Renewable energy

Study on the Implementation of the New EU

Renewables Directive in the Energy Community

Final Report

to

Energy Community Secretariat

June 2010

IPA Energy + Water Economics EPU-NTUA

Study on the Implementation of the New

EU Renewable Directive in the Energy Community

to


IPA Energy + Water Economics 55 Melville Street

Edinburgh EH3 7HL

United Kingdom

Tel: +44 (0) 131 240 0840 Fax: +44 (0) 131 220 6440

Email: [email protected] web: www.ipaeconomics.com

TABLE OF CONTENTS

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TABLE OF CONTENTS

1 INTRODUCTION AND SUMMARY 1

1.1 Study Processes and Reports 1 1.2 Summary of Findings 2 1.3 Key Issue – Biomass Data 4

2 RENEWABLE FRAMEWORKS 6

2.1 The New Renewable Directive 6 2.2 Energy Community Progress 7

3 RENEWABLE ENERGY TARGET CALCULATION 9

4 COSTS AND OPPORTUNITIES 11

4.1 Meeting the Target – Energy Community Market Model 11 4.2 Potential Benefits 24 4.3 Opportunities in the EU 28

5 ADAPTATION OF THE DIRECTIVE FOR THE ENERGY COMMUNITY 31

6 CONCLUSIONS 33

6.1 Candidate Contracting Parties 35 6.2 Biomass Data 35

ANNEX I – RENEWABLE FRAMEWORKS – BACKGROUND REPORT 37

ANNEX II – RENEWABLE ENERGY TARGET CALCULATION REPORT 297

ANNEX III – ENERGY MARKET MODEL 327

A3.1 Modelling Methodology 327 A3.2 Results by Contracting Party 328

ANNEX IV – ESTIMATED TRANSPORT COSTS AND OPPORTUNITIES 343

Options for Meeting Target 343 Additional Fuel Cost 345 Other Costs 345 Reduction in GHG Emissions 346 Other Benefits 346

SECTION 1 INTRODUCTION AND SUMMARY

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1 INTRODUCTION AND SUMMARY

In May 2009 the Energy Community Secretariat commissioned IPA Energy + Water Economics and EPU-NTUA to study the implications for the Energy Community of implementing the new EU Renewable Energy Directive 2009/28/EC. This is the Final Report of the assignment. Following the inception period (Activity 1), the project had three main elements:

(i) Activity 2 – a review of the existing renewable energy frameworks in each country – the policy, legal, regulatory and institutional arrangements designed specifically to support the development of renewable energy – in order to assess what further measures would be necessary to meet the requirements of the new EU Directive;

(ii) Activity 3 – the calculation of an indicative renewable energy target for each country based on the methodology within the EU Directive; and

(iii) Activity 4 – an assessment of some of the potential costs and opportunities that might arise as a result of the Energy Community adopting the EU Directive.

The study focused on the seven Contracting Parties (CPs) to the Energy Community Treaty – Albania, Bosnia and Herzegovina, Croatia, the Former Yugoslav Republic of Macedonia, Montenegro, Serbia and UNMIK – and the candidate Contracting Parties of Moldova, Turkey and Ukraine.

1.1 Study Processes and Reports

This Final Report pulls together the results of each of the three elements outlined above. For the most part, the main body of this report summarises the outcome of each aspect of the study with the full reports and more detailed discussion being included in the annexes. The key milestones in the study have included:

• An Inception Report, which was issued and revised during the early weeks of the study, setting out our proposed approach to each of the activities of the study in detail.

• An Interim Report which was issued to the members of the Permanent High Level Group (PHLG) in September 2009 giving an update on the progress of the study.

• In October 2009 the first meeting of the Renewable Energy Task Force took place at which we presented our findings to date. Since this meeting, the level of engagement by the CPs has increased significantly and has helped move the study forward considerably.

• In November we issued to the Task Force members for their comment draft reports on the existing renewable frameworks of each Party and a summary report identifying the policy, legal, regulatory and institutional measures required to meet the requirements of the new EU Directive. We received a response from all Parties.

• In December we issued to the Task Force a draft report on the calculation of the renewable energy target. We received a response from all but one of the Contracting Parties and from one of the cCPs.


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• A draft of the Final Report was presented to and discussed at the second meeting of the Renewable Energy Task Force in February 2010 and to the Permanent High Level Group in April.

1.2 Summary of Findings

Under the definitions of the EU Directive, the Energy Community Parties already consume a relatively high proportion of energy from renewable sources compared with EU Member States (MSs), but increasing the proportion of renewable energy in the mix has not been a priority until relatively recently. Consequently the policy, legal, regulatory and institutional frameworks designed to support renewable energy development are at a very early stage in most countries. Although the position is developing all the time, meeting the targets and compliance with the EU Directive is likely to require new policy commitments and extensive revisions to existing legislation, plus the development of supportive regulatory and institutional arrangements. The primary provision of the Directive is the setting of mandatory targets for increasing the proportion of energy from renewable sources in the electricity, heat and transport sectors by 2020. The Directive sets individual renewable energy targets for 2020 for each Member State (MS), within which there is a separate obligation requiring at least 10% of the energy used in transport to be from renewable sources. Using the method outlined in the new Directive, we have calculated the targets for the Contracting Parties as follows (rounded to the nearest whole percentage point according to the EU methodology): Table 1: Contracting Parties 2020 Renewable Energy Targets

Party

2005

GFEC,

ktoe

RES

Share

2005

Flat Rate

Increase

Forecast

2020

GFEC,

ktoe

Residual

Effort

2020

Share

2020 RES

Target

Albania 2,054 29.3% 5.5% 3,308 1.4% 36%

Bosnia and

Herzegovina 3,008 26.5% 5.5% 4,890 1.3% 33%

Croatia 6,654 12.6% 5.5% 9,657 1.9% 20%

Former Yugoslav

Republic of

Macedonia

1,873 13.8% 5.5% 2,879 1.2% 21%

Montenegro 819 23.0% 5.5% 1,336 1.0% 30%

Serbia 9,499 12.9% 5.5% 13,706 1.1% 19%

UNMIK 1,451 27.8% 5.5% 2,240 1.0% 34%

Total 25,357 17.0% 5.5% 38,016 1.3% 24%

(Note that the figures in this table may not add exactly due to rounding.)

Due to the relatively high starting point, the overall target for the seven CPs in the Energy Community is 24% compared with the EU’s 20%. This is an overall increase of 7% from the 2005 position compared with around 11.5% increase for the EU, due to their higher GDP per capita and hence higher ‘residual effort’ required. Based on our modelling of the heat and electricity markets and our assumptions about how the 10% transport target will be met, estimates of the additional cost of meeting the Energy Community’s overall renewable target under base and low demand scenarios are shown in the table below.


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Table 2: CPs Total Incremental Cost of Meeting 2020 Renewables Target (real 2010)

€bn Base Demand Low Demand

Electricity 3.3 1.8

Heat negligible negligible

Transport 1.4-2.1 1.3-1.9

Total 4.7-5.4 3.1-3.7

The overall 24% target means that when the 10% biofuels obligation is taken into account, in fact 29% of electricity plus heat would have to be from renewable sources. The Base Demand case shows that the optimal solution to meeting this target is for new heat demand to be met from biomass until the assumed sustainable potential is almost entirely consumed. The remainder of the target would be met from new wind and hydro electricity generation capacity. In the event that the level of sustainable biomass available for heating is less than projected (because the existing level of consumption is higher than official estimates – see ‘Key Issues’ below), a greater reliance would be placed on electricity from renewable sources, which requires higher levels of more expensive wind and hydro build. It is assumed that the transport target will be met from bioethanol and biodiesel in a ratio of 35/65 (by energy). The ‘base demand’ case uses a 2020 consumption forecast based broadly on the Parties’ own forecasts of growth. The ‘low demand’ case assumes more aggressive energy efficiency policies and/or the effects of economic recession. The difference in the costs of meeting the ‘Base’ and ‘Low’ Demand cases clearly indicates the potential value of energy efficiency and energy savings policies to help meet targets. Savings in CO2 emissions against a “business as usual” scenario in the heat and electricity sector could be 20-35 mte/year by 2020 or 12.5%-21% reduction in the ‘base’ and ‘no biomass’ cases respectively. For biofuels to be counted towards the target they must offer at least 35% (rising to 50%) saving in life cycle GHG emissions compared to fossil fuels. Hence the transport sector will contribute as a minimum 3.5-5% reduction. There will also be potential employment benefits, primarily in the electricity sector, which are estimated at between 10,000 and 22,000 additional full-time jobs under the low and base demand cases respectively. Significantly more jobs would be created in the wind and hydro sectors in the low/no biomass scenario. Because they are not at the same stage of the process, data for the candidate Contracting Parties has been more difficult to access. Based on the best available sources, indicative renewable energy targets for Moldova, Turkey and Ukraine are shown below.


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Table 3: Candidate Contracting Parties Indicative 2020 Renewable Energy Targets

Party

2005*

GFEC,

ktoe

RES

Share

2005*

Flat Rate

Increase

Forecast

2020

GFEC,

ktoe

Residual

Effort

2020

Share

2020 RES

Target

Moldova 2,093 3.7% 5.5% 2,591 0.7% 10%

Turkey 65,868 15.6% 5.5% 82,282 3.4% 25%

Ukraine 82,851 1.9% 5.5% 89,246 0.6% 8%

Total 150,812 7.9% 5.5% 174,118 1.9% 15%

* 2005 data for Ukraine was not available, so the calculation has been based on a 2006 energy balance from the IEA.

Moldova’s biomass potential appears greater than its target and hence there appears to be scope for achieving the target through biomass for heating alone at negligible additional cost. Data for Turkey and Ukraine was very limited. Indicative estimates of the cost of meeting their targets are discussed at a high level at Section 4.1.5.

1.3 Key Issue – Biomass Data

The availability of data and the inconsistency of data collection and measurement methods across the region has been an issue throughout this study1. Unlike the EU, for 2005, the base year for the calculation of the renewable energy target, the Energy Community did not have a common approach to reporting energy statistics. Indeed several of the Parties did not exist at this point. Over the course of the assignment we have been able to reach a position of broad consistency on the majority of data, but there remains an issue about the measurement of biomass consumption in 2005. In the absence of a common methodology we believe that different Parties may have used different approaches which result in very different statistics. The biomass consumption in 2005 is a critical element of the renewable energy target calculation. This issue is discussed in more detail in Annex II, in our Report on the Calculation of the Renewable Energy Targets, but the table below illustrates the diversity of the proportion of biomass in the energy mix of each Party and shows how they compare with neighbouring countries in the EU. UNMIK in particular is an outlier and has confirmed that this number is based on recent surveys, which include estimates of household consumption of biomass for heating purposes. This measurement of consumption is consistent with the EU methodology, but UNMIK has indicated that this level of consumption is not sustainable. With the exception of Serbia, most of the other CPs’ proportions are broadly consistent with IEA data, although the IEA report indicated that official statistics could be significantly underestimating the volume of wood used in households for heating. This suggests that the statistics may not be a measure of final consumption as required by the EU methodology.

1 The collection, verification and cleansing of data has been by far the greatest element of this study – a much more substantial task

than we had anticipated. The significance of the issue for future studies should not be underestimated.


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Serbia’s number looks low, but is explained by the Party as being due to the higher proportion of gas-fired district heating plant in Serbia compared with elsewhere. Table 4: Proportion of Biomass in Gross Final Energy Consumption 2005

Party

Proportion of

Biomass

(as % of GFEC)

2005

Albania 11.3

Bosnia and Herzegovina 6.1

Croatia 5.4

FYR Macedonia 8.1

Montenegro 5.9

Serbia ** 3.2

UNMIK * 26.7

Moldova 3.4

Turkey 8.1

Ukraine 0.7

Bulgaria 6.8

Romania 12.2

Slovenia 9.3

* This is the ‘total renewables’, but is almost entirely biomass.

** 2008 Data for the EU MSs and Croatia is from Eurostat

The effect of inconsistent biomass measurement is potentially three-fold:

(i) UNMIK may have a disproportionately high 2020 target compared with other Parties. However, given that the 2005 starting point is also high, providing the methods of measurement remained the same, the effort required by UNMIK to achieve the 2020 target would be in line with everyone else’s;

(ii) If the IEA is correct that official statistics under-estimate the total consumption of biomass, it could lead to Parties being able to meet their targets simply by a re-measurement rather than by additional effort. This is inconsistent with the objective of the Directive. This further emphasises the importance of ensuring that the same method of measurement is used for biomass consumption in 2005 and in future years; and

(iii) Assuming that the measurement method remains the same, if current biomass consumption is underestimated, it reduces the available resource out of the total potential for meeting the future 2020 target. Our sensitivity analysis suggests that the additional cost of meeting the Energy Community target could be considerably higher if sufficient sustainable biomass is not available.

In order to address these issues, more accurate and consistent biomass consumption data would be required, measured on the same basis for each Party. This is likely to require a new data collection process. In this context, further consideration will be required of the sustainability of 2005 levels of biomass consumption. At the moment the Directive has no sustainability criteria for biomass, yet it would seem perverse to set Parties a target that required ongoing unsustainable consumption (for example based on illegal logging) in order to meet it.

SECTION 2 RENEWABLE FRAMEWORKS

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2 RENEWABLE FRAMEWORKS

Activity 2 of this assignment was the Renewable Energy Framework Analysis, the full report of which is contained in Annex I. We have reviewed the existing policy, legal, regulatory and institutional framework for renewable energy in each of the Contracting Parties (CPs) and three of the candidate Contracting Parties (cCPs) to the Energy Community Treaty and assessed what measures require to be taken in order to comply with the new EU Directive 2009/28/EC on the promotion of the use of energy from renewable sources2. In undertaking this task, a specific focus was put on assessing the level of compliance of the existing frameworks with the provisions of the new Directive 2009/28/EC. While a similar report was recently prepared by USAid and Hellenic Aid3, our review expanded and further detailed the scope of the assessment according to the definitions of the new Directive. The scope of our review covers the overall renewable energy sector, including transport, and assesses the specific provisions set by the EU for the promotion of renewable energy. The report is designed to serve as a tool and checklist for CPs and cCPs to establish gaps in compliance and identify actions required to implement the new EU Directive. It will help to gauge the regulatory impact of implementing Directive 2009/28/EC and serve as a complementary document to the quantitative analysis that we have undertaken, the results of which are presented in subsequent chapters of this report. Contracting Parties have had an opportunity to review and comment on:

(i) the overall Background Report, which summarises the main provisions of the new Renewable Directive and analyses the ‘gaps’ between CP’s existing renewable energy frameworks and the requirements of the new Directive; and

(ii) our review of each CP’s own existing framework. CP/cCPs responses have been taken into account in producing the final version of the reports in Annex I.

2.1 The New Renewable Directive

Under the new Directive, the requirements on Member States (MSs) to promote the use of energy from renewable sources has been expanded and intensified by the setting of mandatory targets. The new Directive extends the scope of preceding legislation, amending and repealing Directives 2001/77/EC on the promotion of the use of electricity from renewable energy sources and 2003/30/EC on the promotion of the use of biofuels and other renewable energy sources in transport. Directive 2009/28/EC essentially further harmonises the frameworks for the promotion of renewable energy across the Member States of the EU. The Directive is accordingly more detailed and lessons learnt have been incorporated where the Commission has the right to take initiative based on the principles of subsidiarity and proportionality. Annex I to this report includes a summary of the main provisions of the Directive and compares them with the provisions of the previous Directives.

2 Directive 2009/28/EC on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC. 3 “Stocktaking Report for Regional Assessment of Renewable Energy” (Review Draft April 2009)


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2.2 Energy Community Progress

Under the definitions of the new Directive, compared with most EU Member States the Energy Community CPs already have a relatively high proportion of energy from renewable sources. However, the active promotion of renewable energy sources has only recently become an issue of concern. Whilst some form of action has now been commenced by all of the Parties, by and large the policy, legal, regulatory and institutional frameworks in the Region remain at an early stage. Progress in developing renewable energy frameworks varies between Parties. Croatia for example is relatively well advanced, largely driven by its EU accession negotiations. UNMIK and the Former Yugoslav Republic of Macedonia have also made good progress in developing legal and regulatory instruments and others (Albania and Montenegro) are in the process of developing new legislation to facilitate renewable energy development. Serbia has passed new legislation since this study began. In some countries, support for specific forms of renewable energy (mostly for wind and small hydro electric generation) is quite well established. However, provisions for the support of renewable energy for heating and cooling is almost non-existent, with only UNMIK (and to some extent the Former Yugoslav Republic of Macedonia) having any existing legal or regulatory provisions. Where Parties have already made progress in the development of legal and regulatory frameworks, they have inevitably been designed to meet the requirements of the previous/existing Directives. The developments in the new Directive mean that as a minimum, existing legal and regulatory instruments will require to be updated (although the most recent legislative amendments – Serbia and Montenegro for example – have already sought to incorporate some of the requirements of the new Directive). The adoption of the new Directive could have more fundamental implications for many of the Energy Community Parties. The new mandatory targets (see Section 3) require around a 7% increase in the proportion of energy from renewable sources in most Parties. With CPs forecasting continued annual energy consumption growth of 2-4% until 2020, these targets represent a significant increase in the proportion of renewable energy in the energy mix. Given that there has been negligible growth in renewables in the last decade, achieving these mandatory targets could require a radical policy rethink about how the required volumes of new RES energy will be sourced – whether from domestic resources or through joint projects and initiatives. For example, one of the main provisions of the new Directive is a series of ‘flexibility measures’ designed to encourage ‘transfers’ of renewable energy from countries with high resource potential to those with less. The scope for the Energy Community CPs to meet their targets by sharing resources will require new policy mechanisms as well as administrative arrangements. A new policy approach would inevitably also require new legal and regulatory measures, including revised support schemes, in order to implement it. Finally, the focus of this part of the assignment has been on the extent to which existing frameworks have been developed and identifying what remains to be done in order to meet the requirements of the new EU Renewables Directive. We have not been in a position to assess the effectiveness of existing support schemes for example, or whether the measures implemented in each country will in fact be sufficient to attract renewable energy investment. If Parties are to meet their


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mandatory targets (or indeed to exploit the potential to help EU MSs meet their target (see discussion at section 4.3)), the attractiveness of support schemes and the ease with which renewable energy suppliers can gain access to networks and markets will become increasingly important. It will also be important that sufficient institutional capacity is available to implement documented policy and regulatory measures.

SECTION 3 RENEWABLE ENERGY TARGET CALCULATION

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3 RENEWABLE ENERGY TARGET

CALCULATION

The primary purpose of the new EU Directive is to set binding targets for the increased use of energy from renewable sources. The Directive sets an overall target of 20% for the EU and individual targets for Member States based on their existing level of renewable energy and their level of economic development. Within the overall energy target there is a specific obligation to meet 10% of energy used in transport from renewable sources. Activities 3 and 4 of our assignment required us to calculate renewable energy targets for the Energy Community Parties; to assess the costs of meeting the targets and to explore potential benefits. This chapter summarises the target calculation (our full report on the target calculation, incorporating the comments of Contracting Parties, is attached in Annex II). Chapter 4 looks at the costs and opportunities of adopting the targets. We have calculated 2020 targets for renewable energy production for the seven CPs and indicative targets for the three cCPs based on the methodology used by the European Commission to calculate the allocation of the EU’s 20% target among its Member States. This involves three elements:

• Share of renewables in gross final energy consumption (GFEC) in 2005;

• Flat rate increase of 5.5%, being half the total effort required by the EU to achieve their desired 20% share; and

• Additional residual effort determined on the basis of relative GDP per capita.

The premise is that the Energy Community Parties should undertake a similar level of ambition as the EU countries, but recognising their individual starting points and level of economic development. We have relied on information provided by the Parties, cross-checked and augmented with data collated by third parties including the International Energy Agency (IEA) and the US Energy Information Administration (EIA). The calculated targets (rounded to the nearest percentage point as was the approach for the EU) for the Contracting Parties are summarised in Table 5: Table 5: Contracting Parties 2020 Renewable Energy Targets

Party

2005

GFEC,

ktoe

RES

Share

2005

Flat Rate

Increase

Forecast

2020

GFEC,

ktoe

Residual

Effort

2020

Share

2020 RES

Target

Albania 2,054 29.3% 5.5% 3,308 1.4% 36%

Bosnia and

Herzegovina 3,008 26.5% 5.5% 4,890 1.3% 33%

Croatia 6,654 12.6% 5.5% 9,657 1.9% 20%

Former Yugoslav

Republic of

Macedonia

1,873 13.8% 5.5% 2,879 1.2% 21%

Montenegro 819 23.0% 5.5% 1,336 1.0% 30%

Serbia 9,499 12.9% 5.5% 13,706 1.1% 19%

UNMIK 1,451 27.8% 5.5% 2,240 1.0% 34%

Total 25,357 17.0% 5.5% 38,016 1.3% 24%

(Note that the figures in this table may not add exactly due to rounding.)

SECTION 3 RENEWABLE ENERGY TARGET CALCULATION

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The overall target for these seven Parties is higher than the EU’s 20% primarily because of their much higher share of renewable energy in 2005 (17% against 9%), partially offset by a much lower residual effort on the basis of lower GDP per capita (1.3% versus 5.5%). One issue that arose in the calculation of the 2005 renewable energy share was the measurement of biomass use. It is thought that wood in particular is extensively used by households as a source of heating fuel throughout the Energy Community (much more so than in most EU Member States), with actual consumption by most Parties being much greater than is reflected in official statistics calculated from surveys of producers and traders. It should thus be noted that the 2005 renewables shares shown above which are based on official statistics, may be an underestimate of the actual situation, with the exception of UNMIK’s which, we understand, has been based on a recent consumption-side survey. This issue is of particular relevance where Parties appear to have used different methods for measuring biomass heat consumption. Concern has also been expressed over whether the UNMIK biomass consumption estimate reflects sustainable resource utilisation. UNMIK has indicated that 2005 biomass consumption levels reflected extensive illegal logging which cannot be sustained. It suggested that a target based on consumption levels consistent with proper forestry management would be more appropriate. We have listed the three candidate Contracting Parties separately since they are at an earlier stage of the process than the seven Contracting Parties, and hence data for them has not been available to the same degree. These targets should thus be treated as indicative only, and new ones should be calculated when more accurate data becomes available. These indicative results are summarised in Table 6: Table 6: Candidate Contracting Parties Indicative 2020 Renewable Energy Targets

Party

2005*

GFEC,

ktoe

RES

Share

2005*

Flat Rate

Increase

Forecast

2020

GFEC,

ktoe

Residual

Effort

2020

Share

2020 RES

Target

Moldova 2,093 3.7% 5.5% 2,591 0.7% 10%

Turkey 65,868 15.6% 5.5% 82,282 3.4% 25%

Ukraine 82,851 1.9% 5.5% 89,246 0.6% 8%

Total 150,812 7.9% 5.5% 174,118 1.9% 15%


Given the large size of both Turkey and Ukraine in terms of energy consumption compared to the rest of the Energy Community (respectively over two and three times as large as the other parties combined), it is important that robust data is obtained for them before their targets are established as even small errors would severely skew the calculations. Our full report detailing the calculation of these targets is given in Annex II.

SECTION 4 COSTS AND OPPORTUNITIES

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4 COSTS AND OPPORTUNITIES

This chapter considers the potential costs and some of the opportunities associated with adopting the Directive and meeting the renewable energy targets.

4.1 Meeting the Target – Energy Community Market Model

One of the primary assumptions underpinning the provisions of the EU Directive was that Member States (MSs) would be able to share their renewable resources. Individual targets do not take into consideration the resource potential of MSs, so Statistical Transfers and Joint Project provisions in the Directive allow for renewable energy produced in one country to be effectively ‘transferred’ to the account of another. Consequently, adopting the same approach in principle, in assessing the cost of meeting the target in the Energy Community we have assumed that the resource potential will effectively be shared between CPs using statistical transfers and joint projects to meet the overall target. We have not assumed any imports of renewable energy from the EU or from Third parties. We have looked at the cost of meeting the target as a whole, from Energy Community resources, in the most economically efficient way. One of the Parties commented that in order to assess the implications of the Renewable Directive, it would be necessary for them to understand the costs/opportunities to them individually, rather than to the Community as a whole. Whilst it has not been within the scope of this study to consider the implications for individual CPs, in any case, the costs to individual Parties will be entirely dependent on the policy decisions of individual Governments and their plans for meeting their own target (e.g. from domestic resources or from imports). Many of these decisions and plans have not yet been developed. Consequently, it was considered most beneficial to the Community as a whole to look at the costs of meeting the overall target and to assume that the CPs make the most economically efficient decisions in the use of Community-wide renewable resource potential.

4.1.1 Bespoke Energy Community Market Model

We constructed a high-level model of the energy (electricity and heat) systems of the seven CPs based on our proprietary market modelling platform, ECLIPSE (Emissions Constraints and Policy Interactions in

Power System Economics). The model aims to satisfy both electricity and heat demand in each region at least overall cost from 2010 to 2020. The total cost is a combination of fuel and operating costs as well as the annualised cost of new plant build. The model calculates a single most economic despatch solution for the seven Parties together, incorporating transmission of electricity between them via interconnectors. As a balance between accuracy and computational complexity, we have modelled by plant type and every other year. As with the target calculations, we have not included the three candidate CPs at this stage. This was primarily due to a lack of reliable data, and given the relative size of Turkey and Ukraine in particular compared to the rest of the Energy Community, small errors in data would have a disproportionate effect on the overall calculation.


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We have not explicitly modelled energy use for transport, but instead assumed that the transport renewable obligation of 10% by 2020 is achieved (incentivised by appropriate policy measures) and thus calculated a residual renewables target to be met in the electricity and heat sectors. Further details about the modelling are provided in Annex III.

4.1.2 Key Assumptions

The main assumptions we have made for this modelling are described below. Demand The target calculations required a forecast of gross final energy consumption in 2020, for which we used information provided by the CPs. For consistency therefore, we have used the same sources for the split of this total energy consumption between electricity, heat and transport, where such information was available, and calculated the intermediate growth of each sector from the known 2005 position (based on the baseline energy balances) to 2020, shown in Figure 1.

Figure 1: CPs Total Forecast Energy Demand: Base Case

0

50

100

150

200

250

300

350

400

450

500

2010 2012 2014 2016 2018 2020

Dem

an

d, T

Wh

Transport

Heat

Electricity

We have also considered an alternative demand growth case, with lower overall growth which could be seen to result from the global recession and/or more ambitious policies on energy efficiency. The methodology used for this calculation is based on a relationship between energy intensity development and GDP growth, and is described in detail in the target report (Annex II). The same split between the three sectors as calculated for the main growth forecast was then applied to this alternative case, giving a total projected demand as shown in Figure 2.


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Figure 2: CPs Total Forecast Energy Demand: Alternative Case

0

50

100

150

200

250

300

350

400

450

500

2010 2012 2014 2016 2018 2020

Dem

an

d, T

Wh

Transport

Heat

Electricity

Annual electricity demand shape was derived from historic average data from ENTSO-E (European Network of Transmission System Operators for Electricity, formerly UCTE). Fuel Prices Fuel prices have been taken from a range of sources:

• Oil: We have used the IEA’s latest World Energy Outlooki crude oil

price forecast as the basis for this modelling. Their Reference Case has prices falling from the highs reached in 2008 to $86.67/bbl (real 2008) in 2015 before rising to $100/bbl in 2020. Given the similarity of the 2015 price to current market prices, we have assumed a flat real oil price from 2010 to 2015, followed by a linear increase to the 2020 value.

The prices of oil products which are used as fuels – gasoil and heavy fuel oil – tend to be directly linked to crude oil prices, and we used regression analysis on historic prices to determine appropriate ratios for these.

• Coal: We have used the IEA WEO outlook prices for imported hard coal as well, and included an uplift of $15/te as identified in a generation investment studyii for the European Union CARDS programme to reflect transportation to Southern Europe.

• Lignite: Production costs for local lignite were taken from the same GIS reportii.

• Gas: Natural gas was assumed to be linked to the underlying crude oil price, using multipliers derived from the prices used in the GIS reportii.

• Biomass: A cost of €160/toe for biomass was taken from information provided by the EBRD from projects in which they are involved in the regioniii. Given the likely extensive use of local firewood, this


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wholesale cost is probably a significant overestimate of the true cost of biomass usage for heat.

New Plant Build

Information about new generation plant build has been compiled from data provided by the Parties for this project (often energy strategies or similar) and from Plattsiv. We have specifically included plants which are known to be either under construction or firmly committed, but otherwise allowed the model to choose the level of build up to the total amount of the proposed projects. Costs and operating characteristics (efficiency, availability, etc.) of new build has been based on data from a number of external sources, including the IEAv, the EBRDiii, and a report by IRG for USAIDvi, as well as our own knowledge and judgement. The final assumptions used are detailed in Table 7 below: Table 7: New Build Technologies Cost and Performance Assumptions

Technology Capital Cost,

€/kW (2010)

Fixed O&M

Costs, €/kWyr

Variable Costs,

€/MWh

Efficiency

CCGT 600 8 1 56%

OCGT 350 5 1 35%

Coal 1,200 25 3 41%

Lignite 1,500 25 3 35%

Nuclear 3,000 75 6 -

Oil 1,000 25 3 35%

Wind onshore 1,500 50 - -

Wind offshore 2,500 90 - -

Hydro 3,000 50 - -

Geothermal 2,600 110 - -

Solar 4,500 30 - -

Biomass 2,000 50 - 37%

Biogas 2,300 250 - 41%

Interconnectors

Information about interconnectors has been taken mainly from ENTSO-E, supplemented by data received from the Parties and respective national transmission system operators. Electricity flows between the seven CPs have been calculated dynamically by the model given the relative generation costs. Flows to and from countries outside the seven CPs have been taken as identical to historic load patterns. Under the cooperation provisions of the Directive, physical flows are not required to match the ‘statistical’ transfers of renewable energy. Hence in practice, the interconnectors within the Energy Community do not act as a constraint to renewable energy flows.


15

Renewable Energy Resource Potential The total renewable resource potential in each CP is a key constraint in the determination of the feasibility and costs of meeting the 2020 renewables target. A recent study for USAID and Hellenic Aidvii was our main source for this, supplemented with information provided by the Parties, known proposed projects as detailed by Plattsiv, as well as our own calculations as necessary. For example, biomass potential for Parties where data was not available was estimated based on relative land area and assuming a similar average potential as for the CPs for whom data was available. Our resource potential assumptions are detailed in Table 8 below:

Table 8: CPs Renewable Energy Resource Potential

Party Biomass,

TWh/yr

Hydro-

Electricity,

GW

Wind

(onshore) Geothermal Solar

Albania 12.8 3.2 1.4 GW - 33 MW

Bosnia and

Herzegovina 18 6.8 2 GW 40.5 GWh/yr 33 MW

Croatia 10.8 0.2 1.3 GW 20 MW 45 MW

Former Yugoslav

Republic of

Macedonia

7.5 1.8 200 MW - 16 MW

Montenegro 4.2 2.0 400 MW - 33 MW

Serbia 19 4.6 2.3 TWh 50 MW 33 MW

UNMIK 10 0.4 ~ 50 MW - -

Total 82 TWh/yr 19 GW ~ 6 GW ~ 80 MW ~ 200 MW

In calculating the least cost way of meeting the 2020 target, we have assumed the potential for statistical transfer of renewable energy (which is all taken to be completely fungible) between the seven Energy Community CPs as detailed in the Directive.


16

Interim Targets (Indicative Trajectory)

The Renewables Directive also specifies interim target levels to be achieved by Member States as an indicative trajectory towards achievement of the binding 2020 target. For our modelling, we have included the interim targets of 30% of the additional required amount between 2005 and 2020 by 2014, 45% by 2016 and 65% by 2018, but not the 20% level by 2012 as it is likely to prove difficult for the Energy Community Parties to achieve given that they would only be implementing the provisions of the Directive from 2011. The resultant overall renewables shares for the CPs are shown in Table 9 below: Table 9: CPs Interim Renewable Energy Targets

Party RES Share 2005

2014 2016 2018 2020 RES Target

Albania 29.3% 31.3% 32.3% 33.7% 36%

Bosnia and

Herzegovina 26.5% 28.5% 29.4% 30.7% 33%

Croatia 12.6% 14.8% 15.9% 17.4% 20%

Former Yugoslav

Republic of

Macedonia

13.8% 16.0% 17.0% 18.5% 21%

Montenegro 23.0% 25.1% 26.2% 27.6% 30%

Serbia 12.9% 14.7% 15.6% 16.9% 19%

UNMIK 27.8% 29.7% 30.6% 31.8% 34%

Total 17.0% 19.1% 20.2% 21.6% 24%

4.1.3 Cost of Meeting the Community Target

In order to determine the cost to the Energy Community Contracting Parties of meeting their EU-equivalent 2020 renewables target, we initially ran our despatch model without the target to establish a “business as usual” baseline position, i.e. the economically-optimum way of meeting forecast electricity and heat demand to 2020. As shown in Figure 3 and Figure 4 below, the default situation is for the majority of both electricity and heat demand growth to be met primarily by new lignite and coal build:


17

Figure 3: CPs Total Electricity Mix 2010-20: "Business as Usual"

0

25

50

75

100

125

150

2010 2012 2014 2016 2018 2020

Gen

erati

on

, T

Wh

Net Impo rts

CHP Oil

CHP Bio mas s

CHP Gas

CHP Co al

Bio gas

Bio mas s

So lar

Geo the rma l

Hydro

Wind Offs ho re

Wind Ons ho re

P umped Sto rage

Oil

Nuclea r

Lignite

Co al

Gas ST

OCGT

CCGT

Figure 4: CPs Total Heat Mix 2010-20: "Business as Usual"

0

25

50

75

100

125

150

175

200

2010 2012 2014 2016 2018 2020

Pro

du

ctio

n, T

Wh

C HP Oil

C HP B io mas s

C HP Gas

C HP C o al

HFO

B io mas s

Gas

C o al

Under the “business as usual” case, there is about 1 GW of new wind and 250 MW of hydro built over the 10-year period, but overall the share of renewables in the electricity mix declines from 27.6% to 24.5% and in heat from 16.9% to 13.2%. Under the “base case”, with the 2020 renewables target of 24% of all energy included, equating to 29% of electricity and heat when the 10% transport biofuels obligation is taken into account, the optimum solution is for new heat demand to be met through biomass until the assumed sustainable potential in each CP is almost entirely consumed (as this is more economic and efficient that using the biomass for electricity


18

production), together with about 2.5 GW of new wind and 1 GW of new hydro build as seen in Figure 5 and Figure 6.

Figure 5: CPs Total Electricity Mix 2010-20: 2020 Renewables Target

0

25

50

75

100

125

150

2010 2012 2014 2016 2018 2020

Gen

erati

on

, T

Wh

Net Impo rts

CHP Oil

CHP Bio mas s

CHP Gas

CHP Co al

Bio gas

Bio mas s

So lar

Geo the rma l

Hydro

Wind Offs ho re

Wind Ons ho re

P umped Sto rage

Oil

Nuclea r

Lignite

Co al

Gas ST

OCGT

CCGT

Figure 6: CPs Total Heat Mix 2010-20: 2020 Renewables Target

0

25

50

75

100

125

150

175

200

2010 2012 2014 2016 2018 2020

Pro

du

ctio

n, T

Wh

C HP Oil

C HP B io mas s

C HP Gas

C HP C o al

HFO

B io mas s

Gas

C o al

Biomass use for heating is more than doubled over the period with coal only growing as national resources become limited. While lignite and coal electricity generation does still grow in the early years, wind and hydro build become important in the later years after the biomass potential is exhausted. Because the biomass potential is essentially exhausted by new heat production, we have not considered fuel switching for existing heating plants.


19

Figure 7 and Figure 8 show the dominance of biomass in the total renewable energy mix in 2020 across the seven CPs if the 24% target is to be achieved: Figure 7: CPs Total Renewable Energy Mix: Base Demand

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2010 2020

En

erg

y,

kto

eBiofuels

Biomass

Solar

Geothermal

Hydro

Wind

Figure 8: CPs Total Renewable Energy Mix: Alternative Demand

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2010 2020

En

erg

y,

kto

e

Biofuels

Biomass

Solar

Geothermal

Hydro

Wind

This switch to renewables does come at a price however. While new biomass heating is believed to be broadly similar in terms of capital and fuel costs to new coal heating, the wind and hydro build (plus small amounts of geothermal and solar) cost over €3bn (real 2010) more than the “business as usual” lignite build, after allowing for the fact that about 800 MW of new lignite/coal plant is not required. Annual operating costs are broadly similar to the “business as usual” case, with the zero fuel costs of wind and hydro offset by higher fixed costs (since about 2 GW more


20

capacity is required to generate the same energy as the lignite plant replaced, given lower load factor operation). Note that this cost does not include any new build or reinforcements to the transmission systems nor any backup generation (such as gas turbines) that are likely to be necessary to accommodate the new renewable generation and ensure security of electricity supply. The solution for achieving the overall target is not evenly distributed between the seven Parties as they each have different renewables resources. Figure 9 shows the net position of each Party in 2020 against their own individual targets for electricity plus heat.

Figure 9: CPs Individual Surplus/Shortfall vs. 2020 Renewables Targets

-5.0 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0

Albania

Bosnia and Herzegovina

Croatia

FYR Macedonia

Montenegro

Serbia

UNMIK

Shortfall TWh Surplus

Bosnia and Herzegovina and Croatia both use their spare biomass potential fairly quickly and thus have a small net renewable import requirement by 2020. Serbia, Albania and Montenegro have the greatest surplus (~ 1 TWh each) for transfer. Under the Base Demand case, the cost of meeting the 10% biofuels obligation in transport is estimated at €1.4-2.1bn over the 10-year period to 2020, assuming a mix of 65/35% energy from biodiesel/bioethanol. This is almost entirely the incremental fuel costs over the petrol/diesel replaced, plus about €65m for new infrastructure etc. Further detail of this assessment is contained in Annex IV. The 2020 renewable target is much easier to meet under the alternative lower demand scenario. Biomass consumption for heat could be increased by about 90%, with 1.6 GW of new wind and 500 MW of new hydro generation capacity – which in total would incur about €1.8bn more in capital expenditure compared to the “business as usual” case (again net of savings on a lignite plant). The incremental transport cost in the Low Demand scenario would be €1.3-1.9bn in total. These costs are significantly less than in the higher demand case and clearly demonstrate the value of energy efficiency and energy savings policies as some of the most effective means of meeting the target at lower cost.


21

The total costs (in real 2010 terms) of achieving the overall 24%

renewable energy target by 2020 for the seven Contracting Parties over a “business as usual” situation are summarised in Table 10 below: Table 10: CPs Total Incremental Cost of Meeting 2020 Renewables Target

(real 2010)

€bn Base Demand Alternative

Demand

Electricity 3.3 1.8


Transport 1.4-2.1 1.3-1.9

Total 4.7-5.4 3.1-3.7

Note that these figures do not include the costs of upgrades which may be needed to the electricity transmission and distribution networks of the CPs to accommodate the greater levels of wind and hydro generation.

4.1.4 Biomass Sensitivity

It must be recognised that the calculation of the incremental cost of meeting the renewables target is based on a range of assumptions, variations in which will inevitably affect the outcome. An increase in the price of coal for example, would effectively reduce the incremental cost of renewable energy. However, one of the greatest uncertainties with this study has been the data on the consumption and availability of biomass. Bosnia and Herzegovina for example expressed reservations about the reliability of their biomass potential data, particularly in relation to how much of the resource potential can be considered renewable. Given that our base case relies on biomass heat to meet the bulk of the 2020 renewables target, it raised a concern that if the renewable biomass resource had been over-estimated or if, as noted previously, the current consumption of biomass was underestimated in the official figures used for the starting basis of the modelling, (and assuming the method of measurement does not change) then this could also overestimate the future sustainable total resource potential. With the IEA report indicating for example that the actual biomass consumption could be under-reported by as much as 50-60%, it is possible that much of the growth potential for biomass could already be used. As a sensitivity check, therefore, we ran the model with no additional biomass heating allowed, thus forcing the target to be met through the electricity sector alone. Whilst we recognise that this is an extreme case, as can be seen in Figure 10, in order to meet the target under this scenario, it requires a considerable increase in the amount of wind and hydro build (as well as small amounts of geothermal and solar electricity) – which could cost up to €26bn more than the “business as usual” case (again not including transmission system upgrades or additional back-up generation, which could be more significant in this case):


22

Figure 10: CPs Total Electricity Mix 2010-20: Renewables Target with No New

Biomass

0

25

50

75

100

125

150

2010 2012 2014 2016 2018 2020

Gen

erati

on

, T

Wh

Net Impo rts

CHP Oil

CHP Bio mas s

CHP Gas

CHP Co al

Bio gas

Bio mas s

So lar

Geo the rma l

Hydro

Wind Offs ho re

Wind Ons ho re

P umped Sto rage

Oil

Nuclea r

Lignite

Co al

Gas ST

OCGT

CCGT

There may be practical difficulties in actually building the almost 8 GW of hydro and 6 GW of wind capacity needed in this situation. The net position for each Party would also be quite different in this case, as shown in Figure 11, as the potential for new hydro and wind electricity generation and the amount of unavailable renewable heating that each Party has to compensate for varies. Albania and Montenegro become the main renewable suppliers for the other CPs.

Figure 11: CPs Individual Surplus/Shortfall vs. 2020 Targets with No New

Biomass

-5.0 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0

Albania


Croatia

FYR Macedonia

Montenegro

Serbia

UNMIK

Shortfall TWh Surplus

Under the low demand case, if additional biomass consumption was not feasible, about 4.5 GW each of new hydro and wind (plus a little


23

geothermal and solar) would enable the target to be met, at a cost of around €16bn. Whilst it is unlikely that no new biomass would be available, this extreme sensitivity does illustrate the importance of biomass in the renewable energy mix in the Energy Community and the cost implications if it is not available.

4.1.5 Candidate Contracting Parties – Indicative Costs

As noted previously, we did not have sufficiently robust data for the three candidate Contracting Parties – Moldova, Turkey and Ukraine – to be able to calculate their 2020 forecast energy consumption or renewable targets with sufficient accuracy or confidence. However, based on the indicative forecasts we estimated, and information on renewable resource potential from the USAID/Hellenic Aid studyii and other public sources, we have tried to estimate the corresponding costs for these countries of meeting the indicative 15% renewables target calculated in our earlier targets report. The forecast for Moldova indicates a required increase in renewable consumption of about 1.5 TWh. With a biomass potential noted in the USAID/Hellenic Aid studyvii of 820 ktoe (9.5 TWh), and projected total heat growth of 3.7 TWh over the period there appears to be scope for Moldova to achieve their target solely through the use of biomass for heating at negligible incremental cost. Turkey and Ukraine are projected to require 126 and 55 TWh of additional renewable energy respectively by 2020 in order to achieve their targets. Biomass potential in Ukraine is estimated at 174 TWh/yr by the USAID study with only about 8 TWh used currently, leaving 116 TWh potential to be exploited. Turkey’s total fuel wood resource is estimated at around 28m m3 (~ 100 TWh), but current usage is around 60 TWh leaving only 40 TWh available. With heat demand projected to grow by 116 TWh in Ukraine and 55 TWh in Turkey, if biomass could be used for all this additional demand, then this could account for all but 21 TWh of the renewable energy requirement. This residual could then be met by 8 GW of wind capacity at a capital cost of around €12bn, or hydro at around double that. However, in contrast to the other Energy Community Parties, Turkey and Ukraine both have relatively large industrial heat consumption, which may not be suitable for biomass. In extremis therefore, if the total 181 TWh additional renewable energy requirement in these countries had to be met in the electricity sector, this would need almost 70 GW of new wind capacity, which would cost over €100bn. While the resource potential appears to be there – 16 GW in Ukraine and 83 GW in Turkeyviii– it would be extremely challenging to construct this amount of new capacity in a decade. Additional hydro potential appears limited in Ukraine with around 10 TWh of the estimated 12.5 TWhvii already used, but Turkey is reportedix to have a technically feasible potential of 215 TWh/yr against current production of 45 TWh, so about 170 TWh could be harnessed towards the target as well.


24

As noted above, these are purely indicative figures at this stage, until more accurate historic energy consumption data and forecasts can be obtained for these countries.

4.2 Potential Benefits

4.2.1 Employment Opportunities

Implementation of the Renewables Directive target will have the largest impact upon job creation in the electricity sector as the target will require the CPs to build additional/less capacity of each generating technology. The change in the electricity generation mix will create/reduce jobs dependent upon the relative labour intensity of each generating technology. We have assumed that the fuel-type of a new heat system will not have a significant employment effect from the construction, operation and maintenance of the plant. Given that under our base case, the total biomass potential of the region is used in meeting new heat demand, we have not considered the conversion of existing coal or gas plant to biomass. Consequently, despite a major shift to biomass for heating we have assumed minimal employment benefits. In transport, the level of employment will be dependent on the combination of domestic production and import, but using the same approach as an Impact Assessment done for the UK, we estimate that investment in the biofuels sector might result in the creation of 1,150 agricultural jobs and over 350 industrial jobs in the Energy Community. For the electricity sector we have calculated the number of jobs created/lost for each generation technology for the various target scenarios in comparison to the “business as usual” case using the following formula:

Total jobs created/lost = Technology employment multiplier ×

Regional multiplier ×

Local manufacturing percentage × Indirect employment multiplier

The technology employment multipliers used for each type of generation technology are based upon the most widespread industry studiesx xi. These have been calculated for developed countries (mainly EU 15/USA). The employment multipliers estimate the Full Time Equivalent (FTE) direct jobs created in (i) the construction phase; and (ii) for operation and maintenance of each of the generating technologies.


25

Table 11: Employment Multipliers for Generating Technologies

Technology Construction

FTE/MW

O & M

FTE/MW

Coal/lignite 0.27 0.74

Onshore wind 2.51 0.27

Hydro 9.5 0.135

Biomass 0.4 2.44

To take account of differences in the level of productivity between the EU 15/USA and the CPs, the technology employment multipliers for each generating technology were adjusted upward using a regional multiplierxii of 1/0.38 (the regional multiplier was calculated based upon the difference in labour productivity between the OECD countries and a group of transition economies that include CPs and economies with similar levels of development). The proportion of jobs created that will be based permanently in the region depends upon the local manufacturing percentages for each generating technology. As the renewable technology sector is still in its infancy in the Energy Community, we have assumed that the proportion of jobs permanently based in the region will start off low and grow over time as the industry develops. Based upon estimates from a recent report for Greenpeacexiii we have assumed that the proportion of manufacturing jobs (the local manufacturing percentage) will increase from 30% in 2010 to 50 % by 2020. In addition to the creation/loss of direct jobs in the primary industry (the construction and operational and maintenance phases), indirect employment will also be created in secondary industries that supply the primary industry such as catering and accommodation. We have calculated the indirect employment multiplier of 1.78 (for every 1 direct job, there will be 0.78 indirect jobs created) based upon the average number of indirect jobs created in environment-related employment across the EUxiv (and assumed a similar level of indirect employment would occur in the CPs). This indirect employment number has then been used to calculate the total number of jobs created/lost. The following table shows the total number of direct and indirect jobs created/lost and which will remain in the region for each of the main generating technologies in comparison to the ‘business as usual’ case. Table 12: Estimated Jobs Created/Lost

Coal and

Lignite

Onshore

Wind Hydro

Biomass

Electricity Total

Base Demand -4,600 10,300 15,900 200 21,800

Base Demand

(no biomass)

-21,700 33,800

158,400

-3,200 167,300

Low Demand -3,000 8,400 4,300 800 10,500

Low Demand

(no biomass)

-18,100 34,800 91,400 -2,500 105,600

In both the base and low demand cases, in order to meet the targets, we see a net gain in jobs created in the hydro and wind sectors over and above


26

those that would have been created in the coal sectors under the “business as usual” case. Because almost all of the region’s biomass resource is used for new heat production (which has a negligible employment effect) there is only a small amount of biomass electricity plant built – although there is more biomass resource available to the electricity sector under the low demand case. Under the “no biomass” case, more of the target is met from electricity rather than heat production and so greater hydro and wind build is required which could result in significantly more jobs.

4.2.2 GHG Savings and Reduction in Fossil Fuel Consumption

Comparing our model run to meet the 2020 target against the “business as usual” case suggests that, across the seven CPs, total CO2 emissions from the electricity and heat sectors could be reduced by about 20 mte/yr by 2020 through achievement of the renewables target (140 mte against 160 mte, or 12.5% less) – as seen in Figure 12 and Figure 13 – as a result of much greater biomass use and lower lignite consumption. Biomass is assumed to be carbon-neutral for these purposes, i.e. the CO2 actually emitted on combustion is not included in the calculation as it is absorbed in the initial growth.

Figure 12: CPs Total Electricity and Heat CO2 Emissions: "Business as Usual"

0

25

50

75

100

125

150

175

2010 2012 2014 2016 2018 2020

CO

2 E

mis

sion

s, m

te UNMIK

S erbia

Mo ntenegro

F YR Macedo nia

C ro a tia

B o s nia and Herzego vina

Albania


27

Figure 13: CPs Total Electricity and Heat CO2 Emissions: 2020 Renewables Target

0

25

50

75

100

125

150

175

2010 2012 2014 2016 2018 2020

CO

2 E

mis

sion

s, m

te UNMIK

S erbia

Mo ntenegro

F YR Macedo nia

C ro a tia


Albania

This saving would be even greater if additional biomass was not available, since the electricity sector would have to be significantly decarbonised to enable the target to be met as noted above. CO2 emissions from the electricity and heat sectors of the seven CPs could be as low as 125 mte in 2020, a reduction of over 20% against “business as usual” (Figure 14), with lignite consumption having fallen below projected 2010 levels (as seen in Figure 10).

Figure 14: CPs Total Electricity and Heat CO2 Emissions: Renewables Target with No

New Biomass

0

25

50

75

100

125

150

175

2010 2012 2014 2016 2018 2020

CO

2 E

mis

sion

s, m

te UNMIK

S erbia

Mo ntenegro

F YR Macedo nia

C ro a tia


Albania

For biofuels to be counted towards the target they must offer at least 35% (rising to 50%) saving in life cycle GHG emissions compared to fossil fuels. Hence the transport sector will contribute as a minimum 3.5-5% reduction.


28

4.3 Opportunities in the EU

As shown by our previous modelling, assuming the availability of biomass resources for meeting heat demand growth in the seven CPs, there would appear to be potential for production of renewable energy in excess of the Energy Community target which could be “exported” to help contribute toward the EU’s 20% target. In theory, about 7 GW of hydro and 3 GW of wind capacity (together with a small amount of geothermal and solar generation), producing approximately 25-30 TWh/yr above what is needed for the CPs’ own renewables target, could potentially be built for export over the next 10 years. However, there would inevitably be constraints on this potential, not least of which is that this amount of new build capacity would be a very ambitious build programme in total.

4.3.1 Interconnector Capacity

Although it is not entirely clear, it appears from the Directive4 that if the Energy Community became bound by the relevant provisions of the new Directive, CPs would be treated in the same way as Member States (MSs) and able to transfer renewable energy generated in the Energy Community to an EU MS using the statistical transfer provisions. If this is the case, physical transfer of the energy will not be required and the interconnector capacity between the Energy Community and the EU would not be a constraint on renewable energy exports. In case this is not the case, and physical transfer of energy is required, we have considered the interconnection capacities between the EC and the EU. According to data from ENTSO-E, there is a total of 3.5 GW of electricity interconnector net transfer capacity (NTC) from the seven CPs to EU countries (listed in Table 13 below): Table 13: CPs to EU Electricity Interconnector Indicative Net Transfer

Capacityxv

Contracting Party → EU Member State NTC, MW

Albania Greece 150

Croatia Hungary 800

Croatia Slovenia 1,000

Former Yugoslav Republic of Macedonia

Greece 350

Serbia Bulgaria 300

Serbia Hungary 600

Serbia Romania 300

Total 3,500

While the NTC varies on a daily and seasonal basis, assuming the figures above would give a maximum baseload export potential of about 30 TWh/yr, this would be sufficient to transfer the excess renewable energy production. In addition, there are plans for other interconnectors (particularly subsea ones from Albania and Montenegro to Italy which are

4 Article 9 paragraph (8) and Preamble (37)


29

specifically connected to renewable development projects) which would add to this capability. Historically these interconnectors have tended to be used for net imports of electricity to the Energy Community Parties, but this could in the future theoretically be made up of an export of “green” renewable electricity offset by an import of “brown” electricity.

4.3.2 Economic Viability

The key issue will be whether there is any economic benefit for an EU MS to import renewable energy from a CP against the other options available, which will include:

• Renewable energy from its own country;

• Importing from another EU MS using the statistical transfer/joint project provisions; or

• Importing from a country outside the EU under the Directive’s ‘Third Country’ provisions.

This gives Member States considerable scope. CPs would effectively be in competition with many other countries to provide MSs with either the renewable energy or the investment opportunity to access the renewable energy potential. The competitive position of the CPs will depend on the marginal cost of production compared with the other options, the major determinants of which will be capital costs, financing costs and labour costs. On a like-for-like basis, the capital cost of a wind turbine built in Serbia will be the same as a wind turbine in Germany for example – the turbine market is Europe-wide. The same will be true for any of the more developed renewable technologies. Any savings in labour costs offered by the Energy Community are likely to be off-set by the potentially higher cost of capital because of the less developed, higher risk renewable energy environments (compared with Western Europe). The primary opportunity for the Energy Community will come not from like-for-like competition, but as a result of the proportionately greater increases in renewable energy required of the EU MSs. Driven by higher GDP per capita, the MSs face an 11.5% increase on average compared with 7% for CPs. Hence, the marginal cost of meeting the EU target from within the EU alone is likely to be higher than the marginal cost of developing the additional wind and hydro resource potential within the Energy Community. We estimate that the excess hydro and wind capacity potential within the Energy Community could cost as much as €25bn to build, or over €100/MWh of electricity produced on a levelised cost basis. However, if this is less than the cost of the equivalent capacity of more expensive off-shore wind or solar PV for example that would otherwise need to be built in the EU, it will be economically attractive, particularly to those MSs with lower resource potential.


30

Nevertheless, the Energy Community CPs will still be competing with Third Countries5 to provide this renewable energy to the EU. Third Countries have the advantage that they will not have to meet their own renewable energy targets first, and hence are likely to have a lower marginal cost than CPs, even though they will have to physically transfer it into the European Community. Consequently, in order to be competitive, it will be vital that the Energy Community CPs develop robust legal and regulatory frameworks, operational conditions and administrative arrangements that are more conducive to renewable energy investment than competing Third Countries.

References: i World Energy Outlook 2009, International Energy Agency (November 2009) ii Regional Balkans Infrastructure Study – Electricity (REBIS) and Generation Investment Study (GIS), PricewaterhouseCoopers Consortium (December 2004) as updated by Development of Power Generation

in South East Europe – Update of the Generation Investment Study, South East Europe Consultants (January 2007) iii Specific Capital Investment and O&M Costs of Power Generation Technologies, and Assumed Fuel

Prices for EBRD projects in region (email received 16 December 2009) iv Energy in East Europe (Power Plant Tracker), Platts (October 2009) v World Energy Outlook 2009 – Assumed Investment Costs, etc., International Energy Agency (November 2009) vi Final Report of the Regional Energy Demand Planning Project, International Resources Group (June 2008) vii Stocktaking Report for Regional Assessment of Renewable Energy, International Resources Group and Center for Renewable Energy Sources (April 2009) viii Energy Sector and Wind Energy Potential in Turkey, R. Tuğrul Oğulata, Çukurova University (June 2003) ix The Importance of Hydropower Plants in Turkey’s Energy Planning, Karadeniz Technical University Civil Engineering Department x Employment in Europe 2009, European Commission (November 2009), Table 3, page 124 xi Job Creation Opportunities in Hydropower, Navigant Consulting (September 2009), page 66 xii Energy Sector Jobs to 2030: A Global Analysis, Institute for Sustainable Futures (September 2009), Table 27 xiii Energy Sector Jobs to 2030: A Global Analysis, Institute for Sustainable Futures (September 2009), Table 30 xiv Employment in Europe 2009, European Commission (November 2009), Table A.1, page 132 xv Indicative Values for Net Transfer Capacities (NTC) in Europe – Winter 2009-2010, ENTSO-E website (November 2009)

5 Third Countries are those outside the EU and who have not adopted the relevant provisions of the Directive.

SECTION 5 ADAPTATION OF THE DIRECTIVE

31

5 ADAPTATION OF THE DIRECTIVE FOR THE

ENERGY COMMUNITY

At the Inception Meeting, we were asked to take note of any parts of the EU Directive that we came across that would require to be adapted if the Directive was to be adopted by the Energy Community. During the course of the study two issues in particular have come to our attention:

1. Target Calculation

As set out in Section 3 of this report one of the elements of the renewable energy target is the flat 5.5% increase over 2005 levels, which is the same magnitude increase faced by EU Member States. One of the Parties raised a question over the appropriateness of this being the same as the EU given that if the Energy Community adopts the Directive, Contracting Parties will have less time to achieve the target than the EU Member States. Consequently, it was suggested that meeting the Energy Community targets would in fact require a greater level of ambition than the EU Member States. We understand that the current position of the European Commission is that the 5.5% will apply. Consequently we made no adjustment in our calculation of the targets at this stage. However, if this issue is reviewed, we would also suggest a review of the base year. If the later starting date of the CPs is recognised, it may also be appropriate to use a later base year. Article (21) of the Preamble to the Directive indicates that 2005 was selected as the base year for MSs because it was the latest year for which reliable data is available. This is not necessarily the case in the Energy Community for a number of reasons:

(a) The calculation is being undertaken two years later than for the EU MSs;

(b) Data for 2005 is not available for the CPs in the same consistent and methodological format as for the majority of EU MSs (as discussed earlier in the report). However, CPs are now starting to collate statistics on a more consistent basis (Eurostat method) which suggests that better data might be available for later years; and

(c) There have been structural changes within the region subsequent to 2005 which might suggest a later year would be more appropriate.

Having said that, other than the issue of biomass measurement, we consider that the final data that we have collated for 2005 for the CPs (not the cCPs at this stage) is adequate for the calculation of the targets if this remains the base year.

2. Interim Targets

Article 3(2) and Annex I of the Directive set out an ‘indicative trajectory’ of interim targets which Member States are required to meet in order to demonstrate that they are in line to meet the 2020 target. The first interim target is to have achieved 20% of the increase required on average over the period 2011-2012. Given their later starting date, this trajectory would be inappropriate for CPs even if the Energy Community adopts the Directive during 20106.

