At least 9 new lignite power plants are being planned in Bosnia-Herzegovina, Kosovo, Macedonia, Montenegro, and Serbia, but according to a new report from CEE Bankwatch Network their feasibility studies do not take into account the effect of CO2 prices. As a result, when these countries join the EU, the plants will not be competitive anymore and will need to be closed down, writes Pippa Gallop, research coordinator at CEE Bankwatch Network – just like the many coal power plants in Western Europe that are now being shut. The taxpayers in the Western Balkans will end up footing the bill.
Utilities in Western Europe are closing down fossil fuel power plants on a massive scale. Enel announced in 2014 that 23 coal and gas power stations in Italy with a capacity of 13 GW are to be scrapped within five years. In Germany, Vattenfall sold its 8 GW of loss-making lignite-fired power plants to Czech company EPH in 2016. In 2014 E.ON announced it would close 13 GW of coal and gas capacity across Europe and both RWE and E.ON have had to undergo restructuring in recent years as a result of their gas and coal plants losing value. In the UK coal fired power is dying a slow death.
The main drivers for this coal phase-out have been an increase in renewable energy coupled with very low electricity prices in most parts of Europe, and to a smaller extent, having to pay for CO2 allowances under the EU Emissions Trading Scheme.
All countries in the region except Albania are planning to construct new coal power plants using low grade brown coal also known as lignite
Now the Western Balkans countries – Bosnia-Herzegovina, Kosovo, Macedonia, Montenegro, and Serbia – look to be in grave danger of repeating the same mistake. They are planning to build new power plants that may suffer the same fate.
EU market rules also apply to the Western Balkans electricity sector via the Energy Community Treaty, which entered force in 2006. It aims to extend the EU energy market to neighbouring countries and to make sure they apply EU regulations on subsidies and at least some of its environmental standards. The EU Emissions Trading Scheme (ETS) has not yet been adopted by the Energy Community, but Accession Countries – and that includes most Western Balkans countries – need to apply it as soon as they enter the EU.
However none of this seems to have entered the heads of decision-makers in the Western Balkans, who remain wedded to producing as much electricity as possible, irrespective of the economic feasibility or impacts on the environment and climate. All countries in the region except Albania are planning to construct new coal power plants using low grade brown coal also known as lignite.
The planners assume that coal will be cheap, but not only is coal polluting, it is also going to get much more expensive. Environmental standards are gradually improving, which means additional costs due to pollution control equipment. And once the Emissions Trading Scheme is applied, it also means significant additional operating costs in the form of emissions allowances.
The region looks set to find itself stuck with a fleet of new but un-useable coal plants – a monument to the utilities’ and governments’ failure to change with the times
In a briefing published on 29 March we’ve crunched the numbers for ten new lignite power plants across the Western Balkans – one already built and nine planned – to see how much CO2 prices might add to annual operating costs.
For Pljevlja II in Montenegro, one of the smallest plants planned in the region, even with a very low CO2 price of €5 per tonne, payments would amount to nearly €8 million every year. With a CO2 price at €35 per tonne – which could easily be reached by 2030 – annual payments would come to no less than €55.6 million.
For the largest planned plant, the 600 MW Ugljevik III in Republika Srpska, annual payments would range between nearly €21 million and €146 million per year, for the same range of CO2 prices.
Worryingly, these huge costs do not appear to have been properly accounted for when planning the new coal plants.
In most cases no information is available to the public on the feasibility of the projects, even though most of the companies involved are state-owned. In those few cases where we do have some information on feasibility (Pljevlja II in Montenegro, Kostolac B3 in Serbia, Gacko II in Bosnia and Herzegovina), CO2 prices have not been properly taken into account.
Most of the new coal plants planned were initially conceived 10-15 years ago when the situation was quite different. These projects have failed to take account of the massive changes that have taken place in the electricity sector since then
In the case of Kostolac B3 in Serbia, the feasibility study summary states that CO2 prices have not been included because it is assumed that the state will pay these. But this assumption is certainly not in line with EU or Energy Community state aid rules. What’s more, in the sensitivity analysis where a CO2 price is included, it becomes obvious that even a low CO2 price is enough to render the plant uneconomic.
These findings should worry the companies developing projects, but also the governments and the public. Failure to include CO2 prices in feasibility calculations dramatically increases the risks of building coal plants that will be too expensive to operate, like many of those in Italy and Germany, and in the case of state-owned companies, it will likely be public budgets that will end up footing the bill one way or another.
Way of thinking
Most of the new coal plants planned were initially conceived 10-15 years ago when the situation was quite different. These projects have failed to take account of the massive changes that have taken place in the electricity sector since then. The companies pushing these projects urgently need to revise their feasibility assessments to take into account CO2 payments and technology improvements such as the Best Available Techniques reference document for large combustion plants which is currently under revision. If they do so, it is highly unlikely that any of the plants will turn out to be feasible.
The region’s governments also need to change their way of thinking away from generating ever-greater amounts of electricity in centralised facilities, and instead concentrate on managing demand. Demand-side energy efficiency is the best way to avoid shocks from fluctuating prices of either carbon credits or imported fuels and provides direct benefits for the public such as warmer houses and a significant number of jobs.
