BETTER. D4.2: Future Prospects for Renewable Energy sources in the West Balkan countries

Transcription

1 Bringing Europe and Third countries closer together through renewable Energies BETTER D4.2: Future Prospects for Renewable Energy sources in the West Balkan countries Project Coordinator: CIEMAT Work Package 4 Leader Organization: JR December 2013

2 Project Acronym: BETTER Bringing Europe and Third countries closer together through renewable Energies D4.2: Future Prospects for Renewable Energy sources in the West Balkan countries December2013 Project Coordinator: CIEMAT Work Package 4 Leader Organization: JR Authors: Andreas Tuerk (JR), Dorian Frieden (JR), Daniel Steiner (JR), Robert Pasicko (UNDP) Zoran Kordic (UNDP), Chara Karakosta (NTUA) Disclaimer: The sole responsibility for the content of this report lies with the authors. It does not necessarily reflect the opinion of the European Union. Neither the EACI nor the European Commission are responsible for any use that may be made of the information contained therein. D4.2: Future Prospects for Renewable Energy sources in the West Balkan countries Page 2

3 PREFACE BETTER intends to address RES cooperation between the EU and third countries. The RES Directive allows Member States to cooperate with third countries to achieve their 2020 RES targets in a more cost efficient way. The core objective of BETTER is to assess, through case studies, stakeholders involvement and integrated analysis, to what extent this cooperation can help Europe achieve its RES targets in 2020 and beyond, trigger the deployment of RES electricity projects in third countries and create win-win circumstances for all involved parties. The case studies focusing on North Africa, the Western Balkans and Turkey will investigate the technical, socio-economic and environmental aspects of RES cooperation. Additionally, an integrated assessment will be undertaken from the EU plus third countries perspective, including a quantitative cost-benefit evaluation of feasible policy approaches as well as strategic power system analyses. Impacts on the achievement of EU climate targets, energy security, and macro-economic aspects will be also analysed. The strong involvement of all relevant stakeholders will enable a more thorough understanding of the variables at play, an identification and prioritisation of necessary policy prerequisites. The dissemination strategy lays a special emphasis on reaching European-wide actors and stakeholders, well, beyond the target area region. PROJECT PARTNERS N o Participant name Short Name Country code CO1 Centro de Investigaciones Energéticas, Tecnológicas y Medioambientales CIEMAT ES CB2 German Aerospace Center (Deutsches Zentrum für Luft- und Raumfahrt e.v.) DLR DE CB3 Energy Research Centre of the Netherlands ECN NL CB4 JOANNEUM RESEARCH Forschungsgesellschaft mbh JR AT CB5 National Technical University of Athens NTUA GR CB6 Observatoire Mediterranéen de l Energie OME FR CB7 Potsdam Institute for Climate Impact Research PIK DE CB8 Vienna University of Technology TUWIEN AT CB9 United Nations Development Program UNDP HR D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 3

4 TABLE OF CONTENTS 1 INTRODUCTION 9 2 FUTURE FRAMEWORK DEVELOPMENT OF THE ENERGY SECTOR AND RENEWABLE ENERGY IN THE WESTERN BALKANS THE POLITICAL FRAMEWORK THE INSTITUTIONAL AND REGULATORY FRAMEWORK THE ECONOMIC FRAMEWORK THE SOCIAL FRAMEWORK THE ENVIRONMENTAL FRAMEWORK THE REGIONAL DIMENSION OF THE ENERGY SYSTEM 19 3 GRID DEVELOPMENT PLANS IN THE WESTERN BALKANS INTRODUCTION EMERGING CORRIDORS 20 4 ALBANIA RES POLICY TARGETS ASSESSMENT OF THE ENERGY SYSTEM INTRODUCTION RENEWABLE ENERGY POTENTIALS ELECRICITY DEMAND DEVELOPMENT IN ALBANIA FRAMEWORK DEVELOPMENT EXPECTATIONS SUMMARY ON LIKELY RES PATHWAYS 27 5 BOSNIA AND HERZEGOVINA RES POLICY TARGETS ASSESSMENT OF THE ENERGY SYSTEM INTRODUCTION RENEWABLE ENERGY POTENTIALS ELECTRICITY DEMAND DEVELOPMENT IN BOSNIA AND HERZEGOVINA FRAMEWORK DEVELOPMENT EXPECTATIONS SUMMARY ON LIKELY RES PATHWAYS 32 6 CROATIA RES POLICY TARGETS ASSESSMENT OF THE ENERGY SYSTEM INTRODUCTION RENEWABLE ENERGY POTENTIALS ELECTRICITY DEMAND DEVELOPMENT IN CROATIA FRAMEWORK DEVELOPMENT EXPECTATIONS SUMMARY ON LIKELY RES PATHWAYS 36 7 FYRO MACEDONIA RES POLICY TARGETS ASSESSMENT OF THE ENERGY SYSTEM 37 D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 4

5 7.2.1 INTRODUCTION RENEWABLE ENERGY POTENTIALS AND COSTS ELECTRICITY DEMAND DEVELOPMENT IN FYROM FRAMEWORK DEVELOPMENT EXPECTATIONS SUMMARY ON LIKELY RES PATHWAYS 39 8 KOSOVO* RES POLICY TARGETS ASSESSMENT OF THE ENERGY SYSTEM INTRODUCTION RENEWABLE ENERGY POTENTIALS ELECTRICITY DEMAND DEVELOPMENT IN KOSOVO* FRAMEWORK DEVELOPMENT EXPECTATIONS SUMMARY ON LIKELY RES PATHWAYS 44 9 MONTENEGRO RES POLICY TARGETS ASSESSMENT OF THE ENERGY SYSTEM INTRODUCTION RENEWABLE ENERGY POTENTIALS ELECTRICITY DEMAND DEVELOPMENT IN MONTENEGRO FRAMEWORK DEVELOPMENT EXPECTATIONS SUMMARY ON LIKELY RES PATHWAYS SERBIA RES POLICY TARGETS ASSESSMENT OF THE ENERGY SYSTEM INTRODUCTION RENEWABLE ENERGY POTENTIALS ELECTRICITY DEMAND DEVELOPMENT IN SERBIA FRAMEWORK DEVELOPMENT EXPECTATIONS SUMMARY ON LIKELY RES PATHWAYS THE POSSIBLE USE OF JOINT PROJECTS BY 2020 AND BEYOND OPPORTUNITIES FOR JOINT PROJECTS WITH EU COUNTRIES OPPORTUNITIES FOR JOINT PROJECTS AMONG THE WEST BALKAN COUNTRIES: JOINT EXPANSION OF HYDRO POWER IN THE REGION CONCLUSIONS SYNTHESIS ON RES PATHWAYS IN THE WESTERN BALKANS 56 ANNEX 1: RES INVESTMENT COSTS 58 REFERENCES 60 D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 5

6 LIST OF FIGURES Figure 1: PECI electricity generation projects (Energy Community, 2013b) Figure 2: Renewable technologies financed in SE Europe (EBRD, 2013) Figure 3: New planned coal and lignite plants in the Western Balkans (SEE Change net, 2013) Figure 4: PECI transmission projects (Energy Community, 2013) Figure 5: Hypothetical RES targets for Albania under several assumptions of future RES targets at EU level for 2030 and Figure 6: Renewable energy potential in Albania Figure 7: Final Energy Demand Scenarios for Albania Figure 8: Hypothetical RES targets for Bosnia and Herzegovina under several assumptions of future RES targets at EU level for 2030 and Figure 9: Renewable energy potential in Bosnia and Herzegovina Figure 10: Final Energy Demand Scenarios for Bosnia and Herzegovina Figure 11: Hypothetical RES targets for Croatia under several assumptions of future RES targets at EU level for 2030 and Figure 12: Renewable energy potentials in Croatia Figure 13: Final Energy Demand Scenarios for Croatia Figure 14: Hypothetical RES targets for FYRO Macedonia under several assumptions of future RES targets at EU level for 2030 and Figure 15: Renewable energy potentials and targets in FYROM Figure 16: Final Energy Demand Scenarios for FYRO Macedonia Figure 17: Hypothetical RES targets for Kosovo* under several assumptions of future RES targets at EU level for 2030 and Figure 18: Renewable energy potentials and targets in Kosovo* Figure 19: Final Energy demand scenarios for Kosovo* Figure 20: Hypothetical RES targets for Montenegro under several assumptions of future RES targets at EU level for 2030 and Figure 21: Renewable energy potentials and targets in Montenegro Figure 22: Final Energy Demand Scenarios for Montenegro Figure 23: Hypothetical RES targets for Serbia under several assumptions of future RES targets at EU level for 2030 and Figure 24: Renewable energy potentials and targets in Serbia Figure 25: Average wind power in Republic of Serbia (EMS, 2013) Figure 26: Final Energy Demand Scenarios for Serbia Figure 27: Investment costs in SHPPs power for Albania and Bosnia Figure 28: Investment costs in LHPPs power in the Western Balkans Figure 29: Investment costs in wind power LIST OF TABLES Table 1: RES share in 2009 and targets of the SEE countries (Energy Community) Table 2: Selected elements of the planned east west corridor and their rationale D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 6

7 GLOSSARY EnC ECT FIT GFEC HPP IPP NREAP PPA SEE SHHP TPP Energy Community Energy Community Treaty Feed-in tariff Gross Final Energy Consumption Hydro power plant Independent power producer National Renewable Energy Action Plan Power Purchase Agreement South East Europe Small hydro power plant Thermal power plant D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 7

8 EXECUTIVE SUMMARY All of the West Balkan countries have accepted binding RES targets under the Energy Community Treaty for 2020 and the Energy Community is promoting market opening, liberalization and regional cooperation. The speed of change however is slow. The markets in the region are far from being open and sufficiently attractive for investors. The regulatory frameworks are subject to continuous changes and the current market models lead to a lock-in of generation capacities by the incumbents that in practice are still government-owned quasi-monopolists. While the looming EU accession of some of the countries in the region may reduce the political risks, it will be of critical importance to carry out reforms that enable energy sectors to function according to market principles and strengthen the frameworks for regionalization of the energy sectors in order to meet the 2020 targets. Countries in the region have developed or are developing National Renewable Energy Action Plans (NREAPs), outlining their plans how to meet the 2020 targets set under the Energy Community Treaty. The (draft) NREAPs show that up to 2020 countries are mainly planning to invest in the renewable energy technologies they have the most experience with, in particular small and large hydro power. A few countries however have decided to invest in expansion of wind power (which in several countries may face grid or balancing restrictions) and/or solar heat. So far, there is almost no increase in solar electricity planned although there is a huge potential in the region. At the same time a significant expansion of new coal and lignite plants is planned in the Western Balkans, which will still be operating by 2050 and therefore may threaten countries' ability to comply with EU longterm decarbonisation and other environmental objectives. The most significant changes to the regional energy markets will result by the construction of two new undersea interconnection lines to Italy, one from Montenegro and one from Albania as well as the connection of Bosnia, Serbia, and Macedonia to these new corridors. Establishing an east-west electricity corridor through the Western Balkans will also require improvements in the internal electricity network of the countries. The new corridor via Serbia will include significant pump storage capacities in Western Serbia enabling the provision of large amounts of flexible electricity to the region but also for export to the EU. Export of electricity from renewables could enable to expand renewables far beyond what the countries would be able to expand themselves given current economic and network restrictions and may lead to an earlier deployment of currently not cost-efficient technologies. The new transmission corridors to Italy may stimulate also fossil fuel-based electricity generation due to higher electricity prices in Italy than in the Western Balkans. There are large concerns in the region however from energy experts and NGOs that a too strong focus on capacity expansion in particular of hydro and coal will lead to environmental damages and electricity exports may increase environmental pressures. The energy systems in the region currently face high inefficiencies and losses. Energy efficiency, including a far more efficient use of biomass, and reduced transmission losses as well as the implementation of small scale applications such as PV therefore are of high importance for the region and would put them in a better situation to export electricity. But also increased cooperation between the countries will be key for them to meet their 2020 and future targets in a cost-efficient way. Here the use of the cooperation mechanisms could be a starting point for an integration of energy systems in the region. The timeframe for realizing the new electricity corridors is unclear. While they are planned to be implemented in the upcoming years, some of them may face delays and be realistically implemented only after Therefore only few Joint Projects may be realized between the Western Balkans and the EU by 2020 if at all. Here clarity regarding the 2030 RES targets will be needed in order for countries such as Italy to engage in pilot activities by Even in absence of a 2030 RES target the Western Balkans may be an interesting region for Europe to import flexible power and assist decarbonising the European energy systems. D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 8