6 In our energy market model, we have not included the first target in the trajectory, but have included all others.

SECTION 5 ADAPTATION OF THE DIRECTIVE

32

There is also a range of other dates and deadlines in the Directive which would need to be examined to assess their applicability to the Energy Community. Clearly CPs will not be able to meet some of the original deadlines. There are also obligations in the Directive which oblige MSs to undertake activity in sectors other than the energy sectors – in relation to building regulations for example. It is not clear whether the Energy Community can commit Parties to activities outside the scope of the energy sector.

SECTION 6 CONCLUSIONS

33

6 CONCLUSIONS

IPA Energy + Water Economics and EPU-NTUA were appointed by the Energy Community Secretariat to consider the implications for the Energy Community of adopting the new EU Renewable Energy Directive – 2009/28/EC. This report has pulled together the findings of the three main tasks of this assignment:

(i) a review of existing renewable energy frameworks of each Party;

(ii) the calculation of indicative renewable energy targets for each Party; and

(iii) an assessment of some of the costs and opportunities associated with adopting the new Renewable Energy Directive.

Under the definitions of the EU Directive, the Energy Community Parties already consume a relatively high proportion of energy from renewable sources compared with EU Member States (MSs), but increasing the proportion of renewable energy in the mix has not been a priority until relatively recently. Consequently the policy, legal, regulatory and institutional frameworks designed to support renewable energy development are at a very early stage in most CPs. Although the position is developing all the time, meeting the targets and compliance with the EU Directive is likely to require new policy commitments and extensive revisions to existing legislation, plus the development of supportive regulatory and institutional arrangements throughout the Energy Community. The primary provision of the Directive is the setting of mandatory targets for increasing the proportion of energy from renewable sources in the electricity, heat and transport sectors. The Directive sets an overall target of 20% for the EU and individual targets for Member States based on their existing level of renewable energy and their level of economic development. Within the overall energy target there is a specific obligation to meet 10% of energy used in transport from renewable sources. Using the method outlined in the new Directive, we have calculated the targets for the Contracting Parties as follows: Table 14: Contracting Parties 2020 Renewable Energy Targets

Party

2005

GFEC,

ktoe

RES

Share

2005

Flat Rate

Increase

Forecast

2020

GFEC,

ktoe

Residual

Effort

2020

Share

2020 RES

Target

Albania 2,054 29.3% 5.5% 3,308 1.4% 36%

Bosnia and

Herzegovina 3,008 26.5% 5.5% 4,890 1.3% 33%

Croatia 6,654 12.6% 5.5% 9,657 1.9% 20%

Former Yugoslav

Republic of

Macedonia

1,873 13.8% 5.5% 2,879 1.2% 21%

Montenegro 819 23.0% 5.5% 1,336 1.0% 30%

Serbia 9,499 12.9% 5.5% 13,706 1.1% 19%

UNMIK 1,451 27.8% 5.5% 2,240 1.0% 34%

Total 25,357 17.0% 5.5% 38,016 1.3% 24%

Due to the relatively high starting point, the overall target for the seven CPs in the Energy Community is 24% compared with the EU’s 20%, an overall increase of 7% from the 2005 position.


34

Based on an our modelling of the heat and electricity markets and our assumptions about how the 10% transport target will be met, estimates of the additional cost of meeting this renewable target amongst the Energy Community Parties are shown in the table below for the two demand scenarios. Table 15: CPs Total Incremental Cost of Meeting 2020 Renewables Target (real 2010)

€bn Base Demand Low Demand

Electricity 3.3 1.8


Transport 1.4-2.1 1.3-1.9

Total 4.7-5.4 3.1-3.7

(Note that these figures do not include the costs of upgrades which may be needed to the electricity transmission and distribution networks of the CPs to accommodate the greater levels of wind and hydro generation, nor of backup generation which might be necessary to ensure security of supply.)

The Base Demand case sees heat growth met almost entirely from biomass, and the balance of the target from wind and hydro-generated electricity. Because the biomass potential is essentially exhausted by new heat plant, we have not considered fuel switching of existing heat plant. In the event that the level of sustainable biomass available for heating is less than projected (because the existing level of consumption is higher than official estimates as previously discussed) a greater reliance would be placed on electricity from renewable sources, which requires higher levels of more expensive wind and hydro build. It is assumed that the transport target will be met from the use of biofuels; 65/35 from bioethanol and biodiesel. The difference in the costs of meeting the ‘Base’ and ‘Low’ Demand cases clearly indicates the potential value of energy efficiency and energy savings policies to help meet targets more cost-effectively. In the heat and electricity sectors, savings in CO2 emissions against a “business as usual” scenario could be 20-35 mte/year by 2020 or 12.5%-21% reduction for the ‘base’ and ‘no biomass’ cases respectively. For biofuels to be counted towards the target they must offer at least 35% (rising to 50%) saving in life cycle GHG emissions compared to fossil fuels. Hence the transport sector will contribute as a minimum 3.5-5% reduction. There will also be potential employment benefits, primarily in the electricity sector, which are estimated at between 10,000 and 22,000 full-time jobs under the low and base demand cases respectively. Significantly more jobs would be created in the wind and hydro sectors in the low/no biomass scenario. The scope for the Energy Community to export renewable energy to the EU MSs to help meet their targets will be contingent on the residual resource potential and the cost of production compared to the cost in MSs. Assuming the availability of biomass resources for meeting heat demand growth in the seven CPs, there would appear to be potential for production of renewable energy in excess of the Energy Community’s target. About 7 GW of hydro and 3 GW of wind capacity (together with a small amount of geothermal and solar generation), producing approximately 25-30 TWh/yr above what is needed for the CPs’ own renewables target, could be built over the next 10 years (though this would be a very ambitious build programme in total). The key issue will be whether the marginal cost of renewable energy production in the Energy Community is less than in the EU. On a like-for-like basis this seems unlikely – a MW of wind in the Energy Community will cost broadly the same as a MW of wind in


35

the EU. However, the opportunity for the CPs comes from the proportionately greater effort required by EU MSs (11.5% increase on average) than the Energy Community at 7%. Hence meeting the EU target from the EU resources alone will require the use of more costly technologies than is required by the Energy Community. We estimate that the excess hydro and wind capacity potential within the Energy Community could cost as much as €25bn to build, or over €100/MWh of electricity produced on a levelised cost basis. However, if this is less than the cost of the equivalent capacity of more expensive off-shore wind or solar PV for example, that would otherwise require to be built in the EU, it will be economically attractive, particularly to those MSs with lower resource potential. Nevertheless the Energy Community will be competing with renewable energy from Third Countries and hence it will be vital to develop investment environments that are more attractive to developers than elsewhere.

6.1 Candidate Contracting Parties

Because they are not at the same stage of the process, data for the candidate Contracting Parties has been more difficult to access. Based on the best available sources, indicative renewable energy targets for Moldova, Turkey and Ukraine are shown below. Table 16: Candidate Contracting Parties Indicative 2020 Renewable Energy Targets

Party

2005*

GFEC,

ktoe

RES

Share

2005*

Flat Rate

Increase

Forecast

2020

GFEC,

ktoe

Residual

Effort

2020

Share

2020 RES

Target

Moldova 2,093 3.7% 5.5% 2,591 0.7% 10%

Turkey 65,868 15.6% 5.5% 82,282 3.4% 25%

Ukraine 82,851 1.9% 5.5% 89,246 0.6% 8%

Total 150,812 7.9% 5.5% 174,118 1.9% 15%


Moldova’s biomass potential appears greater than its target and hence there appears to be scope for achieving the target through biomass for heating alone at negligible additional cost. Data for Turkey and Ukraine was very limited. Indicative estimates of the cost of meeting their targets are discussed at a high level at Section 4.1.5.

6.2 Biomass Data

Unlike the EU, the Energy Community CPs did not record energy statistics in a harmonised manner in 2005. Hence the availability and consistency of data has been a challenge throughout this project, but we believe that most of the data we now have for 2005 is broadly consistent and sufficiently robust for the purposes of the target calculation. The exception is the 2005 biomass consumption data, where we believe that official statistics may not be consistently measured across all Parties. The potential implications are:


36

(i) UNMIK may have a disproportionately high 2020 target compared with other Parties. However, given that the 2005 starting point is also high, providing the methods of measurement remain the same, the effort required by UNMIK to meet the 2020 target would be in line with everyone else’s;

(ii) If the IEA is correct that official statistics under-estimate the total consumption of biomass, it could lead to Parties being able to meet their targets simply by a re-measurement rather than by additional effort. This would be inconsistent with the objective of the Directive. This further emphasises the importance of ensuring that the same method of measurement is used for biomass consumption in 2005 and in future years; and

(iii) Assuming that the measurement methodology remains the same, if current biomass consumption is underestimated, it reduces the available resource out of the total potential for meeting the future 2020 target. Our sensitivity analysis suggests that the additional cost of meeting the Energy Community target if sufficient sustainable biomass is not available could be considerably higher than the base case.

In order to address these issues, more accurate and consistent biomass consumption data would be required, measured on the same basis for each Party. This is likely to require a new data collection process. In this context, further consideration will be required of the sustainability of 2005 levels of biomass consumption. At the moment the Directive has no sustainability criteria for biomass, yet it would seem perverse to set Parties a target that required ongoing unsustainable consumption (for example based on illegal logging) in order to meet it.

6.3 Other Issues

Finally in Chapter 5 we have also highlighted several issues within the Directive that have been raised and may need to be considered further before the Directive is adopted, in particular: (a) the appropriateness of a flat 5.5% increase in the target calculation in the

same way as for EU MSs given that the Energy Community will have less time to meet the target than EU MSs. A related issue would be using the base year of 2005 when better quality data may be available for a later year; and

(b) the appropriateness for the CPs of the interim target trajectory and other dates and deadlines in the Directive.

ANNEX I RENEWABLE FRAMEWORKS - BACKGROUND REPORT

37

ANNEX I – RENEWABLE FRAMEWORKS –

BACKGROUND REPORT



Assessment of Existing Renewable Frameworks

to


November 2009

IPA Energy + Water Economics

Assessment of Existing Renewables Frameworks

to



Edinburgh EH3 7HL

United Kingdom

Tel: +44 (0) 131 240 0840 Fax: +44 (0) 131 220 6440

Email: [email protected] web: www.ipaeconomics.com

TABLE OF CONTENTS

40

TABLE OF CONTENTS

1 INTRODUCTION AND SUMMARY 41

1.1 Summary 41

2 DIRECTIVE 2009/28/EC 43

2.1 Directive 2009/28/EC 43 2.2 Policy and Strategy 44 2.3 Legislation and Regulation 44 2.4 Institutional Setting 45 2.5 Market Access 45

3 SYNTHESIS OF RENEWABLE ENERGY FRAMEWORKS 47

3.1 Policy and Strategy 47 3.2 Legislation and Regulation 50 3.3 Institutional setting 51 3.4 Market Access 53

4 GAP ANALYSIS AND IMPACT OF DIRECTIVE 2009/28/EC 55

4.1 Policy and Strategy 55 4.2 Legislation and Regulation 57 4.3 Institutional setting 59 4.4 Market Access 60

5 CONCLUSIONS 62

APPENDIX I – SUMMARY OF DIRECTIVE 2009/28/EC 64

APPENDIX II - CP REPORT: ALBANIA 94

APPENDIX III – CP REPORT: BOSNIA AND HERZEGOVINA 110

APPENDIX IV – CP REPORT: CROATIA 135

APPENDIX V – CP REPORT: FORMER YUGOSLAV REPUBLIC OF MACEDONIA

159

APPENDIX VI – CP REPORT: MONTENEGRO 178

APPENDIX VII – CP REPORT: SERBIA 195

APPENDIX VIII – CP REPORT: UNMIK 221

APPENDIX IX – CP REPORT: MOLDOVA 239

APPENDIX X – CP REPORT: TURKEY 262

APPENDIX XI – CP REPORT: UKRAINE 281

ANNEX I – BACKGROUND REPORT SECTION 1

INTRODUCTION AND SUMMARY

41

1 INTRODUCTION AND SUMMARY

The Energy Community Secretariat has recently commissioned IPA Energy + Water Economics and EPU-NTUA to assess the implications of implementing the new Renewable Energy Directive 2009/28/EC within the Energy Community. This report presents the findings of Activity 2 of the assignment – Renewable Energy

Framework Analysis. In the report we review the existing policy legal, regulatory and institutional framework for renewable energy in each of the Contracting Parties (CPs) and three of the candidate Contracting Parties (cCPs) to the Energy Community Treaty and assess what else they require to do in order to comply with the recently published EU Directive 2009/28/EC on the promotion of the use of energy from renewable sources1. In preparing this report, a specific focus was put on assessing compliance of existing frameworks with the provisions of the new Directive 2009/28/EC. While a similar report assessing the frameworks for renewable energy was recently prepared by USAid and Hellenic Aid2, the present report expands and further details the scope of the assessment according to the definitions of the new Directive. The scope covers the overall renewable energy sector, including transport, and assesses the various specific provisions set by the EU for the promotion of renewable energy. This report is designed to serve as a tool and checklist for CPs and cCPs to establish gaps in compliance and identify actions required to implement the new EU Directive. It will help to gauge the regulatory impact of implementing Directive 2009/28/EC and serve as a complementary document to the modelling work which we are undertaking to assess the impact in a quantitative way. An initial data request was sent to each Party, seeking relevant laws, policies, strategies, and regulations. Generally we had a good response. We have also been able to access secondary sources of material through the internet. We subsequently prepared a brief report on the measures already taken by each Party and the further measures remaining to be taken in order to comply with the requirements of the new Directive – reports on individual Parties are contained in the Appendices. The main body of the report presents: 1. a summary of the new Directive and comparison to the provisions of the previous

Renewables Directive 2001/77/EC3 and Biofuels Directive 2003/30/EC4;

2. a synthesis of the national renewable energy frameworks in the CPs and cCPs; and

3. a summary of the results of the gap analysis of national provisions to Directive 2009/28/EC.

Appendix I includes a summary of the provisions of Directive 2009/28/EC.

1.1 Summary

With the new Directive the provisions for renewable energy have been expanded in scope, amending and repealing Directives 2001/77/EC on the promotion of the use of electricity from renewable energy sources and 2003/30/EC on the promotion of the use of biofuels and other renewable energy sources in transport. Directive 2009/28/EC essentially further harmonises the frameworks for the promotion of

1 Directive 2009/e8/EC on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC. 2 “Stocktaking Report for Regional Assessment of Renewable Energy” (Review Draft April 2009) 3 Directive 2001/77/EC on the promotion of electricity produced from renewable energy sources in the internal electricity market 4 Directive 2003/30/EC on the promotion of the use of biofuels or other renewable fuels for transport


INTRODUCTION AND SUMMARY

42

renewable energy across the Member States of the EU. The Directive is accordingly more detailed and lessons learnt have been incorporated where the Commission has the right to take initiative based on the principles of subsidiarity and proportionality. The main changes and amendments as opposed to the previous Directives are set out in Section 2 of the report. The promotion of renewable energy sources has only recently become an issue of concern in most CPs and hence the policy, legal, regulatory and institutional frameworks remain at an early stage. However, it is positive that most CPs and cCPs have now started to take some form of action. Usually, no dedicated renewables policy has been put in place to provide a framework; instead action is defined as part of overall national energy sector development. Indicative targets have been set in almost all CPs/cCPs but of course they are not yet consistent with the ambitions of the new EU Directive methodology. A variety of support mechanisms are either already implemented or under development, but the full functioning of these mechanisms is largely hampered by a lack of institutional capacity as well as restricted access to underdeveloped markets. This report sets out at a high level what has been achieved to date and where gaps exist with regard to the provisions of the new Directive.


DIRECTIVE 2009/28/EC

43

2 DIRECTIVE 2009/28/EC

Directive 2009/28/EC was published in the Official Journal of the European Union on 23 April 2009. It amends Directive 2001/77/EC in scope and progresses the harmonisation of the renewable energy sector in the EU. In addition to an overview of the changes Directive 2009/28/EC brings about compared to its predecessors Directives 2001/77/EC5 and 2003/30/EC6, this section summarises the main provisions of the Directive in relation to:

• Policy and Strategy;

• Legislation and Regulation;

• Institutional Setting; and

• Market Access.

We have continued to use this categorisation as an analytical framework throughout the study, including for the assessment of the progress of each CP/cCP.

2.1 Directive 2009/28/EC

Directive 2009/28/EC amends Directive 2001/77/EC and 2003/30/EC until April 2010 and repeals them from January 2012. Transposition of the new Directive into law by the Member States has to be completed by December 2010. Directive 2009/28/EC essentially further harmonises the frameworks for the promotion of renewable energy across the Member States of the EU. The Directive is accordingly more detailed and lessons learnt have been incorporated where the Commission has the right to take initiative based on the principles of subsidiarity and proportionality. Some of the main changes and amendments as opposed to the previous Directives include the following points:

• The Directive now integrates the areas of renewable electricity (hereinafter: RESe) and biofuels (hereinafter: RES in transport) that were previously treated separately. The scope has further been expanded to also include heating and cooling from renewable energy sources (hereinafter: RESth).

• The previously indicative targets for the share of renewable energy sources in electricity consumption and biofuels and other renewable energy sources in transport have been adjusted and expanded to 2020. Most notably, these targets are now mandatory.

• Cross-border cooperation amongst Member States and with third parties is explicitly encouraged in the Directive, through statistical transfers of RES, and the development of joint projects and joint support mechanisms.

5 on the promotion of electricity produced from renewable energy sources in the internal electricity market 6 on the promotion of the use of biofuels or other renewable fuels for transport



44

2.2 Policy and Strategy

Articles relevant for the development of national policy and strategy in the energy sector include

• Article 2 – Definitions

The Directive provides for a number of definitions with which Member States should align their own provisions. The term “renewable energy sources” now covers wind, solar, aerothermal, geothermal, hydrothermal and ocean energy, hydropower, biomass, biofuels and bioliquids, landfill gas, sewage treatment plant gas and biogases.

• Article 3 – Mandatory national targets and measures

Member States (MS) must meet individual national targets set out in the Directive, consistent with the Community target of 20% of final energy consumption from RES in 2020, and all countries must meet a target of 10% of final energy consumption from RES in transport in 2020.

• Article 4 – National renewable energy action plans

MS need to adopt action plans which are to be updated annually and reviewed by the Commission. They must set out national targets and measures to achieve targets and fulfil the requirements of the Directive.

• Article 6 – Statistical transfers; Article 7 to 10 – Joint projects; Article 11 – Joint support schemes

With a view to meeting targets efficiently across the EU, statistical transfers are allowed between Member States where one party has met the national target prematurely. Physical transfer is not required between member states. Joint projects can be developed between Member States and with third countries under specified conditions. Further, the coordination and harmonisation of support mechanisms for renewable energy sources is encouraged.

• Article 14 – Information and training

Information, guidance and training programmes on the renewable energy sector (including information on equipment for consumers, support schemes and installer certification) are supposed to be developed by Member States.

2.3 Legislation and Regulation

Articles relevant for the development of legislation and regulation in the energy sector include


The Directive asks for support schemes and cooperation mechanisms between Member States to be the main tools to achieve national targets for RES. Support mechanisms need to be included in national legislation and regulation (but this would already be the case for most Member States following Directive 2001/77/EC).



45

• Article 6 – Statistical transfers; Article 7 to 10 – Joint projects; Article 11 – Joint support schemes

While cooperation and the use of joint measures is at the discretion of the Member States, their use is explicitly encouraged.

• Article 13 – Administrative procedures, regulations and codes

Proportionality of administrative bodies, procedures, rules, structures and charges, certification and licensing and information availability on RES projects and infrastructure must be ensured by the Member States. This will potentially require adjustments in the legal and regulatory framework to ensure a level-playing field for RES, in particular small and decentralised installations. Further provisions are made with regard to building codes and regulations as well as eco-labelling or similar certification.

• Article 15 – Guarantees of origin

Guarantees of origin schemes are harmonised in order to allow crossborder transfer. However, their purpose is specified as having no function for target compliance and being purely for commercial purposes.

• Article 16 – Access and operation of grids

The Directive requires the development of national transmission and distribution grids to better accommodate electricity from RES. Priority access for RES and the minimisation of curtailment of RES is required.

• Article 17 – Sustainability criteria for biofuels and bioliquids

The Directive specifies minimum requirements for greenhouse gas (GHG) emission saving levels from biofuels, increasing from 35% to 60% by 2018. Sources four biofuels are restricted according to sustainability criteria. Further details are provided in Articles 18, 19 and 21.

2.4 Institutional Setting

The Article predominantly relevant for the institutional setting around the RES sector is Article 13 – Administrative procedures, regulations and codes. As outlined above, this mainly implies that the administrative structures around RES should be proportional and not present any obstacles to the realisation of RES projects. This implies in particular the coordination and streamlining of different procedures (authorisation, certification, licensing, planning, etc.), information availability and technical specifications. The promotion of RES in buildings is covered, too.

2.5 Market Access

While all provisions in the Directive relate to and impact on the development of the market for RES, one main Article relevant for the market setting for the energy sector is Article 16 – Access and operation of grids. Apart from specifying priority grid access for RES, requirements are also imposed on TSOs and DSOs to support RES producers in their planning of projects (through information provision mainly). Costs for grid reinforcement may be borne by TSOs/DSOs and



46

transmission and distribution tariffs must be cost/benefit reflective and non-discriminatory to RES. Market related arrangements should not present any artificial barriers to RES energy and RES generating installations should have priority dispatch. Gas networks and district heating and cooling networks as well as electricity are also covered in this Article with regard to accommodating RES.


SYNTHESIS OF RENEWABLE ENERGY FRAMEWORKS

47

3 SYNTHESIS OF RENEWABLE ENERGY

FRAMEWORKS

This section summarises the measures taken to date within the energy sector across the Energy Community and its candidates to support renewable energy. Whether certain provisions are in place has been indicated as below: � = no � = yes � = partially, indirectly or in draft

� = unknown


Four relevant aspects were considered with regard to policy and strategy for the promotion of RES:

• the existence of a dedicated RES policy or strategy document;

• whether targets for RES development have been set;

• if support mechanisms for RES are promoted; and

• activity in public outreach and awareness raising, including information and training.

Most CPs/cCPs have incorporated RES in their national energy policy or strategy programmes (Table 1). Two cCPs have actually produced dedicated documents to outline the objectives for RES sector development: Moldova has developed a National Programme for the Development of Renewable Energy Sources and Ukraine developed a State Support Programme for Development of Non-traditional, Renewable Energy Sources, Small Hydro and Thermal Energy Plants. However, the latter was issued in 1997 and few measures have actually been implemented to date. Some CPs have developed their strategies under a specific technological focus (for example Montenegro developed a Development Strategy for Small Hydro Power Plants) or have integrated RES into the wider environmental agenda (for example Serbia’s National Environmental Strategy indirectly covers RES).

Table 1 Policy and Strategy provisions in place

Dedicated RES Policy/

Strategy

RES part of Energy Policy/

Strategy

Albania � � Bosnia-Herzegovina

� �

Croatia � � Montenegro � � Serbia � � FYR of Macedonia

� �



48

Dedicated RES Policy/

Strategy

RES part of Energy Policy/

Strategy

UNMIK � � Ukraine � � Moldova � � Turkey � �

Most CPs/cCPs have some form of target setting for RES (Table 2). Targets mostly take the form of mere indicative targets, expressed as a share of final total energy consumption, production, or capacity. Not all cover the full range of RES (i.e. specific targets for RESe and RESth and RES in transport) but many also express targets for energy efficiency or reduction of energy intensity (such Moldova). Some CPs/cCPs also express interim targets, including UNMIK and Moldova. Table 2 Targets for RES

Targets RES Targets

Albania �

5% biofuels by 2010, 15% by 2015 2% of total power production from RES (producers with capacity > 100MW) Draft: 18% RESe of TPES by 2020

Bosnia-Herzegovina

� None

Croatia �

Mandatory 20% RES in final energy consumption by 2020 10% biofuels in final consumption of gasoline and diesel by 2020 35% RESe in power generation by 2020

Montenegro �

Share of RES in 2020 planned to be more than 20% of final energy consumption Development targets for installed capacity of RES by 2025 Only analysis of future share of SHPP, but no targets set out Draft: New Energy Law (2009) to set indicative targets for RES

Serbia � 1.5-2% RES in total energy consumption by 2015 4.5% RES in total energy production by 2010 20% reduction of energy consumption by 2020

FYR of Macedonia

�

Draft : 30% energy intensity reduction compared to 2006 by 2020 > 20% RES of total final energy consumption by 2020 10% biofuels in total consumption of transport fuels by 2020 30% GHG emissions reduction (20% in coal-based power generation) by 2020

UNMIK � Annual targets and final targets 7.78% RESe and RESth of total energy production



49

Targets RES Targets

(reviewed annually for ten years) by 2016

Ukraine �

State Support Programme set 10% RES of final energy consumption by 2010 Development target for biodiesel production of 623,000 tonnes annually by 2010

Moldova �

6% RES of total energy generation by 2010, 20% in 2020 6% bioethanol mixed with petrol of total volume commercialised by 2010, 20% by 2020 5% biodiesel mixed with diesel fuels of total volume of diesel fuel commercialised by 2010, 20% by 2020 8% RESe of total gross electricity consumption by 2010 2-3% annual decrease of energy intensity

Turkey �

30% RES of total electricity production by 2023 Capacity targets for wind (20000MW), geothermal (600MW), and maximisation of hydro and solar power potential

As a means to achieve targets, most CPs/cCPs have provided for specific support mechanisms within law or within their policy and/or strategy documents, but some have not fully implemented these to date. Montenegro is still to set out its support mechanisms in primary legislation; Serbia has proposed certain schemes which still need to be finalised. Energy efficiency is a major theme in almost all policy and strategy documents. Across the CPs and cCPs, awareness raising, information and/or training programmes for RES appears to be usually connected with or incorporated in energy efficiency programmes. A number of CPs/cCPs have conferred public outreach and information to energy efficiency agencies and institutes (Albania, Serbia) while others delegate in particular the area of consumer protection to the regulator (Former Yugoslav Republic of Macedonia, UNMIK, Moldova). Again others retain this area within the Ministries and government bodies (Montenegro, Turkey). Campaigns for public outreach and information are often provided for theoretically. While the responsible agencies and institutions are legally obliged to provide information, it is unclear where campaigns are actively implemented. However, some universities are involved with research and education programmes, but most notably in the field of energy efficiency (UNMIK, Moldova).

Table 3 Promotion of RES through public outreach, information and training

Public outreach, information and training

Albania Energy Efficiency Centre Bosnia-Herzegovina No provisions Croatia Ordinance on labelling of energy efficiency of household

appliances Montenegro Ministry of Economy legally obliged to facilitate

realisation of RES projects by providing relevant information

Serbia Serbian Energy Efficiency Agency to stimulate rational



50

and efficient energy use and RES FYR of Macedonia Need for public awareness schemes outlined in Energy

Law, Art.139 Energy Regulatory Commission responsible for consumer protection

UNMIK Activity in solar sector University and school curricula Public awareness campaigns on energy efficiency and RES projects Energy Regulatory Office responsible for consumer protection

Ukraine No information Moldova Academic activities - focused research and training into

energy efficiency and RES National Agency for Energy Regulation responsible for consumer rights

Turkey Energy Efficiency Law (2007) provides for EE awareness raising and training General Directorate of Electrical Power Resources and Development Administration is responsible for raising awareness on energy conservation


With regard to legal provisions and regulatory measures to support the development of RES, this section considered the following aspects within the legislative and regulatory systems of the CPs/cCPs:

• the legal framework for RES;

• specific support mechanisms for RES and their nature, i.e. whether feed-in tariffs, green certificate schemes, funds or fiscal measures have been developed;

• if a Guarantees of Origin (GoO) scheme exists; and

• whether RESth is explicitly supported.

Table 4 summarises the various provisions in the CPs/cCPs. While some form of legal framework is in place in most CPs and cCPs, not all have laws specifically targeted to provide a background setting to RES. CPs/cCPs with separate laws on renewable energy include Albania (draft), Serbia, (draft), Ukraine, Moldova and Turkey (RESe only). In other CPs/cCPs, provisions for renewable energy are usually set out primarily as part of the main energy or electricity laws. Montenegro is still to publish the support mechanisms it will employ within the 2009 Draft Energy Law. Directive 2001/77/EC as well as Directive 2009/28/EC specify that EU member states are supposed to implement schemes for GoO. The majority of CPs/cCPs have either drafted or implemented GoO schemes. However, only UNMIK provides GoOs for RESe and RESth. The purpose of GoO schemes varies, with some CPs linking the GoO scheme to the position of privileged producer or other mechanisms.



51

Feed-in tariff (FiT) schemes are evidently the more popular support mechanisms in the region of SouthEast Europe. Green certificates, the second most widely applied support mechanism within the EU, has only been taken up by Albania as an additional support scheme. However, FiT schemes often cover only a selection of RESe, rather than across the board. Mostly, hydropower is supported by an FiT scheme (Albanian, Former Yugoslav Republic of Macedonia, UNMIK). Some fund schemes exist, but these are seldom dedicated to RES projects. Funding for RES projects is usually part of a larger environmental fund. Moldova funds RES projects from the National Environment Fund and National Fund for Energy Conservation, where applicable. Serbia has funded no RES projects under the Environmental Protection Fund in 2006 and 2007. Fiscal measures to support RES focus on tax exemptions and custom duty exemptions for equipments (Albania, Ukraine, Turkey). Other measures may include discounts on license fee applications for RES projects, such as in Turkey. Moldova applies emission charges on vehicles using gasoline (ethylated, unblended), aviation fuel (aviation gasoline, kerosene) and diesel fuel. Table 4 Support Mechanisms

RESth

support

Feed-

in

tariff

Guarantees

of Origin

Fund Green

certificates

Fiscal

measures

Albania � � � � � � Bosnia-Herzegovina

� � � � � �

Croatia � � � � � �

Montenegro � � � � � �

Serbia � � � � � � FYR of Macedonia

� � � � � �

UNMIK � � � � � �

Ukraine � � � � � �

Moldova � � � � � �

Turkey � � � � � �

3.3 Institutional setting

A high-level assessment of the institutional setting for RES reveals that the institutional framework appears fairly dispersed in most CPs/cCPs with a wide range of Ministries and Agencies being involved in the processes concerning RES development (Table 5). This can generate problems in terms of overlapping responsibilities and streamlining of processes. Table 5 Institutions responsible for RES

Relevant institutions

Albania Ministry of Economy, Trade and Energy National Resource Agency Electricity Regulatory Agency Energy Efficiency Centre Albania-EU

Bosnia- Ministry of Foreign Trade and Economic Relations of Bosnia-



52

Herzegovina Herzegovina State Electricity Regulatory Commission At entity level: Ministry of Energy, Mining and Industry of Federation of BiH Ministry of Energy, Mining and Industry of Republika Srpska Electricity Regulatory Commission of Federation of BiH Regulatory Commission for Electricity of Republika Srpska

Croatia Ministry of Economy, Labour and Entrepreneurship Ministry of Environmental Protection, Physical Planning and Construction Croatian Energy Regulatory Agency Local municipalities Croatian Energy Market Operator

Montenegro Government of Montenegro Ministry of Economy Energy Regulatory Agency Ministry of Environment and Physical Planning Ministry of Agriculture, Forestry and Water Management National Council for Sustainable Development

Serbia Ministry of Mining and Energy Ministry of Environment and Spatial Planning Ministry of Agriculture Ministry of Science and Technological Development Serbian Energy Agency Serbian Energy Efficiency Agency Regional Centres for Energy Efficiency Secretariat for Energy and Mineral Materials of Province Vojvodina

FYR of Macedonia

Ministry of Economy Energy Agency Energy Regulatory Commission

UNMIK Ministry of Energy and Mining Ministry of Agriculture, Forestry and Rural Development Energy Regulatory Office Kosovo Trust Agency

Ukraine Ministry of Fuel and Energy, with dedicated department for RES National Agency for Efficient Energy Resources Management National Electricity Regulatory Commission Ministry of Environmental Protection Ministry of Agrarian Policy Ministry of Construction, Architecture, Housing and Communal Services

Moldova Ministry of Environment (main institution for RES) Ministry of Energy (since 2008 a department of the Ministry of Economy and Commerce) National Agency for Energy Regulation Agency for Energy Efficiency (under development) State Energy Inspectorate

Turkey Ministry of Energy and Natural Resources Energy Market Regulatory Authority General Directorate of Electrical Power Resources Survey and Development Administration Energy Efficiency Coordination Board



53

A main obstacle to RES development identified in most CPs/cCPs concerns time delays in licensing procedures. In Ukraine, the licensing process is described as complex and costly whereas in Croatia cumbersome planning procedures add to delays. While some CPs, such as Bosnia-Herzegovina, are working on the development of institutional capacity with the set-up of dedicated units for RES within larger institutions, the lack of funds and capacity imposes another problem to the development of the RES sector in some CPs/cCPs. This has specifically been identified for Albania, Former Yugoslav Republic of Macedonia, Serbia, and Ukraine. Also, the lack of full implementation of regulatory measures in some CPs/cCPs makes effective execution of regulatory responsibilities evidently difficult.

3.4 Market Access

Most CPs/cCPs are progressing with the unbundling of state-owned utilities and the liberalisation of their energy markets, which opens opportunities for RES development (Table 6). Grid access and purchasing regulations for RES and the creation of a level-playing field plays a major role in this regard. Table 6 summarises the provisions. With regard to purchase obligations, about half of CPs/cCPs have these implemented. The table below also indicates where some form of obstacle to RES exists under domestic regulations.

Table 6 Grid and market access

Grid access and purchase conditions for RES

Albania Priority access for RES <25MW, HPPs <10MW, cogeneration plants <100MW Guaranteed grid access for all RES

Bosnia-Herzegovina

No provisions made

Croatia No priority access for RES, grid connection guaranteed for conventional power plants only (and SHPP and cogeneration) Purchase obligation for market operator Obstacle: Grid code limitations on wind generation due to system stability requirements, also limitations for solar and fuel cells

Montenegro Guaranteed priority grid access for RES <10MW to distribution grid Obstacle: Grid codes for T and D are temporary

Serbia Priority access for RES only if power offered under equal conditions Purchase obligation for RES by TSO/DSO Obstacle: Priority access for privileged power producers only over other producers who offer power under equal conditions

FYR of Macedonia

MO purchase obligation for RES Priority dispatch for RES – at regulator’s discretion

UNMIK Priority access for RESe and RESth (if covered by GoOs) Purchase obligation for RES Obstacle: Priority access not set out in grid code

Ukraine Preferential access for RES to distribution networks Purchase obligation for RES by regional networks

Moldova Free, non-discriminatory access for RES and fuels for electricity grid and district heating systems



54

Purchase obligation for RES by TSO/DSO Obstacle: Free, non-discriminatory access for RES only advantage if priority over conventional energy

Turkey Priority access for RES based on domestic resources RES exempt from balancing obligation RES exempt from certain design and performance criteria under grid regulation


GAP ANALYSIS AND IMPACT OF DIRECTIVE 2009/28/EC

55

4 GAP ANALYSIS AND IMPACT OF DIRECTIVE

2009/28/EC

In order to evaluate the level of compliance with Directive 2009/28/EC, a gap analysis was prepared for each country which checks all relevant Articles against current provisions in the CPs and cCPs. The results for individual Parties are presented in the Appendices to this report. The synthesis provided below allows for a comprehensive overview of the current status of compliance across the region. Whether certain provisions are in place and match the requirements for Directive 2009/28/EC has been indicated as below: � = no � = yes � = partially, indirectly or in draft

� = unknown


The following Articles of Directive 2009/28/EC were considered relevant for policy and strategy development:

• Article 2 – Definitions


• Article 4 – National renewable energy action plans

• Article 14 – Information and training

The three or four main focus areas for renewable energy policy in the new Directive are RESe, RESth, RES in transport and energy efficiency measures to help achieve the targets for RES shares. Table 7 below summarises the contents of energy policy and strategy documents and programmes within the CPs/cCPs. While RES are covered in general by most policies and/or strategies, RESth is not usually explicitly mentioned (only UNMIK specifically distinguishes between RESe and RESth). RES in transport is usually mentioned in line with biofuels development, as in Bosnia-Herzegovina, and the three cCPs, Ukraine, Moldova and Turkey. At the same time, however, it is clear that energy efficiency and the reduction of energy intensity is a major theme across almost all CPs/cCPs. Table 7 Relevant areas for policy or strategic documents: Article 2 – Definitions

Article 2 –

Definitions

Alb

an

ia

Bo

snia

-

Her

zeg

ovin

a

Cro

ati

a

Mon

ten

egro

Ser

bia

FY

R o

f

Mace

don

ia

UN

MIK

Uk

rain

e

Mold

ova

Tu

rkey

RESe? � � � � � � � � � � RESth? � � � � � � � � � � RES in transport? � � � � � � � � � � Energy efficiency?

� � � � � � � � � �



56

Table 8 shows that most CPs/cCPs have targets for RES development in place. However, these will clearly not be consistent with the EU calculation methodology. Differences exist in the nature and definition of the targets – specific limitations apply to the calculation of the targets and they should be expressed as a share of total final energy consumption. Only Croatia has mandatory targets that are expressed as a share of final energy consumption and Former Yugoslav Republic of Macedonia envisage similar draft targets (although not mandatory). Croatia and Former Yugoslav Republic of Macedonia are also the two countries which align their (draft) targets with the EU targets of 20% share of RES in final energy consumption by 2020 and a target of 10% for biofuels. Turkey’s Ministry of Energy and Natural Resources proposed RES targets at an international conference in 2008, but the current status is unclear. Most notably, targets are usually of an indicative nature, except for Croatia which proposes mandatory targets in its Draft Energy Strategy. Table 8 Article 3 – Mandatory national targets and measures

Article 3 –

Mandatory

national targets

and measures

Alb

an

ia

Bo

snia

-

Her

zeg

ovin

a

Cro

ati

a

Mon

ten

egro

Ser

bia

FY

R o

f

Mace

do

nia

UN

MIK

Uk

rain

e

Mold

ova

Tu

rkey

Do current national targets exist?

� � � � � � � � � �

Are they expressed as share of total final energy consumptions?

� � � � � � � � � �

Are the national targets mandatory?

� � � � � � � � � �

Many of the CPs/cCPs have implementation strategies and action programmes for RES which include features of the required national action plan. They are either part of wider programmes or have a strong focus on specific measures and technologies. They don’t match the specific requirements that are set out in the new Directive, and the various documents would need to be adjusted accordingly to fit the purpose of being used as action plans. Table 9 shows that only Former Yugoslav Republic of Macedonia and Turkey have not yet developed any specific form of implementation programme for RES.



57

Table 9 Article 4 – National renewable energy action plans

Article 4 –

National

renewable

energy action

plans

Alb

an

ia

Bo

snia

-

Her

zego

vin

a

Cro

ati

a

Mon

ten

egro

Ser

bia

FY

R o

f

Mace

don

ia

UN

MIK

Uk

rain

e

Mold

ova

Tu

rkey

Do current action plans and programmes match with the requirements?

� � � � � � � � � �

Information on public awareness raising and training schemes has been scarce (Table 10). However, the majority of CPs/cCPs have formally conferred responsibility to a government or public sector institution, be it specifically for public awareness raising or for consumer protection (which indirectly would confer a duty to disseminate relevant information as well as training and certification of installers and equipment in the sector). Table 10 Article 14 – Information and training

Article 14 –

Information and

training

Alb

an

ia

Bosn

ia-

Her

zegov

ina

Cro

ati

a

Mon

ten

egro

Ser

bia

FY

R o

f

Mace

don

ia

UN

MIK

Uk

rain

e

Mold

ova

Tu

rkey

Does an institution exist to make information on RES publicly available?

� � � � � � � � � �

Are awareness raising schemes in place?

� � � � � � � � � �

Are training programmes in place?

� � � � � � � � � �


The following Articles of Directive 2009/28/EC were considered relevant in terms of legal and regulatory developments:

• Article 3 – Mandatory national targets and measures (support schemes)

• Article 6 – Statistical transfers, Articles 7 to 10 – Joint projects, Article 11 – Joint support schemes

• Article 15 – Guarantees of Origin

• Article 17 – Sustainability criteria



58

In order to meet the mandatory targets, Directive 2009/28/EC encourages the development of support schemes. As shown in Table 11, most CPs and cCPs have implemented feed-in tariff schemes or plan to do so (Serbia). Montenegro and Ukraine have some form of legally binding provisions in place to support RES development but have not progressed these to the regulatory stage. A few CPs and cCPs only provide funding mechanisms for RES projects as part of wider funds, e.g. in Moldova, or fiscal incentives and grid code arrangements, e.g. in Serbia and Montenegro. Table 11 Article 3 – Targets and Support Mechanisms

Although this picture suggests that all CPs are supporting RES in some way, it is not an indication of the effectiveness of the various support mechanisms or whether they are sufficient to incentivise new renewable developments. No explicit obstacles were identified in the high-level legislative review to theoretically prevent crossborder cooperation measures (statistical transfers, joint projects, joint support schemes) (Table 12). Albania even encourages some form of crossborder cooperation by allowing producers to meet their targets through certified imports of RESe. However, in Bosnia-Herzegovina, an obstacle may exist where the feed-in tariff is for small-scale RES is regionally limited, i.e. this may also prevent cross-border development of joint support schemes. Turkey explicitly limits priority access for RES to those installations using domestic resources.

Table 12 Crossborder cooperation: Article 6 – Statistical transfers; Article 7 to 10 –

Joint projects; Article 11 – Joint support schemes

Article 6 –

Statistical

transfers;

Article 7 to 10 –

Joint projects;

Article 11 –

Joint support

schemes Alb

an

ia

Bosn

ia-

Herz

egovin

a

Cro

ati

a

Mo

nte

neg

ro

Ser

bia

FY

R o

f M

ace

don

ia

UN

MIK

Uk

rain

e

Mo

ldov

a

Tu

rkey

Are statistical transfers theoretically possible, i.e. no provisions

� � � � � � � � � �

7 Support mechanisms exist at Entity level rather than State level.

Article 3 –

Mandatory

national targets

and measures A

lba

nia

Bosn

ia-

Her

zegov

ina

7

Cro

ati

a

Mon

ten

egro

Ser

bia

FY

R o

f

Mace

don

ia

UN

MIK

Uk

rain

e

Mold

ova

Tu

rkey

Do provisions for support schemes exist?

� � � � � � � � � �

Are they fully implemented in regulation?

� � � � � � � � � �



59

prevent this? Can any legal provisions potentially prevent joint projects or joint support schemes with other CPs?

� � � � � � � � � �

The new Directive expands the current provisions for schemes of Guarantees of Origin from focusing on RESe to cover RESth, too. Whilst GoO schemes exist in a number of countries, they have generally been designed to match the criteria of Directive 2001/77/EC, and hence will require adjustment to match the requirements of the new Directive. Table 13 Article 15 – Guarantees of Origin

Article 15 –

Guarantees of

Origin

Alb

an

ia

Bosn

ia-

Her

zegov

ina

Cro

ati

a

Mon

ten

egro

Ser

bia

FY

R o

f

Mace

don

ia

UN

MIK

Uk

rain

e

Mold

ova

Tu

rkey

Is a GoO scheme in place?

� � � � � � � � � �

Does it cover RESth in addition to RESe?

� � � � � � � � � �

The last relevant point with regard to legislation and regulation is the introduction of sustainability criteria for biofuels as set out in Article 17 of Directive 2009/28/EC. None of the CPs/cCPs have such criteria in place. However, Croatia has developed a Regulation on the quality of biofuels and Turkey’s Petroleum Market Law contains a definition of biofuels and a draft plan exists for a Law on Extension of use of biofuels – both may contain some form of sustainability criteria. Table 14 Article 17 - Sustainability criteria

Article 17 –

Sustainability

criteria

Alb

an

ia

Bosn

ia-

Herz

egovin

a

Cro

ati

a

Mon

ten

egro

Ser

bia

FY

R o

f

Mace

do

nia

UN

MIK

Uk

rain

e

Mold

ova

Tu

rkey

Do sustainability criteria for biofuels exist?

� � � � � � � � � �


While most CPs/cCPs provide for the institutional arrangements of the energy sector in primary legislation, responsibility for RES sector is often unclear and/or



60

undefined. It is difficult to judge in a high-level assessment how far current setting arrangements could be detrimental to the development of the RES sector but a repeated theme across the analysis is the difficulties faced by RES developers with planning processes. The exact causes and structures would need to be reviewed individually, but it also becomes clear that a lack of institutional capacity and funding may contribute to the problems investors and developers in the RES sector face. Table 15 Article 13 – Administrative procedures, regulations and codes

Article 13 –

Administrative

procedures,

regulations and

codes

Alb

an

ia

Bosn

ia-

Herz

egovin

a

Cro

ati

a

Mon

ten

egro

Ser

bia

FY

R o

f

Mace

do

nia

UN

MIK

Uk

rain

e

Mold

ova

Tu

rkey

Is institutional setting for RES set out legally?

� � � � � � � � � �

At a high-level, are administrative procedures, regulations and codes proportional to the promotion of RES?

� � � � � � � � � �

4.4 Market Access

Directive 2009/28 recommends that priority access should be given to RES on national grids, system stability permitting. As the transmission and distribution grids in the region already require significant investments to upgrade, with power outages being regular problems in some areas, the uptake of intermittent RES is treated with caution in most CPs/cCPs. Nevertheless, some provision on grid access for RES has been set out by most CPs/cCPs. Most CPs/cCPs guarantee access for RES, but not necessarily provide priority access. Others merely put RES on an equal footing with conventional power generation (Serbia). Again, as with feed-in tariffs, however, some have chosen to restrict priority access to certain technologies and capacity levels (Albania, Croatia) or to restrict access to distribution networks. Due to system stability considerations, Croatia explicitly limits the access of wind capacity and Serbia has similar provisions in place. Once connected, however, a purchasing obligation for RES exists in half of the CPs/cCPs. Table 16 Article 16 – Access and operation of grids

Article 16 –

Access and

operation of

grids

Alb

an

ia

Bosn

ia-

Herz

egovin

a

Cro

ati

a

Mon

ten

egro

Ser

bia

FY

R o

f

Mace

don

ia

UN

MIK

Uk

rain

e

Mold

ova

Tu

rkey



61

Do RES receive priority access (depending on system security)?

� � � � � � � � � �

Do RES receive guaranteed access (depending on system security)?

� � � � � � � � � �

Does a purchase obligation for RES exist?

� � � � � � � � � �


CONCLUSIONS

62

5 CONCLUSIONS

Under the new Directive the requirement on Member States to promote the use of energy from renewable sources has been expanded and intensified by the setting of mandatory targets. Within the Energy Community, for most Parties, the promotion of renewable energy sources has only recently become an issue of concern. Whilst some form of action has now commenced in all of the countries, by and large the policy, legal, regulatory and institutional frameworks in the Region generally remain at an early stage. Progress in developing renewable energy frameworks varies between Parties. Croatia for example is relatively well advanced, largely driven by its EU accession negotiations. UNMIK and the Former Yugoslav Republic of Macedonia have also made good progress in developing legal and regulatory instruments and others (Albania, Serbia and Montenegro) are in the process of developing new legislation to facilitate renewable energy development. In some countries, support for specific forms of renewable energy (mostly for wind and small hydro electric generation) is quite well established. However, provisions for the support of renewable energy for heating and cooling is almost non-existent, with only UNMIK (and to some extent Former Yugoslav Republic Macedonia) having any existing legal or regulatory provisions. Where Parties have already made progress in the development of legal and regulatory frameworks, they have inevitably been designed to meet the requirements of the previous/existing Directives. The developments in the new Directive mean that as a minimum, existing legal and regulatory measures will require to be updated. However the adoption of the new Directive could have more fundamental implications for many of the Energy Community Parties. The new mandatory renewable energy targets (which IPA is calculating under a separate part of this assignment) are, in most cases, more ambitious than the existing targets set by each Party, and will represent a significant increase in the proportion of renewable energy in the energy mix. Achieving these mandatory targets could require a radical policy rethink about how the required volumes of new RES energy will be sourced – whether from domestic resources or through joint projects and initiatives8. A new policy approach would inevitably also require new legal and regulatory measures, including revised support schemes, in order to implement it. Finally, the focus of this assignment has been on the extent to which existing frameworks have been developed and identifying what remains to be done in order to meet the requirements of the new EU Renewables Directive. We have not been in a position to assess the effectiveness of existing support schemes for example, or whether the measures implemented in each country will in fact be sufficient to attract renewable energy investment. If Parties are to meet their mandatory targets, the attractiveness of support schemes and the ease with which renewable energy suppliers can gain access to networks and markets will become increasingly important. It will also be important that sufficient institutional capacity is available to implement documented policy and regulatory measures.

8 The next stage of our assignment looks at how the targets would be met most economically for the region as a whole.

APPENDICES

63

APPENDICES

ANNEX I – BACKGROUND REPORT APPENDIX I

SUMMARY OF DIRECTIVE 2009/28/EC

64

APPENDIX I – SUMMARY OF DIRECTIVE

2009/28/EC

The following is a summary of the contents of Directive 2009/28/EC, highlighting the developments from former Directives 2003/30/EC and 2001/77/EC. Table 17 presents the contents of Directive 2009/28/EC.

Table 17 Contents Directive 2009/28/EC on the promotion of the use of energy from

renewable sources

Article Title

1 Subject matter and scope

2 Definitions

3 Mandatory national targets and measures for the use of energy from renewable energy sources

4 National renewable energy action plans

5 Calculation of the share of energy from renewable sources

6 Statistical transfers between Member States

7 Joint projects between Member States

8 Effects of joint projects between Member States

9 Joint project s between Member States and third countries

10 Effects of joint projects between Member States and third countries

11 Joint support schemes

12 Capacity increases

13 Administrative procedures, regulations and codes

14 Information and training

15 Guarantee of origin of electricity, heating and cooling produced from renewable energy sources

16 Access to and operation of the grids

17 Sustainability criteria for biofuels and bioliquids

18 Verification of compliance with the sustainability criteria for biofuels and bioliquids

19 Calculation of the greenhouse gas impact of biofuels and bioliquids

20 Implementing measures

21 Specific provisions related to energy from renewable sources in transport

22 Reporting by Member States

23 Monitoring and reporting by the Commission

24 Transparency platform

25 Committees

26 Amendments and repeal

27 Transposition

28 Entry into force

29 Addressees



65

In more detail, the Directive contains the following provisions and compares to the previous Renewable Directive 2001/77/EC and Biofuels Directive 2003/30/EC as indicated:

Subject matter and scope (Article 1)

The scope of the Directive is outlined and major requirements are summarised. The new Directive has an increased scope, covering energy from renewable

resources, rather than just electricity.

Definitions (Article 2)

The Renewable Energy Sources (RES) covered under the Directive are defined, including certain types of RES such as geothermal, biomass, etc. Guarantees of origin, support schemes and gross final consumption also defined. Directive 2001/77/EC was smaller in scope and the new Directive therefore adds

the following sources to account for heating and cooling and transport:

aerothermal, hydrothermal, ocean energy as well as biofuels and bioliquids.

District heating and cooling is also defined.

Mandatory national overall targets and measures for the use of

energy from renewable sources (Article 3)

Member States (MS) must meet individual national targets set out in the Directive, consistent with the Community target of 20% of final energy consumption from RES in 2020, and all countries must meet a target of 10% of final energy consumption from RES in transport in 2020. Support schemes and cooperation mechanisms between MS are emphasised as the main tools to achieve these targets. Instructions are given for the calculation of the transport target. Directive 2001/77/EC included only national indicative targets for electricity

consumption from RES. Directive 2003/30/EC set indicative targets for biofuels

and other RES in transport.

National renewable energy action plans (Article 4)

MS need to adopt action plans which are to be updated annually and are subject to review by the Commission. They must set out national targets and measures to be taken to achieve targets and fulfil the requirements of the Directive. Other policy measures relating to energy efficiency shall be taken into account. A template with minimum requirements is included under Annex VI of the Directive. Directive 2001/77/EC required similar reports with targets and measures to

achieve targets but these were accordingly smaller in scope.



66

Forecast documents must set out estimated excess RES energy production which could be transferred to other MS, potential for joint projects, and RES energy demand to be satisfied from non-domestic production to 2020. New provision: The previous Directive did not require forecast documents.

Calculation of the share of energy from renewable sources (Article

5)

The share of energy from RES is calculated based on final energy consumption. Detailed rules and methodology are set out on how to calculate final energy consumption from RES including what sources can and cannot be included in the calculation (provisions are made regarding pumped storage, multi-fuel plants, heat pumps, passive energy systems, aviation, etc.). New provision: Directive 2001/77/EC only specified reference values for RES to be

taken into account for target calculation and asked for compatibility with targets

under the Kyoto Protocol and were assessed by the Commission against a global

Community target.

Statistical transfers between Member States (Article 6)

Statistical transfers of energy from RES between MS can only be made after the respective national target has been met. Transfers become effective after notification to the Commission. They do not require physical transfer. New provision: Directive 2001/77/EC made no reference to statistical transfers.

Joint projects between Member States (Articles 7 and 8)

Two or more MS can engage in joint projects for electricity and heating and cooling. Joint projects need to be notified to the Commission, the requirements for the notification are specified. The calculation of the share of energy from RES to be allocated between MS engaged in joint projects is also defined. The joint project has to have become operational after 25 June 2009 or a capacity increase through refurbishment after this date. New provision: Directive 2001/77/EC made no reference to joint projects.

Joint projects between Member States and third countries

(Articles 9 and 10)

MS can engage in joint projects for electricity from RES with third countries. Conditions are specified under which energy from RES produced in third countries can contribute towards targets of MS engaged in joint projects: To be accounted for in the national target, the electricity needs to be consumed within the Community. This requires physical transfer of the electricity has taken place by firm nomination to the interconnector, and the electricity needs to come from a new installation or from capacity increase after 25 June 2009 or a capacity increase through



67

refurbishment after this date. The nominated amount of electricity may not have received support from a support scheme in the third country other than investment aid. New provision: Directive 2001/77/EC made no reference to joint projects with

third countries.

Joint support schemes (Article 11)

Two or more MS can join or coordinate national support schemes. Conditions under which MS may allocate energy produced from RES towards targets of another MS under joint support schemes include statistical transfers of specified amounts of energy from RES and distribution rules to allocate the energy between participating MS. The previous Directive required the Commission to evaluate and report on support

schemes used in MS, but made no reference to joint support schemes between MS.

Capacity increases (Article 12)

Energy from RES produced due to increased capacity in refurbished installation is to be treated as though produced by separate installation. New provision: Directive 2001/77/EC did not specify how to treat capacity

increases.

Administrative procedures, regulations and codes (Article 13)

MS must take steps to ensure proportionality of administrative bodies, procedures, rules, structures and charges, certification and licensing, and information availability with respect to RES projects and infrastructure for RES (networks). The burden for small and decentralised RES energy projects should be reduced. Steps should also be taken by MS to ensure that systems are in place to facilitate RES in planning, designing, building and renovating industrial and residential areas and city infrastructure, including district heating and cooling systems. The previous Directive included similar, but less detailed and specific provisions

for MS to reduce barriers for RES projects.

Building codes and regulations should require minimum levels of energy from RES in new buildings and major renovated buildings. Building codes and regulations and eco-labels or similar certification should be used to further encourage the use of RES to achieve significant reductions in energy consumption. High level standards are defined for the certification of equipment. New provision: Directive 2001/77/EC did not specify any requirements for building

codes and regulations or equipment certification.



68

Information and training (Article 14)

MS need to develop information/guidance programmes and ensure information on RES energy systems and equipment, support schemes and certification schemes is made available to the public. They should also develop certification and qualification schemes for installers based on criteria outlined in the Directive and guidance on high efficiency energy technologies and publish them. In corporation with local authorities, they should also develop awareness-raising, guidance and training programmes to inform citizens. New provision: Directive 2001/77/EC did not include provisions for information,

training or certification.

Guarantees of origin (Article 15)

MS are responsible for issuing guarantees of origin (GO). Standard size and validity period of GO are defined (1MWh, 12 months) and GOs can also be issued for heating and cooling from RES. GOs have no function for target compliance and are purely for commercial purposes. The previous Directive did not include standard size and validity period for GO

and GO could only be issued for electricity.

Competent bodies independent from production, trade and supply activities shall now also supervise transfer and cancellation of GO. Proof may be required from the supplier of the amount or share of energy produced from RES. GO must specify source, date and location of production, and also specify identity, type of the production facility and date it became operational. Capacity is to be provided for all facilities. The GO must contain information of country and date of issue of GO and its unique identification number. Previous directive only required GO to provide information of source, date and

location of production and capacity for hydroelectric installations.

Access to and operation of the grids (Article 16)

Appropriate transmission and distribution grid infrastructure for system security purposes needs to be developed and promoted by the MS. MS therefore should provide priority access to grid for RES and take measures to minimise curtailment of electricity from RES. New provision: Directive 2001/77/EC did not require developing transmission and

distribution grid infrastructure and measures to reduce curtailments from higher

share of electricity from RES.

MS may require costs of technical adaptations to the grid to accommodate increasing share of RES to be borne by transmission and distribution system operators (T/DSO). T/DSO are now required to provide RES producers and the



69

public with information on grid connection cost estimates, timetables for processing requests, and an indicative timetable for any proposed grid connection. The previous Directive only required estimates of costs for grid connection to be

provided to RES producers.

Tariffs for transmission and distribution of electricity charged by T/DSO must reflect realisable costs and benefits from the plants’ connection to the network, and shall not discriminate against RES producers, especially from peripheral and low population density regions. MS have to assess possible extension of gas networks and the TandDSO are obliged to publish technical rules concerning internal market and natural gas and connection tariffs for renewable gas sources. Extension of district heating and cooling infrastructure needs to be assessed and further developed to accommodate the contribution of geothermal, biogas and solar facilities. New provision: Directive 2001/77/EC only included requirements for electricity

grids.

Sustainability criteria for biofuels and bioliquids (Article 17)

Biofuels and bioliquids are to be taken into account for measuring compliance with the requirements of Directive concerning national targets and with renewable energy obligations, and for eligibility for financial support for the consumption of biofuels and bioliquids. The previous Biofuels Directive 2003/30/EC required MS to set indicative targets

or biofuels with reference value of 2% by 31 December 2005 and 5.75% by 31

December 2010.

GHG emissions saving from biofuels shall be at least 35%, 50% from 1 January 2017, and 60% from 1 January 2018. Biofuels and bioliquids shall not be made from raw material obtained from land with high biodiversity, designated areas, biodiverse grassland, and land with a high carbon stock or peatland. Agricultural raw materials used for biofuels and bioliquids production shall be in accordance with common agricultural policy and minimum requirements for good agricultural and environmental condition. Directive 2003/30/EC did not include GHG emission saving requirements or other

sustainability criteria related to land use. MS only required to consider overall

climate and environmental balance of biofuels.

