BALKAN ENERGY STRATEGIES 

This conference session is based on the following background information:

  1. The Balkan Countries
  2. Balkan Energy Strategy
  3. Balkan Energy Sources in Brief
  4. Turkey’s Role in the Balkan/EU Energy Market
  5. Regional Energy Initiatives
  6. Renewable Energy and the Economy
  7. World Energy Council Warning
  8. Background Information, including country highlights, on Balkan Gas, Oil, Coal and Renewable Energy Sources

The Balkan Countries

Of the 11 Balkan countries, 4 (Bulgaria, Croatia, Greece and Romania) are EU Member States, 5 (Albania, FYR Macedonia, Montenegro, Serbia and Turkey) are EU candidate countries and 2 (Bosnia and Herzegovina and Kosovo*) are considered to be potential EU candidate countries. This fact is relevant to the financing, technical support and development of a Balkan energy supply and distribution network by various international institutions and countries for the benefit of the Balkans and the wider European region.

Balkan Energy Strategy

As energy plays a critical role in the development and sustainability of any economy, the continuing development of the Balkan energy network as an energy supplier as well as a hub for the wider continental region concurrently with the region’s integration into Europe’s energy markets will provide a diversification of supply sources, supply routes and energy mixes in order to increase Balkan energy security. Implicit in this reform process is the adoption of EU rules on competition and third party access to energy infrastructure to increase competition and make the energy sector more attractive for foreign investment.

Balkan Energy Sources in Brief

The primary and/or growing Balkan energy sources are derived from solid fossil fuel (coal), natural gas, oil and renewable energy sources (RES).

Coal-fired power plants produce as much as 2/3 of electricity in at least five Balkan countries while Turkey is planning to double its coal power capacity in four years. Notwithstanding the global issues associated with CO2 emissions from coal combustion, investments in regional coal-fired power plants continue to be made; however, the current relatively low cost of energy produced by these plants is expected to increase as EU candidate countries are required to harmonise their legislation with EU laws which include a system of higher tariffs for heavy carbon emission facilities due to climate change, public health and environmental pollution concerns.

Use of natural gas is a dominant trend; geo-political tensions with one of Europe’s long time, principal gas suppliers have resulted in plans to diversify continental gas sources to increase energy security; regional gas supply networks are under development in order to bring gas to Europe from the Caspian Basin, Central Asia, the Middle East, and the Eastern Mediterranean; and Liquified Natural Gas (LNG) prices have been falling while new terminals are being planned. According to Deloitte, as Australian LNG producers target Asian markets, the cost-efficiency of North American LNG producers provides a competitive, trading advantage with the European continent. According to Iran’s Deputy Oil Minister in July 2015, Iran is coordinating plans to provide Europe in 5 years with LNG which is expected to be more cost effective than sending natural gas via a pipeline.

Crude oil prices per barrel have fluctuated widely (roughly $38-$125) during the last five years, which includes (a) recessionary, negligible growth and slow recovery periods for many economies that resulted in a plummeting demand for the commodity and (b) the emergence and re-emergence of suppliers such as southern Iraq, Iraq Kurdistan and Iran despite the security and geo-political issues; however, these fluctuations are not expected to impact the long term trajectory of the sector. Subdued economic recoveries, moderately rising demand and additional suppliers are maintaining downward pressure on oil prices as long as global supplies are not threatened by various sources of conflicts (e.g. international sanctions, tensions, war) that disrupt supplies and delivery routes.

Wind, solar and hydro-power energy, which are converted to electricity, represent the principal RES in the Balkans, while lesser used RES include geothermal and biomass, and wave/tidal has been under consideration in the Greek island of Crete where electricity energy needs grow 8% per year largely due to tourism. The cost of RES remains an issue as some are generally higher than conventional energy sources; however, for those countries that have instituted policies to derive a significant percentage of their total gross energy consumption from RES in the short to medium term, RES investments will continue and prices will continue to decline with technical improvements, innovations, economies of scale and government incentives where offered.