9 1 INTRODUCTION Aim of this report is to outline possible renewable energy pathways for the West Balkan countries up to 2020 and beyond. These take into account potentials and costs, 2020 RES targets, energy scenarios, grid expansion plans as well as possible political, institutional, regulatory, economic and social framework conditions. The report thereby gives a first assessment of the role of cooperation and cooperation mechanism in the region. While many of the challenges countries in the region have in common (Chapter 2 and Chapter 3), the report gives in-depth insights into the country-specific situations and pathways (Chapter 4-10) before providing a first assessment on the role of cooperation mechanisms (Chapter 11) and a comprehensive synthesis of RES pathways for the entire region (Chapter 12). 2 FUTURE FRAMEWORK DEVELOPMENT OF THE ENERGY SECTOR AND RENEWABLE ENERGY IN THE WESTERN BALKANS 2.1 THE POLITICAL FRAMEWORK Existing political framework The split up of Yugoslavia resulted in several new countries that had to build up economic, administrative and institutional structures. In the meantime all of the West Balkan countries have EU candidate status or are in negotiations for EU accession. Croatia entered the EU in July 2013, Montenegro is a candidate country with an on-going negotiation process, and Serbia is just starting the negotiation process. Albania, Bosnia and Herzegovina, Kosovo* 1 and Macedonia are candidate countries. The EU accession is regarded as a national priority for some of these countries and the transposition of the EU acquis into national legislation represents a process that is increasingly shaping the national legal framework and overall political, social and economic reality. The EU integration process is a highly complex process which involves the design and implementation of reforms in a wide range of areas. The experiences of new EU Member States as well as those currently in various phases of their EU integration process clearly indicate that working simultaneously in many areas and making decisions about complex political, economic, legal and institutional issues with longlasting consequences for the everyday life of citizens is far from an easy task (Mrak et al., 2008). In the energy sector the Energy Community Treaty is the most important political framework. The entire Western Balkan region has subscribed to the Energy Community Treaty (ECT). The objective of the ECT is to create a legal and economic framework in order to attract investment in power generation and networks, create an integrated energy market allowing for cross-border energy trade and integration with the EU market, enhance the security of supply, improve the environmental characteristics of the regional energy sector and enhance competition at regional level, exploiting economies of scale (EBRD, 2011). Under the ECT West Balkan countries are implementing the EU renewable energy directive and have adopted binding RES shares for The RES directive transposes the European target of a 20 % renewable energy share (RES) in gross final energy demand. It has set differentiated binding national targets for all EU Member States. Thus, the overall EU target of reaching a RES share of 20% in gross final energy demand is transposed to differenti- 1 This designation is without prejudice to positions on status, and is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo declaration of independence. D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 9

10 ated national targets based on a flat rate approach (same additional share for each country) modulated by the Member State s GDP. Additionally, the starting point is considered i.e. the status of RES deployment, as of 2005 for defining EU Member State targets (and as of 2009 for defining targets for Energy Community states). For the purpose of assessing a country s RES target achievement the approach how to calculate a country s RES share is based on the following formula. As the formula shows the RES target is a relative target and can be reached by a combination of RES capacity extension with reduction of final energy demand. Table 1: RES share in 2009 and targets of the SEE countries (Energy Community) Contracting Party Share of RES in 2009 Share of RES in 2020 Albania 31.2 % 38 % Bosnia and Herzegovina 34.0 % 40 % Croatia 12.6 % 20 % FYR of Macedonia 21.9 % 28 % Moldova 11.9 % 17 % Montenegro 26.3 % 33 % Serbia 21.2 % 27 % Ukraine 5.5 % 11 % Kosovo* 18.9 % 25 % While the adoption of such targets provides a first step towards renewable energy expansion, the Energy Community states in its Annual Implementation Report 2013 that none of the Contracting Parties have registered adequate progress in newly installed capacities in the last few years and that the indicative trajectories are at risk of not being met (Energy Community, 2013). For instance, most of the countries have no specific renewable energy law in place, and little experience with renewables and energy policies. The national targets under the RES directive and the Energy Community Treaty that used the same methodology have not been directly based on physical potentials but on existing renewable energy production and GDP. This has led to an unequal gap between national targets and (cost-effective) potentials. The RES directive therefore allows countries the use of cooperation mechanisms for reaching the national 2020 targets for renewable energy in a cost-effective manner. Countries with relatively expensive RES potentials can thereby meet their targets by purchasing RES shares from countries with relatively cheap RES potentials. The cooperation mechanisms provided in the RES directive are: D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 10

11 Statistical transfer: a (virtual) transfer of RES shares from a country, which has an excess of RES shares, to the receiving country. Joint projects between Member States (or with third countries) foresee transfer of RES shares from projects established in the selling country to the receiving country that financially supported them. Joint support schemes allow Member States to agree on a joint policy framework to offer support for the expansion of renewable energy production. Provisions for using the cooperation mechanisms in the Energy Community region Countries under the Energy Community Treaty can make use of all three mechanisms. The same conditions apply for Energy Community countries as for EU Member State countries if they make use of the mechanism among themselves, however different conditions apply if they use the mechanisms with one or more EU Member States as counterpart 2. In particular, a statistical transfer from one or more contracting party(parties) to one or more EU Member State(s) or a joint support scheme between one or more contacting party(parties) and one or more an EU Member State(s) need the approval of the ministerial council of the Energy Community. Statistical transfer can in this case only be undertaken under the condition that the energy statistics of the selling country meet specific standards and that the selling country s target achievement is not threatened by the transfer. This is different to statistical transfers between Member States or between contracting parties where the seller country is not hindered from transfers but needs to carry the consequences if transfers hinder the target achievement (European Commission, 2013). In case of joint projects between EU Member States and Energy Community Treaty contracting parties the same rules apply as for other third countries. A physical transfer of the involved electricity into the EU is required in order to count towards the target of a Member State 3. Expected political framework As described above, the ECT involves the adoption of the Renewable Energy Directive including corresponding targets. In addition, the ECT will lead to a step-wise adoption of the EU environmental acquis in relation to the energy sector. This includes, among others the Large Combustion Plants Directive which enters into force in 2017 for the ECT members. By the end of 2010 the EU Member States had to submit National Renewable Energy Action plans (NREAPs) demonstrating pathways and policies to meet their RES targets. Currently also the EnC contracting parties are developing NREAPs, of which some are in a final while others still in a draft stage. In the NREAPs, the states lay down the targets for electricity, heat and transport including the technologies they plan to use. They also must determine the trajectory they intend to follow in the years to come. The plans have to include detailed descriptions on the measures, policies and reforms to overcome the barriers in developing renewable energy. Ahead of the NREAPs, Contracting Parties had to publish forecast documents including the possible use of the cooperation mechanisms. Most countries have assigned bodies to manage a system of guarantees of origin (Energy 2 See Decision of the Energy Community Ministerial council 2012/04/MC-EnC on the implementation of Directive 2009/28/EC and amending Article 20 of the Energy Community Treaty 3 Ibid D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 11

12 Community, 2013). While such schemes remain to be implemented in almost all of the Contracting Parties, once operational, they may contribute credibility for international electricity trade, including for the use of the cooperation mechanisms. The Regional Energy Strategy and the PECI projects The Energy Community Ministerial Council endorsed the Energy Strategy of the Energy Community. The Strategy aims at giving an overview of the current situation and the possible future of the energy sector in the Energy Community, providing the framework for facilitating investments in the energy systems and at promoting energy security for the entire region (as well as for each Contracting Party). It strives both to integrate national priorities into a larger vision and also to highlight the opportunities for synergies which can help several Contracting Parties to minimize costs, allowing investment opportunities to be better exploited. The Regional Energy Strategy provides for an increase of renewables but also fossil fuel power generation, including the establishment of a gas infrastructure that could help countries to improve energy security, while reducing greenhouse gas emissions and other air pollutants. In the Western Balkans so far the gas infrastructure is under-developed (Albania, Kosovo* and Montenegro have no infrastructure). The Regional Energy Strategy also provides for improving the regulatory framework in the regions and aim to promote at regional trade. It plans to introduce common capacity allocation mechanisms (coordinated auctions), establish one or more power exchanges that cover all Energy Community Contracting Parties and implement price based market coupling, in line with the milestones defined in the Regional Action Plan for Market Integration in South East Europe with a view to join the single European Price Coupling mechanism no later than 2015 (Energy Community, 2012). Based on the Regional Energy strategy the Energy Community in 2013 defined and adopted the Projects of Energy Community Interest (PECIs) as key infrastructure projects, which will help countries to physically integrate their energy markets, enable them to diversify their energy sources and help to bring an end to the energy isolation some of them are facing. The PECI projects were selected in a manner that would create a common legal and regulatory framework for the energy markets and would allow trading energy across their borders. Its objective is the creation of a competitive integrated energy market between the Contracting Parties and their EU neighbors, and ultimately, its integration with the single EU energy market (Energy Community, 2013). D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 12

13 Figure 1: PECI electricity generation projects (Energy Community, 2013b) PECI projects are recommended to International Financing Institutions (IFIs) for prioritized financing. Among the PECI projects the power generating projects are fossil fuel based electricity and heat production, hydro power plants and a wind plant in Albania. Among the fossil fuel based electricity and heat generation plants there are several gas fired plants. This is an important departure from the plans of countries in the region to strongly increase lignite coal generation. Gas-fired power plants play an important role in balancing volatile renewable energy next to hydro power plants. The PECI projects also include the establishment of new gas pipelines as well as number of 400 kv transmission projects in the Western Balkans that match with existing or planned new generation capacity. 2.2 INSTITUTIONAL AND REGULATORY FRAMEWORK Existing framework Despite regional specifics, the characteristics, problems and challenges of the domestic market designs in the countries of the SEE region are rather similar. The regulatory frameworks are subject to continuous changes and the current market models lead to a lock-in of generation capacities by the incumbents that in practice are still government-owned quasi-monopolists (Energy Community, 2013). The markets are usually separated into a regulated and a non-regulated segment, with the latter consisting of only few industrial retail customers supplied by either regional traders or the local incumbent. The domestic supplier (a de-facto monopolist, or as in the case of Albania and Ukraine, a legal monopolist) will normally buy from traders only if domestic generation does not cover their demand. The bulk of domestic customers households and SMEs, and often also large industries that constitute this demand are supplied at regulated prices (Energy Community, 2013). D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 13

