The Three-headed Dragon Gobbling up Coal-fired TPPs in the Western Balkans
Date: August 10th 2020
Author: Dr. Aleksandar Knežević
Coal-fired thermal power plants (TPPs) in the Western Balkans are being gobbled up by a three-headed dragon. The first head represents the EU measures which indirectly aim at promoting renewable energy sources (RES) while disincentivising carbon-based sources, the second head is the expected drop in electricity demand in the European market due to COVID-19, and the third head relates to the extrinsic and intrinsic reasons for phasing out coal production in coal mines.
EU climate change measures
The European Union has decided to lead the global fight against climate change. As we know, coal-fired TPPs are the main culprit. We also know which energy sources can replace coal. In addition to hydropower plants (hydro potential), this includes solar power (solar irradiance), the kinetic energy of the wind, and the chemical energy of biomass. The solar and wind potential is huge – as is the shortage, as these are variable energy sources that operate intermittently. Since it is difficult to determine the time and strength of their operation, some have suggested from the very beginning that we build parallel wind power plants (WPPs) and TPPs or WPPs and hydro storage plants. This sort of system would have lower operating costs, but doubled investment costs.
When evaluating and comparing power plants, we need to take into account that 1 MW of installed power does not always yield the same annual electricity production, since specific sources are associated with different number of potential operating hours. The approximate operating hours at nominal power for different facilities are as follows:
- Coal-fired thermal power plants: 6,500 operating hours per year
- Hydropower plants: 4,500 operating hours per year
- Wind power plants and smal hydropower plants: 2,500 operating hours per year
- Solar power plants: 1,200 operating hours per year
As we can see, RES power plants have a lower number of operating hours per year than TPPs and can only produce electricity under the right natural conditions.
The EU consequently decided to introduce certain rules and to organise the electricity market in way that will secure a more favourable position for RES and a less favourable position for coal. This includes: (i) setting up the right economic instruments (incentives and disincentives), (ii) establishing an electricity market – an exchange system for electricity (hourly values, day-ahead) (iii) allowing the grid to function as an energy accumulator, (iv) supporting the establishment of energy cooperatives, and (v) administrative constraints.
We could also add the adjustments made by the energy consumers (energy efficiency), along with the introduction of the energy services sales model as opposed to simply selling the energy.
Setting up economic instruments: Aiming to deincentivise carbon-based electricity production, the European Commission introduced the obligation to purchase GHG emission allowances from the main issuers that operate in certain economic areas. The value of the allowances in the market depends on their demand. It currently amounts to more than EUR 20 per 1 tonne of CO2, which corresponds to approximately EUR 20 per tonne of coal, which is used by TPPs on the Balkan Peninsula. This piece of data therefore allows for comparison with the price of coal paid for by TPPs.
For countries that have not introduced this system, duties for importing their energy are envisaged. For the Western Balkan countries that fall within this group, it would be more favourable for them to introduce the emission allowance purchasing system than to have their electricity taxed. In both cases, the cost is borne by the energy utility, but the difference is that in the former case, the money stays in the country and the utility that operates the coal-fired TPP can apply for these state funds and use them to build local RES facilities, thereby financing its competition.
When consumers in the European Union pay for electricity, their bill includes a surcharge to promote the construction of renewable capacity. In the EU, this amounts to about 15% of the electricity bill. Under the guise of protecting those with a lower living standard, this surcharge is very low in the Western Balkans.
We see the emergence of market rules where, most commonly, electricity purchase prices – day-ahead hourly values – are decided on energy exchanges.
Nowadays, all WPPs are smart WPPs. They are able to access wind research data for an area before construction and predict the wind speed and frequency for the following day. These plants also receive real-time wind data, while continually learning and improving the accuracy of their 24 predictions.
In this sense, WPPs have an advantage over TPPs. Since they have no operating costs (in the case of lower demand), they can operate with lower prices than TPPs which have to bear the cost of coal and which are not flexible in the sense of adjusting capacity. This leads to situations where at some European power exchanges, TPPs operate with a negative or very low sales price of electricity for hundreds of hours per year.
Allowing the grid to function as an energy accumulator: Another activity which is being promoted is the production of renewable electricity for self-supply. Considering the different intensity of the natural energy sources and energy needs, energy producers should have at their disposal batteries which they can use to store their surpluses or to feed off when their energy needs increase. This problem, too, is solved by introducing a ‘grid pavilion’ (in the power system). The self-supply electricity producer has the option to feed any surplus energy into the grid, while also taking from the grid as much energy as they had fed into it and when they need it. These electricity consumers are therefore actually not electricity producers (they are not registered producers), but are instead referred to as prosumers (a contraction of the words ‘producer’ and ‘consumer’).
Supporting the establishment of energy cooperatives: Another way to promote RES is by introducing energy cooperatives, which are becoming increasingly popular in Europe, including in Slovenia and Croatia. They differ from traditional private companies in that all the members have equal rights, irrespective of the amount and type of their contribution (money, labour, the roof area for solar panels, wooden branches for biomass facilities, manure waste etc.). The interest of cooperative members is not so much economical, but relates more to having control over the production sources in one’s area.
Due to significant irregularities and lack of investment culture in the process of obtaining licences for small HPPs, these plants are unpopular in Bosnia and Herzegovina. However, energy cooperatives present the right place for building small HPPs.