The Commission will report biannually to the Council and European Parliament on national measures taken to respect sustainability criteria in MS and third countries that are the source of biofuels or their raw materials. Directive 2003/30/EC required MS to report on measures taken to promote

biofuels, total sales of biofuels and resources allocated to production of biofuels.



70

The Commission is required to report on evaluation of progress made in use of

biofuels in MS.

Verification of compliance with the sustainability criteria for

biofuels and bioliquids (Article 18)

Economic operators must show that sustainability criteria for biofuels and bioliquids have been fulfilled, arrange for an adequate standard of independent auditing of information submitted, and provide evidence that this has been done. MS will submit this information to the Commission. The Commission shall examine the application of sustainability criteria in relation to a source of biofuel or bioliquid and decide whether MS concerned may take biofuel or bioliquid from that source. The Commission appears to be the main institution in coordinating and monitoring compliance and is required to report to the Council and European Parliament. Directive 2003/30/EC did not include verification of compliance with sustainability

criteria provisions. No reference was made to economic operators.

Calculation of the greenhouse gas impact of biofuels and

bioliquids (Article 19)

Instructions for calculation of GHG emission savings are provided and reporting requirements from MS and the Commission are specified. Directive 2003/30/EC required MS to report on effects of biofuels on climate

change and CO2 emissions reductions but did not provide calculation instructions.

Implementing measures (Article 20)

Various implementing measures referred to throughout the Directive need to take account of Article 7a of Directive 98/70/EC, which refers to actions to be taken in case of a sudden change of supply in crude oils or petroleum products. Higher limit values for one or more fuel components may be allowed under these circumstances. New provision: Directive 2001/77/EC does not refer to this Directive.

Specific provisions related to energy from renewable energy

sources in transport (Article 21)

The public should be informed on the availability and environmental benefits of renewable transport fuels. Percentages of RES higher than 10% blended in fuels need to be advertised at sales point. For target compliance and obligations placed on operators, the contribution from wastes, residues, non-food cellulosic material shall be considered as twice as that from other biofuels.



71

Directive 2003/30/EC required MS to ensure that the public was given information

on availability of biofuels and other renewable fuels.

Reporting by the Member States (Article 22)

MS must report to the Commission on progress made in the promotion of energy from RES, first in 2011, then biannually. The reports have to include information on: sectoral and overall shares of RES; measures taken for promotion of RES; introduction and functioning of support schemes and system of guarantee of origin; development of biomass resources and biofuels; net GHG savings; excess production of RES energy; and, information on estimating share of biodegradable waste for energy production. MS must also report on whether they intend to: establish a single administrative body for processing authorization, certification and licensing applications for RES installations; provide automatic approval for RES installation if authorizing body did not respond within set time limits; and, indicate land suitable for RES exploitation. Directive 2001/77/EC only required information on sectoral and overall shares,

measures taken for promotion of RES, and progress made in evaluating and

improving administrative procedures to remove regulatory and non-regulatory

barriers to RES.

Monitoring and reporting by the Commission (Article 23)

The monitoring and reporting of the Commission with regards to biofuels and bioliquids and their environmental, social impact is specified. In order to improve financing and coordination the Commission shall by 31 December 2010 present an analysis and action plan on energy from RES. Aspects to be analysed are listed in the Article. In 2018, the Commission shall present a Renewable Energy Roadmap for the post-2020 period and in 2021 shall report on the implementation of this Directive. Directive 2001/77/EC required the Commission to submit a summary report on the

basis of national reports to the European Parliament and the Council, which was

smaller in scope.

Transparency platform (Article 24)

The Commission will establish an online public transparency platform which will make available MS’ action plans, forecast documents, offers and arrangements for statistical transfers, joint projects, and national and Commission reports. The previous Directive did not envisage the establishment of a transparency

platform.



72

Committees (Article 25)

The Commission shall be assisted by the Committee on RES, and by the Committee on the Sustainability of Biofuels and Bioliquids. Directive 2001/77/EC did not include a provision related to committees. The Biofuels Directive 2003/30/EC referred to the assistance by a committee.

Amendment and repeal and Transposition (Article 26 and 27)

Directive 2001/77/EC and 2003/30/EC are amended until 1 April 2010 and repealed with effect from 1 January 2012. The deadline for transposition of Directive 2009/28/EC in the MS is 5 December 2010.



73

Table 18 Comparison Directive 2009/28/EC with Directives 2001/77/EC and 2003/30/EC

Provision New Directive 2009/28/EC Directive 2001/77/EC (2003/30/EC)

Article 1 – Subject matter and scope

Purpose and summary of directive � Art.1 � Art.1

Article 2 – Definitions

Renewable energy sources (RES)

Aerothermal energy

Geothermal energy

Hydrothermal energy

Biomass

Gross final consumption of energy

District heating

Bioliquids

Biofuels

Guarantee of origin

Support scheme

Renewable energy obligation

Actual value

Typical value

Default value

Electricity produced from renewable energy sources

� Art.2(a)

� Art.2(b)

� Art.2(c)

� Art.2(d)

� Art.2(e)

� Art.2(f)

� Art.2(g)

� Art.2(h)

� Art.2(i)

� Art.2(j)

� Art.2(k)

� Art.2(l)

� Art.2(m)

� Art.2(n)

� Art.2(o)

Not specified

� Art.2(a)

� Not specified

� Not specified

� Not specified

� Art.2(b)

� Art.2(d)

� Not specified

� Art.2.1 (Directive 2003/30/EC)

� Art.2.1 (Directive 2003/30/EC)

� Not specified

� Not specified

� Not specified

Not specified

Not specified

Not specified

� Art.2(c)

Article 3 - Mandatory national overall targets and measures for the use of energy from renewable sources

Member states (MS) will ensure by 2020 that share of RES meets national

targets as set out in the Directive

� Art.3.1 � Art.3.1



74


Measures to ensure RES equals or exceeds indicative trajectory set � Art.3.2 � Art.3.4

To meet targets MS may:

• Apply support schemes

• Cooperate with other MS and third countries

� Art.3.3(a)

� Art.3.3(b)

� Not specified

RES to account for 10% of transport energy by 2020; calculation of:

• Denominator - total amount of energy consumed in transport

• Numerator - amount of energy from RES consumed in transport

• Contribution of RES to electricity consumed by electric vehicles - average

share of RES in community or own country

� Art.3.4

� Art.3.4(a)

� Art.3.4(b)

� Art.3.4(c)

� Not specified

Article 4 - National renewable energy action plans

MS to adopt action plans � Art.4.1 � Art.3.2

Notify Commission of action plans by specified date � Art.4.2 � Art.3.2

Notify Commission of forecast document six months before action plan due:

• Estimated excess production of RES compared to indicative trajectory, and

estimated potential for joint projects until 2020

• Estimated demand for RES satisfied by means other than domestic

production until 2020

� Art.4.3(a)

� Art.4.3(b)

� Not specified

MS with share of RES below indicative trajectory to submit amended action plan

to Commission setting out measures to rejoin trajectory

� Art.4.4 � Art.3.3

Commission will evaluate action plans and may issue recommendations � Art.4.5 � Art.3.4

Commission will send action plans, forecast documents and any

recommendations to European Parliament

� Art.4.6 � Art.3.4



75


Article 5 - Calculation of the share of energy from renewable sources

Gross final consumption of energy from RES calculated as sum of final

consumption of:

• Electricity from RES

• Energy from RES for heating and cooling

• Energy from RES in transport

� Art.5.1 � Not specified

Inform Commission if unable to meet share of final consumption from RES in

2020 due to force majeure; Commission to determine adjustments


Electricity from previously pumped storage excluded from final consumption

calculation


In multi-fuel plants only electricity produced from RES included in calculation,

based on energy content of source


Heating and cooling final consumption from RES to include district heating and

cooling, industry, households, services, agriculture, forestry and fisheries for

heating, cooling and processing purposes


Aerothermal, geothermal and hydrothermal heat energy captured by heat pumps

included in calculation


Thermal energy from passive energy systems (i.e., building design) not included

in calculation


Energy content of transport fuels listed in Annex III � Art.5.5 � Not specified

Energy consumed in aviation will comprise no more than 6.18% of calculated � Art.5.6 � Not specified



76


gross final energy consumption (4.12% for Cyprus and Malta)

Methodology and definitions used for calculations will be EC regulation on

energy statistics (1099/2008)


Article 6 - Statistical transfers between Member States

MS may make statistical transfer of energy from RES to another MS but it shall

not affect the achievement of target of MS making transfer

Statistical transfers will be:

• Deducted from RES compliance share of MS making transfer

• Added to RES compliance share of MS accepting transfer

� Art.6.1

� Art.6.1(a)

� Art.6.1(b)

� Art.4.1, 4.2

• Only refers to future direct and indirect

schemes to support other MS

Transfers can be for one or more years, MS must notify Commission of quantity

and price of energy involved


Transfers only effective after all participating MS have notified Commission � Art.6.3 � Not specified

Article 7 - Joint projects between Member States

MS may cooperate with other MS on joint RES energy projects and may involve

private operators

� Art.7.1 � Art.4.1, 4.2

Notify Commission of joint projects in their territory � Art.7.2 � Not specified

Notification must:

• Describe proposed installation

• Specify proportion of energy to count towards targets of another MS

• Identify other MS

• Specify period RES production will count towards targets of other MS

� Art.7.3(a)

� Art.7.3(b)

� Art.7.3(c)

� Art.7.3(d)

� Not specified



77


Joint projects may extend beyond 2020 but RES energy production will not

count towards another MS targets beyond 2020


Notification can not be varied or withdrawn without agreement of both MS � Art.7.5 � Not specified

Article 8 – Effects of joint projects between Member States

MS must report annually on amount of energy from RES produced by joint

installation and amount to count towards targets of another MS

� Art.8.1(a,b) � Not specified

Send report to the benefiting MS and to the Commission � Art.8.2 � Not specified

Amount of energy from RES produced by joint installation will be:

• Deducted from RES compliance share of MS issuing notification

• Added to RES compliance of MS receiving notification

� Art.8.3(a)

� Art.8.3(b)

� Not specified

Article 9 – Joint projects between Member States and third countries

MS may cooperate with third countries on joint RES energy projects and may

involve private operators


Electricity from RES produced in third country will only contribute to MS

compliance target under following conditions:

• Electricity is consumed within Community, and equivalent amount of

electricity is nominated to interconnection capacity and registered in

schedule of balance by transmission system operators

• Electricity is produced by newly constructed or refurbished installation

• Electricity produced has not received support from support scheme of a

� Art.9.2(a)

� Art.9.2(b)

� Art.9.2(c)

� Not specified



78


third country other than investment aid granted to installation

MS may apply to Commission to include in national targets electricity from RES

produced and consumed in third country in context of construction of

interconnector between MS and third country if:

• Construction started by 31 December 2016

• Not possible for interconnector to become operational by 31 December

2020

• Possible for interconnector to become operational by 31 December 2022

• Interconnector to be used for export of RES to Community

• Interconnector to be used for joint project producing energy from RES

� Art.9.3(a)

� Art.9.3(b)

� Art.9.3(c)

� Art.9.3(d)

� Art.9.3(e)

� Not specified

Notify Commission of amount of electricity produced in third country to count

towards MS national targets


Notification to include:

• Description of proposed installation

• Amount of electricity to be counted towards MS national target

• Period during which electricity is to count towards MS national target

• Amount of electricity from installation to be used by third country

� Art.9.5(a)

� Art.9.5(b)

� Art.9.5(c)

� Art.9.5(d)

� Not specified

Period specified in notification not to extend beyond 2020 � Art.9.6 � Not specified

Notification can not be varied or withdrawn without agreement of MS and third

country


Encourage Energy Community members to take measures necessary for joint

projects under directive




79


Article 10 – Effects of joint projects between Member States and third countries

MS to report annually on:

• Amount of RES electricity produced by joint projects

• Amount of RES electricity from joint project to count towards national

target

• Proof of compliance

� Art.10.1(a)

� Art.10.1(b)

� Art.10.1(c)

� Not specified

Send report to the third country and to the Commission � Art.10.2 � Not specified

Use amount of RES electricity produced from joint projects in measuring

compliance with national targets set out in directive


Article 11 – Joint support schemes

MS may coordinate support schemes and count energy from RES towards

national targets of other MS if:

• statistical transfer made in accordance with Art.6

• distribution rule set up to allocate energy from RES between MS and notify

Commission of such rule

� Art.11.1(a)

� Art.11.1(b)

� Not specified

Report annually on amount of energy from RES subject to distribution rule � Art.11.2 � Not specified

Amount of energy from RES reallocated under distribution rule to be used in

measuring compliance of MS with national targets set out in directive


Article 12 – Capacity increases

Energy from RES produced due to increased capacity in refurbished installation

to be treated as though produced by separate installation

� Art.12 � Not specified

Article 13 – Administrative procedures, regulations and codes



80


Ensure national rules and procedures applied to networks for energy from RES

are proportionate and necessary, and take steps to ensure:

• Coordination of national, regional and local administrative bodies

• Availability of information on RES installations

• Streamlined administrative procedures

• Rules are objective, transparent, proportionate and non-discriminatory

• Administrative charges are transparent and cost-related

• Reduced burdens for smaller and decentralised RES energy projects

� Art.13.1(a)

� Art.13.1(b)

� Art.13.1(c)

� Art.13.1(d)

� Art.13.1(e)

� Art.13.1(f)

� Art.6.2

� Art.6.1

� Art.6.1

� Art.6.1

� Art.6.1, 7.6

� Not specified

Define specifications for equipment and systems required to benefit from

support schemes; adopt European standards where they exist


Encourage local and regional bodies to include energy from RES in planning

infrastructure


Establish by 31 December 2014 building regulations and codes with minimum

levels of energy from RES in new and major renovations


Ensure from 1 January 2012 that new and major renovated public buildings fulfil

exemplary role in context of directive


Promote RES for heating and cooling systems using building regulations and

codes, and eco-labels or certification where they exist


Promote biomass conversion technologies with efficiency of at least 85%

(residential and commercial) and 70% (industrial)


Establish criteria for award of Community eco-label for heat pumps � Art.13.6 � Not specified

Promote solar thermal energy systems based on European standards � Art.13.6 � Not specified



81


Article 14 – Information and training

Information on support measures to be made available to all relevant actors Art.14.1 � Not specified

Information on benefits, costs, energy efficiency of RES equipment and systems

to be made available


Certification schemes available by 31 December 2012 for installers of small-

scale biomass, solar thermal and PV, geothermal and heat pumps


Information on certification schemes available to the public � Art.14.4 � Not specified

Guidance available to planners and architects to consider RES in planning � Art.14.5 � Not specified

Develop information and programmes for citizens on benefits of RES energy � Art.14.6 � Not specified

Article 15 – Guarantees of origin of electricity, heating and cooling produced from renewable energy sources

Definition of guarantees of origin (GO) � Art. 15.2 � Art. 5.3

GO to be issued upon request � Art. 15.2 � Art. 5.1

Standardization of the GO size (1 MWh) � Art. 15.2 � Not specified

Definition of validity period for GO (12 months) � Art. 15.3 � Not specified

Designation of competent bodies for supervising separate from production, trade

and supply activities:

• the issuing of GO

• transfer and cancellation of GO

� Art. 15.4

� Art. 15.4

� Art. 5.2

� Not specified

Mechanisms to ensure proper working of GO � Art. 15.5 � Art. 5.5

GO for electricity from RES � Art. 15.1 � Art. 5.1

GO for heating and cooling from RES � Art. 15.2 � Not specified



82


MS may provide that they provide no support if the producer receives GO for the

same production of energy from RES

� Art. 15.2 � Not specified

Separation of GO and national targets � Art 15.2 � Not specified

Mutual recognition of GO between the MS � Art. 15.9 � Art. 5.4

Refusal of GO � Art. 15.9 � Art. 5.4

GO specifications:

• Energy source and date of production

• Electricity or heating/cooling

• The identity, location, type and capacity of the facility of production

• Benefits of installation and unit of energy from national support and type of

national support

• The date at which installation became operational

• The date and country of issue and a unique identification number

� Art. 15.6(a)

� Art. 15.6(b)

� Art. 15.6(c)

� Art. 15.6(d)

� Art. 15.6(e)

� Art. 15.6(f)

� Art. 5.3

� Not specified

� Art.5.3 (only location / capacity for

hydroelectric installations)

� Not specified

� Not specified

� Not specified

Possibility of the use of GO as a proof of share of RES of producer � Art. 15.7 � Not specified

Deduction of the amount transferred by supplier to a third party by GO from the

share of RES in its energy mix


Competence of the Commission in case of a refusal of GO � Art. 15.10 � Art. 5.4

GO objective, transparent and non-discriminatory criteria � Art. 15.11 � Art. 5.1

MS may request a proof from suppliers of RES energy of the amount or share of

energy produced from RES coming from installation that became operational




83


after…(not specified yet)

Article 16 – Access to and operation of the grids

Steps to be taken to develop appropriate transmission and distribution grid

infrastructure, intelligent-grid, storage facility and electricity system for secure

operation of the electricity system to accommodate further development of RES

including interconnection between the MS and between the MS and the third

countries


Member states shall ensure that transmission and distribution system operators

guarantee the transmission and distribution of RES

� Art. 16.2(a) � Art. 7.1

Priority access for RES � Art. 16.2(b) � Art. 7.1

Priority for electricity generators that use RES should be guaranteed by the

transmission system operators insofar as the operation of national electricity

system permits

� Art. 16.2.(c) � Art. 7.1

Ensuring appropriate grid and market-related operational measures to minimise

curtailment of electricity from RES

� Art. 16.2(c) � Not specified

In case of significant curtailments measures the responsible system operators are

required to report to competent authorities on them and on corrective measures

taken to prevent the curtailments


Requirement for transmission and distribution system operators to make public

their standard rules of bearing and sharing the costs of technical adaptations

necessary to integrate new producers of RES on the basis of objective,

transparent and non-discriminatory criteria

� Art. 16.3 � Art. 7.2



84


Emphasis on producers from peripheral and low population density regions � Art. 16.3 � Not specified

MS may require transmission and distribution system operators to bear in full or

in part the costs of technical adaptations necessary to integrate new producers of

RES

� Art. 16.4 � Art. 7.3

Deadline for MS review and taking appropriate measures to improve the

frameworks and rules for bearing and sharing the costs of technical adaptation

(30 June 2011)


Requirement for transmission and distribution system operators to provide to

new producers wishing to be connected:

• A detailed and comprehensive estimate of costs

• Reasonable and precise timetable for receiving and processing the request

for grid connection

• Reasonable indicative timetable for any proposed grid connection

� Art. 16.5(a)

� Art. 16.5(b)

� Art. 16.5(c)

� Art. 7.4

� Not specified

� Not specified

Sharing of costs of technical adaptations shall be enforced by a mechanism

based on objective, transparent and non-discriminatory criteria taking account of

the benefits which initially and subsequently producers as well as transmission

and distribution operators derive from connections

� Art. 16.6 � Art. 7.5

No discrimination against electricity from RES producers especially for

producers from peripheral and low population density regions

� Art. 16.7 � Art. 7.6

No discrimination against gas from RES � Art. 16.7 � Not specified

Tariffs charged by transmission and distribution system operators for RES � Art. 16.8 � Art. 7.6



85


electricity reflect realisable cost benefits resulting from the plants connection to

the network, which could arise from the direct use of low voltage grid

MS shall assess where relevant the extension of the gas network infrastructure

from RES


Where relevant transmission and distribution system operators shall publish

technical rules concerning internal market and natural gas, in particular

regarding network connection rules that include gas quality, gas odoration and

gas pressure requirements


Requirement for transmission and distribution system operators to publish the

connection tariffs for renewable gas sources on transparent and non-

discriminatory criteria

� Art. 16. 10 � Not specified

MS in their national plan shall assess the necessity to build new infrastructure

for district heating and cooling produced from RES in order to achieve 2020

targets


Development of district heating and cooling infrastructure to accommodate

development of heating and cooling production from biomass, solar and

geothermal facilities


Two-way metering Not specified � Art. 7.7

Article 17 – Sustainability criteria for biofuels and bioliquids

Definition of what biofuels will be taken into account in measuring compliance

if they fulfil sustainability criteria

� Art. 17.1 � Art. 3.4 (Directive 2003/30/EC) - General

reference to consider the overall climate and

environmental balance of various types of



86


biofuels

Biofuels must achieve at least 35% savings in GHG emissions to be taken into

account (50% from 2017; 60% from 2018)

� Art. 17.2 � Not specified (Directive 2003/30/EC)

Biofuels shall not be produced from land with:

• high biodiversity value (primary forest, areas designated for protection,

highly biodiverse grassland)

• high carbon stock (wetlands, continually forested areas)

• peatland

� Art. 17.3

� Art. 17.4

� Art. 17.5

� Not specified (Directive 2003/30/EC)



Agricultural raw materials produced in the EU used for biofuels and bioliquids

production shall be in accordance with common rules for direct support schemes

under the common agricultural policy and certain support schemes for farmers

and in accordance with the minimum requirements for good agricultural and

environmental condition


Two year reporting by Commission on the actions undertaken in the EU MS and

third countries in respect to provisions from 17.2 to 17.5 and availability of food

at affordable prices

� Art. 17.7 Art. 4.2 (Directive 2003/30/EC) – Reporting

every two years on sustainability,

environmental impact and the differentiating

effects on climate change

MS shall not refuse to take into account biofuels on the basis of other

sustainability criteria


Article 18 – Verification of compliance with the sustainability criteria for biofuels and bioliquids

Economic operators to show that sustainability criteria for biofuels have been

met




87


MS to take appropriate measures in order to guarantee reliable information from

the economic operators


Economic operators to arrange for an adequate standard of independent auditing

in particular information on compliance with sustainability criteria


EU shall endeavour to conclude agreements with third countries provided

containing provision for sustainability criteria


Commission may decide on accuracy of data � Art. 18.4 � Not specified (Directive 2003/30/EC)

Commission may recognize areas for the protection of rare, threatened or

endangered ecosystems and species


Commission shall adopt decisions under paragraph 4 only if they meet adequate

standards of reliability, transparency and independent auditing.

In case of schemes to measure GHGs these shall meet the methodological

standards in annex V.


When an economic operator provides proof or data obtained in accordance with

an agreement or scheme pursuant paragraph 4 a MS will not require the supplier

to provide further evidence


Commission may examine the application of Art. 17 in relation to a source of

biofuel or bioliquid and decide whether a MS may take biofuel or bioliquid from

that source into account


Commission shall on the basis of the latest scientific evidence report to the

European Parliament and Council on:

• the effectiveness of the system for the provision of information on


Art. 18.9 � Not specified (Directive 2003/30/EC)



88


• whether it is feasible and appropriate to introduce mandatory requirements

in relation to air, soil and water

Article 19 – Calculation of the greenhouse gas impact of biofuels and bioliquids

Instructions for calculation of the greenhouse gas emission saving is provided � Art. 19.1 � Not specified (Directive 2003/30/EC)

MS shall submit a report to Commission with list of areas in their territory where

typical GHG emissions from cultivation of agricultural raw material may be

lower or equal to those reported in part D of annex V


Provision for when the default values in part A annex V for biofuels and

disaggregated default values for cultivation in part D annex V may be used


Commission to submit report to the European Parliament and the Council on:

• Feasibility of drawing up lists of areas in third countries where typical GHG

emissions from cultivation of agricultural raw material may be lower or

equal to those reported in part D of annex V

• Estimated typical and default values in Parts B and E of annex V by 31

December 2012 and then every two years paying particular attention to

transport and processing and may correct the values

• Reviewing the impact of indirect land use change on GHG emissions and

addressing ways to minimise the impact by 31 December 2010

� Art. 19.4

� Art. 19.5

� Art. 19.6




Adaptation of Annex V to technical and scientific progress � Art. 19.7 � Art. 5 (Directive 2003/30/EC)

Detailed definitions shall be established � Art. 19.8 � Not specified (Directive 2003/30/EC)

Article 20 – Implementing measures

Taking into account Art 7a of Directive 98/70/EC � Art. 20 Not specified



89


Article 21 – Specific provisions related to energy from renewable energy sources in transport

Public information on availability and environmental benefits of renewable

transport fuels shall be provided.

� Art. 21.1 � Art. 3.5 (Directive 2003/30/EC)

When the percentage of biofuels blended in mineral oil derivatives, exceed 10%

by volume, MS shall require this to be indicated at the sales points

� Art. 21.1 � Art. 3.5 (Directive 2003/30/EC)

• 5%

Contribution from wastes, residues, non-food cellulosic material shall be

considered as twice as that from other biofuels.


Article 22 – Reporting by the Member States

• Sectoral and overall shares of RES � Art. 22.1(a) � Art. 3.3

• The measures taken for promotion of RES � Art. 22.1(a) � Art. 3.3

• Introduction and functioning of support scheme and other measures for

RES promotion and info on allocation of energy to final customers

� Art. 22.1(b) � Not specified

• Where applicable how MS have structured their support scheme for RES

that give additional benefits but may also have higher costs


• Functioning of the system of the guarantees of origin for electricity and

heating/cooling from RES

� Art. 22.1(d) � Not specified

• Progress made in evaluating and improving administrative procedures to

remove regulatory and non-regulatory barriers to RES

� Art. 22.1(e) � Art. 6.2

• Measures taken to ensure transmission and distribution of electricity

produced from RES and to improve the framework of rules for bearing and

� Art. 22.1(f) � Not specified



90


sharing of costs of technical adaptations

• Developments in the availability and use of biomass � Art. 22.1(g) � Not specified

• Changes in commodity prices and land use associated with the use of

biomass and other RES

� Art. 22.1(h) � Not specified

• The development of RES from wastes, residues non-food cellulosic and

ligno-cellulosic materials

� Art. 22.1(i) � Not specified

• Estimated impact of use of on biodiversity, water resources and quality and

soil quality within the MS

� Art. 22.1(j) � Not specified

• Estimated greenhouse gases savings � Art. 22.1(k) � Not specified

• Estimated excess of RES energy compared to the indicative trajectory

which could be transferred to other MS and potential for joint projects

� Art. 22.1(l) � Not specified

• Estimated demand from RES to be satisfied by means other than domestic

production until 2020

� Art. 22.1(m) � Not specified

• Info on how biodegradable waste in waste used for energy production has

been estimated and steps taken to improve and verify such estimates

� Art. 22.1(n) � Not specified



91


In the first report MS shall outline whether it intends to:

• Establish a single administrative body responsible for processing

authorization, certification and licensing applications for RE installations

• Provide automatic approval for RE installation if the authorizing body did

not respond within the set time limit

• Indicate land suitable for RES exploitation in land-use planning and for

establishment of district heating and cooling

� Art. 22.3(a)

� Art. 22.3(b)

� Art. 22.3(c)

� Not specified

� Not specified

� Not specified

Article 23 – Monitoring and reporting by the Commission

Provisions for monitoring and reporting requirements of the Commission � Art. 23 � Not specified

Article 24 – Transparency platform

Establishment of a transparency platform � Art. 24 � Not specified

Article 25 – Committees

Except with regards to sustainability of biofuels and bioliquids the Commission

shall be assisted by the Committee on Renewable Energy Sources


For matters relating to the sustainability of biofuels and bioliquids, the

Commission shall be assisted by the Committee on the Sustainability of Biofuels

and Bioliquids

� Art. 25.2 � Art. 6 (Directive 2003/30/EC)

Article 26 – Amendments and repeal

Amendment and repeal of previous Directives � Art. 26 � Not applicable

Article 27 – Transposition



92


Deadline for transposition into national legislation � Art. 27 � Art. 9

93

REPORTS ON

INDIVIDUAL

CONTRACTING

PARTIES

ANNEX I – BACKGROUND REPORT APPENDIX II

CP REPORT – ALBANIA

94

APPENDIX II - CP REPORT: ALBANIA


ALBANIA

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1 ALBANIA

This section provides a brief and general introduction to Albania and its energy sector. The Republic of Albania was re-established as a democratic country in 1991 and the first free general election took place in 1992. After entering its transition period in 1992, Albania experienced rapid economic growth (over 9% in 1993 and 1994) and structural transformation. However, in 1996/97, the collapse of various financial pyramid schemes led to a major economic and political crisis. In recent years Albania has taken measures to reduce barriers to economic growth and foreign investment by implementing fiscal reforms, investing in transport infrastructure and upgrading energy transmission networks. Since 2006, GDP growth rates increased from 5.5% to 6.1% in 20081. Albania has been a candidate for accession to the European Union (EU) since January 2003, and formally applied for EU membership in 2009.

1.1 Energy Sector

1.1.1 Natural Resources

Albania’s main energy resource is hydro. However, it is estimated that only 35% of Albania’s hydropower potential is currently being exploited. In terms of other renewable energy resources, the technical potential for solar and biomass is high. High costs prevent the exploitation of solar energy; the technical potential for biomass has been estimated at 17.5TWhth

/year.

1.1.2 Generation Capacity

Hydroelectric power plants (HPPs) account for 100% of the installed electricity generation capacity in Albania, with three large HPPs on the Drin River producing 88% of the country’s total electricity generation capacity of 1,446 MW. Average output is 4,162GWh. There is one diesel thermal power plant (TPP Fier) but it has been out of operation since 2007. The country’s reliance on hydropower makes it vulnerable to changes in hydrologic conditions as witnessed during a period of drought in 2007.2

1.1.3 Consumption

Albania has experienced rapid increase in energy demand in recent years with an average annual increase of 8.6 % between 1992 and 2000. Much of Albania’s domestic energy consumption is covered by crude oil and fuel wood which, together with grid-supplied electricity, account for 98% of total primary energy supply. 3

1 CIA World Factbook, 2009 2 USAID: Stocktaking report for regional assessment of renewable energy, draft April 2009. 3 IEA: Energy in the Western Balkans, 2008.


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1.1.4 Network Infrastructure

The transmission and distribution network is old and, despite some rehabilitation, technical and non technical losses account for around 32.7 % of electricity supplied in distribution, with another 3.7% losses in the transmission network. Albania’s capacity to import electricity is constrained by the need for rehabilitation and upgrades to expand interconnection capacity. The network has been progressively linked with neighbouring countries (two lines to Greece, one each to Montenegro and Kosovo4) and will be reinforced by the planned construction of new 400kV lines to Montenegro, Kosovo and possibly a submarine cable to Italy. The Albanian grid is synchronized with the ENTSO-E network.

1.1.5 Security of Supply

Security of supply is a major concern in Albania as up to one-fifth of electricity demand is unmet due to load shedding and/or rationing. Energy infrastructure is old and obsolete, resulting in high outage rates, and imports of electricity and oil have been steadily increasing. Albania’s energy imports (97% of which are oil products) increased to 50% of TPES in 2005, compared to 11% in 1990.5 Albania trades electricity, importing or exporting depending on rainfall and hydrology. In 2007 severe drought conditions had major impacts on hydropower capacity with domestic generation of electricity only meeting 50% of the total electricity consumption. Accordingly, the import for the year 2007 was the highest historical level of electricity imports in Albania. The Energy Strategy

projects a dramatic rise in import dependency although import sources and routes are diversified within the Mediterranean basin.

1.1.6 Challenges

Albania has outdated energy infrastructure that has depreciated considerably due to inadequate investment and maintenance. The average age of HPPs in Albania is over 35 years. The last one built was HPP Komani in 1985. In recent years, individual components of the electricity system have been further stressed by the rapid increase in energy demand and by structural transformation, as well as by increased consumption of energy imports as domestic supplies decline. Insufficient metering, unpaid bills and illegal connections have dramatically increased electricity consumption and peak demand, thereby weakening the system and leading to underinvestment in much-needed new generation and network capacities. Supply bottlenecks and demand imbalances have constrained electricity supply and reduced the stability and reliability of the grid. Chronic load shedding, black-outs and electricity rationing are common across the country.

4 Kosovo under the UNSCR Resolution 1244/99 5 IEA: Energy in the Western Balkans, 2008.


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2 RENEWABLE ENERGY FRAMEWORK

This section provides a high-level assessment of the current framework in which the renewable energy sector operates in Albania.

2.1 Policies & Strategies

The Power Sector Policy Statement is the main policy document for reforms undertaken by the Albanian Government in the energy sector. According to statement, the objective of government policy in the power sector is to develop an electricity market that provides for reliable, safe, and adequate electric supply at reasonable prices in an economically and environmentally sound manner and in accordance with accepted commercial and market principles and the rule of law. The Energy Sector Strategy (2003) and another updated version is currently in the approval process. The strategy outlines changes that must be made in the energy sector to ensure security of supply and optimization of resources in order to meet energy demands and achieve a sustainable economic development. The strategy explicitly recognizes the need to pursue growth in a more energy-efficient and environmentally conscious manner. The new 2010 update focused on an action plan for the energy balance to 2025, re-structuring the energy sector on market economy principles, and preparing a framework and to enhance energy efficiency.6 The strategy outlined passive and active scenarios for meeting future energy needs. The passive scenario assumed inadequate implementation of the action plan, leading to a collapse of the energy system. The active scenario assumes that measures are taken to meet demand and restructure the energy sector, and also outlines additional measures such as increased energy efficiency and introduction of alternative sources of energy.

2.2 Legislation

The Law on the Power Sector (No.9072/2002; amended 2006, 2007, 2008, 2009) is the primary law governing the energy sector in Albania. It stipulates that new electricity producers with installed capacity higher than 100 MW are obliged to produce electricity from RES not less than 2% of their total generation (art. 39). This obligation can be fulfilled if producers purchase equivalent amounts of RES-electricity from other domestic producers or imported if the source country’s regulator provides certification of production from RES. A new law for RES is under development. It is anticipated to include a target of increasing the share of RES (in addition to HPP and fuelwood) to 18% of TPES by 2020. The Law on Concessions (No.9663/2006), along with secondary legislation and related concession procedures, establishes Albania’s mechanism to attract private investment in hydropower. The Energy Regulatory Entity (ERE) approved a new tariff methodology in 2007 for existing and new SHPPs with feed-in tariffs to encourage investment in SHPP. As of December 2009, 81 concessions had been granted under this law and more than 40 proposals were being processed.

6 IEA: Energy in the Western Balkans, 2008.


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The Law on the creation of facilitating conditions for the construction of new

sources of the electricity generation (No.8987/2002) provides custom duty exemption for equipment and machinery for new RES facilities with installed capacity less than 5 MW. The Law on energy efficiency (No.9379/2005) stipulates that an energy efficiency fund shall be established for energy efficiency and energy conservation purposes, including buildings, transportation and energy production. The government is also required to develop a national energy efficiency program. The Law on Heat Conservation in Buildings (No.8937/2002) sets building codes for all new construction, stipulating minimum performance levels for thermal insulation and the installation of central or district heating systems. Municipalities generally lack the resources and capacity needed to monitor or sanction building code implementation. The Law for production, transportation and trade of biofuels and other renewable

fuels, for transport (No.9876/2008) requires the government to set national indicative targets for biofuels and other renewable fuel for transport, but stipulates minimum targets of 5% by 2010 and 15% from 2015. The law exempts biofuels and other renewable fuels from VAT, custom and excise taxes until 2018. All machinery and equipment used in the production of biofuels and other renewable fuels are also exempt from these taxes until 2012.

2.3 Regulation

The government has developed two main tools to support development of RES: concessions for large HPPs, and feed-in tariffs and purchase agreements (PPA) for small HPPs. Small HPPs with installed capacity less than 15 MW can sign a long-term PPA with the Public Supplier for up to 15 years at a guaranteed feed-in tariff. The tariff is regulated and approved annually by ERE. It is based on the import price of previous year and is adjusted year by year with inflation index. Feed-in tariffs for non-hydro RES have not yet been developed. The Rules and Procedures on Certification of Electricity Generation from

Renewable Sources outlines rules for green certificates (GC) and guarantees of origin (GoO). GoO are used to verify that electricity is generated from RES. GCs are similar to GoO in their verification role but they can also be traded. GoOs are issued for electricity actually produced by a plant, whereas GCs are equal to 50 MWh. Both are issued for 12 months. GoOs and GCs only apply to electricity and not heating, cooling or transport. Despite grid instability that limits interconnection capacities in general, there are no specific grid access restrictions for electricity generated by RES as TSO/DSO are obliged to give grid access to RES producers. The regulator can grant the status of privileged producer for electricity from RES with installed capacity up to 25MW, HPPs up to 10MW and cogeneration plants up to 100MW. Privileged producers enjoy priority access to the transmission network. There is customs duty exemption for machinery and equipment for RES electricity plants, and small HPPs are not obliged to pay water and land state property fees. Biofuels and machinery for biofuel production are also exempt from VAT, custom and excise taxes.


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The Ministry of Economy, Trade and Energy (METE) is responsible for preparing national energy policies and implementation action plans, calculating demand forecasts and drafting the legal framework. METE oversees energy market reforms and energy security. The Ministry also monitors the activities of public energy companies, including KESH (Albanian Power Company), and prepares them for privatization. The ministry is in a position of being both policy maker and asset owner, thereby creating a monopoly situation and a potential conflict of interest. The National Agency of Natural Resource (NANR) was established in 2006/07 through the merger of the National Energy Agency (NEA), the National Petroleum Agency (NPA), and the Oil and Gas Institute. The NANR’s mandate is to advise the government on energy issues. It prepares the energy strategy and evaluates its implementation, develops energy sector scenarios, prepares annual energy balances, proposes action plans for energy efficiency and renewable energy, and develops plans for the oil and natural gas sector. The Electricity Regulatory Authority (ERE) is an independent institution with responsibilities closely associated with energy markets. Its mandate includes licensing electricity companies, setting wholesale and retail tariffs, protecting the interests of consumers, settling disputes between licensees and consumers, promoting competition, and approving market rules and grid codes. The Energy Efficiency Centre Albania-EU is a non-profit organization established in 1995 by government decree through an agreement between the Albanian government and the European Commission. The Centre’s primary objective is to promote energy efficiency and the use of renewable energy sources. It also has a mandate to disseminate information and raise awareness on sustainable energy.

2.5 Market

In 2008, KESH, the vertically integrated utility, was unbundled and its main activities where separated into three fully owned subsidiaries. KESH Generation (KESH Gen) manages power generation, most notably small and large HPPs. The Albanian Transmission System Operator (OST) operates the transmission grid and dispatch. KESH Distribution (OSSH) was given responsibility for the distribution network but this function was recently privatized, and a contract was signed on 11 March 2009 with CEZ, the company selected as the winner of the tender for privatization of the Distribution System Operator (DSO). KESH Gen owns all large generation assets and sells electricity to the distribution company at tariffs set by ERE. If there is excess generation available KESH Gen may sell it into export markets. The OST is an independent state-owned company that owns, operates, maintains and expands the transmission system. Its remit includes: providing integrated management and reliable operation of the transmission system; maintenance of system sites and facilities; and, system development in accordance with long-term forecasts and electric power sector development plans. The DSO owns, operates, maintains, and expands the distribution system including meters, and provides interconnection service to Eligible Customers and Small


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Power Producers. The DSO is also responsible for purchasing electricity required to cover losses in the distribution system (technical and non-technical). An Electricity Market Model was developed in 2008 to facilitate PPAs between small and independent power producers (SPPs/IPPs), and electricity suppliers. The Wholesale Public Supplier is responsible for buying electricity and providing sufficient supply to the Retail Public Supplier to ensure an uninterrupted supply to tariff customers. Long term PPAs are allowed, however ERE has the authority to limit their extent in order to avoid any blocking effect in the development of the market. The intent is that long-term PPAs should only apply to a portion of generator output and the rest should be traded on the market. The model considers RES generators as SPPs or IPPs allowing their existence on the market and access to the grid. They may also sell directly to eligible customers if they obtain licenses to be qualified suppliers. Based on a recent decision of the ERE, all non-household customers are free to become eligible, which means that around 40% of the domestic electricity market could be considered legally open. However, given the low final tariffs charged to customers, no eligible customers have shown any interest to leave the system.


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3 IMPACT OF DIRECTIVE 2009/28/EC

This section will assess the level of present compliance with the provisions of the new Directive by means of a gap analysis.

3.1 Relevant Measures

Albania has made significant progress over the past decade in developing energy legislation and regulatory capacity. The Albanian energy sector has also moved towards an open market model with unbundling of state-owned generation, transmission and distribution functions. Targets for renewable energy are addressed in the National Energy Strategy but additional provisions are required for the development of national action plans as required by the Directive. There is a new law on RES under development but a draft was not available and its provisions are therefore not known. The Law on Power Sector is the primary legislation that includes provisions relevant to implementation of the Directive, although other legislative and regulatory documents are also in place to support RES. Provisions for guarantees of origin, feed-in tariffs and other support schemes for RES are included the Law

on Power Sector but in some cases require minor updates. There are no provisions for statistical transfers, joint projects or joint support schemes, and the Law on

Power Sector seems the most likely the document to include these articles. The Law on biofuels appears to satisfy most of the Directive’s provisions related to biofuels. The law does not, however, include any sustainability criteria and must therefore be amended to satisfy all of the provisions under article 17 of the Directive. Building codes will require updating to meet Directive provisions for including RES in new buildings.

3.2 Gap Analysis


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Table 1 Example for Compliance Matrix: Assessing legislative compliance with New EU Renewables Directive

Directive 2009/28/EC Current provision in CP/cCP Compliance:

Yes/ No

Actions necessary for

compliance


(a) Energy from renewable non-fossil sources = wind, solar, aerothermal, geothermal, hydrothermal and ocean energy, hydropower, biomass, landfill gas, sewage treatment plant gas, biogases7 (g) District heating or cooling = distribution of thermal energy in form of steam, hot water or chilled liquids, from central source of production through a network to multiple buildings or sites, for the use of space or process heating or cooling (h) Bioliquids = liquid fuel for energy purposes other than for transport, incl. electricity and heating and cooling, produced from biomass (i) Biofuels = liquid or gaseous fuel for transport produced from biomass (j) Guarantee of origin (GoO) = electronic document with the sole function of providing proof to final customer that a

Law on power sector: (art.3) RES = sources of energy preserved in nature and are entirely or largely renewed as solar, wind, hydro, geothermal, biomass or biogas and energy from urban wastes. Law on biofuels does not include liquid fuels for purposes other than transport. Law on biofuels: (art.3.1) biofuel = liquid or gaseous fuel for transport, produced from biomass. Rules for RES certification: (art.5) GoO Certificate = verification that electricity

Yes N/A N/A Yes Yes

7 The Directive further details some sources: (b) Aerothermal energy = energy stored in the form of heat in ambient air (c) Geothermal energy = energy stored in the form of heat beneath the surface of solid earth (d) Hydrothermal energy = energy stored in the form of heat in surface water (e) Biomass = bidegradable fraction of prducts, waste and residues from biological origin from agriculture (incl. vegetal and animal substances), forestry and related industries incl. fisheries and aquaculture, as well as biodegradable fraction of industrial and municipal waste

In addition, (f) “Gross final consumption of energy”, (m) “Actual value”, (n) “Typical value”, and (o) “Default value” are defined. However, as methodological terminology, these are irrelevant for the gap analysis.


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Yes/ No


compliance

given share of energy was produced from RES (k) Support scheme = instrument scheme or mechanism to promote the use of RES by reducing the cost, increasing the price, or the volume (by an obligation) of such energy purchased; includes investment aid, tax exemptions or reductions, tax refunds, RES obligation support schemes (incl. green certificates), direct price support schemes (e.g. FiTs, premium payments) (l) Renewable energy obligation = national support scheme requiring the inclusion of a given proportion of energy from RES in production, supply, or consumption; includes green certificate schemes as a means for compliance

generated comes from RES. Green Certificate (GC) = same verification as GoO but can be traded. Law on power sector: (art.39) requires 2% of electricity generation of producers to come from RES; rules on certification of electricity from RES provide details on obtaining green certificates.

N/A Yes

Article 3 – Mandatory national targets and measures

Individual national RES targets to be met by 2020, consistent with 20% Community target, calculated as a share of gross final energy consumption (1.) General national biofuels target of 10% of final energy consumption in transport, to bet met by 2020 (4.) Energy efficiency (EE) and energy savings shall be promoted to achieve targets more easily (1.) Measures shall be introduced to promote RES and biofuels: support schemes and joint measures between MS and with third countries (3.)

Energy Sector Strategy outlines targets for electricity from RES by 2020. Law on biofuels: (art.8.4) not less than 5% biofuels by 2010 and 15% from 2015 Law on energy efficiency: (art.4) government shall prepare national energy efficiency program. Law on power sector: (art.39.1) producers with capacity higher than 100 MW must produce at least 2% of total from RES

Yes Yes Yes Yes

Targets for RES to be revised to ensure consistency with Directive.


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Yes/ No


compliance

which can be imported if source country certifies RES.

Article 4 – National renewable energy action plans

Action plans must be submitted annually Minimum requirements (Annex VI):

• Expected gross final energy consumption in electricity, transport and heating and cooling for 2020, taking into account effects of EE and energy savings

• National sectoral 2020 targets and estimated shares of energy from RES

• Measures for achieving the targets: o Overview of all policies concerning RES o Specific measures to fulfil Articles 13

(Administrative procedures), 14 (Information and training) and 16 (Grid access) and measures concerning Articles 17 to 21 (Sustainability of biofuels and bioliquids and reporting and compliance/verification)

o Support schemes for the promotion of RES in electricity, heating and cooling, and transport (applied by one MS or in cooperation)

o Specific measures for biomass o Planned use of statistical transfers between MS

and planned participation in joint projects

• Assessments of RES technology and EE and energy saving measures to meet 2020 target

• National action plans have to assess the need to build

The Energy Sector Strategy includes scenarios for meeting future energy demands until 2015. Emphasis is on construction of additional thermal generation capacity and reduction of electricity imports but increases in energy efficiency are also projected by sector.

Yes/No Annual action plans specific to RES development for electricity, transport, and heating and cooling should be required.


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Yes/ No


compliance

new infrastructure for district heating and cooling (Article 16, 11.)

Article 6 – Statistical transfers

Statistical transfers of energy from RES can be made between MS, after the national target has been met They do not require physical transfer of energy

No provisions for statistical transfers. No Develop provisions outlining statistical transfers between states consistent with Directive.

Article 7 to 10 – Joint projects

• MS can engage with other MS or third parties in joint projects for target compliance purposes (Art. 7 and 9)

• Joint projects between MS can be developed for electricity and heating and cooling from RES. The joint project has to have become operational after 25 June 2009 or be a capacity increase through refurbishment after this date (Art. 7)

• Joint projects with third parties can be developed for electricity from RES (Art. 9) o To be accounted for in the national target,

physical transfer of the electricity needs to have taken place by firm nomination on the interconnector

o The joint project has to have become operational after 25 June 2009 or be a capacity increase through refurbishment after this date

o The nominated amount may not have received support under a support scheme in the third country other than investment aid

No provisions for joint projects. No Develop provisions for joint projects consistent with Directive.


The joining and coordination of support schemes is allowed The energy from RES should be allocated by statistical transfers or pre-specified distribution rules

No provisions for joint support schemes. No Develop rules for joint support schemes consistent with Directive.


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Yes/ No


compliance


• Proportionality of administrative bodies, procedures, rules, structures and charges, certification and licensing, information availability with respect to RES projects and infrastructure for RES (networks) needs to be ensured (1.)

• Building codes and regulations should require minimum levels of RES in new buildings and major renovated buildings and measures to encourage uptake of RES (4., 5.)

• Equipment should be certified and eco-labels should be used to encourage RES use (2., 3., 6.)

Energy sector is unbundled with distribution function recently privatised. Multiple private companies have been awarded licences for development of wind and hydro facilities. Market Model is facilitating access for SPPs and IPPSs, and flexibility for eligible customers. Law on heat conservation in buildings sets building codes stipulating minimum performance levels for thermal insulation and installation of central or district heating systems.

Yes No

Revise building codes to require minimum levels of RES in new and renovated buildings.


• Information and guidance programmes on RES should be made available to the public (1., 2.,

• Certification and qualification schemes for installers should be developed (3., 4.)

• Guidance on high efficiency technologies should be given (5.)

• Awareness-raising, guidance and training programmes should be developed (6.)

Energy Efficiency Centre Albania-EU has a mandate to disseminate information and raise awareness on sustainable energy. No certification or qualifications programmes.

Yes/No Develop further programmes and schemes consistent with Directive.

Article 15 – Guarantees of origin

• GoOs are to be issued can be issued for electricity and heating and cooling from RES and state the share of RES in an energy supplier’s energy mix (1.)

• GoOs have no function for target compliance and are purely meant for commercial purposes (2.)

Rules for certification of electricity from

RES: GoO and green certificates (GC) issued annually by ERE to plants generating electricity from RES; (art.10) GoOs issued for energy actually

Yes/No Revise rules to include heating and cooling from RES.


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Yes/ No


compliance

• A competent body independent from production, trade and supply activities shall supervise transfer and cancelation of GoOs (4.)

• GoOs must o have a standard size of 1MWh (2.) o be valid for 12 months (3.) o specify source, start and end date of production

(6 (a)) o state whether it relates to electricity or heating

and cooling (6 (b)) o specify identity, type of production facility,

capacity (6(c)), and the date it became operational (6 (e))

o state benefit of investment support and support from national support scheme (6 (d))

o contain information on country and date of issuance and have a unique identification number (f)

produced by the plant; GCs are equal to 50 MWh, issued and is tradable; both issued for 12 month period; (art.12) Combined fuel TPPs must contain at least 95% renewable fuel; producers must report on electricity produced from renewable and conventional fuel sources.

Specify additional details to be required in GoOs and GCs consistent with Directive.

Article 16 – Access to and operation of grids

• Transmission and distribution grid infrastructure, intelligent networks, storage facilities and the electricity system (incl. interconnectors) need to be developed (1.)

• Authorisation procedures for grid infrastructure development need to be accelerated and coordinated with administrative and planning procedures (1.)

• Transmission and distribution of electricity from RES shall be guaranteed by T/DSOs in their territories (2. (a))

• Priority or guaranteed access for RES shall be

Law on power sector: (art.42.3) ERE can regulate priority grid access for plants less

Yes/No

Legislation should explicitly require priority grid access for all


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Yes/ No


compliance

provided for by the MS (2. (b))

• System security permitting, TSOs shall give priority to RES (2. (c))

• T/DSOs have to make public standard rules on costs for technical adaptation and these rules shall be non-biased and based on all costs and benefits of connection of new producers (3.)

• T/DSOs have to make available to any new producer applying for connection their grid connection cost estimates, timetables for processing requests, and an indicative timetable for any proposed grid connection (5.)

• MS may require costs of technical adaptations to the grid to be borne by T/DSOs (4.)

• Transmission and distribution tariffs may not discriminate against RES producers, especially from peripheral and low population density regions (7.), and charging must be cost reflective (8.)

• Gas infrastructure may need to be extended, too, where necessary (9.) and technical rules for network connection may be requsted to be published (10.)

than 5 MW. RES producers.


Energy from biofuels and biofuels can count towards the target, irrespective of its country of origin but subject to sustainability criteria

• GHG emissions savings shall be at least 35%, then 50% from 2017 and 60% from 2018

• They shall not be made from raw materials from certain land types (high biodiversity, designated areas, biodiverse grassland, land with high carbon

Law on biofuels: (art.4) general objective of decreasing harmful emissions from transport; (art.5) producers can sell in country or abroad but are responsible for their trademark and quality, and must submit periodic activity reports to ministry; (art.7.3) biofuels, biodiesel and biomethanol blends of 5% must be

No Add sustainability criteria to Law on biofuels consistent with Directive provisions.


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Yes/ No


compliance

stock, peatland)

• Agricultural raw materials needs to be in accordance with common agricultural policy

identified at point of sale.

ANNEX I – BACKGROUND REPORT APPENDIX III

CP REPORT – BOSNIA & HERZEGOVINA

110

APPENDIX III – CP REPORT: BOSNIA AND

HERZEGOVINA


BOSNIA & HERZEGOVINA

111

1 BOSNIA & HERZEGOVINA

This section provides a brief and general introduction to Bosnia-Herzegovina and its energy sector. An institutional governance structure was established in Bosnia-Herzegovina within the General Framework Agreement for Peace in Bosnia-Herzegovina (1995) which ended war in Bosnia. This structure includes a centralised state government, two governments on the level of entities (Federation of Bosnia-Herzegovina – FBiH and Republika Srpska - RS) and local governments1. Bosnia-Herzegovina’s GDP grew at 5.5% in 2008, but along with the global economy contracted in 20092. The services sector is by far the strongest contributor to GDP, with a recovering tourism sector. The EU provides guidance to the authorities of Bosnia-Herzegovina on reform priorities as part of the European Partnership. Following a proposal from the Commission, the Council adopted an updated European Partnership for Bosnia-Herzegovina in February 2008. Progress on these reform priorities is encouraged and monitored.3

1.1 Energy Sector


The total balanced coal reserves in Bosnia-Herzegovina are estimated at 5,464 million metric tonnes. The major constituents are brown coal with estimated reserves of 1886 million tonnes, and lignite with reserves of 3578 million tonnes4. The attained level of 40 percent of pre-war coal production satisfies the needs of all consumers5. About 70% of coal energy production is destined for electricity generation and the rest for the industry and household sectors. The total natural gas needed for BiH is imported. The country is said to have significant potential for RES in the form of additional small hydro, wind, solar, and biomass. Hydro power potential is estimated at 22,050GWh annually6. A study suggests that 12 sites in Southern BiH combined could generate an additional 1,440-1,950 GWh annually7.

1 Larive Serbia (2009). Croatia, Serbia and Bosnia-Herzegovina - Renewable energy 2 IMF World Economic Outlook, April 2009 3 Commission of the European Communities (2008). Bosnia-Herzegovina 2008, Progress Report 4 Alija Lekić (2008). Energy Sector in Bosnia-Herzegovina: Current Status and Plans, Sustainable Energy Technologies: Options and Prospects 5 EPPU - PIMU - Economic Policy Planning and Implementation Unit, Office for Monitoring and Implementation of BIH MTDS (2006). The Medium-Term Development Strategy BiH 2004-2007 6 ibid. 7 Begic Fajik, Kazagic Anes (2005). Potential Utilization of Renewable Energy Resources for Electricity Generation in Bosnia-Herzegovina



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Electricity production prior to the war, in 1990, was at the levels of 15,000 GWh. Damage to generating capacity, transmission lines and other vital features of the network resulted in a severely limited capacities until 1996. Reconstruction efforts led by the international community have enabled generation capacity to be slowly brought back online, but to date, the electricity generation has reached only a mere fraction of the former production levels. Total electricity production in Bosnia-Herzegovina in 2005 was 13,491.6GWh, where about 45% (6,034.8GWh) originates from HPPs and around 54% (7,277.6GWh, 6126 MW of installed capacity) comes from TPPs (consuming mix of brown coal and lignite). The remaining 1% (179.2 GWh) is generated by small and industrial power plants, mainly small HPPs.

1.1.3 Consumption

Demand growth remains strong despite increased tariffs and improved bill collection, and possibly reflects an ability of consumers to reengage in productive activity as key input supplies become more reliable. Recent estimates of expected growth in demand through 2020 range from 2.3 to 3.4% annually, which implies consumption levels between 14,431 and 17,506 GWh in 2020. RES contributed to the country’s total final consumption with a share of 5.73 % in 2004, mostly from biomass and hydropower.8


The power network in Bosnia-Herzegovina follows regional boundaries and was only re-synchronised completely with the UCTE (now ENTSO-E) network in 2004. This improved interconnection with neighbouring countries. Much of the transmission and distribution network was destroyed or damaged during the war in the 1992-95. Effort was put into reconstructing the network but despite the system operator issuing annual generation development plans to be followed by the electricity companies, these plans are not being followed.


Despite having about the same generation capacity as it did almost 20 years ago and having lost substantial infrastructure in the war, BiH remains one of the few countries in the region that is a net exporter of electricity. The country’s needs for natural gas are imported from the Russian Federation and are transported through the transport gas systems of Ukraine, Hungary and Serbia and Montenegro9.

8 Larive Serbia (2009). Croatia, Serbia and Bosnia-Herzegovina - Renewable energy



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1.1.6 Challenges

The main problems in the electricity sector are10:

• the complex organizational structure of the country together with a complicated system of decision making;

• the unwillingness of certain participants in the process of the realization of reform;

• the lack of staff in ministries (at state and entity level);

• an unsatisfactory commercial discipline;

• high system losses;

• a weak coordination of investments because of the division in the system; and

• a traditional reliance on coal production.

9 EPPU - PIMU - Economic Policy Planning and Implementation Unit, Office for Monitoring and Implementation of BIH MTDS (2006) 10 Ibid.



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Bosnia-Herzegovina has not developed any comprehensive energy strategy, except for the provisions incorporated in the National Environmental Action Plan (NEAP) and the Mid-term Development Strategy (PRSP). However, a study on the energy sector in Bosnia-Herzegovina, which should provide a basis for the strategy, was finalised in May 2008.11 In 2008, the country worked on a first draft of an Energy Strategy. However, neither the Federation of Bosnia-Herzegovina nor the Republic of Srpska has yet developed an Energy Strategy. Even though the development seems to be a slow process, at least the process is now in place. The National Environmental Action Plan (NEAP) and the Mid-term Development Strategy (PRSP) emphasise that environmental protection and energy savings are important in the fight against poverty. The goal of the NEAP is identification of short and long-term priority actions and measures providing the basis for preparation of a long-term environmental protection strategy in accordance with the economic, social and political situation in Bosnia-Herzegovina. The intention of the NEAP is to facilitate the preparation of a unified environmental protection policy in the context of macroeconomic reforms, poverty reduction strategy and the transition process and includes establishment of a fund for environment and energy efficiency, with a focus on biomass and bioenergy. In July 2000, the Governments of the Federation of Bosnia-Herzegovina and Republika Srpska received an International Development Fund (IDF) grant from the World Bank for environmental capacity building. With the assistance of this grant, the NEAP for Bosnia-Herzegovina was completed in early 200312. The Medium-Term Development Strategy of BiH (MTDS) for 2004-07 represents a poverty reduction strategy aimed at restoring growth based on strong private sector development13. Neither the entities nor the State have yet taken concrete steps to develop such programmes and strategies following the NEAP. The adopted Poverty Reduction Strategy Papers (PRSP) set out the goals of the energy sector reform. Among them are the following goals, which are directly or indirectly related to RES and energy efficiency14:

• enhance cost-effectiveness and rational use of energy sources and improve energy efficiency;

• ensure protection of the environment in accordance with national and international standards;

• increase the use of renewable energy sources;

11 Commission of the European Communities (2008). Commission Staff Working Document, Bosnia-Herzegovina 2008, Progress Report 12 NEAP – National Environmental Action Plan (2003). National Environmental Action Plan BiH 13 IMF – International Monetary Fund, IDA – International Development Association (2005). Bosnia-Herzegovina: Poverty Reduction Strategy Paper - Mid-Term Development Strategy 14 PEEREA - Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (2008). Bosnia-Herzegovina, Regular Review of Energy Efficiency Polices 2008



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• meet the conditions of the European Energy Charter Agreement, as well as other international contracts and agreements.

