for the connection of new power producers or consumers to the system. 6.2 Hungary Introduction: Market opening, liberalisation According to EU benchmarking report 2, Hungary reached a reasonably high level of market opening, competition on the generating side and significant foreign investment, all of which should support the development of a real wholesale electricity market. The growth of the national product and energy consumption in the last 30 years are remarkable. 250 % GDP % 1970 = 100 Electricity consumption % 1970 = 100 National energy consumption % 1970 = Figure 6.2. Development of GDP, energy and electricity production in Hungry until 2003 Source: Hungarian Energy Agency In practice, there are still problems of long term electricity contracts, network access and the dominance of one large power producer which are impeding market growth. With the new Electricity Law approved by the Parliament in late 2001 and becoming effective in January 2003 the Hungarian government has made progress in adapting its energy industries to a market economy. The most important objective is ensuring a reliable electricity supply while liberalizing 35%-40% of the market. As of July 2004 all non-residential customers are able to buy electricity on the open market and residential consumers will follow in The privatization of the power sector generating and distribution companies is practically finished. Privatization of the MVM, which plays a determinant role in the power sector, the MVM-owned Paks nuclear plant, and the National Grid Company, will begin later. Hungary has yet to achieve its full potential as a forum for wholesale electricity trade. 2 Source: EU third benchmarking report 17

18 The official national energy policy developed in order to meet growing electricity demand should fulfil following principles: Diversification of energy supply and elimination of dependency on imports from the former Soviet Union; Improving environmental protection; Modernization of supply structures and better management of electricity consumption should increase energy efficiency; Attracting foreign capital for investment in capital-intensive energy projects. Generation The total installed capacity of the Hungarian power generating system is depicted in and was at the end of 2003 according to UCTE about 8 GW. Hungarian power utility MVM and its subsidiaries are among the most important players in the national electricity sector. The Hungary's only nuclear power plant Paks with total capacity of 1,86 GW is a subsidiary of MVM and produces approximately 40% of the demand. Hungary is very dependent on the Paks which four reactors in 2003 generated GWh of electricity in total. This nuclear power plant is built between 1982 and 1987 with initial planned lifetime of 30 years, but its operators are planning to extend its life by another 10 years. The remaining 60% of installed capacity is almost equally shared between power plants burning coal and hydrocarbons. Conventional thermal production has a total capacity of over 1,8 GW in coal fired plants and burns locally mined lignite and brown coal. Currently is MVM planning a retrofit of MW of existing capacity and had planned to construct new plants of 1,000-1,100 MW capacity by the year The estimated costs of changing a 200 MW plant from coal to gas turbines are million and takes two years Historical Forecast [MW] HYDRO COAL NUCLEAR GAS OIL Cap. in construction Capacity Forecast Load (UCTE) Available capacity Figure 6.3. Load and generation capacity development in Hungary; Source: EU, UCTE 18

19 There are also several on-going power plant projects under construction or in the development phase depicted on the. The new combined cycle power plant Debrecen with 170 MW has recently come online. The Budapest Power Plant Ltd is constructing a 110 MW plant at the site of the Power Plant Kispes and AES decided to carry out a retrofit project at the Tisza II power plant. EMA-Power is considering constructing a combined cycle gas turbine power plant at their site in Dunaújváros that could be as large as 120 MW. Taking into account the environmental regulation of lowering emissions, the Pécs Power Plant has converted some of its coal-based generating capacity into woodchip-firing, similarly to the Ajka Power Plant, where the facility was converted to burn wood and natural gas to replace coal. Transmission The transmission system is operated by Mavir, which is legally unbundled from former incumbent MVM. Hungary is a net importer of power and an important transit country for power moving from Ukraine and Slovakia southwards to Croatia, Serbia and Italy. The competition in the national market is induced by trading with imported power, but there is also a lack of transmission capacity. Although is Hungarian power system well interconnected, with links to Austria, the Slovak Republic, Croatia, Slovenia, Romania, Bulgaria and Ukraine's Burshtyn island, free capacity for trade is limited. About 80% of capacity is still reserved for long term contracts. The rest is auctioned on a monthly and yearly basis, but these conditions with scarce capacities are resulting with relatively high price. Until a higher amount of import capacity made available by MVM is reached, traders continue to focus on the annual cross-border capacity auctions and remain hopeful that better trading opportunities lie ahead. Figure 6.4. Hungarian transmission system The reconnection of the Hungarian grid in October 2004 with the main UCTE grid and the rest of south-east Europe could have positive effects on the wholesale market increasing the amount of competition from imports. The seasonal electricity surpluses produced in neighbouring countries like Serbia, Bulgaria and Romania, could compete in the Hungarian market with imports from the north Europe and bring greater competition and lower prices. Renewable energy Hungary has approved national plan in order to increase its use of energy from renewable energy sources from 0.5% to 3.5% of total consumption. The penetration of the renewable energy 19

20 sources in the Hungarian primary energy production is relatively small, 3.6 per cent. The share of RES in electricity production is even lower, 0.5 per cent. However due to the building of large HPPs in the 1970s on the Tisza river and several SHPPs (built in ) the hydropower has a notable share among the renewable sources. The capacity of the three largest hydropower plants is 43.8 MWe. They provide about 200 GWh of electricity annually. Because it is one of the less mountainous countries in central Europe, just 0.6% of its energy is produced in its three hydroelectric power plants. The installed hydro power capacity has been not increased in the last 30 years and due to the resistance of environmental groups, it is rather unlikely that any investors would start new hydro projects in the near future. Photovoltaic applications have been implemented on an experimental basis in the telecommunications and other sectors, but this technology has not yet reached wide scale of commercialization in Hungary. Under regulatory mechanism for development of renewable technologies the government guarantees the purchase of electricity generated from renewable sources until In order to support deployment of renewable technologies and achieve this goal, the current price is approximately 0.07/kWh, which is 50% higher that the amount paid for electricity generating from the conventional sources. As Hungary generates a great amount of agricultural products the best potentials exist in biomass. Hungary is rich in thousands of hot water wells, some of which are believed to have sufficient capacity to supply geothermal power plants. There are currently three geothermal plants under construction. The total installed capacity of wind power plants is up to day approximately 3,5 MW. Market players, electricity price, investments Besides national, are also several large foreign utilities active in the Hungarian electricity sector, including Europeans three biggest players: Electricite de France (EdF), RWE and Eon. Table 6.1. Foreign proprietors and investors in Hungarian power sector; Source: Hungarian Energy Office Proprietors Producers Transmitters Suppliers Electricity industry Hungarian State 2,83 99,87 0,01 37,01 Local authorites 0,23 0,11 0,49 0,36 Hungarian investors 60,32 0,02 7,41 5,46 Hungarian participation, in total 63,38 100,00 7,91 42,83 German investors 10,22 75,16 37,08 French investors 5,04 9,43 6,48 Belgian investors 9,21 4,48 USA investors 10,10 4,92 Other foreign investors 2,00 2,30 1,95 Foreign participation, in total 36,57 0,00 86,89 54,91 Not registered 0,05 5,20 2,26 Total 100,00 100,00 100,00 100,00 20

