Blog entry

Bihor County leads Romania’s geothermal heating revolution with EU support

In western Romania’s Bihor County, the municipalities of Oradea and Beiuș are spearheading this transition. Since the country’s accession to the EU, they have invested more than EUR 45 million in geothermal energy, primarily with the help of EU funds. This vital support has enabled them to adopt best practices and collaborate with specialists from within Romania and abroad.

Western Romania boasts the country’s most abundant geothermal resources. Recognising these valuable local assets, cities in the region have begun to incorporate geothermal energy into their district heating systems, moving beyond their traditional use in the spa and wellness tourism industry.

How did it all begin?

The nationwide exploration of geothermal resources for energy purposes began in the early 1960s. Over the following years, more than 250 wells were drilled, with depths ranging between 800 and 3,500 metres. These excavations revealed the presence of ‘low-enthalpy’ geothermal resources, characterised by relatively low temperatures ranging from 40 to 120 degrees Celsius. This led to the identification of several geothermal zones, mainly in the western part of the country and three areas in the south.

Initially, geothermal energy found applications within industries and the agricultural sector. However, following the fall of the communist regime in the 1990s, the pursuit of geothermal energy in western Romania gained momentum as the region recognised the need to seek alternatives to its costly and polluting coal-fired power plants. This resulted in the gradual adoption of geothermal energy for use in district heating systems, marking a shift towards more sustainable practices.

Geothermal energy in Oradea

One of western Romania’s most notable success stories is Oradea. Over the years, the city has been integrating geothermal energy into its district heating system. In 2020, geothermal energy accounted for 5 per cent of the total energy used. With continued investments and the completion of ongoing projects, this share is expected to rise to 15 per cent of the city’s total thermal energy by early 2025.

In the Oradea area, geothermal energy is primarily harnessed for direct applications such as heating residential and industrial spaces, producing hot water, industrial processes, greenhouse heating, and spa facilities.

Oradea is also home to the first geothermal water-based heating station in Romania. Completed in 2023, the station serves the multipurpose Oradea sports arena and over 1,500 homes across two neighbourhoods. The construction of the project was financed by amounting to a total investment of EUR 3.8 million.

Another project, completed in 2024, supplies geothermal-based heating to over 6,000 apartments in the Nufărul 1 neighbourhood of Oradea. This EUR 19 million investment, supported with EUR 15 million in EU funding, has led to an increase in the utilisation of local geothermal energy resources, including the local geothermal reservoir, for the production of heating and hot water.

The project was carried out in three phases, including the reinjection of geothermal water through a separate well. Additionally, a new 11.2-kilometre network was constructed to transport primary thermal energy, supplying over 200 heat modules at the building scale and replacing traditional heat distribution nodes.

These innovative projects are part of a programme involving the local administration and researchers from the University of Oradea. The programme aims to gradually increase the utilisation of geothermal energy within the city’s centralised heating system. This collaborative effort has also benefitted from valuable contributions from experts in France, Iceland, and Hungary.

The cheapest heating in the country

About 60 kilometres southeast of Oradea lies Beiuș, where Romania’s first geothermal well was drilled in 1996, reaching a depth of 2,500 metres. A pump installed in 1999 extracts up to 45 litres of geothermal water per second at a temperature of 83 degrees Celsius. A second well was drilled in 2004, followed by a third in 2010 with EU funding, specifically for reinjecting geothermal water back into the reservoir.

Since 2008, the municipality’s efforts to prioritise sustainable development have been successful in attracting over EUR 20 million in EU grants. This geothermal resource is now integrated into the city’s district heating system, serving over 1,600 apartments, 300 individual households, local government buildings, schools, the hospital, and the city’s emergency services.

Despite a modest increase in heating costs this winter to EUR 31.60 per megawatt hour (MWh) for the production, distribution, and supply of geothermal-based thermal energy, this outlay remains significantly more affordable compared to other cities in the region.

For instance, in 2022, Timișoara, whose heating system exclusively relies on gas and coal, faced a substantial increase EUR 149 per MWh (excluding VAT). This figure includes a local subsidy of approximately EUR 100 per MWh (excluding VAT), leaving subscribers to pay a net price of EUR 61 per MWh. This considerable cost difference illustrates the major economic advantage of geothermal energy over fossil fuel-based systems.