14 There is an absence of open market structures like power exchange, unbundled transmission and generation ownership, regulated third-party access and sufficient competition on supply and demand side. At the same time, the retail electricity prices are regulated tariffs which are kept artificially low through mandatory subsidies to the incumbent state-owned utilities. The revenues based on the regulated prices often can support neither the maintenance of the existing utilities or financing of new generation capacity, nor the upgrades to transmission network infrastructure needed to accommodate an increased share of variable renewable generation (UNECE 2010). Regulation of the price and volume of domestic generation in particular has brought many utilities to the verge of bankruptcy, discouraging investments and not allowing for the liquidity needed even to maintain the security of supply (Energy Community, 2013). In practice, the supplier often buys most of the electricity from the incumbent generation company. In many countries, they are part of the same vertically integrated and state-owned company. Most laws envisage full market opening by 2015, and formal eligibility is typically well-transposed. But in reality the larger share of. Administrative and legal barriers mostly include excessive bureaucratic obstacles, unnecessary complexity concerning permitting procedures, legal uncertainty due to changing legislation, lack of cooperation and lack of clear delineation of responsibility among various authorities, lack of transparency, long and complex procedures to obtain zoning and siting permits as well as unresolved property issues and other administrative problems. Also regulatory instability and discontinuity caused either by political instability in the country and/or frequent and uncoordinated updates and revisions of the current policy framework deter investors. Expected framework A major mission of the ECT is to reach liberalization of the energy market in the region including the facilitation of an access of external investors. This is still in the very early stage with most energy suppliers and grid operators still being government owned. However, first efforts to debundle at least parts of these companies were undertaken and it can be expected that market opening and liberalization will continue with progressing integration with the EU. To achieve the required changes in the energy sector is a complex undertaking. There are many new actors, often with unclear or insufficiently coordinated responsibilities and conflicting goals, facing a system that has a high inertia and is slow to adapt. Quick-fix solutions by authorities that often lack competences and coordination add to regulatory and legal uncertainty for investors. Existing legal frameworks and administrative practices still fall short of compliance with EU directives. Although these frameworks frequently fall short of ensuring the efficiency and transparency needed by investors in renewable energy projects, there are positive examples among the West Balkan countries in addressing all types of barriers to investment, such as a one-stop shop for permitting procedure recently established in Albania While the liberalization of the energy market may be of high importance in order to attract investors, the current systems are difficult to change in a short timeframe. In particular, electricity prices reflecting actual generation costs may cause major social problems if they are not combined with compensation mechanisms for the poorer parts of the population (see chapter on social framework below). Several of the international financing initiatives and corresponding funds also provide technical assistance, as well as assistance in institutional capacity building, providing consultancy support to improve weaknesses in the regulatory framework. While the looming EU accession of some of the countries in the region may reduce the political risks, sectoral reforms that enable energy sectors to D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 14

15 function according to market principles and strengthen the frameworks for regionalization will still be a slow and cumbersome transition process. 2.3 ECONOMIC FRAMEWORK Existing framework Most of the West Balkan countries are still in the phase of recovery from the Yugoslavia war while they were hit additionally by the financial crisis. The slow transformation of the energy sector reflects this development. Also, many renewable energy projects are capital-intensive and require large volumes of funds to be provided in advance of operations. This is a challenge, considering that a large share of the renewable energy markets in the Western Balkans are not sufficiently developed and are largely untested. Besides regulatory risks, the lack of adequate financing mechanisms for smaller renewable energy projects that might not seem bankable at a first glance is probably the greatest challenge. Feed-in tariffs exist in most countries in the region but often only small budgets are available for non-hydro technologies. Presently, there is a strong imbalance in the sources of financial means in the region. Investments and financing are more often attracted from donors than from the private sector. The perceived risks by the private sector often are high and reflected in high required internal rates of return and high costs of capital. As incumbent power companies are publicly owned, their investment decisions are constrained by public budget deficits, and are often lacking the financial means to engage in large scale investments. Private investors and lenders often do not trust the feed-in tariff s long-term reliability and sometimes have insufficient means to assess the risk of projects. International financing institutions have a high importance in the region often taking on part of the risks when lending to these countries. Also foreign private investors often cannot invest in the energy projects in these countries due to actual monopolies of the incumbent power utilities. In addition, there is a lack of experience of banks, project investors or local authorities to develop bankable renewable energy and energy efficiency projects. The region is also affected by the financial crisis and debt pricing remains high (EBRD, 2013). Despite the gaps in economic and political systems of the countries, an important reason for global investors to show general lack of interest in the region is also the small size of national markets. Fragmented national markets can hardly offer considerable economies of scale, so cross border cooperation is prioritized by all major stakeholders, including the EU, and IFIs. Such an approach could also contribute to creating a large enough market in the Western Balkans that should prove more attractive for private investors than the small individual markets as they currently are. International sources for funding Through specific facilities, the European Union, International Financial Institutions (IFI) and bilateral donors provide financing for energy efficiency and renewable energy related activities, for private and/or public sector clients. In March 2013 there were already 34 funds for energy efficiency and renewable energy project available (WBIF, 2013). The regional loan funds have the highest share (69%) followed by country funds. The vast majority of the financial facilities are aimed at the private sector and the most active loan facilities are those that package together loans, technical assistance and grants. Recently, given the need for the public sector to implement energy saving measures in order to meet the 2020 RES targets, new initiatives (both financing facilities and technical assistance programmes) have gained importance to assist the public sector, and in particular to support municipalities, in view of the large scope for energy efficiency. Specific efforts have been made in this respect by recently launched funds. Several of the funds also provide technical assistance and capaci- D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 15

16 ty building, as well as assistance in institutional capacity building, providing consultancy support to improve weaknesses in the regulatory framework. While the looming EU accession of some of the countries in the region may reduce the political risks, it will be of critical importance to carry out sector reforms that enable energy sectors to function according to market principles and strengthen the frameworks for regionalization in order to meet the 2020 targets. IFIs are assisting mainly hydro and wind deployment, e.g. the EBRD has a high share of wind projects in its portfolio. However there is only little support for solar energy projects (see Figure 2 below). The EBRD sees wind as the most cost effective technology (EBRD, 2013) given that it dosn t invest in large hydro. Figure 2: Renewable technologies financed in SE Europe (EBRD, 2013) Expected framework The economic framework for investing in renewables will significantly depend on improvement of the regulatory framework in the countries including sufficient and stable feeds-ins and on the overall economic development in the region. Only in Bosnia there is no expansion of RES other than hydro given the low fee-in tariffs. Additional sources of finance for energy projects could be generated by exporting electricity into the EU. Connecting the electricity markets of Italy and SEE region may enable new business cases for foreign investments in the region with opportunities of exporting energy surplus, may increase safety and efficiency of power system supply as well as transmission system security (Manduzio, 2009). In particular those technologies may benefit that are not targeted by domestic or international finance, such as renewable sites that are not economically attractive for the host countries, but still may be cost-efficient for the buyer country. The new interconnections to Italy however may also create new business cases for fossil based electricity generation. 2.4 SOCIAL FRAMEWORK Existing framework Energy and poverty in the Western Balkans are interrelated in complex ways. Various studies, including those of the UNDP (2004), estimate more than 16% of people in the West Balkan region are exposed to energy poverty, meaning they do not have access to sufficient energy services to ensure a healthy lifestyle for themselves and their families (IEA/UNDP, 2008). High energy consumption which is exacerbated by inadequate building insulation and low-efficiency appliances, particularly D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 16

17 stoves and boilers, contributes to pressure on the household budget of poorer segments of the population. An important increase of energy efficiency would be required to reduce the heavy share of energy products in the basket of basic household needs. Providing poor families with more energy-efficient devices, along with appropriate information and advice, could support other types of social assistance programmes. Given the difficult economic circumstances in the region and high unemployment, one of the main reasons for the serious impact of energy prices on the population is the fact that wasted energy in the region is so high. Kosovo* represents an extreme example with nearly 17% transmission and technical losses for electricity plus nearly 20% in commercial losses, but all countries are highly energy-intensive, with only Croatia coming close to the EU average (IEA/UNDP, 2008). Croatian energy use is 1.2 times the EU average for total primary energy supply intensity, while others in the region are around twice as energy-intensive as the EU average. In some countries like Montenegro and Macedonia, it is common to use electricity for space heating, an extremely inefficient way to use energy. Governments in the region use various tools to address the issue of energy poverty. Electricity prices in several countries of the region are very low, facilitating access to energy services but distorting the operation of the energy market. Expected framework Price rises per unit have already gradually taking place across the region due to market liberalization and commercialization processes. Combined with already high bills resulting from wasted energy, this has resulted in public protests, such as in Montenegro. The integration of the Balkans energy system with the EU energy systems is likely to increase the electricity prices further and may lead to higher energy poverty. Vulnerable consumers would need to be protected (Energy Community, 2013a). The Western Balkans therefore will try to keep on setting electricity prices at low levels in the short and mid-term. The risk of energy poverty could be reduced by more efficient use of energy. In several countries in the region, such as in Serbia, biomass is used in households for heating in very inefficient stoves. In winter, below a certain temperature, also electricity is used for heating because the biomass supply risks to be insufficient for the entire winter. A more efficient use of biomass could reduce the need to switch to electricity consumption and thus reduce electricity demand. 2.5 ENVIRONMENTAL FRAMEWORK Existing framework The Western Balkans countries are aiming to become members of the European Union and gradually harmonising their legislation with the EU acquis communautaire as well as adopting EU policy targets. This process is, however, taking place in a two-speed manner, with only some elements of EU policy and legislation, such as in the area of energy, being already implemented by most of the countries. Environmental legislation such as the Environmental Impact Directive have been transposed but are poorly implemented, while others, such as greenhouse gas emissions targets have not been adopted at all. Part of the environmental acquis is referred to in Article 16 of the Energy Community Treaty as relevant to the Contracting Parties. These are the: Environmental Impact Assessment Directive (85/337/EEC), Directive 1999/32/EC relating to the Reduction in the Sulphur Content of Certain Liquid Fuels, D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 17

