Balkanalysis.com

Energy Sector

Regional Energy Indicators:
Electricity Generation (TWh) 440.7
Electricity Consumption (TWh) 411.3

Energy Consumption per Capita (kgoe/cap) 1786
Energy Import Dependence (%) 61%
CO2 Emissions per Capita (kg CO2/cap) 5231
Note: kgoe – kg oil equivalent

Energy in the EU 2010 Enlargement Progress Reports: How Balkan Countries Compare

By Vlad Popovici

Each year, the European Union publishes an enlargement strategy document describing the main objectives of the enlargement process for the coming year, as well as progress or opinion reports on all the candidate countries and potential candidate countries. The EU’s 2010 strategy and progress report provides several interesting updates concerning the main changes and reforms implemented in the energy sector of the reviewed countries (most of them from Southeast Europe), and makes some recommendations regarding the steps that should be taken by them in the future.

So far, the EU strategy document’s findings are too fresh to have created
any significant response from private or public stakeholders. Nevertheless,
a quick analysis of the document can prove valuable for assessing how the
different countries are performing in the energy sector relative to each
other, and from the EU’s rather rigid perspective. And what the EU
perceives will in time have ramifications for larger energy developments
within the region.

For their part, private companies already know the issues of the energy sector in Southeast Europe, where themes such as state dominance and corruption continue to be mentioned. The EU’s progress reports, though somewhat benign in their phrasing, are commonly understood as a means of putting pressure on the governments in the region to carry out reforms- while also serving as an external benchmark that can be cited when governments seek to compare themselves favorably to their neighbors. in the ongoing competition to attract foreign investment and technologies.

On November 9, 2010 the European Commission adopted and published the Enlargement Strategy and Main Challenges 2010-2011 (PDF) document, explaining its enlargement policy objectives for the next year. The strategy document is accompanied by a series of country progress reports for the candidate and potential candidate countries, all of them (except Iceland) being countries from Southeast Europe – Albania, Bosnia and Herzegovina, Croatia, Kosovo, the Republic of Macedonia (referred to by its provisional UN name, FYROM), Montenegro, Serbia and Turkey.

Both the strategy document and the progress reports are extensive documents covering political and economic criteria, as well as a thorough assessment of the ability of each country to assume the obligations of EU membership. Although energy is just one of the topics covered in these vast reports, an analysis of these reports reveals some important milestones reached by each country, as well as some guidelines regarding the path forward.

Albania

Albania submitted its application for EU membership on 28 April 2009 and is still a potential candidate country, as no accession negotiations have started. Albania is already a contracting party of the Energy Community and as such has to implement the acquis communautaire in the energy sector.

The Albania 2010 Analytical Report (PDF) notes that the current national energy strategy is not compliant with the EU acquis, and a new strategy is thus currently being prepared. Albania depends almost exclusively on hydropower for electricity generation, but has very limited power and no gas and oil interconnections with its neighbors, which can create risks for its security of supply.

In Albania, gas production and the gas market itself are very limited, though domestic oil production is growing with the involvement of foreign investors. The report concludes that energy efficiency and renewable energy require further attention and alignment with the EU acquis. The country also has to focus on diversifying its energy supplies and strengthening the role of the electricity and gas regulatory authority. Overall, the Commission states that Albania has made good progress and will have to make further efforts to align its legislation to the acquis and to implement it effectively in the medium term.

Bosnia & Herzegovina

Bosnia and Herzegovina signed a Stabilization and Association Agreement with the EU in June 2008 – thus becoming a potential EU candidate country – and is a contracting party of the Energy Community as well.

The Bosnia and Herzegovina 2010 Progress Report (PDF) notes that overall progress in the field of energy has been slow. The electricity and gas markets are not unified yet at the Federation level, and the lack of coordination between the Federation Entities blocks the development of functioning energy markets, and so continues to create supply security risks. The regulated electricity tariffs remain below market prices, providing little incentive to consumers to change suppliers.

The implementation of the internal energy market EU legislative packages for Bosnia is still in its early stages. The country has to develop a Federation-level energy strategy, including promotion of energy efficiency and renewable energy sources. However, the Federation Entities are working separately on developing their gas markets and infrastructure, as well as gas interconnections with the neighboring countries. They also provide limited feed-in tariffs for renewable energy and have long-term plans to develop hydro and wind power generation capacities.

