Regional and National Challenges for the integration of the Western Balkans in the European Energy Union Nikola M. Tomasovic Mihailo B.

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9-13 October2016 Istanbul- Turkey Regional and National Challenges for the integration of the Western Balkans in the European Energy Union Nikola M. Tomasovic Mihailo B. Mihailovic Presenter: Nikola Tomasovic, Email Contact: nikola.tomasovic@gfa-group.de Serbian World Energy Council Committee / GFA South East Europe 1

European Energy Union A secure, sustainable, competitive, affordable energy in Europe 5 Guiding Dimensions Security of Energy Supply Internal energy market Energy efficiency Decarbonisation of the Economy Research & Innovation 2

European Energy Union and Western Balkans EU Energy Union Strategic Framework: The improvement of cooperation, solidarity and trust in the Central and SE Europe is essential The cooperation and coordination in order to deploy a perspective, long-term planning and building of a regional electricity and natural gas infrastructure in Central and South-Eastern Europe should include not only the EU countries, but also the non-eu Western Balkan countries and Turkey The importance of the Western Balkans for the entire Europe stems from security of energy supply and integration of energy markets, especially thanks to their geographical, corridor position Considering the trans-european electricity, natural gas and oil infrastructure projects, Western Balkans may contribute to the diversification of fuel supply routes, stability operation of the regional energy system, and improvements in trading conditions 3

Energy Community The WB have all signed the Treaty establishing the Energy Community, aiming at creating a regional energy market compatible with the internal energy marketoftheeu The establishment of a regional cooperation framework, regarding security of supply, power exchange and fuel supply, is essential both for the accomplishment of the Energy Union and the overall development of SEE In April 2016 the WB 6 countries committed to develop a regional electricity market aiming at integrating it with the overall European Internal Electricity Market 4

EnergyInfrastructureInvestment Framework The EC has identified significant energy infrastructure projects, known as Projects of Common Interest(PCIs) Projects of Energy Community Interest (PECI) List has 43 projects with the estimatedcostofeur14bill The Western Balkans Investment Framework (WBIF) supports the socioeconomic development and process of thewbaccessiontotheeu The establishment of regulatory framework has been proposed, regarding the PECIs similar to that for PCIs, in terms of energy infrastructure Project Electricity Generation Country Estimated investment HPP Skavica (350MW) Albania 550 mill CHP KTG Zenica (560MW) HPP Dubrovnik (304MW) HPP Middle Drina (321.45MW) BIH 300 mill Natural Gas Infrastructure Project Project Ionian Adriatic PP (511km) Trans Adriatic PP (871km) BIH- Cro 175 mill EAGLE LNG Terminal BIH-Srb 870 mill (112km) TPP Kosova (600MW) Kosovo 1,260 mill HPPs Lim River (93MW) TPP Kolubara B (750MW) TPP Nikola Tesla B3 (744MW) Montenegro 167 mill Serbia 1,300 mill Serbia 1,100 mill LNG Terminal + PP (426km) Intercon. PP (100km) Intercon. PP (170km) Intercon.PP (187km) Country Alb -Mne- Cro - BIH Gre Alb- It Estimated investment 620 mill 1,260 mill Albania 700 mill Croatia 940 mill Croatia- Serbia 175 mill Srb- Blg 115 mill BIH - Croatia 98 mill

Western Balkans Profile Western Balkans, located at the heart of South East Europe, cover an area of 276,000km 2 withapopulationof22.7million. For centuries, its geographical position made it the main crossroads and transit corridor between East and West giving the region serious geostrategic importance. The last 25 years, the region has experienced the triple transition: from conflict to peace, from central planning to free-market economies from socialism to fragile democracies. Out of the Western Balkans countries, only Croatia managed to join the European Union in 2013 6

Economic Conditions in the Western Balkans(2014) Country Energy Net CO 2 Electricity Population GDP (billion TPES TPES/pop Production Imports emissions Consumption (million) 2005 USD) (Mtoe) (toe/capita) (Mtoe) (Mtoe) (Mt of CO 2 ) (TWh) Albania 2,9 11,35 2,03 0,58 2,32 3,64 0,80 7,33 Bosnia & Herzegovina 3,83 13,03 4,62 1,92 6,45 21,50 1,69 12,31 Croatia 4,26 44,92 3,63 4,13 7,72 16,01 1,81 15,98 FYR Macedonia 2,11 7,54 1,44 1,31 2,80 8,30 1,33 7,37 Montenegro 0,62 2,91 0,76 0,28 1,03 2,27 1,65 3,49 Serbia 7,16 28,41 11,36 3,59 14,89 45,31 2,08 31,84 Kosovo* 1,82 5,09 1,79 0,57 2,36 8,31 1,29 5,30 Total 22,70 113,25 25,63 12,38 37,57 105,34 10,65 83,62 * 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 According to the Global Competitiveness Index 2015 2016, Albania (93 rd ), Serbia (94 th ), and Bosnia and Herzegovina (111 th ) are outside the top 80, while FYROM (63 rd ) and Croatia (77 th ) are ranked higher 7

Primary Energy Production in the WB Albania Bosnia and Herz Croatia FYROM Kosovo Montenegro Serbia 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Solid Fossil Fuels Natural Gas Oil and petroleum products Hydro Power Biomass Other Regional primary energy production covers about 68 % of all the WB energy needs mostly based on domestic coal, hydro and biomass and partially on oil and natural gas 8