Turkey’s role in the Balkan/EU energy market

In addition to the fact that, by 2030, Turkey is projected to consume as much energy as all of the remaining Balkan countries combined, Turkey’s role in the Balkan/EU energy market is growing as the country is becoming an increasingly important transit hub for oil and natural gas supplies from Central Asia, Russia, and the Middle East to Europe and other Atlantic markets, especially as Europe represents the world’s second largest natural gas market. The country is in the process of diversifying its energy sources and developing its energy supplies as it increasingly becomes an energy exporter as well as importer.

Regional Energy Initiatives

Through various initiatives, the European Commission, the International Finance Corporation of the World Bank Group, the United Nations and other relevant international institutions support the aims of transforming the Balkan energy market to achieve energy sustainability, efficiency, security and reliability through the development of an integrated energy network, harmony of regulation, diversification of supplies and market liberalisation. The following are examples of such initiatives:

The European Energy Union plan presented by the European Commission in 2015 is a strategy to (1) create an integrated energy network, (2) increase energy security and efficiency and (3) increase research for new energy sources. This plan includes building new energy storage capacity and delivery routes, sharing available energy supplies across borders, reducing reliance on single or dominant energy suppliers, and increasing competition in a liberalised energy market.

The Energy Community, of which Albania assumed the Chairmanship in January 2015, is an international organisation with members including the EU and 8 other contracting parties, 6 of which are Balkan countries – Albania, Bosnia and Herzegovina, Kosovo, FYR Macedonia, Montenegro, Serbia – along with Moldova and Ukraine. The aim of the Energy Community is to extend the EU internal energy market to South East Europe and beyond on the basis of a legally binding framework through actions that are consistent with the European Energy Union objectives.

Southern Gas Corridor Initiative – An EU initiative that supports the development of an expanded natural gas network in South East Europe to ensure natural gas supplies to the Balkans and the wider European continent from Caspian and Middle Eastern regions including Azerbaijan, Turkey, Georgia, Turkmenistan, Kazakhstan, Iraq, and Mashriq (Middle East) countries with Uzbekistan and Iran as future potential sources. [Note: In July 2015, Iran’s Deputy Oil Minister reported that plans to deliver Liquified Natural Gas from Iran to Europe beginning in approximately 5 years would be more cost effective than the delivery of natural gas via a pipeline based on current cost data.]

The European Union Emissions Trading System (EU ETS), which is effective in the 28 EU Member States as well as the European Free Trade Association countries of Iceland, Norway and Liechtenstein, is an EU initiative to combat climate change and reduce industrial greenhouse gas emissions cost-effectively. It is the first and largest international system for trading greenhouse gas emission allowances, covering more than 11,000 power stations and industrial plants as well as aircraft operators performing aviation activities within the system’s jurisdiction. The EU ETS covers installations from sectors principally consisting of power and heat generation, energy-intensive industries (oil refineries, steel works and production of iron, aluminium, metals, cement, lime, glass, ceramics, pulp, paper, cardboard, acids and bulk organic chemicals), and commercial aviation, which are responsible for approximately 45% of total greenhouse gas emissions from the 28 EU countries. Emissions of greenhouse gases from installations participating in the EU ETS are estimated to have decreased by at least 3% in 2013.

The USAID Clean Energy Investment Project, which began in 2013, is a three year initiative in FYR Macedonia that supports investment in energy generation from renewable sources and the development of energy efficiency technologies that reduce overall energy consumption without sacrificing productivity.

Renewable Energy and the Economy

Marshall Burke of Stanford University is the lead author of a scientific study* conducted in conjunction with University of California Berkeley researchers and published in the October 2015 scientific journal Nature. This study forecasts socio-economic impacts by the end of this century from unmitigated global warming which would lead to a 23% decline in incomes around the world compared with a world that does not feature climate change. The study includes accompanying forecasts concerning a decline in agricultural productivity (especially including wheat yields), a decline in labour productivity, and an increase in violence and conflicts. This study is based on data analysis from 166 countries during the last century. Robert Stavins, an environmental economist at the Harvard Kennedy School in the U.S., has additionally reported that “many economic impacts of climate change will be outside of markets, such as many ecological impacts, which are nevertheless economic.”

