Blog entry

Bosnia and Herzegovina’s draft NECP: The good, the bad and the ugly

There is a ‘public’ consultation about Bosnia and Herzegovina’s (BiH) draft National Energy and Climate Plan (NECP) going on until the end of July – though until this week the document was not even available online. And the coordinating ministry didn’t carry out a Strategic Environmental Assessment of the plan, despite it being mandatory under the Energy Community Treaty. With such a secretive process, my expectations about the actual plan were low.

But in fact, compared to BiH’s previous planning documents – and to Serbia’s confusing and non-committal draft NECP, also on public consultation at the moment – BiH’s draft NECP brings some important improvements.

The good – no new fossil fuel plants

Despite considerable solar and wind potential, the Federation of BiH and Republika Srpska governments have relentlessly pushed to build new coal plants such as Tuzla 7 and Ugljevik III – as well as decades-old hydropower projects in highly sensitive locations – long past their sell-by dates. These dinosaurs have heavily burdened previous energy planning and left little space for new ideas. But the draft NECP finally looks like it was written in the 21st Century: it states that there will be no new fossil fuel plants – coal or gas. This is a significant step that must be maintained in the final version of the NECP.

Emissions trading scheme by 2026

Unlike Serbia’s draft NECP, the BiH draft reflects the fact that the Carbon Border Adjustment Mechanism (CBAM) is coming, and includes the introduction of an emissions trading scheme by 2026. In reality, if BiH wants to avoid the impacts of CBAM in the electricity sector, this will have to be in place by 1 January 2026, as the country does not look likely to benefit from the mechanism’s main exemption clause based on market coupling. The deadline is close, but the first step is to plan for it. So far, so good.

The bad – illegal coal plants

The draft makes no secret of the fact that BiH’s heavily polluting coal units Tuzla 4 and Kakanj 5 will continue to operate beyond their allowed lifetime. And no information is given about pollution control investments at the other units, making it highly likely that they plan to continue operating at their current abominable pollution levels.

Our latest Comply or Close report shows that in 2022 sulphur dioxide emissions from the coal units included in BiH’s National Emissions Reduction Plan reached more than eight times as much as allowed. Dust emissions from Gacko were no less than 12 times as high as allowed. This situation simply cannot be allowed to persist until 2030. Given that this is a matter of life and death, the plants must comply with the rules or close – and it has to be clear in the NECP how this is going to happen.

The ugly: Tuzla 3 and Tuzla 4’s mysterious fate

Most of the draft is written clearly, but the authors seem to be trying to hide one thing: What is going to happen to the Tuzla 3 and Tuzla 4 coal units?

In one diagram (no. 9) Tuzla 3 looks like it already closed in 2022 and emits no more CO2 in future years. But diagrams 32 and 33 bring it back from the dead: The unit goes offline in 2022, but then resurrects in 2027 with a reduced capacity (70 MW, compared to 100 MW currently). Given that plans for a biomass conversion at Tuzla 3 already exist, this is the most likely explanation. But it’s not confirmed in the text. One of the measures includes potential coal-to-biomass conversions, but without mentioning any concrete plants.

Tuzla 4 is even less clear. According to the diagrams, it operates (illegally) till 2025, takes a break in 2026, comes back online in 2027 with the same 200 MW capacity, and then its CO2 emissions and electricity generation increase between 2028-2030. Is this a coal rehabilitation, another biomass plant, or something else? If the authors don’t know, they should say it clearly.

Even 70 MW of forest biomass capacity would be a disaster for BiH’s forests – there’s no way such a capacity could be fed from fast-growing willows and industrial offcuts. The draft also fails to recognise that forest biomass should no longer be seen as carbon neutral – if it ever could. The draft’s authors need to be upfront about what they have in mind – and if it’s coal-to-biomass, find less damaging alternatives.

Mixed signals on fossil gas

The draft’s authors seem to go back and forth on fossil gas. In some parts they repeat evidence-free claims about gas being a transition fuel and propose domestic oil and gas extraction to reduce dependence on imports, but in other parts they express a healthy scepticism with phrases like ‘If the role of gas in the energy transition is defined as important…’.