Some new capacity is still needed though. With a dearth of wind and solar power in the region, the governments also need to set 2030 targets for renewables and to diversify away from over-reliance on hydropower and coal. Without this, the region looks set to find itself stuck with a fleet of new but un-useable coal plants – a monument to the utilities’ and governments’ failure to change with the times.
Pippa Gallop is Research Coordinator at CEE Bankwatch Network. For the last few years she has been working to prevent public financing for environmentally and economically harmful energy projects in southeast Europe, particularly in the coal and hydropower sectors.
Jeffrey Michel says
As described at Energy Post on October 21, 2016 (https://energypost.eu/energiewende-running-limits/), Vattenfall’s 8 GW of “loss-making lignite-fired power plants” in eastern Germany could regain profitability if the new owner EPH is able to export some of the electricity to Bavaria. The decline of nuclear power generation in southern Germany constitutes an emerging market opportunity for neighboring countries that will prevail until transmission corridors for North Sea wind power are finally completed. Germany will presumably not be building gas power plants to fill this gap of only a few years’ duration.
In determining what Eastern European lignite power plants could be shut down in the foreseeable future, their individual importance for district heating may be a more decisive factor of evaluation than CO2 emissions (http://cornerstonemag.net/the-eurasian-lignite-backbone/).
Helmut Frik says
IT does not look like there is a significant market for lignite power from th e east in bavaria. A few few hours per year having a chance to sell some power for a few cents per kWh does not change the economics of a lignite plant.
That’s why the new HVDC-lines will pass the lignite plants without any substation, they will go directly in the north of the country.
Nigel West says
Jeffrey, there are ways of getting more electricity moved across a grid without needing immediate reinforcement. Might help EPH who may not need a secure transmission route to Bavaria. Transmission networks always have spare capacity to cover for unplanned circuit losses. They must have to avoid overloading the remaining circuits if some parallel ones are lost. When capacity hits an n-1 circuit (also n-2 for double circuit overhead lines) constraint, Grid operators can offer a conditional use of system connection to a big generator that includes an intertrip scheme to ditch a generator in the event of circuit losses on the grid. This prevents the remaining ones being overloaded. This works well for generators with low load factors who may not want the expense of funding extensive transmission reinforcement works.
Helmut Frik says
This does not work in germany, a planned n-1 violation would not be accepted here. It’s not Australia.
As far as I know the lignite plant would get the immediate order to ramp down to restore the spare capacity for a n-1 safety situation.
By the way, EPH just cancelled some expansion plans for the lignite open cast mines, which will leave several GW of their generation capacity without economical reasonable supply, past 2020 to 2023. Which means those GW generation will be only short time reserves soon, and not be able to operate in baseload.
Lignite plants are expensive if you want to keep them in standby. So everybody can think what is likely to happen with this capacity soon.
Nigel West says
Intertrip schemes have worked fine in the UK and are proven. They are a big help to renewables developers too who would otherwise be delayed waiting for National Grid/distribution reinforcement to commission, can take >5 years. Wind turbines can be switched off very quickly too. It doesn’t need to be immediately anyway as cables/overhead lines have short term thermal overload ratings so can run at 120% of normal rating for a few hours. It would work in Germany too – grids are grids.
Jeffrey Michel says
Lignite power generation is profitable only at particular times that may be cumulatively sufficient to cover annual operating costs. Lignite mining, on the other hand, is availed of predictably consistent revenues throughout the year because the fuel cannot be bunkered owing to its high moisture content. Continuous plant operation is therefore maintained for the purpose of sustaining mining activities that are essential to local employment while avoiding conflicts with the mining union IG BCE.
When I was evicted from an eastern German lignite community in 2008, in fact, the local residents were told that saving even one mining job was worth the destruction of their 700-year old village. The disenfranchisement provisions of German Mining Law that originated in the Third Reich remain in effect. In retrospect, however, certain settlements may prove to have been needlessly eliminated now that lignite usage is being more rapidly reduced than originally planned.
Shutting down a lignite power plant unexpectedly, which recently took place at Buschhaus in Lower Saxony to meet CO2 reduction commitments, can traumatize a region unprepared for alternative economic development. Finding new ways to export lignite power to Bavaria could therefore become a declared mining union objective for delaying that prospect. Certainly no one currently seems to know how power deficits resulting from nuclear phase-out could otherwise be compensated during windless nights.
The German government has never been able to cope fully with mining unemployment created by the Energiewende. That situation has now been aggravated by business tax refunds of well over €100 million that Lausatian communities have been obliged to repay to Vattenfall. Fractional federal funding is being provided to alleviate particular budget deficits, but viable post-lignite economies would require investments of a magnitude comparable to those of the fossil fuel era in regions blighted by decades of surface mining.
Nigel West says
For interest re. the UK. Reducing coal burn was initiated decades ago when the mineworkers were defeated after they sought to cause blackouts through strikes in an effort to stop pit closures.
The UK has built many gas fired CCGTs which displaced coal burning, except when coal has been cheap relative to gas and carbon taxes low. The next stage was to clean up the SO2 emissions problem of the remaining coal plants that had enough life left by retrofitting with FGD to remove sulphur. The UK mainly burnt hard coal so lignite issues have not arisen.
Old coal plants were then subject to limits on the remaining hours they were permitted to operate after which they were supposed to close. However a few units due to close last year have been kept on in reserve due to the very tight supply margin in the UK.