18 Directive 2001/80/EC on the Limitation of Emissions of Certain Pollutants into the Air from Large Combustion Plants ( Large Combustion Plants Directive ), Article 4(2) of Directive 79/409/EEC on the conservation of wild birds, and Directive 96/61/EC concerning Integrated Pollution Prevention and Control (the IPPC Directive ) In addition, the European Commission suggested that parts of Directive 2010/75/EU on industrial emissions (integrated pollution prevention and control, IPPC) should also be included in the Energy Community environmental acquis as of 1 January 2018 for new plants and 1 January 2022 for existing plants. Under the ECT, the environmental acquis is applicable only to the extent that network energy (i.e. electricity, gas and oil) is concerned. As mentioned above, the large combustion plants directive needs to be implemented by the end of 2017; however there is the risk of construction of power plants not in line with this directive before that date requiring later retrofitting. Expected framework 6,195 MW of new coal and lignite plants are planned to be built in the Western Balkans, which will still be operating by 2050 and which may threaten countries' ability to comply with EU long-term decarbonisation and other environmental objectives 4, such as air pollution. In particular, the current absence of the entire environmental acquis as described above, may lead to investments in energy infrastructure not in line with standards mandatory in the future. Here the Energy Community s regional energy strategy aims to counteract by promoting the implementation of more environmentally benign gas-fired power plants. On the other side an expansion of fossil capacities, with domestic lignite available at very cheap prices is seen by the countries as only means to guarantee energy security at reasonable costs. In addition coal fired electricity production has a high public acceptance as it creates local jobs. Coal-fired power plants however are also planned for electricity exports. The region, except Croatia, so far has no binding CO 2 emissions targets, such targets are expected to be set upon their entry into the European Union, for several countries in the region still a decade ahead. But also other environmental objectives may be in danger if the countries continue to invest mainly in conventional technologies including large hydro. There are huge concerns in the region from NGOs that hydroelectricity expansion will endanger biodiversity. 4 A share of these plants serve to replace old fossil plants which are at the end of their operation period. D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 18

19 Figure 3: New planned coal and lignite plants in the Western Balkans (CEE Bankwatch, 2013) In order to reduce the need for capacity expansion, energy efficiency will need to play a major role. In addition, after the split up of Yugoslavia, every country is building its own peak capacities. A closer integration of the grids, as envisaged, may also reduce the need for primarily generation-capacity oriented developments. This is, however, a long way to go and the replacement/expansion of fossilfuel based electricity generation in the years to come seems to be partly unavoidable. While the Energy Community will set energy efficient targets for the countries in 2014, the countries have little experience with energy efficiency measures, and a possible lack of funding to implement these as well of financing models (there is e.g. no ESCO market in the region, expect in Croatia). Therefore there is the threat of a rising energy demand in the region. 2.6 THE REGIONAL DIMENSION OF THE ENERGY SYSTEM The current energy systems are in some of the West Balkan countries not the result of a planned optimisation process, but of the split up of the Yugoslavian energy system. Yugoslavia was a net exporter of electricity, now the region is a net importer with lower economic activity in most of the region than before While in Yugoslavia hydro plants were expanded in areas of large potential such as Bosnia, and coal in areas with coal reserves, and the generation was part of a single integrated energy system, the split up of Yugoslavia has left some countries with a lack of diversification of energy generation. Kosovo* for example today almost entirely relies on lignite electricity generation. This has important implications for RES expansion as some countries have no sufficient balancing options for volatile RES generation. Currently there is a lack of cooperation between countries in the region to commonly use shared water resources for hydro power or to share peak capacities in order to minimize the investments costs and to avoid over-dimension of new capacity. The lack of cooperation thus leads to large economic inefficiencies. D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 19

20 3 GRID DEVELOPMENT PLANS IN THE WESTERN BALKANS 3.1 INTRODUCTION While the networks in the former Yugoslavian countries are in most cases rather well connected, some system enhancements still are needed within the countries, partially to integrate renewables, such as wind, which poses various challenges to the operation of the grid as well. In addition, major new electricity corridors are planned. The region is already well connected to Greece with 400 kv lines from Greece to Albania and Macedonia. The most significant projects that will influence the regional energy markets are two new undersea interconnection lines to Italy, one from Montenegro and one from Albania. Establishing an east-west electricity corridor through the Western Balkans will require improvements in the internal network of the countries as well as in interconnection lines within the region. A third undersea cable is envisioned also between Croatia and Italy. While the European Commission defined Projects of Common Interest (PCIs), the Energy Community in 2013 defined and adopted so called Projects of Energy Community Interest (PECIs) as key infrastructure projects, which will help countries to physically integrate their energy markets, enable them to diversify their energy sources and help to bring an end to the energy isolation some of them are facing. Among the PECI projects are a number of 400 kv transmission projects in the Western Balkans. The PECI projects mainly focus on projects enabling regional cooperation and on some country internal grid enhancements to enable links to the emerging corridors. 3.2 EMERGING CORRIDORS In the following the PECI projects will be shortly discussed, other additional non-peci projects are planned, mainly upgrades of the internal grid capacities. Figure 4: PECI transmission projects (Energy Community, 2013) D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 20

21 Emerging (North) East- (South) West Corridors In order to establish an east west corridor through the Western Balkans the interconnection between Italy, Montenegro, Serbia and Bosnia and Herzegovina will be enhanced and connected to pump storage plants, most importantly in Bajina Basta in Western Serbia. In more detail the planned interconnection Italy-Montenegro will be complemented by a 400kV east west connection within Montenegro (ET017) and a new Montenegro-Serbia interconnection (ET002). New connections are planned between central Serbia (ET018, ET022, ET 021) and Bajina Basta and a new interconnection between Bajina Basta and Visegrad in Bosnia and Herzegovina. A double circuit OHL 400 kv SS Bajina Basta (Serbia) - SS Pljevlja (Montenegro) - SS Visegrad (BIH) will secure the supply for a large area and provide regional market integration and connection of pump storage. The connection of this circuit as part of the new east west corridor to Italy to a new pump storage facility of at least 700 MW (Bistrica) and the existing pump storage Bajina Basta with 2*300 MW will allow for an increased use of volatile RES from wind and solar energy in the region, and will facilitate a regional balancing market. Also a planned Macedonia-Albania interconnection (ET001) aims to strengthen the second east west corridor by increasing transfer capacity between countries in South East Europe and towards Italy. The new interconnection therefore will increase grid capability to transmit power from countries with surplus generation (BG and RO) towards Greece, FYRO Macedonia, Albania and Italy. The new Montenegro-Italy electricity interconnection In 2012 TERNA started a strategic partnership with the Montenegrinian TSO (CGES), and became minority shareholder with the State of Montenegro keeping the position of majority shareholder. In 2015 TERNA will build a new undersea interconnection from Montenegro to Italy (to the converter station of Tivat/Kotor included), estimated CAPEX about 760 M. CGES will construct the infrastructures necessary to allow in the mid-long term the functioning and the full utilization of the new Interconnection link and of the grid connections to the existing transmission network, estimated CAPEX about 100M (Mijuskovic, 2010). TERNA mentions as benefits for the Italian electricity system (Manduzio, 2009): Large and cheap energy resources, particular hydraulic and lignite, and a surplus of perspective electricity generation. High differences in electricity prices are expected The complementarities of the energy sources for electricity supply, mainly lignite reserves and hydroelectric potentials complementing oil and gas in Italy. Greater security and efficiency of supplies for the Italian electricity system, diversifying sources and increasing competitiveness in the Italian market. Montenegro already has existing connections with Bosnia-Herzegovina, Serbia, Kosovo* and through Serbia, with Bulgaria and Romania, thus enabling the possibility for electricity market operators to import electricity at lower costs as compared to the Italian market. Of all the Balkans which are a top priority for business growth Montenegro is the most important for TERNA because of its optimal location for the requirements of the Italian market and the availability of a transmission grid that is in good shape and well connected with the future production hubs of the region (Bosnia-Herzegovina, Serbia, Kosovo*, and via Serbia Bulgaria and Romania). D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 21

22 Emerging north-south corridor The north-south corridor is planned to be improved by connecting the north of Bosnia and Herzegovina with Croatia allowing electricity export to Slovenia and Italy. The project will strengthen the Croatian transmission grid along its main north-south axis allowing for additional long-distance power transfers from existing and new power plants (RES/wind and conventional/hydro and thermal) in the coastal parts of Croatia and Bosnia and Herzegovina to major consumption areas in Italy and north Croatia. Cross hedging Albania and Kosovo* Also a 400 kv new Kosovo*-Albania interconnection is planned (ET014), that will enable a cross hedging of the thermal power based electricity system in Kosovo* and the hydro power based system in Albania. There are also planned interregional transmission projects that are not classified as PECI projects but of high importance such as a new 400 kv line between the Kosovo* B lignite power plant and Skopje to support the major thermal power plant expansion of 2,000 MW but also to allow for renewable energy integration and improve security and reliability of system operation. Table 2: Selected elements of the planned east west corridor and their rationale Transmission line Planned implementation Rationale for the projects ET kv; Pljevlja Lastva (ME internal) 2016 Reinforcement of internal ME transmission network in order to support connection of HVDC link, connecting TPP Pljevlja to the east west corridor. ET 002-1: 400 kv; Visegrad (BiH) pump storage Bajina Basta (RS) ET 002-2: 400 kv ;pump storage B.Basta (RS) - Pljevlja (ME) 2017 Connecting BIH to the regional transit (incl. east west corridor). Enabling small hydropower plants to be built by the Italian investor Bosnia Hydropower Group on the Rzav river to export to Italy. After 2016 Interconnection between Serbia and Montenegro (east west corridor). In addition opportunity for the connection of pumped storage power plant of 700 MW enabling balancing of RES. ET 021: pump storage Bajina Basta- Obrenovac (both RS) 2018 Including Serbia s largest lignite power plant complex in the east west corridor ET 022: pump storage Bajina Basta-Kralijevo (both RS) 2018 Larger implementation of volatile RES from wind and solar energy in the Eastern Serbian, and facilitate regional balancing market. D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 22

23 ET 018 Kralijevo Kragujevac (both RS) 2016 Larger implementation of volatile RES from wind and solar energy in Eastern Serbian, and facilitate regional balancing market. ET 001: 400 kv; Bitola (MK) Elbasan (AL) Mid-term To transmit power from countries with surplus generation (BG and RO) towards GR, MK, AL and IT. Assist to the integration of the SEE European and Italian electricity markets. Bitola is Macedonia s largest TPP. Table 2 shows that the planned east west corridor will enable TPPs as well as additional RES to be traded in the region and to Italy, while adding additional pump storage capacities to balance volatile RES. The planned new grid connection will significantly change the regional energy market, allowing for more energy security, increased penetration of volatile RES and export of electricity. It will create new business model for renewables, but also for lignite production due to the export perspective and the electricity price differences between Italy and the Balkans. However, there is a risk of carbon leakage from Italy to the Balkans, which have no CO2 targets and fewer environmental obligations than EU countries before their EU accession. The planned implementation dates are all after 2016 towards There is the risk that some of them will not be functional by 2020 and therefore not available for Joint Projects for 2020 target achievement. The undersea cable between Italy and Montenegro or Albania has large transmission capacities and economically makes sense only if sufficient electricity is exported. As the Italy Montenegro cable will be built in 2014 strong delays in the regional grid corridor to Serbia, Bosnia and other SEE countries may trigger additional coal generation and export from Montenegro. D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 23