21 On the generating side, the important players are Hungarian incumbent MVM with Paks, EDF, German s RWE and Eon, Belgium's Electrabel, Switzerland's Atel and US-based AES. On the distribution side, the six regional electricity suppliers are owned and operated by Eon, RWE and EDF. Besides this, the wholesale electricity market in Hungary is still not well organised. There is an online trading platform which is operates by MVM, but the traded volumes are still small. There are no brokers active in this market and no formal exchange. However, the Hungarian market remains dominated by MVM because the high share of generated electricity is still tied up under long-term contracts with the former single buyer. According to national energy law the MVM is required to offer any additional capacity not held under long term agreements to the market as a virtual power plant auctions, but it is also allowed to define this free capacity for the market. 6.3 Baltic countries Introduction: Market opening, liberalisation In February 2000, Lithuania, Estonia and Latvia are decided to create a common Baltic electricity market and establish transmission links between the three countries. The Baltic power system supplies area of square kilometres with approximately 7,5 mil inhabitants. The Energy Act in Estonia concerning regulatory procedures of the Energy Market Inspectorate came into force already in In Latvia was in November 2000 endorsed a program to restructure Latvenergo, the major energy producer. The biggest electricity producer -Lithuania will gradually open the market which should be fully open from Generation Total installed generation capacity of the Baltic interconnected system was MW in January It includes a wide range of different types of equipment - a nuclear power plant (NPP), hydro power plants (HPP), condensing power plants (CPP), combined heat and power plants (CHPP) as well as pumped storage power plant (PSPP) and two wind power generators (WP). Estonia 26,59% Wind 0,03% Black Oil, Gas, Peat 30,9% Lithuania 55,34% Latvia 18,07% Nuclear 22,84% Pumped storage 7,91% Hydro 14,59% Shale Oil 23,72% Figure 6.5. Distribution of the generation capacity among the power systems of Baltic IPS Because Lithuania exports large amount of electricity to neighbour countries Latvia, Estonia, Poland and once again to Belarus, we analyse only the electricity sector in this country. 21

22 Lithuania Electricity in Lithuania is generated by three types of power plants: nuclear, thermal and hydropower. The biggest generation unit in Lithuania is Ignalina nuclear power plant with the production of GWh of electricity in Lietuvos Energija purchases generated electricity and sells it to national customers along with the export to neighbouring countries. Production, consumption as well as electricity imports and exports in the last 13 years are depicted in Figure Electricity production and consumption in Lithuania Imports and Exports in Lithuania Import Export [GWh] [GWh] Ignalinos NPP Combined Heat and Power (CHP) Hydro Power Plants Gross consumption Figure 6.6. Electricity production, consumption and exchange in Lithuania The Ignalina s first reactor was built in 1984 and the second in In accordance with the European Union accession requirements, the Ignalina nuclear plant has been decommissioned at According the draft National Energy Strategy the Unit 2 of the Ignalina NPP will be also shut down by the end of Development of power plants in Lithuania until 2020 Closure of Ignalina Nuclear Power Plant - 1st block in nd block in [MW] HYDRO GAS OIL NUCLEAR Capacity Forecast Figure 6.7. Generation capacity development in Lithuania until

23 Lithuania estimates that the cost of decommissioning until 2020 would be Euro 888 million, whereas social/economic and environmental impacts of the closure would amount to Euro 132 million and Euro 536 million respectively. Figure 6.7 shows these changes in Lithuanian s power system until Market players, electricity price, investments The main company in the electricity sector of Lithuania is Lietuvos Energija AB acting as the system operator and the market operator. The company is owner of more than 6,000 kilometres of transmission grid (330kV and 110 kv) with 222 transformer substations and switchyards, the Kaunas Hydro Power Plant and the Kruonis Pumped Storage Plant. Both power plants are important for ensuring capacity balances. The Ignalina nuclear power plant is the biggest generation unit which have generated almost 85% of total Lithuanian electricity over the period of last five years with the lowest production cost. Figure 6.8 shows the investments in power sector in the last years in Lithuania. Figure 6.8. Investments in power system in Lithuania Transmission The joint Interconnection of the Power Systems of Estonia, Latvia, and Lithuania as a one power pool (Baltic IPS) was founded after regaining complete independence of the Baltic countries in The join interconnection includes state owned power systems of Estonia and Latvia and Lithuania s TSO Lietuvos energija. Figure 3.1 shows Baltic IPS which operates parallel on a synchronous AC grid with the Unified Power System of Russia and the Power System of Belarus. Cross-border transmission capacity between power systems is calculated using optimal power flow calculation taking into account dynamic stability, thermal limitations of system elements and also the response of power generating units during emergency operation. This capacity varies between 1000 MW and 2500 MW. 23

24 Figure 6.9. Baltic IPS power plants and transmission network with cross-border links to neighbouring countries; Source: DC Baltja 2003 The power grid shown in Table 6.2 consists from transmission lines on the voltage level of 330 kv constructed in Table 6.2. Baltic IPS transmission network Power Length of HV lines (km) Installed capacity of network autotransformers and transformers (MVA) system of 330kV 330kV Estonia 1290, Latvia 1249, Lithuania 1670, Baltic IPS 4210, One of the main objectives of Baltic IPS is the integration into the Western European electricity market along with the development of regional co-operation. The transmission grid expansion is planned in the near future by interconnecting it with the Polish electricity system. The cross-border transmission project between Lithuania and Poland is of highest importance for the development of an integrated EU electricity market and for the improvement of the reliability of supply. Figure 6.10 depicts the imports and exports of the Baltic interconnected system in year In 2003, Estonian s Easti Energia exported 1638 GWh of electricity to Latvia and 460 GWh to Russia. During the same period, the import of Latvian spring floods hydro energy to Estonia was 24

25 139 GWh. The Lithuanina ppower system exported 2948 GWh to Belaurs and 3165 to Jantenergo Russia. The whole Baltic IPS is a regional electricity exporter and had in 2003 a positive export balance of 6794 GWh. Figure Import and Export electricity balance in Baltic countries in 2003, Source: Baltic IPS Poland Introduction: Market opening, liberalisation The reform of electricity sector began in Poland in 1989 and is one of the key elements of the state restructuring process covering economic, social, and political areas. The starting point for carrying out the reform is the draft of the Energy Law accepted on 1997 by the lower house of the Polish Parliament. The law provides conditions for gradual implementation of market mechanisms. These include introducing the competition among generators, with the assumption that the transition from the wholesale electric trade competition to the retail trade competition will last not more than eight years from the date of the law coming into effect. The electricity market in Poland will be opened for all of the 14, 5 million consumers from December 2005 Generation With installed capacity of 31,7 GW producing in total in ,8 TWh and consumption of 138,3 TWh is Poland one of the biggest power markets in Eastern Europe. As depicted in Fig is the generation mainly from conventional thermal capacities, predominantly coal and hydro accounting just about 1,5% of the total. Figure 6.11 shows the generation capacity versus peak load development. On the one hand there are considerable excess capacities on the other hand, according to EU (2003) forecast, still high necessity for investments in new power plants exists. 25

26 70 Forecast Historical New Capacity? [GW] COAL COAL GAS GAS OIL HYDRO Capacity Forecast Load UCTE Available Capacity Figure Peak load and generation capacity development in Poland; Source: EU, UCTE Transmission As noted Poland has a good geographical location and the transmission operator PSE operates interconnections within CENTREL with Germany, Sweden, the Czech and Slovak republics, Belarus and Ukraine. Major players, market prices, investments With his significant generation capacity, good geographical location and a reasonable amount of natural competition has Poland a considerable potential as a wholesale electricity market. Since May 2004, grid operator PSE has ceased to hold a monopoly on import and export of power to and from Poland. And crucially there is a will among local players to develop the market. As of May 2004 some 291 companies got licences to trade electricity in Poland. On the generating side, 122 licences have been issued to plants of 5MW or more. Most of the major European utilities are active in Poland Germans Eon, French biggest utility EDF, Vattenfall, Austrian Verbund, Electrabel, EGL and Atel. The shareholders in the Polish capital's power company, Elektrocieplownie Warszawskie SA (EW), decided at the end of 2004 to carry out a private placing worth SEK 540m to Vattenfall. The Swedish company is already majority owner of the polish company and will increases his share from 70% to 75%. The Vattenfall also wants to buy the remaining 25% in southern Polish energy distributor Gornoslaski Zaklad Elektroenergetyczny SA (GZE). The first agreement for GZE which accounts for 9% of Poland's electricity, was signed in