Priorities defined in the PRSP have not been implemented with the exception of certain initiatives for the promotion of small hydro power plants (SHPP). Additionally, at the Entity level, the process of electricity sector reform in Bosnia-Herzegovina was initiated by signing the Statements of the entity governments on the electricity policy (2000), followed by Action Plans for Restructuring the Power Sector were adopted by the respective parliaments in 2002 (RS) and 2004 (FBiH). The Action plan for Restructuring the Power Sector of RS has been in force since 2003 (Official Gazette 69/03) and Action Plan for Restructuring the Power Sector of FBiH, was updated and revised and it has been in force since June 2005. Moreover, in Entity Federation of Bosnia-Herzegovina (FBiH) relevant document is Proposal: Strategic Plan and Programme for the Development of Power Sector in Federation BIH, September 2008. In Entity Republika Srpska, (RS) in November 2008, the National Assembly of Republika Srpska adopted a document entitled: “Bases of the energy policy Republika Srpska”. This document provides basic priorities and guidelines on the energy sector development in RS. Basically, the document defines as follows:

• Strategic targets of the energy policy,

• Specific targets of the energy policy,

• Instruments for realization of the energy policy.

In particular, the increase of generation of electricity from RES is recognized as one of the specific targets of the energy policy. In May 2009, National Assembly adopted “Law on Energy”. This document determines the bases of the energy policy of RS, making of the energy development strategy, basic issues of regulation and realization of energy activities, usage of the renewable energy sources and conditions for achievement of energy efficiency (Chapters V and VI (Articles 27-34)). It was prescribed that the energy development strategy was to be made by the National Assembly of RS at proposal of RS Government, and the Government makes the action plans for implementation of the Strategy.

2.2 Legislation

The process of electricity sector reform in Bosnia-Herzegovina was initiated by signing the Statements of the entity governments on the electricity policy (in 2000) and was continued by the adoption of the Act on Transmission of Electric Power, Regulator and System Operator of Bosnia-Herzegovina and the Entity laws on electricity (in 2002). With the adoption in 2004 of the Law Establishing the Company for Transmission of Electric Power in Bosnia-Herzegovina, and the Law Establishing an Independent System Operator for the Transmission System, Bosnia-Herzegovina commenced the reform of the electricity sector in practice.15

15 Ibid.



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The aforementioned laws identify the key subjects responsible for their implementation: the Ministry of Foreign Trade and Economic Relations of Bosnia-Herzegovina, Entity Ministries in charge of energy, the State Electricity Regulatory Commission, the Entity Regulatory Commissions, and all of the power entities.16 Entities’ Regulatory Commissions uniformly began activities on the drafting of regulations that would enable the initial opening of the market of electricity energy in Bosnia-Herzegovina. In the RS, secondary legislation for all forms of RES is prepared by the Regulatory Commission. In FBiH, secondary legislation is discussed along with the draft RES law17. In terms of governmental law, there are a number of laws that are considered the cornerstones of the electric sector development in Bosnia-Herzegovina. At state level the following have been adopted18:

• Law on Transmission, Regulator and System Operator of Electricity in Bosnia-Herzegovina (Official Gazette Bosnia-Herzegovina 7/02 and 13/03) (which regulates establishment and operation of the State Regulatory Commission - SERC, Independent system operator - ISO and Company for transmission of electricity – TRANSCO).

• Law Establishing an Independent System Operator for the Transmission System of Bosnia-Herzegovina (Official Gazette Bosnia-Herzegovina 35/04) (which established ISO BH- Independent System Operator in BH, with its seat in Sarajevo).

• Law Establishing the Transmission Company for Electric Power in Bosnia-Herzegovina (Official Gazette Bosnia-Herzegovina 35/04) (which established BH TRANSCO - the single transmission company in BiH – “Elektroprenos BiH”, with its seat in Banja Luka).

• Grid Code (Official Gazette Bosnia-Herzegovina 48/06 and Republika Srepska, 2007).

• Market Rules (Official Gazette Bosnia-Herzegovina 48/06).

At the entity level, the following laws have been adopted19:

• Law on Electricity in the Federation BiH (“Official Gazette of BH Federation”, number 41/02, 24/05 and 38/05).

• FERK’s secondary legislation.

• Law on Electricity of the Republika Srpska (“RS Electricity Law”), Official Gazette of the Republika Srpska No. 66/02 of 23 October 2002; amendments published in the Official Gazette of the Republika Srpska, No 29/03 of 23 April 2003, No. 86/03 of 25 October 2003, No 114/04 of 23 December 2004 and No. 60/07 of 11 July 2007.

16 Ibid. 17 IRG - International Resources Group, CRES - Center for Renewable Energy Sources (2009). Stocktaking Report for Regional Assessment of Renewable Energy, Regional Findings and Country Summaries, Review Draft. USAID 18 PEEREA - Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (2008). Bosnia-Herzegovina, Regular Review of Energy Efficiency Polices 2008 19

Ibid.



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• Law on Energy of Republika Srpska that became effective on 19 June 2009 (Shall be applicable as of 1 September) in a uniform way determines as follows:

� Energy policy and energy development planning (Art 4 to 9).

� Energy activities and licenses (Art 10 to 14).

� Regulatory Commission for Energy of RS (Art 15 to 26).

� Renewable energy sources (Art 27 to 30).

� Energy efficiency (Art 31 to 34).

• Law on Electricity (“Official Gazette of RS”, integral text number 8/08 and 34/09).

• Law on Gas (“Official Gazette of RS” number 86/07).

• Law on oil and oil derivates (“Official Gazette of RS" number 36/07).

• Law on mining (cleaned text “Official Gazette of RS” number 107/05).

There is no a separate law in RS that defines RES/bio fuels, but this field has been regulated through the regulations incorporated in other laws. Law on Energy - Chapters V and VI (Art 27-34) defines the fields of renewable energy sources and usage of biofuels as well as energy efficiency. Article 27 of this law prescribes that RS Government shall, at the proposal of Ministry; make the order that provides measures that contribute to achievement of the targets, and which are related to increase of:

• total energy generation from RES;

• share of electricity consumption from RES and efficient co-generation facilities in total consumption of electricity in RS and

• share of biofuels in the total consumption of fuel for transport.

2.3 Regulation

In 2006, State Regulatory Commission for Electrical Energy adopted a Decision on the Scope, Conditions and Time Schedule for opening of the market in BIH, on the basis of the Law on transmission, regulator and operator of the electrical energy system in BIH, while RERS and FERK signed the criteria for acquiring the status of authorized buyer by the Rulebook for Acquiring the Status of Authorized Buyer, creating the conditions for gradual opening of the market for electrical energy in Bosnia-Herzegovina.20 The adopted acts put in place formal assumptions for power sector restructuring and reforming. The state or entity regulators, bound by these acts, as well as responsible power companies have brought or are about to implement a number of regulations from their respective scope of competences (third party access, electric power activity licensing, tariff issues, customer protection, market opening and functioning, system operation, metering, etc.). 21

20 Larive Serbia (2009). Croatia, Serbia and Bosnia-Herzegovina - Renewable energy 21 PEEREA - Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (2008). Bosnia-Herzegovina, Regular Review of Energy Efficiency Polices 2008



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At the same time, separate Entity legislation has been put in place to establish operators and regulatory functions in the Entities. In Republika Srpska, the regulatory powers over the gas sector have been given to the electricity regulator, whereas in the Federation these powers lie with the Ministry. Preparations in this area are lagging behind. 22 Regarding regulation of the electricity market, the State Electricity Regulatory Commission (SERC) and the two Entity regulators have adopted new tariffs for the current year, as well as key rulebooks on market opening. Regarding connection to the grid, only the Republika Srpska regulator has announced the general conditions for electricity supply (regulating connection to the distribution grid), while the Federation regulator is still finalising such implementing legislation. New draft legislation is putting regulatory independence at risk in the Federation.23

2.3.1 Feed in Tariffs for the Renewable Energy Sources in FBiH 24

Regarding feed-in tariffs for renewable energy, the “decision on methodology of establishment of the level of purchase prices of electric energy from the renewable sources installed power of up to 5 MW (feed in energy prices)” includes the following provisions:

• Clause II

“Producer of the electrical energy from the renewable sources” means the physical or legal entity which in the individual producing object, total installed power of up to 5 MW, produces electrical energy using the renewable sources of energy.

• Clause III “Methodology of establishment of the purchase prices of electric energy from the renewable sources”.

In accordance with the Decision, establishment of the level of the purchase price of the electric power from RES installed power of up to 5 MW is done by appliance of corrective coefficients to the amount of the current tariff item for active energy, higher seasonal and larger daily, for category of consumption on 10(20) kV voltage from tariff items for sales of electric energy on the territory of Federation of BiH (“Official Gazette of Federation BiH”, number 57/00). The relative correction coefficient amounts are established for:

• Small hydropower plants 0.80;

• Power plants on biogas from the waste area and biomass 0.77;

• Power plants on wind and geothermal sources 1.00;

22 Commission of the European Communities (2008). Commission Staff Working Document, Bosnia-Herzegovina 2008, Progress Report 23 Ibid. 24 Larive Serbia (2009). Croatia, Serbia and Bosnia-Herzegovina - Renewable energy



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• Power plants on solar energy 1.10.

In the case of reducing specified tariff rate, a corrective coefficient is increased for the amount of reduction, and in the case of increasing specified tariff rates, coefficients are not changing.

Pursuant clause IV of the Decision the levels of electricity purchase prices, in accordance with previously clarified clause II of the Decision, may be corrected for +10% in the case when construction of the power plant on renewables up to 5 MW contributes to reducing the costs of development and construction of the network, for which on power utility company’s proposal the approval is given by Federal Ministry for Energy, Mining and Industry. Pursuant clause V of the Decision the electricity purchase price differentiation is possible for up to 10% of the purchase price level, determined in accordance with previously specified clauses III and IV of the Decision and only if the generator with presenting relevant documents is requiring that and power utility company has interest in it, in the way that purchase price for electricity on the level of contracted period in average corresponds to the price level determined in accordance with clauses III and IV of the Decision. In the entity of RS, regarding regulation on renewable energy sources, the “Draft Rule on eligible generator and incentive for generation of electricity from renewable energy sources and combined generation of heat and electricity” and the “Draft Decision on the amount of premium and guaranteed redemption prices of electricity generated in the eligible plants and efficient co-generation facilities” define methodology for determination of the incentive applying the system of the guaranteed redemption at feed-in tariffs known in advance. The Rule also prescribes advantages while connecting to the network, advantages while dispatching, the right on the premium part for the purposes of generation for its own needs, the right on the premium part for the purposes of generation for the market, etc. Moreover, the electric distribution companies in Republic of Srpska elaborated the “Rule on connection of small plants to the electric power distribution of Republic of Srpska” (March 2009). This rule is related to the basic technical requirements for connection of small plants with capacity up to 16 MVA to the electric distribution network of the rated voltage of 0.4 kV (1 kV, LV network), 10 kV, 20 kV or 35 kV. Finally, another decision that was adopted in RS is the following one: “Decision on methodology and determination of the level of redemption prices of electricity from renewable energy sources of the installed capacity of up to 5 MW” (Official Gazette of RS, number 71/04). The level of the feed-in tariff for Power Utility of Bosnia-Herzegovina (EP BiH) is: 5.8 €c/KWh on the 10KV voltage, the tariff for Power Utility of Croatian Community in Bosnia-Hercegovina (EP HZHB) is: 6.6 €c/KWh on the 10KV voltage and tariff rates for non-eligible customers of 10 kV in MH ERS amounts to 4.15 €c/kWh.


Institutions that are in charge for energy sector are the following. At the State level, the key players are:



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The Ministry of Energy, Mining and Industry of FBiH (MEMI) is responsible for energy, mining, geological research and industry. This includes coordinating policy on energy, monitoring economic performance, coordination of project implementation, especially power generation facilities.

The responsibilities of the Ministry of Industry, Energy and Mining of the

Republika Srpska – RS include the coordination of generation, transmission and distribution of electricity and the production and processing of coal, petroleum products, natural gas. Its mandate also includes the development of medium-term and long-term plans including providing funds for their implementation and the development of annual energy balances25. In accordance with the Law, Ministry of Foreign Trade and Economic Relations

(MoFTER)’s responsibility are “for activities and tasks within the jurisdictions of Bosnia-Herzegovina and which are related to policy defining, basic principles, coordination of activities and harmonisation of entities’ authoritative bodies and institutions on the international level in the field of agriculture, energy, environment protection, development and usage of natural resources and tourism.” – responsible for policy formulation in the energy sector. In the future, a specific unit for economic policy is planned to be established, devoted to the development of medium term strategy, including the renewable energy sector – biomass and bioenergy, energy efficiency and energy technology improvements 26. The State Electricity Regulatory Commission (SERC)is an independent institution of Bosnia-Herzegovina, based in Tuzla, which acts in accordance with the principles of objectivity, transparency and equality, and has jurisdiction over and responsibility for transmission of electricity, transmission system operation and international trade in electricity. SERC is a non-profit institution and is financed by regulatory fees which are paid by the licensed entities. The SERC was established by the Parliamentary Assembly of Bosnia-Herzegovina by adoption of the Law on Transmission of Electric Power, Regulator and System Operator of BIH, and appointment of the Members of the Commission 27. The work of SERC is organized through:

• Legal Department;

• Tariff and Market Department;

• Licensing and Engineering Department;

• Financial and Administrative Department.

The Federal Electricity Regulatory Commission of Bosnia-Herzegovina (FERC) was established in 2003 by the Law on Electric Power in FBIH as a specialized, autonomous, independent and non-for-profit organization in FBIH. The main activities of FERC include:

25EnerCEE – Energy in Central & Eastern Europe, EA – Austrian Energy Agency (2009). Energy Profile Bosnia & Herzegovina 26 Ministry of Foreign Affairs of Denmark, Trade Council of Denmark-Western Balkan (2009). A regional market overview, Energy, Albania, Bosnia-Herzegovina, Croatia, & Serbia 27 SERC - State Electricity Regulatory Commission (2008). Report on Activities of the State Electricity Regulatory Commission in 2008, Bosnia-Herzegovina.



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• supervision and regulation of relations between production, distribution and electricity buyers including electricity traders;

• setting out methodology and criteria for electricity prices in tariff customers supply;

• setting out tariff items for distribution system users and tariff items and for tariff customers, issuance and revocation of production, distribution and supply licenses;

• issuance of preliminary permits for construction and permits for use of electricity facilities, other than electricity transmission installations;

• setting general conditions for electricity supply.

The Regulatory Commission for Energy of RS (RERS) was founded in 2002 by the Law on Electricity of RS as an independent and non-for-profit organization with the view of regulating monopoly practices and ensuring transparent and non-discriminatory position of all participants on the electricity market in RS. The RERS issues licenses for construction and licenses for realization of activities, pursuant to the Rule on Licenses. It is the practice that the license is issued within 60 days at most, from the day that the complete application is submitted. When submitting the application for a license, the applicant pays a one-off fee for processing of the application. The fee can vary for a generation licence from 0 to 1,000 € (for power generation plants with a capacity of 1 to 10MW), and for issuance of licenses for construction of the power generation structures (again for capacities from 1 to 10 MW) from 500 to 1,660 €. Among the main responsibilities of RERS are:

• supervision and regulation of relations between production, distribution and electricity buyers including electricity traders,

• setting up electricity prices for non-eligible customers supply and general conditions for electricity supply,

• setting out methodology and criteria for distribution network use charges, methodology for distribution network connection fee and tariff system and tariffs for distribution network users,

• issuance or revocation of licenses for electricity production, distribution, supply to tariff customers, trade and electricity supply in the territory of BIH, permits for construction or major reconstruction of production or distribution facilities,

• resolution of disputes between participants,

• resolving complaints against rejection of access and complaints against the conditions for connecting to distribution network.

2.5 Market

As regards the opening of the electricity market, from January 2008 all consumers (except households) can become eligible consumers. However, the benefits of a more open market are limited by system, technology or metering barriers. Consumers have little incentive to change suppliers due to persisting differences between regulated and market prices (regulated tariffs remain below the costs of



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generation). Full opening for major industrial customers has been delayed until 200928. The electricity market has not yet started to operate effectively, despite a high level of legal framework definition. Main players and bodies in the energy market in BIH are29:

• Three vertically integrated power utilities

• Elektroprivreda Bosne i Hercegovine- EPBiH (Power Utility of Bosnia-Herzegovina),

EPBiH is a company for production, distribution and supply of electricity. The electricity distribution in the area covered by Elektroprivreda BiH is organized through an organizational unit - Direction for distribution and five branches which are legally integrated in the vertically integrated company.

• Elektroprivreda Hrvatske Zajednice Herceg-Bosne- EPHZHB (Power Utility of Croatian Community in Bosnia-Hercegovina),

EPHZHB is a public company for production, distribution and supply of electricity. The electricity distribution in its area of activity is carried out in three distribution areas: South, Center, and North that are tariff customer suppliers on its territory. Also, these organizational units are not legal persons, i.e., they are still legally integrated in the vertically integrated company.

• Elektroprivreda Republike Srpske – EPC (Power Utility of the Republic of Srpska),

EPC is a company for production, transmission and distribution of electricity and coal, and the RS electricity system operation. As from 2006, when transmission activity was unbundled, Elektroprivreda RS is organized as a mixed holding company made of a mother company and dependent companies for production and distribution. Distribution and production of electricity in the area covered by this Company are performed by dependent companies that are legally unbundled from the holding company: Elektro-Doboj, a.d. Doboj, Elektro-Hercegovina a.d. Trebinje, Elektrokrajina a.d. Banja Luka, Elektro-Bijeljina, a.d. Bijeljina te Elektrodistribucija a.d. Pale. These companies are tariff customer suppliers on its territory. The RS Action plan for power sector restructuring and privatization foresees the reshuffle of the five mentioned dependent state-owned distribution companies in to three unbundled distribution companies as joint stock companies.

The power companies are either majority state- or entity-owned, and partly open to public shareholdership. The utilities are interconnected but there is no competition among them; they are virtual monopolies within their exclusive ethnically based service territories. As a result, although current electricity balance shows that BIH is a net exporter of electricity, there are

28 Commission of the European Communities (2008). Commission Staff Working Document, Bosnia-Herzegovina 2008, Progress Report 29 Larive Serbia (2009). Croatia, Serbia and Bosnia-Herzegovina - Renewable energy



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substantial differences regarding the balance between electricity generation and consumption among the three electricity companies.30

• Independent system operator (ISO BiH)

Independent System Operator in BiH was established in 2005 by the Parliamentary assembly of BiH, Law of Establishing Independent System Operator for the Transmission System in Bosnia-Herzegovina (Official Gazette BH 35/04) and started operation in February 2006 when Transco was registered31. The purpose of establishing ISO BiH is to ensure continuity supply of electric energy according to defined quality standards for citizen welfare in Bosnia-Herzegovina. ISO BiH is established as an independent, specialized and non-profit organization in BH. The main responsibilities of the ISO BiH are:

• management of the transmission system with the aim of ensuring reliability;

• management of assets and appliances in the mainstream control centre;

• management of the balance market, assurance of auxiliary services and development and application of reliable standards;

• development and application of guidelines which regulate the usage of the transmission system;

• development and enforcement of market regulations that are founded by provisions cohesive to the systems and auxiliary services in the transmission system.

• Transco- responsible for transmission, maintenance and construction.

• Transmission Company of Bosnia-Herzegovina (Elektroprenos-Elektroprijenos Banja Luka).

Elektroprenos is a company for electricity transmission in Bosnia-Herzegovina. It was founded in 2006 by the Law Establishing the Company for the Transmission of Electric Power in Bosnia-Herzegovina. The duties of this company are:

• transmission of electricity generated in power plants up to distribution areas or large industrial consumers;

• maintenance and development of electricity transmission system;

• connecting of electricity system of Bosnia-Herzegovina with electricity system of neighboring and other countries and thus facilitating export, import and transit of electricity.

• The gas utility companies responsible for transmission and distribution, currently the companies operating in Sarajevo, Lukavica, Visoko and Zvornik.

30 Larive Serbia (2009). Croatia, Serbia and Bosnia-Herzegovina - Renewable energy 31 Joško Jenko (2007). Power Sector Development, Bosnia-Herzegovina, Background Paper. World Bank – 4th Poverty Reduction Strategies Forum, Athens, Greece, June 26-27, 2007.



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• The district heating companies are operating in the major cities, primarily Sarajevo, Banja Luka, Zenica and Tuzla. Distribution and supply in Brcko District is carried out by a separate entity, attached to the local government.



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Overall, Bosnia-Herzegovina’s preparations to meet EU standards in the field of energy have started, but remain at an early stage. At this time Bosnia-Herzegovina has no official Energy Policy or Strategy, though work is in progress at the state and entity levels to develop an energy strategy32. The National Environmental Action Plan (NEAP) and the Mid-term Development Strategy (PRSP) are just two efforts that have already been completed in order to emphasise on environmental protection and energy savings against poverty. There are no energy efficiency laws in place at the state or entity level in Bosnia-Herzegovina. Only indirectly is energy efficiency covered in other legislation. Regulators for example have the responsibility of considering both environmental and energy efficiency issues in their tariff making and investment approval regulations and decisions. There are no RES and energy efficiency targets in place at the national level. BiH has not used effectively their resources, especially biomass and hydro energy, due to the non existence of specific laws about RES or their exploitation. The only document connected with utilization of RES is the “Decision about Methodology for the Determination of Purchase Prices from Renewable Sources with an Installed Power up to 5 MW”, and a feed-in tariff system from that decision is the only supporting mechanism for RES (which is ensured only for the current year). State and entities’ regulatory commissions, independent transmission system operator for BiH and transmission companies have been established. Grid Code and Market Rules, rules on licensing of electricity activities, rules on acquiring eligible customer status, rules on tariff methodology and tariff procedures and General Conditions for electricity supply in RS (General Conditions for electricity supply in FBIH are being prepared) are in place. National targets for RES energy production are not defined, and although there are donor-developed pilot projects, there are no industrial or commercial projects due to the existing regulatory framework and the lack of incentives or support mechanisms33. However, the RERS has defined low-cost and non-time consuming licensing procedures and permitting process. In addition, there is no institutional framework for RES utilization, nor state programs. The current situation in BiH is that Funds for environmental protection were established in the FBIH and the RS on the level of entities, with the main objective of implementing energy efficiency measures and encouraging the use of RES, primarily for the purpose of protecting the environment.34

32 PEEREA - Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (2008). Bosnia-Herzegovina, Regular Review of Energy Efficiency Polices 2008 33 IRG - International Resources Group, CRES - Center for Renewable Energy Sources (2009). Stocktaking Report for Regional Assessment of Renewable Energy, Regional Findings and Country Summaries, Review Draft. USAID 34 Larive Serbia (2009). Croatia, Serbia and Bosnia-Herzegovina - Renewable energy



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3.2 Gap Analysis



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Yes/ No


compliance



(a)“Renewable sources of electric power” shall mean sources of electric power that permanently exist in nature and are renewable in whole or in part, especially power from water streams, wind, bio-mass, bio-gas, and geo-thermal and non-accumulative solar energy. (BiH Federation law on electricity, law on electricity of Republic Srpska). Renewable sources shall mean renewable non-fossil energy sources (wind power, solar energy, geothermal energy, wave and tidal power, hydro power, biomass, landfill gas, sewage gas and biogases) (Connection rules) (k) Feed in tariff scheme comprised by regulations, methodology and the needed modifications but no RES specific; 2 Decisions at the entity level set the

(a.) Yes (j) No (k) Partially (l) No

(k) Relevant sub-laws to be put in place. Particular effort has been made in Republika Srpska, where “Rules on Eligible Generator and Support of Electric Power Generation from Renewables and Combined Generation of Heat and Electric Power” and “Decision on Fee Amounts and Guaranteed Electricity Purchase Prices Generated in Eligible Power Plants and Efficient Generation Installations” have already been drafted. (l) Relevant sublaws to be put in place

35 The Directive further details some sources: (b) Aerothermal energy = energy stored in the form of heat in ambient air (c) Geothermal energy = energy stored in the form of heat beneath the surface of solid earth (d) Hydrothermal energy = energy stored in the form of heat in surface water (e) Biomass = bidegradable fraction of prducts, waste and residues from biological origin from agriculture (incl. vegetal and animal substances), forestry and related industries incl. fisheries and aquaculture, as well as biodegradable fraction of industrial and municipal waste In addition, (f) “Gross final consumption of energy”, (m) “Actual value”, (n) “Typical value”, and (o) “Default value” are defined. However, as methodological terminology, these are irrelevant for the gap analysis.



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Yes/ No


compliance


minimum electricity purchase price for RES producers with an installed capacity up to 5 MW (USAID) (Decision on methodology and determination of the level of redemption prices of electricity from RES of the installed capacity up to 5 MW).



(1.) National targets not been set (Report on RES-Implementation of the acquis under the energy community treaty)

No

National mandatory targets should be set for RES and EE



• Expected gross final energy consumption in

(2.) No



129


Yes/ No


compliance

electricity, transport and heating and cooling for 2020, taking into account effects of EE and energy savings








• National action plans have to assess the need to build new infrastructure for district heating and cooling (Article 16, 11.)



No provisions Unknown Implement or adjust provisions where required


• MS can engage with other MS or third parties in joint No provisions Unknown Implement or adjust provisions



130


Yes/ No


compliance

projects for target compliance purposes (Art. 7 and 9)






where required






• Building codes and regulations should require minimum levels of RES in new buildings and major

(1.) The BiH Federation Electricity Law mentions that “The Regulatory Commission shall issue a special regulation to define the rights and obligations related to the receiving and the share of the electric power from renewable sources of energy, excluding major hydroelectric power stations (over

(1.) Yes (4.,5.,2.,3.,6.) No

Authorisation procedures for new generation facilities to be defined (4.,5.,2.,3.,6.) No building energy codes, building energy performance certificates, energy audit procedures, EE labels and standards for household



131


Yes/ No


compliance

renovated buildings and measures to encourage uptake of RES (4., 5.)


5 MW), used by an electric power company for providing the public service of electric power supply”. Authorisation procedures for new generation facilities to be defined. In addition, the Law on Energy, namely Law on Electricity defined that the Regulatory Commission for Energy of Republic of Srpska issues the licenses for construction of the electric power facilities (with capacity of more than 1 MW). The Law on Energy in Republic of Srpska, Articles 27-30, defines also the issues related to RES (incentives, objectives, issuance of certificates on origin, etc).

appliances and lighting. Roadmap for setting up basic legal framework for energy efficiency in building is not developed yet, some relevant ongoing projects (NEEAP)










(2., 4.) Article 29 of the Law on Energy defined that the Regulatory Commission issues the certificate on origin and prescribes its content, terms, conditions and procedures related to issuance.

(1., 3., 6.,) No (2., 4.) Partially yes

Implement full regulation for system of Guarantees of Origin. Regulation required for Guarantees of Origin for heating and cooling from RES.



132


Yes/ No


compliance












(3., 5.) In Republic of Srpska there are two laws that regulate the technical requirements and fee, for connection to the distribution network, the “Rule on connection of small plants to the network of the electric distribution companies of Republic of Srpska” and the “Methodology for determination of the fee for connection to the distribution network”.

(1a) Yes (2.) No (3.) Yes (5.) Partially yes (4.) Yes (7.8.) Yes

Grid System Issues: Development of relevant legislation planned (1a.) Requirements on system planning & development code are mentioned in the Grid Code (2.) Development of relevant legislation planned (3.) “Connection Rules” determine rules on cost of



133


Yes/ No


compliance

• Priority or guaranteed access for RES shall be provided for by the MS (2. (b))







connection, connection fees, costs of creation of technical conditions in the network and price list. (5.) Art. 7 of the “Connection Rules” determines the connection conditions. (4.) Art. 20 of the “Connection Rules” refers to the costs of creation of technical conditions in the network. (7.8.) “Connection Rules” mention that “Electricity generation facilities using renewable sources shall pay 50% of the fixed part of the connection fee.




No provisions Unknown Implement sustainability criteria



134


Yes/ No


compliance

• They shall not be made from raw materials from certain land types (high biodiversity, designated areas, biodiverse grassland, land with high carbon stock, peatland)


ANNEX I – BACKGROUND REPORT APPENDIX IV

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APPENDIX IV – CP REPORT: CROATIA


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1 CROATIA This section provides a brief and general introduction to Croatia and its energy sector. Croatia declared its independence from Yugoslavia in 1991. A civil war ensued which ended in 1995 with the Dayton Agreement. Since, Croatia has progressively moved towards recovery. In 2008, Croatia had a GDP of €47,370 (current prices) billion in 20081, with a growth rate of 4.3% in real terms. Croatia’s economy is mainly services oriented (especially tourism) making up 61% of GDP, with the rest comprising of industry and agriculture at 32% and 7% respectively2. In June 2004, Croatia became a candidate country for European Union membership. Having fulfilled the Copenhagen criteria (the economic and political conditions required to join the EU), achieving broad reforms in its electricity sector and establishing a market-based regulatory framework, accession negotiations commenced in October 2005.

1.1 Energy Sector


Croatia has limited fossil fuel resources, and is heavily dependent on imported oil and gas. The country’s large hydropower potential is mostly exhausted, but small hydropower is estimated to have a total potential of 180MW. Wind is also a promising renewable resource (400MW) and geothermal (850MW). Agriculture and woody biomass could deliver 0.8Mtoe and solar 0.5Mtoe in economic potential.3


Over half of Croatia’s electricity production comes from large hydro power plants. The incumbent electricity company owns total capacities of 2,070 MW of large and small hydro, 330MW of coal fired plants, 1,460 MW fuel oil and gas fired thermal power plants, and a 50% share (368 MW) in a nuclear plant co-owned by Slovenia and located in Slovenia close to the Croatian border.4 In addition to these, there are renewable energy developments, with almost 69MW of wind farms, roughly 50kW of demonstration solar power installations and 2MW of biomass and 2MW of waste disposal gas generation facilities. 5 Overall, in 2007, 0.7% of Croatia’s electricity generation was from renewable energy sources, excluding large hydro power6.

1 EUROSTAT database 2 CIA The World Factbook, 2008 estimates 3 IEA, Energy in the Western Balkans, 2008 4 USAID: Stocktaking report for regional assessment of renewable energy, draft April 2009 5 USAID: Stocktaking report for regional assessment of renewable energy, draft April 2009 6 http://www.mingorp.hr/UserDocsImages/ENERGETIKA/EUH07_web.pdf


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Over 10% of Croatian households are connected to district heating systems, produced either in cogeneration units for all large city districts or in heating plants for urban blocks7. Renewable heating mostly comes from biomass, supplying 512MWth, and existing geothermal heating installations are estimated at around 114MWth. 8

1.1.3 Consumption

Croatia’s total final energy consumption averaged 61.04TWh between 2001 and 2005 and amounted to 74.4TWh in 2006.9 In 2005, oil products accounted for half of total energy consumption, followed by natural gas (23%), electricity (17%), fuel wood (5%), heat (3%) and coal (2%).10


There are several major oil and gas pipelines running through the country, and the electricity transmission system operates on 400 kV, 220 kV and 110 kV high-voltage power lines, which is interconnected with the European Network of Transmission System Operators for Electricity /ENTSO-E.


Croatia’s electricity generation has been increasing but is not able to keep up with the country’s increased demand, and in 2009 had a 20% capacity deficit which was satisfied by imports11. Imports for coal and oil are diverse, coming from Russia and the Mediterranean, while the country is completely dependent on gas supplies from Russia.

1.1.6 Challenges

Croatia has had broad reforms in its electricity sector, moving to a market based regulatory framework in line with the requirements of the EU and the Energy Community Treaty. Despite a progressive energy policy process, however, Croatia experiences delays in its implementation. Energy security is amongst Croatia’s priorities, setting out to reduce electricity imports through a drive in energy efficiency and an increase in renewable energy. Croatia has various incentive based policies and measures, but has not yet been able to attract significant investment in renewable energy from private investors.

7 Austrian Energy Agency: Croatia report http://www.enercee.net/croatia/energy-sources.html 8 USAID: Stocktaking report for regional assessment of renewable energy, draft April 2009 9 Ministry of Economy, Labour and Enterprise, Update/Upgrade of the Energy Strategy and of the Implementation Programme of the Republic of Croatia, Green Paper Draft, October 2008 10 IEA, Energy in the Western Balkans, 2008 11 Energy Information Administration (EIA): Croatia Energy Profile


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2 RENEWABLE ENERGY FRAMEWORK This section provides a high-level assessment of the current framework in which the renewable energy sector operates in Croatia.


Energy policy has been to liberalise Croatia’s energy market, formally beginning in July 2000 with the Reform Program of Energy Sector. The principal objectives of the 10 years energy policy commencing in 2002 are stated in the Energy Sector Development Strategy. This energy strategy specifies the objectives and measures necessary to implement energy policies which, in amongst its considerations, includes: “strategically sustain the use of renewable energy resources”. It goes on to recommend that, “an active energy policy should initiate and enable a large-scale use of all renewable resources”, and that “the private sector in Croatia will have the leading role in the implementation of energy efficiency measures and renewable resource utilisation programs”. Croatia has set national targets through secondary legislation for 5.8% electricity to be generated from renewable energy (excluding large hydro over 10 MW) by 201012, from a 0,7% share in 2007. A national indicative target for biofuels to account for a 5.75% share of total petrol and diesel consumption by the end of 2010 has been set13, implemented via obligation of suppliers to an annual quantity which is decided upon by a central state administration body. The new adopted strategy in 2009 sets new targets for all renewable energy sources including electricity, heating and cooling and transport in accordance with the EU approach and targets as outlined in the EU RES Directive 2009/28 and global energy market and with scarce local energy resources. The 2009 Energy Sector Development Strategy (October 2009, OG 130/09) defines Croatia's energy policy and plans for future energy development. The goal of the Strategy is to build a sustainable energy system that makes a balanced contribution to security of energy supply, competitiveness, and environmental protection and provides security and availability of energy supply to the residential and business sector. The Croatian Parliament adopted the Strategy for a period of ten years. Based on the adopted Strategy, the Government will create the Energy Strategy Implementation Programme for a four-year period. The new Energy Strategy states the following strategic goals related to the use of renewable energy sources: • Mandatory target of 20% share of renewable sources in the final energy

consumption by 2020 according to the Directive on the promotion of the use of energy from renewable sources

• Mandatory target of 10% share of biofuels by 2020 in the consumption of gasoline and diesel fuel according to the Directive on the Promotion of the use of biofuels and other renewable fuels for transport

• 35% share of electricity generation from renewable sources, including large hydropower plants by 2020, in the overall electricity generation

12 Regulation on the Minimum Share of Electricity Produced from Renewable Energy Sources and Cogeneration whose production is incentivised, Official Gazette 33/07 13 The Regulation on the Quality of Biofuels, Official Gazette 141/05


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In 2003 the Environmental Protection and Energy Efficiency Fund was established to help co-finance projects including renewable energy (with the exception of wind projects). In 2005 the Croatian Bank for Reconstruction and Development (HBOR) signed an Interest Rate Subsidy Agreement to provide the soft loans for the Fund. However, a relatively small amount of money is allocated to RES and energy efficiency, with most (~90%) allocated to waste management. For example, in 2008 the Fund allocated €168.3 million for environmental protection and waste management, but only €13.7 million to energy efficiency and renewable energy sources. A number of activities and measures have been launched as laid down by the Energy Efficiency Programme of the Republic of Croatia (2008 - 2016) and the First Energy Efficiency Action Plan (2008 - 2010); these documents are being prepared for adoption. In the framework of the implementation of the National Energy Efficiency Action Plan a number of activities have already been initiated and are under way, such as “House in Order” and “Systematic Energy Management (SEM) in Cities and Counties”, which will serve to develop a comprehensive data base on all public facilities and use of energy in them, thus making it possible to have an insight into the entire sector of public services. Additionally, an informative campaign within the project “Promotion of energy efficiency in Croatia” is under way, aimed at raising public awareness regarding efficient energy consumption and at promoting the application of cost-effective and energy-efficient technologies, materials and services in Croatia.

2.2 Legislation

In 2001 the Croatian Parliament passed a first set of energy acts to reform and restructure the energy market. Subsequent revisions and amendments took place in 2004, 2007 and 2008. The current primary legislation relevant to the energy sector includes: • The Energy Act – umbrella law to set up rules for accountability and

transparency, and defines the use of renewable energy sources as a national interest of the Republic.

• The Electricity Market Act – set up the structure for a system operator and a market operator which would eventually be independent of the electric utility

• The Energy Regulatory Agency Act – sets up a Regulatory Council and provides for restructuring of the electricity sector.

• The Oil and Petroleum Products Market Act – provides for access to oil and gas pipelines.

• The Gas Market Law – provides for access to imported gas by buyers who will consume large quantities of gas themselves or use it for cogeneration.

• The Act on Biofuels for Transport – regulates production of trade and storage of biofuels and other renewable fuels, use of biofuels in transport, adoption of programmes and plans for the promotion of production and use of biofuels in transport, powers and responsibilities for establishment and implementation of the policy aimed at promoting production and use of biofuels, as well as the measures to stimulate production and use of biofuels in transport.


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• The Energy End-Use Efficiency Act – regulates energy end-use efficiency, adoption of programs and plans for energy efficiency improvement and their implementation, energy efficiency measures, and especially activities of energy services and energy audits, obligations of the public sector, energy subjects and large consumers as well as consumers’ rights with regard to the application of energy efficiency measures.

Within these Acts, Croatia has articles promoting RES, including: • The Energy Act (Official Gazette 68/01, 177/04, 76/07, 152/08):

• Article 10 (1): National energy programmes are implemented to ensure the meeting of long-term development targets and provide directions for the development of energy sectors, renewable energy resources and energy efficiency.

• Article 14 expressed that “the use of renewable energy resources is in the interest of the Republic of Croatia”, and that rules “stipulat[ing] which renewable energy resources will be used for energy generation, their type, technology and possibilities of their user” shall be passed by the Minister

• Article 26 (4) states that “Tariff systems should provide incentives for… the promotion of the use of renewable energy resources.”

• The Electricity Market Act (Official Gazette 177/04, 76/07, 152/08):

• Article 8 laid the foundations for feed-in tariffs for electricity produced from renewable sources (except for hydro power plants exceeding 10 MW of capacity)

• Article 26 (4) states that the Croatian Government “shall prescribe by regulation a minimum share of electricity produced from renewable energy sources and cogeneration”.

Since the introduction of the Electricity Market Act, targets for electricity produced from renewable energy sources have been set at 5.8% by 2010, and feed-in tariffs have been established and clearly defined in secondary legislation, Tariff System for the Production of Electricity from Renewable Energy Sources and Cogeneration (Official Gazette 33/07), although mostly new producers will benefit from the support scheme. Existing producers can also claim the feed-in-tariff, albeit under a shorter timeframe.

2.3 Regulation

The feed-in tariffs are regulated by five sub-laws: • The Regulation on Fees for Promoting Electricity Production from

Renewable Energy Sources and Cogeneration (OG, 33/07, 133/07, 152/08)

• The Regulation on the Minimum Share of Electricity Produced from Renewable Energy Sources and Cogeneration whose Production is Incentivised (OG, 33/07)

• The Tariff System for the Production of Electricity from Renewable Energy Sources and Cogeneration (OG, 33/07)


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• The Ordinance on the Use of Renewable Energy Sources and Cogeneration (OG, 67/07)

• The Ordinance on Acquisition of Status of eligible Electricity Producer (OG, 67/07)

The feed-in tariff is the main support scheme for renewable energy in Croatia. There are different levels of support for different renewable technologies, whether or not the plant is larger than 1 MW capacity, and for cogeneration. Electricity producers generating electricity from renewable sources and having the status of eligible producers are paid an incentive price in kn/kWh for the electricity supplied. Under the Tariff System for the Production of Electricity from Renewable Energy Sources and Cogeneration purchase contracts incorporating the incentive price are signed with HROTE for a period of 12 years. Feed-in tariffs are annually adjusted for inflation, changing every year according to CPI. Current feed-in tariff rates are listed in Table 1.

Table 1: Croatian feed-in tariffs for renewable electricity generation14 Plant type Category under

1 MW above 1 MW

Installed Capacity ≤ 10 kW 3.4 10 kW ≤ Installed Capacity ≤ 30 kW 3 Solar 30 kW ≤ Installed Capacity 2.1 1 MW ≤ Installed Capacity 0.69 Annual Generation ≤ 5000 MWh 0.69 5000 MWh ≤ Annual Generation ≤ 15000 MWh 0.55

Hydro ≤ 10 MW

15000 MWh ≤ Annual Generation 0.42 Wind 0.64 0.65

Forestry and agriculture (e.g. tree branches, straw, fruit stones) 1.2 1.04

Biomass Wood processing industry (e.g. bark, sawdust, chaff) 0.95 0.83

Geothermal 1.26 1.26

Biogas

Agricultural croups (e.g. corn silage), and organic, agricultural and food industry waste (e.g. corn silage, manure, meat packaging waste, biofuel production waste)

1.2 1.04

Landfill gas and gas from water treatment plants 0.36 0.36 Liquid biofuel 0.36 0.36 Other Tidal, waves 0.6 0.5 Eligible producers in Croatia face some open issues concerning grid access. There are no provisions in the Grid Code specific to renewable energy grid access. In order to develop the grid code, the Transmission System Operator, HEP-OPS, adopted in 2008 “Additional Technical Conditions for the Wind Power Plant Connection and Operation in the Transmission Grid”. The Market Operator, HROTE, is obliged to purchase electricity from eligible RES producers15. Limitations exist regarding solar and fuel cells. In addition, no more than 80% of the total purchase can be made from one RES source16. The Croatian Energy

14 HEP OIE website: http://www.hep.hr/oie/en/market/Guaranteed_tariffs.aspx 15 USAID: Stocktaking report for regional assessment of renewable energy, draft April 2009 16 Tariff System for the Production of Electricity from Renewable Energy Sources and Cogeneration (OG, 33/07)


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Regulatory Agency (HERA) is responsible for issuing rulings on granting the status of eligible producers. The TSO and DSO are responsible for grid access.17 Within Croatia’s renewable energy framework, the licensing procedure appears to be the main regulatory obstacle. The correct number of institutions and permits varies, depending on the aspects of licensing (e.g. whether the application is just for obtaining the status of eligible producer or for a complete licensing process) and the size and technology of the plant (depends on legislation related to physical planning and construction).18 Permits and institutional procedures are complex, such that a mid-sized wind farm can take 3.5 to 4.5 years to be licensed for example19. Additionally, the wind-rich Adriatic islands have strict limitations for wind farms due to environmental reasons. The Action Plan for the implementation of the Energy Performance of Buildings Directive was adopted on 10 April 2008, and has been transposed into the national legislation by means of the Physical Planning and Building Act (OG 76/07) and the Energy End-Use Efficiency Act (OG 152/08). Based on the Physical Planning and Building Act the following subordinate regulations have been adopted: the Technical Regulation Concerning Energy Economy and Heat Retention in Buildings (OG 110/08), the Technical Regulations on Heating and Air-conditioning Systems of Buildings (OG 110/08), Ordinance on Certification of Energy Performance of Buildings (OG 113/08) and Ordinance on the Requirements and Criteria to be met by Energy Auditors and Energy Certifiers of Buildings (OG 113/08). The obligatory application of these regulations started in 2009.20


The main institutions for renewable energy sources in Croatia with their respective responsibilities include the following The Ministry of Economy, Labor and Entrepreneurship (MoELE) - the governmental body responsible for the national energy policy, action plans, primary legislation promotion and EU energy legislation implementation. This Ministry is also responsible for renewable energy sources that cover electricity, heating and cooling, biofuels and energy efficiency in the part of energy policy. The Ministry of Environmental Protection, Physical Planning and Construction – the governmental body responsible for environmental protection and construction. This Ministry rules on environment impact studies and issues location permits, building permits and operating licences for every kind of construction, including renewable energy sources. The Ministry is also responsible for the quality of biofuels. Croatian Energy Regulatory Agency (HERA) – an autonomous, independent and non-profit public institution which regulates energy activities in the Republic of Croatia. HERA's duties, authorities and responsibilities are prescribed by the Act on the Regulation of Energy Activities, (OG 177/04 and 76/07), the Energy Act (OG 68/01, 177/04, 76/07, 152/08), HERA's Statute (OG 99/07, 137/08) and other

17 Incentives and barriers for the development of renewable energy sources, Croatia: country analysis, Section 3.2 Grid Issues: http://www.agreenet.info/documents/studie_hr.pdf 18 http://releel.mingorp.hr/default.aspx?id=49 19 USAID: Stocktaking report for regional assessment of renewable energy, draft April 2009 20 http://www.crpm.org/pub/agenda/394_raguzin.pdf page 23


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acts regulating particular energy activities. HERA main activities cover: developing methodologies for tariff systems, connection costs, compensation for balancing services, etc.; issuing licenses and rulings on granting the status of eligible producers; supervision of energy undertakings (licensees); supervision of quality of services; monitoring cross-border trade and congestion management; giving opinions on energy related legislation; participation in energy policy design, etc. Croatian Energy Market Operator (HROTE) – this is the institution that organizes the energy market, ensuring fair and transparent third-party access to operators and also for ensuring the system of incentives for eligible RES producers. This includes buy-back contacts, collecting incentive fees for RES support (levied on all electricity consumers) and co-generation incentives from suppliers then passing these fees to eligible RE producers. Additionaly, HROTE is in charge for incentivizing biofuel production.

Hrvatska Elektroprivreda d.d. (HEP group) – the state-owned national electricity company, formally solely responsible for the generation, transmission and distribution of electricity, which, among the others, has the following daughter companies: • HEP – Operator prijenosnog sustava d.o.o. (HEP-OPS) – is the Croatian

Transmission System Operator (TSO). HEP-OPS is in charge of security and reliability of the electric power system operation and proper coordination of the production, transmission and distribution systems. HEP-OPS allocates cross-border transmission capacity to market participants who wish to import, export or transit electricity across Croatian borders in cooperation with system operators of neighboring countries. Transmission is a regulated activity performed as a public service.

• HEP – Operator distribucijskog sustava d.o.o. (HEP-ODS) – is the only Croatian Distribution System Operator (DSO). HEP-ODS is responsible for secure, reliable and efficient operation of the distribution network. In addition, HEP ODS is responsible for supplying tariff customers and metering. Distribution and supply of tariff customers are performed as public services.

• HEP Opskrba d.o.o. – the electricity, heat and gas supplier for eligible customers.

• HEP Obnovljivi izvori energije d.o.o. (HEP Renewable Energy Sources) – founded in 2006, this daughter company of HEP deals with the preparation, construction and use of renewable energy sources. HEP OIE is not responsible for grid connection or power purchase agreements, but acts as a project developer of RES projects.

2.5 Market

Although the Croatian electricity market has been 100% open since July 2008, it is dominated by HEP, which is legally unbundled and planned to undergo privatisation, although this has not occurred yet. The regulatory framework establishes the conditions for investment and re-structuring with customers now able to freely choose their electricity supplier, in practice HEP remains the only significant supplier of electricity on the market. The Market Operator, HROTE, is


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obliged to purchase electricity from eligible RES producers21. Eligible producers of RES-E and cogeneration can benefit from regulated feed-in tariffs, according to technology and capacity. There are no special tax provisions for RES. In order for RES-E to qualify for feed-in tariffs, they must obtain the status of an eligible producer from HERA. The Croatian electricity transmission network is part of the European Network of Transmission System Operators for Electricity (ENTSO-E) a pan-European association designed to coordinate electricity transmission, enhancing operation security, as well as network and market development.

21 USAID: Stocktaking report for regional assessment of renewable energy, draft April 2009


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3 IMPACT OF DIRECTIVE 2009/28/EC This section will assess the level of present compliance with the provisions of the new Directive by means of a gap analysis.


Under the new Directive, there are some legislation, regulation, administrative and other policy measures which will require updates. The main measures which Croatia promotes RES through are: • The Reform Programme of the Energy Sector – passing of energy acts to

shape the energy market according to EU Directives (including renewables)

• Mandatory national targets of 20% share of RES in final energy consumption by 2020

• Mandatory national targets for biofuels to account for 10% share of total gasoline and diesel consumption by 2020

• Feed-in tariffs for RES-E

• Obligatory purchase of electricity from eligible RES-E producers

However, there are still barriers to the development of RES, including: • No streamlined permitting procedure

• Grid access and grid connection issues for RES should be further developed through secondary legislation (foremostly the grid code)

• No regulation supporting renewable heating and cooling yet, but investments subsidies exist by the Environmental Protection and Energy Efficiency Fund

3.2 Gap Analysis

Please refer to Table 1 below for analysis of the gaps between Croatian legislation and Directive 2009/28/EC:


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Table 2 Example for Compliance Matrix: Assessing legislative compliance with New EU Renewables Directive Directive 2009/28/EC Current provision in Croatia Compliance:

Yes/ No Actions necessary for compliance

Article 2 – Definitions (a) Energy from renewable non-fossil sources = wind, solar, aerothermal, geothermal, hydrothermal and ocean energy, hydropower, biomass, landfill gas, sewage treatment plant gas, biogases22 (g) District heating or cooling = distribution of thermal energy in form of steam, hot water or chilled liquids, from central source of production through a network to multiple buildings or sites, for the use of space or process heating or cooling

(a) Act on amendments to the Energy Act, OG 177/04, Article 3 “renewable energy sources – energy resources which are preserved in nature and can be fully or partially renewed, in particular, energy of water streams, wind energy, nonaccumulated solar energy, biofuel, biomass, biogas, geothermal energy, waves energy, tides, waste area gas, gas from wastewater processing facilities” (g) The Act on the Production, Distribution and Supply of Thermal Energy, OG 42/05, Article 2: “thermal energy distribution installations – installations and equipment for transmission of thermal energy to the consumer, from the measuring point of

Partial

Inclusion of definitions where required



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Directive 2009/28/EC Current provision in Croatia Compliance: Yes/ No

Actions necessary for compliance

(h) Bioliquids = liquid fuel for energy purposes other than for transport, incl. electricity and heating and cooling, produced from biomass (i) Biofuels = liquid or gaseous fuel for transport produced from biomass (j) Guarantee of origin (GoO) = electronic document with the sole function of providing proof to final customer that a given share of energy was produced from RES

energy intake to the measuring point of energy sale (distribution network, pumping and thermal stations, thermal energy meters)” (h) no definition (i) Act on biofuels for transport, OG 65/09 Article 4: "biofuel" means liquid or gaseous fuel for operation of motor vehicles and ships for transport produced from biomass; (j) The Electricity Market Act, OG 177/04, Article 16: “The transmission system operator shall be responsible for the following: ... -sending accounting data on the electricity taken over from the eligible producers connected to the transmission network to the market operator for the purpose of settling accounts and giving assurance on the origin of electricity with regard to the primary energy source.” Article 19. “The distribution system operator shall also be responsible for the following: ... -sending accounting data on the electricity taken over from the eligible

No

There is missing correct definition of GO in laws in Croatia. Adaptation of the Electricity Market Act and secondary legislation on RES and CHP is foreseen


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(k) Support scheme = instrument scheme or mechanism to promote the use of RES by reducing the cost, increasing the price, or the volume (by an obligation) of such energy purchased; includes investment aid, tax exemptions or reductions, tax refunds, RES obligation support schemes (incl. green certificates), direct price support schemes (e.g. FiTs, premium payments) (l) Renewable energy obligation = national support scheme requiring the inclusion of a given proportion of energy from RES in production, supply, or consumption; includes green certificate schemes as a means for compliance

producers connected to the distribution system to the market operator for the purpose of settling accounts and giving assurance on the origin of electricity with regard to the primary energy source.” (k) Act on amendments to the Energy Act, OG 177/04, Financial incentives for the use of renewable energy sources are mentioned throughout the Act. Tariff system for the production of electricity from renewable energy sources and cogeneration (OG, 33/07)

Yes

Article 3 – Mandatory national targets and measures Individual national RES targets to be met by 2020, consistent with 20% Community target, calculated as a share of gross final energy consumption (1.)

National targets currently exist for 2020 in the new Energy Strategy .

Yes

Targets required for 2020 have been outlined in the new Energy Strategy


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General national biofuels target of 10% of final energy consumption in transport, to bet met by 2020 (4.) Energy efficiency (EE) and energy savings shall be promoted to achieve targets more easily (1.)

The Energy Sector Development Strategy (OG 130/09): 10% shall be a share of renewable energy sources in 2020 used in all types of transport in comparison with final gasoline and diesel fuel, biofuel consumption in road and railway transport and total electricity consumption in transport EE is promoted. The Energy End-Use Efficiency Act, OG 68/01, Article 12: “Energy efficiency programmes shall be passed by the Croatian Government in compliance with the Energy Strategy and the Programme on the national level, and on the local level by local or regional government or self-government bodies.” This has been followed by the following ordinance: - Ordinance on Energy Efficiency Labelling of Household Appliances, OG 130/07 - Ordinance on efficiency requirements for new hot-water boilers fired by liquid and gaseous fuels, OG 135/05 - Ordinance on Energy Efficiency Requirements for Household Electric Refrigerators, Freezers and Combinations

Yes Yes

Targets required for 2020 have been outlined in the new Energy Strategy Programmes are currently being implemented


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thereof, OG 135/05 In addition, in 2003 the Environmental Protection and Energy Efficiency Fund (Act on the Environmental Protection and Energy Efficiency Fund, OG 107/03) was set up, creating a structured budgetary fund to finance projects in:

• Environmental protection • Energy efficiency • Renewable energy sources

No provisions exist for joint measures between CPs


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Measures shall be introduced to promote RES and biofuels: support schemes and joint measures between MS and with third countries (3.)

No

If required

Article 4 – National renewable energy action plans Action plans must be submitted annually

Current national energy policy is contained within the Energy Sector Development Strategy (OG 38/02), which includes, “an active energy policy should initiate and enable a large-scale use of all renewable resources.” The Energy Strategy Green Paper of

In draft

Annual action plans required


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Minimum requirements (Annex VI): • Expected gross final energy consumption in


• National sectoral 2020 targets and estimated shares

of energy from RES • Measures for achieving the targets:

o Overview of all policies concerning RES o Specific measures to fulfil Articles 13




and planned participation in joint projects • Assessments of RES technology and EE and energy

saving measures to meet 2020 target

October 2008 details goals and actions for renewable energy until 2020, with a view to 2030. According to the new Energy Strategy: • It contains expected gross final

energy consumption in electricity, transport and heating and cooling for 2020, taking into account effects of EE and energy savings

• There are national 2020 targets, although these are not broken down by sector

• It mentions specific measures as to how to improve the energy situation in each sector, although without detailing how these will be achieved.

• It contains assessments of the

potential of each RES technology and energy efficiency.

Yes. Yes Partially Yes


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• It assesses the need for improving the framework for district heating and cooling to increase investment and develop this sector.

Yes

Article 6 – Statistical transfers Statistical transfers of energy from RES can be made between MS, after the national target of the country that makes transfer has been met They do not require physical transfer of energy

There are no provisions that speak against statistical transfers

If required

Article 7 to 10 – Joint projects • MS can engage with other MS or third parties in joint

projects for target compliance purposes (Art. 7 and 9) • Joint projects between MS can be developed for

electricity and heating and cooling from RES. The joint project has to have become operational after 25 June 2009 or be a capacity increase through refurbishment after this date (Art. 7)





There are no laws regarding firm nomination of RES on interconnectors

If required


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Article 11 – Joint support schemes The joining and coordination of support schemes is allowed The energy from RES should be allocated by statistical transfers or pre-specified distribution rules

No provisions relating to Joint support schemes

If required

Article 13 – Administrative procedures, regulations and codes • Proportionality of administrative bodies, procedures,

rules, structures and charges, certification and licensing, information availability with respect to RES projects and infrastructure for RES (networks) needs to be ensured (1.)

• Building codes and regulations should require

minimum levels of RES in new buildings and major renovated buildings and measures to encourage uptake of RES (4., 5.)


Administration of RES projects is adequately defined through secondary legislation mentioned in Section 2.3 and in legislation related to spatial planning, construction, forestry, water management, agriculture etc. The Ministry of Economy, Labour and Entrepreneurship as focal point for RES coordinates activities. The Action Plan for the implementation of the Energy Performance of Buildings Directive has been adopted

Yes (Yes)

Grid code requires updating as early stated. Procedures need streamlining. Updates may be required for Directive 2009/28/EC to include RES

Article 14 – Information and training • Information and guidance programmes on RES

should be made available to the public (1., 2., • Certification and qualification schemes for installers

should be developed (3., 4.) • Guidance on high efficiency technologies should be

given (5.)

The methodology of implementation of energy audits of buildings according to Ordinance on Energy Certification of Buildings (OG 113/08, 91/09)

Partially Develop provisions in line with Directive


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155




Article 15 – Guarantees of origin • GoOs are to be issued can be issued for electricity

and heating and cooling from RES and state the share of RES in an energy supplier’s energy mix (1.)









Full implementation of legislation and an electronic system for RES-E is expected in the near future. Regulation on guarantee of origin for renewable heating and cooling is not currently active

No Implement full regulation for system of Guarantees of Origin Regulation required for Guarantees of Origin for heating and cooling from RES Should be transposed into the legislation on heating and cooling.


CROATIA

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Article 16 – Access to and operation of grids • Transmission and distribution grid infrastructure,

intelligent networks, storage facilities and the electricity system (incl. interconnectors) need to be developed (1.)


• Transmission and distribution of electricity from

RES shall be guaranteed by T/DSOs in their territories (2. (a))



• T/DSOs have to make public standard rules on costs

for technical adaptation and these rules shall be non-biased and based on all costs and benefits of connection of new producers (3.)

• T/DSOs have to make available to any new producer

applying for connection their grid connection cost estimates, timetables for processing requests, and an indicative timetable for any proposed grid connection (5.)

• MS may require costs of technical adaptations to the

There are no provisions in the Grid Code specific to renewable energy grid access. In order to develop the grid code, the Transmission System Operator, HEP-OPS, adopted in 2008 “Additional Technical Conditions for the Wind Power Plant Connection and Operation in the Transmission Grid”. The Market Operator, HROTE, is obliged to purchase electricity from eligible RES producers23.

Partial Grid access and grid connection issues for RES should be further developed in the grid code

23 USAID: Stocktaking report for regional assessment of renewable energy, draft April 2009


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grid to be borne by T/DSOs (4.) • Transmission and distribution tariffs may not

discriminate against RES producers, especially from peripheral and low population density regions (7.), and charging must be cost reflective (8.)