Still, what matters are the measures, and here the picture is also mixed. Since no new fossil gas power plants are planned, it is baffling why additional gas interconnectors are still promoted. Yes, Sarajevo’s heating supply is vulnerable, but building a new gas pipeline all the way from Croatia is surely not the only solution: Better ways to heat the city are also possible.

Gas is as much a fossil fuel as coal. It will need to be phased out in the next couple of decades, so there is no point in building expensive new gas infrastructure now. Once a certain fuel becomes entrenched in the energy mix, it takes decades and decades to move away from it. The NECP therefore needs to be much more decisive about reducing gas demand, not building expensive infrastructure to satisfy and expand it.

Hydropower scaled back but there’s still too much

BiH’s incumbent utilities and entity governments have for decades been pushing a plethora of large dams, including on the Drina, Neretva, Bosna, Lim, Ljuta, and Vrbas. Projects are rarely cancelled, even when they clearly will not happen. As a result, in the 2018 Framework Energy Strategy, 750 MW of new large hydropower was planned until 2035 in the ‘mildly renewable’ scenario (there was no ‘strongly renewable’ one), with 33 ‘potential projects’ in Republika Srpska alone.

Compared to that, the 195 MW planned by 2030 in the draft NECP is a significant scale-back. Although it does not say so, it obviously comprises the 160 MW Dabar plant and 35 MW Ulog which are currently under construction – and it needs to be more clear about this.

But in reality, BiH has not completed a single new greenfield hydropower plant of more than 10 megawatts MW since 2010 – only Bočac 2 on an existing dam. Against this reality, even 195 MW might be over-ambitious, especially considering how controversial the plants are.

Both are in Republika Srpska, with potentially disastrous impacts in the Federation of BiH. The Bern Convention Standing Committee has already asked for construction of the Ulog plant to be halted until a number of conditions have been fulfilled, and has asked the authorities to prevent construction in other potential candidate Emerald sites, including the ones that would be damaged by Dabar. Given this situation, it is possible that one or both of the plants will never be completed, so the draft NECP needs to examine alternative scenarios without them.

The way forward

The draft’s positive elements – particularly the halt to new fossil fuel power plants and the emissions trading scheme – need to be maintained, but biomass is the elephant in the room. The draft itself admits that more research is needed on the availability of biomass in BiH so it is extremely unwise to rely on it.

The plans to build new gas pipelines seem to be there due to inertia rather than because the NECP really depends on them, but still – alternatives need to be explored.

Further issues also need to be tackled: The authors are too optimistic about the potential for biofuels and hydrogen in transport, but don’t directly mention passenger railway transport at all. They also hint at burning waste for energy in some parts of the draft – an idea that must be quickly extinguished, especially in a country with environmental enforcement like BiH’s.

But overall, the draft is a good start. If improved as suggested, it can provide a solid basis for BiH to finally move forward with its energy transition.

The Taia hydropower plant: the latest ecocide to hit Romania

Located in the Șureanu Mountains within a protected Natura 2000 site, the hydro plant on the Taia river has been opposed by environmentalists ever since plans for the project first emerged in 2008. In May 2023, environmentalists were targeted with a strategic lawsuit against public participation (SLAPP), a tactic used to intimidate and silence environmental organisations and citizens that advocate for the protection of key ecosystems.

But before we delve into the protracted legal wranglings surrounding this project, it should be noted that the contribution of the Taia hydropower project to Romania’s energy generation is negligible. With an installed capacity of 3.78 megawatts (MW), the plant provides a mere 0.018 per cent of Romania’s annual electricity production at best, even without considering how climate change and the absence of water in the river would affect this.

Indeed, replacing the plant with around 1,700 individual 5-kilowatt (kW) photovoltaic installations would not only promote environmental protection but would also increase energy and economic resilience at the household level.

A history of regression

The saga dates back to 2008 when Italian investor SC Hidro Clear SRL was granted 400 square metres of land to build a small hydropower plant on the Taia river. Plans for the operation of the plant involved diverting water from two sources, the Valea Popii and Aușelu rivers, into a 7.5-kilometre underground pipeline.

Subsequently, Hunedoara Environmental Protection Agency (APM Hunedora) conducted a screening process to evaluate the potential environmental impact of the project. Their screening decision, issued in 2009, determined that the project did not require an environmental impact assessment or an appropriate assessment. However, this decision contradicted key EU directives, including the Water Framework Directive, which requires Member States to protect, restore and prevent the deterioration of water bodies, as well as the Environmental Impact Assessment, Birds, and Habitats Directives.