27 There is also an association of Polish energy traders, the TOE, which was created in January 2004 and which lobbies for a better trading environment. Since July 2000 in Poland is existing spot market for electricity, the Polpx. A variety of products are traded, included baseload, peak and "super peak" contracts for the day-ahead, weekahead, month-ahead, and longer periods. However, there are currently low volumes traded and prices lack volatility. Since about 50% of Polish generated electricity is sold under long-term power purchase agreements, the reasons could be found in a lack of any real price competition between producers. A further 12.4% is covered by the so-called red (cogeneration) obligation and 2.85% by the renewable technologies or green obligation. The bilateral wholesale market currently accounts for about 35% of generation. The creation of a truly independent TSO is the key change needed for a good start and work of the wholesale market. This will facilitate access to the network thereby promote trade but the Polish government s plans for PSE remain uncertain. 6.5 Slovakia Introduction: Market opening, liberalisation The initial opening of electricity market in Slovakia started in 2002 with the liberalisation for the largest consumers and corresponds to 31% of the market. Generation Installed generation capacity in Slovakia was in 2003 about 8 GW and produced about 28,9 TWh. Consumption in 2003 was about 26,4 TWh according to Union for the Co-ordination of Transmission of Electricity (UCTE). The dominant incumbent generator is Slovenske Elektrane (SE) with about 84% of electricity produced. It operates two nuclear power plants with installed capacity of 2640 MW located at Bohunice and Mochovce. Two of four reactor blocks at Bohunice cannot be upgraded and must be decommissioned. With this capacity gong off-line by 2006 and 2008 respectively the supply situation in Slovakian power sector could be tightened already after Like its bigger neighbour, the Czech Republic, Slovakia is of high interest to European power utilities on the first place as an export market but also as a transit country for Polish and Czech electricity to Hungary or to the EU member countries on the West. Figure 6.12 shows the decommissioning of thermal and nuclear capacities versus peak load development in Slovakia until

28 Historical Forecast New capacity COAL [MW] New Capacity? NUCLEAR GAS HYDRO 4000 Available capacity 2000 Load UCTE Capacity Forecast Figure Load and capacity development in Slovakia; Source: EU, UCTE Transmission Transmission is legally unbundled from generation and distribution and managed by Slovak system operator Seps. With Slovenske Elektrane (SE) holding a large portion of domestic generation, the main competition on the supply side comes from imported power. Slovakia is well connected with the Czech Republic, Hungary, Poland and Ukraine, with a total interconnected capacity of 3.5GW or 44% of installed capacity. However, only 2.3GW is available for imports, with the rest reserved under long-term contracts. The additional transmission lines were planed to build in 2003 with Austria and Hungary but these have not progressed beyond the construction permit stage. Transmission capacity at the border with Czech Republic is auctioned daily, monthly and yearly. This congestion management method is also used for the interconnections at the Hungarian border which are auctioned monthly and yearly. Major players, market prices Slovenske elektrane (SE) is the dominant power producer in Slovakia with about 6,8 GW installed capacity and 84% of national electricity production. The biggest Italian utility Enel wins the tender for a 66% stake in Slovakia s largest power producer). The highest bid of 480 Million was submitted by Enel, followed by offers of 690 M from neighbour dominant utility CEZ and 547 Mill from Russia s Inter RAO. Because the growth in own national market is limited by regulator the Enel looks for opportunity to expand in east European electricity markets. It expects electricity demand in Slovakia to rise sharply with the economy posting growth of 5,4% in second quarter of 2004 compared to just 0,3% in Italy. 28

29 There is no real organized power market at present, but Seps is talking with Czech market operator OTE and grid operator Ceps about the opportunities to create a common spot market from the start of They have a starting point in that their grids are already well connected in the past were operated by a single company. Seps, Ceps and OTE hope the market will form the basis for a single market for the Central and Eastern Europe region. However, differences in the individual market structures and market rules in the various countries in the region could mean that such a project may take several years to come to fruition. 6.6 Slovenia Introduction: Market opening, liberalisation The opening of internal electricity market in Slovenia is being carried out in following steps: : Market opening internally for all eligible customers (> 41 kw) Begin 2002: Market opening partially externally for eligible customers with consumption > 100GWh/ year Begin 2003: Complete (external) market opening Begin 2004: market opening for all customers except households Year Expected full market opening (100%) Generation The total installed capacity of Slovenian s power sector in 2003 was 2,7 GW. Slovenia has modernised the Krsko nuclear power plant from 1998 to 2000 and its level of nuclear safety is now comparable to that of west European nuclear plants. The balance for the year 2004 foresees an approximate 5% increase of the electric energy consumption in Slovenia as compared with the previous year while the loading of the transmission network will be somewhat higher due to an increased scope of dealing, which is due to the export and import of electric energy. Although the national electric energy system is nearing its limit capabilities due to an increased consumption of electricity, the excess capacity are available until The new investments in power plants of 408 MW are planed until

30 4500 OIL New Capacity? GAS COAL [MW] NUCLEAR HYDRO Available capacity Load UCTE Capacity Forecast Figure Load and capacity development in Slovenia; Source: EU, UCTE Transmission The electric power system depicted in Figure 6.14 is very well connected to the electric power systems of the neighbouring countries. There are two 400 kv power lines and one 220 kv power line with Austria, a 400 kv and a 220 kv power line with Italy, three 400 kv power lines, two 220 kv power lines and three 110 kv power lines with Croatia. Although there are no power lines between Slovenia and Hungary, the new 400 kv interconnection line Cirkovce- Heviz is planned for Figure Power system in Slovenia and cross-border lines to neighbours 30

31 Major players, electricity price Although is the nuclear power plant Krsko with installed capacity of 670 MW on Slovenian territory, the Slovenian and Croatian government signed agreement concerning joint ownership of this facility. Supported by the government, the Slovenian power exchange Borzen took initiative for becoming a regional market of southeast Europe. The total volume of trading in 2004 reached 281 GWh, which is 2,22% of the total national consumption in Although the volumes decreased for a little, the prices in 2004 were on the other hand more stable than in In April 2004 Borzen also set up the Wood Biomass Exchange. Although the market place for trading electricity is established in 2001 it still suffers from low volumes of 3% and number of market participants on Borzen of about 15 at the end of The market prices in Slovenia follows the wholesale prices in Austrian and German market and builds together one pricing zone in central European market. 6.7 Bulgaria Introduction: Market opening, liberalization, privatisation The privatization process in the Bulgarian energy sector started in 2000 with the offer for privatization of 11 small hydroelectric power plants. Privatization of the state-owned power facilities has continued to move slowly. During the period , twenty-one hydro plants were sold. The fourteen largest of these hydro plants operate within four cascades Belmeken-Sestrimo- Chaira, Batak, Vacha and Arda. All of these facilities are used to generate electricity, cover peak loads and regulate the parameters of the electric power system. The revenues earned from the privatization of 28 energy companies since 2001stands at BGN 185million or about 94.59mn. The Bulgaria National Electric Company (NEK) also intends to sell the Maritsa-3, Bobov Dol, and Russe power plants, and plans to establish joint ventures with foreign investors to rehabilitate and operate the Maritsa-3 and Varna power plants. Plans currently call for privatization of the Maritsa East 2 thermal power plant by 2010, along with other generation and distribution facilities. This will leave NEK operating only the transmission lines, the central dispatcher control, the Kosloduy nuclear power plant, and the pumped hydro facility. In June 2003, the Bulgarian government announced that it would privatize seven electricity distribution companies, offering to sell a 67% stake in each company. The seven companies serve more than four million households and 500,000 industrial and commercial customers. Generation The total installed capacity in Bulgaria at the end of 2003 was about 13 GW, with thermal capacity making up 50% (6 550 MW), hydro plants making up approximately 20% (2 820MW), and Kozloduy nuclear power plant about 30% (3,760MW) of this capacity. Since 1999, the Government of BulgariaBulgaria derives 42 % of its total national electricity production from his only nuclear power plant Kozloduy. The European Union has been pressing Bulgarian government to close four of the six reactors at the Kozloduy nuclear plant for safety 31

