Energy sector reforms in south-eastern Europe

A Regional Energy Forum was held in Sarajevo on 30-31 March 2009, focussing on investment opportunities in electricity generation and renewable energy in south-eastern Europe. The Forum, entitled “Investing in electricity generation and renewable energy”, highlighted the potential in the region to tap into new sustainable sources of energy in a region where energy and carbon intensity are often more than twice the average for western Europe.

Speakers included Prime Minister of Bosnia and Herzegovina Nikola Spiric, EC Commissioner for Energy Andris Piebalgs and EBRD President Thomas Mirow.

Business and government join forces

The combination of business and government was the perfect opportunity to drive home the message of what steps needed to be taken in order to respond effectively with commercial financing to the huge energy investment needs of the region.

President Mirow told the forum: “Energy sector reforms are advanced, but power markets are yet to be liberalised and much can be done to improve competition between generators and suppliers. Energy tariffs are often below cost-recovery levels and do not include environmental costs.”

Commissioner Piebalgs said investors still needed to see more political determination to complete reforms. Three years after the Energy Community Treaty had come into force, all countries had realised substantial progress. “However, the reforms are far from being completed, and we have the impression that – in certain countries – the pace of change is slowing down.”

Milko Kovachev, Senior Adviser in the EBRD's Power and Energy team and one of the Forum's organisers spoke further about the event.

What were the issues on the Forum's agenda and who was involved in the discussions?

Milko Kovachev: The Forum focused on two specific issues – of particular relevance to the region – electricity generation and development of renewable energy. The region is known for its electricity deficits. Energy capacities are ageing, inefficient and in urgent need of upgrading. It is time for countries in the region to invest in electricity generation and replace the old power plants which were built in the last century.

The EBRD and the Energy Community hosted the Forum with the purpose of bringing together investors, policy makers and regulators as well as energy traders – a driving force for the development of the energy sector in south-eastern Europe. The conference attracted participants from the Western Balkans, Bulgaria, Romania and beyond. The Forum also attracted high interest from investor countries such as Austria, Italy, Norway and the US.

Participants addressed energy and environmental issues and looked at solutions for current problems that the energy sector is facing. This was a very important event for the region. Over 200 people participated in the event and their contributions will hopefully shape the future decision making in improving the region 's energy sector.

What is the state of the power sector in the region?

Most of the countries in the region such as Albania, FYR Macedonia, Montenegro and (partially) Serbia are electricity deficit countries. They are importing electricity and only a few countries in the region have export capacities in place. The lack of transmission capacities has led to high cross-border energy export prices in the last two years. About €80 per MWh was last year's cross-border price. This is higher than the EU average cross-border prices of around €60 per MWh.

Some countries in the region still experience power cuts of up to six hours per day. These countries urgently need investments to improve the environmental performance and the efficiency of existent energy generators in order to provide better services to their citizens.

One potential means for increasing energy production in the region is renewable energy. Nearly 30 per cent of the electricity in south-eastern Europe is already generated by hydro but there are other renewable energy sources to be explored. Wind, biomass and solar energy are the emerging new sources of energy. The region has huge benefits to gain by using these sources.

Are governments and citizens in the region aware of the potential for developing renewable energy sources?

Governments engage in the energy reform agenda that is framed by the Energy Community Treaty, a framework for rebuilding energy networks in south-eastern Europe. Based on this, they also set timetables to implement legislation regarding the development of renewable energy sources.

We have yet to see concrete results. The EBRD is committed to engage with the public and private sector in the region to develop renewables. We showcased some of our renewable energy projects to investors and decision makers at the Forum to encourage more similar investments.

What role is the EBRD playing to improve the region's energy sector?

The Bank has backed the Energy Community Treaty and has invested to improve interconnections in the region, for example a high voltage electricity line between FYR Macedonia and Bulgaria.

The Bank has also invested in the rehabilitation and construction of several power plants in the region. For example, in Bulgaria, the Bank is investing in the construction of a wind farm and nine small hydropower plants. To spur renewable energy investments in the Western Balkans, the EBRD has established two lending facilities worth €110 million, one through the intermediation of local banks and another directly lending to private businesses investing in renewable energy and energy efficiency. Loans to businesses vary from €2 million to €6 million.

Both facilities receive grant financing to support the institutional, legal and regulatory energy framework in the Western Balkans. Grant financing will back the policy dialogue in the region and increase the capacity of these countries to establish and develop the appropriate economic environment for the sustainable development of renewable energy and energy efficiency.

Moreover, the Bank has pledged to invest €500 million for the power sector in the region in 2009.

Fast facts

  • Key elements of the energy infrastructure in the Western Balkans were built in the 1960s and 1970s, with standard Eastern Bloc technology.
  • Much of the energy infrastructure in the Western Balkans was damaged during the conflicts related to the break-up of the former Yugoslavia in the 1990s.
  • The Western Balkans are strategically located between hydrocarbon-rich regions (Russia, the Caspian basin and the Middle East) and key energy-consuming regions of western and central Europe.
  • All Western Balkan markets depend heavily on hydrocarbons imported from outside the region.
  • Households represent the largest share of electricity consumption in most countries in the Western Balkans.
  • Oil and gas production in the Western Balkans is limited. Oil reserves are located mainly in Romania and some in Albania, whereas gas is mostly located in Croatia and Romania.
  • Coal (mostly lignite) dominates the primary energy supply in the Western Balkans.
  • The Western Balkan region is 2.5 times more energy intensive than the average for OECD Europe.

By Marjola Xhunga, Communications Adviser and Anthony Williams, Head of Media