In view of these and other forecasts, global societies are encouraged to achieve energy efficiency as the term applies to industrial production; our appliances; the fuel economy of our cars; and the buildings in which we live and work through the use of certain building materials and insulation. The term energy intensity, however, is something altogether different and this greatly impacts the cost of energy to businesses and households; therefore, the levels of both energy efficiency and energy intensity greatly affect the national Gross Domestic Product of every country.

This session will explore the distinction between “energy efficiency” and “energy intensity” and the way in which high energy intensity and low energy efficiency adversely affect energy costs to businesses and private households.

*”Global non-linear effect of temperature on economic production”, 15 October 2015, Nature

World Energy Council Warning

The World Energy Council, comprised of energy companies, academics and public sector agencies, has issued a warning that the world’s energy systems, including fossil fuel power stations, distribution grids, and the networks that reach to homes and industry, are all at risk from effects such as flooding, severe storms and sea level rises because the infrastructure was not constructed to withstand the extreme weather events that are forecast to become more frequent in the future.

Christoph Frei, Secretary-General of the World Energy Council, said “Current estimates for the cost of energy system adaptation do not fully account for the additional financing required to accommodate these new emerging risks.” Bank of England Governor Mark Carney reported to a Lloyd’s of London meeting earlier this year that the global insurance industry’s annual weather-related losses are now $200 billion a year which is a fourfold increase in just 30 years, while the insurance industry has reported that annual losses of the uninsured currently exceed $130 billion.

Background Information, including country highlights, on Balkan Gas, Oil, Coal and Renewable Energy Sources

GAS

Russia and Balkan Natural Gas Imports

Russia has been a major supplier of natural gas imported by EU, Balkan and other neighbouring countries primarily transiting through Ukraine; however, heightened geo-political tensions have resulted in disruptions to natural gas deliveries from Russia which have adversely impacted the affected countries and spurred plans to diversify natural gas sources.

Development Plans to Diversify Natural Gas Supplies

South Caucasus Pipeline – This existing pipeline begins in Azerbaijan and supplies Georgia and East Turkey. It will connect with the Trans-Anatolian Pipeline for future gas distribution.

Trans-Anatolian Pipeline (TANAP) – Construction began March 2015. Gas from the offshore Shah Deniz II natural gas field project in Azerbaijan, which is financed in part by the European Bank for Reconstruction and Development (EBRD), will be transported from the South Caucasus Pipeline through Georgia across Turkey to its western border with the EU (north-west Greece) at which point it is to connect with the Trans-Adriatic Pipeline.

Trans-Adriatic Pipeline (TAP) – TAP A.G. is the joint venture that will build and operate the pipeline which is deemed to be one of the most important projects on the EU list of Projects of Common Interest. Natural gas from the Shah Deniz II field in Azerbaijan will be distributed from north-west Greece (where the Trans-Anatolian Pipeline will end) via Albania and the Adriatic Sea to Italy and further to western Europe. Construction is expected to begin in 2016. The first gas sales to Georgia and Turkey are targeted for late 2018, followed by the first deliveries to Europe approximately one year later. There is a 25 year contract for the first stage of gas to be supplied by Azerbaijan for delivery via TAP. TAP A.G. also plans to construct an underground natural gas storage facility in Albania with reverse flow capabilities. The European Investment Bank (EIB), the largest international financier in the Western Balkans, launched the initial TAP project appraisal and confirmed in February 2015 that TAP is among its priority projects as the EIB plays a key role in the TAP development operations.

Ionian-Adriatic Pipeline (IAP) – The IAP is a proposed natural gas pipeline with reverse flow capability that will deliver gas supplied by Azerbaijan. The IAP will connect with the Trans-Adriatic Pipeline in Fier, Albania, travel through Montenegro and Bosnia & Herzegovina and end in Croatia where the IAP will be connected to the existing gas transmission infrastructure of Croatia and may in the future be connected to the proposed LNG terminal in Krk, Croatia.

Proposed Turkish Stream – Since Russia cancelled South Stream, the proposed Turkish Stream concept would export Russian gas across the Black Sea to north-western Turkey and possibly to southern Europe. In the summer of 2015, Russia halved its proposed capacity whereby Turkey would use one half and the remainder would be distributed. No agreement has been finalised as of August 2015 and, if finalised, the scope of the plan may be modified to a Russia/Turkey project.

