After years of hydropower-related controversies, Kosovo’s long-awaited new Energy Strategy confirms that the government does not support new development in the sector, due to its environmental impacts. It also sends promising signals on carbon pricing and solar and wind development. Still, the country needs to avoid wasting money on coal and gas.
Pippa Gallop, Southeast Europe Energy Advisor | 28 March 2023
Reka river, Brod, Kosovo, author: YllkaFetahaj via WikiMedia Commons Creative Commons Attribution-Share Alike 4.0 International license.
Earlier this month, the Kosovo parliament approved a new Energy Strategy up to 2031. Given how painfully outdated the previous strategy was, the new one is a crucial step in defining Kosovo’s energy plans.
Among others, it plans 1320 MW of new renewable energy generation until 2031, to add to 297 MW of existing capacity. The new additions should consist of around 600 MW wind, 600 MW of solar photovoltaics, 20 MW of biomass and at least 100 MW of prosumer capacity. It does not clarify the type of biomass, but caution will need to be exercised even for 20 MW, as Kosovo has reportedly already lost 7600 hectares of forest in the last 20 years.
No new hydropower planned
After years of conflicts over hydropower e.g. in Deçan and Shtërpcë/Strpče, the Strategy clarifies that ‘Due to environmental aspects, the Energy Strategy does not promote the construction of hydropower plants.’
This makes Kosovo the first country in the region to stop promoting new hydropower plants – a welcome statement that paves the way for the government to focus on speeding up solar and wind development and intensify its energy saving efforts.
This is important, as – in addition to the notorious Kosova e Re coal power plant – previous governments lost more than a decade promoting hydropower plans that were both damaging and to a large extent unrealistic, given Kosovo’s limited hydropower potential.
In 2009 the country had only 45.8 MW of installed hydropower, but in 2013 the then government planned a totally unrealistic additional 240 MW of hydropower below 10 MW and 305 MW of large hydropower by 2020.
Despite strong support from a feed-in tariff scheme that favoured hydropower over solar and wind, by the end of 2021, Kosovo had 132 MW of installed hydropower capacity. The plants generated less than five per cent of its electricity – and that in a relatively good hydrological year. They have also caused widespread damage including dry riverbeds, excessive logging and polluted drinking water. After this experience, it’s reassuring to see that the government has learnt this lesson and is ready to move on.
Energy crisis mars coal phase-out ambitions
The government’s plans for solar and wind are ambitious compared to Kosovo’s past progress – though quicker action is still needed. The Strategy pledges to reach carbon neutrality by 2050, but uses the same date for coal phase-out. But in reality, the country’s notoriously polluting lignite power units will have to close much earlier, due to their age.
Despite positive plans to phase in carbon pricing starting from 2025 and to use the proceeds to start a Just Transition Fund, the Strategy hesitates to commit to clear closure dates for the oldest units.
No doubt stung by Kosovo’s recent energy crisis, it plans modernisation works at both units of Kosova B, as well as at one or two of Kosova A’s three functional units: ‘One of the Kosovo A units will be refurbished by the end of 2024, while the decision to refurbish or phase out the second unit will be made in 2024 at the latest’. The Kosova A unit or units would then be used as a strategic reserve after that. The only concrete closure date mentioned is that one unit of Kosova A would be closed in 2026, after the other two have been modernised.
In 2021, 93 per cent of Kosovo’s electricity still came from lignite, so upgrades to Kosova B are inevitable for now. But Kosova A’s remaining units came online in 1970, 1971 and 1975 respectively, making them 53, 52 and 48 years old.
In addition to Kosova A’s age, there are three potential problems with this plan. First, the estimated cost of the required investment at Kosova A is EUR 120 million per unit, and that’s in addition to nearly EUR 97 million each needed for the two units of Kosova B. It’s not clear where Kosovo will be able to find these funds.
Second, it is already March 2023, so there is almost no chance of the first Kosova A retrofit being completed by the end of 2024. Yet the annex to the Strategy shows that this would be crucial to the feasibility of the works. With the introduction of carbon pricing, the utilisation rate of both the lignite power plants decreases significantly from around 85 per cent in 2026 to around 19 per cent in 2031, so the later the modernisation is done, the less power they will actually be able to sell.
Given the EU’s intention to introduce Carbon Border Adjustment Mechanism (CBAM) payments in the power sector from January 2026, there is no real option for Kosovo to delay carbon pricing either, so it is unlikely that renovating any of the Kosova A units will be feasible in reality.
The third issue is the strategic reserve. Presumably the idea would be to pay the Kosova A units to be ready for action when needed. However, from 1 July 2025 it will no longer be allowed to have coal units as part of such capacity mechanisms in Energy Community Treaty countries, including Kosovo, due to the recent adoption of the EU’s internal energy market regulation. It’s unclear whether this has been considered in the Strategy.
Double gas dependence
The Strategy includes the option of buying a share in gas power projects in neighbouring countries to avoid the cost and time delay of building a gas import pipeline to Kosovo. It assumes two plants, with Kosovo’s participation costing EUR 100 million each. According to the Strategy’s annex, Kosovo would buy gas via long-term power purchase agreements.
While these plans do indeed sound modest compared to the megalomaniac proposals from a recent EU-funded Kosovo gasification study, they still risk distracting Kosovo with high-cost and unreliable fossil fuel projects, instead of concentrating on decarbonisation and energy savings.
Russia’s brutal invasion of Ukraine has once again underlined that increasing reliance on imported fuels — especially from corrupt and authoritarian regimes like Azerbaijan’s — makes no sense. But an arrangement to build plants jointly with neighbouring countries brings additional dependence, as it relies on that country’s competence in permitting, financing, building and operating the plant – which can’t be taken for granted.
The mention of power purchase agreements also rings alarm bells, as it was exactly such an arrangement that ultimately caused the demise of the Kosova e Re coal power plant project. There is a very high risk that such an agreement would be illegal under Energy Community state aid rules, and that it would lock Kosovo into buying power that it could have got cheaper from somewhere else.
The upcoming National Energy and Climate Plan can address these issues
Kosovo deserves recognition for updating its energy policy goals, as its peers Bosnia and Herzegovina, Montenegro, and Serbia have yet to do so. Still, outstanding issues such as the coal phase-out and gas plans, as well as a lack of clarity about district heating investments, need to be addressed.
Luckily, there is another opportunity for this, as by June this year, Kosovo – like other Energy Community countries – has to submit a National Energy and Climate Plan (NECP) to the Energy Community Secretariat, detailing how it will meet its 2030 greenhouse gas reduction, energy savings and renewable energy targets. There is no time to lose in moving forward with no-regret actions such as adopting a new renewable energy law, but the NECP represents a second chance to tackle the remaining issues.
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