In light of the rising heating costs, Beiuș City Hall has promised new investments in district heating infrastructure. By the end of this year, the city, in collaboration with the Icelandic National Energy Authority, will develop a 3D model of the geothermal reservoir, utilising drilling data to accurately assess its potential.

The project also includes an energy efficiency study for the transport and distribution system, an analysis of closed-loop geothermal systems, and an evaluation of the suitability of heat pump applications for large consumers. Funded by Innovation Norway, the project will result in a feasibility study necessary for securing additional EU funding.

The geothermal future

Western Romania possesses significant potential for developing geothermal energy projects for district heating. This natural resource offers multiple benefits: economic efficiency through low operating and maintenance costs, minimal environmental impact compared to traditional fuels, and a consistent energy supply, provided the balance between extraction and reinjection is maintained.

Implementing these projects requires strong political will and courage at both the local and national levels, along with the continuation of financial support from a variety of sources. The recent proposal by Dan Jørgensen, the new European Commissioner for Energy and Housing, to develop a geothermal strategy aimed at supporting the EU’s heating needs is a welcome step.

Drawing on the successful examples from Bihor County and numerous other projects already implemented across Europe, western Romania can successfully leverage the potential of this economical and sustainable resource.

EBRD’s Independent Project Accountability Mechanism investigates the Indorama Agro cotton project in Uzbekistan

Holding the EBRD accountable for human rights violations

In 2021, Indorama Agro secured USD 130 million in loans from the EBRD and the International Finance Corporation (IFC) to modernise cotton production and enhance environmental and operational standards. However, the project has faced intense scrutiny over allegations of human rights violations and retaliatory actions against workers and independent rights monitors.

In 2023, after three years of engaging with multilateral development banks and Indorama Agro management, the Uzbek Forum for Human Rights (Uzbek Forum) and Bankwatch filed a formal complaint with IPAM. The complaint detailed grave concerns, including land confiscations, loss of livelihoods for local farmers, mass lay-offs, exploitative labour practices, reprisals against workers, union-busting tactics, and inadequate environmental and social impact assessments.

In November 2024, IPAM deemed these allegations credible and initiated an investigation, which is expected to conclude by the end of 2025. The review will assess whether the EBRD acted in accordance with its environmental and social policy. If the EBRD is found to have violated its own performance standards, IPAM will make recommendations to EBRD management to ensure project compliance and remedy the harm done.

Notably, this is the second complaint filed against Indorama in Uzbekistan to the accountability mechanisms of multilateral development banks. In 2016, Uzbek Forum submitted a complaint to the IFC’s accountability mechanism, alleging the use of child and forced labour by Indorama Kokand Textile throughout its supply chain.

Economic displacement of thousands

In 2018, the Uzbek government transferred 54,000 hectares of land in the Kashkadarya and Syrdarya regions to Indorama Agro. Project impact assessment documents indicated that this decision would potentially affect 1,068 farms, leading to the economic displacement of 5,418 permanent workers and the loss of 9,070 seasonal jobs. Indorama Agro claimed the land was acquired through negotiated settlements with affected farmers, who were offered employment in exchange for terminating their land lease agreements – an arrangement to which the farmers ‘voluntarily’ agreed. However, independent rights monitoring revealed that farmers whose land leases were terminated were given no choice but to sign voluntary land lease terminations under threat of penalty by local authorities. A recent report on land grabbing in Uzbekistan documents cases where farmers did not even know they had lost their land until they arrived at their fields. Because the land lease terminations were deemed voluntary, there was no obligation on the part of the company or the government to pay compensation for losses or damages, including loss of profit.

A 2020 livelihood restoration plan commissioned by Indorama Agro proposed employment as the primary mitigation measure despite evidence that many affected households either declined job offers or were excluded due to reduced labour demand. The document revealed a significant lack of data on project-affected people, calling into question the EBRD and IFC’s due diligence and the effectiveness of proposed mitigation measures.

Nevertheless, both the EBRD and IFC approved loans to Indorama Agro, attaching conditions for livelihood restoration outlined in an environmental and social action plan. By March 2021, Indorama Agro was required to profile affected farm leaders and workers, assess impacts, and develop a revised livelihood restoration plan. Although these conditions had not been met by then, funding was disbursed regardless.

Limited livelihood restoration

The updated livelihood restoration plan, eventually disclosed in May 2024, revealed that 1,062 farms were affected. These were classified as small businesses, averaging one full-time equivalent worker per 10 hectares of cotton land. However, the plan focused solely on the livelihood restoration of farm leaders, excluding farm workers who lost access to land and employment. In fact, the land had been used not only for cotton farming but also for grazing livestock and cultivating vegetables, providing sustenance for entire families. As a result, the loss of land had far broader economic consequences beyond the loss of employment.