32 reasons. The first two Soviet-designed nuclear reactors were shut down on As part of the country's accession talks with the EU the next two reactors are scheduled to be shut down in well short of their normal designed life spans. That will leave just two reactors at the Kozloduy plant, both 1 GW reactors with a safety shell, which were commissioned in 1987 and Figure 6.15 shows the current situation in Bulgarian power sector. Figure Bulgarian power sector The Bulgarian Academy of Sciences has been examining five sections for justifying the second nuclear power plant project Belene: 1) national energy balance 2) technical considerations 3) seismic issues 4) environmental effect and 5) the socio-economic impact. After this analysis all five parts independently concluded that the plant was not needed or was the wrong choice because the danger of earthquakes in this region. Nevertheless, Bulgaria plans to build 2,000 MW of new nuclear capacity between 2010 and As a part of it will be a second nuclear power plant Belene with MW unit to help maintain its position as the leading net exporter of electricity in the region. The Bulgarian Prime Minister expects the decision to revive the controversial nuclear plant development project Belene on the river Danube started in the late 1980 but stalled ten years after. The new unit at Belene is projected to produce electricity at a price in the range of 3 to 4 euro cents per kilowatt hour. The project is expected to cost 1.6-billion euros, and the financing is expected to require loans from Euratom or the selected vendors of up to 350-million euros. The government plans to retain 51-80% ownership, and to provide loan guarantees for 50% of the cost. As the first pilot project based on a Memorandum of Understanding between the Republic of Bulgaria and the Republic of Austria and under the joint implementation scheme to the Kyoto Protocol started in 2004 the hydro power plant project Tsankov Kamak. Figure 6.16 shows peak load development as well as capacity decommissioning and all new power plant projects in Bulgaria until Even after decommissioning of nuclear units in Kozloduy certain overcapacity exits until 2009 but most of generation assets are outdated and need to be replaced or upgraded. 32

33 Historical Forecast GW of new nuclear capacity until 2020 [GW] Closure of Kozloduy nuclear power plant untis 1 and 2 in 2003 Planed closure of Kozloduy nuclear power plant untis 3 and 4 until NUCLEAR COAL HYDRO GAS Nuclear new Thermal new Hydro new Load forecast UCTE* Available capacity Capacity Forecast Figure Generation capacity and peak load development in Bulgaria till 2020 Transmission The National Electricity Company (NEK) owns the 110 kv transmission systems and acts as system operator of the national grid through the National Dispatching Center. The one of the biggest German companies Eon had bought electricity distribution in Bulgaria. E.on is to pay Euro 141m for a 67% stake in Gorna Oryahovitza and Varna electricity distribution companies. This will give the German giant access to some 1,1 million customers and around 25% of the Bulgarian electricity supply market 3.The NEK will retain its monopoly on power exports until The Plovdiv and Stara Zagora regional distribution companies dispose over a line network of km and supply a total of 1,5 million customers with electrical power. With an area of over square kilometres, the companies' supply region is roughly the size of Switzerland and together they provide GWh of electricity to consumers annually. Major players, market prices, investments American Energy Systems (AES) Corporation could become the largest foreign investor in Bulgaria's power generation sector if they complete their project to build a lignite coal-fired power plant in southern Bulgaria with capacity of 670 MW at the Maritza East 1 power station. In June 2001, AES signed a 930 million USD contract for this project. In February 2005 Bulgarian energy minister submitted to AES letter of support for the construction of new lignite capacity equal to BGN 2 billion, which is EUR 1,042 billion4. 3 Source: energy directory.com 4 Source: Councils of Ministers; Republic Bulgaria 33

34 If completed, it will be the largest green-field investment in Central and Eastern Europe and will enforce the economic and political reputation of Bulgaria in the region bringing about a series of further benefits in trade and economic aspect: - an over BGN 2 billion investment - 10, 000 job positions within the framework of the project - orders to local companies for over BGN 200 million, as a result of the implementation of the project - BGN 40 million revenues from taxes - BGN 80 million annual revenues to Maritza East mines for coal delivery Rehabilitation of TPP Maritza East 3 has been undertaken by Entergy Corp. The company entered into an agreement with NEK to provide electric power to the grid for 15 years. In 2001, Entergy signed a $470 million joint venture with the National Electric Company (NEK) to rehabilitate and operate the 752 -MW thermal-power station and to construct new installations to reduce sulfur dioxide emissions. In 2003, Entergy signed an agreement with ENEL to sell a portion of their participation in the project. Entergy currently has 29,2%, Enel 45,8% and NEK 27%. The rehabilitation and environmental retrofit of the Maritza East 3 is the first private power sector project in Bulgaria as well as the largest foreign direct investment to date in the country for a total project cost of Euro 650m. The Maritza East 3 power plant is an 840MW lignite-fired power plant of 4 independent generating units, located near Stara Zagora in south central Bulgaria, 60km from the Turkish border. That is near significant deposits of lignite which counts 80% of Bulgaria s domestic fuel reserves. With 7% of the country s installed capacity, the power plant is a key component of the Bulgarian generating system supplying both base and middle order demand. The power plant has been operational for approximately 20 years and the aim of the investment is to rehabilitate the plant to improve output and efficiency and to extend operating life, for at least an additional 15 years. The Austrian power company Energie-Versorgung Niederösterreich AG (EVN) agreed to purchase 67 % stakes in two power distribution companies in south-eastern Bulgaria. The purchase price is 271 million euros. The electricity tariffs for households in Bulgaria are for daily use 8,7 cents/kwh and 4,65 cents/kwh (excluding taxes) for night use. Although Bulgaria has the lowest electricity prices in Eastern Europe, it is still impossible for many people to pay for electricity and heat. 6.8 Croatia Introduction: Market opening, liberalisation The Republic of Croatia is on the way to restructure, liberalize and privatize its national energy sector. The electricity restructuring is expected to emphasize compatibility with the EU. Energy legislation was enacted by the Croatian Parliament in July 2001 and since January 2002 the Croatian energy sector is governed by five new laws. These are Energy Act, Electricity Market Act, Oil and Oil Products Act, Gas Market Act, and Energy Activities Regulation Act. The 34

35 acts applicable to the electricity sector define the role and position of HEP - the national power company - as the entity with a public service obligation, having an economic position of equality and a market share to be won in a competitive market. As required by these acts and in order to harmonize with EU standards and introduce market-driven business principles, on 1 July 2002 HEP was restructured into HEP Group consisting of HEP d.d. as the parent company and subsidiary companies for core electric activities, non-core activities, jointly owned companies and other daughter companies. Under the new reforms, consumers with electricity consumption over 40 GWh/year will be allowed to buy electricity directly from suppliers and negotiate better prices. At the time are there 15 eligible large industrial consumers. Generation Table 6.3 shows the installed production capacity of Croatian power system in The thermal power stations generated 51%, hydro 37% of energy and only nuclear power station Krsko produced 12% of electrical energy in Table 6.3. Installed production capacity of the Republic of Croatia in 2003 Installed production capacity of the Republic of Croatia [MW] Share [%] Hydro % Thermal % Nuclear 338 8% TE Plomin Ltd % Total % The Croatian electricity company -HEP has three major oil-fired plants (Zagreb, Sisak, and Rijeka) plus several small plants fired with coal and natural gas. The Republic of Croatia should have enough capacities built on its own territory to cover system s peak load at any time for ensuring a long-term reliability of its operation. According to annual increasing of electricity consumption of 3,4% in 2003 and progressive shutdown of the oldest generating plants, the security of future electricity supply depends on new investments. Transmission The national transmission system is owned and operated by HEP. The power grid has three different voltages; there are 903 km of 400kV lines, km of 220kV lines, and km of 110kV lines. Figure 6.17 shows the generation facilities and major transmission lines in Croatia. 35

36 Figure Power system in Croatia and cross-border lines to neighbours; Source: Ministry of Economy The congestion occurs on the border between Hungary and Croatia. The loop flow from northern part of Europe to Italy is the main reason for the mentioned congestions. Also the allocation of the generators and consumption points causes some internal congestion in the Adriatic link. In the last two years we can see a trend of rising imports of electricity. Although were the electricity imports in 2002 about 3,5 TWh in 2003 they rise to 3,9 TWh. Figure 6.18 depicts the contracted and actual energy flows between Croatia and neighbouring countries. Figure Contracted and actual energy flows between Croatia and neighbours in 2003 Major players, market prices, investments Presently is the only relevant supplier of size in power sector the Croatian Electricity Company, or Hrvatska Elektropriveda (HEP). This state-owned company which is responsible for 36

