Subsidies driving destructive hydropower boom in the Western Balkans
Enes Cerimagic, Energy and Climate Topic Leader (J&E/Croatia) and Pippa Gallop, CEE Bankwatch
EU State aid legislation to the rescue?
In drafting its workplan, J&E has decided to tackle an issue of EU policy which is often left unaddressed – conflicting provisions aimed at enabling more energy production from renewable sources and at protecting nature and environment.
Another area of J&E's work is cooperation with Balkan NGOs in protecting nature and the environment. Given the longevity of any decisions made in the energy sector, its integration across the Balkan region, and the fact that even those Balkan countries which are still not a part of the EU are firmly set on their way to become EU member states, J&E recognized the urgency to speak about these topics in the Balkan context; EU-sourced obligations and standards may vary across the region and the status of the accession process varies.
On 30 November and 1 December 2018, together with local NGO Centar za životnu sredinu, J&E organized a workshop for Balkan NGOs in Banja Luka, Bosnia and Herzegovina. It was an opportunity for Justice & Environment to offer our knowledge and expertise on the EU legal framework, but also learn more about the situation in the region - e.g. specific problems faced by Balkan NGOs and the environment in general. With the help of Pippa Gallop of CEE Bankwatch, we bring you their stories.
Clear vision, contradictory action
More than a decade ago, governments in the Western Balkans spotted that renewable energy was the future. Instead of actually investing in wind or solar, however, they started issuing hundreds of concessions to build small hydropower plants on virtually every river and stream across the peninsula, including in protected areas and other biodiversity hotspots.
For some years, it seemed like most of these projects were going nowhere, but gradually things sped up. Albania was fastest and by the end of 2016 had no fewer than 137 small hydropower plants. In the meantime, construction has taken off in the rest of the region, helped along by feed-in tariff schemes that guarantee the buy-off of electricity at a guaranteed – and usually very generous – price.
This support is out of all proportion to the amount of electricity generated. At the end of 2016, while the 387 hydropower plants of less than 10 MW represented almost 90% of all hydropower plants in the Western Balkans, they only produced 3-5% of the total hydropower output.
On the rise: people power and resistance
Resistance to the hydropower boom has also taken off. A community near Fojnica in Bosnia-Herzegovina managed to stop a small hydropower plant after keeping watch day and night at the construction site for nearly a year. Their successful example has been followed by the people of Kruščica, a few valleys away, who have stopped successive construction attempts, been beaten up by riot police and kept watch at the site for sixteen months so far.
Across the border in Serbia, local people in the Stara Planina region of Serbia have succeeded in making small hydropower plants one of the hottest issues in the country, while their counterparts in Montenegro fight off attempts to build plants across the north of the country.
In Kosovo, there was even a moratorium declared on issuing environmental permits earlier this year, but the Environment Minister who initiated it later resigned. Albania’s major fights, meanwhile, are around larger plants on the pristine Vjosa and Valbona rivers – the latter is in a National Park, and the former ought to be, considering its natural value.
Money and power: subsidies, tariffs, regulations, delays
Similar issues have plagued EU countries like Bulgaria, Romania, Croatia and Italy, but cutting subsidies and improving environmental legislation proved to slow down the hydropower tsunami considerably. The subsidy cuts in Bulgaria and Romania were initiated domestically but in recent years EU rules on subsidies have also changed. The Energy and Environment Aid Guidelines (EEAG) 2014-2020 require auctions and premiums rather than feed-in tariffs for all but the smallest plants, and this approach has now been confirmed in the new Renewable Energy Directive II.
The Western Balkan countries, as Contracting Parties of the Energy Community, and due to their Stabilisation and Association Agreements with the EU, are also bound to comply with EU State aid rules. The main difference, however, is that they are only obliged to notify their domestic state aid authorities rather than the European Commission or Energy Community Secretariat.
This means they need to move to the new rules on incentives as well, and they are being supported by the Energy Community, as well as international institutions like GIZ, the EBRD and USAID to do so.
Yet so far they are dragging their feet.
Auctions as a viable option?
Albania has been the frontrunner in introducing auctions for solar and wind and has recently completed its first solar auction. Inexplicably, though, it continues to offer feed-in tariffs for hydropower up to 15 MW. This is especially difficult to understand for a country that suffers from fluctuating electricity generation due to its complete reliance on hydropower.
The Macedonian government, too, has recently published draft legislation on renewable energy incentives, introducing auctions and premiums for wind farms of up to 50 MW and PV power stations with an installed capacity of up to 30 MW. But again, feed-in tariffs - without auctions - would remain in place for hydropower plants of up to 10 MW, wind farms of up to 50 MW, and biomass and biogas-fired facilities of up to 1 MW.
In November 2018 the Serbian government followed suit by extending its decree on incentives for electricity generation from renewable and high-efficiency cogeneration until the end of 2019. The decree had been due to expire on December 31, 2018, and no new legislation had been proposed, so its prolongation provides a deadline extension to producers with ongoing projects that have not managed to secure feed-in tariffs yet.
Serbia’s deadline extension will not help solar and wind because the quotas until 2020 are already full. It will mainly help investors in other sources, including hydropower, biomass and biogas. Controversial projects like hydropower plants and the Vinča waste-to-energy incinerator in Belgrade may be able to sign new contracts for feed-in tariffs while solar and wind plants cannot.
A windfall for wind and solar?
Introducing auctions and premiums is not a panacea and will not per se exclude unsustainable energy projects - only energy policy that is subject to rigorous analysis and debate, together with well-enforced environmental legislation, will do that. But it may finally give solar and wind a chance to develop without being subjected to restrictive quotas and without inflicting massive costs on consumers.
It should also help to exclude some of the more controversial investors who are currently cashing in on small hydropower, because companies will have to analyse the feasibility of their projects much more carefully in advance.
But the current situation leaves environmental groups in the region with several questions:
● How can we fight those contracts which have already been signed to subsidise problematic hydropower plants?
● How can we push the governments to abandon feed-in tariffs for all but the very smallest projects as soon as possible, especially hydropower?
● How can we make sure the new system based on auctions and premiums, is as sustainable as possible, both financially and environmentally? How can we ensure that it does not exclude smaller producers and does not incentivise the use of cheap but possibly substandard and environmentally suboptimal technologies?
We will be working to answer these in the coming months and any experience that J&E newsletter readers can share will be more than welcome.
The story was first published in J&E Newsletter Network News, Issue 2019/1, 4th February 2019.
Read also previous Network News.