Yet, Indorama Agro identified only 1,062 individuals as project-affected, considerably fewer than the at least 5,418 farmer workers impacted by the land appropriation. The number of project-affected people was further reduced for various reasons, with only 90 individuals ultimately acknowledged as eligible for livelihood restoration benefits. Notably, pensioners were excluded on the basis that they receive a monthly pension of approximately USD 58, which was deemed sufficient to sustain their livelihood.

The livelihood restoration measures proposed by Indorama Agro included providing greenhouses, establishing horticulture initiatives, and covering vocational training costs. However, rural residents previously reported that many greenhouses were poorly constructed and collapsed soon after completion. Others stated they were unaware of the greenhouses or how to access them. Additionally, the company’s proposal to engage affected people in silk farming through mulberry plantations has drawn criticism since the silk sector remains under government control and relies on the forced labour of farmers to produce silkworm cocoons.

Concerningly, the company has yet to conduct a comprehensive analysis of the individuals affected by the project, including gender-disaggregated data and other vulnerability criteria, as well as a clear justification for the proposed eligibility criteria. Overall, previous efforts and current measures have not been adequately assessed, casting serious doubt on the sufficiency of the proposed livelihood restoration plan.

Years of exploitative working conditions

Out of almost 15,000 permanent workers and seasonal jobs affected by the project, only 575 individuals were employed by Indorama Agro. Since the project began, there have been regular reports of mass redundancies, low wages, exploitative working conditions, and the misclassification of employees as ‘service providers.’ These ‘service providers’ were given new contracts under a scheme called ‘Nano Unit Contractor’ (NUC), which significantly reduced their rights and benefits, including their eligibility for membership in the trade union. These issues raise questions about whether the economic benefits of working for Indorama outweigh the loss of farmers’ livelihoods. The company has also been implicated in actively undermining Uzbekistan’s only known democratically elected trade union, established in March 2021.

Independent labour assessments conducted at the request of the lenders revealed multiple deficiencies: payment inconsistencies, a lack of transparency and direct communication about contractual changes, misuse of civil contracts, lack of workers’ access to their contracts, excessive shifts and unrecorded overtime, unsafe working conditions, intimidation, and ineffective grievance mechanisms.

The assessment identified flaws with Indorama Agro’s operational health and safety measures, including improper use of personal protective equipment for handling fertilisers and chemicals, weak oversight, such as inadequate inspections and enforcement of safety protocols, insufficient worker training, the absence of fire prevention equipment and evacuation plans, and a lack of accessible information on chemicals management in the Uzbek language. In particular, improper storage and handling of hazardous materials were underlined.

Workers hired by so-called nano unit contractors faced significant challenges concerning working conditions, including inadequate equipment, food, and hygiene facilities, and delayed wages. Female workers lacked separate dressing facilities. Fear of contract termination discouraged these workers from expressing complaints, and the company reportedly failed to adequately supervise or protect their rights.

Ongoing retaliation

Over the past three years, civil society organisations have documented at least 80 retaliation cases against Indorama Agro workers and monitors. Security services, government officials, and company representatives have systematically harassed and intimidated those who attempt to speak out, making it extremely difficult to document these rights violations. Workers and farmers have faced threats and coercion, while security agents have physically obstructed them from attending labour rights workshops and union activities. Human rights monitors have also been threatened with criminal charges for their legitimate work in monitoring the project.

The evidence unequivocally demonstrates widespread human rights violations at the Indorama Agro cotton project and non-compliance with EBRD and IFC safeguards, which have not been adequately addressed. The IPAM investigation is a crucial step to secure effective remedial measures for all project-affected farmers and workers in Uzbekistan, as well as institutional learnings for the EBRD to prevent similar situations in the future.

Against all logic, Bosnia and Herzegovina’s Federal government ramps up fossil gas ambitions

Bosnia and Herzegovina has a very low level of gas dependence – less than 3 per cent of total energy supply in 2022. In the FBiH entity, it is mostly used for heating in Sarajevo. So although a rapid move away from its current Russian gas supply is badly needed, it would make more sense to transform the demand than diversify the supply.