24 4 ALBANIA 4.1 RES POLICY TARGETS Albania has accepted a RES target of 38% by 2020 up from 31.2% in 2009 within the Energy Community Treaty and has in place a draft NREAP EU 2050 Diversified Supply Technologies EU 2050 Delayed CCS EU 2050 High Energy Efficiency EU 2050 Low Nuclear EU 2050 High Renewable Target under the Energy Community Treaty Target RES share of Albania [%] Figure 5: Hypothetical RES targets for Albania under several assumptions of future RES targets at EU level for 2030 and Figure 5 shows the binding 2020 RES target as well as hypothetical RES targets for Albania for 2030 and for 2050 under several assumptions regarding Europe s future energy system and related efforts to achieve a decarbonisation of that in the long term. The calculations were made using the same methodology as used by the European Commission for calculating national 2020 RES targets under the RES directive 2009/28/EC and different long-term energy scenarios aiming for a decarbonisation of Europe s energy system as presented in the EU Energy Roadmap The national EU 2020 renewables targets were set on the basis of the 2005 share (2009 for Energy Community parties) plus a flat-rate increase of 5.5 % per Member State (or Energy Community Party) as well as a GDP-weighted additional increase. The scenarios in the EU Energy Roadmap 2050 are defined in the following way: Diversified supply technologies: No technology is preferred; all energy sources can compete on a market basis with no specific support measures. Decarbonisation is driven by carbon pricing assuming public acceptance of both nuclear and Carbon Capture & Storage (CCS). Delayed CCS: Similar to Diversified supply technologies scenario but assuming that CCS is delayed, leading to higher shares for nuclear energy with decarbonisation driven by carbon prices rather than technology push. 5 The calculations were made in cooperation with the TU-Vienna 6 (EC, 2011: Energy Roadmap 2050, available from: D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 24

25 High Energy Efficiency: Political commitment to very high energy savings; it includes e.g. more stringent minimum requirements for appliances and new buildings; high renovation rates of existing buildings; establishment of energy savings obligations on energy utilities. This leads to a decrease in energy demand of 41% by 2050 as compared to the peaks in Low nuclear: Similar to Diversified supply technologies scenario but assuming that no new nuclear (besides reactors currently under construction) is being built resulting in a higher penetration of CCS (around 32% in power generation). High Renewable energy sources (RES): Strong support measures for RES leading to a very high share of RES in gross final energy consumption (75% in 2050) and a share of RES in electricity consumption reaching 97%. 4.2 ASSESSMENT OF THE ENERGY SYSTEM INTRODUCTION Albania has a great RES potential, but it is still unexploited. The country is known for its enormous hydropower potential and the majority of domestic power generation is provided by this energy source. Indeed, Hydroelectric Power Plants (HPPs) account for most of installed electricity generation capacity in Albania, with three large HPPs on the Drin River producing 88% of the country s total electricity generation capacity. An oil fired power plant was built but is not operational at the moment after public resistance due to air pollution. The vulnerability of the country s electricity generation due to hydrological conditions will be improved by a new 400 kv interconnection to Kosovo* that has an electricity generation based on lignite, thus allowing cross-hedging of the both country s electricity systems RENEWABLE ENERGY POTENTIALS Figure 6 shows the short and long term potential of Albania as well as the 2020 RES expansion plans (set by the NREAP). The NREAP provides a strong increase of RES heat, moderate increases of RES electricity and in total a rise of energy demand. Albania s electricity generation currently almost totally relies on hydro power and plans to expand this technology strongly up to 2020 exist. Other electricity generating technologies such as wind or biomass only play a small role even if large potentials are available. Albania also plans to strongly increase renewable heat that is currently provided by inefficient use of firewood including the introduction of solar water heating systems. Albania still has a higher wind potential than it will use for the 2020 target achievement. The wind potential is planned to be used for export to Italy as it cannot be absorbed by the Albanian grid nor balanced by Albania. In the long term the country has high hydro, wind, biomass and solar potentials. D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 25

26 GWh Biomass-H Solar-H Total heat (Geoth., Sol., Biom.) Wind Biomass-E Geothermal-E Solar-E Hydro small Hydro large ref NREAP 2020 eco.pot tech.pot. Figure 6: Renewable energy potential in Albania ELECRICITY DEMAND DEVELOPMENT IN ALBANIA Figure 7 shows energy demand scenarios developed for Albania up to A particular strong rise in demand is expected up to In the efficiency case the energy demand would peak in It can be seen that a 2020 forecast by the Energy Community (EnC) is slightly lower than our own GFEC efficiency scenario. 7 The economic potential as shown for 2020 takes into account the current economic framework without additional support as well as diffusion constraints and barriers D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 26

27 GWh GFCE reference scenario GFCE efficiency scenario EnC GFCE efficiency scenario H&C reference scenario H&C efficiency scenario Transport reference scenario Transport efficiency scenario Electricity previous consumption Electricity reference scenario Electricity efficiency scenario Figure 7: Final Energy Demand Scenarios for Albania FRAMEWORK DEVELOPMENT EXPECTATIONS IN THE MID- TO LONG-TERM Albania is EU candidate country. The accession process will importantly shape the political and institutional framework the energy system is embedded in. The Energy Community will continue to be a driver for market liberalisation and opening. Albania has a feed-in system in place for small hydro power plants up to 15 MW and tax exemptions for all renewables regarding equipment or fuel in the construction phase. Recently, the government of Albania tried to improve the legal and regulatory framework for the energy market. Albania has a new RES law in place since 2013, that defines priority producers as any producer producing electricity from renewable sources with an installed power of up to 15 MW for all installations built by the company, which benefits from (i) the feed-in tariff mechanism and (ii) who has signed the power purchase agreement (PPA) with the company obliged to purchase the electricity generated from renewable energy sources. The transmission and distribution of electricity generated from renewable sources by priority producers shall be guaranteed. The feed-in system recently was adopted. According to the law on renewables, the feed-in tariff for priority producers will be fixed for a period up to 15 years and not yearly changed as it was up to now. To improve the institutional setting Albania has established a national licensing centre by the power sector law to act as a one-stop-shop for all investors who won a tender for a concession or obtained an authorisation for construction pursuant to the existing laws. The permitting procedures can be expected to be easier in the future. The price regulation is expected to remain for certain consumer groups in the next years. 4.4 SUMMARY ON LIKELY RES PATHWAYS Albania plans to expand its hydro capacities, in particular small hydro, and a strong expansion of solar heating for domestic target achievement. As the country has no fossil capacities and the energy mix is not expected to be very diversified in the near future the country remains vulnerable to hy- 8 The energy scenarios were forecasted up to 2050 based on 2020 forecast (NREAP), considering trends, GDP and population changes. D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 27

28 drological conditions unless it establishes a 400kV line to Kosovo*. The wind capacities in the north of the country are expected to be significantly increased but planned to be exported to Italy via a new undersea cable that will be constructed after 2016, possible in the framework of Joint Projects. The undersea cable will put Albania in the position of an electricity transit country of electricity originating from Macedonia and Bulgaria. Albania has undertaken several policy reforms, mainly in compliance with its status of a candidate country to the European Union. From the economic point of view, the absence of public funding for projects and initiatives will remain an obstacle for the development of renewable energy projects and in particular for complementary energy efficiency measures that will be critical for the RES target achievement. D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 28

29 5 BOSNIA AND HERZEGOVINA 5.1 RES POLICY TARGETS Bosnia and Herzegovina has a 40% renewable energy target up from 33% in The country so far has no NREAP in place, but is expected to strongly increase its hydro power electricity generation. A lack of reliable and harmonized energy data complicates or prevents effective policy making further EU 2050 Diversified Supply Technologies EU 2050 Delayed CCS EU 2050 High Energy Efficiency EU 2050 Low Nuclear EU 2050 High Renewable Target under the Energy Community Treaty Target RES share of Bosnia and Herzegovina [%] Figure 8: Hypothetical RES targets for Bosnia and Herzegovina under several assumptions of future RES targets at EU level for 2030 and Figure 8 shows the binding 2020 RES target as well as hypothetical RES targets for Bosnia and Herzegovina for 2030 and for 2050 under several assumptions regarding Europe s future energy system and related efforts to achieve a decarbonisation of that in the long term. 5.2 ASSESSMENT OF THE ENERGY SYSTEM INTRODUCTION Coal and hydro power are the main sources of electricity generation in Bosnia and Herzegovina. Under the current economic conditions it is unlikely that the country will be able to significantly expand its wind potential. The feed-ins for wind are lower than in the other countries in the region and the regulators risk high. In Bosnia there are several foreign investors (e.g. the Canadian Reservoir Capital) that are interested to expand the country s hydro potential and export the electricity to Italy. The same however applies for additional coal power generation. 9 The calculations were made in cooperation with the TU-Vienna using the same methodology as used by the European Commission for calculating national 2020 RES targets under the RES directive 2009/28/EC and different long-term energy scenarios aiming for a decarbonisation of Europe s energy system as presented in the EU Energy Roadmap 2050 (EC, 2011: Energy Roadmap 2050, available from: D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 29

30 5.2.2 RENEWABLE ENERGY POTENTIALS Figure 9 shows that Bosnia and Herzegovina has a high hydro potential, it could be tripled in the long term. Bosnia and Herzegovina has a great biomass potential due to its large forest and quite developed wood processing industry (Karakosta et al., 2012). But also the wind potential is significant. Total wind potential in the country is estimated at 2,000 MW, of which approximately 600 MW is economically feasible (Karakosta et al., 2012). As far as geothermal power is concerned, it has not been explored thoroughly. Bosnia and Herzegovina currently not yet has an NREAP in place, outlining how it will meet its 2020 targets. GWh Biomass-H Solar-H Geothermal-H Wind Biomass-E Solar-E Geothermal-E Hydro small Hydro large ref eco.pot tech.pot. Figure 9: Renewable energy potential in Bosnia and Herzegovina ELECTRICITY DEMAND DEVELOPMENT IN BOSNIA AND HERZEGOVINA Figure 10 shows energy scenario developed for Bosnia and Herzegovina up to A significant rise in energy demand is expected in the coming years. 10 The economic potential as shown for 2020 takes into account the current economic framework without additional support as well as diffusion constraints and barriers D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 30

31 GWh GFCE reference scenario GFCE effciency scenario EnC GFCE efficiency scenario H&C reference scenario H&C efficiency scenario Electricity reference scenario Electricity efficiency scenario Electricity previous consumption Transport efficiency scenario Transport reference scenario Figure 10: Final Energy Demand Scenarios for Bosnia and Herzegovina FRAMEWORK DEVELOPMENT EXPECTATIONS From the economic and financial point of view, the comparatively low FIT for electricity from renewable energy sources is not sufficient for foreign investors to encourage substantial investments in the renewable energy projects (UNECE, 2009). Hydropower generation however is rather cheap in Bosnia and Herzegovina and can be expanded under current market conditions. Also it is difficult in Bosnia to get credits from banks for RES investments, domestic project developers therefore often partner with foreign investors. There is no change of the economic framework conditions to be expected in the upcoming years. Also the fragmentation, complexity and weakness of energy institutions and policies are likely to remain as they are part of a broader political problem of the country that consists of 2 state entities. So far there is no energy strategy on the national level and the country doesn t comply with several of the Energy Community agreements. This political situation is expected to remain in the upcoming years and will significantly hamper the development of a low carbon energy sector. The state entity Republica Srpska is a bit more advanced with energy policy provisions and has an energy strategy at the entity level as well as a rulebook on incentives, which defines benefits for grid connection and priority of grid access as incentive measures for RESelectricity generating facilities. There is a high political acceptance on the other hand for coal power plants, the mining industry and the energy policymaker have close ties, and an expansion of fossil fuel capacities can be expected. The role of cooperation mechanism Bosnia and Herzegovina is interested in developing Joint Projects with Italy and become part of the same Memorandum that Serbia already has with Italy. In this context the construction of three hydro power plants on Drina worth 870 million euros is planned. The project would be jointly carried out by the governments of the Republic of Srpska and Serbia and as counterpart the Italian government, 11 The energy scenarios were forecasted up to 2050 based on 2020 forecast of existing literature and considering trends, GDP and population changes. D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 31