Article 17 – Sustainability criteria for biofuels and bioliquids Energy from biofuels and biofuels can count towards the target, irrespective of its country of origin but subject to sustainability criteria • GHG emissions savings shall be at least 35%, then

50% from 2017 and 60% from 2018 • They shall not be made from raw materials from

certain land types (high biodiversity, designated areas, biodiverse grassland, land with high carbon stock, peatland)


The Act on Biofuels for transport, OG 65/09, Article l2: " This Act aims at achieving the targets of sustainable development in the transport sector:"

Partial Develop and implement sustainability criteria


CROATIA

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REFERENCES a USAID: Stocktaking report for regional assessment of renewable energy, draft April 2009 b Overview of Legislations and Directives in the Republic of Croatia Concerning Renewable Energy Sources (RES) and Energy Efficiency (EE), Igor Raguzin, Ministry of Economy, Labour and Entrepreneurship, 2007: http://www.crpm.org/pub/agenda/394_raguzin.pdf c Overview of Legislations and Directives in the Republic of Croatia Concerning Renewable Energy Sources , Igor Raguzin, Ministry of Economy, Labour and Entrepreneurship, 2008: http://www.rec.org/reeep/docs/meetings/2008_march_17_18/presentations/igor_raguzin.ppt d Austrian Energy Agency: http://www.energyagency.at/%28en%29/enercee/hr/supplybycarrier.htm#h4 e EVD Croatia, Serbia and Bosnia-Herzegovina – Renewable Energy, Jan 2009 f Presentation by Julije Domac, Managing Director at NW Croatia Energy Agency, 2007: http://noest.ecoundco.at/news/docs/25884_07%20Julije%20Domac%202.pdf g An Energy Overview of Croatia, Fossil Energy International and the US Department of Energy: http://www.geni.org/globalenergy/library/national_energy_grid/croatia/EnergyOverviewofCroatia.shtml

ANNEX I – BACKGROUND REPORT APPENDIX V

CP REPORT – FORMER YUGOSLAV REPUBLIC OF MACEDONIA

159

APPENDIX V – CP REPORT: FORMER

YUGOSLAV REPUBLIC OF MACEDONIA


FORMER YUGOSLAV REPUBLIC OF MACEDONIA

160

1 FORMER YUGOSLAV REPUBLIC OF

MACEDONIA

This section provides a brief and general introduction to the Former Yugoslav Republic of Macedonia and its energy sector. The Former Yugoslav Republic of Macedonia obtained independence from the Socialist Federal Republic of Yugoslavia in 1991. Although Former Yugoslav Republic of Macedonia’s economic growth fluctuated throughout the 1990s, since 2001 there has been a steady recovery with annual GDP growth between 0.8 in 2002 and 5.8% in 2007. In 2005, the European Union officially recognised Macedonia as a candidate country and the European Parliament expressed support for its candidacy in 2009.

1.1 Energy Sector


Lignite is the primary fuel for generation in the country. The lignite used for generation is obtained from domestic reserves, the total reserves of which are 941 million tons. Former Yugoslav Republic of Macedonia has no domestic gas or oil reserves and therefore must import 100% of these to satisfy domestic demand. Natural gas is currently used only in industry and partially for district heating in Skopje. Large and small hydropower appears to be the most viable renewable resource at present, as well as geothermal. Solar and biomass opportunities are limited and data for wind is not widely available.


Former Yugoslav Republic of Macedonia has an installed electricity generation capacity of around 1,500MW. Of this, 1,010MW is generated in thermal power plants (TTP). Hydro power accounts for the remainder of generation in Former Yugoslav Republic of Macedonia and consists of 7 large HPPs and a number of other small HPPs with a combined capacity of 500.2MW. Utilisation of these is highly variable however, due to fluctuations in water levels. Total generation in 2008 was 6,208GWh according to Former Yugoslav Republic of Macedonia Ministry of Economy statistics.1 Fuelwood forms around 11-13% of total final consumption and is primarily used for residential heating. Much of the population continues to use fuelwood (supplemented with electric stand alone heaters) for heating as district heating systems exist only in Skopje and Bitola. Fuelwood used for residential heating has a very low efficiency of around only 22%, fed into light heating stoves.

1 All data in this section provided by Ministry of Economy



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A very small amount of geothermal energy (0.012Mtoe in 20052) is also used for heating. However, there is thought to be great potential for increasing the usage of geothermal energy in Former Yugoslav Republic of Macedonia.3

1.1.3 Consumption

Former Yugoslav Republic of Macedonia’s energy consumption is primarily in the form of electricity. Electricity consumption in 2006 was 8,801GWh, including distribution losses and energy sector consumption. The primary consumer of electricity is the residential sector, accounting for just under 50% of final consumption. This is largely due to a dependence on electric stand alone heaters in the winter creating sharp demand peaks. Heating accounts for 7.5% of total final consumption in Former Yugoslav Republic of Macedonia 4, of which 50% goes to industry and 1/3 to the residential sectors.


Electricity transmission in Former Yugoslav Republic of Macedonia is managed by the state-owned company MEPSO. Distribution and electricity supply are managed by privately owned ESM. The main transmission network consists of 400kV, 220kV and 110kV lines. Former Yugoslav Republic of Macedonia is an important transit country and is connected to the European ENTSO-E system with connections to Bulgaria, Serbia, and several high voltage connections to Greece. Former Yugoslav Republic of Macedonia has twenty-eight distribution districts and electricity coverage is extended to almost all populated regions. Transmission and distribution losses are approximately 20% of production, with the vast majority of losses occurring in distribution. There are currently five district heating systems in Former Yugoslav Republic of Macedonia, four of which are operational. Three are located in Skopje, with the fourth in Bitola. All these systems are inefficient heat-only boiler plants.5


Up to 25% of electricity has been imported in previous years. The main concerns around security of supply centre around Former Yugoslav Republic of Macedonia’s dependency on gas imports. It is projected that the share of gas in Former Yugoslav Republic of Macedonia’s energy balance could increase dramatically in the next few years. Skopje’s district heat operators plan to convert the system entirely to natural gas and there are also plans to privatise Negotino TPP and convert it to run on natural gas and hard coal.

2 IEA report on Western Balkans 3 All data in this section sourced from IEA report on Western Balkans 4 IEA report on Western Balkans 5 IEA report on Western Balkans



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There is also concern about Former Yugoslav Republic of Macedonia’s dependence on domestic lignite supplies for the powering of its other two power plants. While using domestic resources is advantageous in terms of supply security, the environmental implications of using lignite as the country’s primary fuel must also be taken into account if Former Yugoslav Republic of Macedonia is to conform with EU environmental regulations. Moving away from lignite powered generation will create a gap which is most likely to be filled with an increase in natural gas imports.

1.1.6 Challenges

• Former Yugoslav Republic of Macedonia continues to have a level of high energy intensity, largely due to the use of lignite in electricity generation, use of electricity for heating, as well as its dependence on old and inefficient plants.

• Both TPP Bitola and TPP Oslomej were technically due for retirement in 2013 though the operational life of Bitola in particular is already expected to be extended to 2025 through the exploitation of lignite reserves further from the plant although this will substantially increase the costs of generation.

• Linked to this, depletion of domestic lignite resources could lead to higher import dependence for natural gas and oil if alternative RES are not developed.

• Use of electric heating to supplement fuelwood in the winter in the residential sector is inefficient and places extreme demand on generation in the winter months.

• Reducing dependency on lignite fuelled generation and fuelwood heating will be crucial to reducing Former Yugoslav Republic of Macedonia’s energy and carbon intensity.

• Large scale improvements to the electricity distribution system are needed to significantly reduce distribution losses

• Government subsidies, particularly in the residential sector means electricity prices are not cost-reflective, an issue which creates particular problems in the development of RES



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This section provides a high-level assessment of the current framework in which the renewable energy sector operates in Macedonia.

2.1 Policies and Strategies

Former Yugoslav Republic of Macedonia gained the status of a candidate for EU membership in December 2005, and the Council Decision of 30 January 2006 detailed priorities for the Energy sector including:

• Begin to align the legislation on the internal electricity and gas markets, energy efficiency and renewable energy sources with the acquis in order to gradually open the energy market to competition.

• Strengthen the independence of the Energy Regulatory Commission.

• Start implementing the Energy Community Treaty.

• Enhance administrative capacity in all energy sectors.

Former Yugoslav Republic of Macedonia is currently preparing a national energy strategy and a strategy for the development of RES. The energy efficiency strategy is being updated. The draft strategy for energy development for the period 2008-2020 with a vision to 2030 was produced by the Macedonian Academy of Sciences and Arts (an independently funded institution) in June 2009, and is currently under consideration for adoption into law. This document states the objectives of the strategy and some measures for implementation. Although no targets have yet been set, the draft strategy proposes targets largely in line with those set by the new EU Renewables Directive to:

• Reduce energy intensity by 30% by 2020 in comparison to 2006;

• Increase the share of renewable energy sources to an amount of more than 20% from the total final energy consumption;

• For the share of bio-fuels in the total consumption of fuels by transportation to be at least 10%;

• Reduce greenhouse gas emissions by 30% and

• Reduce the specific greenhouse gasses emissions from the electricity sector (the network factor) by 20% in relation based only on coal.

Development and implementation of policy including ensuring that final electricity prices reflect actual costs will be key to successful development of renewable energy in Former Yugoslav Republic of Macedonia.

2.2 Legislation

In terms of primary legislation, The Macedonian Law on Energy (2006, amended in 2007 and 2008) is the main piece of legislation relevant to the renewables sector. The Law sets out the objectives for the future Energy Development Strategy including the creation of strategies for the utilization of RES and the improvement



164

of Energy Efficiency (EE). While the Law does not set out concrete targets6 for RES and EE, it promotes the production of electricity from RES and envisages transitional support measures including preferential tariffs. The Law also contains provisions for licensing and construction of new energy facilities, and for the introduction of market prices into the electricity, gas, oil and thermal energy markets. Paragraph III in particular defines the competencies of the Energy Regulatory Commission and conditions for tariff setting. The Law also envisages a Local Energy Development Programme for Skopje and other municipalities and assigns them responsibility for distribution of heating through district heat systems and geothermal heat generation. Former Yugoslav Republic of Macedonia is currently drafting a new Energy Law, which includes a new model for the electricity market. This law will clarify roles and relations in the electricity sector, for example setting out the role and the mandate of the Energy Regulatory Commission. The Law on Environment (2005) sets up the requirements for integrated environmental permits and the requirements for monitoring of emissions. In Article 4 it defines one of the objectives of the law to be to “encourage the use of renewable natural energy sources”. Also includes provisions for eco-labelling. The Law on Air Quality (2004) establishes emissions limits, margins of tolerance and target values for individual pollutants, in line with EU Directives, effectively encouraging use of clean (renewable) technologies.

The Law on Waste Management (2004) contains provisions for co-incineration, and the generation of electricity using waste as fuel or part-fuel.

The Law on the Establishment of the Energy Agency led to the creation of the Agency in 2005.

2.3 Regulation

In recent years much secondary legislation relating to renewable energy has been drafted including:

• Rulebook for Renewable energy sources for production of electricity (October 2008);

• Rulebook on the guarantee of origin of the electricity produced from RES (October 2008);

• Rulebook for acquiring of status of preferential/privileged producer of electricity from RES (2006);

• The Grid Code - regulations for connection to the national grid;

• Manual for construction and operation of wind mills (April 2008);

• Rulebooks on the method and procedure for establishing and approving the use of feed-in tariffs for electricity produced from biomass, small hydro power plants, wind power plants and photovoltaic systems;

6 Following the conclusion of this study and the Base Study for RES, in accordance with Article 139 of the Energy Law, the Government will determine the proportion of final electricity consumption to be met from RES.



165

• Rulebook on the quality of the liquid fuels; and

• Decision defining the installed capacity of energy facilities eligible to obtain the status of preferential RES electricity producers (October 2009).

The main financial support scheme for renewable energy is feed-in tariffs. These provide guaranteed fixed revenues on a per kWh basis for eligible producers of electricity from RES, and are set by the Energy Regulatory Commission. So far, rulebooks for feed-in tariffs have been produced for small hydro, wind, solar and biomass/biogas plants. Former Yugoslav Republic of Macedonia also operates Guarantees of Origin, and has some provisions for preferential treatment of RES-E in the power network: In accordance with the Article 141, Energy Law, the market operator obliged to purchase all electricity produced from preferential producers of RES-E. In addition, the Regulatory Commission may require the electricity transmission system operator, when dispatching generation facilities, to give priority to generation facilities producing electricity from renewable resources. The Grid Code for Electricity Transmission (2006)7 describes minimum technical requirements for connection and for open access to the transmission network and basic technical and organizations instructions for operation and planning of transmission network. It does not, however, contain any provisions relating to renewable energy. In addition, no exclusions are made for RES in the articles of the Grid Code covering frequency fluctuations. A further obstacle to the connection of RES to the grid is contained in Article 38.5 of the Grid Code stating that applicants will be responsible to bear the cost of connection to the transmission system.


The main institutional players in the Macedonian energy sector are:

• The Ministry of Economy – plays a significant role, being responsible for energy policy and strategy, preparation of laws, secondary legislations and related regulations, monitoring and enforcement of legislation and regulation, energy sector restructuring, authorisation of new energy facilities and participating in international projects.

• The Energy Agency – founded in 2005 and supported by the World Bank GEF, is responsible for the implementation and promotion of the policies of energy efficiency and renewable energy sources. Its main activities include the preparation and coordination of the energy reforms; preparation of mid- and long-term strategies; and the proposal and evaluation of studies and projects on energy efficiency and renewable energy sources. It is also responsible for the issuing of Guarantee of Origin certificates.

• The Energy Regulatory Commission – established in 2003, this body is independent in its operations and decision making, although Parliament appoints its five members. Regarding RES, it is responsible for the establishment of tariff systems and prices, authorisation procedures (generation, distribution and supply licenses), Grid Codes and Market Codes, dispute settlement and customer protection.

7 Grid Code for Electricity Distribution (2008) not available in translation.



166

• Elektrani na Makedonija (ELEM) – the regulated electricity producer, which supplies 96% of entire domestic production for Former Yugoslav Republic of Macedonia, operating the main large hydro power stations in the country.

• MEPSO – the transmission system operator and market operator. It owns the entire transmission network, and is responsible for its maintenance, planning, expansion and construction, and also for the organisation and management of the electricity market.

• AD EVN Makedonija – the sole electricity distribution and supply company.

Renewable energy projects currently face administrative barriers due to inefficiency and politicisation in these public institutions. This is accentuated by a lack of training in the area of renewable energy. Recently, a tender for small hydro power plants was put out in 2007, in which the 60 selected companies from the first tender which were granted concession rights are still waiting to sign the final agreement and start construction, whilst their warranty money is still held in government institutions.

2.5 Market

The Former Yugoslav Republic of Macedonia electricity market is officially unbundled. The main entities in the market and their roles are as follows:

• Elektrani na Makedonija (ELEM) – the regulated electricity producer, which supplies 96% of entire domestic production for Former Yugoslav Republic of Macedonia, operating the main large hydro power stations in the country.

• TEC Negotino – a one-plant generation company

• MEPSO – the transmission system operator and market operator. It owns the entire transmission network, and is responsible for its maintenance, planning, expansion and construction, and also for the organisation and management of the electricity market. It manages the system for electricity sale and purchase pursuant to the market-based principals

• AD EVN Makedonija – the sole electricity distribution and supply company. It also owns and operates 11 small hydro power plants. This has been privatised and is jointly owned by EVN of Austria (90%) and the State (10%).

The market operator, MEPSO, is obliged to buy all electricity produced from eligible renewable energy sources, and is the authority in charge of cross border electricity to the European ETSO-E system via its 400kV transmission lines. The main market obstacle concerning renewable electricity generation is the fact that the price of electricity in the Former Yugoslav Republic of Macedonia is subsidised by the government and is not cost-reflective, being set according to affordability and is currently the lowest in Europe. This has a negative impact on private renewable energy investment in Macedonia, reducing the demand for RES-electricity (RES-e) as final consumers are not aware of the value and importance of alternative energy sources. It is hoped that feed-in tariffs will alter this over time.



167




There are a number of measures in place in the Former Yugoslav Republic of Macedonia to support and promote the growth of RES. In terms of primary legislation, the 2006 Electricity Law defines the administrative roles and procedures of the various bodies involved in developing RES. The Law also designated RES producers as preferential producers, requiring the TSO to purchase all electricity generated by RES. The Draft Energy Strategy also sets out targets and potential new projects to increase the Former Yugoslav Republic of Macedonia’s RES capacity. A large amount of secondary legislation has also been developed to provide strong support for RES in terms of feed-in tariffs and GoOs. Feed-in tariffs have been set up to support small hydro, wind, solar and biogas projects producing electricity. GoOs have also received much attention and a rulebook has been established to cover the certification process. The government has clearly made some efforts towards developing and supporting RES in Former Yugoslav Republic of Macedonia. However, in order to comply with the new Directive, the following updates will be required in legislation, regulation and other policy measures: A draft National Energy Development Strategy is currently under consideration for adoption and is in its final stages. While it is still in draft, there are as yet no official targets for renewables, energy efficiency or greenhouse gas reduction or annual action plans outlined, but the Draft Energy Strategy sets out targets for renewables and biofuels in some detail. There is no discussion of annual action plans. The Energy Law does not include some methods of generation in its definitions of RES. Most notably absent, however, is hydropower. There are no definitions of bioliquids, support schemes or national energy obligations in current legislation. There needs to be further development of relevant support schemes. Another substantial area missing from the Former Yugoslav Republic of Macedonia’s legislation and policy are provisions for statistical transfers, joint measures, and joint support schemes with Member States or third countries. Currently there are no measures in place for any of these areas as required under the Directive. The Grid Code needs substantial updating to include provisions for RES. Current legislation makes no provision for training programmes or specific public awareness campaigns.



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Sustainability criteria are currently lacking from legislation although some are discussed in the Draft Energy Strategy. While the Rulebook on Energy Efficiency in Construction Structures was not available, there is no mention of the use of renewables in new building construction in other legislation.

3.2 Gap Analysis



169



Yes/ No


compliance


(a) Energy from renewable non-fossil sources = wind, solar, aerothermal, geothermal, hydrothermal and ocean energy, hydropower, biomass, landfill gas, sewage treatment plant gas, biogases8 (g) District heating or cooling = distribution of thermal energy in form of steam, hot water or chilled liquids, from central source of production through a network to multiple buildings or sites, for the use of space or process heating or cooling (h) Bioliquids = liquid fuel for energy purposes other than for transport, incl. electricity and heating and cooling, produced from biomass (i) Biofuels = liquid or gaseous fuel for transport produced

Energy Law 2006 Article 8.87: Renewable energy resources shall mean renewable non-fossil energy sources (wind, solar, geothermal, biomass, landfill gas and biogas) Energy Law 2006 Article 8.65/72: Thermal energy is generated energy intended for heating facilities (vapour and water)/ Distributor of thermal or geothermal energy is an entity performing distribution, management with the distribution system and supply to users of the distribution network No definition Energy Law 2006 Article 8.88: Biofuels

Yes Yes No Yes

Definition should be expanded to comply with Directive definitions (particularly of note: current legislation does not include hydropower in definition of renewable energy sources)

8 The Directive further details some sources: (b) Aerothermal energy = energy stored in the form of heat in ambient air (c) Geothermal energy = energy stored in the form of heat beneath the surface of solid earth (d) Hydrothermal energy = energy stored in the form of heat in surface water (e) Biomass = biodegradable fraction of products, waste and residues from biological origin from agriculture (incl. vegetal and animal substances), forestry and related industries incl. fisheries and aquaculture, as well as biodegradable fraction of industrial and municipal waste In addition, (f) “Gross final consumption of energy”, (m) “Actual value”, (n) “Typical value”, and (o) “Default value” are defined. However, as methodological terminology, these are irrelevant for the gap analysis.



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Yes/ No


compliance

from biomass (j) Guarantee of origin (GoO) = electronic document with the sole function of providing proof to final customer that a given share of energy was produced from RES (k) Support scheme = instrument scheme or mechanism to promote the use of RES by reducing the cost, increasing the price, or the volume (by an obligation) of such energy purchased; includes investment aid, tax exemptions or reductions, tax refunds, RES obligation support schemes (incl. green certificates), direct price support schemes (e.g. FiTs, premium payments) (l) Renewable energy obligation = national support scheme requiring the inclusion of a given proportion of energy from RES in production, supply, or consumption; includes green certificate schemes as a means for compliance

shall mean liquid or gaseous fuel for transport produced from biomass (and in Rulebook on liquid fuels) Energy Law 2006 Article 8.85: Guarantee of Origin is a document issued by the EARM certifying that electricity was produced from RES No definition No definition

Yes No No


Individual national RES targets to be met by 2020, consistent with 20% Community target, calculated as a share of gross final energy consumption (1.) General national biofuels target of 10% of final energy consumption in transport, to bet met by 2020 (4.) Energy efficiency (EE) and energy savings shall be promoted to achieve targets more easily (1.)

None in current legislation, but targets are set in draft Energy Strategy (June 2009) Energy Law 2006 Articles 124-132 outlines aims of Energy Strategy and implementation in terms of promoting EE

No Yes

Draft Energy Strategy to be passed by government. Government Decision to be adopted. Energy Efficiency Strategy being updated which will define EE measures.



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Yes/ No


compliance

Measures shall be introduced to promote RES and biofuels: support schemes and joint measures between MS and with third countries (3.)

Feed-in tariffs are currently provided with associated rule books for small hydro, wind, solar, biomass and biogas plants. Provision for further support schemes is envisaged by the Energy Law Article 139. No mention of joint measures

Partial No

Develop further measures for promotion of RES and biofuels Develop provisions for joint measures where required





• Measures for achieving the targets:

No current national energy policy or renewables strategy. Draft Energy Strategy (June 2009) yet to be approved by government In Draft:

No annual action plans are outlined

Two scenarios are envisaged to 20209.

Sectoral targets and estimated shares of

generation from RES in both scenarios

No Yes in draft

Yes in draft

Government to approve draft Energy Strategy Develop annual action plans

9 First is basic scenario taking into account current energy efficiency measures and the obligation to increase electricity prices to market rate. Second scenario envisages increased energy efficiency measures.



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Yes/ No


compliance

o Overview of all policies concerning RES o Specific measures to fulfil Articles 13







Overview is given

No specific measures for administration,

information and training, or sustainability

of biofuels and bioliquids are given

No support schemes are outlined Specific measures for increasing

utilisation of biomass are given

No planned use of statistical transfers or participation in joint projects given No assessments made (but work on RES and EE strategy ongoing) No assessments made

Yes in draft

No No Yes in draft

No No No

Determine measures for achieving targets Include support schemes for promotion of RES Include plans for statistical transfer and joint project use where required Include assessments of RES and EE technology Include assessments district heating infrastructure



No provisions for statistical transfers No Develop provisions outlining statistical transfers where required



• Joint projects between MS can be developed for electricity and heating and cooling from RES. The

No provisions made for joint projects

No Develop provisions for joint projects where required



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Yes/ No


compliance

joint project has to have become operational after 25 June 2009 or be a capacity increase through refurbishment after this date (Art. 7)







No provisions for joint support schemes No Develop provisions for joint support schemes where required



• Building codes and regulations should require minimum levels of RES in new buildings and major renovated buildings and measures to encourage

EU enlargement progress report (2008) reports that FYR Macedonia is moderately advanced in development of RE. Administrative capacity has been strengthened. Rulebooks and procedures are being adopted in line with accession process. Although we have not seen it, we understand that a Rulebook on Energy Efficiency in Building Construction was adopted in November 2009 (to come into

Yes Unsure

If not already included, incorporate requirements for minimum levels of RES in building codes and regulations.



174


Yes/ No


compliance

uptake of RES (4., 5.)


force 01.01.2011). Article 130 of Energy Law requires building regulations to be marked regarding their energy-related characteristics including EE. Law on Environment Article 29 covers use of eco-labels

Yes






No specific training programmes are mentioned, though the need for public awareness schemes is outlined in the Energy Law in Article 139.

No Develop information and training programmes and implement awareness schemes






GoOs can be issued for electricity generation only. GoOs have no function for target compliance Rulebook on GoOs states that competent authority is the Energy Agency of the Republic of Macedonia (EARM) Rulebook on GoOs sets out these provisions

Partial Yes Yes Yes

Extend issuing of GoOs for heating and cooling from RES



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Yes/ No


compliance












Distribution Grid Code not available Grid code makes no provisions for renewables Grid code makes no provisions for renewables Energy Law Article 141 requires Market operators to purchase all electricity generated from RES Energy Law Article 8.86 designates RES producers as preferential producers of electricity Grid code for Transmission makes no provision for renewables, but Art 141 provides for the Regulatory Commission

No No Yes Yes Yes

Grid code to include provisions for renewables Grid code to include provisions for renewables Formalise priority for RES producers in Grid Code



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Yes/ No


compliance


• T/DSOs to make available to any new producer applying for connection their grid connection cost estimates, timetables for processing requests, and indicative timetable for proposed grid connection (5.)



• Gas infrastructure may need to be extended, too, where necessary (9.) and technical rules for network connection may be requested to be published (10.)

to require the TSO to give priority to RES generators No provision made We are informed that the connection charging methodology is contained in the Distribution Code, but unable to check. No provision made Preferential feed-in tariffs given to RES producers. Rule books on these have been adopted. No information given

No Unclear No Yes Unknown

Grid code to include standard rules on cost for technical adaptations Grid code to include requirement for timetables and cost estimates provided by T/DSO Grid code to include provisions for costs of technical adaptations Establish rules for gas infrastructure and network connection if necessary




Draft Energy Strategy sets targets for

2020 to reduce GHG emissions by 30%

and reduce GHG emissions from

electricity sector by 20%

Partial



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Yes/ No


compliance



Draft Energy Strategy envisages

production of biomass and animal fat for

conversion to biofuels. No other discussion of source of raw materials No specific provisions made

No No

Develop sustainability criteria consistent with directive Ensure use of raw materials meets requirements of CAP

ANNEX I – BACKGROUND REPORT APPENDIX VI

CP REPORT - MONTENEGRO

178

APPENDIX VI – CP REPORT: MONTENEGRO


MONTENEGRO

179

1 MONTENEGRO This section provides a brief and general introduction to Montenegro and its energy sector. In 2006, Montenegro declared its independence from Serbia, following a referendum amongst the population of Montenegro. The country’s economy is largely service-based and its GDP grew by 10.7% in 2007 and 7.5% in 2008, but along with the global financial climate, contracted in 20091. Montenegro submitted an application for EU membership in April 2009 and the Council invited the Commission to submit an opinion on the application, which is expected in 2010.

1.1 Energy Sector


Montenegro has extensive development potential for hydropower, with a theoretical hydropower development potential of approximately 9,846GWh annually for large and 1,000GWh for small water flows.2 There are relatively abundant coal deposits in municipalities of Plevlja (184.5m tons of lignite) and Berane (158m tons of brown coal).3


Total installed capacity in 2005 was 868MW of which 658MW (76%) were hydropower plants. Of this, the capacity of small hydropower plants is 9MW. TPP Plevlja contributed 210MW (24%).4

1.1.3 Consumption

Total energy consumption in 2005 was 8,890GWh. Consumption is made up of oil products (48%), electricity (45%) and fuel wood (7%).5 Electricity production in 2005 was 4,543.5GWh. 60% of the total electricity consumption could be met from domestic supply, with imports meeting the rest.


The transmission grid became operational in 1956. The network is largely integrated with that of Serbia and Bosnia and Herzegovina. The automation of the system used to be low compared to that of developed countries. This has been improved in the last few years. The network losses are high, up to 30%, especially in distribution. Due to increased electricity demand,

1 IMF World Economic Outlook April 2009 2 Source: Small hydropower plants strategy for Montenegro, 3 Source: Energy development strategy for Montenegro by 2025, p. 32. 4 Energy Regulatory Agency, Annual Report 2008. 5 IEA, Energy in the Western Balkans, 2008


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construction of new and extension of the existing grid lines is planned. A natural gas network does not exist6.


Since 1980, Montenegro has recorded a deficit in electricity production due to construction of a major aluminium plant, which is by far the biggest consumer of electricity in the country (1,950.2GWh in 2007), and continuously growing demand. Since construction of TPP Plevlja in 1982, no new production capacity has been added7. Due to the large share of hydropower plants the production of electricity varies considerably depending on rainfall. Thus, in 2007 total production of electricity from hydropower plants was only 1,278.3GWh due to low precipitation, while total production of electricity was 2,044.7GWh and could only meet 44% of Montenegrin final electricity consumption. The deficit is expected to grow in the following years along with increasing consumption of electricity t89.

1.1.6 Challenges

The modernization and extension of electricity grid is necessary due to old generation capacity and inefficient transmission and distribution networks with high losses. Energy intensity levels are high and need to be reduced through energy efficiency measures. However, support measures for energy efficiency are not a policy priority. The utilization rate for TPP Plevlja is low and coal extraction is inefficient. Dependence on lignite coal may thus represent serious problems with regard to environment and social issues. The energy market is small and the gap between energy generation and demand is growing due to increasing demand. The participation in the regional energy market is not envisaged in the Energy development strategy. Montenegrin electricity companies have a monopoly in the market. Decisions on energy market opening and legal unbundling of power generation, transmission and distribution were adopted only recently.

6Energy Regulatory Agency, Annual Report 2005, http://www.regagen.co.me/godisnjiizvjestaj2005.html 7 Energy Regulatory Agency, Annual Report 2004, http://www.regagen.co.me/godisnjiizvjestaj2004.html 8 Energy Regulatory Agency, Annual Report 2005, http://www.regagen.co.me/godisnjiizvjestaj2005.html 9 Energy Regulatory Agency, Annual Report 2008.


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2 RENEWABLE ENERGY FRAMEWORK This section provides a high-level assessment of the current framework in which the renewable energy sector operates in Montenegro.


Montenegrin Energy policy defines the objectives of energy sector and identifies instruments to achieve them. Among its main goals are securing reliable and diversified power supply; encouraging the use of renewable energy sources; adopting relevant legislation and regulation; privatization and liberalization of energy market. The constitutional provision that classifies Montenegro as an Ecological state underlines the importance of renewable energy and environmental and social considerations. Nevertheless, a separate policy for renewable energy sources is not in place yet. The Energy Development Strategy for 2025 is part of the overall national strategy (Strategy for energy sector development of Montenegro by 2025) with the final target for RES of more than 20% share of primary energy between 2020 and 2025. It provides the following plans for installed capacity till 2025: small hydropower plants 80MW; wind energy 60 MW total installed capacity; energy from waste 10 MW installed capacity. The use of biogas, biomass and photovoltaic is not planned. Solar energy has so far been limited to heating. The use of biofuels is expected after 2010 and could reach 0.68 PJ in 2025. The Energy Development Strategy for 2025 Action Plan envisages projects related to improvement of energy efficiency and efficiency of existing generation and transmission facilities, increasing use of renewable energy sources and cleaner use of fossil fuels and create a basis for long-term economic development of Montenegro. Development Strategy for Small Hydropower Plants (SHPP) that also includes an action plan analyses the situation of national electricity sector where hydropower represents a significant share of electricity production (60 - 75 per cent depending on precipitation). Hydropower could represent even higher share of electricity production because so far only 17 per cent of potential has been used. The share of small hydropower plants in electricity production was 1.1 per cent in 2005. It could rise to 2.5 per cent of electricity production and total use of renewable energy sources excluding large hydropower plants could reach 3 – 5 per cent by 2015. The strategy provides the necessary measures and instruments such as establishing a legal and institutional framework, environmental impact assessment of sHPP and monitoring for successful realization of the Strategy. It also provides economic and financial analysis. National Strategy for Sustainable Development was designed in cooperation with the UNDP, UNEP and the Italian Ministry of environment. It was approved by the Government. Its priorities include energy and air pollution, water and forestry management, management of coastal areas and sea and sustainable tourism. In the field of energy its objectives are energy efficiency improvements, increased share of renewable energy sources use, modernization and improvement of energy


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infrastructure and performing environmental impact assessment of large hydropower dams.

2.2 Legislation

The Energy Law (2003) defines the competent authorities for promotion of RES (Government and Ministry of Economy). Chapter VIII, Article 32 is about the production of energy from renewable sources. Procedures for acquiring authorization and licenses for small hydroelectric plants and renewable energy plants will be simplified. The investors in renewable energy have to provide information on the project upon the request from the Ministry of Economy. The Ministry of Economy will, in order to facilitate the realization of RES projects, provide information on suitable location and other information necessary and coordinate its activities with other ministries and the regulatory body. Renewable power plants up to 10 MW installed capacity have a right to sell electricity on the distribution grid. A draft Energy law is currently undergoing the legislative process and is expected to be adopted in March 2010. The Law will include a special chapter on renewable energy. It will clearly determine the relations, rights and obligations of the participants in the energy sector; set indicative targets; introduce electricity and gas markets; support for renewable energy and cogeneration; define guarantees of origin. The Law on environment contains a general provision on potential economic support for the projects using renewable energy sources. Economic subjects can be granted ecological label for reducing energy consumption. According to the Law on strategic environmental impact assessment the strategic assessment is mandatory for plans and programmes regarding energy. The Law on concessions states that concessions can be granted for designing, constructing, maintaining, modernizing and using of the energy-related infrastructure for generation, transmission, and distribution of electrical energy, thermal energy and gas.

2.3 Regulation

At present, the main regulatory documents relating to energy are the Temporary grid code, the Temporary distribution code and the Regulation on tariffs from electricity energy. However, the Temporary distribution code and the Regulation on tariffs for electricity energy do not contain special provisions on renewable energy. The Temporary grid code guarantees priority access to the grid for energy produced from renewable sources. There is a lack of secondary legislation related to renewable energy which represents the main obstacle to its development and increased deployment. There is no support scheme in place. However, along with a number of regulations based on the draft Energy Law, secondary legislation is also currently undergoing the


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parliamentary approval process. Feed-in tariffs for electricity from small hydropower, wind and biomass are under development.


The Government is competent for adoption and implementation of national energy strategy and policy. It oversees the implementation of the measures for environmental protection; promotes and facilitates investments and private sector participation in energy sector, competition and interconnectivity with other countries. The Ministry of Economy is competent for preparation of policy proposals and long-term and annual energy balance; drafting energy legislation; proposes and considers possibilities of the use of indigenous resources and the need for natural gas, coal and oil trading with the neighbouring countries; promotes involvement of private sector in energy sector and privatization of public utilities. It defines the methodology, including pricing methodology, for grid connection. The government through the Ministry of Economy implements energy efficiency policy and conservation of energy resources; manages energy efficiency funds; develops and promotes support systems for the use of renewable energy sources. The Energy Regulatory Agency, created in 2004 by the Energy law, monitors operations of the participants in the energy sector and issues licenses; sets tariffs and prices; establishes regulation and rules regarding energy market; promotes efficiency and competition in energy sector and non-discriminatory transit of energy; determines the prices and tariffs. Montenegrin Electric Enterprise is functionally unbundled company since January 2005. It is the only transmission system operator, distribution system operator and market operator and the only company carrying out activities of electricity production. The Ministry of Environment and Physical Planning is competent for issues related to environment and its protection. It has a mandate to draft national strategies, policies, laws and standards. It sets the criteria for the Strategic Environmental Assessment and Environmental Impact Assessment reports. It is responsible for co-ordination of water supply, protected areas and standards and registers. Ministry of Agriculture, Forestry and Water Management is competent for protection and monitoring the use of water resources, the implementation and supervision over projects in water sector, and construction, maintenance and rehabilitation of facilities built on water. Its mandate includes drafting laws and other regulatory documents. It also prepares plans for forest management. Thus the Ministry has an important role in energy produced from hydropower plants and biomass. The National Council for Sustainable Development has competences to implement the National Strategy for Sustainable Development and the Developmental Direction of Montenegro as an Ecological State. The Council is headed by the prime minister and comprises representatives from various ministries and scientific institutions, business sector and non-governmental organisations (NGOs).


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2.5 Market

On 30 December 2008 the Energy Regulatory commission adopted a decision on opening electricity market on 1 January 2009 and approved the market rules. The market will open gradually through several phases. Currently the Montenegrin Electric Company is the only producer, transmission, distribution and market operator and supplier of electricity. It is however functionally unbundled. The entity Prenos a.d. is transmission system and market operator that works within the national electric company. The state remains the largest owner of the company with 70.6 per cent share. Transmission System Operator is responsible for maintenance, improvement, modernization and development of transmission system with aim to guarantee its secure and efficient operation; management of electricity transmission in national system and in relation to other systems; dispatching of the electricity produced. Distribution System Operator is the energy undertaking that is legally or functionally unbundled and responsible for use, reliability, management, maintenance and the development of distribution network in order to guarantee secure supply of energy. Market Operator is the energy undertaking legally responsible for the organization and administration of electricity trade and payment settlements among generators and suppliers.


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Most of the legislation, regulation, administrative and other policy measures regarding renewable energy sources need to be adopted. New draft Energy law is to be adopted in October 2009. It includes a separate chapter on renewable energy and other provisions. Nevertheless, the draft should be amended if it is to comply with the directive 2009/28/EC. Grid code contains a provision on priority access for RES, while distribution code contains no provisions concerning RES. Law on environment and strategic environmental assessment should include more detailed provisions regarding environmental protection.

3.2 Gap Analysis

The provisions not contained in the legislation or regulation currently in force but do exist in the draft new energy law are given in brackets.


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Table 2 Example for Compliance Matrix: Assessing legislative compliance with New EU Renewables Directive Directive 2009/28/EC Current provision in CP/cCP Compliance:


Article 2 – Definitions (a) Energy from renewable non-fossil sources = wind, solar, aerothermal, geothermal, hydrothermal and ocean energy, hydropower, biomass, landfill gas, sewage treatment plant gas, biogases10 (g) District heating or cooling = distribution of thermal energy in form of steam, hot water or chilled liquids, from central source of production through a network to multiple buildings or sites, for the use of space or process heating or cooling (h) Bioliquids = liquid fuel for energy purposes other than for transport, incl. electricity and heating and cooling, produced from biomass (i) Biofuels = liquid or gaseous fuel for transport produced from biomass

Art. 2. defines renewable energy as non-fossil sources which include hydropower, wind, solar, geothermal, biomass, wave and tidal energy, landfill gas, sewage treatment plant gas and biogas. (The draft new Energy law includes biofuels as well) There is no definition of district heating or cooling. (The draft new law mentions district heating several times. However, no definition is provided.) There is no definition of biofuels or bioliquids.

Yes. No. No.

Definitions of aerothermal and hydrothermal are included in draft Energy Law Included in draft Energy Law Include the definition if appropriate.



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Directive 2009/28/EC Current provision in CP/cCP Compliance: Yes/ No


(j) Guarantee of origin (GoO) = electronic document with the sole function of providing proof to final customer that a given share of energy was produced from RES (k) Support scheme = instrument scheme or mechanism to promote the use of RES by reducing the cost, increasing the price, or the volume (by an obligation) of such energy purchased; includes investment aid, tax exemptions or reductions, tax refunds, RES obligation support schemes (incl. green certificates), direct price support schemes (e.g. FiTs, premium payments) (l) Renewable energy obligation = national support scheme requiring the inclusion of a given proportion of energy from RES in production, supply, or consumption; includes green certificate schemes as a means for compliance

The Energy law does not contain provisions regarding GoO. (The draft new law provides a definition of GoO.) The Energy law does not contain provisions regarding the support scheme. (The draft new Energy law contains several provisions regarding the support scheme. However, the definition is not provided.) The Energy law does not contain provisions regarding the renewable energy obligation. (The draft energy law includes a national target for RES and the Program for RES to reach the national target is under development.)

No. (Yes in the draft new Energy law.) No. No.

Article 3 – Mandatory national targets and measures Individual national RES targets to be met by 2020, consistent with 20% Community target, calculated as a share of gross final energy consumption (1.) General national biofuels target of 10% of final energy consumption in transport, to bet met by 2020 (4.) Energy efficiency (EE) and energy savings shall be promoted to achieve targets more easily (1.) Measures shall be introduced to promote RES and biofuels: support schemes and joint measures between MS and with

There are no mandatory targets. (Government will determine the minimum contribution to be made by RES.) A strategy and action plan for EE are currently passing through the legislative process. There are currently no provisions regarding transboundary cooperation in

No. No. No.

Determine the mandatory targets. Determine the rules for joint support schemes and measures


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third countries (3.)

the field of renewable energy between MS where feasible.

Article 4 – National renewable energy action plans Action plans must be submitted annually Minimum requirements (Annex VI): • Expected gross final energy consumption in






o Specific measures for biomass

The Strategy on EE will be implemented through annual action plan. (The draft new law predicts five year action plan for implementation of Energy development strategy.) The strategy does predict three different scenarios for energy demand growth taking account of effects of reducing energy intensity. However, the demand in not divided into different energy sectors. (The national indicative targets for RES will be set by Government not later than one year after entry into force of the new draft Energy law.) (Ministry shall submit a report that will include measures for achieving the targets.)

Yes. (No.) Yes. (No.) (No.)

(Determine that action plans have to be submitted annually.) If feasible demand be split into sectors. (The targets should be mandatory.) (The measures for achieving target should be defined and should match requirements.)


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o Planned use of statistical transfers between MS and planned participation in joint projects



There is no provision on assessments of RES technology and EE and energy saving measures to meet 2020 targets. There is no provision regarding inclusion of new infrastructure for district heating and cooling in National action plans.

No. No.

Include the provision on assessments of RES technology and EE and energy saving measures. Include the provision about the requirement to new heating and cooling infrastructure.

Article 6 – Statistical transfers Statistical transfers of energy from RES can be made between MS, after the national target has been met They do not require physical transfer of energy

There are no provisions on possible statistical transfers with other countries.

No. Provisions on statistical transfer with other countries are set out in draft Energy Law.






o The joint project has to have become operational after 25 June 2009 or be a capacity increase

There are no provisions regarding joint projects.

No.

Provisions on joint projects are set out in draft Energy Law.


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through refurbishment after this date o The nominated amount may not have received

support under a support scheme in the third country other than investment aid


There are no provisions regarding the joint support scheme with other contracting parties.





There are currently no provisions on proportionality. There are no provisions regarding the required minimum level of RES in new buildings. There currently no requirements for certification and eco-labels to encourage RES use.

No. No. No.

Include provision on proportionality. Include provisions regarding the required minimum level of RES in new buildings. Include provisions concerning the requirement for certification and eco-labels to encourage RES use.


should be made available to the public (1., 2.,


There are no provisions regarding information and guidance programmes on RES to be made available to the public. There are currently no provisions regarding the development of certification and qualification schemes for installers.

No. No.

Include provisions regarding information and guidance programmes on RES to be made available to the public. Include provisions regarding the development of certification and qualification schemes for installers.


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There are currently no provisions regarding the guidance on high efficiency technologies. There are currently no provisions regarding the development of awareness-raising, guidance and training programmes.

No. No.

Include provisions regarding the guidance on high efficiency technologies. Include provisions regarding the development of awareness-raising, guidance and training programmes.


• GoOs are to be issued for electricity and heating and

cooling from RES and state the share of RES in an energy supplier’s energy mix (1.)



The existing Energy law does not include any provisions regarding the GoO system. (The new law does. Government will adopt a special bylaw that will include provisions regarding awarding procedures and supervision over compliance with requirements for obtaining GoO.) (GoO would only be issued for electricity production from renewable sources and efficient cogeneration without stating its share in supplier’s energy mix.) (There is no provision on the function of GoO.) (The Regulatory agency would be the competent body for granting the GoO. But no other competences regarding GoO are provided.)

No. (In part.) (No.) (No.)

(Include also GoO for heating and cooling and state the share of RES in supplier’s energy mix.) (Determine the function of GoO.) (Further define the competences of the agency.)


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• GoOs must 11

o have a standard size of 1MWh (2.) o be valid for 12 months (3.)

o specify source, start and end date of production



o capacity (6(c)), and the date it became operational (6 (e))

o state benefit of investment support and support

from national support scheme (6 (d)) o contain information on country and date of

issuance and have a unique identification number (f)

(It is only stated that the GoO will be provided for precisely defined volume of electricity generated but does not determine a standard size) (Validity of 5 years.) (The GoO will contain information about the source and period for which has been granted and information about nominal capacity of the plant.) (Provision stating whether GoO has been issued for electricity or heating/cooling is not contained.) (There is no provision regarding the specification of identity and type of production facility) (GoO should provide information about nominal capacity but no provision is made on the date it became operational.) (The generator of electricity has to withdraw all the guarantees of origin that were granted in the period that relates to the period it received support.) (There is no provision regarding the information about the country and the date of issuance and identification number.)

(No.) (No.) (Yes.) (No.) (No.) (In part) (Yes.) (No.)

(Determine the volume.) (Reduce validity period to 12 months.) (Include the information on the type of energy for which the GoO has been granted.) (Include the provision regarding specification of identity and type of production facility.) (Include the date the facility became operational). (Include the data on country, date of issuance and unique identification number.)

11 (All other information that has to be contained in GoO shall by specified by Government in a bylaw from Art. 74.)


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• • Priority or guaranteed access for RES shall be

provided for by the MS (2. (b)) • System security permitting, TSOs shall give priority

to RES (2. (c)) • T/DSOs have to make public standard rules on costs




• Transmission and distribution tariffs may not

T/DSO are responsible for maintaining, modernization and development of transmission and distribution system. further details are provided. There is no provision regarding the acceleration of authorization procedures. According to the Energy law the renewable energy producers with installed capacity less than 10 MW have a right to sell their electricity directly to the network. Grid code gives priority to RE producers and producers of energy from waste and CHP over other energy producers. There is no provision on making public standard rules and costs for technical adaptations. The offer for connection of new producers should specify all necessary work and its costs for grid extension and improvement. There is no provision on requirement for T/DSO to bear the costs of technical adaptation. The transmission and distribution tariffs

No. No. Yes Yes Yes No. No. No. No.

More detailed provision on modernization is to be included. Include provision regarding the acceleration of authorization procedures. Include provision on making public standard rules of costs for technical adaptation. Include the requirement that costs of technical adaptations should be borne by T/DSO. Emphasize that RES producers


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discriminate against RES producers, especially from peripheral and low population density regions (7.), and charging must be cost reflective (8.)


should be non-discriminatory but do not contain any special provision regarding RES producers. (T/DSO shall operate, construct and maintain the natural gas transmission and distribution system and ensure sufficient capacity to meet demand. DSO shall publish information regarding condition of services and information necessary for distribution system users to use the distribution system)

(Yes.)

will not be discriminated.





The Montenegrin legislation and regulation do not contain provisions regarding biofuels and bioliquids.

No. No. No. No.

Include provisions on biofuels and bioliquids.

ANNEX I – BACKGROUND REPORT APPENDIX VII

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APPENDIX VII – CP REPORT: SERBIA


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1 SERBIA

This section provides a brief and general introduction to Serbia and its energy sector. Serbia became a multi-party democracy in 1990 and since 2006, after Montenegro declared its independence, Serbia became the Republic of Serbia. The GDP of Serbia has been growing at fast rates since 2003. Annual growth rates in the period 2005-2008 are in the range of 5% to 7%. Although the 2009 estimate is one of negative growth (more than -2%), it is predicted that there will be a weak economic recovery in 2010.1 Serbia applied officially for EU membership in December 2009. The government of Serbia has the goal for the EU accession in 2014 per the Papandreaou Plan - Agenda

2014. The EC predicts Serbia's EU accession within 5 to 7 years following its formal application.

1.1 Energy Sector

Serbia has a diverse energy supply sector, composed of coal extraction, oil and gas production, imports of crude oil, oil products and gas, coal and hydro electricity generation, district heating systems and industrial energy systems.


Serbia’s energy generation is largely built on domestic lignite reserves. Total reserves are estimated at 8.9 billion tonnes There is also domestic production of natural gas and oil but this has been decreasing by more than 60% since 1999. Crude oil production in 2006 amounted to 646 kt or 15-20% of domestic needs. Most of Serbia’s natural gas consumption is today imported from Russia. Hydropower is Serbia’s main renewable energy source that is already widely used. The potential for small hydropower is around 1.8TWh and for capacities above 10MW is estimated to be around 5.2TWh. The technical potential for agricultural waste and wood-based products is 2.4Mtoe and the economic potential is 1.4Mtoe. Geothermal is another resource with a development potential of 800MW. Solar and wind resources have not been mapped to date. 2


Power generation installed capacity was 8359 MW in 2008 (including Kosovo A and B plants), of which 5171 MW correspond to coal-fired TPPs; 353 MW to CHP plants (dual gas-mazut fired); and 2831 MW to HPPs. It must be mentioned that, since 1991, Serbia is not operating the two TPPs located in Kosovo3 (Kosovo A and B). Without these plants, the total installed capacity is 7124 MW. Due to lack of regular maintenance in the period 1990-2000, TPPs’ availability was low and threatened the power system operational security. However, reliability of Serbian TPPs improved

1 CIA - Central Intelligence Agency (2009). The World Factbook: Serbia 2 IEA, Energy in the Western Balkans, 2008 3 Kosovo under UNSCR Resolution 1244/99


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significantly since 2000. Forced slowdowns were reduced from 19.5% in 2000 to 5.3% in 2008. The total electricity production in 2008 reached about 40 TWh, of which 30 TWh were produced by TPPs (including CHP) and the remaining 10 TWh by HPPs. Serbia has a small oil production capacity, which covers about 17% of total oil supply. The country has two refineries with total installed processing capacity of 7.8 million tons a year (4.8 million tons in Pančevo and 3 million tons in Novi Sad). Since 2007, the oil refineries are operating at 84 % capacity only (at 6.6 million tons total: 4.8 million tons in Pančevo and 1.8 million tons in Novi Sad). The length of the oil pipeline network within Serbia is 177 km4. The current capacity of the refineries is not sufficient to cover local demand, therefore Serbia imports oil products. Finally, there is also a small gas production, which covers about 10% of total gas demand. The rest is imported from Russia by Srbijagas, a company for trading in and processing natural gas. The total annual consumption of natural gas in 2006 was 2349 mil m3. The energy sector is a major polluter, due to the high energy intensity as well as to the heavy dependence on coal, especially domestic lignite, which is burned in old technology power plants with low thermal efficiencies and inadequate abatement capacities. About 65% of electricity in 2006 was produced by lignite-fired power plants5. Existing TPPs don’t have deNOx and deSOx technology. Although all TPPs are equipped with Electrostatic Precipitators (ESP), some of them fail to reduce dust below 50 mg/m3 (EU standard) and need to be reconstructed or replaced with efficient ones.

1.1.3 Consumption

Serbia consumed 15 Mtoe of energy in 2007. The structure of the TPES was as follows: 52% coal (mostly local lignite), 27% oil, 12% natural gas, and 7% hydro6. The Final Energy Consumption (FEC) was 10 Mtoe, of which 35% was accounted by industry, 32% by the residential sector and 18% by the transport sector7. Total electricity consumption in 2008 was 27.8 TWh, out of which 53% (14.3 TWh) was by the residential sector. The consumption by industry was 25% and 20% by the commercial sector and public services.8 The peak demand in 2008 was 7435 MW. Although the change in peak demand has been erratic in the 2005-2008 period, a tendency for steady but slow annual gradual increase has been observed.

4 Economic Commission for Europe, Committee on Environmental Policy (2007). Environmental Performance Reviews Republic of Serbia, Second Review, Environmental Performance Reviews Series No. 26 5 Economic Commission for Europe, Committee on Environmental Policy (2007). Environmental Performance Reviews Republic of Serbia, Second Review, Environmental Performance Reviews Series No. 26 6 Jefferson Institute (2009). Serbia’s Capacity for Renewables and Energy Efficiency, Project Promoting European Energy Security. 7 IEA - International Energy Agency (2007). Key World Energy Statistics. 8 IEA - International Energy Agency (2007). Key World Energy Statistics.


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The extremely high electricity consumption in the residential sector indicates a poor electricity utilisation pattern in that sector and is, to a large extent, due to the fact that a large number of households use electricity for heating. More specifically, about 37% of households in Serbia use coal as their primary source of heat, while 33% use electricity, 14% district heating, 7% firewood, 7% natural gas and 2 % other (crude-oil, propane, butane etc.)9. Reduction of the electricity demand in the residential sector and demand side management to improve the load curve are important priorities. Electricity prices are lower than in other countries in the region. In 2007 the average selling price of electricity for Serbian Electric Power Industry (EPS) consumers was 3.699 RSD/kWh or 4.62 €c/kWh, calculated at the average exchange rate of RSD 80.09 for 1€ in 200710.


The electric power transmission system consists of a high voltage system (400 kV, 220 kV, and 110 kV) as well as the telecommunication system, information system and other infrastructure facilities necessary for the power system operation. The total length of the transmission lines (excluding Kosovo) is 8864 km11. In the last 5-6 years the efficiency of the transmission network has significantly improved. Transmission system losses have decreased from values around 4% in 1998-99 to 2.8% in 2007, as the amount of delivered energy continuously increases. Serbia has power interconnections with all neighbouring countries and engages actively in electricity exchanges (including transit), both importing and exporting electricity. The total interconnection capacity is about 3000 MW. In 2008 Serbia net-imported energy from Hungary, Bulgaria and Romania and exported to Croatia, Bosnia-Herzegovina, Montenegro, Albania and F.Y.R.O. Macedonia. The net imports in 2008 were 443 GWh, covering about 1% of the country’s electricity needs. District heating (DH) systems are an important part of the country’s energy sector. There are a total of 45 cities and towns that have DH, provided by about 55 DH companies. DH companies are in the jurisdicion of local government, resulting in a great diversity of conditions, in regard to the companies’ operating efficiencies, quality of services provided, financial conditions, etc. Most district heating systems are characterized by low efficiency and by generation and distribution losses that exceed 20 % of generation. The main characteristics of Serbia’s heating plants are low operating readiness due to insufficient maintenance and outdated equipment, financial exhaustion and an inability to perform urgent intervention on sources and grids. There is a need for additional capacity. As a considerable part of the population uses electricity for heating, it is a strategic consideration to connect more consumers to the DH network, in

9 Economic Commission for Europe, Committee on Environmental Policy (2007). Environmental Performance Reviews Republic of Serbia, Second Review, Environmental Performance Reviews Series No. 26 10 Larive Serbia (2009). Croatia, Serbia and Bosnia-Herzegovina - Renewable energy 11 MoME - Ministry of Mining and Energy (2009). Security of Supply Statement of the Republic of Serbia.


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order to alleviate the burden on the electicity grid. Additional capacity for this goal is expected to be achieved through DH revitalization and modernisation.


Total Primary Energy Supply (TPES) in Serbia reached 17.6 Mtoe in 2008, a 7.5% rise from the previous year. Serbia imports about 40% of its energy needs, mainly in the form of crude oil, gas and petroleum products. Energy intensity is 0.33 ktoe/US$(2000)12, the highest among all Energy Treaty parties, indicating that energy is not produced and/or used efficiently. Serbia’s energy sector import dependence is relatively low, due to its dependence on local sources (domestic lignite and hydro) for electricity generation. However, the cost for this relative independence is high pollution and inefficient electricity production, including high levels of CO2 emissions. The loss of the power plants located in Kosovo has been compensated, since 2000, by the improvement in the availability and reliability of the existing plants. Still, however, reserve electric capacity is low. There is a plan for increasing power capacity. This plan has been based on a forecast of growth of electricity consumption by 1.8% and of peak power by 1%. The plan foresees at the first stage rehabilitation and modernisation of existing plants and, at a second stage (after 2013) construction of new power plants. It is also planned to remove the oldest plants (Kolubara A1, A2 and A4) from normal operation after 2012. Renewable energy and CHP projects are encouraged through recently approved feed-in tariff scheme and investments in the transmission sector are also planned. As concerns the fuel mix, Serbia is becoming increasingly dependent on gas imported from Russia. The Russian-Ukrainian gas crisis of January 2009 has highlighted the importance of supply security, causing discussions about prospective agreements with other (backup) gas suppliers, though without any related actions so far. On the contrary, Serbia will be incorporated in the new South Stream pipeline, playing also an important role as transit country. In this context, it is planned to expand the existing Banatski Dvor underground gas storage facility from 800 million to 3 billion cubic meters, thus improving considerably the security of gas supply also within the country.

1.1.6 Challenges

The current energy challenges in Serbia can be summarized as follows13:

• High energy consumption in the residential sector, with a large share of electricity for space heating purposes;

12 IEA - International Energy Agency (2007). Key World Energy Statistics. 13 Ministry of Mining and Energy, Radomir M. Naumov-Minister. Part III. National Reporting Guidelines for CSD-14/15 Thematic Areas – B. Energy. Decision-Making: Strategies, policies, programmes and plans, legislation, policy instruments and the regulatory framework; involvement of Major Groups.


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• Low energy efficiency in industry, with out-dated energy-intensive manufacturing technologies;

• Technically deteriorated, energy inefficient and polluting municipal energy supply services;

• Low exploitation of the available potential of renewable energy sources (except hydro);

• Unsustainable financial operation of energy supply companies due to energy prices not reflecting actual production costs;

• Need for large investments in the energy sector to improve and modernize energy infrastructure;

• Need to develop and implement a comprehensive policy designed to improve energy efficiency and the utilization of renewable energy sources.


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In order to resolve systematically the problem of energy demand and to synchronize the development with the requirements of ratified international contracts, Serbia adopted a series of basic developmental documents that indicate the necessity of the sustainable management of energy resources14. Energy policy is based on three elements: increased energy efficiency, increased use of RES and development of a market-oriented electric power industry15. These objectives are incorporated in the Energy Development Strategy up to 2015 which was developed by the Ministry of Mining and Energy (MoME) and adopted by the National Assembly in 2005. The Strategy of Energy Development of Serbia until the year 2015, adopted by The National Assembly in May 2005 (Official Gazette no. 44/05), covers RES and states that the MoME will support the implementation of RES plants16.

• Among the priorities of Serbia’s energy policy in the near future, and as foreseen by the Energy Development Strategy, are the New Renewable Energy Source (NRES) Selective Utilization Programs (NRESs include biomass, geothermal, solar, and wind power, as well as remaining hydroelectric potentials whose utilization is technically possible and economically feasible, especially on smaller rivers).

• Special Energy-Efficient and Environmentally-Friendly Technology Programs have also been included in the Strategy (such as new coal, biomass and waste burning solutions, technologies for decentralized production of electric power and heat based on natural gas, and small and mini-hydroelectric plant technology), aiming to cut the consumption of high-quality imported fuels and produce more electricity and heat, with a significantly lower adverse environmental impact.

