Coal in Europe an in the Balkans Piotr Trzaskowski, European Climate Foundation July 2013.

Coal in Europe an in the BalkansPiotr Trzaskowski, European Climate FoundationJuly 2013

Importance of coal for climate The global consensus is that the world should be kept

within a 2ºC temperature rise (40-60% chance ~ 450ppm).

Conversion of known reserves of gas and oil risks concentrations of CO2 ~ 450ppm.

Conversion of known coal reserves risks concentrations of CO2 consistent with a world without ice and outside the Holocene temperature range that gave rise to human civilisation.

6 degrees temperature rise would mean 50% of known species disappearing by 2100

10 year turnaround required: 12Gt less CO2 must be emitted in 2020 in

order to achieve 450ppm (Mckinsey CC 2.1). WEO 2010 specifically projects coal use must

peak by 2020 then decline to 2003 levels by 2035 in order to stay within 450ppm.

WEO 2011 says that by 2017 world should not be building any new fossil fuel emitting infrastructure

But new coal plants lock in coal use for 40 years.

Coal in electricity production emits 2 times more CO2 per KWh than gas

“Continued growth of greenhouse gas emissions, for just another decade, practically eliminates the possibility of near-term return of atmospheric composition beneath the tipping level for catastrophic effects.” Hansen et al, 2008

Where does the EU go?

2009 European Council objective - reduce EU GHG emissions to 80-95% below 1990 levels (in context of necessary reductions by industrialised countries as a group)

EC Roadmap to a Low-Carbon Economy by 2050 (March 2011) EC Energy Roadmap 2050 (December 2011) EC Green Paper "A 2030 framework for climate and energy policies" (March 2013)

Source: Roadmap to a Low-Carbon Economy by 2050, European Commission

Role of coal in the EU energy mix

Economic risk environment - Coal not turned out to be economic

Return risks Capex risen compared to CCGT leading to diminishing competitiveness given high costs of

capital. High load factors less achievable as RES advances

Diminishing project value as utility economies of scale disrupted (eg EON’s)

Structural over-capacity in some markets (eg DE) compounded by reduction in demand and lower near term demand projections.

CCGTs and RES are being built as considered more economic, flexible, or supported.

2012/13 low wholesale prices in Europe question economics of new coal but also CCGT

Commodity price volatility Coal prices have proved volatile. 2008 price shock – coal not efficient hedge when all fossil

prices rise.

Technology risks CCS ready requirements. How far will they go? European Commission communication The Future of Carbon Capture and Storage in Europe

Mott Macdonald June 2010 update for UK government on generation costs

Policy risk environment – governments have regulated

Incompatibility risk Climate policy has continued on a 20 year tightening trend. Unabated coal is systematically in conflict with this

trend.

Legitimate policy change risks (examples) ETS and 10c derogation decision impacting on investment decisions in Poland.

IPPC Directive now clarifies that MSs can introduce EPS.

UK set to introduce EPS ‘at the level of a modern gas plant’. Meantime UK requires at least 300MW net CCS on any new coal project and introduced Carbon Price Floor on April 2013 at £15.70/tCO2.

Greece banned construction of hard coal plants in 2009.

The Dutch coal tax introduced in 2013 is now operating at a level of 13.65€/t of coal. Additionally 10% biomass cofiring is mandatory.

EU law on phasing out coal mining subsidies. Aid ending in 2018 and be replaced by closure and clean up support.

Spanish economy cannot sustain coal subsidies and has announced they will end in December 2014

Coal renaissance in the EU?

“Europe’s dirty secret. The unwelcome renaissance”The Economist, Jan 5, 2013

“Shale gas boom sparks EU coal revival”Financial Times, Feb 3, 2013

“Europe consuming more coal”The Washington Post, Feb 5, 2013

Coal renaissance in the EU?