37 generation, transmission and distribution generates about 95% of Croatia's electricity. The rest is generated in small hydro facilities and from privately-owned industrial cogeneration power plants. The market, i.e. a competitive generation, is the driving force in the construction of new power plants. The main stimulus for the construction is the possibility of definite return of invested capital and enabling potential investors to realize the expected revenues. The construction of generating capacities is subject of authorisation procedure or tendering procedure, by approval of the Energy Regulatory Council. The electricity market opening in Croatia is parallel process with establishment of regional energy market in South East Europe where the decision of investment in new power plant will be defined by regional investment priorities, all in the aspect of European Union enlargement. In those liberalisation conditions it is necessary to realize all possible energy options according to the Strategy of Energy Development of Republic of Croatia and to the regional energy market requirements or European Union Directives. New power plant will be realized, because of objective circumstances, through construction of gas power plant or coal power plant and possible nuclear power plant, and in much smaller size through construction of hydro power plants or power plants on renewable energy sources. The possibility of any energy option will be considered in view of: investment cost, operation and maintenance cost, fuel price, external costs, public influence, and through investor s risk. 6.9 Romania Introduction: Market opening, liberalisation Romania has made considerable progress in the three years since the decision was taken to divide Renel into a number of different companies. An ambitious programme to create a marketdriven electricity sector was established and Romanian Energy Regulatory Authority (ANRE) has been set up. Legislation to introduce market reforms has been approved and consumers representing 15% of the final electricity market are eligible to choose from whom they buy electricity in the manner envisaged in the EU Directive. A day ahead market has been established in which two generating companies make offers that serve as the basis for preparation of the day ahead schedule. Generation The installed capacity in Romanian power sector at the end of 2003 was about 16 GW of which 60% are thermal conventional, 36% hydro and 4% nuclear. The Romanian Power Grid Company-Transelectrica has been created in August 2000 as a joint stock state-owned company by splitting off the former vertically integrated National Electricity Company into four separate legal entities: SC TERMOELECTRICA SA (electricity and heat generation) SC HIDROELECTRICA SA (electricity generation) SC ELECTRICA SA (electricity distribution and supply) SC TRANSELECTRICA SA (electricity transmission, power system operation and dispatching) The shares of the company are 100% owned by the Romanian State, represented by the Minister of Industry and Resources. 37

38 Figure 6.19 shows the generation capacity versus peak load development until The substantial amount of overcapacity exists and remains until Historical Forecast [GW] NUCLEAR COAL OIL GAS HYDRO Capacity in construction Load forecast UCTE* Capacity Forecast Available capacity Figure Generation capacity and peak load development in Romania till 2020 SC Termoelectrica SA owns most of the thermal conventional power plants, about half of which is coal-fired. Combined heat and power (CHP) plants represent 80% of the total coal-fired capacity and 45% of the total thermal capacity. About 30% of Romania s annual consumption is supplied by SC Hidroelectrica SA which runs 347 hydro power plants and pumping stations with installed capacity of 6 GW. The largest and most important hydro plant with six 175-MW units is Portile de Fier I (Iron Gate). The biggest project on the Danube River was built in the early 1970 as a join venture project between Romania and neighbouring Serbia. The units are being rehabilitated by Austrian VA TECH and upgraded to 190 MW with overload output up to 200MW capacity. Operation of the plant was considerably disrupted in 1999 because of NATO air strikes which damaged transmission grid in neighbour Serbia and caused volatile and uncertain power deliveries of this, for both side, important plant. Transmission The Transelectrica SC are responsible for national transmission grid and Electrica SA is responsible for electricity distribution and the build out of new communications and information infrastructure to facilitate further development of the liberalized market. Figure 6.20 shows the Rumanian transmission system and cross-border lines to neighbours. Romania is regional exporter of electricity with balance of physical exchanges of 2,1TWh in Romania has god cooperation 38

39 with Bulgaria, Serbia & Montenegro and other south-east European countries for creation of the Southeast European (SEE) regional market. Figure Romanian transmission system 39

40 6.10 Turkey Introduction: Market opening, liberalisation and privatisation The liberalisation of the electricity sector in Turkey begun in early 2001 with the energy liberalization law passed by parliament, aimed at ending the government's monopoly in the energy sector but also to attract foreign investment in this sector. Under the law, the state-owned Turkish Electricity Generation and Transmission Corporation (TEAS) was unbundled into four separate companies for electricity generation (TEUAS), electricity transmission (TEIAS), electricity distribution (TEDAS), and electricity trade (TETAS). In December 2003, Turkish parliament passed legislation liberalizing the national energy sector and established the Energy Market Regulation Agency (EMRA). The Energy Market Regulatory Board has lowered the eligibility threshold in 2003 from 9 GWh to 7.8 GWh of annual electricity consumption. This new eligibility threshold corresponds to about 29% market opening. The Electricity Sector Reform and Privatization Strategy Paper issued by High Planning Council in 2004 covers procedures for privatization and security of supply mechanism. The document stated that successful privatization of electricity generation and distribution is an essential element of market liberalization. Generation The installed generation capacity in Turkey at the beginning of 2004 was about 35 GW (Source: Eurelectric) with a surplus of installed capacity over demand of MW [GW] [GW] Hydro Conventional Thermal Geothermal/Solar/Wind/Biomass Hydro & Renewables Coal Natural Gas Fuel Oil & Diesel Nuclear Figure Historical and future generation development in Turkey till 2020 Despite that the electricity generation from national capacities has more than doubled over the past decade it is still not sufficient to keep up with growing demand. That has as a consequence the reliance on the imports from neighbouring Bulgaria. Already in 1999 the Turkey signed a long term agreement up to 2009, which will allow to import 33,7 billion kwh of electricity from Bulgaria. The electricity produced in Bulgarian nuclear power plants at about 35 /MWh is cheaper then the produced electricity from a new thermal power plants in Turkey at about 50 /MWh. 40

41 Transmission The Turkey's electricity transmission grid is dispatched by Turkish Electricity Transmission Company (TEIAS), the company created by the unbundling of TEAS in The distribution and marketing of electricity to end users is responsibility of a separate company TEDAS. Figure 6.22 shows the current transmission grid in Turkey with the cross-border lines to the neighbours and projected new interconnections. Figure Transmission grid in Turkey with cross-border lines to neighbours Renewable energy sources Turkey has a considerable potential for electricity generation from wind. A study carried out in 2002 concluded that Turkey has a theoretical wind energy potential of nearly 90,000 MW and an economical wind energy potential of about 10,000 MW. The most promising region is in northwest Turkey, including the area around the Sea of Marmara. Major players, market prices, investments Turkey seeks private sector's involvement in the energy and infrastructure projects in order to keep up with the rapidly growing demand. Current legal framework allows private companies to construct new power plants either under Build-Operate-Transfer (BOT) or Build-Operate (BO) methods or as auto-producers. Also, private companies are allowed to operate existing power plants and distribution companies by receiving their operational rights through Transfer of Operational Rights (TOR) scheme. The Turkish government hopes to see hydroelectric capacity expanded to 35,000 MWe by the year Ultimately, the construction of more than 300 additional hydroelectric power plants are projected for Turkey to make use of the potential remaining hydroelectric sites; these have a potential of about 69,000 gigawatt-hours (GWh) per year. This long term plan would bring about an additional 19 GW of hydroelectric capacity online at a cost of more than $30 billion. 41