In October 2009, the municipality of Petrila signed a public-private partnership agreement with SC Hidro Clear, even though the protected area of Grădiștea Muncelului-Cioclovina, which is partially situated within the location of the plant, had been officially designated a Natura 2000 site eight months prior.

As highlighted by Călin Dejeu, a leading campaigner on the case and a member of the International Union for Conservation of Nature (IUCN), in his numerous open letters to state institutions and frequent interventions in the media, a priority habitat located upstream of the Taia gorge was illegally deforested in 2013. But it was only in 2015 that Hunedoara Environmental Protection Agency issued the environmental permit for the construction of the project. The hydropower plant was eventually built and began operating illegally until 2017 when the Hunedoara Tribunal declared the environmental permit and screening decision null and void. However, this blatant violation of the rule of law is not an isolated incident.

In 2015, the European Commission initiated legal action against Romania – in the form of an infringement procedure – for its failure to comply with EU legislation on water and biodiversity protection. The procedure specifically concerned the construction of 17 small hydropower plants, mostly on rivers in environmentally sensitive areas of the Făgăraș Mountains. Despite an exhaustive ex-post analysis of all 17 projects, legal proceedings are still ongoing.

Legal challenge upheld, but not for long

In 2016, Bankwatch Romania mounted a legal challenge against the screening decision and environmental permit. At the Hunedoara Tribunal, the court of first instance, both administrative acts were annulled. This ruling was later confirmed as final by the Alba Iulia Court of Appeal in 2018. As part of the final decision, the court also ordered the restoration of the Taia river and the affected area to its original state. However, neither of these orders have been implemented to date. Following the court’s decision, operations at the plant ceased, allowing the Taia river to flow freely once again.

However, to the amazement of all who had worked tirelessly on the case, in March 2022 the Hunedoara Environmental Protection Agency initiated a re-permitting process for the small hydropower plant, in clear violation of res judicata and in total disregard of the 2018 final court decision. In August of the same year, they unlawfully re-issued an environmental permit for the project. In response, Romanian environmental protection organisations Bankwatch Romania and Agent Green formally contested the move. Supported by a campaign led by Romanian civil society organisation Declic aimed at protecting the Natura 2000 site and the Taia river, the case was brought to court.

In May 2023, the Bucharest Tribunal had already reached a decision. During proceedings, the promoters of the Taia hydropower project, represented by one of Romania’s largest law firms, submitted thousands of pages of environmental assessments. Significantly, these assessments were conducted outside the proper legal permitting procedure for the plant and during a period when the plant had halted operations (between 2019 and 2021). Additionally, the assessments were carried out in a manner that excluded inclusive and participatory input from interested stakeholders and members of the public, contravening the principles of the Aarhus Convention and the EU’s Environmental Impact Assessment Directive.

The project promoters disingenuously claimed that the European Commission had prioritised the ex-post evaluation of the project in order to expedite its ongoing infringement procedure. In reality, however, EU practice involves assessing post-project impacts with the aim of identifying actions that need to be taken to remedy or compensate for any unforeseen impacts in the absence of an ex-ante assessment. This does not imply obtaining all the necessary permits and authorisations to restart the project.

Only a few months into the trial, in a baffling about-turn, the judge decided to reject the requests of non-governmental organisations to suspend and revoke the environmental permit, thus completely reversing the 2018 ruling. The judge also approved the promoters’ legal fees in the exact amount requested of RON 179 517 (around EUR 36 000), disregarding the indicative fee grids applicable in court.

The court’s reasoning, drafted unusually quickly within less than two weeks, cited the value of the investment as a justification for approving the defence’s legal fees. Quite apart from the excessive reimbursement, the value of the investment has no relevance to the volume of work carried out by the promoters’ legal team. This decision is significant, as it not only places environmental non-profit organisations in Romania at a significant financial disadvantage, but also limits their ability to compete and carry out their work.