There have been some welcome movies in this direction. In 2022, a promising-sounding 36-megawatt heat pump project was announced for Sarajevo, to be potentially financed by the European Bank for Reconstruction and Development (EBRD). But it’s hardly been mentioned in public during the last year or so, and it’s unclear why.

Misguided gas infrastructure plans

Moreover, BiH appears to be falling into the gas dependence trap. In FBiH, efforts to build a new gas pipeline from Croatia are crowding out efforts to reduce the already low gas consumption. The United States Ambassador to BiH is strongly and publicly pushing the FBIH authorities to move ahead with the project, which would have a capacity of almost six times as much as BiH’s 2022 consumption.

A corresponding and highly controversial ‘new eastern interconnection’ with Serbia is also planned by Republika Srpska, and is being used as a bargaining chip in return for allowing the southern interconnection to go ahead. If built, the pipelines will either result in a major increase in fossil gas consumption, or will turn out to be white elephants.

Southern, western, northern interconnections…

It’s now emerged that the FBiH government has been consulting cantonal authorities about ramping up gas use all across the Federation, even in areas nowhere near the planned Southern Interconnection, like the Tuzla and Posavski Cantons.

As if FBiH isn’t having enough problems building one new gas pipeline from Croatia, the minister mentions no fewer than three: the southern, western and northern interconnections, with the goal of gasifying ‘every part of FBiH’.

It’s hard to overstate how unrealistic this is. All these projects have been around for years and not one has been built. The western and northern interconnections are at an even earlier stage of preparation than the southern one. Three pipelines are simply not going to happen, let alone the distribution network that would need to be built in addition.

Worryingly detached from today’s reality

In fact the government’s whole statement on last week’s meetings with the Tuzla and Posavski Canton heads is worryingly detached from today’s reality.

‘Gasification enables the continuation of the Federation of BiH’s energy independence’, claims the title, in a clear case of doublespeak. But the opposite is true. The European Union has just spent years learning the hard way that gas means import dependence and massive price fluctuations. Where have FBiH decision makers been all this time?

The statement also cites energy minister Vedran Lakić claiming that gas is a lot cheaper than other fuels being used at the moment. But the reason why Russian gas was popular was because of its price: liquified gas (LNG) is more expensive, and Azerbaijan is unlikely to be able to keep increasing its exports. No matter how many import pipelines BiH builds, gas will never be a cheap choice.

Nor was FBiH’s last attempt at gasification exactly successful. Back in 2009, the EBRD approved a project to gasify the Central Bosnia Canton, but although a pipeline from Zenica to Novi Travnik was completed in 2013, it was never put into operation. This was partly due to legal issues, but also because there was not enough demand to make it pay off. If gas was such a good deal, surely the pipeline would have been used?

Decarbonisation through fossil fuels

In a final doublespeak flourish, the Minister’s statement claims the gasification of FBiH will enable gas to be used as a ‘fuel of the future’ in order to fulfill decarbonisation targets and ‘make easier our path towards climate neutrality’.

He is certainly not the only official in the Western Balkans who seems unaware that gas is in fact a fossil fuel and that it is as such incompatible with decarbonisation and climate neutrality, but this lack of understanding of today’s reality is deeply concerning.

Reality check urgently needed

The European Commission, United States and EBRD bear part of the responsibility for the popularity of gas in the Western Balkans, due to their overt political and financial support for new infrastructure.

On the EU front, there have been steps forward in recent years, such as gas projects no longer being prioritised as Projects of Energy Community Interest. But recently, DG NEAR failed to apply the ‘no fossil fuels’ provision when approving the countries’ Reform Agendas under the new Western Balkan Reform and Growth Facility.

The EBRD has in principle limited its gas financing to ‘exceptional cases’, but is still being publicly named as a prospective financier for the Southern Interconnection. And the future regarding the United States’ policy towards BiH is not easy to predict.

With the EU having made progress by achieving an 18 per cent reduction in gas demand between August 2022 and May 2024, and several Member States having bans on installation of new gas boilers, it’s therefore high time for the European Commission to take the lead in clearly telling Western Balkan leaders that the era of gas is coming to an end.

Building retrofits, smart grids, heat pumps, geothermal, rooftop solar, solar thermal and suitably-sited, publicly consulted utility-scale wind and solar all need political and financial support and we can’t afford to be fossil-fooled by gas.