• The strategy also foresees that the share of NRESs in total final energy consumption should rise to 1.5-2% from 2006 to 2015. However, so far little has been done as regards the implementation of NRESs in the frame of the strategy.

The Energy Sector Development Strategy targets the increase of RES share in the total energy production from 1.5% (2006) to 4.5% (2010), and 20% decrease of the specific energy consumption by 2010. Serbia’s Energy Development Strategy includes directives for biofuels, which are in line with existing EU Directives17. In line with the Energy Law and the Strategy, the MoME prepared the Energy Strategy Implementation Programme - ESIP 2007-2012, which was adopted by the

14 Munitlak Ivanović O. (2007). Sustainable development as redefined approach to economic development, Monography text. 15 Sandra Jednak, Dragana Kragulj, Milica Bulajic, Russell Pittman (2009). Electricity reform in Serbia. Utilities Policy 17 16 Larive Serbia (2009). Croatia, Serbia and Bosnia-Herzegovina - Renewable energy 17 Jefferson Institute (2009). Serbia’s Capacity for Renewables and Energy Efficiency, Project Promoting European Energy Security.


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government in January 2007. This Programme defines conditions, methods and time schedule for the implementation of the Strategy in all the major parts of the energy sector. Since 2002, the Serbian Energy Efficiency Agency (SEEA) has developed programmes for improving energy efficiency in industry, buildings and the municipal sector as well as for promoting CHP and RES. Particular attention has been given to DH, which has received significant funding (about 70 M€) from various European governments. Several programmes for the revitalization and modernisation of DH systems have been carried out, as well as preparations to continue with this support in the future. At the moment 3 feasibility studies are being prepared for the construction of CHP plants in Belgrade, Kraljevo and Nis. Moreover, EPS has expressed interest for the construction of a large CHP plant in Novi Sad. The Serbian Energy Development Strategy prioritizes energy efficiency, whose promotion is supported by a programme for the realization of the Energy Development Strategy. Moreover, the recently adopted feed-in tariffs for privileged power producers also apply for CHP, for producers with the installed capacity of less than 10MW. In line with the Energy Community Treaty, Serbia is currently drafting the NEEAP. Serbia has a National Strategy for its incorporation into the CDM under the Kyoto Protocol and established a Designated National Authority (DNA) in November 2008. The DNA, which consists of the Expert Group and the Secretariat and is under the Ministry of Environment and Spatial Planning (MoESP), is the National Authority for Implementation of Projects under the CDM mechanism of the Kyoto Protocol. The complex and time-consuming procedures for having a CDM project approved as such (due mainly to the strict and slow UNFCCC operating modalities) may be a barrier for developing CDM projects. There are a number of programmatic documents that are of direct relevance to the further development of the energy sector in Serbia. Some of these documents have been adopted by the Government, while others have been proposed for adoption or are under preparation. These include: The Strategy for Sustainable Development, which was adopted by the GoS in 2008, along with an Action Plan for its implementation, for the period 2008-2017; the Strategy for Introducing Cleaner Production, prepared by the MoESP and the Belgrade Faculty of Technology and Metallurgy and adopted by the GoS in 2009; the National Strategy for Sustainable Use of Natural Resources and Goods, which is under preparation; and the National Environmental Strategy (NES), which has not been approved officially by the GoS and is currently under revision by the MoESP. The draft NES envisages short-term and medium-term (2011–2015) reforms in environmental legislation and in institutions, aiming at a more realistic and efficient environmental policy, a stronger and more balanced position for the Ministry of Environment in relation to other Ministries, the strengthening of the capacity of all ministries to integrate environmental issues into sectoral policies, and better implementation of the EU environmental acquis. The MoME is currently preparing amendments to the existing Energy Law stipulating the establishment of an Energy Efficiency Fund, to finance projects in the field of energy efficiency and development of RES. This is especially important, since such projects can no longer be financed by the existing Environmental Protection Fund, following amendments of the Law on Environment (OJ 135/04 and 36/09).


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2.2 Legislation

The country adopted an Energy Law in 2004. The main objectives of this Law are safety and protection of low load factor consumers, integration into the regional and European market, and attracting investments. It regulates the generation, transmission, distribution and supply of electricity; the organization and functioning of the electricity market; the transportation, distribution, storage, trade and supply of petroleum products and gas; and the production and distribution of heat.18 The Serbian Energy Law (2004) recognizes the category of Privileged Producers of the electric and/or heating energy. According to the law, privileged producers of electric or heating energy have the right to subventions, custom duties relaxation, and tax reductions, in accordance with the law and other legislation which regulates taxes, custom duties and other taxation, subventions and other incentives. Privileged power producers shall be entitled to subsidies, tax relieves, customs exemptions, and other relieves in line with laws and other regulations on taxes, customs and other duties, such as subsidies and other incentive measures. However, the secondary legislation necessary for the operation of the Privileged Producers was enacted only recently. This consists of the Decree of Conditions for Acquiring Status of Privileged Producers and Criteria for Granting Status (adopted in September 2009); and the Decree on Feed-in tariffs for the RES-E generation (adopted in November 2009). This secondary legislation defines the terms of relations between the privileged alternative source producer and electrical grid operators that will buy the electricity and ultimately sell it to the final consumers. The legislation provides incentives for the development of renewable electricity generation. To support environmental protection through use of RES, the Law for Environmental Protection deals with the issues of environmental protection fund and financial support19. Other important laws that create the basis for a legal framework for the development of RES in Serbia are listed below20:

• Energy Law (OG 84/2004);

• Law on Planning and Construction (OG 72/2009);

• Law on Foreign Investments (OG 1/2003);

• Law on Concessions (OG 55/2003);

• Law on Environmental Protection (OG 135/2004);

• Law on Strategic Assessment of Environmental Impact (OG 135/2004);

• Law on Environmental Impact Assessment (OG 135/2004);

• Law on integrated prevention and control of environmental pollution (OG 135/2004);

18 Sandra Jednak, Dragana Kragulj, Milica Bulajic, Russell Pittman (2009). Electricity reform in Serbia. Utilities Policy 17 19 MSEP - Ministry of Science and Environmental Protection of Republic of Serbia (2004). Environmental Protection Law. 20 Larive Serbia (2009). Croatia, Serbia and Bosnia-Herzegovina - Renewable energy


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• Law on Nature Protection (OJ RS 36/2009);

• Law on Protection and Sustainable Use of Fish Resources (OJ RS 36/2009);

• Law on Waste Management (OJ RS 36/2009);

• Law on Waters (OG 54/96);

• Law on Water Regime (OG 59/98);

• Law on geological exploration (OJ RS 44/95).

2.3 Regulation

The main regulatory documents relevant to the renewable energy sector include:

• Regulations on conditions and methods of issuing the energy permits.

• Regulations on conditions and methods of issuing the energy operation license.

• Decree on terms and conditions for obtaining the status of the privileged energy producer (adopted September 2009, OG 72/09).

• Technical Requirements for connection of small power-plants to the power distribution network (Technical Recommendation No. 16, of May 16, 2003).

• Regulations on issuance of town planning permits, town planning no-objection statement and town planning form (OG 24/97).

• Regulations on contents and methods of issuing the building utilization permit (July/2003).

• Regulations on contents and elaboration of planning documents (July /2003).

• Instructions for implementation of the Law on Urban Planning (July /2003).

• Regulation on Waste Oils Management (OJ RS 60/2008).

• Regulations on the environmental impact assessment for premises and activities (OG 61/92, and several secondary legislation acts).

• Regulations on the conditions and criteria for making environmental impact assessment (OG 49/2001).

• Secondary legislation related to the IPPC Law: Regulation on Criteria for the Determination of Best Avaliable Techniques and Application of Quality Standards and for the Determination of Emission Limit Values in the Integrated Licence (OJ RS 84/2005).

• Regulation on the Content of the Program for the Operation Adjustment for the existing instalations (OJ RS 84/2005).

• Regulation on Determination of the Time Frame for the Submission of request for the issuance of the Integrated Licence (OJ RS 108/2008).

• Regulation on the Types of Activities and Instalations for which Integrated Licence is issued (OJ RS 84/2005).


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• Regulation on the Licence Content and Layout (OJ RS 30/2006).

• Regulation on the Content, Layout and Modality of submission of the Request for Integarted Licence Issuance (OJ RS 30/2006).

• Regulations on technical documentation to be submitted in the process of applying for water resources compliance and water resources permit (3/78).

• Decision on rates for water utilization in 2005 (/05).

• Regulation on technical and other requirements of liquid bio-fuels (OJ Serbia and Montenegro 23/2006).

By decision of the Energy Agency of the Republic of Serbia, as of February 2008, any non-household customer may acquire the status of eligible electricity customer regardless of annual consumption (the previous eligibility threshold was 3GWh annual consumption). These customers can freely choose their electricity suppliers. This decision potentially opens around 47% of the electricity market. However, no qualified electricity customers have applied for eligible customer status yet, due to the low price of electricity provided by EPS21. Thus, in practice, EPS still enjoys a monopoly both in producing and selling electricity. After the recently adopted secondary legislation (on privileged producers and feed-in tariff) this situation is expected to change in regard to RES production. However, in the free market, no entity will be able to compete with EPS, as long as EPS provides electricity at very low prices. EPS has currently about 3,4 million customers, of which 4023 are at high and medium voltage. Article 34 of the Energy Law (2004) sets obligations to Transmission System Operator (TSO) and Distribution System Operator (DSO) to allow access of third parties to the grid. Also, purchase of electricity produced from RES is obligatory. Prices for transmission and distribution systems are included in the new tariff system (three tariff systems-for distribution, transmission and tariff buyers) that came into force on the 5th of January 2007, replacing the single tariff system previously used. In methodology for calculation of the costs for connection to distribution/transmission for the power producers, so called “shallow approach” is applied (excluding costs for the grid reinforcement except for the connection of large installed capacities). Energy prices in the Serbian market are subject to regulation and are lower than in neighbouring countries. Low final energy prices imply lower income for energy companies, which are thus unable to secure assets needed for further investment into fixed assets, modernization, etc.22

Previous Serbian Energy Law had only one tariff system and that was for calculating electric power prices for (tariff) customers. According to the Energy Law (2004) there are since 2006 three tariff systems.

• Tariff system for access and utilization of electric power transmission system.

21 MoME - Ministry of Mining and Energy (2009). Security of Supply Statement of the Republic of Serbia. 22 Goran Radosavljevic and Vuk Djokovic (2007). Energy Sector Issues and Poverty in Serbia. CEVES - Center for Advanced Economic Studies.


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• Tariff system for access and utilization of electric power distribution system.

• Tariff system for calculating electric power prices for tariff customers.

The latest tariff system and price adjustment (for non-eligible consumers) was done in August 2008. According to the tariff system all non- eligible consumers are divided in five categories, namely High Voltage, Medium Voltage, Low Voltage, Residential Sector, and Public Lighting.23 According to the MoME, this tariff system considerably supports energy efficiency measures, since it includes provisions for:

• Peak power shaving - block tariff for monthly peak power for categories high voltage, medium voltage, and low voltage.

• Reactive energy compensation - block tariff for reactive energy consumption depending on power factor for same categories.

• Load shifting - daily tariff rates (lower 0:00-8:00 and higher 8:00-24:00) for all categories except street lighting which is already active during nigh (period of lower consumption) and residential sector with single-tariff metering and special metering.

• Energy saving in residential sector - block tariff for active energy consumption

� Green zone for consumption block up to 350 kWh/month

� Blue zone for consumption block between 350 and 1,600 kWh/month

� Red zone for consumption block above 1,600 kWh/month.

Prices are, however, still low by international standards, especially after the serious devaluation of the Serbian Dinar, which lost more than 25% of its value compared to the euro.24 In regard to RES, according to the Decree on Feed-in Tariffs (November 2009), EPS, acting as single buyer, is obliged to offer a 12-year contract with guaranteed price to all investors having privileged producer status. Privileged production includes Small Hydro plants (SHPP) up to 10 MW, biomass plants up to 10 MW (including dual-fired with biomass at least 80%), biogas and waste power plants up to 10 MW, wind energy, and solar energy and geothermal energy plants (no limit). It also includes CHP plants using fossil fuels up to 10 MW. Feed-in tariffs for new plants are in the range of 7.85 to 16.00 €c/kWh. The full list is presented in the following table. Table 3. Feed-in tariffs, for RES-CHP in Serbia

25

No. Type of power plant Installed capacity

(MW) Incentive – Feed in

tariff (c€/1 kWh)

23 IEA - International Energy Agency (2007). Key World Energy Statistics. 24 MoME - Ministry of Mining and Energy (2009). Security of Supply Statement of the Republic of Serbia. 25 Goran Radosavljevic and Vuk Djokovic (2007). Energy Sector Issues and Poverty in Serbia. CEVES - Center for Advanced Economic Studies.


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1 Hydroelectric power plants

1.1 Up to 0.5 MW 9.7

1.2 0.5 MW – 2 MW 10.316 – 1.233*P

1.3 2 MW – 10 MW 7.85

1.4 On existing infrastructure Up to 2 MW 7.35

1.4 On existing infrastructure 2 MW – 10 MW 5.9

2 Biomass power plants

2.1 Up to 0.5 MW 13.6

2.2 0.5 MW – 5 MW 13.845 – 0.489*P

2.3 5 MW – 10 MW 11.4

3 Biogas power plants

3.1 Up to 0.2 MW 16.0

3.2 0.2 MW – 2 MW 16.444 – 2.222*P

3.3 Over 2 MW 12.0

4

Power plants running on landfill gas and gas from plants for treatment of communal wastewaters

6.7

5 Wind Power Plant 9.5

6 Solar Power Plants 23

7 Geothermal power plants 7.5

8 Combined production power plants using fossil fuels

8.1 Up to 0.2 MW C0 = 10.4

8.2 0.2 MW – 2 MW C0 = 10.667 – 1.333*P

8.3 2 MW – 10 MW C0 = 8.2

8.4 On existing infrastructure Up to 10 MW C0 = 7.6

9 Waste Power Plants

9.1 Up to 1 MW 9.2

9.2 1 MW – 10 MW 8.5

Correction of feed-in tariff for combined production power plants, running on natural gas

C = C0*(0,7*G/27,83 + 0,3) C = new feed in tariff for electrical energy C0 = Established feed in tariff, based on the price of natural gas intended for sale to energy companies, who operate as natural gas retailers for tariff buyers, excluding expenses for transport of natural gas by JP

* “Srbijagas” Novi Sad, under the tariff item “energy generating products”, in the amount of 27.83 din/m3 G (din/m3) – new feed-in tariff for natural gas intended for sale to energy companies, who operate as natural gas retailers for tariff buyers, excluding expenses for transport of natural gas by JP “Srbijagas” Novi Sad, under the tariff item “energy generating products”.

In addition, the Energy Agency has adopted a methodology for the criteria and manner of setting costs of connection to the electricity transmission and distribution system. In case of investing in RES facilities (especially those between 1-10MW), current barriers are mostly related to complicated and long procedures for obtaining various approvals and permits for construction and connection to the public grid. In terms of getting a concession (for example for utilization of water resources or geothermal water), Serbia has a Law on Concessions, which defines the procedure but does not make it much simpler and easier. The initiative and the first step have to come from the interested party anyhow. A 5-year tax exemption is granted for concession-related investments, starting from the day concession investment has been completed. No tax is due if income is derived before the completion of the concession investment. It must be mentioned that it is not obligatory to concession water or geothermal resources – it is only one of the options.


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Serbia has set up an extensive institutional network to address its energy problems. The overall institutional structure related to RES includes a number of relevant players:

• Ministry of Mining and Energy (MoME) is responsible for setting legal framework, approving tariff systems, approving licensing systems, assuring the security of supply, and crisis management in mining and energy sector. The Ministry is responsible for issuing the Energy Permit (for construction and rehabilitation of power generation facilities, with an installed capacity exceeding 1MW). The RES department of the ministry is responsible for bio-fuels (biomass, bio degradable waste, and biogas), small hydro power plans, wind, solar and geothermal energy.

• While the MoME is the leading institution in the energy sector, and is the main contact point for all issues regarding RES, there is currently only one person in the RES sector. There are 10 persons in the General Energetics sector, which covers energy efficiency.

• Ministry of Environment and Spatial Planning (MoESP) is responsible for determining conditions for building objects, approving the building of objects of special importance for the state, determining conditions for protection of the environment through environmental impacts assessments, setting the rules of sustainable utilization of natural resources and goods, etc. The MoESP directly issues permits for the construction of RES facilities larger than 10 MW. The Ministry is the national centre for CDM, within which the DNA operates.

• Ministry of Agriculture, Forestry and Water Management is responsible for agricultural part of bio-fuels and for setting the conditions for water use.

• Ministry of Science and Technological Development is responsible for promoting introduction of innovative technology into the business sector and is funding projects related to environmental protection and energy efficiency.

• Serbian Energy Agency (AERS) is responsible for determining the pricing methodologies and passing the tariff systems for regulated activities, criteria and methods for setting the network connection charges, issuing and revoking licenses and keeping a register of issued and revoked licenses, approving grid codes and market rules, deciding upon lodged appeals, determining the eligibility for the status of eligible customer.

• Serbian Energy Efficiency Agency (SEEA) is responsible for setting incentive measures, stimulating rational and efficient energy use and implementation of renewable energy sources exploitation and environmental protection, as well as setting criteria for equipment efficiency evaluation. Its activities also include advisory and educational activities in promoting energy efficiency.

• Regional Centers for Energy Efficiency were established after establishing SEEA in 2002. Supported by Norwegian Government in terms of financial and technical assistance, main objectives of these centers are implementation of the energy policy in the area of energy efficiency, renewable energy sources and environmental protections. There are currently five REEC in Serbia.


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• Secretariat for Energy and Mineral Materials of the Province of Vojvodina is responsible for overseeing energy activities in the province, namely, research and development, increase of energy efficiency, introduction of renewable energy, etc.

2.5 Market

The 2004 Energy Law established the two public enterprises Serbian Electric Power Industry (EPS) and Serbian Power Transmission Company (EMS).

• EPS’s mission is to meet all the electric power requirements of the economy and inhabitants of the Republic of Serbia. It is a vertically organised enterprise comprising 11 legally established subsidiaries. (As of June 1999, EPS no longer managed facilities in Kosovo and Metohija). The main activities of the company are electric power generation; electric power distribution and distribution system management; electric power trade; coal production, processing and transport; steam and hot water production in combined heating processes; water power utilisation and services in river and lake traffic; wholesale trade in fuel and similar products; research and development; design, construction and maintenance of energy and mining plants; design, construction and operation of telecommunication facilities; engineering.

• EMS is responsible for electric power transmission and management of the transmission system and electricity market. It is composed of three branches: for transmission (transmission of electricity), for management (system operation) and for market (organization of electricity market). The main objectives of this company are provision of a high level of security of transmission system, sustainable development and integration of transmission capacities into a single system, transparent and non-discriminatory cross-border access, increased efficiency in maintenance of transmission capacities, economic–financial consolidation accompanied by efficient and cost-effective operation, maintaining an influential position in the region and joining the process of establishment of the regional market in South East Europe.

There are no private companies involved in generation (only few small private producers for their own purposes) or distribution of electricity. Producers with power of 1-10MW have to be licensed by the Serbian Energy Agency. Until July 2008, the Serbian Energy Agency had issued 618 licenses for energy related activities to companies in the electricity sector, the natural gas sector and the oil sector. However, there are private companies active in electricity trade in Serbia; 33 trade licenses have been issued. These companies are mainly involved in seasonal export-import transactions26. In the RES sector, most of the officially registered producers are state-owned small hydropower plants. The only example of privately owned RES plant that delivers energy to the market is actually in the sector of first generation bio fuels – the bio-diesel factory Victoria Oil. Other energy producers utilising RES are usually autoproducers, who use the generated energy for their own consumption, not for



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the market. There is no registry of these facilities and they are mostly in the biomass segment27.



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In the last decade, some progress has been achieved in Serbia in regard to the legal framework, policy development and institutional development. Core elements are the adoption of the Law on Energy (OG RS No. 84/2004) in 2004, the establishment of the Energy Agency in 2005 and the Serbian Energy Efficiency Agency (SEEA) in 2002, the adoption in 2005 of the Energy Sector Development Strategy and of the National Action Plan for Gasification and, in early 2007, of, the Energy Strategy Implementation Programme for the period from 2007 to 2012 (ESIP 2007–2012). There are also international agreements, such as the Energy Community Treaty with Southeast Europe and the European Union and the Kyoto protocol ratification of 2007. In particular, having in mind the RES situation in Serbia and its EU drive, the Serbian Government in 2004 rapidly became open to the idea of promoting RES. To establish a new RES policy, the MoME and the Ministry of Environmental Protection made significant efforts by preparing three documents in 2004. The MoME prepared one law and one special document, the Energy Law which for the first time deals with electricity production from RES28 and the Strategy for Development of the Energy Sector of the Republic of Serbia until 2015, which concretizes application of the Energy Law among others in the RES field29. A Strategy Implementation Program (Action Plan) was also developed. In 2004, the Ministry of Science and Environmental Protection of Republic of Serbia prepared the Environmental Protection Law that also deals with RES30. Emissions regulations are not yet harmonized with the EU regulations. Amendments of the Energy Law are currently in preparation and would set the clear responsibility and the deadline for the introduction of these incentives. These amendments are to be implemented by in the forthcoming months (by June 2010). The Energy Development Strategy foresees efforts to improve energy efficiency and the use of RES, including the adoption of additional legislation, enacting financial and non-financial incentive measures, implementation of investment projects; establishing new expert institutions and the training of more experts; and efforts to monitor the implementation of these policies. The Serbian government adopted regulations supporting RES (and CHP) in November 2009, including the definition of “privileged producers” of electricity from RES and CHP and financial incentives for renewable energy production, in the form of guaranteed feed-in tariffs. The lawmakers that prepared this legislation believe that the higher prices for alternative energy will stimulate private sector investors (including foreign ones) to become active in this industry in Serbia. These regulations (foreseen by the Energy Law of 2004) had been under consideration for a long time; their actual adoption may have been catalysed by the

28 MoME - Ministry of Mining and Energy of Republic of Serbia (2004). Energy Law. 29 MoME - Ministry of Mining and Energy of Republic of Serbia (2005). Energy Sector Development Strategy of the Republic of Serbia by 2015 30 MSEP - Ministry of Science and Environmental Protection of Republic of Serbia (2004). Environmental Protection Law.


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emergence of Directive 2009/28/EC and the prospect of its application in Serbia in the ECT context.

3.2 Gap Analysis


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Yes/ No


compliance


(a) Energy from renewable non-fossil sources = wind, solar, aerothermal, geothermal, hydrothermal and ocean energy, hydropower, biomass, landfill gas, sewage treatment plant gas, biogases31 (g) District heating or cooling = distribution of thermal energy in form of steam, hot water or chilled liquids, from central source of production through a network to multiple buildings or sites, for the use of space or process heating or cooling (h) Bioliquids = liquid fuel for energy purposes other than for transport, incl. electricity and heating and cooling, produced from biomass (i) Biofuels = liquid or gaseous fuel for transport produced

(a) Art 3 of the Decree on Status of Privileged Producer expands the broad definition of renewable sources in Energy Law. It does not include aerothermal or hydrothermal and ocean energy specifically, but has an ‘catch-all’ reference to “energy sources found in nature”.

(g) heat distribution defined, and concept

of district heating well used, but no specific definition found

(h&i) Bioliquids and biofuels defined in

Regulation OJ Serbia and Montenegro 23/2006, but not quite aligned with the definitions in the Directive.

(a.)essentially (g) partial (h&i) partial

(a) Clarify inclusion of aerothermal, hydrothermal and ocean energy. (g) include a definition if/when appropriate to ensure compliance (h&i) Some amendment required to align with definitions in Directive.



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Yes/ No


compliance

from biomass (j) Guarantee of origin (GoO) = electronic document with the sole function of providing proof to final customer that a given share of energy was produced from RES (k) Support scheme = instrument scheme or mechanism to promote the use of RES by reducing the cost, increasing the price, or the volume (by an obligation) of such energy purchased; includes investment aid, tax exemptions or reductions, tax refunds, RES obligation support schemes (incl. green certificates), direct price support schemes (e.g. FiTs, premium payments) (l) Renewable energy obligation = national support scheme requiring the inclusion of a given proportion of energy from RES in production, supply, or consumption; includes green certificate schemes as a means for compliance

(j) No GoO scheme yet, so no definition. (k) Support schemes exist but no specific definition. (l) national targets exist but no specific definition.

(j) No

(j) definition required.


Individual national RES targets to be met by 2020, consistent with 20% Community target, calculated as a share of gross final energy consumption (1.) General national biofuels target of 10% of final energy consumption in transport, to bet met by 2020 (4.) Energy efficiency (EE) and energy savings shall be promoted to achieve targets more easily (1.) Measures shall be introduced to promote RES and biofuels:

(1.) Serbia has set RES targets for 2012 (according to the Directives 2001/77 and 2003/30) within the amendments to the Energy Strategy Implementation Programme - ESIP 2007–2012, adopted in November 2009. However, will not be consistent with target calculation according to the new Directive.

(1a.) The Energy Efficiency Agency,

which has as a goal to enhance and promote EE, is established in the Energy Law.

(1.)No (1a.) Yes

(1) Adoption of new mandatory target required.


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Yes/ No


compliance

support schemes and joint measures between MS and with third countries (3.)

(3) Support mechanisms are introduced. No specific measures for cooperation.

(3.) Partly (3) Align existing support mechanisms with requirements of New Directive and potentially adjust mechanisms so as to meet the new target. Cooperation measures required




• National sectoral 2020 targets and estimated shares of energy from RES(2)




o Specific measures for biomass(3d) o Planned use of statistical transfers between MS


No provisions No Action plans meeting the minimum requirements would be necessary if Directive adopted.


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Yes/ No


compliance





No provisions No Develop provisions to facilitate cooperation where required










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Yes/ No


compliance








(1) Licences not required for electricity and heat generators less than 1MW. No other specific measures to ensure administrative procedures or regulations for small/RES producers are proportionate (4&5) No specific requirements in building regulations (2, 3, 6) No certification and labelling requirements

No No No

} Develop relevant measures


• Information and guidance programmes on RES should be made available to the public (1., 2.)




Some existing provisions, but insufficiently extensive to meet all requirements

Partial (1,6) More extensive awareness and education measures required, in relation to provisions 2-5 particularly


• GoOs are to be issued can be issued for electricity and heating and cooling from RES and state the

No provisions.

No GoOS to be developed.


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Yes/ No


compliance

share of RES in an energy supplier’s energy mix (1.)









Procedures and administrative issues on GoOS to be announced within 2010




(1.) The transmission entity has legal responsibility for maintaining and developing the system.

(1) Yes in law, but difficult in practice.

(1) Although legal responsibility is allocated in the Law, in practice tariffs remain insufficient to support the level of network development likely to be required to support extensive expansion of small renewable generation. Appropriate funding required.


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Yes/ No


compliance








(2) Energy Law requires equitable third party access for all generators providing the network is technically capable. No specific terms for RES generators regarding priority access to the network, but RES generators do have priority in the organised market.

(3&4) Shallow connection policy,

producers pay only for local costs, cost of reinforcement postalised through tariffs.

(5) Energy Law requires transparent

connection policy and processes including appeals mechanism

(7&8) Separate tariffs for T and D

produced. Energy Law requires tariffs to be non-discriminatory and cost-reflective.

(2) Partial (3&4) yes (5) yes (7&8) Partial. Law is compliant, but in practice tariffs remain below full

(2) The effect of ‘priority access to the market’ is intended to have the same effect as ‘priority access to the network’, but legislation should be amended when there is an opportunity.

Again, inadequate funding of network development could lead to discrimination against RES in practice.

(3&4) Ensure compliance in

practice. (5) Ensure legal requirement is

applied in practice. (7&8) Ensure compliance in

practice


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Yes/ No


compliance

• Gas infrastructure may need to be extended too, where necessary (9.) and technical rules for network connection may be requested to be published (10.)

(9&10) Under the Energy Law, the gas

transmission entity has legal responsibility for maintaining and developing the system. Rules for connection must be published.

cost. (9) Yes, in law, but not in practice, as for (1) above.

(9) Although responsibility for

development of the network is clearly assigned, funding of development could be problematic as tariffs remain below full cost.


Energy from biofuels and bioliquids can count towards the target, irrespective of its country of origin but subject to sustainability criteria




No provisions No Sustainability criteria and regulations to ensure compliance to be developed

ANNEX I – BACKGROUND REPORT APPENDIX VIII

CP REPORTS - UNMIK

221

APPENDIX VIII – CP REPORT: UNMIK


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222

1 UNMIK

This section provides a brief and general introduction to UNMIK and its energy sector. The Kosovo Assembly declared independence on 17 February 2008 and achieved only partial recognition. Among EU Member States, the territory has so far not been recognised by Spain, Greece, Romania, Slovakia and Cyprus - mostly due to regional issues in their own countries. It has been recognized by 62 UN members. After a brief steep growth rate of 11% in 2001, real GDP growth has been in decline since. The economy was severely damaged during the conflicts of the 1990s and recovery has been slow, mainly developing in the trade, retail and construction sectors. UNMIK participates in the EU’s Stabilization and Association Process which steers Kosovo’s1 reform process according to EU best practices and European legislation. In February 2008, the General Affairs and External Relations Council adopted a decision to establish the European rule of law mission EULEX. The objective of the mission is to mentor, monitor and advise UNMIK authorities in police, judiciary and customs affairs.

1.1 Energy Sector


Kosovo is the richest area in coal reserves in South East Europe. Minable coal reserves are estimated at 830million tons of lignite. It does not have any domestic oil or gas resources.2 Hydropower and biomass in the form of wood fuel are the only renewable energy resources currently used. The total theoretical renewable energy resource potential has been estimated at 9,484 GWh/year, but the practical potential is only 1,700GWh/year. Theoretically, the territory has high solar and biomass (wood) resources as well as high levels of livestock and agricultural waste.3


Two thermal power plants - Kosovo A, commissioned in 1975 and Kosovo B, commissioned in 1984 - are the core of Kosovo’s electricity production. Kosovo A has a total installed capacity of 800 MW and capacity at Kosovo B is 680 MW. Some units of Kosovo A are not operational but a project to rehabilitate the non-operational units is in planning. The construction of a lignite-fired Kosovo C thermo-plant of installed capacity between 1,800 and 2,100MW is planned. In the first phase 900 – 1,200MW would become operational between 2012 and 2014. Further 1,000-1,200MW is planned in the second phase by 2020. With construction of Kosovo C, Kosovo is expected to meet the domestic demand and potentially become an exporter of electricity.

1 Kosovo under UNSCR Resolution 1244/99 2 Draft Final SESA report, May 2008 3 European Agency for Reconstruction, Ministry of Energy and Mining Lot No 4 Assesment of Renewable Energy Resources in Kosovo, June 2008


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1.1.3 Consumption

The total electricity consumption in 2008 was 2,941GWh. Energy consumption is expected to grow between 3.9% and 5.5% annually until 20204. Energy production relies heavily on lignite coal. Domestic lignite coal constitutes 59% of total primary energy supply and its share is expected to grow. Oil imports account for 28% and fuel wood for 11% of total primary energy supply. Approximately 5% of heating needs is met by four district heating systems using heavy fuel oil. The rest of heating is provided by fuel wood or electricity.


The existing networks can only serve 880 MW without becoming overloaded, a drop from its peak in 2006 of 916 MW. There are also significant losses in the transmission and distribution network (around 47%) partly due to technical inefficiencies (18%), but mostly (30%) because of theft, inaccurate metering and commercial losses5. An old limited underground natural gas supply network exists which was used for supply of some cities with synthgas. High costs of repair suggest that construction of a new gas network is a more viable option. The use of gas is currently not competitive with coal-fired plants. Nevertheless, lower environmental impact of gas may represent an important consideration after internalization of environmental costs in compliance with the EU legislation is taken into account.


Due to its non-existent domestic reserves of oil and gas, Kosovo imports most of its fuel. Net imports amounted to 40% of total primary energy supply in 20056. With regard to the power system, rehabilitation and modernisation is required in most parts. Without its coal-fired power plants Kosovo A and B, Kosovo would be completely dependent on electricity imports. The transmission and market operator (KOSST) plans to invest €190 million by 2015. The most important project is a construction of 400kV line from Albania, which would enhance exchange of coal, produced electricity with hydropower from Albania and thus reduce Kosovo’s imports.

1.1.6 Challenges

Despite constant high subsidies, performance of Kosovo’s electricity generation and network structure remains low with high losses. Infrastructure plans face a number of key barriers, most notably the lack of

4 Energy strategy of Kosovo 2005 – 2020, Ministry of Energy and Mining, 2005. 5 Energy for Development – Human Development Report, UNDP, 2007, p. 10. 6 IEA, Energy in the Western Balkans, 2008


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sufficient investment, a lack of skilled labour and long and costly tendering processes7. Environmental impacts are high due to reliance on lignite coal as the main source for electricity production and energy in general current energy production. Obsolete electricity generation technologies do not effectively control emissions. Widespread use of wood fuel (mainly by households) leads to deforestation, and creates local and indoor air pollution.

7 Energy for Development – Human Development Report, UNDP, 2007


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This section provides a high-level assessment of the current framework in which the renewable energy sector operates in Kosovo.


The Energy Strategy of Kosovo 2005 - 2015 prepared by Ministry of energy and mining in 2005 contains a paragraph on renewable energy sources (hydropower, solar, wind, geothermal, biomass and landfill gas) that would be used both for electricity production and heating. It recognizes the necessity to adopt a stimulating market and regulatory framework that would attract private investors and donors. It emphasises the demand-side measures and recognizes the important role of promoting energy efficiency. The Energy Efficiency Policy is an integral part of the Energy strategy. It shall encourage efficient use of energy and also promote renewable energy sources and co-generation. The Programme for Energy Efficiency and RES for the period 2007 – 2009 is a set of comprehensive series of actions to improve energy efficiency in all sectors. It also includes a programme for promotion of renewable energy that consists of three projects – Renewable energy; Promotion of solar water heating and Rehabilitation of existing small hydropower plants. In May 2007 the Minister of Energy and Mining adopted the Administrative Instruction which includes indicative annual and ten year indicative targets by 2016 for renewable energy sources both for electricity production and heating. Expected use of RES for electricity and heating is 7.78 per cent in 2016. Targets for transport have not been set yet.

2.2 Legislation

No renewable energy law exists yet. The Energy Law states that Energy strategy shall promote RES and Strategy implementation plan shall provide incentives for investments in RES. The system operators shall give priority to generation from renewable energy sources as permitted by Grid Code. System operators shall establish and publish rules on who will bear the costs for technical adaptations necessary for RES integration into the system. The rules have to be approved by Energy Regulatory Commission (ERO). ERO shall ensure that transmission and distribution fees for RES producers are non-discriminatory, in particular those from peripheral regions. Ministry for Energy and Mining shall each year determine the indicative targets for electricity and heat produced from RES or cogeneration as a percentage of total production for next ten years. The indicative targets shall be accompanied by a report with measures taken to meet the targets. The tariff system shall provide incentives for the promotion of energy efficiency and the use of renewable energy resources.


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The Electricity Law allows certificates of origin to be issued by Energy Regulatory Office for electricity generation from renewable energy or waste and co-generation of electricity and heat. The public electricity suppliers are required to give purchasing priority and are obliged to purchase total amount of electricity for which certificates of origins have been issued. The transmission system operator may give priority for generators of electricity from renewable sources and waste and co-generation. The Law on the Energy Regulator establishes Energy Regulatory Office which in the area of renewable energy issues certificates of origin. The Law on Central Heating allows the heat enterprises that use otherwise unused heat, or heat from renewable sources, waste or cogeneration to obtain certificates of origin, which are issued by Energy Regulatory Office. Heat for which certificates of origin have been issued has priority over other public supplier heat purchases. On the basis of guarantees of origin (called certificates) the producer of heat will be entitled to issue and sell green certificates. Ministry of Energy and Mining may prescribe more favourable conditions for purchase of heat produced from RES, waste and cogeneration. The Law on Environmental Protection and the Law on Environmental Strategic

Assessment requires that environmental impact assessment and environmental strategic assessment be done for plans or programmes that are likely to have a significant environmental impact, especially in the sector of mining, energy, forestry and water management projects. Under the Law of environment protection the Government shall determine the emissions and environmental quality norms and respective limited values of emissions of polluting matter and energy. Private entities are obliged to use energy resources rationally. Those which use renewable energy sources may be entitled to tax, custom and other reliefs or exemptions. Awards may be given to the best solution of production process in relation to environmental protection and energy use. The Waste Law includes provision on protection of the environment and human health from pollution by prevention and reduction of waste production and its harmfulness by using waste as an energy source among other measures. The Law on Environmental Impact Assessment in Annex 1 determines the energy industry project for which Environmental Impact Assessment should be done. The Law on Integrated Prevention Pollution Control in Annex 1 determines the energy industry installations that should undertake activities for integrated pollution control.

2.3 Regulation

On the basis of primary legislation feed-in tariffs were selected as the main support measure for renewable energy. The guaranteed purchase prices produced by small hydropower vary according to the size of installation. They are set by the Energy Regulatory Office. For installations with capacity less than 2 MW the purchase price is € 67.0 EUR/MWh,


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for installations between 2-5 MW € 5.90 cent/kWh and installations between 5-10 MW € 56..0 EUR/MWh. The guaranteed purchase price for wind energy is € 84.0 EUR/MWh8. The Government’s Decision 05/250 determines five year trade contracts for electricity from RES and cogeneration with prolongation or renewal possibility.

The Grid Code does not contain any special provisions regarding renewable energy. There is only reference to possible attention to promotion of renewable energy use in the context of the future General Adequacy Plan9. The priority access for renewable energy is already included in Energy Law and Electricity Law. According to the Law on Central Heating (central in this context has the same meaning as district) the heat from RES for which guarantees of origin have been issued has priority over other public supplier heat purchases. It is obliged to purchase all heat for which guarantees of origin have been issued.


The Ministry of Energy and Mining has the main policy role in energy. In coordination with Energy Regulatory Office it prepares secondary legislation for promotion of energy efficiency and renewable sources of energy. It adopts a three year Strategy implementation programme, long-term and annual energy balances. It also prepares implementation programmes and incentives for promotion of energy efficiency and renewable energy sources. It is responsible for setting targets for electricity and heat produced from RES, waste and cogeneration. The Ministry of Agriculture, Forestry and Rural Development for policymaking in the forestry sector. It oversees forestry activities such as protection, reforestation and sustainable exploitation including those related to fuelwood. The Energy Regulatory Office (ERO) is an independent body established in 2004 on the basis of Energy Law, Electricity Law and Law on Energy Regulator. It is responsible for setting conditions and criteria for issuing licences to carry out activities in energy sector; monitoring unbundling and development of competitive market; adopting criteria for network and supply prices regulation; approving tariffs; defining conditions for energy supply; customer protection, etc. It also issues certificates of origin for electricity and heat produced from renewable energy and co-generation. Kosovo Energy Corporation (EKK) is vertically integrated public company and is the only energy company in Kosovo. It is responsible for mining activities and production, distribution and supply of electricity. In 2006 transmission system and market operation was unbundled from EKK. Further unbundling is necessary but no timeframe has been set yet. The Transmission System and Market Operator (KOSST) was unbundled from EKK in 2006. Its main responsibilities are planning, developing, maintaining and operating the electricity transmission system; operating electricity market and promote market competition; providing non-discriminatory open access.

8 Annual report 2008, Energy Regulatory Office, 2009. 9 The generation adequacy plan would cover a period of 7 years for every year individually. The plan should basically compare whether expected demand can be met by the available generation within the required reliability standards and should also define the opportunities for generation expansion projects.


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Kosovo Trust Agency established in 2002 is responsible for administering and managing publicly owned enterprises including Kosovo Energy Corporation. Its responsibilities are ensuring high quality of public service, profitability and full use of market potential of EKK. It also appoints its board of directors.

2.5 Market

The Kosovo Energy Corporation has the competences of distribution system operator, whereas KOSST is both transmission system and market operator. Purchase of electricity and heat from renewable sources and waste and cogeneration has priority over other electricity and heat purchases The Ministry of Energy and Mining may prescribe more favourable conditions for purchase of heat produced from RES, waste and cogeneration or use of otherwise unused heat.


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Legislation and regulation in some aspects comply with the new Renewable energy directive, whereas in others need to be updated or adopted altogether. The legislation concerning biofuels and gas is missing and support scheme should be clearly determined. Indicative target till 2016 for electricity and heating from RES and cogeneration have been adopted. They should become mandatory if appropriate and could include period from 2017 to 2020 as well. Further pieces of information that should be provided by Guarantees/Certificates of Origin need to be included. The possibility of joint projects with other countries should be considered. Guarantees of Origin are in place but they may provide more detailed information (e.g. standard size, validity). Administrative procedures and institutional framework for RES should be established.

3.2 Gap Analysis


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Yes/ No


compliance



RES are renewable non-fossil energy sources (wind, solar, geothermal, wave, tidal, hydropower, biomass, landfill gas, sewage treatment plant gas and biogases11. Central heating is defined as the heating

of spaces and supply of domestic tap warm water from central heating

sources12. There are no definitions of bioliquids. There are no definitions of biofuels. Certificate of origin are issued for

Yes. Yes. No. No. Yes.

Consider the possibility of inclusion of aero- and hydrothermal energy. Include definition of bioliquids if feasible. Include definition of biofuels if feasible.

10 The Directive further details some sources: (b) Aerothermal energy = energy stored in the form of heat in ambient air (c) Geothermal energy = energy stored in the form of heat beneath the surface of solid earth (d) Hydrothermal energy = energy stored in the form of heat in surface water (e) Biomass = bidegradable fraction of prducts, waste and residues from biological origin from agriculture (incl. vegetal and animal substances), forestry and related industries incl. fisheries and aquaculture, as well as biodegradable fraction of industrial and municipal waste In addition, (f) “Gross final consumption of energy”, (m) “Actual value”, (n) “Typical value”, and (o) “Default value” are defined. However, as methodological terminology, these are irrelevant for the gap analysis. 11 Energy Law, Art. 3. 12 Law on Central Heating, Art. 3.1.


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Yes/ No


compliance


electricity production and Law on central heating for heat production as a document issued by the ERO as evidence electricity generation or heat production from renewable energy resources or waste and co-generation of heat and electricity13. There is no definition of support scheme. There is no renewable energy obligation. Feed-in tariffs provide support 14(Study on RES in Kosovo).

No. No.


Individual national RES targets to be met by 2020, consistent with 20% Community target, calculated as a share of gross final energy consumption (1.) General national biofuels target of 10% of final energy consumption in transport, to bet met by 2020 (4.)

There are only indicative targets which are not mandatory.15 (Administrative instruction). There are no targets for biofuels use.

No. No.

Adopt mandatory targets. Adopt targets for biofuels.

13 Electricity Law, Art. 3.1. 14 Study on RES in Kosovo. 15 Administrative Instruction on indicative targets for the consumption of electricity and heat from renewable energy sources and cogeneration, Minister of Energy, 2007.


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Yes/ No


compliance

Energy efficiency (EE) and energy savings shall be promoted to achieve targets more easily (1.) Measures shall be introduced to promote RES and biofuels: support schemes and joint measures between MS and with third countries (3.)

Energy Efficiency is one of the priorities but it is not linked with meeting the targets more easily. There are no provisions regarding joint support scheme or measure for RES or biofuels in cooperation with other countries.

Yes. No.

Adopt provisions regarding joint support schemes where feasible.







There are general indicative targets and shares for hydropower, wind, solar and biomass for electricity and solar and biomass for electricity production, solar and biomass for heating and cogeneration by 2016. Energy consumption in different sectors by 2016 has been forecasted. The indicative targets should be accompanied by a report that describes the measures taken or planned to achieve the targets. There is no specification what elements report should include16.

In part. No.

Develop national plan if applicable. Measures should match requirements.

16 Information of the acquis renewables in Kosovo. 17 Law in Central Heating Art. 15.3.


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Yes/ No


compliance






Programme for Energy Efficiency and RES envisage an assessment of potentials and barriers for RES and energy efficiency in some areas. A distributor shall study economic development in the sector and prepare annual short-term and long-term plan for network expansion accordingly17.

In part. Yes.



There are no provisions regarding statistical transfers of energy.

No. Adopt provisions on statistical transfers between CP.





physical transfer of the electricity needs to have taken place by firm nomination on the

There are no provisions regarding joint project for target compliance purposes. There are no provisions regarding joint projects between CP for electricity, heating or cooling. There are no provisions regarding projects with third parties.

No. No. No.


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Yes/ No


compliance

interconnector o The joint project has to have become operational

after 25 June 2009 or be a capacity increase through refurbishment after this date




There are no barriers for establishing joint support scheme.

No.





There is no provision on proportionality. There is no requirement for RES in new buildings. Importers and manufacturers of consumer products that use energy should attach energy-efficiency labels to inform the consumers of the consumption and other features important for energy efficiency.

No. No. Yes.

Considerations about establishment of competent bodies, rules, procedures, etc. may be included. Adopt requirements for installation of RES in new buildings. Adopt provision regarding equipment certification and eco-labelling.



Leaflets on solar water heating will be distributed and a manual for its installation will be provided to

In part.

Expand efforts to other RES if applicable.


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Yes/ No


compliance




prospective installers. Seminars for businessmen interested in importing solar heating technology will be organized. There are no provisions regarding certification or qualification scheme for installers. Programme for Energy Efficiency and RES envisage the establishment of new university course for energy efficiency and inclusion of energy efficiency in school curriculum. Public awareness campaign energy efficiency and demonstration projects for RES

No. Yes. Yes.

Certification and qualification schemes for installers should be developed.


• GoOs are to be issued for electricity and heating and cooling from RES and state the share of RES in an energy supplier’s energy mix (1.)


• A competent body independent from production, trade and supply activities shall supervise transfer

The GoO (called certificates of origin) can be obtained both for electricity and heating. Information on share of RES in the supplier’s energy mix is not required18. There are no provision specifiying the function of Guarantees of Origin. Energy Regulatory Office is only responsible for issuing certificates19.

In part. No No.

The share of RES in an energy supplier’s mix has to be included. Specify the function of Guarantees of Origin. Include the supervision of transfer and cancellation activities for

18 Electricity Law, Art. 10; Law on Central Heating Art., 12. 19 Electricity Law, Art. 10.1.


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Yes/ No


compliance

and cancelation of GoOs (4.)

• GoOs must o have a standard size of 1MWh (2.) o be valid for 12 months (3.) o o specify source, start and end date of production





o contain information on country and date of

issuance and have a unique identification number (f)

There is no provision that specifies the size or validity of certificates. Certificates of origin will specify the time for submission and source of production. It is not clear whether the Certificates of Origin state if they are issued for electricity or heating Only the capacity needs to be specified. There is no requirement for stating benefit of any support. There is no requirement for inclusion of information on country and date of issuance with a unique identification number.

No. No. Yes. No. In Part. No. No.

Energy Regulatory Office or create relevant body. Adopt provision specifying standard size and validity of Certificates of Origin Specify whether Certificates of Origin are issued for electricity or heating. Include the info on type of production facility and the date it became operational. Certificates of Origin should include information about possible investment support or support from national scheme. Certificates of Origin should contain information on country and date of issuance and have a unique identification number.


• Transmission and distribution grid infrastructure, intelligent networks, storage facilities and the electricity system (incl. interconnectors) need to be

Transmission Network Operator is required to develop the transmission network if necessary.

No.

Energy Strategy envisages development of the grid. KOSST plans to invest €190 million by 2015 in grid infrastructure.

20 Energy Law 11.a. 21 Energy Law 11.b. 22 Energy Law 11.c.


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Yes/ No


compliance

developed (1.)








• Transmission and distribution tariffs may not discriminate against RES producers, especially from peripheral and low population density regions (7.),

No timeframe specified. When dispatching generation, Kosovo Energy Corporation shall give priority to electricity produced by RES or cogeneration20. System operators shall establish and publish rules on who will bear the costs of technical adaptations to integrate RES21. System operators will provide to any generator that wish to be connected with a comprehensive and detailed estimates of costs associated with connection22. There is no provision about requirement for T/DSO to bear the costs of technical adaptations. Energy Regulatory Office shall ensure that transmission and distribution fees do not discriminate against RES producers,

No. Yes. Yes. Yes. Yes. No. Yes.

Adopt provisions regarding acceleration of authorisation procedure.

23 Energy Law 11.e.


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Yes/ No


compliance

and charging must be cost reflective (8.)


in particular those from peripheral regions, such as low density regions23. There are no provisions regarding the extension of gas network.

No.






There are no provisions regarding biofuels and bioliquids in the existing regulation.

No. Include provisions on biofuels and bioliquids.

ANNEX I – BACKGROUND REPORT APPENDIX IX

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APPENDIX IX – CP REPORT: MOLDOVA


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1 MOLDOVA

This section provides a brief and general introduction to Moldova and its energy sector. The Republic of Moldova became independent from the Soviet Union in 1991. The local government of the self proclaimed Transnistrian Republic does not recognize the central government of Moldova in Chisinau and runs its economy, its tax collection, policing, and public administration including power generation and distribution system autonomously from the Republic of Moldova. The Transnistrian region is of high economic importance, and in particular for the energy sector, as it includes significant parts of the energy industry of Moldova. Moldova’s achievements in structural reform and the creation of a fully functional market economy remain partial, despite a good start in the early 1990s and positive subsequent results in some areas (e.g. accession to the World Trade Organisation - WTO in 2001. 1 Real GDP growth rates were at 7.2% in 2008, but contracted along with the global economy in 20092. State involvement in the economy is still extensive with the private sector to constitute 50% of GDP (in 2002). After Romania’s accession to the EU in 2007, Moldova became an immediate neighbour of the EU. At the EU Moldova Cooperation Council of 24 February 2004 both parties agreed that the European Neighbourhood Policy offers an ambitious and realistic framework for strengthening their relationship, allowing Moldova to benefit fully from EU enlargement.3 Since 1998, the Partnership and Cooperation Agreement (PCA), forms the legal basis of EU-Moldova relations, covering a wide range of areas including political dialogue, trade and investment, economic co-operation, legislative approximation, culture and science.

1.1 Energy Sector


Moldova has only insignificant reserves of solid fuels, petroleum and gas, and a low hydroelectric potential. Biomass, hydro energy, solar and wind energy and sources with reduced thermal potential (including geothermal energy) are renewable energy sources (RES) that are available in Moldova. The potential for these renewable sources (excluding sources with reduced thermal potential) has been estimated at 2.7 Mtoe. However, the only RES that are exploited for energy production are hydro energy for electricity generation and biomass and waste for heat production.


The electricity system of the Republic of Moldova includes one large thermal power plant located in the Transnistrian region (Thermo-Electrical

1 Commission of the European Communities (2004). European Neighbourhood Policy, Country Report, Moldova, Commission Staff Working Paper, COM(2004)373 final. 2 IMF World Economic Outlook April 2008 3 Commission of the European Communities (2004). European Neighbourhood Policy, Country Report, Moldova, Commission Staff Working Paper, COM(2004)373 final.


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Power Plant - TPP with condensation - Moldovan TPP), three heat and power cogeneration (Combined Heat Power Plants - CHP) plants and particular CHP-1, CHP-2 Chişinău and CHP-North Bălţi, two hydropower plants (Costesti and Dubăsari) and 10 CHP plants within sugar factories. All generation companies have the license for electricity production issued by ANRE and all electricity generated by these plants is traded domestically. Total domestic consumption was 5,806 billion kWh in 20064.

1.1.3 Consumption

During the years 1997-2007 substantial changes took place to the volume and structure of energy consumption that due to a severe economic recession, dropped from 3,31Mtoe in 1997 to 1,74Mtoe in 2001. Since 2001 consumption has been increasing gradually, to reach 2,16 Mtoe in 2007. Similarly to energy consumption, electricity consumption decreased from 3,767GWh in 1997 to 2,206GWh in 2001 and since 2001 electricity consumption has been increasing gradually reaching 3,859GWh in 20085. The majority of Moldova’s population lives in rural areas and heating demand in cold winters can therefore be particularly high, using coal and wood fuel.


The Moldovan transmission system consists of 35 kV, 110 kV, 330 kV and 400 kV high voltage transmission lines. Voltage levels below 35 kV (i.e. 0.4 kV, 6 kV and 10 kV) are part of the distribution networks. Though the country is favoured by an extensive power transmission and distribution system, much of the equipment is obsolete and was poorly maintained. Since the privatisation of the distribution network, maintenance has improved. The electricity system of the Republic of Moldova operates synchronously with the Ukrainian electricity system with which it is connected by six high voltage electric lines of 330 kV; while a 400 kV overhead power line connects it to the electricity systems of Romania and Bulgaria. Other three overhead power lines of 110 kV provide interconnection with the Romanian electricity system in an “insular regime”. Strengthening links with the Romanian electricity system will continue to be an ongoing issue for the Republic of Moldova in the future. 6 The losses of energy (electricity and heat) transmission and distribution have been excessive in the past and are still considerable, affecting adversely the energy sector’s energy efficiency.


2,520 MW, or 84% of the total capacity of energy sector belong to the Moldova Thermal Power Plant (TPP), situated on the left bank of the river

4 CIA - Central Intelligence Agency (2009). The World Factbook: Republic of Moldova. Washington, D.C., USA: Central Intelligence Agency's Office of Public Affairs (OPA). Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/MD.html 5 Oleg Cara, Maria Godiac (2009). Moldova in Figures, Statistical pocket-book 2009 6 Republic of Moldova (2007). Energy Strategy of the Republic of Moldova to the year 2020, Draft


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Dniestr in Transnistria region. However, due the fact that this region claims to be independent, the electricity supplied from Transnistria is considered import and is received at the same price as electricity imports from Ukraine and Russia.7 Low domestic natural reserves has led to a high dependence on energy imports (mainly from Russia and Ukraine) – with import levels reaching 97.9% of total energy consumption for 2007.

1.1.6 Challenges

In particular, the challenges to Moldova’s energy sector stem from the following facts:

• almost total dependence on imported primary energy resources;

• limited availability of oil and electricity import sources;

• natural gas imported from only one supplier;

• lack of electricity generation capacities on the right bank of Nistru river to cover local consumption;

• insufficient capacity of interconnection electricity lines with Southeast and West Europe;

• the electricity transmission network requires upgrading.

• obsolete and aged energy installations and equipment: around 60% of the heating system installations have an operation life exceeding 25 years, whilst the remaining 40% have been in operation for more than 30 years;

• low energy efficiency (around 3 times lower than in developed countries), which leads to excessive cost of energy resources within the production process.

7 Energy Charter Secretariat (2004). In-depth Review of Energy Efficiency Policies and Programmes of the Republic of Moldova, Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA).


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The Energy Strategy of the Republic of Moldova until 2020, which was approved in 2007, deals with objectives, measures and activities orientated towards a more efficient, competitive and reliable national energy industry whilst ensuring the country’s energy security, the upgrading of energy-related infrastructure, improved energy efficiency and the utilisation of renewable energy sources, and its integration into the European energy market. The fundamental principles are based on the following:

• energy supply systems orientated towards serving the needs of the customer;

• improvement of the security of energy supply;

• improvement of energy efficiency;

• increased use of renewable energy sources;

• acceptable environmental impact, on the local, regional and global (climate change) level;

• energy systems that include distributed generation sources;

• selection and implementation of energy technologies based on criteria related to energy efficiency, operational security, environmental impact ;

• reasonable tariffs and the development of a favourable investment climate;

• supporting research and development in the field of new and efficient energy technologies;

• enhancing Moldova’s role as an important transit country for electricity and gas.

The National Program on Energy Conservation for the period 2003-2010 acknowledges that at present the energy efficiency remains at a low level. The government aims till 2010 to reduce the energy intensity by 2-3 % annually. The national Energy Conservation Programme for 2003-2010, defining priority areas of action, was developed by the Ministry of Energy in accordance with the prescriptions of the Law on Energy Conservation and approved by the Government in September 2003. The programme aims at increased energy efficiency, with the target of a 2-3% annual decrease of the energy intensity (in line with the Energy Strategy), and also at utilization of local and RES to substitute about 5% of the current primary energy imports8. The current state, key tasks and funds for RES development in the medium term where initiated in the “National Program for the Development of Renewable

Energy Sources” until 2010. Moldova recently engaged a series of ambitious targets for RES promotion based on the EC directives, such as the following9:

8 Ibid. 9 Expert Grup (2007). Republic of Moldova 2007: State of the Country Report.


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• The share of energy generated from RES in 2010 shall constitute 6% of the amount of energy generated from traditional sources, while in 2020 - 20%;

• The volume of bio-ethanol mixed with petrol in 2010 shall constitute 6% of the volume of petrol commercialised, while in 2020 - 20%;

• The volume of biodiesel mixed with diesel fuel in 2010 shall constitute 5% of the volume of diesel fuel commercialised during that year, while in 2020 - 20%;

These national targets were appropriately customized in the “Energy Strategy 2020”. One of the main goals of the National Program on Ensuring Environmental

Security for 2007-2015 is ensuring environmental security through improving the legal framework and by building up capacity. The Action Plan of the Program provides an elaboration on the production of electrical energy from renewable energy; a national action plan on diminishing GHE; and the regulation on certifying the origin of electrical energy utilised from renewable energy. The EU Moldova Action Plan is a political document laying out the strategic objectives of the cooperation between Moldova and the EU. Its implementation will help fulfil the provisions in the Partnership and Cooperation Agreement (PCA) and will encourage and support Moldova’s objective of further integration into European economic and social structures. The following objectives are outlined in the Action Plan in regard to energy:

• Preparation of an updated energy policy converging towards EU energy policy objectives

• Gradual convergence towards the principles of the EU internal electricity and gas markets

• Progress regarding energy networks

• Improve transparency, reliability and safety of the gas transit network

• Progress on energy efficiency and the use of renewable energy sources

A National Council for Sustainable Development

10 was established to ensure the coordination of the implementation of the National Strategy for sustainable development, but it is not operational. A similar function has instead been established for the new Strategy for economic growth and poverty eradication. The “National Strategy of the Republic of Moldova in the 21 century” reaffirms the commitment to sustainable development and represents the first complex and long-term programme for the social-economic development of the country based on new principles:

• Development of a market economy with a social focus, based on private and public property and engaged in free competition which implies the creation

10 Mihailescu Constantin (2006). Sustainable Development Strategies of the Energy Sector in the Republic of Moldova.


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of a competitive economic system and adequate to the principles, standards, tools and institutions of developed countries.

• Creation of an open civil society based on democracy, decentralization of the public system and support to the civil society.

• Development focus on the improvement of the quality of life and investment in human capital.

• Promotion of a new security concept – economic, social, agricultural and environmental.