42 6.11 Russia Electricity market As part of Russia's power sector reform, the national power giant Unified Energy System of Russia (UES), which holds a monopoly position, has approved the creation of one more wholesale generation company (WGC) and two more territorial generation companies (TGCs). The approval included the creation of two of the planned 14 territorial generation companies, of TGC-1 with MW and of TGC-13 with MW capacity. The wholesale generation companies are being created as fully-owned subsidiaries of UES and are subject to a subsequent privatization in 2005/6. Generation The total installed capacity in Russian federation at the end of 2003 amounts 216,4 GW. Unified Energy System is the largest power holding in Russian Federation, that generates 69,4% (635,8 billion kwh) of general electricity output, 32,4% (468,8 million Gcal) of general heat production; capacity of which makes up 72,4% (156.6 GW) of the installed capacity in Russia. The company employs 577,6 thousand of people and owns 96,1% of high-voltage grids (2,496.9 Tkm) and 77% of distribution network (1.747,416 Tkm) in Russia. The capacity of countries biggest utility -Unified Energy System of Russia (UES) organised as a joint stock company, grew in 2003 for additional 1,3 GW to 156,6 GW. The increase in the Holding Company's generation capacity was due to the commissioning of new generating capacities, the most important among them being two hydroelectric generating units at Bureyskaya hydro plant with the aggregate capacity of 370 MW, and the second generating unit at Nizhnevartovskaya thermal plant with capacity of 800 MW Forecast 250 Historical 200 [GW] Nuclear Hydro Thermal Thermal extended due maintanace Required capacity Figure Generation capacity and peak load development in Russia till

43 Transmission Most regional electricity markets are connected by the Russian integrated power grid, which is organized into following 7 dispatch zones: Northwest, Central, Volga, Urals, N. Caucasus, Siberia and Far East which is not integrated with the others. The entire integrated power grid is dispatched by a Central Dispatch Office in Moscow and RAO EES regional dispatch offices. The Russian power system is planned in that way that each of the 7 regions should have adequate generation capacity to meet its own needs, with the grid linking the zones mainly providing reliability and exchanges during peak load hours. In fact, transmission lines and power flows between regions are estimated at 10% of generated capacity overall, though the figure is higher in some regions. Independent power generators supply about 4% of total generation, generally for industrial customers. Summer demand is about one third lower than winter demand. Northwest 21,3 GW Ural 30,2 GW Siberia 61,8 GW 1,7 GW Central 44,6 GW 1,45 GW 1,3 GW 2,6 GW 0,53 GW 3,15 GW North Kaucasus 10,6 GW Mid-Volga 32,6 GW Kazakhstan Figure Regional transmission and generation capacity in Russia; Source: Company data Main export activity of UES is directed towards the former CIS countries and Scandinavia. At the time UES can now only export electricity to Finland because its grids are cut off from the rest of Europe. Transmission services from Russia to Finland employs three 400 kv cross-border lines with total capacity of 1400 MW. Finland s TSO Fingrid has been reserved for the management of the power system 100 MW and the rest of cross-border transmission capacity between two neighbouring countries (i.e MW) has been reserved through fixed transmission contracts by five customers until the end of Major players, Electricity price Now the major players in the Russian power sector are the joint stock company Unified Electrical Power System of Russia (RAO UES) and the 72 Regional Distribution Companies. UES controls the bulk of national power sector, including 72% of generation capacity and 96% of transmission grids! 43

44 As a holding company that owns controlling stakes (49%-100%) in 73 regional vertically integrated energy companies and 44 Federal power plants (of which 8 are under construction), 100% in Federal Grid Company (FGC) and 100% in System Operator - Centralized Dispatching Administration. (SO- CDA). From the beginning of 2002 the Company is in the process of reforming. The regional companies operationally retain roughly 135 GW of capacity, including about 65 GW of CHP plants and 30 GW of smaller thermal and hydro plants. The complicated ownership and operational relationship between them is in part due to tradeoffsthe regulated electricity prices in Russia are now as low as half of some European countries' wholesale rates, largely due to national cheap gas Ukraine Market privatization The energy sector is of key importance for the national economic development, as both production and municipal facilities require electric power for their operation. The energy sector peculiarity is that the technological equipment and primary generators of electric energy are separated from consumers. As a result, power generation, transmission and distribution have become separate industries. Large energy operations have been established in Ukraine, such as Donbasenergo, Dniproenergo, Kharkivenergo, Vinnytsyaenergo, Lvivenergo, Odesaenergo and Crimeaenergo, which in conjunction with other oblast energy companies make up the Power Grid of Ukraine. The latter is connected with power systems of Western and Central European countries, as well as the CIS countries, including primarily Russia, Moldova and Belarus. The sector restructuring shows itself in separation of generating companies from power supply network companies, which favours commercialization of the energy market of Ukraine. Power resources of Ukraine are mainly formed by domestic generation capacities of nearly 98%, with the import share being insignificant (2%). The power is largely consumed inside the country (97%), with just a small part exported (3%). Generation The total installed capacity of Ukrainian power plants in 2003 exceeds 52 GW including 34,8 GW (66%) at thermal plants, 13,2 GW (25%) at nuclear plants and 4,8 GW (9%) at hydroelectric plants and therewith is Ukraine's power sector the twelfth largest in the world in terms of installed capacity. A large share of primary energy supply in Ukraine comes from the country's uranium and substantial coal resources. The other energy resources, like oil and gas are mostly imported from Russia. Ukraine is heavily dependent on nuclear energy with a large share of electricity generating in country's 15 reactors. The rest of electricity comes from substantial coal resources. Its nuclear industry still depends on Russia which provides required nuclear fuel and services. Nuclear energy development started in 1970 with construction of the Chernobyl power plant, the first unit being commissioned in This was the only RBMK old soviet type of reactors in the country. Unit 4 was destroyed in the 1986 accident, unit 2 was shut down after a turbine hall fire in In 1997, after twenty years unit 1 was closed and due to international pressure the Ukraine closed the last unit 3 at the end of

45 Today are nuclear power plants operated by Energoatom, the country's nuclear power utility. In 2003 they operated with a steadily increased load factor from 78.6% and produced 81,5 TWh of electricity which is 51% of the country's total electricity production. Table 6.4. Nuclear reactors in Ukraine (*in commercial operation) Reactor Type V=PWR Capacity [MW] net Start* Khmelnitski-1 V Aug 1988 Khmelnitski-2 V end 2004 Rovno-1 V Sep 1981 Rovno-2 V Jul 1982 Rovno-3 V May 1987 Rovno-4 V end 2004 South Ukraine-1 V Oct 1983 South Ukraine-2 V Apr 1985 South Ukraine-3 V Dec 1989 Zaporozhe-1 V Dec 1985 Zaporozhe-2 V Feb 1986 Zaporozhe-3 V Mar 1987 Zaporozhe-4 V Apr 1988 Zaporozhe-5 V Oct 1989 Zaporozhe-6 V Sep 1996 Total (15) 13,168 MW At the end of 1995 Zaporozhe unit 6 was connected to the grid making Zaporozhe the largest nuclear power station in Europe, with a net capacity of 5718 MW. Two new nuclear reactors Khmelnitsky-2 and Rovno-4 were connected in August and October 2004 to the grid, adding 1900 MW and bringing their long and interrupted construction to an end. Construction of these reactors was begun under the Soviet Union, and both were more than 80% finished when Ukraine received its independence but he ran out of money to complete the construction. They were completed by Energoatom using a consortium of French utility Framatome and Atomstroyexport. Also the third reactor Khmelnitski 3 is under construction. The Table shows the proposed projects for 3 new nuclear reactors which currently be stalled. Table 6.5. Proposed projects for nuclear reactors Reactor TypeV=PWR Capacity [MW] net Start due Khmelnitski 3 V stalled Khmelnitski 4 V stalled South Ukraine 4 V stalled Because of his geographical position is the Ukrainian electricity market of vital importance for the European Union as a critical transit path for exports of Russian oil and natural gas to Europe goes across this country. 45