Balkan Country Highlights

Turkey – In addition to the fact that Turkey relies on imported gas and oil to meet 97% of its energy needs, Turkey is also primed to become a significant natural gas pipeline hub. However, currently most of its natural gas pipeline connections only bring natural gas into the country, as growing demands have left little natural gas for export. Turkey is the second largest consumer of Russian natural gas. Since 2010, Turkey has experienced some of the fastest growth in total energy demand among countries in the Organisation for Economic Cooperation and Development (OECD).

Natural gas represents roughly one third of the country’s total primary energy supply and 46% of electricity production. Domestic production represents 1-2% of the country’s needs. Its natural gas imports (86% from pipeline, 13% from LNG) are principally supplied by Russia (57%), Iran (20%), Azerbaijan (10%), Algeria (8%) and Nigeria (2%) based on 2013 data. [LNG is principally delivered by Algeria, Nigeria, Qatar, Norway, Egypt, Netherlands and France.] Turkey is vulnerable to gas supply disruptions due to insurgent activity as well as cold weather in exporting countries. In addition, Turkey’s imported gas from Russia is currently carried through (1) the Blue Stream pipeline under the Black Sea direct from Russia and (2) the Western pipeline which transits through Ukraine. If there is a disruption in supplies through the Western pipeline, Ukraine might be able to meet its gas import requirements if Germany and Poland provide a reverse flow of gas to Ukraine; Turkey, however, would experience a loss of much needed gas imports, especially as it has a limited capacity to process any LNG imports and the country’s storage capacity of the gas it consumes is only 5% which is the lowest storage capacity in Europe (compared to Austria, Slovakia, Hungary with a capacity of 50% of what they consume and France, Germany, Italy with more than 20% capacity). Key elements of Turkey’s overall gas security policy are diversifying its long-term supply contract portfolio, forming an energy hub from Central Europe and the Middle East to Europe, increasing natural gas storage facilities, cutting back contractual supplies, and fuel switching to alternative fuels in power generation.

Note: Although Turkey supports natural gas transit across Turkey via pipelines, it does not appear to be as supportive of LNG transit. Ukraine, Romania, and Bulgaria have all, at one time or another, proposed building LNG import facilities on their Black Sea coasts. However, the only way for an LNG tanker to reach such a facility would be through the Turkish Straits, and Turkish authorities have indicated that they would not allow LNG vessels to transit the straits for safety reasons. Additionally, the straits are already a major shipping chokepoint, especially for cargo classified as hazardous (which includes LNG as well as crude oil and other petroleum liquids).

Croatia – produces between 60-65% of its gas consumption and imports the rest from Russia. The proposed Ionian-Adriatic Pipeline (IAP), which is a project supported by Croatia, Albania, Montenegro and Bosnia & Herzegovina, will deliver Azerbaijan gas to these European countries along the pipeline which will connect with the Trans-Adriatic Pipeline in Albania and Croatia’s gas infrastructure. Since South Stream collapsed, Croatia is developing a feasibility study for an LNG terminal in North Croatia which could be built by 2019-2020. One challenge is the cost of LNG from Qatar, Africa and North America which is currently more expensive than piped Russian gas. Croatia launched tenders for offshore oil/gas exploration in the Adriatic and wants to be a net gas exporter by 2020. (By 2018, Australia and the US plan to boost LNG exports putting downward pressure on global LNG prices.)

Greece – Two-thirds of the country’s gas requirements are supplied by Russia via Turkey and Bulgaria while most of the remaining requirements are met by Algeria in the form of LNG to the Revithoussa terminal near Athens. There is a proposal for a floating LNG terminal for storage and re-gasification near Kavala in the North Aegean. Bulgaria, Romania and Serbia have expressed an interest in the LNG proposal as potential joint venture partners. There are distant prospects of importing gas from Cyprus and/or Israel.