The inhabitants of an area can assess when they can make use of the function of developing a local community (water supply, irrigation).
In 30 years, half of the population in Europe, as well as in the Balkans, will be employed in the production of electricity and heat from solar systems.
Effect of COVID-19
The effect of the COVID-19 pandemic cannot be assessed quantitatively, however, it can be determined qualitatively. The measures to curb the spread of the pandemic will undoubtedly decrease economic activity. This will significantly affect the entire planet. Not only will energy demand drop, the structure of the energy sources will change as well. We have to take this into account. All the development strategies on the global and national level, including those relating to the energy sector, need to be revised.
For example: if a country produces 50% of its electricity from TPPs and 50% from RES (HPPs, wind, solar, biomass) and if the price of electricity in the market drops 10% due to lower demand, as does the purchase price, what will happen?
The owners of RES power plants will see their income drop 10% based on the price reduction, whereas the owners of coal-fired TPPs will see it drop as much as 28% – 20% due to lower sales and 8% due to lower electricity prices.
This is because RES power plants, which have practically no operating costs, will not experience a decrease in production; they will only lose 10% based on the price reduction. On the other hand, TPPs will see their sales drop by 20%, selling 80% of the energy produced at lower price.
Let us now consider an example in which electricity demand drops 20%, as does the electricity price. In this case, RES power plants would see a 20% income reduction, whereas fossil fuel facilities would see their income drop as much as 56% (40% due to the drop in sales and 16% due to the price reduction).
It is clear that the COVID-19 pandemic presents a much larger issue for TPPs than for RES power plants.
Another potential effect of COVID-19 relates to the fact that tourist resorts, fearing that similar developments might continue in the subsequent period, will decide to cut their costs and seek out new sources of income. One option would be for them to become renewable electricity prosumers, thereby increasing their income and lowering their running costs. They would also reduce the supply of energy from public systems.
In cases where the government will not support coal mines with public and private investment, the local authorities and coal mine operators will have to look for other solutions. Wishing to secure employment for its inhabitants and knowing that the demand for coal will inevitably drop, local authorities will look for alternative options – choosing the simplest ones that still allow them to keep the existing utility and coal mining equipment.
This brings us to the introduction of backstop technologies, which can mean extracting other mineral resources, cultivating fast-growing trees, producing bioenergy products for small combustion plants etc. One possible solution would be to change the type and location of operations. One could entice coal mines in Bosnia and Herzegovina and Serbia to start focusing on lithium cells (batteries), since 10% of the world’s reserves of this chemical element are located in these two countries – in areas that are not too far away from today’s coal mines.
Coal mines are clearly lagging behind in terms of the necessary change. They still seek support from the state in order to preserve their position instead of seeking it to change their operations, also by changing their location.
In the European Union, states do not offer support to coal, as they want to preserve the competitiveness of RES, but they do support the coal mines in their transition to backstop technologies. It is plausible that coal mines in the Western Balkans would be able to obtain (if they introduced such programmes) EU aid to introduce these technologies.
In the Western Balkans, coal mines have difficulty maintaining financial liquidity despite government subsidies.
We can expect to see coal mines give up coal production even before they are forced to do so as a result of the planned TPP closures.
One of the reasons for the TPP closures in the Western Balkans will therefore also relate to the actual shortage of coal.
As a society, we must recognise that coal is becoming an increasingly worthless energy source and that we need to start searching for other options as soon as possible.
In place of a conclusion
It seems that state authorities in the Western Balkans see TPPs more as an area meant for foreign investment or as a soft loan channel and as a place of employment for local inhabitants and less as having a function in the economy and the country’s energy security. Bosnia and Herzegovina is even discussing the construction of new coal-fired power plants.
In the case of one such plant, the Tuzla TPP’s unit 7, the Federation of Bosnia and Herzegovina even made a parliamentary decision on its construction, with the Council of Ministers of Bosnia and Herzegovina also providing some support.
Interestingly, this was a precedent in the country’s parliamentary practice – neither can one find an explanation for the approval to build unit 7 of the Tuzla TPP on the parliamentary website nor did the councillors receive an adequate explanation when they reached this point in the agenda. They voted according to the party directive.
Additionally, aiming to share my knowledge and experience, I wanted to draw the public’s attention to the inaccuracies in the National Emission Reduction Plan (after attending a meeting of energy utilities operating in the Federation of Bosnia and Herzegovina and Republika Srpska in Ugljevik in 2015), but was not allowed to do so.
Since I knew that the construction project for unit 7 of the Tuzla TPP was highly uneconomical, I submitted a five-page letter to the Ministry of Finance of the Federation of Bosnia and Herzegovina in March with an analysis that proved just that. Despite the order of the country’s Aarhus Centre and despite the decision of the Ombudsman, I did not receive a reply.
The Western Balkan countries need to recognise that they are not energy independent. They will have to listen to the more powerful Europe (which is acting under the pretence of fighting climate change), adapt to the effects of the COVID-19 pandemic, and enable coal mines to take care of their future.
Dr. Aleksandar Knežević, president of IMPULSIO, Movement for the rule of knowledge Sarajevo, Bosnia and Herzegovina
The opinions expressed by the author do not necessarily reflect the opinions of Energetika.NET.
This article is available also in Slovene.