46 7 Perspectives for electricity prices After liberalisation the electricity markets are opened for free trading with electricity. As a result of the liberalization process utilities had to change their behaviour, selling their electricity at marginal costs and not at average costs as in the past. Therefore, places at which electricity is traded - so called spot markets get more and more important. Because the electricity price and costs of electricity generation is certainly one of very important conditions to accept a power plant project, such spot markets serve as price indicators for electricity tariffs charged by suppliers. We can deduce that electricity price is very important for future investments in new generation and transmission capacity. Since July 2000 in Poland exists a spot market, the Poland Power Exchage- Polpx which is run by Gielda Energii SA. Since most electricity produced is sold under long-term power purchase agreement the trading volumes are currently limited to about 1% of generation. There is a still lack of any real price competition between generators. Figure 7.1 depicts the current wholesale electricity price levels in some EU 15 and some EU 10+ countries. As can be seen currently the difference within EU 15 is bigger than between e.g Germany/Austria and Czech Republic/ Poland /MWh Jän.01 Mär.01 Mai.01 Jul.01 Sep.01 Nov.01 Jän.02 Mär.02 Mai.02 Jul.02 Sep.02 Nov.02 Jän.03 Mär.03 Mai.03 Jul.03 Sep.03 Nov.03 Jän.04 Mär.04 Mai.04 Jul.04 Sep.04 Nov.04 Jän.05 Mär.05 EXAA (Average, all days of a month) PolPX (Monthly Average) EEX Phelix Base Figure 7.1. Comparison of wholesale electricity price levels in some EU 15 and some EU 10+ countries; Source: own database Supported by the government, the Slovenian power exchange Borzen took initiative for becoming a regional market of southeast Europe. In April 2004 Borzen also set up the Wood Biomass Exchange. The total volume of trading in 2004 reached 281 GWh, which is 2,22% of the 46

47 total national consumption in Although the volumes decreased for a little, the prices in 2004 were on the other hand more stable than in Figure 7.2 gives a comparison of wholesale electricity price levels in some EU 15 and some EU 10+ countries in 2003 and corresponding transmission bottlenecks in Europe. As can be seen different markets exist separated by transmission constrains. Bottlenecks Market Separation Average wholesale electricity price 2003 [ /MWh] 37 32, , , ,3 53 Figure 7.2. Comparison of wholesale electricity price levels in some EU 15 and some EU 10+ countries and corresponding transmission bottlenecks The Federal (all-russian) Wholesale Electric Power and Wattage Market (FOREM) is an exchange place for electric power (wattage) in the framework of UES of Russia within the borders of the Russian economic area. Participating in this are major producers and major purchasers of electric power obtaining the status of the wholesale market entities and operating on the basis of the wholesale market rules. Figure 7.3 shows the volume and price developments in Russian wholesale power market for the period from 2003 until Over this period, the weighted average price level has doubled from about 250 to 560 ruble/mwh. That was about 8 /MWh in 2003 and 15,6 /MWh in April 2005 (considering the exchange rate from April 2005 of 1 = 0,0278 rubel). 47

48 Figure 7.3. Volume and electricity price in Russian power market ( ); Source: ATS 48

49 8 Transmission issues Of course, even if there are some considerable excess capacities in some countries it is also necessary to transport the electricity to Western Europe. The Figure shows the electricity exchange between the countries in the enlarged Europe and candidate countries in the 2 nd UCTE synchronous zone. The arrows show direction and energy transported in the year As can be seen, France is the biggest net exporter among EU-25 with balance of electricity exchange (i.e. export-import) of almost 66,7 TWh followed by Czech Republic with 16,2 TWh and Poland with 10,2 TWh. With growing import balance is still Italy with 51 TWh followed by Netherlands and Hungary with 17 TWh and 7 TWh respectively. 1 st synchronous UCTE zone 2 nd synchronous UCTE zone Physical electricity exchanges in 2003 [GWh] Source: UCTE Figure Electricity exchange in the enlarged Europe in 2003; Source: UCTE The part of electricity exchanges in consumption reached in 2003 about 12, 8% or total sum of 299 TWh. However, the volume of these exchanges is limited by the transmission capacity between each national grid and its neighbours. Figure shows the generation and transmission capacity in EU-10+, candidate countries and south-east European countries. The thermal capacities or a real physical capacity (in MVA) of the line depends on the characteristics of the material and the ambient temperature (i.e. season). For instance they are higher in winter and lower in summer. However, due to the operating complexity of a European meshed network, the relation between commercial capacities and physical capacities is difficult. The interconnection capacity is defined by ETSO as Net Transfer Capacity (NTC). 49

50 % 90% 80% 70% [GW] % Estonia 100% 50% 10% 23% 37% 38% 68% 12% 16% 20% 7% 55% 45% 28% 25% Latvia Lithuania Poland Czech R Slovakia Hungary Slovenia Greece Romania Bulgaria Turkey Croatia Bosnia Serbia&Mon Installed generation capacity Import capacity (NTC) Import capacity as % of installed capacity Albania 60% 50% 40% 30% 20% 10% 0% Figure Transmission and generation capacity in EU-10+ and CC; Source: EU 2005 The Figure shows the import und export electricity balance within Europe in a winter day in January The countries depicted in green colour are net exporters and countries in red are net importers. Net Export Countries E = Export balance [MW] Net Import Countries I = Import balance [MW] Baltic Countries E=776 Ukraine E=466 P I=204 BG E=877 GR I=330 Figure Net export and import countries with export/import balance in January 2004; Source: UCTE

51 Table 8.1 shows present situation and development of transmission capacity (NTC), physical flows and maximal possible (theoretical) annual energy flows between some European countries in period from 2005 up to Table 8.1. Development of transmission capacity and physically flows ; Source: ETSO, UCTE 2005 Winter Summer NTC % NTC* power power [GWh] [GWh] [MW] used [MW] flow max. flow max. Ist max [MW] [MW] [GWh] max POL - CZ , POL - DE , DE - POL , POL - SK , POL - SW , DE - CZ , CZ - DE , AT - CZ , CZ -AT , AT - HU , SK - HU , SLO - IT , The Net Transfer Capacity (NTC) indicative values published by ETSO for winter 2004/5 are used as a reference. These have been computed by extrapolation from standard situations, in order to evaluate the transfer capacity through a single interface at the same time. We used data of physical power flows given by UCTE for the winter and summer season However, as the transfer capacity is not available for all borders and because of high uncertainties in future development some values are estimated (NTC*). 8.1 Cross-border congestions in south-eastern Europe In the liberalized market, making the assumption of perfect competition, electricity price should be equal to marginal production costs. Limited transmission capacities linking regions with different marginal costs prevent the prices in the adjacent regions to converge and there is still big difference in the price level between various European geographic regions. Because the transmission lines were not projected for electricity trading in such an extent, the power grid is reaching his limit on some locations. On these locations comes to congestion in transmission grid. The Figure 8.4 depicts presently existing major congested locations within enlarged Europe with arrows showing directions. 51

52 Bottlenecks Market Separation Figure 8.4. Presently existing major bottlenecks within enlarged Europe Cross-border lines to Italy, Austria, Poland, Czech Republic, and Hungary face the most critical congestions but very frequent congestions are also observed on the transmission lines in Germany and Slovenia. From the methods used for capacity allocation are the auctions of crossborder lines more and more developed. In the liberalized markets the transmission capacities between regions play not only the role of transporting energy and equalizing price but also the role of threatening competitors and therefore promoting competition [12]. After thirteen years of separation of UCTE in 2 synchronous zones due to damaged grid infrastructure in ex-yugoslavia the electricity grid is on 10 October 2004 physically connected. This re-connection comes at a propitious moment as the EU moves to re-integrate south-east European regional electricity markets with the energy markets of EU-25. The highly meshed European network significantly influences the region and the power flows through the transmission networks of the south-east European countries. The countries representing the first synchronous zone in SETSO are: Austria, Italy, Hungary, Slovenia, Croatia and western part of Bosnia and Herzegovina. Also allocation of the production and the consumption cause significant amount of the loop flows in the direction from the north - east of Europe to the West of Europe, mostly on the cross-border lines to Italy. This loop flow causes the additional congestions on the already congested borders. Austria The most congested borders are on the transmission lines between Austria and Czech Republic, then Austria and Hungary, Austria and Slovenia and Austria and Italy, while on the interconnections to Germany and Switzerland there are no congestions. 52