32 (i.e. the company "SECI Energia" as Italian investor), with a condition to export electricity to Italy. In this project, the Italian partner would have a 51%, and the Republic of Srpska and Serbia uniform 49% share. The project would be completed by 2020 and would use the planned 400 kv interconnection between Bosnian and Serbia that would establish the link to the planned electricity corridor towards Montenegro and Italy. 5.4 SUMMARY ON LIKELY RES PATHWAYS Bosnia and Herzegovina has an ambitious renewable energy target in 2020 while at the same time the final energy demand is expected to rise significantly. Bosnia is one of the countries in the region with a high renewable energy potential, given its large hydro resources in addition to wind, solar and biomass potentials. The current energy policy is focused on expansion of coal and hydro and this pattern is likely to continue. Coal power electricity is also planned to be exported. Given the administrative and economic barriers and institutional complexities and in general a regulatory environment that disadvantages market access of foreign investors, it will be difficult for the country to significantly expand non-hydro technologies. The opportunities involved in exporting electricity to Italy are increasingly being recognized by Bosnia and Herzegovina and Italian investors, thus the Bosnian government has interest in developing Joint projects with Italy. However this will not happen on a large scale before D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 32

33 6 CROATIA 6.1 RES POLICY TARGETS Croatia should, according to the provisions of the EU Directive 2009/28/EC by 2020 achieve a 20% share of renewable energy sources in total energy consumption. The share of RES in total energy consumption in Croatia is considered to be relatively high primarily due to the large share of hydropower in electricity generation. Nevertheless, to achieve the target set by the directive, a large amount of capacity for harnessing energy from the so-called "new" renewable sources i.e. wind, solar, biomass, biogas, etc. will need to be built. The Croatian Energy Strategy provides for a 35% share of electricity generation from renewable sources, including large hydropower plants by 2020, in the overall electricity generation EU 2050 Diversified Supply Technologies EU 2050 Delayed CCS EU 2050 High Energy Efficiency EU 2050 Low Nuclear EU 2050 High Renewable Target according to the EU Directive 2009/28/EC Target RES share of Croatia [%] Figure 11: Hypothetical RES targets for Croatia under several assumptions of future RES targets at EU level for 2030 and Figure 11 shows the binding 2020 RES target as well as hypothetical RES targets for Croatia for 2030 and for 2050 under several assumptions regarding Europe s future energy system and related efforts to achieve a decarbonisation of that in the long term. Thus, in 2030 the country would need to meet a target of between 22.8% (~24,533 GWh) to 28.1% RES share (~30,236 GWh), in 2050 between 24.0% (~22,427 GWh) and 62.3% (~58,217 GWh). 6.2 ASSESSMENT OF THE ENERGY SYSTEM INTRODUCTION The installed electricity generating capacities in the Republic of Croatia include hydro and thermal power plants owned by the HEP Group (Croatian Power Company), a certain number of industrial power plants and a few privately owned power plants (wind power plants, small hydro power plants). 12 The calculations were made in cooperation with the TU-Vienna using the same methodology as used by the European Commission for calculating national 2020 RES targets under the RES directive 2009/28/EC and different long-term energy scenarios aiming for a decarbonisation of Europe s energy system as presented in the EU Energy Roadmap 2050 (EC, 2011: Energy Roadmap 2050, available from: D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 33

34 Croatia is producing electricity mostly from its thermal and big hydro power plants. In contrary to other countries in the region the production from other renewable energy power plants is getting visible in the last few years, and is gradually increasing. Still Croatia is a net importer of electricity RENEWABLE ENERGY POTENTIALS Figure 12 shows the high potential Croatia has regarding wind, solar and biomass energy. The Croatian wind sector has seen a large growth in the last years. The installed capacity was 129 MW in 2010 and it is estimated that in 2020 the installed power could reach 1,200 MW (Delomez, 2012). Croatia has also a significant potential for biomass that was estimated at 33.9 PJ/a in 1995 (EBRD, 2009a). Solar energy is mainly used for heating purposes and an installed capacity of 6 MWth, in 2000, is reported. According to a survey, the total solar energy potential of the country is 100PJ (REEEP and REN21, 2013). GWh Biomass-H Solar-H Geothermal-H Wind Biomass-E Solar-E Geothermal-E Hydro small Hydro large ref NREAP 2020 eco.pot tech.pot. Figure 12: Renewable energy potentials in Croatia ELECTRICITY DEMAND DEVELOPMENT IN CROATIA Figure 13 shows energy scenarios developed for Croatia. The final energy demand is expect to rise in the upcoming years, however less strongly that in other countries in the region. 13 The economic potential as shown for 2020 takes into account the current economic framework without additional support as well as diffusion constraints and barriers D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 34

35 GWh GFCE reference scenario GFCE efficiency scenario H&C reference scenario H&C efficiency scenario Electricity reference scenario Electricity efficiency scenario Electricity previous consumption Transport reference scenario transport energy efficiency Figure 13: Final Energy Demand Scenarios for Croatia FRAMEWORK DEVELOPMENT EXPECTATIONS The administrative barriers for renewable energy projects in Croatia are mainly identified in the complex authorization procedures for even small renewable energy projects as well as in insufficient coordination between different governmental agencies involved in renewable energy policies. The main legislative framework for the electricity sector in Croatia has been subject to significant changes during the last 12 months. This was a fine tuning of the legislation to meet the requirements of the EU acquis ahead of the accession of Croatia to the EU on 1 July With the new legislation in place and with the deadline provided for its implementation the energy market in Croatia in the reporting period is functioning in a transitory mode (Energy Community, 2013). Development of wind projects could however have significant effects on the implementation of the overall RES strategy. On the related technical side is a limited capacity of the power transmission grid to accommodate new wind power generation. The current grid capacity for new wind power plants is estimated at a maximum of 360 MW, compared to the already expressed interest of 5,000 MW. In the Croatia s draft National Renewable Energy Action Plan (NREAP) from July 2013, the projected increase for RES wind is around 400 MW until Croatia is one of the few countries in the region that plans to increase the share of biofuels in transport is achieved by boosting the production of biofuels to be price competitive to fossil fuels. A new Tariff System for 2014 has been adopted on October 31, Solar PV power plants with an installed capacity exceeding 300 kw will be eligible to receive a feed in tariff which is equal to the average electricity production costs (1 MW in 2013). However funding is restricted to the first 15 MW of building-integrated PV capacity and the first 5 MW of other PV capacity. In World Bank s Ease of Doing Business indicator, Croatia ranks at 84, mostly due to weak investor protection (139) and difficulties with obtaining construction permits (143) (IFC &World Bank, 2013). However the regulatory framework is more stable that in the other countries in the region and Croatia s accession to the EU is likely to increase investor friendliness. 14 The energy scenarios were forecasted up to 2050 based on 2020 forecast (NREAP), considering trends, GDP and population changes. D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 35

36 6.4 SUMMARY ON LIKELY RES PATHWAYS The Croatian energy market is better developed than energy markets in the other countries of the region and provides a higher degree of political, regulatory an economic certainty. Croatia has only limited hydro potential left, but large biomass, wind, and solar potentials as well as agricultural resources to produce biofuels. By 2020 the grid however can absorb only 400 MW wind, a larger exploitation of the country s wind potential can only be achieved in the short term if the wind electricity is exported. The country may also still find opportunities for expansion of hydro potentials if it cooperates with its neighbouring country Bosnia and Herzegovina as some of Croatia s water resources are shared with Bosnia. A planned common Croatian Bosnian hydro plant near Dubrovnik constitutes a good example for cooperation. D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 36

37 7 FYRO MACEDONIA 7.1 RES POLICY TARGETS The Former Yugoslav Republic of (FYR) Macedonia has a draft NREAP in place. Its RES target under the Energy Community Treaty is 28% in 2020, up from a 21% renewable share in Its electric power system is based on 580 MW hydro plants, 800 MW of thermal plants fuelled by lignite and 210 MW of thermal plants run on heavy fuel oil (Macedonian Government, 2010). FYRO Macedonia plans to strongly expand large hydro power, to a lower extent wind power, geothermal power, small hydro power and biomass heat. Solar electricity is planned to play only a minor role (Macedonian Government, 2013) EU 2050 Diversified Supply Technologies EU 2050 Delayed CCS EU 2050 High Energy Efficiency EU 2050 Low Nuclear EU 2050 High Renewable Target under the Energy Community Treaty Target RES share of FYRO Macedonia [%] Figure 14: Hypothetical RES targets for FYRO Macedonia under several assumptions of future RES targets at EU level for 2030 and Figure 14 shows the binding 2020 RES target as well as hypothetical RES targets for FYRO Macedonia for 2030 and for 2050 under several assumptions regarding Europe s future energy system and related efforts to achieve a decarbonisation of that in the long term. 7.2 ASSESSMENT OF THE ENERGY SYSTEM INTRODUCTION The electric power system of FYRO Macedonia comprises hydro power plants and thermal power plants fueled by lignite heavy fuel oil. The country plans to increase its renewables share, but also lignite power generation. In addition it aims at starting with gas-fired power production. 15 The calculations were made in cooperation with the TU-Vienna using the same methodology as used by the European Commission for calculating national 2020 RES targets under the RES directive 2009/28/EC and different long-term energy scenarios aiming for a decarbonisation of Europe s energy system as presented in the EU Energy Roadmap 2050 (EC, 2011: Energy Roadmap 2050, available from: D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 37

38 7.2.2 RENEWABLE ENERGY POTENTIALS AND COSTS Figure 15 shows that FYRO Macedonia significantly plans to increase its large and small hydro capacities by 2020 according to its NRERAP, but also wind power. Up to 2050 there is still a significant potential to further increase hydro and wind. The countries grid capacity however has insufficient balancing opportunities. An expansion of flexible hydro power capacity would therefore be required to enable a strong wind expansion. Energy experts and NGOs have the concern that the country will meet its target too much by expanding large hydro with possible negative effects on biodiversity and claim that for a socioeconomic sound development FYRO Macedonia needs a more tailor-made policy, including small projects, such as biomass heat production or solar collectors for heating. GWh Biomass-H Solar-H Geothermal-H Wind Biomass-E Solar-E Geothermal-E Hydro small Hydro large ref NREAP 2020 eco.pot tech.pot. Figure 15: Renewable energy potentials and targets in FYROM ELECTRICITY DEMAND DEVELOPMENT IN FYROM Figure 16 shows different scenarios for FYRO Macedonia s energy demand up to The energy demand is expected to significantly rise in the coming years as the country is in a phase of economic recovery. 16 The economic potential as shown for 2020 takes into account the current economic framework without additional support as well as diffusion constraints and barriers D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 38

