Oft forgotten and periphery to the European Union, the Balkans plus Ukraine may have a plan to address the energy needs of the economic bloc. It’s coal-heavy, borderline uneconomic, and arguably counterproductive to the respective national agendas, but it does aim to satisfy some particularly topical pan-European goals: greater interconnection and greater energy security, i.e. reduced dependence on Russia.
Together, Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro, Serbia, and Ukraine are planning to add nearly 15 gigawatts (GW) in coal-fired capacity – a figure equal to roughly 41 percent of the region’s existing capacity. More than 90 percent of the additions will come from Bosnia and Herzegovina, Serbia, and Ukraine, who will add 1.95, 2.85, and 8.9 GW respectively. Added electricity production is estimated at 49,902 gigawatthours (GWh). In 2013, the three countries – already net exporters – sold more than 21,260 GWh abroad.
In 2014, the EU-28 imported 380,234 GWh of electricity, up nearly 9 percent from the year before. So, if we assume all added electricity is exported – disregarding transmission and distribution losses – the Balkan/Ukrainian coal rush would account for just over 13 percent of current EU electric power imports. In terms of natural gas – and specifically gas used for electric power generation – the imports could displace approximately 14 billion cubic meters (bcm). For reference, Russia exported 146.6 bcm to Europe in 2014.
The coal build out won’t happen overnight of course, if at all to the extent described above. Agreements and plans exist, but only one of the aforementioned coal-fired generation projects is currently under construction. If ambitions become reality across the board, a wave of stranded assets awaits.
Collectively known as the Energy Community, the contracting parties – the Balkans plus Ukraine and Moldova – have committed themselves to implementing relevant EU energy goals and frameworks. Put another way, it is the import of EU energy policy into non-EU countries.
In Montenegro and Serbia – scheduled to join the EU in 2020 and 2022 respectively – the estimated combined annual carbon cost for new coal capacity is nearly €77 million at the current average carbon emission permit prices of €5 per ton. Serbia alone is expected to spend €10.5 billion implementing EU laws.
Across the Energy Community, the economic costs of air pollution deaths average more than 22 percent of the respective GDPs. The EU28 average is roughly 7 percent.
Projects in Ukraine are especially shaky. The conflict in the east has hit the country’s coal industry particularly hard. Today, only 24 of the 90 coal mines in the Donbas are operating. As a result, the country has begun importing both electricity and coal from, ironically enough, Russia. Mired in debt and on the verge of default, Ukraine’s immediate future is in the hands of the European Investment Bank, European Bank for Reconstruction and Development, and the International Monetary Fund to name a few.
While the gains from any coal rush are of questionable worth to the contracting parties – and especially for those on the path to EU accession – the benefits are much more cut and dry for the EU: a nearby staging ground for dirty energy (read: cheap electricity), pan-European integration, and respite, however small, from traditional supply relationships.
To be sure, the EU appears willing to look past the Community acquis for the time being and the Chinese banks are lining up.
First published at Oilprice.com