53 There are still no transmission lines between Austria and neighbouring Slovakia. The bottleneck on the internal north-south 220 kv lines is one of the most significant problems in Austrian network. Figure Cross-border congestions in south-eastern Europe (I); Source: ETSO Bosnia and Herzegovina (western part) Tie-lines between Croatia and northern part of Bosnia and Herzegovina are congested because of the significant production in the northern part of Bosnia and Herzegovina, significant consumption in the North - Eastern part of Croatia and weak connection of this part of Croatia to the other parts of Croatia. Croatia The most congested border is the border between Hungary and Croatia. The loop flow from northern part of Europe to Italy is the main reason for the mentioned congestions. Also the allocation of the production and consumption in Croatia causes internal congestions in the Adriatic link. Hungary. The already mentioned loop flows are causing huge amounts of unplanned transits through the Hungarian network. The transmission lines between Slovakia and Hungary, Austria and Hungary, and Croatia and Hungary are congested. Italy Between Austria and Italy is only one 220 kv line with the declared net transfer capacity of 220 MW and therefore is that the one of the most congested links. Congested interconnection lines are also on the borders between Slovenia and Italy connected with one 400 and one 220 kv line. Because of imports coming from France there is the congestion on the border between Switzerland and Italy. Some internal congestion can occur in the eastern part of Italy as well as in the central part of northern Italy. Slovenia Transmission lines in Slovenia are influenced by loop flow from Hungary and Croatia and also by loop flow from Austria. Both loop flows are causing the congestions on the tie-lines of Slovenian 53

54 network especially on the tie-lines between Italy and Slovenia. The congestions are also on the tielines between Austria and Slovenia, while the border between Croatia and Slovenia is not critical since there are three 400 kv lines, two 220 kv lines and three 110 kv lines between Croatia and Slovenia. 8.2 Cross-border congestions between UCTE and Turkey Up to November 2004 the Electric Power Systems (EPS) of Albania, Bosnia-Herzegovina (eastern part), Bulgaria, FYR of Macedonia, Greece, Romania and Serbia&Montenegro operate synchronously within the UCTE synchronous zone. The EPS of Turkey operates at the present moment separately of any other power system. Summarizing the congestion situation in the UCTE synchronous zone it has to be stressed that the majority of the congestions are caused by cross border exchanges. It must to be pointed that the congestions from north to south are interdependent. At the time there are no capacity allocation methods in south-eastern European countries, The exception is the DC cable connecting Greek and Italian power systems where the pro rata (50:50) allocation method is used. Albania Because of huge amount of importing electricity the cross-border congestions are on the 220 kv tie-lines between Albania and Serbia&Montenegro. There is also the congestion on the 400 kv tie-line between Albania and Greece in direction from Greece to Albania. Practically all tie-lines between Albanian power system and it's neighbouring power systems are congested. There are also internal congestions on 220 kv lines between south and north part of Albanian power system. Bosnia and Herzegovina (eastern part) There are congestions on 110 kv tie-lines between BiH and power system of Serbia. The 220 kv and 400 kv tie-lines between BiH and Serbia&Montenegro are not congested. There are also internal congestions on 110 kv and 220 kv lines in the power system of the eastern part of Bosnia and Herzegovina. Bulgaria The 400 kv tie-lines between Bulgarian and Romanian power systems are not congested, but the 400 kv transmission line between Bulgarian and Greek power systems is congested. There is no congestion on the 400 kv interconnection between Bulgarian and Serbian power system and also the internal lines of Bulgarian power system are not congested. FYR of Macedonia There are congestions on the 400 kv transmission line between FYR Macedonia and Serbia and on the 400 kv transmission line between FYR Macedonia and Greece. Greece Congestions appear on the 400 kv tie-lines connecting Greek power system to the power systems of Bulgaria and FYR Macedonia. There is no congestion on the 400 kv transmission line between Greek power system and Albanian power system in direction from Albania to Greece. There is congestion on the DC cable connecting Greek and Italian power systems. Also internal congestions appear on the 400 kv line connecting Thessaloniki and Philippi in the north part of Greek power system and on a 400 kv lines in Athens area. 54

55 Figure 8.6. Cross-border congestions in south-eastern Europe: congestions between UCTE and Turkey; Source: ETSO Romania There are no congestions on the 400 kv interconnection lines of Romanian power system to Bulgarian and Serbian power systems. There are internal congestions on 220 kv and 400 kv connections between north and south part of Romanian power system. Serbia and Montenegro There is congestion on the 400 kv transmission line on the border between Serbia&Montenegro towards FYR of Macedonia, which is very interdependent with the situation on the Bulgarian-Greek 400 kv interface. This congestion(s) are mainly caused by the significant imports of Greece, FYR Macedonia and Albania. As already mentioned, the 220 kv links from Serbia&Montenegro and Albania are congested and also on the 110 kv lines towards BiH. There are internal congestions on the 220 kv lines TENT- B. Basta, 400/220 kv transformer at Nis, which is partly cross-border influenced and also on the links between Serbian and power system of Montenegro. Turkey There are internal congestions on one 154 kv line and on one 400/154 kv transformer in the European part of Turkish EPS. 55

56 8.3 Perspectives for future interconnection of EU and Russia The growing number of electricity outages in the last years is beginning to concern European citizens and industry indicating the importance of improving transmission grid. The transmission system upgrades are aimed at covering a sharp increase in demand in certain regions or improving the reliability and quality of supply. The missing transmission connections between Russian power system and European UCTE grid has been seen as a hurdle on the way to cooperation between EU- 25 and Russia. Within the framework of the Energy dialogue between EU and Russia the Russia started an initiative concerning a possible future synchronous interconnection of UCTE and IPS/UPS. Synchronous interconnection UCTE with the IPS/UPS system Biggest World Electricity Market or new regional markets? Projected congestions Delimitation of areas IPS/UPS system 48% 100 % UCTE System 23% 17% 5 % Figure 8.7. Predicted congestions after reconnection of Russian transmission system IPS/UPS to UCTE; Source: UCTE European Union and Russian power sector are searching for the best way to connect their electricity grids by 2007, creating a huge power market from Spain to Siberia. Russia plans to rescind price controls on electricity after 2006, while the European Union is to open its power markets in UES has seized on blackouts in northern Europe and Italy to tout grid synchronisation, saying it would provide backup grid and generation capacity for both Russia and Western Europe in case of accidents. The East-West transfer is strongly limited by the existing congestions within UCTE, especially in the case of exports from IPS/UPS into UCTE regions, which currently are already importing regions. Existing bottlenecks are more heavily loaded mainly in Austria, Czech Republic, Germany, Italy and Serbia. Even in the most favourable case regarding optimal usage of transmission capacities where the new import from UPS/IPS would replace generation located in the present exporting areas the amount of exports from IPS/UPS to UCTE would be limited below MW. The Figure 8.7 shows the percentage of power flows and predicted congestions (in black) after reconnection of Russian transmission system to UCTE. An additional Balkan case was investigated with relative short-distance power flows from Russian power grid. According UCTE feasibility study for this short-distance transfer from 56

57 IPS/UPS to the Balkan area, higher transfers towards Europe can be realised. The load-flows are limited by around MW in both cases through congestions in the networks of Austria, the Czech Republic and Poland. According the analysis for potential electricity transfers from Russian power system via polish grid to Germany the available hourly transfer capabilities are projected to be much larger along the central path, at times exceeding MW. The projected transfer capability of southern part is around 1600 MW and northern path, on the other side, is often at or near its defined transmission transfer capability. Figure 8.8. Projected transfer capabilities of polish grid for electricity transfer from Russia to Germany; Source: Argonne National Laboratory A question of major interest is how concentration in the electricity generation sector will evolve in an enlarged Europe. As can be seen from Figure 8.9 additional large players from Poland, Czech Republic, Ukraine, Baltic countries and Russia have entered the market. Perspectives Market Concentration Installed capacity of 14 major utilities in EU- 25+ CC, Russia & Ukraine [GW] UES of Russia EdF Russia rest* ENEL Major utilities in EU-25+ CC, Russia & Ukraine in 2003 RWE E.On PSE Poland Vatenfall Europe Endesa Electrabel CEZ Ukraine Energoatom Baltic IPS EnBW Slovenske Elektrane Hungary MVM Figure 8.9. Comparison of major generation utilities in the enlarged Europe 57