39 GWh GFCE reference scenario GFCE efficiency scenario EnC GFCE efficiency scenario H&C reference scenario H&C efficiency scenario Electricity reference scenario Electricity efficiency scenario Electricity previous consumption Transport reference scenario Transport efficiency scenario Figure 16: Final Energy Demand Scenarios for FYRO Macedonia FRAMEWORK DEVELOPMENT EXPECTATIONS In February 2011, FYRO Macedonia adopted a new Energy Law (Official Gazette of Republic of Macedonia 16/2011) which regulates the legal environment for performing energy activities. The amendments should increase competition and transparency in the electricity sector. Gas and electricity markets are dominated by a very small number of suppliers, which undermines effective competition. For the implementation of the Energy Law additional secondary legislation is stipulated to be adopted. In 2011, the Energy Regulatory Commission of the Republic of Macedonia (FYROM) adopted two rulebooks for setting prices for the services in the power sector. FYRO Macedonia has some provisions for preferential treatment of RES-E in the power network: In accordance with Article 141 of the Energy Law, the market operator is obliged to purchase all electricity produced from preferential producers of RES-E. FYRO Macedonia has already established a draft of its NREAP and set goals for period There have been improvements in the economic framework in the last years with the implementation of economic incentives like a FIT. However, the main barrier for investments in renewable energy sources in the country is lack of professional skills, both in the public administration at the national and municipal levels, and in the business sector as well as among banks and other national financial institutions (UNECE, 2009). 7.4 SUMMARY ON LIKELY RES PATHWAYS FYRO Macedonia plans to meet its 2020 target mainly by hydro and wind. A strong increase of wind power capacities however would require additional balancing capacities, such as new pump storage hydro plants. Stakeholders emphasise the important role that a more tailor-made policy, including small projects, such as biomass heat production or solar collectors for heating would have for the country. 17 The energy scenarios were forecasted up to 2050 based on 2020 forecast (NREAP and academic literature), considering trends, GDP and population changes. D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 39

40 8 KOSOVO* RES POLICY TARGETS Kosovo* has a mandatory RES target of 25% but also a target for voluntary overachievement to 29% as stated in its NREAP. The government derived the second target based on concessions for RES plants. EU 2050 Diversified Supply Technologies EU 2050 Delayed CCS EU 2050 High Energy Efficiency EU 2050 Low Nuclear EU 2050 High Renewable Target under the Energy Community Treaty Target RES share of Kosovo [%] Figure 17: Hypothetical RES targets for Kosovo* under several assumptions of future RES targets at EU level for 2030 and Figure 17 shows the binding 2020 RES target as well as hypothetical RES targets for Kosovo* for 2030 and for 2050 under several assumptions regarding Europe s future energy system and related efforts to achieve a decarbonisation of that in the long term. 8.2 ASSESSMENT OF THE ENERGY SYSTEM INTRODUCTION Kosovo* is expected to be able to meet its 2020 RES target domestically, but that this would require that Kosovo* continues to rely on the consumption of biomass for space/water heating. Given that current harvest levels are assumed to be unsustainable, this is, however, a strategy which may be inconsistent with Kosovo s intent and current EU environmental and sustainability guidelines (USAID, 2013). The energy strategy provides for a decommissioning of the lignite powered TPP Kosovo A by 2017, developing the country s renewable resources to rehabilitate Kosovo B to comply with EU environmental standards, private sector investment in new electricity generation capacity, privatization of Kosovo s electricity distribution and to increase energy efficiency (Morina, 2012). 18 * This designation is without prejudice to positions on status, and is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo declaration of independence. 19 The calculations were made in cooperation with the TU-Vienna using the same methodology as used by the European Commission for calculating national 2020 RES targets under the RES directive 2009/28/EC and different long-term energy scenarios aiming for a decarbonisation of Europe s energy system as presented in the EU Energy Roadmap 2050 (EC, 2011: Energy Roadmap 2050, available from: D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 40

41 Kosovo* expects energy supply shortages due to increasing electricity demand and the decommissioning of Kosovo A. Without new investments in the domestic electricity generation, Kosovo* would increasingly depend on expensive imports. It is most likely that this will be compensated by the installation of an additional thermal power plant (Kosovo C), while the establishment of the foreseen large HPP Zhur (305 MW) is uncertain due to, e.g., conflicting interests in water resources shared with Albania. The Energy Efficiency Plan includes, among others, a shift from billing heat supply per m² to actual heat metering in order to harmonize billing with actual consumption and thus to incentivize more efficient use of heat RENEWABLE ENERGY POTENTIALS Figure 18 shows that Kosovo* still has some hydro potential, mainly small hydro and significant wind potentials. Also biomass electricity could be expanded. There is not much scope however to harvest additional biomass for heat but it could be used more efficiently. GWh Biomass-H Solar-H Geothermal-H Wind Biomass-E Solar-E Geothermal-E Hydro small Hydro large ref NREAP 2020 eco.pot tech.pot. Figure 18: Renewable energy potentials and targets in Kosovo* 20 The RES target for achievement (25%) and overachievement (29%) is based on strong wind energy expansion, but also assumes the construction of large hydro power plants, in particular the 300 MW plant Zhur which is, however, not yet underway and several smaller ones. The target achievement and overachievement will critically depend on the construction of the Zhur power plant. Also solar heat is to be expanded. Solar electricity will play only a limited role, however a feed-in for solar elec- 20 The economic potential as shown for 2020 takes into account the current economic framework without additional support as well as diffusion constraints and barriers D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 41

42 tricity will be implemented from Regarding wind expansion the country plans the installation of up to 150 MW. Three wind parks totalling 123 MW are already in advanced planning stage and could be in operation by Kosovo however has not sufficient balancing capacity for strong wind power plant expansion (KOSTT, 2013). Therefore a 400kv line to Albania is planned to be installed by ELECTRICITY DEMAND DEVELOPMENT IN KOSOVO* Figure 19 shows forecasts for Kosovo s energy demand up to The energy demand is expected to sharply rise in the coming years as the country is in a phase of economic recovery. An Energy Efficiency Action Plan however was established. GWh GFCE reference scenario GFCE efficiency scenario EnC GFCE efficiency scenario H&C reference scenario H&C effciency scenario Electricity reference scenario Electricity efficiency scenario Electricity previous consumption Transport reference scenario Transport energy efficiency Figure 19: Final Energy demand scenarios for Kosovo 22 * 8.3 FRAMEWORK DEVELOPMENT EXPECTATIONS There are no restrictions relating to grid access of new renewable electricity capacities. The system operators are obliged to grant grid access to renewable energy producers (Energy Community, 2012). The authorization process for new renewable energy installations is, however, rather constraining and requires that the applicant coordinates across several ministries and institutions (USAID, 2013). According to the Law on Electricity, all customers except households are eligible to purchase electricity from the supplier of their choice. Starting from 1 January 2015, all customers, including households, will be eligible. According to the Law on the Energy Regulator, after 1 January 2015 ERO shall discontinue setting public supply prices unless there are concerns about the effectiveness of competition in the electricity market. There are major barriers regarding authorization processes in Kosovo. Authorization processes are impeded by the following (USAID, 2013): MW Wind Park Kitka ; 45 MW Wind Park Zatriqi ; 48 MW Wind Park Budakova 22 The energy scenarios were forecasted up to 2050 based on 2020 forecast (NREAP and academic literature), considering trends, GDP and population changes. D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 42

43 Lack of clear, harmonized, and comprehensive legal framework resulting in subjective and inconsistent interpretation of the laws, Segmented development of laws and processes leading to fragmented procedures involving a multitude of stakeholders. Lack of transparency in application and evaluation criteria resulting in unclear investor guidance. Unpublished applications and undocumented criteria enable inconsistent and discretionary practices. Technical deficiencies in evaluation of applications resulting in discretionary practices and in increased administrative costs and inconsistent enforcement; applications require technical expertise which is not always available within the evaluating ministries. Absence of institutionalized processes and available resources resulting in discretionary practices. Example: ERO issues Preliminary Decision before application is deemed complete. Arbitrary application review and revision timelines resulting in increased investor risk. Permitting processes do not account for the size of the projects in a meaningful way resulting in unnecessary constraints for micro- and small-generation projects. Lack of proactive spatial planning for energy purposes resulting in extensive re-zoning procedures. It can be expected that the impeding factors mentioned above will be present also in the upcoming years. Coordination between and the clarity of processes within the institutions are a major challenge for investors. The renewable energy sector in Kosovo* would thus benefit from increased clarity on the regulatory level on the one hand, and on the other hand from (resulting) clearer and more transparent procedures at institutional level. Kosovo* has feed-in tariffs for wind and hydropower in place (solar is being developed Kosovo* will introduce a feed-in for solar from January 2014), however some investors have a lack of confidence in the current FIT framework. Project risks related to FIT and incentives include (USAID, 2013): Stability of FIT scheme over time. There is no explicit indication that the level of FIT will be maintained at a consistent level over time. Duration of the FIT scheme. The current FIT scheme provides feed-ins only for 10 years Lack of fiscal tax incentives. There are currently no tax incentives for RES projects that reduce upfront capital costs. FIT entry sequencing. Projects cannot be fully admitted to the support scheme and benefit from FIT until fully operational. Budegetary caps on the FIT. The FIT caps set for different technologies and their expansion may prevent projects that qualify for being admitted to the support scheme. The role of cooperation mechanisms Kosovo* has no concrete plans yet to make use of the cooperation mechanisms of the RES directive, however, amendments of existing legislation (especially of the Energy Law) which are envisaged to be adopted by the end of 2013 and use of flexible mechanisms will be enabled and subject to the rules prescribed by the government. Since Kosovo* plans to reach and surpass its na- D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 43

44 tional mandatory target through national measures for the production of energy from renewable sources, there is potential for the transfer of excess amounts above the indicative trajectory by means of the various flexible mechanisms for cooperation, but at the moment this is not planned. On the other hand, if Kosovo* is not on track to fulfil mandatory targets by domestic production solely, adequate steps will be undertaken to investigate possibilities for use of these mechanisms (Kosovo government, 2013). Kosovo* has also signed a bilateral agreement with Albania on cooperation in the energy sector (Kosovo* government, 2009). Electricity generation relies almost entirely on hydropower in Albania and almost entirely on thermal power in Kosovo*. This complementarity creates major cooperation opportunities for optimization of operation, energy exchange, energy security and optimization of investments. 8.4 SUMMARY ON LIKELY RES PATHWAYS Kosovo* is at the crossroads regarding the future mix of domestic energy generation. The decommissioning of old lignite plants and an increasing energy demand require the expansion of energy generation capacities if an increased need for expensive imports is to be avoided. While biomass provides an important amount of energy in the total mix and could contribute to meeting the RES targets, current harvest levels are estimated to be unsustainable and should not be continued. The expansion of lignite fired TPP capacity may importantly assist in Kosovo s electricity autonomy but renders reaching the renewable targets more difficult if the electricity is consumed domestically and not compensated by corresponding RES capacities. Also it creates a fossil lock in threatening the achievement of future greenhouse gas emissions targets. The important expansion of RES capacity, in particular by the construction of the Zhur HPP, is, however, uncertain. Also the country needs additional balancing capacities to increase wind power capacities. In addition, the level and structure of financial incentives and fiscal measures, together with issues identified in the authorization and permitting approval processes, make it a challenge for investors to expand RES capacities. The share of the renewable energy potential that will be efficiently utilized depends on how the main nontariff barriers will be encountered and eliminated both by legislators and investors (USAID, 2013). An overachievement and selling of RES surplus via the cooperation mechanisms may generate additional revenues. Kosovo* can also greatly benefit via cooperation with the Albanian electricity market providing efficiencies (base load and peak load), and smooth out the energy reserve issues. D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 44

