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Sunday, October 31, 2010
A brief overview of the regional electricity market in South-East Europe in 2010.

The collapse of the global financial sector in 2008 and the ensuing economic crisis continue to slow down the development of the energy sector in our region (comprising of Greece, Albania, Bulgaria, Romania, Hungary, Serbia, Montenegro, Macedonia, Bosnia and Herzegovina, Croatia and Slovenia). The decline in industrial activities over the last two years has resulted in a decline of regional energy demand, and hence a decline in the regional energy deficit. This trend has gone in hand with the contraction of available capital, an increase in capital costs, as well as a higher perceived risk of doing business in the region. Unsurprisingly, as a result, we are witnessing a substantial slow-down in the realisation of the planned, as well as those investments in the regional energy sector which were begun earlier. Unclear expectations on CO2 regulations in the post 2012 period represent an additional burden on new investment in regional energy. The implications of the current situation are considerable. Due to insufficient of new production capacity not only will the long term stability of the regional electricity supply become questionable, but it is certain that, many industrial activities in the region will be severely hampered after 2015. 

Temporary fall in demand 

If we take the pre-crisis, 2008 data for the regional electricity demand as a reference point, we notice a trend of sudden and sharp decline in demand for electricity in 2009 and a very mild recovery in 2010. The industrial consumption has been most affected. The biggest decline in demand has been recorded in metals processing industries (aluminium smelters, steel and iron ore production), and this was coupled with a market fall in base metals prices. The non-metal sector was also affected (due to a sharp decline in construction) and chemicals industries (due to falling demand for base materials). 

The energy balance of SEE countries in 2008




The energy balance of SEE countries in 2010 



According to the data from ENTSO-E, the pan-European electricity transmission operator, the countries of the region consumed 282.25 TWh of electricity in 2010. Of this amount, 55% was produced in thermal power plants, 27% in hydro power plants, 16% in nuclear plants and 1% from renewable sources. Because of the fall in demand mentioned earlier, the region imported only 0,25TWh of electricity during the year. 

The energy balances of the regional countries are determined by several factors. On the demand side, the balances are primarily influenced by the outside temperature and the need for heating and cooling, as well as the volume of industrial activities. On the supply side, the main factors are the prices of fossil fuels and hydrological conditions, as well as the price differences between the regional and the markets of Western Europe. Bulgaria, Romania and Bosnia and Herzegovina remain the only countries with the ability to produce surplus energy, while all others have a larger or smaller deficit. 

The fall in demand however is only temporary in nature. With the economic recovery and increased activity in the industrial sector, the demand for electricity will rise in south-east Europe. We expect the regional demand to rise by 2.2% annually up to the year 2020. It is important to note here that with the EU ascension process in the same period, the regional countries will have to decommission around 3200 MW of old, inefficient thermal power plants. 

The need for new investment 

In our analyses we have developed two scenarios of the development of the regional energy sector. We have analysed these in relation to the expected regional demand for electricity up to year 2020. The first scenario represents the required level of investment into new production capacity up to 2020, which would insure stable supply of electricity and preconditions for normal functioning of the economy. The second scenario represents a more realistic picture, with 60% of the required investment being realised by year 2020. 




Our analyses shows that by the year 2020, the region needs 12 100 MW of new thermal capacity, 3000 MW of new hydro capacity and 1400 MW of new capacity from renewable sources. The value of this investment, according to current prices, is about 33.8 billion Euro. That means that for the next ten years, each citizen of the region will annually have to pay 47.5 Euro for new investment in energy. This is less than half of Western European per capita investment in energy. It is difficult to imagine that given the current circumstances the necessary capital will be available in time for such new investments. The second scenario therefore provides a more realistic picture on how the regional energy sector might develop. It shows us that in the mid-term the region will face a considerable problem in ensuring stable energy supply. Even with a considerable increase in imports of energy (from 4-5 TWh annually in recent years, to 20TWh annually as the capacity of the regional transmission network), the region could face energy restrictions from 2018. 

Public – Private Partnership as the way forward 

This analyses implies several conclusions. First of all, the relative poverty of the regional countries represents a most serious burden for the development of the energy sector, and hence the normal development of the regional economy. In respect of this, further financial support of the international community, above all the European Union, is crucial. 

Secondly, we believe that the model of Public-Private partnership is the most effective way to stimulate the development of the energy sector in south-east Europe. In it now abundantly clear that state owned energy monopolies in the region are not able to generate the required capital on their own to effect the needed investments in energy. Not only because of subsidised, non-economic prices of electricity, but also because of their inefficiency.

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