The strategy of the Sustainable Development of Energy Sector of the Republic of Moldova up to the year 2020 is based on the increase of Energy Efficiency and the implementation of RES. The main objectives of this focus are the following:

• Restructure the power sector, complete the privatization of enterprises and create a competitive power market, aligned to the European standards and norms.

• Increase power efficiency through the promotion of a consistent policy of energy conservation, including the use of regenerating resources.

• Ensure power security in the country through meeting the power and power resources demands in the required quantity.

Implementation of these objectives is planned to be carried out via the following activities:

• Power efficiency of output, transport, distribution and power supply.

• Renovation and increase in the competitive electricity generation capacities, evidence of modern transport network, systems and equipment.

• Increase the power efficiency of consumers, train consumers in energy conservation at all levels.

• Diversify the import sources of energy resources.

2.2 Legislation

According to Electricity Law Distribution Companies, holders of licensees for distribution and power suppliers on regulated tariffs have the rights to sign bilateral contracts with any generation company or power supplier, including from abroad. In addition, the Electricity law provides for non-discriminatory open access to any licensee or customer to transmission and/or distribution networks. Transmission, distribution and regulated power supply tariffs are approved by ANRE according to Methodology for calculation and approval of tariffs. Licensees for power supply at regulated tariffs have exclusive rights to supply power to all customers within the authorized territory. Only the distribution company has rights to build, operate distribution network within the authorized territory. In accordance with the Energy Community Treaty, the liberalization of Moldova’s energy market is set for January 1, 2015 (D/2009/03/MC-EnC). Moldova will ensure that the eligible customers within the meaning of EC Directives 2003/54/EC


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and 2003/55/EC are from 1 January 2013, all non-household customers and from 1 January 2015, all customers. . Eligible customers have the rights to contract electricity directly with any supplier, including from abroad. In the first stage power market will be liberalized up to 10 % of inland domestic electricity consumption. Eligible customers are those consumers connected to the transmission network of 35-110 kV. All power market participants, except eligible customers and foreign entities are licensed by ANRE11. In summary, the main primary laws impacting on renewable energy are the following:

• Law on Privatization Program for 1997-1998 (adopted by Parliament in June 1997);

• Government Resolution regarding the Restructuring Plan of the energy sector (approved July, 1997);

• Law on the Protection of the Atmosphere (1997)12;

• Energy Law (adopted by Parliament in February, 1998);

• Electricity Law (adopted by Parliament in September, 1998);

• Gas Law (adopted by Parliament in September, 1998);

• Law on Energy Conservation, also considering the utilization of RES (December 2000);

• Law on Energy Saving, No 1136-XIV as of July 13, 2000;

• Regulations for electricity supply and consumption (approved by ANRE in March, 2002);

• Power Market Rules (approved by ANRE in December 2002);

• Regulations regarding accreditation of eligible customers (approved by ANRE in December, 2002);

• Law on the renewable energy. (Approved by Parliament Decision nr. 160-XVI of 12 Julie 2007).

• Law on science and technology parks and innovation incubators. (Approved by Government Decision nr. 407 of 13 April 2007. Approved by Parliament Decision nr. 164-XVI of 13 Julie 2007).

• Energy Strategy of Republic Moldova till 2020 (Approved by Government Decision nr. 958 of 21 August 2007).

Moldova is presently reviewing its Environmental Protection Law, with a view to converge with EU legislation. In 2008, the Law on Energy Conservation is in an amendment process in order to comply with the Law on Renewables.

11 Ion Comendant, Ilie Macovei, Yannis Kelemnis, Jean Claude Foret (2006). AMENI, Assistance to Moldova on Electricity Network Interconnection, Tacis Project Findings Report 12 Energy Charter Secretariat (2004). In-depth Review of Energy Efficiency Policies and Programmes of the Republic of Moldova, Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA).


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2.3 Regulation

ANRE is currently (Dec. 2008) preparing a methodology on calculating green energy tariffs and the regulation of issuing guarantees of the origin of electric energy produced from renewable energy as well as standard contracts for selling renewable energy and fuel. In summary, the main decisions related to the energy sector approved by ANRE are the following regulatory measures:

• Decision no. 300, June 30, 2008 “On Electricity Tariffs”.

• Decision no.304, August 07, 2008 “On approving Regulation on Supply and Use of Natural Gas”.

• Decision no. 298, July 30, 2008 “On Natural Gas Tariffs”.

• Decision no. 299, July 30, 2008 “On tariffs for production of electric, heat energy and heat energy produced for final consumers”.

• Resolution no. 101, June 24, 2003 “On Electricity Tariffs”.

• Resolution no. 103, July 15, 2003 “On the amendment off ANRE Administrative Council Resolution no. 101 of June 24, 2003”.

• Resolution no. 104, July 15, 2003 “On the amendment of ANRE Administrative Council Resolution no.102 of June 30, 2003”.

According to the Electricity Law, the Government of Moldova issues permission for construction of power plants, on bid basis, with capacity over 20 MW. In addition, the Government approves the constructions of interconnections with other power systems and sets up the conditions for electricity import and export. On the other hand, ANRE regulates the activities on Energy Market by licensing the Energy Market participants, monitoring and supervising their activity. The relationships between the energy market participants are established according to Power Market Rules approved by ANRE and all relationships in the Energy Market are based on bilateral contracts. Regulatory authority on 21st of July 2008 approved the Regulations on Quality of Electricity Distribution and Supply Services (Official Gazette) that regulate the quality of electricity distribution and supply service, establish minimum quality requirements and the consequences following non-compliance with such requirements by distribution units/suppliers. RES is not mentioned.13 Moldova has launched a network code (grid and distribution) and a metering code was introduced in the summer of 2006. Moldova had committed to develop a network code for both the electricity and gas markets under the EU-Moldova Action Plan Implementation Program.14 Transmission and dispatch services are provided on contractual basis. Tariffs for transmission and dispatch services are approved by ANRE at the request of the distribution company and are single tariff for all consumers. In addition, non regulated tariff suppliers may at present supply power only to power suppliers at regulated tariffs.

13 Republic of Moldova (2008). Regulations on Quality of Electricity Distribution and Supply Services, Decision on Approving the Regulations on Quality of Electricity Distribution and Supply Services., Official Gazette no.134-137/384 of 25.07.2008 14 Ion Comendant, Ilie Macovei, Yannis Kelemnis, Jean Claude Foret (2006). AMENI, Assistance to Moldova on Electricity Network Interconnection, Tacis Project Findings Report


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There are three suppliers of electricity at regulated tariffs (Distribution companies) and a number of non-regulated tariff suppliers. An electricity supplier may only be legal entities registered in Moldova and comply with the stipulations of Electricity Law. Electricity suppliers at regulated tariffs supply electricity to all consumers within the authorized territory and may not refuse to sign contract for supply of electricity at regulated tariffs with any consumer within the authorized territory. An economic instrument for the regulation and management of some types of products – payments for non-ecological production has been introduced. These are emission charges on vehicles using gasoline (ethylated, unblended), aviation fuel (aviation gasoline, kerosene) and diesel fuel. Such payments are accumulated in the National Environmental Fund. Some measures have been taken to improve the management of National and Local Ecological Funds resources use, such as improving the procedures of project selection and secretariat activity, establishment of more accurate priorities, increasing the rate of investment expenditures, supporting the activities of NGOs, and other. Funds are available for projects that are related to the environment such as: construction of environmental facilities (including financing of the design works and their implementation in the field of water supply and sanitation; financing of the works related to the collection and sorting of wastes, as well as support of the enterprises processing or neutralizing wastes and improving the atmospheric air quality). The budgets of National and Local Ecological funds are approved the Law on State Budget.15


The Ministry of Energy (ME) was established in 2001 and is the public, central administration authority with responsibility and executive authority for the development and implementation of the energy policy in Moldova. The ME elaborated and promoted state’s politics and strategy in energy domain in order to create favorable conditions in efficient functioning and development of energy sector, energy security and reliable energy supply until 2007. Currently the Ministry of Energy does not exists as a separate entity (since 2008), but is a department of the Ministry of Economy (ME). The Energy Department supervises the energy sector and is responsible for energy policy in the following context:

• development and monitoring of concepts and strategies, and program implementation in the energy sector at both national and regional level;

• participation in the elaboration and implementation of measures on energy security;

• elaboration of technical regulations;

• organisation and coordination of legislative drafts and normative acts;

• elaboration of medium term and long term programs and investment projects for the energy sector development and its departments in cooperation with energy enterprises and other stakeholders;

15 Ministry of Ecology and Natural Resources (2004). Environmental Performance Review Interim Report on fulfilment of the recommendations of the Republic of Moldova Environmental Performance Review.


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• defininition of policies for gas pipeline development;

• defininition of general import, export and transit of electric energy, gas, oil products and other fuels;

• coordination of activities for energy efficiency and supervisation of the responsible bodies;

• establishing international cooperation for the energy sector.

At the beginning of 2004, the Ministry of Ecology, Construction and Territorial Development was re-organised into two new entities: the Ministry of Environment, and the Department of Construction and Territorial Development. The forestry department and the water agency, which were previously responsible directly under the government, are now incorporated under the new Ministry of Environment.16 Ministry of Environment is the central public authority that promotes the state policy as regards environment protection, rationale use of the natural resources, waste utilisation and processing, energy production from clean technologies and deals with the climate change issues. The Ministry of Environment co-ordinate the activities concerning formation and training of the specialists in the environment protection and ecological education related area. The National Agency for Energy Regulation (ANRE) was established in 1997. ANRE is a permanent authority of public administration having the status of a legal entity which is unsubordinated to any other public or private authority. Its role is to regulate economic and trading activities in the electricity, natural gas, oil and oil derivatives sectors by, amongst others, issuing licenses, establishing suitable tariff policies and supporting consumer rights. The Agency’s responsibilities include: licensing, tariff setting, establishing quality of service standards, consumer protection and promotion of competition and energy efficiency. ANRE elaborated a new methodology for tariffs calculation, because the validity term of the old one has expired (TCM - Tariff Calculation Methodology adopted in June 1999 and used a cost plus system). Since 2007, when the new methodology was adopted, ANRE uses the price cap tariff-setting method. In the field of renewable energy ANRE regulates the renewable energy market; approves tariffs for each type of renewable energy, develops draft contracts for the commercialization of renewable energy and fuels through providing the producers of renewable energy and fuels with a free and nondiscriminatory access to the electricity grid and district heating system, the fuel distribution network and installations, and issues licenses for the production of renewable fuels. The National Agency for Energy Conservation (NAEC) was established in 1994 and stopped its activities in 2006 due to its restructuring. In July 2007, the Agency was relaunched and renamed as the Agency for Energy Efficiency (AEE) according to the Law on Renewable Energy Sources. The Regulation of the EE Agency is currently under development. The State Energy Inspectorate (SEI) has the technical oversight of all power and heat companies, irrespective of their ownership and production capacity, to assure reliable, efficient and safe power and heat supply. The Inspectorate is a separate

16 Commission of the European Communities (2004). European Neighbourhood Policy, Country Report, Moldova, Commission Staff Working Paper, COM(2004)373 final.


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entity within the structure of the Ministry of Economy and Commerce, but receives its budget from the state electricity enterprise Moldelectrica. The National Fund for Energy Conservation started operating in 2003 with a small budget allocation. In order to secure the financing of the planned energy conservation measures, the Government has planned that 20% of the income of the national and of the local budgets will go to investments in the energy area, including energy efficiency measures.

2.5 Market

Basic legislation in the electricity and gas sector was enacted in 1998. The restructuring of the power sector started in 1995 with the breaking up of the state monopoly into separate state owned entities dealing with generation, transmission and dispatch, and distribution. As a first step, three of the five power distribution companies were privatised by the sale of the majority of the shares to a foreign company. The bulk of installed power generation capacity is located in Transnistria. Moldovagaz is the main actor in the gas sector. With the support of the EU, Moldova started to install gas metering devices at its borders, which are crucial for payments related to gas imports and transit. The electricity sector in Moldova is constituted of:

• Enterprises producers of electricity: 4 generating power plants - 3 CHPs (joint-stock companies with prevailing public capital) and 1 HPP (state-owned enterprise) holding licenses for generation of electricity.

• Enterprises of energy transportation;

• Distribution enterprises: 3 distribution companies: 1 owned by the private foreign investor “Union Fenosa”, 2 are state-owned. All companies hold licenses for distribution and supply of electricity at regulated tariffs, and 1 company is licensed for supply of electricity at non-regulated tariffs.

• State enterprise “Moldelectrica”: 1 transmission company (a state-owned entity) acting as a system operator.

• 12 companies hold licenses for supply of electricity at non-regulated tariffs.

The State Owned Company “Moldenergo” was unbundled based on the function principle into three companies that were to be privatized (except for energy transmission and central dispatch which remained a state-owned natural monopoly):

• Generation: JSC “CHP-1 Chisinau”, JSC “CHP-2 Chisinau”, JSC “CHP-Nord Balti”;

• Distribution: In Moldova there are three distribution companies (“Union Fenosa in Moldova”, JSC “RED Nord” and JSC “RED Nord-Vest”). Two of them are state owned and one is owned by Union Fenosa. All distribution companies hold licenses for distribution and power supply at regulated tariffs and have the rights to perform distribution and supply of electricity at regulated tariffs only within the authorized territory. In addition, the distribution companies have the obligation to develop and maintain distribution network at such a capacity in order to be able to provide service to all existing and potential consumers within the authorized territory. ANRE has


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the responsibility to monitor the activities of the distribution companies and to approve distribution tariffs as single tariffs applied to all electricity consumers at the request of distribution companies.

• Transmission and central dispatch: state-owned enterprise “Moldtranselectro”, which acquired all other assets and activities of the state owned company “Moldenergo”. In 2000 SOE “Moldtranselectro” was restructured into three distinct companies. These were “Moldtranselectro” itself, SOE “Moldelectrica”, which undertook the functions of transmission and central dispatch, and SOE Costesti Hydro Energy Node.

• The Electricity system in the Transnistria region is operated by Dnestrenergo company, with headquarters in Tiraspol. Dnestrenergo includes Eastern electricity networks in Dubasari city, South Eastern electricity networks in Tiraspol city and the Dubasari Hydro Power Station. The dispatch for all these companies is centralized and performed by SOE Moldelectrica.

Separation between transmission and distribution systems appears currently poorly or inconsistently established. This creates some overlaps in terms of ownership of lines, on the one side, and raises some operating issues such as energy metering, security, etc., on the other side. This situation raises an important need to clarify and to establish a rational for the asset allocation among the different owners or functional areas in order to avoid unnecessary conflicts of jurisdiction and/or responsibility. Centralized heating systems operate currently in Chisinau, Balti and in some district centres in the country (Aneni Noi, Cahul, Calarasi, Cimislia, Edineti, Glodeni, Stefan Voda, Ungheni). Transmission of heat to consumers in Chisinau is performed by JSC “Termocom”. In the city of Balti the company CET-Nord, operator of the local CHP plant, performs both heat production and heat distribution. Distribution of heat and hot water is carried out by a 195.2 km network and 67 heat distribution points. 17

17 Republic of Moldova (2007). Energy Strategy of the Republic of Moldova to the year 2020, Draft


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The main strategic documents prepared by the Moldovan government to promote RES include:

• Energy Strategy of the Republic of Moldova until 2020

• National Program on Energy Conservation for the period 2003-2010

• National Program for the Development of Renewable Energy Sources

• National Program on Ensuring Environmental Security for 2007-2015

Through these programs and strategies Moldova is trying to strengthen the national energy industry, ensure the country’s energy security, improve energy efficiency and promote and support the RES utilization. The Energy Strategy until 2020, approved in 2007, deals with objectives, measures and activities orientated towards a more efficient, competitive and reliable national energy industry whilst ensuring the country’s energy security, the upgrading of energy-related infrastructure, improved energy efficiency and the utilization of renewable energy sources, and its integration into the European energy market. Moldova recently engaged a series of ambitious targets for RES promotion based on the EC directives, such as the following18:

• The share of energy generated from RES in 2010 shall constitute 6% of the amount of energy generated from traditional sources, while in 2020 - 20%;

• The volume of bio-ethanol mixed with petrol in 2010 shall constitute 6% of the volume of petrol commercialised, while in 2020 - 20%;

• The volume of biodiesel mixed with diesel fuel in 2010 shall constitute 5% of the volume of diesel fuel commercialised during that year, while in 2020 - 20%;

These national targets were appropriately customized in the “Energy Strategy 2020”. The National Energy Conservation Program for 2003-2010 aims at increased energy efficiency, with the target of a 2-3% annual decrease of the energy intensity (in line with the Energy Strategy), and also at utilization of local and RES to substitute about 5% of the current primary energy imports19. One of the main goals of the National Program on Ensuring Environmental Security for 2007-2015 is ensuring environmental security through improving the legal framework and by building up capacity, while the current state, key tasks and

18 Expert Grup (2007). Republic of Moldova 2007: State of the Country Report. 19 Energy Charter Secretariat (2004). In-depth Review of Energy Efficiency Policies and Programmes of the Republic of Moldova, Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA).


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funds for RES development in the medium term where initiated in the “National Program for the Development of Renewable Energy Sources ” until 2010. Although Moldova recently engaged the aforementioned ambitious targets for RES promotion based on the EC directives, the actual support for RES is limited to national environmental funds.

3.2 Gap Analysis


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Yes/ No


compliance



(a) Renewable energy sources: solar, wind, geothermal, water current, biomass energy etc. (Energy Act, Law on Energy Saving).

(a) Yes (k) No (l) No

(k), (l) Relevant sublaws for Support mechanisms should be set to promote the use of RES



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Yes/ No


compliance




(1.) RES participation in the country’s energy balance up to 6% in 2010, 20% in 202021.

(4.) By 2010 the quantity of mixture of bioethanol & petrol will account for 6% of the overall sold petrol and the quantity of the mix of biodiesel and diesel oil will account for 5% of the total sold diesel oil. 2020 - 20%22.

(1.b) EE programs and measures mainly targeted at the district heating sector and improvements in residential, public and industrial buildings23.

Yes (1.a) There is compliance with this framework, by the Law on Energy Saving but no targets have been set.

21 Cristina Guriev, Veronica Muruziuc, (2009). Renewables sector development, Vienna: Ministry of Economy and Commerce Republic of Moldova, Energy Regulatory National Agency. 22

Ibid.


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Yes/ No


compliance











• National action plans have to assess the need to build new infrastructure for district heating and cooling

Various programs exist Partially Need for compliance where applicable

23 Energy Charter Secretariat (2004). In-depth Review of Energy Efficiency Policies and Programmes of the Republic of Moldova, Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA).


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Yes/ No


compliance

(Article 16, 11.)



To be adjusted where required














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Yes/ No


compliance




(1.) The law for energy saving provides the framework to support energy saving. The Ministry of Energy, the Energy Department of the Ministry of Economy and Commerce and ANRE are responsible for these issues.

(4., 5.) EE in buildings is a high priority in Moldova and especially EE improvements in the residential sector. Various ambitious measures have been launched, such as Energy Certificate of Buildings for new and existing buildings under reconstruction24.

Partially






Technical University in Chisinau and its Energy Faculty promote EE and RES through focused research and training

Partially Need for Government- and/or Regulart-led initiatives



• GoOs have no function for target compliance and are

Stipulated in the Law 160/2007 (Art.5): Guarantees of origin are underway25.

Underway Implement legal provision

24 Ibid. 25 Cristina Guriev, Veronica Muruziuc, (2009). Renewables sector development, Vienna: Ministry of Economy and Commerce Republic of Moldova, Energy Regulatory National Agency.


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Yes/ No


compliance

purely meant for commercial purposes (2.)











• Transmission and distribution of electricity from RES shall be guaranteed by T/DSOs in their territories (2.

(1.) General Grid conditions are mentioned in the Electricity Law.

(2. (a), (b)) The TSO or DSO are obliged to purchase electricity from eligible RES producers. Producers of RES and fuels are provided with a free non discriminatory access to the electricity grid and district heating system.

(3.7.8.) In February 2009 ANRE’s council of Administration passed the Methodology on Establishing, Approval and Application of Tariffs for electricity produced from RES and

Partly implemented


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Yes/ No


compliance

(a))








biofuels. The Methodology establishes common principles for calculating tariffs for RES, which will be valid for electricity producers on this market. It will be mandatory for the producers of biofuel and for the producers of electricity from RES, which have generation capacities above 10kW and produce electricity for sale in the market.


Energy from biofuels and biofuels can count towards the target, irrespective of its country of origin but subject to

Government analysis states that if domestic targets are reached they will result in an

No Develop and implement sustainability criteria


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Yes/ No


compliance





annual reduction of C02 emissions by 167-210 thousands tones of CO2 equivalent26.

26

Ibid.

ANNEX I – BACKGROUND REPORT APPENDIX X

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APPENDIX X – CP REPORT: TURKEY


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1 TURKEY This section provides a brief and general introduction to Turkey and its energy sector. After suffering a financial crisis and severe contraction in 2001, the Turkish economy experienced a number of years of relatively low inflation and rapid growth. Real GDP growth rates were between 5.3 and 9.4% between 2002 and 2007. However, Turkey was equally hit by the global financial crisis and the economy contracted strongly in 2009. Growth is expected to recover as Turkey has a relatively young and expanding population and is going through rapid industrialisation and urbanisation. Turkey first applied for associate membership of the then European Economic Community (ECC) in 1959 and formally applying for full membership of the EU in 1987. In 1995, a custom union was created between Turkey and the EU. After lengthy negotiations Turkey formally became an EU accession country in 2005. A road map for EU accession preparations was launched by the Turkish government in 2007 which outlines the plans for the completion of necessary reforms between 2007 and 20131; however no firm timetable has been established with the EU for completing Turkey’s accession negotiations.

1.1 Energy Sector


Lignite is Turkey’s most important domestic energy resource and large reserves of lignite are found throughout the country. Even though much of this lignite is of poor quality (two third of reserves have a calorific value of between 1000 and 2000 kcal/kg), the Turkish government is keen to expand production of lignite. Renewable energy sources in the form of hydro, wind, solar, biomass, biogas and geothermal represent Turkey’s second largest domestic primary energy source, with hydropower followed by biomass providing the largest contributions.


The current Turkish electricity market is dominated by a mix of thermal and hydro generation. A rise in natural gas imports and upgrades of the transmission network have led to switch in favour of thermal generation. Thermal generation is mainly used as base load capacity with hydro plants used to meet peak demand. In 2008 renewable energy production contributed to 8.8 % of the total primary energy supply.

1.1.3 Consumption

Turkey’s total final energy consumption in 2007 was 889TWh. Of this, total consumption of electricity amounted to 152TWh, and total consumption of heat amounted to 12TWh – the largest share in total energy

1 Turkey's Programme for Aligment With the Acquis (2007-2013) http://www.abgs.gov.tr/index.php?p=6&l=2


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consumption came from petroleum products with 325TWh. Approximately 46% of this was consumed by the industry sector. The residential sector consumed around 24% and the commercial and public services sector accounted for 26%.2


Network losses in the Turkish transmission and distribution system were at around 14 % of total electricity demand in 2008. This is higher than European averages and remains a major challenge, with distribution losses being particularly high. Turkey has interconnections with Azerbaijan, Georgia, Armenia, Bulgaria, Iran, Iraq, Greece and Syria. Along with the priority given to interconnection with UCTE grid, Turkey is an active member of other integration schemes including the Energy community, Seven Countries Interconnection project and Interconnection of Black Sea Countries project.


More than half of Turkey’s primary energy requirements (mainly natural gas and oil) are supplied by imports. Since natural gas imports from the former USSR began in 1987, the importance on natural gas in the energy mix has increased significantly. Today, gas imports also arrive via LNG shipments and through pipelines from Russia, Iran and Central Asia. As the preferred fuel for new generation of power plants the consumption of natural gas is expected to soon overtake the consumption of oil in the primary energy mix.

1.1.6 Challenges

High population and economic growth rates, along with rapid urbanisation and industrialisation will continue to fuel a rapid growth in the demand for energy. Although the government has traditionally played a dominant role in providing the funds for investment in the electricity sector, disappointments with the central planning approach and the limited resources of the state budget mean that the private sector will play a key role in financing future investments. Encouraging the utilisation of domestic renewable resources and measures to improve energy efficiency are seen as important tools for reducing Turkey’s dependency on imports of energy resources and to comply with EU directives.

2 IEA Energy Balance for Turkey 2007


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2 RENEWABLE ENERGY FRAMEWORK This section provides a high-level assessment of the current framework in which the renewable energy sector operates in Turkey


Turkey’s energy policy has mainly focused on supply side factors, such as ensuring additional energy resources can be secured to meet the growing demand for energy. To diversify its sources of energy a switch to the use of natural gas was encouraged after the two oil crises. As most of the natural gas imports come from Russia, however, Turkey is also keen to further diversify its sources of energy by fully utilizing local hydropower and lignite resources and exploring alternative energy source such as nuclear power and renewables to lessen the risk of being dependent on a single country for its energy resources. The “Electricity Market And Security of Supply Strategy Paper” was endorsed by the High Planning Council on 18 May 2009 as a road map for power market reform including steps for wholesale market design and privatization, detailed measures to ensure security of supply and demand side participation. The Paper further includes some aspects related to renewable energy, including ambitious quantitative and qualitative targets for renewable energy development: • 30% of total electricity production from renewable energy by 2023.

• 20 000 MW installed capacity by 2023 to be generated from wind;

• 600 MW installed capacity by 2023 to be generated from geothermal;.

• the whole economically usable potential for hydropower to be utilized by 2023;

• to expand the use of solar power and to ensure utmost utilization of the country’s potential of solar power.

Given the forecast rise in electricity demand, Turkey’s considers its goal of maintaining a stable RES share in final consumption as an ambitious target as this would require a significant increase in renewable generation in absolute terms.

2.2 Legislation

Key law covering renewable energy include: The Electricity Market Law (Law No. 4628) established the energy regulator EMRA with the duty to “take necessary measures for encouraging the utilization of renewable and domestic energy resources”. The Law Concerning the Use of Renewable Energy Resources for the Generation of Electrical Energy (Law No. 5346) came into force 18 May 2005 and established


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the basic framework for the promotion of renewable energy sources (RES) within a competitive market. • The scope of the law covers renewable electricity generated from wind,

solar, geothermal, biomass, biogas, wave, tidal and small hydro plants (canal or run of river or with reservoir area of less than 15 square kilometres). To help develop new renewable resource such as wind and geothermal, large hydro plants are excluded from the support scheme contained in the law.

The key objective of the law is to expand the utilization of renewable energy resources (Art 1).

• Art 5 establishes a renewable energy resource certificate system to be administered by EMRA that will identify and monitoring the purchase and sale of electricity generated from renewable source.

• Art 8 further allows developers of renewable generation to receive an 85% deduction of the cost for permit, rent, right of access and usage permit for land, forestry, pastures, etc. owned by the Treasury or registered in the name of the Treasury.

Art 8 places an obligation upon licensed electricity suppliers to purchase at least 8 % of their previous year’s sales from RES-generated electricity if there is sufficient certified RES electricity in the market (EMRA annually publishes the amount of certified RES electricity). Those suppliers failing to purchase sufficient RES electricity can be fined by EMRA and will be given a warning to eliminate the violation within 60 days or face an additional fine.

Prices for RES purchased are based on the average wholesale electricity price in the previous year determined by EMRA, with the Council of Minister entitled to raise the price by 20% at the start of each year.

The Energy Efficiency law (Law No 5627) (envisaged to comply with Directive 2006/32/EC and Directive 2002/91/EC) was adopted April 2007 and covers the principles and procedures for promoting energy efficiency so as to reduce the burden on energy cost on the economy and on the environment. • The law outlines the policy framework for energy efficiency including the

principles and procedures to increase and promote energy efficiency.

• Art 4 establishes the Energy Efficiency Coordination Board (EECB) responsible for carrying out energy studies and preparing the national energy efficiency strategies. The EECB is authorised to issue license to universities and chambers of professions for the performance of energy efficiency services (Art 5).

• The law also makes provisions for energy efficiency awareness raising and training.

• Art 8 allows projects submitted to the General Directorate of the EIE and approved by the EECB that have a payback of less than 5 years and cost less that 500,000 Turkish lira to receive a subsidy of up to 20% of the first year cost of the project.

• Art 16 set a minimum feed-in tariff for renewables of 5.5 eurocent/kWh.


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The Law on Geothermal Resources and Natural Mineral Waters (Law No 5686) outlines the principles and procedures for exploring, producing and protecting geothermal and natural mineral water resources. The Petroleum Market Law (Law No 5015) (envisaged to comply with Directive 94/22/EC) contains a definition of biofuels. Turkey's Programme for Alignment with the Acquis (2007-2013) considers plans to enacting new legislation between 2009 and 2013 including a Law on the Extension of Use of Biofuels and Cogeneration Law.3

2.3 Regulation

A number of secondary legislative instruments have been passed to implement the provisions of the renewables law and energy efficiency law and other relevant legislation. The By-law on Principles and Procedures for Granting Guarantee of Origin (Official Gazette no: 25956) outlines the principles and procedure for granting guarantee of origin certificates from RES-generated electricity. Regulation On Increasing Efficiency In The Use Of Energy Resources And Energy (Official Gazette No: 27035) contains provision for implementing the energy law including measures on Authorization, Monitoring and Supervision of Agencies providing energy efficiency training, Authorization, monitoring and inspection of Firms involved in providing energy efficiency services, training and investment support for energy efficiency projects. The Electricity Market Licensing Regulation (Official Gazette No: 24836) outlines the license fee for renewable generation. Renewable generators a 99% discount on the license fee application and a free annual license for eight years after the completion of the project. Art 38 requires TEIAS and/or distribution licensees to assign priority for system connection of generation facilities based on domestic natural resources and renewable resources. The Balancing and Settlement Regulation (Official Gazette No 25677), Art. 18 exempts renewable generation from the obligation of being a balancing mechanism entity. The Electricity Market Grid Regulation (Official Gazette No: 25001) excludes renewable generation with an installed capacity of less that 100 MW or 50 MW unit capacity from certain design and performance criteria conditions (Arts. 19) and from minimum frequency control requirements (Art 21). The Petroleum Market License Regulation (Official Gazette no. 25495) recognises biodiesel as a biofuel. The Biofuel Incentive Decision of the Council of Ministers (8 Dec 2006) allows ethanol and biodiesel that is blended up to 2% with petroleum diesel to be exempt from tax if it is domestically produced and is distributed by licensed petroleum companies.

3 http://www.abgs.gov.tr/files/Muktesebat_Uyum_Programi/En/Chapter_15.pdf


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The lack of sufficient tax incentives offered for RES projects and a low feed in tariff (in comparison to other European countries) is seen as a barrier for the development of renewable projects. A new draft renewables law has now been submitted to the Turkish Parliament. This draft law include increased differentiated feed-in tariffs for different renewable energy technologies.


The main institutional players include: The Ministry of Energy and Natural Resources (MENR) supervises the overall development of energy resources and development of energy policy at a macro level. The General Directorate of Energy Affairs deals specifically with renewable energy. The Energy Market Regulatory Authority (EMRA) is an independent regulatory agency established by the Electricity Market Law 2001 to monitor, regulate and supervise the electricity sector. EMRA’s remit was extended to cover the gas and petroleum sectors with the passing of the Natural Gas Market Law no. 4646 and Petroleum Market Law no. 5015. Under Article 5 of the Electricity Market Law No: 4628, EMRA duties include “With regard to the environmental effects of the electricity generation operations, to take necessary measures for encouraging the utilization of renewable and domestic energy resources and to initiate actions with relevant agencies for provision and implementation of incentives in this field.” The General Directorate of Electrical Power Resources Survey and Development Administration (EİE) is responsible for the promotion and research of renewable resources and energy efficiency. Key tasks performed by the EİE includes research and study of new and renewable energy resources (windpower, solar energy etc), conducting surveys and application studies for the rational use of energy resources and raising awareness of energy conservation in the industrial, residential and transportation sector The Energy Efficiency Coordination Board (EECB) has been given responsibility for coordinating and carrying out energy efficiency studies and preparing national energy efficiency strategies, plans and programs.

2.5 Market

The Turkish electricity sector is progressing through a transition from a largely state owned monopoly into a liberalised unbundled market with private sector participation. Although more 50 % of the generating capacity is still owned and operated by the state owned Electricity Generation Company (EUAS) the role of the private sector share in generation is gradually increasing, with hundreds of generation licenses having been issued to private generation companies and autoproducers. Privatisation of most of the generation plants owned by EUAS will commence in 2010. In 2004 in preparation for privatisation, Turkey’s state owned distribution networks were divided into 20 regional distribution companies (a private distribution


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company already operated in the Kayseri region). Out of 20 regional companies, four are being transferred to the private sector, for five of them tender processes have been finalized but not transferred yet and for another four companies, privatization tenders have been announced by the Privatization Administration. The Turkish Electricity Transmission Company (TEIAŞ) operates the transmission system operator on a regulated third party access bases. TEIAŞ is prohibited from engaging in any other activities other than transmission. The transmission and distribution license holders are required to give priority to renewable generation (Electricity Market Licensing Regulation -Art 38). The Electricity market is based on bilateral contracts with a residual power pool with TEIAŞ acting as the market operator. Electricity generated from renewable energy resources is sold to holders of retail sale license on the basis of bilateral agreements.


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Along with reinforcing the independence and capacity of the independent regulator, Turkey needs to create clearer incentives for the promotion of renewables and set itself ambitious targets for utilising unused renewable energy resources. Although Turkey has established the basic legal framework covering the renewable energy and energy efficiency sectors through the passing of the Renewable law (law No: 5346) and Energy Efficiency law (Law No: 5627), both these laws need to be updated to comply fully with Directive 2009/28/EC. Other actions that may need to be taken include the development of a national renewable energy action plan, the extension the definition of renewables to cover all hydropower generation capacity and the development of provisions for joint projects and support schemes with other Energy Community member states. Secondary legislation implementing the provision of the renewables law is currently in place and a new draft renewable law has been submitted to Parliament. Secondary legislation implementing the provisions of the Energy Efficiency law and a law on the extension of the use of biofuels have yet to be enacted.

3.2 Gap Analysis


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Article 2 – Definitions (a) Energy from renewable non-fossil sources = wind, solar, aerothermal, geothermal, hydrothermal and ocean energy, hydropower, biomass, landfill gas, sewage treatment plant gas, biogases4 (g) District heating or cooling = distribution of thermal energy in form of steam, hot water or chilled liquids, from central source of production through a network to multiple buildings or sites, for the use of space or process heating or

Renewable Law No. 5346 (Art 2 , 8) “Renewable energy resources: Non-fossil energy resources such as hydraulic, wind, solar, geothermal, biomass, biogas, wave, current and tidal energy.” (Art 2 11) “Renewable energy resources in the scope of this Law: The electrical energy generation resources suitable for wind, solar, geothermal, biomass, biogas, wave, current and tidal energy resources together with hydraulic generation plants either canal or run of river type or with a reservoir area of less than fifteen square kilometres” Not defined

No

All hydropower generation capacity needs to be considered as renewables regardless of size.



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cooling (h) Bioliquids = liquid fuel for energy purposes other than for transport, incl. electricity and heating and cooling, produced from biomass (i) Biofuels = liquid or gaseous fuel for transport produced from biomass (j) Guarantee of origin (GoO) = electronic document with the sole function of providing proof to final customer that a given share of energy was produced from RES (k) Support scheme = instrument scheme or mechanism to

By-Law on Technical Criteria for Petroleum Market (Art. 4(h)) “- Liquid fuel: Benzine types, naphtha (except for raw material and solvent naphtha) gas oil, jet fuel, diesel fuel and fuel oil types with biodiesel” Petroleum Market Law No – 5015 (Art 2) “7) Products that can be blended with liquid fuel: Products which are or shall be subject to an equivalent tax as liquid fuel, such as methyl tarsier butyl ether (MTBE), ethanol (except for those produced artificially from domestic agricultural products and bio-diesel),” Regulation on Principles and Procedures for Granting Guarantee of Origin (Art 4) “Guarantee of Origin: The certificate granted by the Authority to the legal entity holding generation license for the purpose of identification and monitoring of the resource type in purchasing and sale of the electrical energy generated from renewable energy resources in the domestic and international markets.” Not defined

Yes

Definition need to be expanded for consistency. Definition need to be expanded for consistency Need to define support scheme


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promote the use of RES by reducing the cost, increasing the price, or the volume (by an obligation) of such energy purchased; includes investment aid, tax exemptions or reductions, tax refunds, RES obligation support schemes (incl. green certificates), direct price support schemes (e.g. FiTs, premium payments) (l) Renewable energy obligation = national support scheme requiring the inclusion of a given proportion of energy from RES in production, supply, or consumption; includes green certificate schemes as a means for compliance

Renewable Law No. 5346 (Art 6 , b) “In case the total electrical energy amount with RES certificate is sufficient, the legal entities holding retail sale license shall be entitled to purchase RES certified electrical energy not lower than eight per cent of the electrical energy they have sold in the previous calendar year.”

Yes

where required

Article 3 – Mandatory national targets and measures Individual national RES targets to be met by 2020, consistent with 20% Community target, calculated as a share of gross final energy consumption (1.) General national biofuels target of 10% of final energy consumption in transport, to bet met by 2020 (4.) Energy efficiency (EE) and energy savings shall be promoted to achieve targets more easily (1.) Measures shall be introduced to promote RES and biofuels: support schemes and joint measures between MS and with third countries (3.)

RES is promoted, targets are indicative and for electricity only Use of biofuel is promoted but mandatory national target are not set in legislation Law on energy efficiency promotes EE and energy saving Not set out in legislation

No No Yes

Need to set mandatory targets Need to set mandatory targets Require measure to promote joint schemes between MS and third countries if required

Article 4 – National renewable energy action plans Action plans must be submitted annually No requirement for action plan No Require action plan


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saving measures to meet 2020 target • National action plans have to assess the need to build


Article 6 – Statistical transfers Statistical transfers of energy from RES can be made between MS, after the national target has been met They do not require physical transfer of energy

No provision No Develop/make possible where required


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No provision made for joint projects

Need to develop provision for joint projects where required.


No provisions for joint support schemes. Need to develop provision for joint support schemes where required.



RES licensing process is administered by EMRA, an independent financial autonomous public institution. The Energy Efficiency Co-ordination Board (EECB), the main body set-up to

Yes


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• Building codes and regulations should require minimum levels of RES in new buildings and major renovated buildings and measures to encourage uptake of RES (4, 5.)

• Equipment should be certified and eco-labels should

be used to encourage RES use (2., 3., 6.)

implement the provision of the Energy Efficiency law contains high level representatives from all ministries concerned with energy efficiency. Draft Energy Efficiency Law for Buildings has been prepared by the Ministry of Public Works and Resettlements in cooperation with MENR EU directives have been transposed

No Yes

Building code and regulation need to be updated




given (5.) • Awareness-raising, guidance and training

programmes should be developed (6.)

Provision contained in the Energy Efficiency law.

Yes




• A competent body independent from production, trade and supply activities shall supervise transfer

Regulation on Principles and Procedures for Granting Guarantee of Origin covers RES

Partially GoO to cover heating and cooling


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and cancelation of GoOs (4.) • GoOs must

o have a standard size of 1MWh (2.) o be valid for 12 months (3.) o specify source, start and end date of production









• Transmission and distribution of electricity from

RES shall be guaranteed by T/DSOs in their territories (2. (a))


Electricity Market Licensing Regulation (Art 38) priority for system connection given to generation facilities based on domestic natural resources and renewable resources.

Partially Transmission and distribution codes need to be updated to ensure consistency with directive.


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certain land types (high biodiversity, designated

Law on the extension of use of biofuels has been drafted

No Provision needs to be made for sustainable criteria.


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areas, biodiverse grassland, land with high carbon stock, peatland)



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REFERENCES Commission Staff Working Document - Turkey 2008 Progress Report Accompanying The Communication From The Commission To The European Parliament And The Council Enlargement Strategy And Main Challenges 2008-2009 http://ec.europa.eu/enlargement/pdf/press_corner/key-documents/reports_nov_2008/turkey_progress_report_en.pdf

2008/157/EC: Council Decision of 18 February 2008 on the principles, priorities and conditions contained in the Accession Partnership with the Republic of Turkey and repealing Decision 2006/35/EC

Energy and sustainable development in the Mediterranean: Proceedings of the Regional Workshop Monaco, 29 - 30 March 2007 BP Statistical Review of World Energy 2009 http://www.bp.com/productlanding.do?categoryId=6929&contentId=7044622 35th Edition Statistics and prospects for the European electricity sector (1980-2000, 2004, 2005, 2010-2030) (EURPROG 2007) – Eurelectric Turkey’s Energy Strategy – Ministry of Foreign Affairs 2006 EIE presentation – Renewable energy in Turkey (2007)

ANNEX I – BACKGROUND REPORT APPENDIX XI

CP REPORT - UKRAINE

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APPENDIX XI – CP REPORT: UKRAINE


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1 UKRAINE This section provides a brief and general introduction to Ukraine and its energy sector. Ukraine became independent from the Soviet Union in 1991. The Ukrainian economy declined dramatically after independence but began to recover in 2000. In 2005, a fall in world prices for Ukraine’s steel exports, combined with sluggish investment in an uncertain policy environment, led to real GDP growth falling to 2.6%. Growth rate further dropped in 2008 to 2.1%, a trend that is expected to continue. Ukraine is a priority partner in the European Neighbourhood Policy (ENP) which aims to avoid divisions between the enlarged EU and neighbouring states. The EU is Ukraine’s largest trading partner and the government has expressed a desired to join EU, however there are no concrete plans for membership at present.

1.1 Energy Sector


With coal being the main domestic resource, Ukraine has significant potential for more capacity from solar, SHPP, wind and biomass.


Ukraine inherited large electricity generation capacity of over 54GW from Soviet times, making it the 12th largest in the world. Coal-fired TPPs account for 64.4% of this capacity, nuclear for 26.5%, and hydropower plants (HPPs) for 9%. The largest nuclear plant in Europe, Zaporizhzhia NPP, is located in Ukraine and in 2006 the government announced plans to build 11 new reactors by 2030, almost doubling nuclear capacity. In 2008, renewable energy accounted for around 8% of Ukraine’s electricity generation, primarily from large hydropower with installed capacity of 4.7 GW. There are, however, other important renewable energy installations such as 85 MW of wind turbines and 13 MWth of geothermal space heating.1

1.1.3 Consumption

Electricity consumption in Ukraine is expected to increase from 176.9TWh in 2005 to 395TWh by 2030.2 The structure of primary energy consumption is characterised by the prevalence of inefficient and energy-consuming heavy industries over commodity production and services provision.


Grid losses in the Ukrainian power system have been gradually reduced over the past years but still constitute over 14% of total electricity produced.3

1 USAID: Stocktaking report for regional assessment of renewable energy, draft April 2009. 2 PointCarbon: Clean energy investment in the former Soviet Union (Ukraine and Kazakhstan), 2008. 3 Ibid.


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District heating systems are partially privatised, although there is no comprehensive strategy to reform this sector yet. Obsolete equipment and distribution infrastructure makes the district heating systems highly inefficient and leads to massive energy losses which contribute to increased prices for consumers. In 2001, the Integrated Energy System of Ukraine was connected to Russian Energy System. The Ukrainian grid connects to the Western European grid through the Burshtyn Energy Island and, in 2002, was partly integrated into ENTSO-E.


According to estimates, the residual life of Ukraine’s TPPs is 5-7 years and NPPs will approach the end of their designed service life in 2011-2030. Although there are examples of investments in refurbishment of power plants, such as the modernisation of the Starobeshevo plant, the prevailing practice remains the continued use of old equipment. Ukraine’s economy relies heavily on natural gas imported from Russia and fluctuations in world energy prices significantly impact GDP growth. After near doubling of Russian natural gas prices in 2006 and supply disruptions in 2006 and 2008 due to non-payment disputes, Ukraine announced intentions to significantly decrease the share of imported fuels, especially natural gas, in its energy balance. Ukraine also obtains most of its nuclear fuel from Russia but there are plans to introduce full domestic cycle of nuclear fuel production to eliminate the need of using processing services in Russia. There are large deposits of uranium ore in Ukraine.4

1.1.6 Challenges

Ukraine is one of the least efficient countries in the world in terms of energy consumption (3.5 times more then the average European index) as a result of obsolete industrial and municipal facilities inherited from the former Soviet Union. For the same reason, Ukraine is rated as the sixth biggest carbon dioxide emitting country in the world. The government estimates that energy efficiency would have a greater impact on the country’s energy balance at a lower cost than all planned investments in new supply combined. Electricity prices in Ukraine remain at one of the lowest levels in Europe and although prices rose after gas price increases in 2005/06, they are still below most Eastern European neighbors. Tariffs for residential consumers only cover about 30% of long-run marginal costs and are subsidised at the expense of industry, rail transport, the national budget and other commercial consumers.

4 Ukraine: Outlook to 2050. IPA data register 024, p.3.


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2 RENEWABLE ENERGY FRAMEWORK This section provides a high-level assessment of the current framework in which the renewable energy sector operates in Ukraine.


The National Energy Strategy until 2030 (2006) outlines Ukraine’s general energy policy. It emphasises the reduction of fossil fuel imports, increasing domestic electricity production (mainly from nuclear, hydropower and renewables), and increasing consumption of domestically produced coal. The government has proposed to increase installed capacity from 52 GW to 88.5 GW by 2030 through construction of new nuclear capacity, as well as rehabilitation of existing TPPs. It is expected that large hydropower storages are to be constructed to add more marginal capacity. The strategy envisages that electricity production from RES will increase up to 50 million kWh in 2010, 800 million kWh in 2015, 1.6 billion kWh in 2020 and 2.1 billion kWh in 2030.5 The largest increase is expected in the use of solar energy, methane gas from coal mines and heat pumps operating on low potential heat. Wind power, biomass and small hydropower are also identified as priorities for development.

The State Support Programme for the Development of Non-traditional, Renewable Energy Sources, Small Hydro and Thermal Energy Plants (1997) set a target of 10% of final energy consumption from renewable sources by 2010. This included a goal of installing 190 MW of wind power capacity by 2010. Few measures were implemented due to lack of financing from the national budget. The Comprehensive State Energy Conservation Program of Ukraine (1997; revised 2000) is the main programme for energy efficiency. It identifies priority energy efficiency measures, including introduction of new energy-efficient technologies and equipment, fuel switch, and reduction of energy losses. Few measures have been financed.

The State Program "Ethanol" (2000) was aimed at increasing use of ethanol as an energy source and raw material for industrial production. The program focused on production of environmentally friendly petrol blends, ethylene and biodiesel, among others. The program envisaged creation of a special-purpose fund to finance development of production capacities for biofuels, however the fund was never created and objectives of the program have not been achieved. The Decree of the President of Ukraine "On measures for the development of production of fuel from organic raw material" (2003) envisages stimuli for the production of fuel ethanol, biodiesel and biogas. The Programme to Develop Biodiesel Production (2005) stipulates that Ukraine will produce and consume approximately 520,000 tonnes of biofuels in 2010. In 2006 the target was revised upwards to 623,000 tonnes annually by 2010. The “Integrated Wind Plant Construction Program in Ukraine by the year 2020” established targets for wind power development in Ukraine and encourages various technical and strategic aspects of wind power development, including establishment of certification centres, repair bases and staff training centres.

5 www.inogate.org.


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2.2 Legislation

The Law “On alternative sources of energy” (2003) is the primary legislation which defines the legislative, economic, ecological, and organizational basis for the use and promotion of RES. The law envisages that financing of RES will be from funds provided by a surcharge on wholesale tariffs for electricity and heat, and from private funds. The law also envisages the creation of national, regional and local programmes to provide financial support for scientific and technological research, as well as a permitting scheme for construction of RES facilities, but does not outline conditions or procedures for these initiatives.

The Green Tariff Law approved in 2008 requires wholesale electricity markets to purchase all electricity produced from RES at ‘green’ tariffs set by the regulator. The tariff is to be established annually for each market participant at not less than double the average weighted tariff of electricity purchased from thermal power generating companies on the wholesale electricity market for the price bid of that year. The green tariff will be guaranteed for each market participant for a period of 10 years with its rate reviewed each year based on the previous year’s prices (for example, it should be about US$100-120/MWh in 2010 based on 2009 tariffs of thermal generators).6 Unlike the German feed-in tariff scheme, the Ukrainian legislation provides for a single tariff that is not differentiated based on the energy source (e.g., solar, wind, small hydro, etc.) or on the capacity of the facility. The green tariff is also not dependent on the date of commissioning of the facility, so plants becoming operational in later years will not necessarily get a lower tariff. The law is also meant to give RES producers preferential access to regional distribution networks. Regional networks are to be obliged to buy electricity generated from RES unless the generator intends to sell electricity directly to a consumer. In cases where electricity produced from RES is sold directly to consumers, the government will provide consumers with documentation confirming the purchase of electricity from RES. The Law “On amendments to some legislative acts of Ukraine regarding stimulation of energy saving activity” (2008) states that equipment for RES generation and energy saving equipment imported into Ukraine are exempt from custom duty and taxes. The law also provides income tax exemptions for enterprises that manufacture and sell equipment employing non-traditional and renewable energy sources, energy saving equipment and materials, metering and control devices for fuel-energy resources, and equipment for production of alternative fuels. The Law "On Energy Conservation" (1994) defines the need to promote energy saving and energy efficiency through the creation of special state programs. Key provisions include: • Mandatory metering and automated regulation equipment for fuel and other

energy resources use;

• Development of incentives for combined-cycle production of electricity and heat;

• Introduction of energy labelling for home appliances.

6 USAID: Stocktaking report for regional assessment of renewable energy, draft April 2009.


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The Law “On Cogeneration” (2005) attempts to stimulate CHP production by: • Creating incentives for retrofitting existing single cycle installations into

cogeneration plants;

• Creating new combined cycle generation to serve district heating and industrial CHPs;

• Guaranteeing grid access;

• Exempting cogeneration installations from surcharges on electricity tariffs.

The Law “On alternative kinds of liquid and gaseous fuel” (2000) stipulates that financial support must be given to landfill gas utilization projects, biogas projects and production of liquid fuel from biomass. It mentions possible subsidies, tax exemptions and other incentives, but does not define substantive mechanisms.

2.3 Regulation

N/A


The Ministry of Fuel and Energy implements and manages state policy in the fuel and energy sector. The ministry plans to establish a dedicated department for electricity production from RES. The National Agency for Efficient Energy Resources Management (NAER) is responsible for implementing state policy on effective energy use and energy saving. Tasks include increasing the share of alternative fuels, creating a monitoring system, improving metering and control systems, and ensuring a united system for setting rates of energy consumption in public production. The National Electricity Regulatory Commission (NERC) is the state regulator of the energy sector. NERC monitors the electricity market, approves market rules and regulates tariffs for electricity and heat energy produced by nuclear plants, CHP, hydroelectric stations and wind power (thermal plants operate under price bidding conditions). NERC also has some licensing authorities and is charged with protecting the rights of consumers. The Ministry of Environmental Protection is responsible for the efficient use, restoration and protection of natural resources and the environment. The ministry is also responsible for coordinating Ukraine’s implementation of the Kyoto Protocol. The Ministry of Agrarian Policy of Ukraine (MAP) is responsible for implementing state agrarian policy which includes promoting the production of crops and agricultural waste products for energy purposes. The ministry also developed and must implement the State Program for Biodiesel Production. The Ministry of Construction, Architecture, Housing and Communal Services is responsible for developing and implementing policies on district heating and energy efficiency improvements in housing stock.


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2.5 Market

The Ukrainian electricity sector consists of 7 power generating companies and 27 power supply companies, 14 of which have been privatised. Close to 95% of all Ukrainian electricity is produced by the centralized generating companies. The state holds about 25% stake in most of the generating companies. Hydropower and nuclear power, as well as the high voltage grid are barred from privatisation. The transmission system operator, Ukrenergo, is responsible for the transmission of high voltage electricity, centralised dispatch, control of power plants connected to the grid, preventing breakdowns and minimising losses, and ensuing parallel operation with neighbouring country power systems. The 27 regional power supply companies (oblenergos) are responsible for electricity distribution. Their assets include low voltage transmission lines, transformer substations, electricity consumption meters and systems and other equipment. The state-owned wholesale electricity market company, Energorynok, exercises a monopoly on the market by purchasing all generated power and then reselling it to power supply companies. Whilst the Ukrainian energy market was intended to operate as a competitive electricity pool, it is in reality an administratively regulated system of energy supply and distribution, as Energorynok controls all financial flows on the energy market using a system of clearing accounts. The tariffs are regulated by NERC, and are determined as a weighted average price based on the load curve and the utilized capacity of generating units. Market rules are not straightforward and companies are remunerated regardless of actual electricity production. About 100 independent suppliers - defined as electricity producers with an output lower than 20 MW or 100 GWh - hold licences for electricity supply at non-regulated tariffs and are allowed use oblenergos‘ networks. However, obtaining such licenses is reported to be an extremely complicated process. Reform of the wholesale electricity market is slowly underway to replace the current ‘single buyer’ model with a bilateral market supplemented by capacity auctions, a balancing market, and system ancillary services market. The target of completing the transition is 2014 but new market and transition arrangements are still at the design phase. The national energy strategy considers options for designing new legislation that would allow privatization of assets that are owned by the state or that have significant state-owned equity.


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3 IMPACT OF DIRECTIVE 2009/28/EC This section will assess the level of present compliance with the provisions of the new Directive by means of a gap analysis.7


Ukraine has developed primary legislation, policies and programmes related to promotion of RES, but in most cases they are of a declaratory nature with targets and objectives yet lacking concrete measures or instruments. Lack of state funding also appears to have undermined the success of many support programmes for RES development. The Energy Strategy until 2030 is the main policy document and should be updated to include mandatory targets and national energy plans. The law on alternative sources of energy is the primary legislation dealing with RES. It requires significant updating to be consistent with the Directive’s articles, including those for statistical transfers, joint projects, joint support schemes and priority grid access. Biofuel targets, promotion measures and sustainability criteria must be developed, either within existing or new legislation. There are currently several government ministries and agencies with responsibilities related to renewable energy development (e.g., licensing, tariffs, policy, biofuels, environmental protection). Administrative reforms are required to encourage renewable energy projects and investors.

3.2 Gap Analysis

7 Note: Relevant policy, legislative, regulatory and technical documents were not provided or available in English. This section is therefore based on secondary sources and requires verification using primary source documents.


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Article 2 – Definitions (a) Energy from renewable non-fossil sources = wind, solar, aerothermal, geothermal, hydrothermal and ocean energy, hydropower, biomass, landfill gas, sewage treatment plant gas, biogases8 (g) District heating or cooling = distribution of thermal energy in form of steam, hot water or chilled liquids, from central source of production through a network to multiple buildings or sites, for the use of space or process heating or cooling (h) Bioliquids = liquid fuel for energy purposes other than for transport, incl. electricity and heating and cooling, produced from biomass (i) Biofuels = liquid or gaseous fuel for transport produced from biomass (j) Guarantee of origin (GoO) = electronic document with the sole function of providing proof to final customer that a

Law on alternative sources of energy: RES = solar energy, wind energy, energy from the seas (wave and tidal), rivers, biomass, geothermal energy, and secondary energy resources that exist constantly or are periodically generated in the environment. Law on alternative kinds of liquid and gaseous fuel: alternative fuels = alcohols and oils produced from biomass, coal methane, biogas of different types, producer gas and some other fuels. Not defined.

Yes N/A N/A

Definition could be expanded for greater consistency.



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Not defined. Not defined.

N/A N/A

Article 3 – Mandatory national targets and measures Individual national RES targets to be met by 2020, consistent with 20% Community target, calculated as a share of gross final energy consumption (1.) General national biofuels target of 10% of final energy consumption in transport, to bet met by 2020 (4.) Energy efficiency (EE) and energy savings shall be promoted to achieve targets more easily (1.) Measures shall be introduced to promote RES and biofuels: support schemes and joint measures between MS and with third countries (3.)

Targets set for electricity from RES but are not mandatory by 2020. Biofuels promotion stipulated but no mandatory targets. Law on energy conservation stipulates provisions for energy savings. Various documents promote RES and biofuels; no mention of joint measures.

No No Yes Yes

Set mandatory RES targets consistent with EC target by 2020. Set mandatory biofuels targets consistent with EC target by 2020.

Article 4 – National renewable energy action plans Action plans must be submitted annually No requirement for RES action plans. No Develop requirements for national


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saving measures to meet 2020 target • National action plans have to assess the need to build


action plans consistent with Directive.

Article 6 – Statistical transfers Statistical transfers of energy from RES can be made between MS, after the national target has been met

N/A


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They do not require physical transfer of energy Article 7 to 10 – Joint projects • MS can engage with other MS or third parties in joint







N/A


N/A


rules, structures and charges, certification and licensing, information availability with respect to RES projects and infrastructure for RES (networks)

Licensing process is reported to be highly complex and costly.

No

Administrative procedures and rules for RES projects must be simplified and clearly drafted.


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needs to be ensured (1.) • Building codes and regulations should require

minimum levels of RES in new buildings and major renovated buildings and measures to encourage uptake of RES (4., 5.)


No building code provisions related to RES. Law on energy conservation includes provisions for energy labelling of appliances. RES and energy saving equipment exempt from certain taxes and custom duties through reimbursement.

No Yes/No

Revise building code and regulations in include minimum levels of RES. Develop certification and labelling for RES equipment. Tax reimbursements must be applied consistently and promptly.




given (5.) • Awareness-raising, guidance and training

programmes should be developed (6.)

Unknown. No information programmes or certification schemes were found.

No Develop information and training programmes, certification schemes, and public information programmes.





• GoOs must

No Develop provisions for GoO consistent with Directive.


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o have a standard size of 1MWh (2.) o be valid for 12 months (3.) o specify source, start and end date of production









• Transmission and distribution of electricity from RES

shall be guaranteed by T/DSOs in their territories (2. (a))



Unknown. Transmission, distribution and grid codes not available. Generators with capacity of 20 MW or less allowed access to distribution network.

Unknown Revise codes to be consistent with Directive.


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Unknown. State programmes, legislation and regulation do exist for biofuels but specific provisions not available.

Unknown Develop sustainability criteria for biofuels consistent with Directive.