Implications of the SLAPP for non-governmental organisations and the environment

This is unlikely to be the last time we see the back of this case, given that Bankwatch Romania and Agent Green are among the most active environmental organisations in Romania when it comes to defending the environment in court. But this latest twist is quite the escalation if we consider the broader context of the illiberal legislative package recently tabled by the Romanian government aimed at intimidating civil society and preventing them from asserting their rights in court, including substantial financial costs of up to EUR 10 000 for challenging administrative acts. We should also recall that at the end of 2021 non-governmental organisations were cynically scapegoated when they were summoned to appear before a parliamentary committee of inquiry into the causes of the recent substantial increases in energy prices. We can only assume, therefore, that in the case of the hydropower plant on the Taia river, environmental organisations have been dealt a SLAPP in the face.

Despite the gravity of these legal violations and the blatant disregard shown towards nature and the well-being of this generation and those to come, environmental activists, citizens and the experts who stand by them will not be intimidated. They will continue to document the plight of the Taia river, along with the protected natural areas of which it is a part, as well as the other rivers and natural sites under threat in Romania. And they will continue to bring these issues to the attention of the European Commission and all European institutions that have the power to protect them. This emerging anti-democratic and anti-European cross-party trend in Romania must be stopped.

Czech recovery plan greener with REPowerEU, but risks remain

The Czech government has approved the allocation of approximately EUR 7.17 billion in increased EU funding for the national recovery plan. The final version of the plan has undergone significant changes, notably the welcome removal of proposed funding for both the Transalpine (TAL+) oil pipeline and the STORK II fossil gas pipeline, resulting in a considerably greener plan. The exclusion of these projects is a positive step forward, but important reforms must follow.

The original version of the recovery plan was prepared by the government and approved by the EU in 2021, with an allocation at the time of EUR 7 billion. In response to Russia’s invasion of Ukraine, the European Commission launched REPowerEU, its strategy for addressing Europe’s dependence on energy resources from Russia and other authoritarian regimes.

Under the plan, the EU has allocated additional funds to Member States to promote energy savings, advance renewable energy sources and diversify energy supplies. The Czech government had the opportunity to secure a loan of up to EUR 14 billion, but ultimately approved an updated plan comprising EUR 5.7 billion in loans and EUR 1.4 billion in grant.

Lack of quality reforms

With the addition of the revised REPowerEU chapter to the Czech recovery plan, the government has committed to implementing new reforms. Several of these have the potential to significantly transform the Czech energy sector. Perhaps the most notable is the adoption of an amendment to the Energy Act, known as LEX RES II, which will enshrine community energy into legislation. The adoption of this amendment is crucial, as the lack of a legal framework has hindered the development of energy communities thus far.

But establishing a framework is only a start. The parameters governing electricity sharing will play a vital role in shaping the long-term outlook for energy communities. However, if a well-crafted version of the amendment is not adopted, as is now currently feared, the idea of a future in which individuals, communities and municipalities generate, store and share electricity among themselves will remain an unfulfilled vision.

Fossil-free projects

The final version of the plan underwent significant changes compared to the original – but only at the eleventh hour. Following pressure from non-governmental organisations and due to the reluctance of the European Commission, two controversial fossil fuel projects were dropped: TAL+, which aims to increase the capacity of the Transalpine Oil Pipeline, and STORK II, a new bi-directional fossil gas pipeline connecting the Czech Republic with Poland. Both projects were intended to replace fossil fuels from Russia. The decision to remove these projects from the recovery plan is a step in the right direction. They would have deepened the Czech Republic’s dependence on fossil fuels and contradicted the EU’s climate and energy objectives.

In Italy, the expansion of TAL+ has raised concerns about environmental and climate impacts, and a lack of public consultation has led to protests and legal action. The Czech government envisions that STORK II will be used in the future to transport hydrogen, but there is no timeframe for when this will happen. And for that matter, there is no guarantee that the hydrogen transported will be produced from renewable sources, so there is no guarantee that the pipeline will not facilitate the further generation of carbon dioxide emissions. It is also important to note that removing these projects from the recovery plan does not mean that they will suddenly stop. Indeed, the government has already announced that other sources of funding will be sought, so criticism of these projects is still valid.

The update includes a number of highly beneficial measures. In the area of energy savings, funding will be allocated to major renovations of public buildings, the construction of new public buildings with high energy standards, and advisory services in relation to energy-saving renovations for a wide range of buildings. There is also provision for co-financing under the New Green Savings Plan, which should involve loans for households. EU funds are also earmarked for improving distribution networks and establishing an electricity data centre.