Romania – Gas represents 30% of gross inland energy conumption. Romania produces 85% of its own gas needs, while 15% of its gas consumption is supplied by Russia. At Port Constanta, there is an LNG terminal and re-gasification facility under construction with the support of EU financing and an expected 2018 completion date. There is a proposal to import gas from the Greek LNG terminal which will eventually be linked to the Trans-Adriatic Pipeline. Romania aims to (a) become a growing gas consumer, a gas exporter as well as an important transit hub, and (b) reduce its energy costs as well as carbon emissions by diversifying its gas sources and substituting gas for diesel fuel and other oil products where feasible, including in ships.

Serbia – Natural gas represents 12% of its total inland energy consumption. It produces roughly 10% of the gas consumed and imports 90% of its gas which is delivered from Russia through Ukraine and Hungary at prices relatively high compared to other countries such as Hungary and Ukraine. With the cancellation of the South Stream project by Russia, Serbia aims to develop its energy infrastructure, especially as it lacks gas storage capacity, and diversify its energy sources. One option under consideration is to build a connection to the Trans-Adriatic Pipeline through neighbouring countries in order to bring Azerbaijan gas through Turkey, Greece, Albania and Southern European markets. Another option under consideration is for Serbia to develop access to a proposed North Croatian LNG terminal with the support of US and EU finds that have been offered.

Kosovo – In Kosovo, which is lacking reliable and affordable energy sources, there is an absence of natural gas resources or pipeline to import gas. Medium term gas delivery and consumption is unlikely but the long term feasibility exists with outside assistance from the Energy Community, World Bank Group and other institutions.

FYR Macedonia – has no domestic production and its relatively small imports are from Russia through Ukraine. The country has only one main gas pipeline and less than 15% of its capacity has been used primarily by industrial customers.

Montenegro – relies principally on electricity and currently has no domestic gas production or distribution system. Gas consumption is limited to the use of cylinders. There is, however, a medium term Gas Development Master Plan commissioned by the European Investment Bank. According to the Economy Minister in February 2015, Montenegro aims to diversify its energy sources and reduce its energy costs through the (a) delivery of Azerbaijan gas to Montenegro via the proposed Ionian-Adriatic Pipeline and (b) planned expansion of the regional gas infrastructure network to include more natural gas and LNG supplies. As a transit hub, the country expects to benefit financially from the future collection of gas transit fees. Gas exploration in the Adriatic Sea may result in future extraction and another supply source.

Albania – According to the Deputy Minister for Energy and Resources on 26 March 2015, electricity is the only source of energy in the country and is “very much dependent on weather conditions”. Albania currently has no natural gas import capacity; however, with the construction of the Trans-Adriatic Pipeline (TAP), the country will have three connection points and this will permit the country to become a gas importer, consumer and transit hub. This will enable the country to reduce its exclusive dependence on electricity, begin diversification of energy sources and contribute to the further development of the South-Eastern European energy network consistent with the Energy Community aims. TAP is expected to contribute €500 million to the Albanian economy, boost employment as many domestic companies are scheduled to be involved in the project, deliver gas to all sectors of the economy (households, business, industry) and allow for closer international relations between Albania and Azerbaijan from which the gas deliveries will originate.

Bosnia and Herzegovina – Two of the country’s three autonomous entities import gas from Russia which is delivered via Ukraine, Hungary and Serbia, while the third autonomous entity– the Republic of Srpska – obtains gas directly from Russia, bypassing BH Gas.

Bulgaria – Natural gas is the least used energy source and represents 14% of total energy consumption. Roughly 90% of the consumed gas is from Russia, most of which is delivered through Ukraine. Bulgaria has the least developed gas infrastructure and highest gas prices in all of Europe; however, there is an LNG terminal under construction in the Port of Ruse which will expand the country’s role in the development of a natural gas supply and distribution network in South East Europe.