Causes• New air pollution rules

– Large Combustion Plants Directive closures by 2015. Limited working hours

• Record-low carbon prices

• Coal relatively cheaper than gas in 2011 and 2012

• National level coal policies incentivize use of coal in the short term– In March 2013 in the UK introduction of a floor price on Co2 emissions– Jan 1,2013 coal tax in Netherlands– In Spain phase out of subsidies to coal

>>> But this is a short-term trend. Almost no new coal power plants proposed to be build in the EU.

The story of European coal campaign. New coal projects planned in mid 2007

20 projects permitted Mainly Germany, Netherlands and Italy

111 projects in the EU at various stages from early announcements of intent to seeking permission

Mostly in Germany, Poland, UK. Italy and Netherlands

RWE, DONG, Vattenfall, GDF Suez, EON, Iberdrola, PGE, CEZ, ENEA, Enel all pursuing substantial new coal

Situation 201320 permitted 13 operational or under construction one admitting it will never be

profitable (Mannheim)2 under construction, but subject to legal challenge (Datteln, Lunen); 3 face legal challenge plus significant mitigation (coal tax plus cofiring mandate - Eemshaven, Rotterdam x2); 1 IGCC dropped coal gasifier

111 announced projects 2 reached construction stage (Sostanj, Kozienice)74 shelved and abandoned15 remain just announced 22 delayed and seeking permits

RWE, DONG, Vattenfall, Iberdrola, PGE, ENEA, all abandoned new coal projectsEnel, EON, GDF Suez, CEZ, PGE, EDF all still pursuing new coal

"We conclude that further new-build coal projects in [the countries studied] are all very unlikely.”Poyry report to Uk govt., Outlook for new coal-fired power stations in Germany, the Netherlands and Spain, April 2013

Role of coal in the EU energy mix

Source: European Wind energy Association, Wind in Power 2012

Coal in the Western Balkans

• Turkey

• Western Balkans

• Existing coal in the EU

Role of coal in the power sector development plans

Source: European Wind energy Association, Wind in Power 2012

51%

15%

29%

5%

Planned capacities until 2021 in BIH, HR, KOS, RS, MN

coalgashydroother RES

Source: Regional Energy Strategy, Energy Community Treaty, Oct 2012

Developments in the EU in 2012

Plans of Western Balkan governments

Coal threat in the Balkans. How much coal in the pipeline?

Country MW

Croatia 950

Macedonia 300

Kosovo 1000

Montenegro 356

BiH 1050

Serbia 2540

Sum 6196

Source: Regional Energy Strategy, Energy Community Treaty, Oct 2012

Country New units

MW

Croatia 1 500

Macedonia 2 600

Kosovo 1 600

Montenegro 2 730

BiH 14 10000

Serbia 6 3000

Sum 26 15430

Source: coal threat list, klima alianz, June 2013

ONE COAL BLOCK MAKES A DIFFERENCE

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 20500

5

10

15

20

25

30

35

80% reduction

95% reduction

mln

t Co

2 eq

One coal block makes a difference - Croatia

Political implications for the whole EU

Source: own calculations

Plomin C

Coal threat in the Balkans - a background

Some characteristics • Lignite • Open pit mining • Underdeveloped RES sector. No trust in alternatives• A lot of dirty old coal power plants: old vs. new

argument• Energy as a social policy tool. High levels of energy

poverty• Political support for a domestic energy source –

lignite

Political uncertainties• Impact of EU accession process. 2050

perspective and climate change debate. Not a legal argument!

• RES directive and RES share increase.• Weak state institutions, no coherent energy

strategies, political manoeuvring, volatile political support, no energy market.

Investment climate and risks• Corruption is a risk, but opportunity for some • Lack of in-country financial resources• Concessionary financing (Chinese Development Bank, EBRD)• State as guarantor of foreign investments• EU thirst for cheap electricity as a driver of investments, but not now!• New coal investors and financiers (China, Turkey, S. Korea)• High CAPEX for lignite