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296




ANNEX II RENEWABLE ENERGY TARGET CALCULATION

297

ANNEX II – RENEWABLE ENERGY TARGET

CALCULATION REPORT



Draft 2020 Renewable Energy Targets

to


January 2010

IPA Energy + Water Economics

Draft 2020 Renewable Energy Targets

to



Edinburgh EH3 7HL

United Kingdom

Tel: +44 (0) 131 240 0840 Fax: +44 (0) 131 220 6440

Email: [email protected] Web: www.ipaeconomics.com

TABLE OF CONTENTS

300

TABLE OF CONTENTS

1 INTRODUCTION 301

2 METHODOLOGY 302

2.1 Base Year Renewable Energy Share 302 2.2 Flat-Rate Increase 303 2.3 Residual Effort 303 2.4 Energy Consumption Forecast Alternative Methodology 303

3 TARGET CALCULATIONS 306

3.1 Albania 307 3.2 Bosnia and Herzegovina 309 3.3 Former Yugoslav Republic of Macedonia 311 3.4 Montenegro 313 3.5 Serbia 315 3.6 UNMIK 317 3.7 Moldova 319 3.8 Turkey 321 3.9 Ukraine 322

4 SUMMARY AND CONCLUSIONS 324

4.1 Biomass Data 325

ANNEX II – TARGET CALCULATION REPORT SECTION 1

INTRODUCTION

301

1 INTRODUCTION

The Energy Community Secretariat commissioned IPA Energy + Water Economics and EPU-NTUA to study the implications of implementing the new Renewable Energy Directive 2009/28/EC within the Energy Community. This report presents our calculations of the 2020 targets for renewable energy for six of the seven Contracting Parties (CPs – Albania, Bosnia and Herzegovina, Former Yugoslav Republic of Macedonia, Montenegro, Serbia and UNMIK) and the three candidate Contracting Parties (cCPs – Moldova, Turkey and Ukraine) of the Energy Community following the methodology used by the European Commission in calculating the corresponding targets for the European Union Member States as set out in the Directive. The target calculation for the seventh CP, Croatia, has already been completed and broadly accepted by the EU and hence has not been detailed in this report. This report is structured as follows:

• Section 2: describes the EU methodology for determining renewable energy targets;

• Section 3: details our calculations for each of the ten Parties; and

• Section 4: summarises the results.

In calculating these targets, we have relied on information provided by each of the Parties and where necessary, publically available data. Data has been continuously collected, updated and refined over the course of this assignment.


METHODOLOGY

302

2 METHODOLOGY

The calculation of the 2020 target involves three elements:

• Share of renewable energy, base year 2005;

• Flat-rate increase;

• Additional residual effort determined on the basis of relative GDP per capita.

The premise behind this is an equivalent level of ambition as the European Union’s 20% target, but since the Energy Community Parties will be starting from a different current baseline, the overall target will be different.

2.1 Base Year Renewable Energy Share

The starting point of the target determination for each Party is the renewable share of gross final energy consumption in the baseline year of 2005. Gross final energy consumption is defined as consumption measured before transmission and distribution losses and including own use by the heat and power sectors, but excluding non-energy use. This is a precise metric which is not often specifically reported. In most cases, therefore, we have had to calculate it from total final consumption, with appropriate adjustments: Gross Final Energy Consumption (GFEC) = Total Final Consumption (TFC) – Non-Energy Use + Transmission/Distribution Losses + Own Consumption By and large, we have used data provided by the Contracting Parties for calculating the base year renewable share, cross-checked or augmented with other publicly available sources, including energy balances published in a study of the Western Balkans by the International Energy Agency (IEA) (2008). In addition, actual renewable energy consumption had to be adjusted to account for the fact that it may have been an abnormally wet or dry year in terms of hydroelectric generation. The EU methodology indicates that hydro production should be normalised against 15 years of historic data, i.e. a notional “average” generation level should be used based on the average load factor seen since 1991. Since most of the Parties did not have data available so far back, we have used statistics collated by the US Energy Information Administration to perform this normalisation. The ratio of 2005 renewable energy consumption with normalised hydro production to gross final energy consumption thus provides the base renewable energy share.


METHODOLOGY

303

2.2 Flat-Rate Increase

The initial additional renewable energy share to be achieved by all Parties is a flat 5.5 percentage points of gross final energy consumption in 2020, over and above the proportion achieved in 2005. This figure was based on the 27 EU Member States equally sharing half of their total ambition.

2.3 Residual Effort

The other half of the EU’s ambition was split amongst the Member States in accordance to their relative GDP per capita in 2005. The same approach is used here for the Energy Community Parties, assuming the same average EU effort of 0.16 toe per citizen adjusted by the ratio of each Party’s respective GDP per capita to the EU figure of €22,400. This adjusted effort per citizen is then multiplied by the population of the respective Party in 2005 to determine an aggregate residual effort per Party. In order to express this as a target share in 2020, a forecast of gross final energy consumption in 2020 is also required. The Contracting Parties have all provided their own forecasts for energy demand growth, which we have used as the basis for our main calculations. Where these refer to total primary energy, we have used the indicated growth rates and assumed gross final energy consumption is in the same ratio as in 2005. However, as a cross-check (and also to enable calculations for Parties for which forecast data was not available) we derived an alternative methodology for estimating demand growth, described below.

2.4 Energy Consumption Forecast Alternative Methodology

We have based our alternative methodology on the forecast data used by the European Commission in calculating the renewable energy targets for the EU. These were calculated using the National Technical University of Athens’s proprietary PRIMES model, which describes the energy demand of the EU at a very detailed sub-sectoral level. While replicating such a level of detail was beyond the scope of this assignment, we have attempted to develop a methodology which is broadly in line with the PRIMES results. We analysed the published1 energy demand forecasts for seven EU Member States which are economically comparable to the Energy Community Parties (Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia, and Slovenia) over the period 2000 to 2030, and were able to identify a clear correlation between energy intensity (the ratio of total primary energy supply to GDP) and GDP, as shown in Figure 1 below:

1 European Energy and Transport – Trends to 2030 – Update 2007, European Commission Directorate-General for Energy and Transport (8 April 2008)


METHODOLOGY

304

Figure 1: PRIMES Energy Intensity vs. GDP per Capita Forecasts 2000-2030 for Selected EU

Countries

0

250

500

750

1,000

1,250

1,500

0 100 200 300 400 500 600 700

GDP, €bn (2005)

En

ergy I

nte

nsi

ty, to

e/€m

(2

005)

Bulgaria Czech Republic Hungary Poland Romania Slovakia Slovenia

These forecasts all appear to follow an equation of the form:

Energy Intensity = A × GDP b with a very good regression fit, as shown in Table 1: Table 1: Regression of PRIMES Forecasts of Energy Intensity to GDP per Capita for

Selected EU Countries

EU Member State R2 Scale Factor, A

Efficiency

Improvement

Rate, b

Bulgaria 99.5% 10,424 -0.799

Czech Republic 99.3% 15,434 -0.775

Hungary 99.4% 7,250 -0.704

Poland 99.9% 17,208 -0.689

Romania 99.6% 8,877 -0.659

Slovakia 98.8% 7,322 -0.747

Slovenia 97.9% 1,342 -0.494

This represents the fact that as a country’s GDP increases, so it’s utilisation of energy is expected to improve – the rate of efficiency improvement is “measured” by the parameter b in the equation above.


METHODOLOGY

305

For each of the ten Parties, we have therefore adopted the efficiency improvement rate b from a similar (in terms of 2005 energy intensity vs. GDP) EU country as a proxy, and determined an adjusted scaling factor A to maintain the actual 2005 baseline relationship of energy intensity to GDP. Using forecasts of GDP growth to 2014 from the International Monetary Fund’s World Economic Outlook Database (April 2009), extrapolated to 2020 using the average annual growth rate over the latter 2-4 years of the forecast (i.e. the point at which growth resumes a steady state after the economic recession), and exchange rates from the United Nations Statistics Division publication National Accounts

Main Aggregates Database, we were thus able to calculate a forecast of energy intensity in 2020 based on the regression. This was then multiplied by the forecast GDP to give a Total Gross Inland Energy Consumption (the term used by Primes for Total Primary Energy Supplied) forecast for 2020, which was converted to Gross Final Energy Consumption for use in the renewable target calculation by assuming the same ratio as in 2005. It should be noted that, in most cases, our approach has resulted in lower energy consumption figures for 2020 than the Parties’ own forecasts, and hence a higher residual renewables share to be achieved (since the absolute residual effort is the same). It is thought that this is mainly because the forecasts provided by the Contracting Parties all date from before the global recession of 2008/09, whereas the IMF GDP forecasts are more recent and take account of a dip in economic activity during 2008 and 2009 with a recovery to previous growth rates only after a few years. However, in all cases except Croatia, the difference in the final calculated target is less than half a percentage point – the difference for Croatia is 1.1 percentage points, but it is recognised that the target has already been accepted and is unlikely to be changed.


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306

3 TARGET CALCULATIONS

Our calculated 2020 renewable energy targets for the ten Parties, using the methodology outlined in Section 2, are detailed below. For each Party, the main table shows the calculation based on the Party’s own forecast of 2020 energy consumption, with our alternative methodology detailed subsequently. The results for the Contracting Parties are summarised in Table 2:

Table 2: Energy Community Contracting Parties 2020 Renewable Energy Targets

Party

2005

GFEC,

ktoe

RES

Share

2005

Forecast

2020

GFEC,

ktoe

Residual

Effort per

Citizen,

toe/head

Residual

Effort,

ktoe

Residual

Effort

2020

Share

2020 RES

Target

Albania 2,053.9 29.3% 3,308.2 0.015 47.0 1.4% 36.2%


3,008.0 26.5% 4,890.3 0.016 61.8 1.3% 33.3%

Croatia 6,653.8 12.6% 9,657.0 0.057 187.0 1.9% 20.0%


1,873.0 13.8% 2,878.6 0.016 33.4 1.2% 20.5%

Montenegro 818.7 23.0% 1,336.4 0.021 13.0 1.0% 32.0%

Serbia 9,499.0 12.9% 13,705.8 0.020 145.3 1.1% 19.4%

UNMIK 1,450.5 27.8% 2,239.5 0.011 21.9 1.0% 34.2%

Total 25,356.8 17.0% 38,015.7 0.023 509.4 1.3% 23.8%

We have listed the three candidate Contracting Parties separately since they are at a different earlier stage of the process than the seven Contracting Parties, and hence data for them has not been available to the same degree. (For example, we only have a 2006 energy balance for Ukraine from a secondary source and no 2020 forecasts for Moldova or Turkey except through our methodology.) Hence the calculated targets for the cCPs should be treated as indicative only, and new ones should be calculated when more accurate data becomes available. These indicative results are summarised in Table 3:

Table 3: Energy Community Contracting Parties Indicative 2020 Renewable Energy Targets

Party

2005*

GFEC,

ktoe

RES

Share

2005*

Forecast

2020

GFEC,

ktoe

Residual

Effort per

Citizen,

toe/head

Residual

Effort,

ktoe

Residual

Effort

2020

Share

2020 RES

Target

Moldova 2,093.4 3.7% 2,590.7 0.005 17.2 0.7% 9.9%

Turkey 65,868.0 15.6% 82,282.0 0.041 2,774.1 3.4% 24.5%

Ukraine 82,851.0 1.9% 89,245.5 0.011 494.8 0.6% 7.9%

Total 150,812.4 7.9% 174,118.2 0.028 3,286.1 1.9% 15.3%

* As detailed in Section 3.9 below, 2005 data for Ukraine was not available, so the calculation has been based on a 2006 energy balance from the IEA.

Given the large size of both Turkey and Ukraine in terms of energy consumption compared to the rest of the Energy Community, it is important that robust data is obtained for them before their targets are established.


TARGET CALCULATIONS

307

3.1 Albania

The calculation of Albania’s target is detailed in Table 4. Most of the data was sourced from information provided by the Ministry of Economy, Transport and Energy. Table 4: 2020 Renewable Energy Target Calculation – Albania

Parameter Value Source

Renewable Energy Share in 2005

Total Final Consumption, ktoe 2,050.2 (1)

– Non-Energy Use, ktoe 83.5 (1)

+ Losses, ktoe 75.8 (1)

+ Own Consumption, ktoe 11.4 (1)

Gross Final Energy Consumption 2005, ktoe (A) 2,053.9

Hydro Generation, ktoe 463.0 (1)

÷ Hydro Load Factor 2005 42.0% (2)

× Average Hydro Load Factor 1991-2005 33.5% (2)

Normalised Hydro Generation, ktoe (B) 369.1

Other Renewable Energy Sources, ktoe I 232.3 (1)

Total Normalised Renewables, ktoe (D) = (B) + (C) 601.4

Renewable Energy Share 2005 (E) = (D) / (A) 29.3%

Flat Rate Increase (F) 5.5%

Additional Effort Based on GDP

GDP per Capita 2005, €/head 2,100 (3)

÷ EU-27 Average GDP per Capita, €/head 22,400 (4)

GDP per Capita Index 9.4%

× Residual Effort per EU-27 Citizen, toe/head 0.16

Residual Effort per Citizen, toe/head 0.015

× Population 2005, m 3.14 (3)

Residual Effort, ktoe (G) 47.0

Gross Final Energy Consumption 2006, ktoe 1,990.0 (5)

× Forecast Growth 2006-20 166% (6)

Forecast 2020 Gross Final Energy Consumption, ktoe (H) 3,308.2

Residual Effort 2020 Share (I) = (G) / (H) 1.4%

Total 2020 Renewable Energy Target (E) + (F) + (I) 36.2%

Sources: (1) Energy Balance 2005, Ministry of Economy, Transport and Energy, Albania (2) International Energy Annual 2006, U.S. Energy Information Administration (data updated

September 2008) (3) World Economic Outlook Database, International Monetary Fund (April 2009) (4) Eurostat Target Calculation Reference (spreadsheet received from European Commission 17

July 2009) (5) Energy Balance 2006, Ministry of Economy, Transport and Energy, Albania (6) Final Energy Consumption 2006-2021, Ministry of Economy, Transport and Energy, Albania

(spreadsheet received 30 October 2009)


TARGET CALCULATIONS

308

Our alternative approach for forecasting 2020 energy consumption is given in Table 5 (see Section 2.4 for description of the methodology). Table 5: Alternative Target Calculation – Albania


GDP 2005, €bn (2005) 6.58 (3)

Real GDP Compound Annual Growth Rate 2005-14 5.1% (3)

Annual GDP Growth 2014-20 (equal to 2011-14 average) 6.2%

Forecast GDP 2020, €bn (2005) (J) 14.72

Energy Intensity 2005, toe/€m (05) 346.1

PRIMES Proxy Slovenia

Scale Factor Adjustment 55%

Adjusted Scale Factor A 738

Efficiency Improvement Rate b -0.494

Regression-Implied Energy Intensity 2020, toe/€m (05)

(K) = A × (J) b 195.7

Forecast Total Energy Supply 2020, ktoe (J) × (K) 2,881.5

× Ratio of GFEC to TES (assumed constant as 2005) 90.1%

Forecast 2020 Gross Final Energy Consumption, ktoe (L) 2,597.4

Residual Effort 2020 Share (M) = (G) / (L) 1.8%

Total 2020 Renewable Energy Target (E) + (F) + (M) 36.6%

Reduced GDP growth in 2009 and 2010 in the IMF forecasts results in a 2020 energy consumption forecast about 20% below the country’s own forecast, but the impact on the residual effort share is fairly small, with the overall target increasing by 0.4 percentage points to 36.6%.


TARGET CALCULATIONS

309

3.2 Bosnia and Herzegovina

Bosnia and Herzegovina’s target calculation is shown in Table 6. A study funded by the World Bank in 2008 into the energy sector was recommended by the Contracting Party as the best source of data; however one issue which arose was in the calculation of biomass consumption. This study used a novel approach to estimate the amount of wood consumed in domestic settings, which resulted in a very high figure in contrast to an International Energy Agency study, which we understand used a methodology more consistent with that used by Eurostat and looked more consistent with other Parties. We therefore decided to adjust the baseline energy consumption figure in order to ensure consistency with the calculations for the other Parties and for the EU Member States. Table 6: 2020 Renewable Energy Target Calculation – Bosnia and Herzegovina




– Fuel Wood, ktoe 1,129.2 (1)

+ Combustion Renewables & Waste, ktoe 182.0 (2)

Adjusted Total Final Consumption, ktoe 2,873.4


+ Losses (electricity), ktoe 139.6 (1)

+ Losses (heat), ktoe 13.7 (1)

+ Own Consumption (electricity sector), ktoe 72.7 (1)






Other Renewable Energy Sources, ktoe (C) 182.0 (2)










× Population 2005, m 3.92 (4)


Gross Final Energy Consumption 2005, ktoe 3,008.0 as above





Sources: (1) Energy Sector Study in BIH – Book A Historical Energy Balances, World Bank funded

consortium (March 2008) (2) Energy in the Western Balkans, International Energy Agency (2008) (3) International Energy Annual 2006, U.S. Energy Information Administration (data updated

September 2008) (4) World Economic Outlook Database, International Monetary Fund (April 2009)


TARGET CALCULATIONS

310

(5) Eurostat Target Calculation Reference (spreadsheet received from European Commission 17 July 2009)

(6) Energy Sector Study in BIH – Energy Demand Forecasting, World Bank funded consortium (March 2008)

Our alternative approach for forecasting 2020 energy consumption is given in Table 7 (see Section 2.4 for description of the methodology). Table 7: Alternative Target Calculation – Bosnia and Herzegovina


GDP 2005, €bn (2005) 8.66 (4)



Forecast GDP 2020, €bn (2005) (J) 16.76




Adjusted Scale Factor A 1,409



(K) = A × (J) b 350.5

Forecast Total Energy Supply 2020, ktoe (J) × (K) 5,874.





As with Albania, while the forecast gross final energy consumption is about 20% lower, the effect on the overall target is minimal – only 0.3 percentage points.


TARGET CALCULATIONS

311

3.3 Former Yugoslav Republic of Macedonia

The target calculation for the Former Yugoslav Republic of Macedonia (Table 8) was based mainly on data provided by the Party. Table 8: 2020 Renewable Energy Target Calculation – Former Yugoslav Republic of

Macedonia








+ Own Consumption (heat sector), ktoe 10.0 (1)
















× Population 2005, m 2.04 (4)


Total Primary Energy Supply 2020, ktoe 4,208.0 (2)

× Ratio of GFEC to TPES (assumed constant as 2005) 68.4%




Sources: (1) IEA Online Database: Energy Balances of Non-OECD and OECD Countries and Energy

Statistics of Non-OECD and OECD Countries, International Energy Agency (2008) (data provided by Ministry of Economy, Macedonia received January 2010)

(2) Strategy for Energy Development in the Republic of Macedonia for the Period 2008-2020

with a Vision to 2030, Macedonian Academy of Sciences and Arts (June 2009) (3) International Energy Annual 2006, U.S. Energy Information Administration (data updated


July 2009)


TARGET CALCULATIONS

312

Our alternative forecast calculation (Table 9) results in an approximately 20% lower energy consumption figure for 2020 than the Party’s own forecasts, as for Albania and Bosnia and Herzegovina, but the effect on the final target is once again only 0.3 percentage points. Table 9: Alternative Target Calculation – Former Yugoslav Republic of Macedonia


GDP 2005, €bn (2005) 4.68 (4)



Forecast GDP 2020, €bn (2005) (J) 6.58







(K) = A × (J) b 508.3






The final target could thus be rounded to 21%.


TARGET CALCULATIONS

313

3.4 Montenegro

The Montenegro Department of Energy Efficiency and Renewable Energy Sources provided a detailed energy balance which allowed an accurate baseline figure to be calculated (Table 10 below). The forecast energy consumption was taken from a 2007 energy strategy report. Table 10: 2020 Renewable Energy Target Calculation – Montenegro



Total Final Energy Consumption, ktoe 732.0 (1)

+ Losses, ktoe 66.6 (1)

+ Own Consumption, ktoe 20.1 (1)

Gross Final Energy Consumption 2005, ktoe (A) 818.7















× Population 2005, m 0.61 (2)


Total Primary Energy Supply 2020, PJ 68.62 (4)

converted to ktoe 1,639.0





Sources: (1) Energy Balance 1990-2005, Department for Energy Efficiency and Renewable Energy

Sources, Montenegro (spreadsheet received 3 December 2009) (2) World Economic Outlook Database, International Monetary Fund (April 2009) (3) Eurostat Target Calculation Reference (spreadsheet received from European Commission 17

July 2009) (4) Energy Development Strategy of Montenegro by 2025, Ministry for Economic Development

of Montenegro (December 2007)


TARGET CALCULATIONS

314

Our alternative forecast is about 10% lower for 2020, resulting in a final target only 0.1 percentage point greater, as shown in Table 11 below: Table 11: Alternative Target Calculation – Montenegro


GDP 2005, €bn (2005) 1.82 (3)



Forecast GDP 2020, €bn (2005) (J) 3.32




Adjusted Scale Factor A 805



(K) = A × (J) b 445.2






The 2020 renewable energy target could therefore be taken as 30%.


TARGET CALCULATIONS

315

3.5 Serbia

For the calculation of the target for the Republic of Serbia (Table 12) we used a combination of an energy balance prepared by the International Energy Agency in a 2008 report on the Western Balkans, cross-checked against information provided by the Contracting Party from the Statistical Office of the Republic of Serbia, and a primary energy demand forecast from the Ministry of Mining and Energy. The baseline biomass consumption was provided by the Party from a 2008 Energy Balance. Consequently, we have adjusted the baseline total consumption to ensure consistency. Table 12: 2020 Renewable Energy Target Calculation – Serbia




– Fuel Wood, ktoe 802.0 (1)

+ Combustion Renewables & Waste, ktoe 303.0 (6)

Adjusted Total Final Consumption, ktoe 9,164.0





Hydro Generation, ktoe 1,035.0 (1)





Total Normalised Renewables, ktoe (D) = (B) + (C) 1,221.8









× Population 2005, m 7.44 (3)


Total Primary Energy Supply 2006, ktoe 17,068.0 (1)






Sources: (1) Energy in the Western Balkans, International Energy Agency (2008)

[This data is consistent with Energy Balance of Electricity and Heat, 2004 and 2005, Statistical Office of the Republic of Serbia (September 2006), but provides a more comprehensive breakdown of the figures required for the calculation.]

(2) HPP Data for the Period 1990-2008, Ministry of Energy and Mining, Serbia (2009) (3) World Economic Outlook Database, International Monetary Fund (April 2009) (4) Eurostat Target Calculation Reference (spreadsheet received from European Commission 17

July 2009)


TARGET CALCULATIONS

316

(5) Data from Regional Energy Demand Planning project provided by Ministry of Mining and Energy, Republic of Serbia (spreadsheet received 6 November 2009)

(6) Data based on Energy Balances, 2008 from Republic of Serbia Statistical Office (sent on 14 January 2010)

Our energy consumption forecast is about 10% less, resulting in a marginally higher final target (Table 13). Table 13: Alternative Target Calculation – Serbia


GDP 2005, €bn (2005) 20.34 (4)



Forecast GDP 2020, €bn (2005) (J) 39.24


PRIMES Proxy Slovakia





(K) = A × (J) b 519.6







TARGET CALCULATIONS

317

3.6 UNMIK

The Ministry of Energy and Mining in UNMIK provided a detailed breakdown of historic gross final energy consumption, as well as a ten-year demand forecast, which we have taken as the bases for our target calculation (Table 14). Table 14: 2020 Renewable Energy Target Calculation – UNMIK



Gross Final Energy Consumption 2005, ktoe (A) 1,450.5 (1)

Total Renewables Consumption, ktoe (D) = (B) + (C) 402.6 (1)









× Population 2005, m 2.04 (2)


Total Primary Energy Supply 2008, ktoe 2,137.3






Sources: (1) Data provided by Ministry of Energy and Mining, (received 11 November 2009) (2) World Economic Outlook Database, International Monetary Fund (April 2009) (3) Eurostat Target Calculation Reference (spreadsheet received from European Commission 17

July 2009) (4) Forecast energy demand 2008-18 provided by Party (extrapolated to 2020 at average of 2015-

18 growth rate) (received June 2009)


TARGET CALCULATIONS

318

When we reviewed this data provided, there seemed to be an issue with the quoted gross final energy consumption figure for 2005 in that it did not seem to include net electricity imports, as identified in a report from the Energy Regulatory Office. Adjusting for this resulted in a slightly lower baseline, which when combined with our forecast methodology, gave a marginally lower target (Table 15). Table 15: Alternative Baseline and Target Calculation – UNMIK



Gross Final Energy Consumption (excl net imports), ktoe 1,450.5 (1)

+ Imports, ktoe 42.2 (5)

– Exports, ktoe 19.4 (5)











GDP 2005, €bn (2005) 3.07 (2)



Forecast GDP 2020, €bn (2005) (J) 6.20







(K) = A × (J) b 447.2






Sources: (1) Annual Report 2005, Energy Regulatory Office, (April 2006) (2) International Energy Annual 2006, U.S. Energy Information Administration (data updated

September 2008)

A rounded figure of 34% would appear to be suitable for the 2020 renewables target.


TARGET CALCULATIONS

319

3.7 Moldova

Our full calculation for Moldova is shown in Table 16. The 2005 baseline data was sourced from an overview report on the website of the INOGATE Programme, and this was combined with our forecast calculation for 2020 energy consumption. Table 16: 2020 Renewable Energy Target Calculation – Moldova







+ Own Consumption (electricity sector)), ktoe 43.0 (1)












GDP per Capita 2005, €/head 710 (3)





× Population 2005, m 3.39 (3)


GDP 2005, €bn (2005) 2.40 (3)



Forecast GDP 2020, €bn (2005) (J) 4.33







(K) = A × (J) b 650.8






Sources: (1) Moldova Country Overview, INOGATE (4 November 2008) (2) International Energy Annual 2006, U.S. Energy Information Administration (data updated

September 2008)


TARGET CALCULATIONS

320

(3) World Economic Outlook Database, International Monetary Fund (April 2009) (4) Eurostat Target Calculation Reference (spreadsheet received from European Commission 17

July 2009)

This would thus suggest a target of 10%.


TARGET CALCULATIONS

321

3.8 Turkey

Data for Turkey is collected by Eurostat, and hence the baseline calculation is in accordance with the official EC methodology, including the hydro normalisation. We used our methodology to forecast 2020 energy consumption (Table 17). Table 17: 2020 Renewable Energy Target Calculation – Turkey



Total Final Energy Consumption, ktoe 63,243.0 (1)

+ Losses (electricity), ktoe 2,067.0 (1)






Normalised Hydro Generation, ktoe (B) 3,629.4

Other Renewable Energy Sources, ktoe (C) 6,651.1 (1)










× Population 2005, m 67.90 (2)

Residual Effort, ktoe (G) 2,774.1

GDP 2005, €bn (2005) 388.38 (2)



Forecast GDP 2020, €bn (2005) (J) 599.56


PRIMES Proxy Poland





(K) = A × (J) b 177.8






Sources: (1) Eurostat database (2) World Economic Outlook Database, International Monetary Fund (April 2009) (3) Eurostat Target Calculation Reference (spreadsheet received from European Commission 17

July 2009)


TARGET CALCULATIONS

322

3.9 Ukraine

We were unable to source a comprehensive set of 2005 data for the Ukraine, so we have based this indicative calculation on a 2006 energy balance from the International Energy Agency. A 2006 energy strategy from the website of the Ministry of Energy provided a forecast of total energy consumption in 2020, allowing us to estimate a 2020 renewables target as shown in Table 18. Table 18: 2020 Renewable Energy Target Calculation – Ukraine


Renewable Energy Share in 2006*


– Non-Energy Use, ktoe 8,023.0 (1)

+ Losses (electricity), ktoe 2,054.0 (1)

+ Losses (heat), ktoe 3,764.0 (1)

+ Own Consumption (electricity sector), ktoe 2,517.0 (1)

















× Population 2005, m 46.75 (3)


Total Primary Energy 2020, ktoe 171,010.0 (5)





Sources: (1) 2006 Energy Balance for Ukraine, International Energy Agency website (2) International Energy Annual 2006, U.S. Energy Information Administration (data updated


July 2009) (5) Energy Strategy of Ukraine for the Period until 2030, Ministry of Energy, Ukraine (25

September 2006)


TARGET CALCULATIONS

323

Our forecast methodology resulted in a figure about 8% higher, but negligible difference to the residual effort (Table 19). Table 19: Alternative Target Calculation – Ukraine


GDP 2005, €bn (2005) 69.27 (3)



Forecast GDP 2020, €bn (2005) (J) 132.64

Energy Intensity 2005, toe/€m (05) 2,291.9

PRIMES Proxy Poland





(K) = A × (J) b 1,390.9






This indicative calculation based on an incorrect baseline year suggests a 2020 target of 8%.


SUMMARY AND CONCLUSIONS

324

4 SUMMARY AND CONCLUSIONS

The calculated 2020 renewable energy targets for the seven Energy Community Contracting Parties (based on the Parties’ own forecasts for 2020 energy consumption) are summarised in Figure 2 below (the results for the three candidate Parties have not been included as reliable data has not been available for all).

Figure 2: Draft Energy Community Contracting Parties 2020 Renewable Energy Targets

29.3%

26.5%

12.6%

13.8%

23.0%

12.9%

27.8%

5.5%

5.5%

5.5%

5.5%

5.5%

5.5%

5.5%

1.4%

1.3%

1.9%

1.2%

1.0%

1.1%

1.0%

0% 5% 10% 15% 20% 25% 30% 35% 40%

AL

BA

HR

MK

ME

RS

UNMIK

Share of Total Energy

RES Share in 2005 Flat Rate Increase Residual Effort

The overall target for these seven Parties is thus 24%. This is higher than the equivalent European Union target of 20% since the Energy Community had quite a high renewables share in comparison to the EU in 2005 of 17.0%. However, the low GDP per capita of these Parties mean that the residual effort required beyond the flat 5.5% rate is only 0.023 toe per citizen, in contrast to the EU’s 0.16 toe, thus requiring only an additional 1.3% rather than 6%. Albania, UNMIK, Bosnia and Herzegovina, and Montenegro all have targets in excess of 30% as a result of their very high current level of renewables (biomass in the case of UNMIK, and mainly hydroelectric generation for the other three). Serbia has the lowest target at 19%, with Croatia similar at 20%, although Croatia also incurs the greatest residual effort on the basis of GDP per capita. Of the candidate Contracting Parties, Ukraine and Moldova would appear likely to end up with targets below 10% given their very low starting point, while Turkey is likely to be close to the Energy Community average. However it must be emphasised that it is crucial to obtain reliable data before establishing targets, especially as Ukraine and Turkey each have total energy consumptions 2-3 times as much as the other eight Parties combined.



325

4.1 Biomass Data

The availability of data and the inconsistency of data collection and measurement methods has been an issue throughout this study. Unlike the EU, for 2005, the Energy Community does not yet have a common approach to reporting energy statistics. Whilst over the course of the assignment we have been able to reach a position of broad consistency on the majority of data, there remains an issue about the measurement of biomass consumption. In the absence of a common methodology for 2005 (e.g. Eurostat) we believe that different Parties may be using different approaches which result in very different statistics. The 2005 data provided to IPA by the Contracting Parties was broadly consistent with the ‘official’ IEA data for Albania (11% of TFC), Croatia (5.5%), Former Yugoslav Republic of Macedonia (9%) and Montenegro (6.5%). In these cases we have used the CP’s own data in the target calculation. Nevertheless, the IEA report indicates that these official statistics could be significantly underestimating the volume of wood used in households for heating. The biomass numbers for Bosnia and Herzegovina (almost 30% in World Bank study) and UNMIK (more than 20%, CP’s own data) are based on surveys and include a proportion of residential heat biomass significantly above those of the other Parties. Hence for Bosnia and Herzegovina we have reverted to the IEA number which is more consistent with the other Parties. UNMIK has confirmed that this is an accurate estimate but it can be seen from the target calculation that it results in UNMIK having one of the highest targets in the Energy Community. For Serbia, the Party advised that the IEA biomass data was flawed and provided us with a more recent, significantly lower, estimate of the level of biomass consumption, calculated according to the Eurostat method. At around 3%, this is the lowest proportion of biomass consumption in the region, explained by the Party as being due to the high proportion of gas-fired district heating in Serbia compared with elsewhere.



326

Table 20 below illustrates the issue. Data for the EU MSs and Croatia is from Eurostat. Table 20: Proportion of Biomass in Gross Final Energy Consumption 2005

Party Proportion of Biomass

(as % of GFEC) 2005

Albania 11.3

Bosnia Herzegovina 6.1

Croatia 5.4

FYR Macedonia 8.1

Montenegro 5.9

Serbia ** 3.2

UNMIK * 26.7

Moldova 3.4

Turkey 8.1

Ukraine 0.7

Bulgaria 6.8

Romania 12.2

Slovenia 9.3

* This is the ‘total renewables’, but is almost entirely biomass.

** 2008

The effect of inconsistent biomass measurement is potentially three-fold:

(i) UNMIK may have a disproportionately high 2020 target compared with other Parties. However, given that the 2005 starting point is also high, providing the methods of measurement remain the same, the effort required by UNMIK to gain the 2020 target is in line with everyone else’s;

(ii) If the IEA is correct that official statistics under-estimate the total consumption of biomass, it could lead to Parties being able to meet their targets simply by a re-measurement rather than by additional effort. This is inconsistent with the objective of the Directive. This further emphasises the importance of ensuring that the same method of measurement is used for biomass consumption in 2005 and in future years; and

(iii) Assuming that the measurement method remains the same, if current biomass consumption is underestimated, it reduces the available resource out of the total potential for meeting the future 2020 target. Our sensitivity analysis suggests that the additional cost of meeting the Energy Community target could be considerably higher if sufficient sustainable biomass is not available.

ANNEX III ENERGY MARKET MODEL

327

ANNEX III – ENERGY MARKET MODEL

This annex provides more details about the approach taken to model the electricity and heat sectors of the seven Contracting Parties in order to identify the optimum way of meeting the 2020 renewables target, as well as the results for each individual Party.

A3.1 Modelling Methodology

We used our proprietary market modelling platform, ECLIPSE (Emissions

Constraints and Policy Interactions in Power System Economics), to construct a model of the electricity and heat generation systems of the seven CPs. Each CP was represented as a node, within each of which both electricity and heat demand had to be satisfied at least overall cost, which includes fuel and operating costs as well as the annualised cost of new plant build. The model calculates a single most economic despatch solution for the seven Parties together, incorporating transport of electricity between them via interconnectors. By including the economic and environmental constraints facing system operators in the real world, ECLIPSE replicates how actual decisions are made by system operators when subject to any slate of constraints, whether physical, economic, or environmental. Conceptually the model can be thought of as carrying out a series of discrete tasks, as depicted in Figure 15 below:

Figure 15: ECLIPSE Conceptual Methodology

Demand (MW)

Load duration curve (seasonal)

Hour

Capacity (MW)

Available generating capacity and peak demand

Years

Cost (€/MWh) for all fuels

(oil, gas, coal…)

YearsThermal efficiency

Technical and cost characteristics for all plant types

Plant type

Ste

am

GT

CC

GT

Ste

am

Cost (€/MWh)

New entrant, retrofit, repoweringcosts analysis

Load factor

Cost )

Emissions

(tonnes)

CO2, SO2, and NOx emission production

Output (MWh)

Emissions

CO2, SO2,

or NOx limits

Years

Capacity

(€/kWyr)

Alternative costs for

increasing generating capacity

Capacity (MW)

Electricity Merit order

Capacity (MW)

Cost (€/MWh)

1 2

3

4

56

7

limit (tonnes)

Premium

Cost curves

Interconnectorcapacity and developments

Demand (MW)

Load duration curve (seasonal)

Hour

Capacity (MW)

Available generating capacity and peak demand

Years

Cost (€/MWh) for all fuels

(oil, gas, coal…)

YearsThermal efficiency

Technical and cost characteristics for all plant types

Plant type

Ste

am

GT

CC

GT

Ste

am

Cost (€/MWh)

New entrant, retrofit, repoweringcosts analysis

Load factor

Cost )

Emissions

(tonnes)

CO2, SO2, and NOx emission production

Output (MWh)

Emissions

CO2, SO2,

or NOx limits

Years

Capacity

(€/kWyr)

Alternative costs for

increasing generating capacity

Capacity (MW)

Electricity Merit order

Capacity (MW)

Cost (€/MWh)

1 2

3

4

56

7

limit (tonnes)

Premium

Cost curves

Interconnectorcapacity and developments

Starting from (1) details of current plant capacity and demand characteristics (total annual volume and average hourly shape in each season), the model determines the most economic way of satisfying demand according to the generation-specific marginal costs of production, including fuel and annual operating and maintenance


328

costs (2). As a balance between accuracy on one hand and model complexity/calculation speed on the other, we aggregated power stations in each CP according to plant/fuel type (e.g. coal, oil, CCGT, hydro, wind, etc.), and used average operating costs and technical characteristics for each class. The model dispatches plant to satisfy demand (3) allowing for transfers across known interconnectors (4). The model then builds new plant (6) to meet demand growth over the 2010-20 period, subject to the relative cost of the new generation including an annualised capital element and constraints on the rate of implementation, reflecting practical limitations on resource (capital, plant manufacturing, construction labour, etc.) availability. ECLIPSE then optimises (7) to minimise the total operating and investment costs across the total system of seven CPs over the entire forecast horizon taking account of assumed fuel price changes, demand growth, and any pre-determined plant closures and new build. By requiring the model to meet a targeted level of renewables production, it thus identified the optimum way of meeting the 24% target across the region, both in terms of what plant should be built, where, and how renewable energy would subsequently need to be traded between CPs.

A3.2 Results by Contracting Party

This section details the base case results (assuming biomass is available for heating and the base demand growth) from the electricity and heat sector modelling for each Contracting Party to meet the overall Energy Community 2020 renewable energy target. It should be noted that this would be the optimal economic solution for the Energy Community as a whole.


329

Albania

Albania has fair scope to increase its biomass consumption as well as building new wind capacity to help other CPs to meet their renewables target. Although not part of the optimum economic solution for achieving the Energy Community target, Albania also has additional wind and hydro resource potential, which could be used for export.

Figure 16: Albania Electricity Generating Capacity 2010-20

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2010 2012 2014 2016 2018 2020

Cap

aci

ty, G

W

CHP Oil

CHP Bio mas s

CHP Gas

CHP Co al

Bio gas

Bio mas s

So lar

Geo the rma l

Hydro

Wind Offs ho re

Wind Ons ho re

P umped Sto rage

Oil

Nuclea r

Lignite

Co al

Gas ST

OCGT

CCGT

Figure 17: Albania Electricity Mix 2010-20

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2010 2012 2014 2016 2018 2020

Gen

erati

on

, T

Wh

Net Impo rts EC

Net Impo rts EU

CHP Oil

CHP Bio mas s

CHP Gas

CHP Co al

Bio gas

Bio mas s

So lar

Geo the rma l

Hydro

Wind Offs ho re

Wind Ons ho re

P umped Sto rage

Oil

Nuclea r

Lignite

Co al

Gas ST

OCGT

CCGT


330

Figure 18: Albania Electricity Imports and Exports 2010-20

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

2010 2012 2014 2016 2018 2020

Ex

port

s

TW

h

Im

port

s

Albania


C ro a tia

F YR Macedo nia

Mo ntenegro

S erbia

UNMIK

EU

Net P o s itio n

Figure 19: Albania Heat Mix 2010-20

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

20.0

2010 2012 2014 2016 2018 2020

Pro

du

ctio

n, T

Wh

C HP Oil

C HP B io mas s

C HP Gas

C HP C o al

HFO

B io mas s

Gas

C o al


331


Lignite and hydro dominate the electricity mix in Bosnia and Herzegovina, and biomass fills the full growth in heat demand. A little wind is built, but the country is a net importer of renewable energy from others’ in order to achieve its target, although there is scope for new hydro as well.

Figure 20: Bosnia and Herzegovina Electricity Generating Capacity 2010-20

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2010 2012 2014 2016 2018 2020

Cap

aci

ty, G

W

CHP Oil

CHP Bio mas s

CHP Gas

CHP Co al

Bio gas

Bio mas s

So lar

Geo the rma l

Hydro

Wind Offs ho re

Wind Ons ho re

P umped Sto rage

Oil

Nuclea r

Lignite

Co al

Gas ST

OCGT

CCGT

Figure 21: Bosnia and Herzegovina Electricity Mix 2010-20

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

20.0

22.5

25.0

2010 2012 2014 2016 2018 2020

Gen

erati

on

, T

Wh

Net Impo rts EC

Net Impo rts EU

CHP Oil

CHP Bio mas s

CHP Gas

CHP Co al

Bio gas

Bio mas s

So lar

Geo the rma l

Hydro

Wind Offs ho re

Wind Ons ho re

P umped Sto rage

Oil

Nuclea r

Lignite

Co al

Gas ST

OCGT

CCGT


332

Figure 22: Bosnia and Herzegovina Electricity Imports and Exports 2010-20

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

2010 2012 2014 2016 2018 2020

Ex

port

s

TW

h

Im

port

s

Albania


C ro a tia

F YR Macedo nia

Mo ntenegro

S erbia

UNMIK

EU

Net P o s itio n

Figure 23: Bosnia and Herzegovina Heat Mix 2010-20

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

20.0

22.5

25.0

2010 2012 2014 2016 2018 2020

Pro

du

ctio

n, T

Wh

C HP Oil

C HP B io mas s

C HP Gas

C HP C o al

HFO

B io mas s

Gas

C o al


333

Croatia

Although Croatia almost doubles its biomass use and builds about 1 GW of new wind capacity, the most economic solution still has it buying in a small amount of renewables towards its target.

Figure 24: Croatia Electricity Generating Capacity 2010-20

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2010 2012 2014 2016 2018 2020

Cap

aci

ty,

GW

CHP Oil

CHP Bio mas s

CHP Gas

CHP Co al

Bio gas

Bio mas s

So lar

Geo the rma l

Hydro

Wind Offs ho re

Wind Ons ho re

P umped Sto rage

Oil

Nuclea r

Lignite

Co al

Gas ST

OCGT

CCGT

Figure 25: Croatia Electricity Mix 2010-20

0

5

10

15

20

25

30

35

2010 2012 2014 2016 2018 2020

Gen

erati

on

, T

Wh

Net Impo rts EC

Net Impo rts EU

CHP Oil

CHP Bio mas s

CHP Gas

CHP Co al

Bio gas

Bio mas s

So lar

Geo the rma l

Hydro

Wind Offs ho re

Wind Ons ho re

P umped Sto rage

Oil

Nuclea r

Lignite

Co al

Gas ST

OCGT

CCGT


334

Figure 26: Croatia Electricity Imports and Exports 2010-20

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

2010 2012 2014 2016 2018 2020

Ex

port

s

TW

h

Im

port

s

Albania


C ro a tia

F YR Macedo nia

Mo ntenegro

S erbia

UNMIK

EU

Net P o s itio n

Figure 27: Croatia Heat Mix 2010-20

0

5

10

15

20

25

30

35

40

45

50

2010 2012 2014 2016 2018 2020

Pro

du

ctio

n, T

Wh

C HP Oil

C HP B io mas s

C HP Gas

C HP C o al

HFO

B io mas s

Gas

C o al


335


The Former Yugoslav Republic of Macedonia is able to meet its renewable target, plus have a small net “export” through biomass and new wind build.

Figure 28: Former Yugoslav Republic of Macedonia Electricity Generating Capacity

2010-20

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2010 2012 2014 2016 2018 2020

Cap

aci

ty, G

W

CHP Oil

CHP Bio mas s

CHP Gas

CHP Co al

Bio gas

Bio mas s

So lar

Geo the rma l

Hydro

Wind Offs ho re

Wind Ons ho re

P umped Sto rage

Oil

Nuclea r

Lignite

Co al

Gas ST

OCGT

CCGT

Figure 29: Former Yugoslav Republic of Macedonia Electricity Mix 2010-20

0.0

2.5

5.0

7.5

10.0

12.5

15.0

2010 2012 2014 2016 2018 2020

Gen

erati

on

, T

Wh

Net Impo rts EC

Net Impo rts EU

CHP Oil

CHP Bio mas s

CHP Gas

CHP Co al

Bio gas

Bio mas s

So lar

Geo the rma l

Hydro

Wind Offs ho re

Wind Ons ho re

P umped Sto rage

Oil

Nuclea r

Lignite

Co al

Gas ST

OCGT

CCGT


336

Figure 30: Former Yugoslav Republic of Macedonia Electricity Imports and Exports

2010-20

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

2010 2012 2014 2016 2018 2020

Ex

port

s

TW

h

Im

port

sAlbania


C ro a tia

F YR Macedo nia

Mo ntenegro

S erbia

UNMIK

EU

Net P o s itio n

Figure 31: Former Yugoslav Republic of Macedonia Heat Mix 2010-20

0.0

2.5

5.0

7.5

10.0

12.5

15.0

2010 2012 2014 2016 2018 2020

Pro

du

ctio

n, T

Wh

C HP Oil

C HP B io mas s

C HP Gas

C HP C o al

HFO

B io mas s

Gas

C o al


337

Montenegro

Montenegro is able to overachieve against its renewable target by an almost five-fold increase in biomass consumption (based on our estimated potential), which dominates the growth in heat demand, plus some new wind build, enabling the country to “export” renewable energy. No other new electricity plant is required with imports from Albania and Serbia sufficient to meet demand (these imports are not necessarily renewable electricity).

Figure 32: Montenegro Electricity Generating Capacity 2010-20

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2010 2012 2014 2016 2018 2020

Cap

aci

ty, G

W

CHP Oil

CHP Bio mas s

CHP Gas

CHP Co al

Bio gas

Bio mas s

So lar

Geo the rma l

Hydro

Wind Offs ho re

Wind Ons ho re

P umped Sto rage

Oil

Nuclea r

Lignite

Co al

Gas ST

OCGT

CCGT

Figure 33: Montenegro Electricity Mix 2010-20

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2010 2012 2014 2016 2018 2020

Gen

erati

on

, T

Wh

Net Impo rts EC

Net Impo rts EU

CHP Oil

CHP Bio mas s

CHP Gas

CHP Co al

Bio gas

Bio mas s

So lar

Geo the rma l

Hydro

Wind Offs ho re

Wind Ons ho re

P umped Sto rage

Oil

Nuclea r

Lignite

Co al

Gas ST

OCGT

CCGT


338

Figure 34: Montenegro Electricity Imports and Exports 2010-20

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

2010 2012 2014 2016 2018 2020

Ex

port

s

TW

h

Im

port

s

Albania


C ro a tia

F YR Macedo nia

Mo ntenegro

S erbia

UNMIK

EU

Net P o s itio n

Figure 35: Montenegro Heat Mix 2010-20

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2010 2012 2014 2016 2018 2020

Pro

du

ctio

n, T

Wh

C HP Oil

C HP B io mas s

C HP Gas

C HP C o al

HFO

B io mas s

Gas

C o al


339

Serbia

With little current consumption, Serbia has the potential for biomass to meet most of the projected heat growth. Together with about 1 GW of wind and hydro build, there is scope for transfer of renewable energy to Bosnia and Herzegovina and/or Croatia.

Figure 36: Serbia Electricity Generating Capacity 2010-20

0.0

2.5

5.0

7.5

10.0

12.5

15.0

2010 2012 2014 2016 2018 2020

Cap

aci

ty, G

W

CHP Oil

CHP Bio mas s

CHP Gas

CHP Co al

Bio gas

Bio mas s

So lar

Geo the rma l

Hydro

Wind Offs ho re

Wind Ons ho re

P umped Sto rage

Oil

Nuclea r

Lignite

Co al

Gas ST

OCGT

CCGT

Figure 37: Serbia Electricity Mix 2010-20

0

10

20

30

40

50

60

70

80

2010 2012 2014 2016 2018 2020

Gen

erati

on

, T

Wh

Net Impo rts EC

Net Impo rts EU

CHP Oil

CHP Bio mas s

CHP Gas

CHP Co al

Bio gas

Bio mas s

So lar

Geo the rma l

Hydro

Wind Offs ho re

Wind Ons ho re

P umped Sto rage

Oil

Nuclea r

Lignite

Co al

Gas ST

OCGT

CCGT


340

Figure 38: Serbia Electricity Imports and Exports 2010-20

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

2010 2012 2014 2016 2018 2020

Ex

port

s

TW

h

Im

port

s

Albania


C ro a tia

F YR Macedo nia

Mo ntenegro

S erbia

UNMIK

EU

Net P o s itio n

Figure 39: Serbia Heat Mix 2010-20

0

10

20

30

40

50

60

70

80

2010 2012 2014 2016 2018 2020

Pro

du

ctio

n, T

Wh

C HP Oil

C HP B io mas s

C HP Gas

C HP C o al

HFO

B io mas s

Gas

C o al


341

UNMIK

Strategy plans envisage the construction of a new lignite plant which would enable UNMIK to export electricity to Albania and Macedonia. Biomass consumption for heating is currently very high, leaving growth potential of only about 25%, and the Party would thus be a very marginal net imported of renewable energy.

Figure 40: UNMIK Electricity Generating Capacity 2010-20

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2010 2012 2014 2016 2018 2020

Cap

aci

ty,

GW

CHP Oil

CHP Bio mas s

CHP Gas

CHP Co al

Bio gas

Bio mas s

So lar

Geo the rma l

Hydro

Wind Offs ho re

Wind Ons ho re

P umped Sto rage

Oil

Nuclea r

Lignite

Co al

Gas ST

OCGT

CCGT

Figure 41: UNMIK Electricity Mix 2010-20

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

20.0

2010 2012 2014 2016 2018 2020

Gen

erati

on

, T

Wh

Net Impo rts EC

Net Impo rts EU

CHP Oil

CHP Bio mas s

CHP Gas

CHP Co al

Bio gas

Bio mas s

So lar

Geo the rma l

Hydro

Wind Offs ho re

Wind Ons ho re

P umped Sto rage

Oil

Nuclea r

Lignite

Co al

Gas ST

OCGT

CCGT


342

Figure 42: UNMIK Electricity Imports and Exports 2010-20

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

2010 2012 2014 2016 2018 2020

Ex

port

s

TW

h

Im

port

s

Albania


C ro a tia

F YR Macedo nia

Mo ntenegro

S erbia

UNMIK

EU

Net P o s itio n

Figure 43: UNMIK Heat Mix 2010-20

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

20.0

2010 2012 2014 2016 2018 2020

Pro

du

ctio

n, T

Wh

C HP Oil

C HP B io mas s

C HP Gas

C HP C o al

HFO

B io mas s

Gas

C o al

ANNEX IV ESTIMATED TRANSPORT COSTS AND OPPORTUNITIES

343

ANNEX IV – ESTIMATED TRANSPORT COSTS

AND OPPORTUNITIES

The published Energy Strategies of the CPs generally only provide limited information about each country’s plans for the transport sector so a number of high level assumptions have been required to assess the likely costs and benefits of meeting the transport target. To meet the 10% transport target, the base demand model estimates that the Energy Community Parties will need to source 1.013 mtoe of renewable energy per annum by 2020 in the transport sector from renewable sources. By comparison, the EU assessment of the impact on agricultural markets of a 10% obligation for biofuels in 2020 estimates a total demand in the EU-27 of 34.6 mtoe in 20207. To assess the likely impact of meeting this target we have used a methodology that is broadly consistent with the Impact Assessment done for the UK transport sector, conducted as part of the UK’s Renewable Energy Strategy 20098, which assessed the costs and benefits of blending biofuels into petrol and diesel so that fuel supplied is 10% biofuel by energy content. Ethanol and biodiesel prices were calculated as part of the Impact Assessment using an OECD-FAO Aglink-Cosimo model for a number of scenario’s and we have used these fuel price forecasts.

Options for Meeting Target

The Renewables Energy Directive (RED) sets a binding 10% target for energy used in the transport sector (excluding aviation and international shipping) to come from renewables sources by 2020. The 10% target applies equally to all Member States. As biofuels are internationally traded commodities, member states will have the ability to meet their target through a combination of local production and imports. The 10% target can be met though the use of the following renewable sources: Biofuels Subject to requirement to meet sustainability criteria,

target can be met through;

• Biofuels blended in mineral oil derivatives; o Biodiesel (made from vegetable oils,

such as rape seed or palm) o Bioethanol (can be made from most

organic matter but most commonly made from wheat, corn, sugar cane or sugar beets)

• Biogas – (most commonly made from methane collected from landfill sites or rotting vegetation), can be used to power CNG (compressed natural gas) converted vehicles

7 http://ec.europa.eu/agriculture/analysis/markets/biofuel/impact042007/text_en.pdf 8 UK Renewable Energy Strategy 2009: IA for the transport sector , http://www.decc.gov.uk/en/content/cms/what_we_do/uk_supply/energy_mix/renewable/res/res.aspx


344

Electric vehicles

Based on average share of electricity from renewables energy sources in the Community or the share of electricity from renewables energy sources in the country.

Electric rail

Based on average share of electricity from renewables energy sources in the Community or the share of electricity from renewables energy sources in the country achieved by shift from diesel to electric trains.

To incentivise the adoption of new technologies the Renewables Energy Directive includes additional incentives for electric road vehicles and advanced 2nd generation waste/residue biofuel.

• Electric road vehicles – use of renewable electricity counts 2.5 times towards the transport target.9

• Use of advanced 2nd generation waste/residue biofuels (‘biofuels produced

from waste, residue, non-food cellulosic material and lingo-cellulosic

material’) counts double towards the transport target.10

Advanced 2nd generation waste/residue biofuels are currently between 30%-70%11 more expensive than more established first generation biofuel technologies. The speed of deployment of advanced 2nd generation waste/residue biofuels from being prototype technologies into commercially viable technologies with production at an industrial scale (and prices competitive against ‘first generation’ biofuels) will be dependent upon the future costs of production and rate of technological development.

However, given the uncertainty surrounding the large scale deployment of electric vehicles, the limited number of vehicles that are expected to be converted to able to run on CNG and the small proportion as a share of total energy use of the transport sector coming from electric trains, we have assumed that the CPs will use biofuels blended mineral oil derivatives to meet the target. The UK Impact Assessment methodology assumes that the growth in biofuels will be met evenly from bioethanol and biodiesel on an energy basis, although acknowledging the considerable uncertainty. The proportion of diesel usage in the Energy Community is higher than the EU, so it might be expected that a greater proportion of the energy target will be met by biodiesel, particularly as the energy content of biodiesel is 50% greater than bioethanol. Hence we have looked at the cost of meeting the target in the proportions 50/50 and 65/35 biodiesel/bioethanol (by energy rather than volume). One of the Parties suggested that it may be difficult for the CPs to meet the 10% target from increased use of biofuels alone, because of the older age profiles of vehicles in the Community and the limited extent to which older cars can use biofuels. If this is the case, the cost of meeting the target from increased use of electric or CNG cars would be considerably higher than our estimates below.

9 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:140:0016:0062:EN:PDF Art 3(4) (c) 10 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:140:0016:0062:EN:PDF Art 21(2) 11 http://ec.europa.eu/agriculture/analysis/markets/biofuel/impact042007/text_en.pdf


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Additional Fuel Cost

Using the price forecasts produced by the OECD-FAO Aglink-Cosimo model used in the UK Impact Assessment, the estimated costs of meeting the Energy Community’s 10% target, from the use of bioethanol and biodiesel under a 50/50 and 65/35 biodiesel/bioethanol split are shown below. This is the additional fuel costs (the extra cost of using bioethonal/biodiesel blends compared to conventional fossil fuels) for a high cost (low petrol price/low agricultural yield growth) and a central cost (Intermediate oil price/agricultural yield growth at trend level) scenario. 50/50 Split of Energy from Biodiesel/Bioethanol

Additional Fuel Cost (2010-2020)

Base Demand Low Demand

High cost scenario

€1,961m €1,747m

Central cost scenario

€1,185 m €1,060 m

65/35 Split of Energy from Biodiesel/Bioethanol

Additional Fuel Cost (2010-2020)

Base Demand Low Demand

High cost scenario

€2,033m €1,811m

Central cost scenario

€1,321 m €1,181 m

The higher cost of biodiesel makes the 65/35 split the higher cost option, despite the greater efficiencies.

Other Costs

Additional investment in infrastructure will be required to enable the blending and distribution of bio-fuels. With the biofuel industry still in its infancy amongst the CPs, detailed cost estimates for the region are not available. Based upon the cost estimates in the Impact Assessment for the UK transport sector, the CPs would require around €47m additional investment in upgrading infrastructure to meet the increase in demand for biofuel if they had similar patterns of biofuel deployment as the UK (this taking into account energy consumption of the transport sectors of the CPs is roughly 1/6th the size of the UK). The actual cost of investment in infrastructure will be determined by the level of local production, refining and importation of biofuels. The increase in fuel cost also has a welfare impact upon society as drivers reduce the amount of driving they do. The impact upon welfare will depend upon the price elasticity of demand (the responsiveness of changes in quantity to price) for petrol and diesel. Detailed data on price elasticity of demand for petrol and diesel for the CPS are not available but the estimated welfare loss in the Impact Assessment for the UK transport sector were found to be relatively small compared to the increased fuel costs (around 1.2% of the additional fuel cost). If similar relative


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level of welfare loss occurred in the CPs they could be in the region of €24m-€12m (base case demand).

Reduction in GHG Emissions

As well as costs, there will be benefits from the increased use of biofuels. For biofuels to be counted towards the Renewables Energy Directive transport target they have to comply with the sustainability criteria of offering at least a 35% (rising to 50% in 2017 and 60 % in 2018 for biofuels and bioliquids produced in installations in which production started on or after 1 January 2017.)12 saving in life cycle GHG emission compared to fossil fuels. The CPs have the potential to achieve saving greater than these minimum sustainability criteria (a minimum 3.5% reduction in GHG emissions from the transport sector rising to 5% from 2017) through the use of biofuel with high life cycle GHG emission (Annex V of the Renewables Directive provides a lists of typical and default greenhouse gas emission saving for biofuels with some biofuels such as waste wood methanol able to achieve over 90% greenhouse gas emission saving). Hence the exact level of GHG savings the CPs can achieve will be dependent upon the final mix of biofuel input types, but for the purposes of this estimate we have assumed the minimum level of the GHG emission savings.

Other Benefits

The supply of biofuels can be sourced domestically, through imports or a combination of the two. If the CPs were to experience a similar relative level of investment in the biofuel industry as has been assumed by the UK Government, this could create 1,150 agricultural jobs and over 350 industrial jobs. This is scaled for the relative size of the industry and lower level of productivity in the Energy Community.

The increases in the price of fuel cost through the use of biofuels (and the associated reduction in the demand for fuel and travel) will also benefit the economies of the CPs by improving air quality and by reducing congestions, accidents, noise and the cost of improving transport infrastructure. The overall level of benefit will be dependent upon the proportion of the increase in fuel costs that are passed through to consumers (or absorbed through government subsidies). Although it can be extremely complex to accurately quantify these benefits, if the CPs were to experience a comparable level of benefits as assumed by the UK, based upon the relative size of the transport sectors, these ancillary benefits could be in the range of €534m to €207m.

12 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:140:0016:0062:EN:PDF Art 17

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