45 9 MONTENEGRO 9.1 RES POLICY TARGETS Montenegro has adopted a 33% renewable energy target under the Energy Community Treaty, up from a 26.3% share in The country has not yet published its NREAP, but its draft Energy Development Strategy for 2030 was published in 2012 outlining the country s RES expansion plans. (Montenegro government, 2012). EU 2050 Diversified Supply Technologies EU 2050 Delayed CCS EU 2050 High Energy Efficiency EU 2050 Low Nuclear EU 2050 High Renewable Target under the Energy Community Treaty Target RES share of Montenegro [%] Figure 20: Hypothetical RES targets for Montenegro under several assumptions of future RES targets at EU level for 2030 and Figure 20 shows the binding 2020 RES target as well as hypothetical RES targets for Montenegro for 2030 and for 2050 under several assumptions regarding Europe s future energy system and related efforts to achieve a decarbonisation of that in the long term. 9.2 ASSESSMENT OF THE ENERGY SYSTEM INTRODUCTION Montenegro's electricity generation is mainly provided by hydropower (two large hydro power plants) and a coal-fired thermal power plant. The total theoretical hydro-potential of Montenegro is estimated at 10 TWh, while the country is exploiting approximately 17% out of this potential (Kovačević and Rakočević, 2012). Due to the large share of hydro power the production of electricity depends on hydrological conditions and can vary considerably (Tuerk et al. 2013). By 2020, the country aims to significantly expand electricity generation from large and small hydro power plants and to a lesser extent wind and biomass generation as well. 23 The calculations were made in cooperation with the TU-Vienna using the same methodology as used by the European Commission for calculating national 2020 RES targets under the RES directive 2009/28/EC and different long-term energy scenarios aiming for a decarbonisation of Europe s energy system as presented in the EU Energy Roadmap 2050 (EC, 2011: Energy Roadmap 2050, available from: D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 45

46 Montenegro currently has no operating or planned wind installations (Lalic et al., 2011). Studies indicate a good wind energy potential, in the southwestern region of the country and in the coastal region (EBRD, 2009b). In the heat sector, biomass heat will play a major role while solar heat plays only a small role up to The country aims to increase its electricity generation capacity to become an exporter. A particular aim of Montenegro is to intensify negotiations to reach an agreement with Bosnia and Herzegovina and Croatia on division and use of joint hydro potential (Montenegro government, 2012). Also new coal fired thermal power plants are planned, a 350 MW plant to be built by 2018 and an additional generation block at the existing thermal power plant Pljevlja by 2020 (Montenegro government, 2012) RENEWABLE ENERGY POTENTIALS GWh Biomass-H Solar-H Geothermal-H Wind Biomass-E Solar-E Geothermal-E Hydro small Hydro large ref NREAP 2020 eco.pot tech.pot. Figure 21: Renewable energy potentials and targets in Montenegro 24 Figure 21 shows the large hydropower potential that the country still has, but also wind or biomass electricity could be significantly expanded ELECTRICITY DEMAND DEVELOPMENT IN MONTENEGRO Figure 22 shows the energy demand scenarios in Montenegro up to The electricity forecast was based on the Montenegro energy strategy 2030 and a forecast by Pöyry consulting. The Gross 24 The economic potential as shown for 2020 takes into account the current economic framework without additional support as well as diffusion constraints and barriers D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 46

47 Final Energy demand was forecasted based on the Montenegro energy strategy 2030 (Medium Scenario with measures as reference scenario and Low scenario of the Montenegro energy strategy as efficiency scenario). In recent years the energy demand was very low as the largest energy consumer in Montenegro, the aluminium plant KAP, produced less than average due to the financial crisis. KAP creates a major forecast uncertainty for the Montenegrin energy demand, as it consumes more than 30% of the country s total electricity demand. As the energy demand in Montenegro was very low in the base year 2009 an economic recovery by 2020, in particular a higher energy demand of KAP, could make the target achievement a challenge. Figure 22: Final Energy Demand Scenarios for Montenegro 9.3 FRAMEWORK DEVELOPMENT EXPECTATIONS Montenegro has started EU accession negotiations in The accession process will importantly shape the country s economic and political framework. Montenegro currently has a regulated energy market. The wholesale market is officially established, but is not yet functional. The Energy Law adopted in 2012 established the Energy Regulatory Agency as the autonomous, functionally independent and non-profit organization entrusted with the power to regulate the energy sector of Montenegro. Renewable power plants up to 10 MW installed capacity have a right to sell electricity on the distribution grid. The electricity market has been open for all non-household consumers since 2009, but it is not active yet. Legal unbundling in the electricity distribution sector is yet to be implemented, and the legal framework for the future gas market is still missing. Further adjustments of the legal and institutional framework and in particular strengthening of administrative and implementation capacities are needed. D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 47

48 Montenegro is at early stage in defining funding schemes for subsiding RES. Only recently the ministry of economy enacted secondary legislation which provides for incentives for RES in the country. The country has a feed-in scheme for wind, biomass, solar energy, solid waste, waste gas, biogas, small hydropower plants and high efficient co-generation plants. The economic framework condition of the country will be importantly shaped by the planned interconnections to Italy and to Serbia. The Serbia line would provide access to pump storage capacities, while the Italy interconnection opens up export opportunities and puts the country also in a transit position. Montenegro hopes to become the energy hub of the region. The Western Balkans so far lacked a common transmission capacity allocation mechanism for coordinated auctions between countries enabling the implementation of price based market coupling. The process of establishing a Coordinated Auction Office (CAO) began in June 2012, when the Transmission System Operators of Albania, Croatia, Bosnia and Herzegovina, Republic of Macedonia, Greece, Montenegro, Romania, Slovenia, Kosovo* and Turkey agreed to establish a common auction office for South-East Europe (SEE) in Montenegro. 9.4 SUMMARY ON LIKELY RES PATHWAYS Montenegro plans to meet its 2020 targets by increasing large and small hydro power plants and to a lesser extent wind and biomass generation. At the same time the country plans to expand its fossil fuel generation capacity. Montenegro aims to become an electricity exporter, and the new planned undersea cable to Italy puts the country in a good position to export generation surpluses. Montenegro hopes to become the energy hub of the region, whether it will become a hub for green energy or for cheap energy remains to be seen. D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 48

49 10 SERBIA 10.1 RES POLICY TARGETS Serbia has extensive unused potential for RES production. Studies have shown that Serbia s renewable energy potential can cover almost half of its primary energy needs (Karakosta et al., 2012). Serbia has accepted a RES target of 27% by 2020 up from 21.2 % in 2009 within the Energy Community Treaty and has in place a NREAP EU 2050 Diversified Supply Technologies EU 2050 Delayed CCS EU 2050 High Energy Efficiency EU 2050 Low Nuclear EU 2050 High Renewable Target under the Energy Community Treaty Target RES share of Serbia [%] Figure 23: Hypothetical RES targets for Serbia under several assumptions of future RES targets at EU level for 2030 and Figure 23 shows the binding 2020 RES target as well as hypothetical RES targets for Serbia for 2030 and for 2050 under several assumptions regarding Europe s future energy system and related efforts to achieve a decarbonisation of that in the long term ASSESSMENT OF THE ENERGY SYSTEM INTRODUCTION The Serbian electricity system relies strongly on lignite and hydro generation while heat is mainly based on biomass. According to the NREAP Serbia will increase its large and small hydro production but also expand its wind and biomass electricity generation options. The increase in renewable generation from wind of 500 MW new wind power capacity represents the upper limit of what the Serbian grid is expected by the government to be able to absorb. Some energy experts however assume that up to 1000 MW wind could be integrated. Biomass electricity and biomass heat will increase, partly via new biomass and biogas CHP plants. An increase of hydro capacities is seen critically by Serbian NGOs due to biodiversity concerns. NGOs and energy experts criticize that the 25 The calculations were made in cooperation with the TU-Vienna using the same methodology as used by the European Commission for calculating national 2020 RES targets under the RES directive 2009/28/EC and different long-term energy scenarios aiming for a decarbonisation of Europe s energy system as presented in the EU Energy Roadmap 2050 (EC, 2011: Energy Roadmap 2050, available from: D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 49

50 NREAP and in general Serbian energy policy focus to strongly on capacity extension than increasing the efficiency of the existing energy system such as more efficient use of biomass, or better use of existing pump storage capacities and building new storage capacities. According to regional energy experts Serbia could become an exporter of flexible electricity to the EU RENEWABLE ENERGY POTENTIALS GWh Biomass-H Solar-H Geothermal-H Wind Biomass-E Solar-E Geothermal-E Hydro small Hydro large ref NREAP 2020 eco.pot tech.pot. Figure 24: Renewable energy potentials and targets in Serbia 26 Figure 24 shows that Serbia has still hydro potential it can use, but also high wind, biomass and solar potentials. The country has significant potential also for pump storage plants. The hydro power potential is estimated at 0.9 Mtoe and it can be utilized for large as well as for small HPPs (Karakosta et al., 2012). There are 856 potential sites, suitable for construction of small HPPs with a capacity of up to 10 MW, of total power of 455 MW (Lalic et al., 2011). 26 The economic potential as shown for 2020 takes into account the current economic framework without additional support as well as diffusion constraints and barriers D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 50

51 Figure 25: Average wind power in Republic of Serbia (EMS, 2013) Figure 25 shows that the highest wind potentials are in eastern Serbia, in the Banat region. Four wind parks (WP Plandište (102MW); WP Alibunar 3 (48,3MW); WP Košava (120MW) and WP Čibuk (180MW) are under implementation (EMS, 2013). Serbia as important provider of flexible energy Serbia has significant potential for pump storage plants. Along the planned east-west electricity corridor the country plans to add at least 700 MW of pump storage capacity in Bistrica close to the existing pump storage plant Bajina Basta of 2x300 MW. This will be a key, from a regional point of view, for the implementation of volatile RES from wind and solar energy in the region. Along the Danube the German RWE and the Serbian EPS plan the construction of a 3,000 MW pump storage plant ( Dderdap 3 ). It is unclear however when this plant will be built. Energy experts in Serbia however emphasizes that the country may be a large provider of flexible energy in Europe. D4.2: Future Prospects for RES(-E) in the West Balkan countries Page 51