OIL

Turkey’s Role in the Balkan/European Oil Market

In addition to the fact that Turkey relies on imported oil and gas to meet more than one half of its energy needs, Turkey is also playing an increasingly important role in the transit of oil. It is strategically located at the crossroads between the oil-rich former Soviet Union and Middle East countries, and the European demand centres. It is home to one of the world’s busiest transit lines, the Turkish Straits, through which significant volumes of Russian and Caspian oil (roughly 70% crude oil and 30% petroleum products) move by tanker via the Dardanelles and Bosporus Straits to Western markets. Through the port of Ceyhan, most of the Caspian and Iraq crude oil imports to Turkey are destined for Europe. In addition, Turkey currently has two crude oil import pipelines: the Baku-Tbilisi-Ceyhan (BTC) pipeline from Azerbaijan and a pipeline from northern Iraq to Turkey; however, supplies through the Iraq pipeline and its branches have been periodically impacted by the regional territorial conflict with Islamic State, episodes of sabotage, and regional Iraq Central Government/Kurdish Regional Government disagreements.

Balkan Country Highlights

Turkey – Oil, natural gas, hydropower and coal plants account for 97% of Turkey’s energy mix. According to the World Bank, about 60% of Turkey’s power is derived from fossil fuels, of which oil is one of the primary energy sources, accounting for roughly more than one quarter of the country’s total primary energy supply. During the last 10 years, 85-90% of the oil used by Turkey has been primarily imported from Iran (26%), Iraq (27%), Saudi Arabia (10%), Nigeria (8%), Kazakhstan (8%) and Russia (3%) which was formerly the largest source of Turkey’s crude oil.

Greece – Oil has been the dominant energy source in Greece, accounting for roughly 45% of the country’s total primary energy supply. According to the International Energy Agency, Greece has a very small amount of domestic oil production as 99.5% of the country’s oil consumption has been derived from imports. Greece primarily imports crude oil from Russia (33%), Saudi Arabia (17%), Iraq (17%), Libya (13%) and Kazakhstan (9%). There are ten oil terminals in Greece (in which six can accept crude oil) and four refineries operated by Hellenic Petroleum and Motor Oil Hellas. (In 2012, 44% of crude oil supplied to Hellenic Petroleum came from Russia.) Greece’s oil product exports have significantly increased in the last decade. As a net exporter of refined oil products, nearly 40% of the country’s total exports were gasoline/diesel oil in 2012. The destination of oil product exports include Turkey (22%), Singapore (9%), Lebanon (7%) and Libya (7%). In prior years, Iranian oil imports represented between one third to one half of Greece’s oil imports; however, these oil imports were reduced substantially due to sanctions against Iran and Greece’s debt crisis which affected its ability to pay for the oil, thereby increasing Greece’s reliance on Russia for oil.

FYR Macedonia – has only one existing oil refinery owned 81% by Hellenic Petroleum, and it produces more than 90% of the country’s total refined products. The country imports more oil products than crude oil.

Serbia – Coal represents 55% of the primary energy mix in Serbia followed by oil (27%), gas (13%) and renewable energy sources (5%). Serbia is primarily an energy importer of oil which, along with coal products, constitutes more than 80% of its yearly energy consumption. Although the country produces oil and gas in small quantities, it is heavily reliant on imports, mostly from Russia. Russian state companies have a significant investment interest in Serbia’s energy sector. For example, Russia bought a majority stake in the company that imports, processes and distributes petroleum products. One proposed project is for the construction of a pipeline from Kostanja-Romania to the NIS’s oil refinery in Pancevo with the aim to transfer Russian oil within the shortest route to the refinery unit which would be used as a vehicle for exports of primarily diesel type fuels to Bosnia and Herzegovina, Montenegro, Albania, Croatia and Slovenia which currently face a growing demand for these products.

Bulgaria – Domestic oil production is minor as Bulgaria relies on oil imports mostly from Russia. (Bulgaria imports about 75% of its primary energy resources – oil, gas, nuclear fuel, coal – from Russia.) Oil exploration is ongoing in the Black Sea and on the Romanian border. A significant part of Bulgaria’s oil industry income is derived as a transfer point on east-west and north-south transit lines.

Romania – 52% of Romania’s energy needs are covered by coal, gas and oil; 27% from renewable energy sources; and 20% from nuclear power. Although Romania has significant oil/gas reserves, coal deposits and hydroelectric power, Romania relies largely on oil and gas imports from Russia and other countries.

Albania – 53% of Albania’s primary energy sources, including oil which is predominant, are imported and there has been recent foreign investment in Albania’s oil sector, including refinery capability.