Bosnia and Herzegovina southern gas interconnector: ‘Why gas at all?’ should be the key question

The main driver to build the southern gas interconnection between BiH and Croatia is ostensibly to enable BiH – or at least the Federation – to stop using Russian gas. The country currently has only one import pipeline via Serbia, which is mainly used to heat Sarajevo.

But the planned pipeline’s capacity of 1.5 billion cubic metres annually is six times as much as BiH’s 2022 consumption, and would bring gas to new areas of the country like Mostar. So it’s clearly aimed at expanding consumption, not just replacing it with non-Russian gas. In any case, it will take years before this project is built, and much faster options exist to cut Russian meddling in the country’s energy supply – like renewables.

The law on the project has been blocked for years due to disagreements within the Federation of BiH about the company in charge of the project. The existing transmission operator, BH-Gas, owned by the Federal government, has been developing the project, but the Croat HDZ BIH party wants a separate company to be set up in Mostar, as part of its overall strategy to gain more influence in the Federation.

It’s not surprising that this touches a nerve, as it goes to the heart of fraught questions on the country’s constitution. But it also prevents any debate about the merits or otherwise of the actual project.

Stopping the use of Russian gas is crucial, but framing the question as an either-or between buying from Russia or the United States, or BH-Gas versus a Mostar-based company, precludes questions such as how BiH can phase out fossil gas altogether, increase its energy efficiency and leapfrog straight to sustainable renewables.

This might sound optimistic, but it’s the only logical way forward. BiH has a very low level of gas dependence – less than 3 per cent of total energy supply in 2022, and in the Federation, the main issue is securing heating in Sarajevo. This is a major advantage, which must be maximised instead of increasing gas dependence.

The EU aims to reach carbon neutrality by 2050 at the latest, so if Bosnia and Herzegovina wants to be a member, it has to do so as well – and that includes oil and gas, not only coal.

The EU is making progress in this area, not only increasing its share of renewable energy, but also achieving an 18 per cent reduction in gas demand between August 2022 and May 2024. Several Member States also have bans on installation of new gas boilers in place. But the European Commission, particularly its Directorate-General for Enlargement, has been slow to realise that the Western Balkans can and must avoid getting bogged down in gas dependence, resulting in contradictory messages and support for outdated gas projects.

But increasing gas consumption in BiH would directly contradict the 2050 target, as it’s completely unrealistic to build, use and phase out new gas infrastructure by then.

The pipeline would take years to finish – and official estimates for such projects are usually wildly optimistic. The BiH section alone would be almost 169 kilometres long, partly on difficult mountainous terrain, with expropriation and financing still to secure. There’s no chance it will be finished before 2030, and it’s likely to be much later. So it’s hardly a short-term solution for Sarajevo to free itself from Russian gas.

Options like the Sarajevo heat pump project announced in 2023 are much more promising and could be realised more quickly.

If built, the pipeline will either lock BiH into increased gas use, or it will become a costly stranded asset, wasting scarce public money to pay off loans for nothing whatsoever.

It would not be the first time. In 2009, the European Bank for Reconstruction and Development approved a EUR 19 million loan for a gas pipeline from Zenica to Novi Travnik, which was built but has never operated. But the people of the Federation of BiH still had to foot the bill.

If the quality of the debate on the southern interconnector doesn’t improve soon, we may see something similar happening again, on a much larger and pricier scale.

The European Commission must play a decisive role in the Western Balkans, making it clear that gas is not the future. It needs to step up support for better insulating buildings, developing sustainable forms of renewable energy, increasing the use of heat pumps and improving transmission and distribution networks.

Heating the heights: Žabljak’s bold move towards sustainable warmth

For several years now,Žabljak has been on a journey towards a more sustainable future, and has made significant strides in addressing its heating challenges. The town has long relied on firewood and coal for heating, which posed significant environmental risks – especially over the winter tourist season when demand surges nearly tenfold.

In 2020, a pre-feasibility study supported by the EBRD seemed like a promising opportunity to develop a new district heating system. However, the proposed system, based predominantly on biomass, raised concerns among local leaders, as it would strain local forests, worsen air quality, and potentially lead to unpredictable heating costs. Determined to avoid these pitfalls, Žabljak set out to find a cleaner, more efficient solution.

The vision: a hybrid heating solution

The municipal authorities began exploring greener alternatives in 2023, with the European Commission-backed Action Heat initiative and CEE Bankwatch Network providing the needed support.

With the final goal of including 157 buildings and a planned network length of 7.77 kilometres, Žabljak aimed to explore four district heating scenarios. These included combinations of air source heat pumps, solar thermal systems and biomass boilers.