Electricity Generation in the Western Balkans(2014) 100% 80% 60% 40% 20% 0% Albania Bosnia & Herz Croatia FYROM Kosovo Montenegro Serbia Lignite Gas Oil Wind Solar Biomass Hydro The Trilemma policy framework in the WB could be considered as a dilemma between black(fossil) and green(renewables) approach to long-term strategic energy planning During the next decade nearly 45% of the new WB generating capacities(about 6.2GW) is plannedtorunoncoal 9 Renewable energy needs to be aimed at bridging gaps in regional energy needs

Major National Challenges In The Western Balkans 1. Transformation of energy supply 2. Advancing of energy access 3. Enabling consumer affordability and industry competitiveness 4. Improvement of energy efficiency 5. Decarbonisation of the energy sector It could be assumed that the Energy Trilemma concept summarises the core of the EU and WB Energy Policy Framework 10

Security of energy supply -Import dependence Energy Import Dependency in 2014 50% 40% 30% 20% 10% 0% Albania Bosnia & Herz Croatia FYROM Kosovo Montenegro Serbia EU - 28 The average EU dependency on energy imports (53.4%) was higher than the relevant values for the WB in 2014 (mainly oil and gas) Generally, the WB region is an importer of electricity (Serbia is self-sufficient, BIH is an exporter) 11

Security of energy supply -Plans for future Almost half of the planned new power capacity in the WB comes from coal. This contradicts EU s climate policy and brings huge financial burdens to pre accession countries. Electricity interconnections are already good and currently sufficient Natural gas pipeline system is insufficient and requires upgrades in the form of reverse flow capacities. The biggest challenges to ensuring a safe, sustainable energy future for the citizens of the WB states are: Diversification of external and internal energy supply sources, Energy efficiency, Upgrading cross border infrastructure, Completing the national and regional market 12

Electricity pricing 14 Cent/kWh 12 10 8 6 4 2 0 AL BIH CRO FYR KOS MON SRB EU - 28 Households Industry 1st half of 2015 All consumers in the Western Balkans have access to electricity(source: Wolrd Bank) Industrial prices are usually lower than household prices, apart from Serbia and the FYROM- Support of social benefits 13

Energy Equity 25 20 15 10 5 0 AL BIH CRO FYR SRB MON Serbia EU - 28 GDP per capita (1000 ) Electricity Cons per population (MWh/capita) In 2013, the average electricity consumption per capita in the WB was about 60% lower than EU-28 Households electricity prices are carefully controlled and are much lower than in EU-28. Artificially low tariffs lead to low level of customers energy efficiency In order to provide energy under adequate security, quality and affordability standards the considered countries have been facing the cost of environmental sustainability 14

Environmental Sustainability WB are members of the UNFCCC, and have been included in Non-Annex I, apart from Croatia(Annex I) The WB have set the following targets regarding the GHG emissions reduction: - Albania 11.5% GHG emissions reduction target between 2016 and 2030- INDC -Croatia as an EU member is committed to reduce its emissions by 40% until 2030 - Serbia 9.8% GHGs emissions reduction target until 2030 - compared to the 1990 emissions INDC The WB countries are implementing the EU Renewables and Energy Efficiency Directives Albania Bosnia & Herz Croatia FYROM Kosovo Montenegro Serbia 0 5 10 15 20 25 30 35 40 2020 RES target (%) Share of RES in 2009 (%) 15

Key Messages(A) With approximately 20 million potential new EU citizens, the WB is not just an energy market, but also a promising corridor and sustainable route to transfer energy across Europe Energy systems in Europe are increasingly functionally interdependent. Energy vulnerability becomes a cross border issue Joint optimization of gas, electricity and demand-side infrastructure can deliver security of supply at a lower cost With the Energy Union vision and its forward-looking climate policy, EU gradually moves away from an economy driven by fossil fuels 16

Key Messages(B) Main characteristics of the Western Balkans region are: Intensive energy consumption, Moderate fossil fuels import dependency, Stable production and electricity supply, High values of carbon emissions, Low efficiency and environmental concern High potential but minimal RES generation Lack of new investments Nationally centralized and relatively closed hierarchies regulate energy and environmental governance The Western Balkan energy sector still depends on geopolitical and regional/national political conditions 17

Key Actions(A) The Western Balkans countries: Need to combinenational approaches with a common regional interestin the single energy market for political, economic and strategic reasons, with renewed motivation Shouldharmonize their common goals and macroeconomic advantages through cross-border cooperation Comply regional energy policies and proceduresin order to achieve energy security, energy equity, environmental goals and overall sustainability in the long term Shouldstrengthen energy efficiency, inevitable coal, hydro, wind, biomass and solar towards a future regional energy system 18

Key Actions(B) Should establish permanent regional institutions or platforms for coordinated regional strategic planning The regional approach can address concrete measures: Upgrading regional transmission infrastructure, Establishing regional preventive and emergency framework, Gas market integration Heating sector renovation, Scaling up resources and technologies Broader utilization of regional renewable energy, Streamlining of finance instruments, Improving investment patterns Integration of regional into the pan-european energy markets 19

Thank you for your Attention Source: Nikola Tesla Museum, Belgrade, Serbia 20