Bosnia and Herzegovina – Bosnia is dependent on oil imports from Croatia, Serbia, Montenegro and Hungary, according to the OSCE. There is no domestic oil production, and there are virtually no oil stocks; however, there is an oil refinery producing oil derivatives.

Montenegro – There is no domestic oil production. The country’s primary energy production, primarily from hydro-energy, lignite, firewood and industrial wood wastes, accounts for roughly half of total primary energy consumption. For the country’s remaining energy needs, Montenegro imports petroleum products including crude oil, diesel oil and gasoline.

Croatia – Croatia, which produces 20% of its domestic oil requirements and has refinery facilities, is heavily reliant upon imported oil which for years has represented approximately two thirds of its energy mix. Croatia’s oil reserves are located southeast of Zagreb, along the Hungarian border, and along the Adriatic Sea – an area which has been the subject of ongoing exploration.

Kosovo – Kosovo’s main source of energy generation is lignite which produces 97% of the country’s electricity. The country ranks fifth in the world for lignite reserves. Only 16% of the country’s imports consist of alternative fuel sources including petroleum.

COAL

In Serbia, Croatia, Bosnia, FYR Macedonia and Montenegro, 65-70% of electricity is produced from coal-fired power plants. More than half of Bulgaria’s electricity is produced from this source while in Kosovo, 97% of electricity consumed is from coal-fired power plants. In Turkey, it is estimated that 25% of electricity is generated from coal.

Most countries in the Western Balkans along with Greece produce energy from lignite, which is the most polluting form of coal; however, most of the region’s lignite and other coal power stations will have to be replaced or modified at some point by EU countries or those aspiring to EU membership in order to meet EU regulations. Yet, Greece, Turkey and Croatia have plans for new or upgraded plants. There is an increasing trend to import coal from outside southeast Europe due to environmental and cost reasons. Italy’s Enel has proposed building a coal-fired thermal power plant near the Albanian port of Durres. The plant plans to use imported coal and “clean coal” technology to supply the Albanian grid and the Italian market via a proposed underwater interconnector across the Adriatic Sea. Turkey is planning to double its coal power capacity in four years.

While some financial institutions such as the European Investment Bank are not financing new coal-fired power plants, there are institutions such as Chinese state banks and the China Development Bank that have reportedly signed financing agreements for lignite power plants in Serbia and Bosnia and Herzegovina. China is also reported to be participating in three other coal projects in Bosnia and Herzegovina and one in Romania.

Balkan energy reform plans that include less reliance on fossil fuels and more reliance on renewable energy sources and energy efficiency innovation are slow to be adopted by Balkan countries for a variety of reasons including the widespread availability and low current cost of coal, state ownership of energy production facilities, lack of competition, and the ability of countries to use their own domestic coal resources which is favourable to vested coal-mining interests and those employed in the sector.

While building coal-fired plants may make economic sense in the short term, one current issue concerning Balkan energy strategies is the question of how Balkan countries with EU membership aspirations plan to reconcile their continuing reliance on coal-fired power plants with:

(a) the carbon price set by the EU Emissions Trading System. In August 2015, the price was approximately €8 per tonne, but this is projected to rise to about €30 per tonne which would significantly increase the cost of energy generated from this source, and energy costs, in turn, impact national economies; and

(b) the EU commitment to reduce carbon emissions by 40% on 1990 levels, increase the share of renewables by at least 27% and increase energy efficiency by at least 27% by 2030.

RENEWABLE ENERGY SOURCES

Renewable Energy Sources (RES) – Wind, solar and hydro-power energy, which are converted to electricity, represent the principal RES in the Balkans, while lesser used RES include geothermal and biomass. There are a growing number of institutions (e.g. European Commission, International Finance Corporation of The World Bank Group, USAID), organisations (e.g. Green for Growth Fund) and programmes which support financing RES projects that include the development of infrastructure that serves effective distribution.