Croatia

Croatia is an EU candidate country, having started accession negotiations on 3 October 2005. On 5 November 2010, three more negotiation chapters were closed, bringing the total to 25 provisionally closed chapters (out of 33 chapters). The country is without doubt the most advanced of the group on its path to EU membership.

The Croatia 2010 Progress Report (PDF) notes that the country adopted a new national energy strategy, planning through the year 2020, in October 2009. The country has made progress in increasing its oil stocks according to EU legislation. However, the electricity and gas markets are still dominated by single suppliers and the prerogatives and independence of the energy market regulator can be improved.

As requested by the Renewable Energy Directive, Croatia in June 2010 adopted a National Renewable Energy Action Plan, and has in place feed-in tariffs for power generated from renewable sources. However, the Commission notes that the administrative procedures related to the renewable energy need to be streamlined.

Finally, it was noted that Croatia has made progress on the energy efficiency front as well. The country’s first National Energy Efficiency Action Plan was adopted in April 2010, and a document on the national cogeneration potential was also drafted and approved in January 2010. Overall, the Commission now rates Croatia’s level of alignment with the EU acquis in the energy sector as high.

Kosovo

Kosovo is also considered by the EU enlargement strategy as a potential candidate for the EU, though the process of developing the relationship with the Union is just starting.

Some energy aspects are noted in the Kosovo 2010 Progress Report (PDF) developed by the European Commission. The energy sector continues to face challenges, with frequent power cuts and a low level of electricity tariffs collection. Kosovo does not have yet an oil stocks law and a gas market, though it is interested in participating in some regional projects that might connect it to gas import sources. The Kosovo government has also adopted a Framework Law on gas.

In October 2010, a series of energy-related laws were passed to align Kosovo to the EU’s second internal energy market package. Plans for the development of a new lignite-fuelled power plant in Kosovo have been revised and will be implemented. The distribution and supply functions of the Kosovo Energy Corporation (KEK) will be unbundled at the end of 2010.

Progress was also reported by the EU as having been made in hydropower (with plants planned on the Zhur River), while small wind power projects have already been authorized. Overall, the European Commission concludes that though progress has been made, major efforts have to be dedicated to creating a sustainable framework for the energy sector.

Macedonia (referred to by the EU as FYROM)

The Republic of Macedonia became an EU candidate country in December 2005, and the EU commission recommended in October 2009 the opening of accession negotiations. Macedonia is also a contracting party of the Energy Community Treaty.

Energy is part of the FYROM 2010 Progress Report (PDF) as well. The government has adopted a Strategy for Energy Development (2008-2020). Mandatory oil stocks are planned to reach 90 days of consumption for the period 2010-15, while a comprehensive new energy law aligned with the EU acquis has been adopted by the government (in September 2010) and has been sent for approval to the Parliament.

Although electricity prices for households have increased and a subvention program for vulnerable customers has been launched, electricity tariffs still do not reflect costs and power bill collection levels are still low.

Further, the electricity market is partially open, but natural gas supply has not yet been unbundled from the transmission function as required by the EU natural gas directive. An energy efficiency strategy and a national action plan have been finalized and adopted, but the administration still lacks resources for effectively promoting energy efficiency and renewable energy.

The Macedonian government has also adopted a renewable energy strategy and set a 21% target for the renewable energy share of the total energy consumption by 2020. Concessions have been signed for 19 small hydropower plants and a pilot wind farm is planned. Overall, the Commission concludes that some progress has been made, but more work is to be done in implementing the new energy legislation, increasing the independence of the energy regulator and adjusting power tariffs to reflect costs.

Montenegro

Montenegro’s Stabilization and Association Agreement (SAA) with the EU entered into force in May 2010. In its enlargement strategy and progress report package of 9 November 2010, the EU Commission announced that Montenegro is ready to become a candidate country, though more progress is needed in some areas before accession negotiations can be launched. Montenegro is also a contracting party of the Energy Community.

The EU Commission has prepared an Analytical Report on Montenegro (PDF) that includes details on the energy section as well. In April 2010, the Montenegrin government adopted an Energy Law that creates the framework for further alignment to the acquis, and that will be complemented by further implementation legislation.