After careful consideration, the municipal authorities selected a hybrid solution that maximizes the benefits of a 2 megawatt (MW) air-source heat pump as the primary heating source, complemented by a 1.25 MW biomass boiler used only during extreme cold periods when additional heating capacity is needed.

Žabljak Municipality proposed district heating network in the selected scenario 3

Network:
Capital cost (incl. Supply): 4.79 M EUR
NPV to operator: 2.73 M EUR
Operating cost: 856.85 k EUR/year

Supply:
Type: Biomass + Air Source Heat Pump (ASHP)
Capacity: 1.25 MW (Biomass) + 2 MW (ASHP)
Capital cost: 2.68 M EUR

Source: SF2: Heat network prefeasibility study for the Žabljak Municipality, CREARA and Žarko Despotović, September 2024

In addition, the municipality is also interested in integrating solar thermal and storage technologies to diversify heat energy sources, achieve higher efficiency, and reduce the biomass capacity requirements. However, this integration will be subject to a detailed technical assessment, for which the municipality aims to secure funding in the next project phase. Currently, the installation of 1,000 m², generating up to 1 MW, is being considered, but not assessed in detail.

The first phase is integrating approximately 35 public buildings and large consumers in the most densely populated urban areas. The second phase will focus on expanding the system to include both collective and individual residential properties.

Zabljak’s choice to prioritize heat pumps comes from their ability to effectively harness the ambient air for heating, even in subzero temperatures. They can efficiently scale up heating output during high-demand periods, providing reliable warmth while scaling back during quieter months to save energy and costs. This adaptability makes them an ideal solution for managing fluctuating heating needs in tourism-oriented, seasonal towns, ensuring both efficiency and sustainability year-round.

heat production — Heat production distribution across the different scenarios, source: SF1-Zabljak: Assessment of Largescale air sourced heat pump, Aadit Malla, TU Wien, November 2024

Another key reason the town prioritized heat pumps over biomass was to help protect the forests of Durmitor National Park, already under threat from illegal logging, while also maintaining better air quality for residents and visitors throughout the season.

Finally, the hybrid system’s economic feasibility played a major role in its selection. The system’s total investment is estimated at EUR 4.8 million and with a payback period of just over five years, the system is both practical and sustainable for the municipality. Heat pumps are also far more economical to operate than traditional biomass boilers, with projected annual savings exceeding EUR 400,000. These savings could allow the municipality to reinvest in other local projects, further benefiting the community.

Marginal heat production costs and capital costs, source: SF1-Zabljak: Assessment of Largescale air sourced heat pump, Aadit Malla, TU Wien, November 2024

Overcoming funding hurdles

While the technical and economic feasibility of the project is clear, Žabljak is facing challenges in securing the necessary funding. As the total investment cost has been scaled back, the investment will look less attractive, especially for big development banks such as EBRD, KfW or other high-volume lenders. Moreover, the local authorities need technical knowledge and expertise to mature the project and secure investment grants. They are actively seeking partners and investors to move the project forward. This is a common issue faced by small towns when trying to implement green energy solutions.

To address the funding gap and advance the detailed technical development of the project, in November this year, the municipal authorities held their first discussions on potential support with the Montenegrin Ministry of Energy. In mid-March 2025, they are also organizing a workshop, in partnership with Bankwatch, to bring together technical experts, policymakers, and potential funders. The workshop will focus on the specifics of the hybrid heating system and explore innovative financing strategies to accelerate the project’s realization. This collaborative approach will help build momentum and attract the support needed to bring the vision to life.

A model for mountain communities

If successful, Žabljak’s hybrid district heating solution could become a model for other mountain towns or small and mid-size towns in the region. Similar efforts are underway in towns like Kakanj and Živinice in Bosnia and Herzegovina, and Kočani in North Macedonia, where local governments are rethinking their heating systems to adopt cleaner alternatives. These initiatives are among those showing the Western Balkans’ potential to leapfrog from coal and wood-based heating to renewables-dominated systems, without the need to resort to fossil gas.

Through this initiative, Žabljak is demonstrating that innovation in energy solutions is not limited to large cities or rich countries. With the right combination of technologies, collaboration, and financial support, mountain towns can lead the way in creating cleaner, more sustainable communities for the future.