Balkan Country Highlights

Montenegro – Montenegro domestically produces only 2/3 of its electricity consumption, part of which is generated by hydro power which is the country’s only renewable energy source (RES). More than 50% of the country’s electricity use is devoted to space heating. Although the country does not have a renewable energy target for 2020, Montenegro has one of the greatest potentials for solar energy in South East Europe. As there is significant unexploited potential of RES in Montenegro, especially high quality hydropower potential, analysts suggest that it would be economically justified for Montenegro to double the current use of RES and include energy from solar, wind and biomass sources in the RES mix; however, only a very small percentage of the economic potential of RE sources is expected to be fully realised in the short to medium term.

Bosnia and Herzegovina – There is potential for the country to develop RES, including wind, solar, biomass and geothermal energy, although the infrastructure cost relegates these energy sources to being considered as future, long-term investments. There are currently no existing wind or solar power plants in the country, and, although 12 potential locations have been identified as feasible for wind and solar power plants, there are only wind power plants in the planning stages according to the OSCE.

Albania – Albania relies on hydropower for 90% of its electricity production. There are 83 hydro power plants in the country. (e.g. the river Drin generates about 90% of the electricity used by Albania’s local industry and households.) Dependence on hydropower brings challenges: electricity production can vary with climate change as well as through competition with the agriculture industry that has irrigation requirements.

Romania – Renewable energy sources, mainly from hydropower, constitute approximately 27% of the country’s total energy production. The Romanian government developed a National Renewable Energy Action Plan which aims to increase energy consumption from renewable sources to 38% by 2020.

FYR Macedonia – According to the National Energy Agency, hydro-electric power is the principal source of renewable energy with the potential to supply 10-20% of the country’s electricity requirements. Only 0.04% of the country’s total energy consumption is derived from solar energy and is limited principally to systems for heating water. Wind energy has not yet been significantly developed. Note: According to the National Energy Agency, biomass accounts for 9.5% of total energy consumption; however, as biomass includes the use of wood almost exclusively by households in the country, analysts have questioned the sustainability of this energy source from the perspective of the environmental consequences of wood burning and the length of time required to renew this wood energy source.

Greece – RES produce 21% of electricity in Greece (which has a 40% target for 2020 that is unlikely to be met in the absence of extensive reforms to its legal and regulatory framework which must be improved to encourage more investment in renewable energy). Wind, solar and hydro-power represent the major RES for electricity production. Wind power produces 7.6% of electricity demand in Greece (compared to 39.1% of electricity demand in Denmark). Worldwide, the country ranks fourth as a leader in solar photo voltaic (PV) power per inhabitant. Solar PV electricity generation is dedicated primarily to solar water heating systems, providing roughly 7.6% of annual electricity demand.

Croatia -RES account for roughly 15% of energy consumption. In 2013, the government adopted a national action plan for RES until 2020 which shifts the focus from encouraging wind farm construction to energy production from biomass, biogas, co-generation plants and small hydro-electric power plants. The most important barrier for a wider deployment of renewables in energy production is their cost which is still higher than the cost of conventional energy sources.

Bulgaria – Wind, solar and hydro represent the main RES which produce roughly 13% of the electricity. According to official figures, Bulgaria has fully achieved, in advance, the objectives of the “Europe 2020” strategy on the consumption of energy from renewable sources; however, there is a question regarding the sustainability of electricity produced by RES. For example, the mandatory purchase of renewable energy from the electricity distribution network is one factor that has caused a significant increase in the the energy cost to households and businesses. The reason is that the difference between the purchase price and the market cost is covered by the National Electric Company (NEK), which passes on part of its losses to the final consumers.

Kosovo – The use of RES to generate energy in Kosovo is virtually negligible, although the University of California at Berkeley noted that 38% of the country’s energy consumption could potentially be generated from wind, hydro and solar power, whereas 90% of its electricity consumption is generated from coal.

Serbia – RES represent only 6% of the country’s energy mix. Although hydro power exists and licences have been issued for wind energy projects, the investment potential remains unsatisfied.

Turkey – The country’s utilised RES are primarily hydro, and to a lesser extent wind and solar generation. Hydro-power provides 23% of the country’s energy needs while geothermal currently produces .03% of Turkey’s energy.

* This designation is in line with United Nations Security Council Resolution No. 1244/1999 and the International Court of Justice Opinion of 22 July 2010 on Kosovo’s declaration of independence.