Although the new Energy Law requires a national oil stock of 90 days of consumption, it does not give a timeframe, nor implementation conditions; therefore, further legislation will be needed in this field. Since 1 January 2009, about 40% of the electricity market has been considered ‘open,’ with the first license for electricity trading and supply to a company other than the national electricity company EPCG issued in December 2009.

Electricity transmission in Montenegro was unbundled in 2009 with the creation of Prenos, but electricity distribution is still part of the national utility company. The energy market regulator, Regagen, is active, but its independence has to be strengthened.

Montenegro does not have a natural gas market yet, but does intend to import gas in the future, meaning that gas legislation will have to be developed. Plans for developing large and small hydropower plants are well advanced, but the country still has to develop a national strategy and targets for renewable energy. A law on energy efficiency was adopted in May 2010 and the national action plan is currently being revised in light of this. Overall, the report concludes that, despite recent legislative advances, Montenegro will have to focus more on aligning itself with the EU energy acquis and on effective implementation in the medium term.

Serbia

Serbia submitted its application for EU membership in December 2009 but is still a potential candidate; the Commission will give its opinion on Serbia’s membership in its enlargement program update next year. Serbia is a contracting party of the Energy Community Treaty.

Energy is part of the Serbia 2010 Progress Report (PDF) as well. Emergency oil stocks remain below the EU-mandated level of 90 days of consumption and the relevant oil stock legislation has not yet been developed. More progress is noted in the report, however, on gas storage (a new underground storage facility was built in Banatski Dvor). Gas interconnections with other countries are limited, but a joint interconnection pipeline project with Bulgaria is advancing (Nis-Dimitrovgrad) and Serbia has been active in the South Stream pipeline project as well. A new power link with Macedonia is under construction, and one with Romania is planned.

Serbia’s electricity transmission has been transferred to a new company and non-household electricity and gas markets are now formally liberalized; the energy market regulator AERS, it is reported, has been working well.  However, electricity tariffs are not yet reflective of costs. Electricity supply and distribution are still bundled. The national gas company Srbijagas is still vertically integrated and includes gas supply, transmission and distribution.

Citing these issues, the report adds that little progress has been made in the energy efficiency and renewable energy sectors, despite the existence of a national energy efficiency action plan (adopted in July 2010) and preliminary renewable energy legislation (adopted in November 2009); these plans include some feed-in tariff incentives for energy from renewable sources.

Overall, the Commission concludes that Serbia is moderately advanced in the implementation of the EU energy acquis. Further progress needs to be made to open the energy markets, advance the functional separation in the electricity and gas markets (unbundling) and liberalizing energy prices along with strengthening the energy market regulator.

Turkey

Turkey obtained candidate country status in December 1999, and opened official accession negotiations with the EU in October 2005.  Turkey also has observer status in the Energy Community.

The Commission included its energy sector assessment in the Turkey 2010 Progress Report (PDF), with an overall conclusion that Turkey has made good progress in some areas, such as the security of supply, electricity market, renewable energy and energy efficiency, though more remains to be done in other sectors, such as natural gas or nuclear energy and safety.

Turkey has been active in some of the major regional pipeline projects, such as Nabucco (gas) or Samsun-Ceyhan (oil) and has negotiated a natural gas transit agreement with Azerbaijan. Private companies actively invest in new power generation capacities and the new balancing and trading market accounts for 75% of the electricity wholesale trade already.

Three private companies started to operate in electricity distribution and the government has privatized distribution for five other distribution regions. Although two private companies have started importing LNG in Turkey, there was no progress in unbundling the national gas company BOTAS according to the EU natural gas directive. Good progress is noted in the renewable energy and energy efficiency areas as well, with an amended administrative licensing process that allowed private investors to become very active in installing new generation capacity from renewable sources. Finally, Turkey does not yet have a framework nuclear law to address nuclear safety and other EU-required nuclear energy legislation, though it has been very active in advancing its national nuclear energy program, by ratifying in October 2010 an agreement signed with Russia for a new 4800-MW nuclear plant in Akkuyu on the Mediterranean coast. Similarly, Turkey in June 2010 also signed a protocol with a South Korean company for a second nuclear plant to be built in Sinop, on the Black Sea coast.

Looking for More Balkanalysis.com Publications?

Find Balkanalysis.com articles in the Central And Eastern European Online Library (CEEOL)

Buy Balkanalysis.com articles and e-books for Amazon Kindle