No just transition in sight for gas-distracted Serbian coal communities

Miners work hard, but coal mining is digging the region into debt

In November 2024, Bankwatch visited the Despotovac and Zaječar regions in Serbia, where most of its underground coal mines are located. The mining company PEU Resavica receives three times more of its annual income from state subsidies than from sales — approximately EUR 47 million EUR in subsidies and EUR 15 million in sales. This region should therefore be the first to start the transition beyond coal. However, our meetings with municipalities, mine officials and trade union representatives showed that this region is not at all ready to move to a new economy.

Despite being heavily in debt, the mines have yet to be modernised. Mining company representatives are visibly proud of their continued operation since 1830. However, they said they still mine similarly as they did in the beginning – ‘like in Snow White and the seven dwarfs, with pickaxes’.

Despite the use of ancient technology, the region is proud to have never stopped coal production in some of the mines, and a mining museum in Senjski rudnik showcasing this history. Visitors can see the tools and the safety equipment that was used for underground mining over the years and a photo exhibition highlighting how much the local culture has been shaped by the mine. The region is so connected with coal mining that even the local restaurant has a mining-related logo and serves an ‘authentic Sunday lunch in a miner’s house’.

menu from etno konak Majdan — Menu in a local restaurant

Agricultural potential underused

Not everyone is happy with having the mine there, though. The municipality of Despotovac hosts the main offices of the mining company and is among the more developed municipalities. However, they do not receive concession fees from coal mining, and are also unable to collect taxes, as the mine’s bank account has been frozen for years. While the local authorities are acknowledging that some of their residents are employed at the mine, thus preventing labour migration, they would prefer to have a more diversified economy.

Despotovac has good but underutilised agricultural potential. Farming subsidies are available, but the local authorities are not satisfied with their usage rate. The municipality also offers subsidies for improving the energy efficiency of households, with 40 successful applications in the most recent round. Rural tourism also has significant potential and although the number of related businesses is increasing, there is still a lot of room for further development. The local development strategy until 2030 is rather broad and its implementation is dependent on national decisions and on the nearby town of Jagodina which is not very cooperative and does not prioritise support for the region.

Air polluted, but keeping the mine afloat

In Zaječar, a town close to the Bulgarian border, the story is very different. Because Zaječar is larger than Despotovac, it is less dependent on the mines, except for heating, which relies heavily on coal. The local district heating system has been privatised, and many households have disconnected because of the high prices. However, with limited options and support schemes, they use cheap, locally sourced lignite from one of the underground mines at Lubnica, which keeps the Lubnica mine open – supporting around 300 workers and the entire village. This can be seen and felt in the appallingly polluted air. If coal was not sold to heat homes in Zaječar, there would be no market for its lignite and the mine would have to close.

At a meeting with the mining company, company officials complained about the difficulty of finding workers, saying that the average age of new employees is 35 and that young people – understandably –don’t want to work in a mine. The mine’s small size prevents the use of modern techniques, so they use pickaxes, in three shifts, 24/7, just to make sure the mines can stay open, and the tunnels do not collapse.

Switching to gas will just create new dependence

The region’s economy is not entirely dependent on the coal from the underground mines, but there are currently few activities leading to greater independence. On the contrary, the local authorities are looking forward to replacing the region’s dependence on one fossil fuel with another – gas.

The fossil gas network already reaches the nearby town of Paraćin, but an additional pipeline would have to be built to Zaječar. While they wait for another fossil fuel that will create new dependence, they are only prolonging their air pollution agony. The company and the local authorities, although aware that the introduction of gas for household heating will lead to the abrupt closure of the mine, are not taking any action to mitigate the socio-economic impacts.

This transition to a new fossil fuel will require another transition to a decarbonised heat source in the near future, which is totally unrealistic. The region that is already struggling to diversify its economic activities, and gas is distracting the authorities from this task.

The way forward to a just transition

The workers in the inevitably dying coal industry need to be supported and enabled to continue contributing to the development of the region. Their knowledge and expertise can be used to create and expand the economy and the social well-being of citizens in the region — it just takes an innovative approach to finding uses for their skills.

Eastern Serbia, as well as the entire Western Balkans, has huge potential for agriculture, crafts, rural tourism, but also important potential for green jobs in renewable energy deployment, energy efficiency retrofits and the circular economy. Looking to the future, we could see regions that are much more developed, offering not only the same, but a much better quality of life. Creative use of the opportunities offered by just transition may be the kick-start we need to make this future a reality.

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