What the update lacks, however, is financial support in the form of grants for low-income households specifically targeted at energy savings. This is an area with immense potential for reducing energy consumption. Unfortunately, these marginalised groups often lack the financial means to implement energy-saving measures. Therefore, in this scenario, it would make more sense to provide funding in the form of non-repayable grants.

Lack of civil society involvement

A major shortcoming of the national recovery plan update has been the limited focus on public participation. The entire process of updating the plan has been conducted with minimal involvement from civil society. While the recovery plan committee is technically an advisory body to the steering committee, which has the authority to make decisions, monitor progress and control the implementation of the plan, in practice, there has been little room for commenting, constructive feedback or in-depth discussion of proposals.

A glaring omission of the Recovery and Resilience Facility (RRF), the EU instrument that funds recovery plans, is the lack of a specific legal requirement for civil sector involvement. Essentially, it is up to Member States to decide how to involve the civil sector in the decision-making process. However, according to the European Commission’s guidance on the RRF in the context of REPowerEU, the consultation process for the REPowerEU chapter should be adapted to reflect the changes in the respective recovery plans. In the case of the Czech Republic, where significant changes were made to the national recovery plan, this should have translated into a more robust consultation process. Unfortunately, this was not the case.

With the substantial increase in funding, the Czech Republic now has an unprecedented opportunity to tackle the climate crisis and decarbonise the economy. Only time will tell whether the government fulfils its promises or squanders the chance to make significant progress in addressing these pressing challenges.

Adapted from an article originally published in the Czech daily Hospodářské noviny.

Serbia’s draft NECP: What is the actual plan?

Serbia’s draft NECP is a puzzling document, levitating between reality and delusion. Today’s economic and legal reality makes an energy-efficient, 100 per cent renewable energy sector more feasible and necessary than ever. But the draft is too defeatist about carbon neutrality and energy savings and too optimistic about hydrogen, fossil gas, biofuels and biomass.

Cherry-picking commitments

As a signatory to the Green Agenda for the Western Balkans, Serbia has pledged to adopt the EU climate law and thus reach carbon neutrality by 2050. As a signatory of the Energy Community Treaty, it has committed to greenhouse gas reduction, energy efficiency and renewable energy targets for 2030. And as a neighbour of the EU, Serbia’s electricity exports will be affected by the Carbon Border Adjustment Mechanism (CBAM) from 2026.

But the draft NECP quietly sidesteps the commitments it finds too bothersome. No carbon neutrality is planned for 2050. Emissions are forecast to drop by two thirds compared to 2025, or by 75 per cent compared to 1990, but this is not enough. Planning to fail 27 years in advance is not a good start.

The draft also unilaterally lowers Serbia’s renewable energy target for 2030 to 33.6 per cent instead of the 40.7 per cent target agreed at the Energy Community Ministerial Council in December 2022. Even by 2050, the draft only expects to have a 40-45 per cent renewable share in heating and transport, instead of 100 per cent.

CBAM? What’s that?

The draft NECP mentions CBAM only twice. And the author did not seem to understand what it entails, as they referred to using the revenues, which does not make sense as they will go to the EU budget, not the Serbian one.

It is true that Serbia is not likely to be the most affected country in the Western Balkans, but it still needs to take CBAM seriously, as its electricity exports will become much less competitive.

If Serbia wants to avoid CBAM, among other things it needs to introduce an emissions trading system for electricity by 1 January 2030 with an equivalent carbon price to the EU Emission Trading System (ETS). Here again the draft falls short, as the prices are too low. It also gives contradictory information – in one place EUR 40 per tonne of carbon dioxide in 2030 and in another, EUR 70 per tonne. Yet ETS prices have barely gone below EUR 80 per tonne this year and are expected to keep rising. The draft also plans a carbon tax, not emissions trading scheme, which could in theory secure deductions from CBAM pricing, but would be more complicated than securing a full exemption.

Smoke and mirrors

It is difficult to distinguish between the two main scenarios, because Section 3 provides 157 measures but does not distinguish which measures relate to which scenario. And to add to the confusion, some measures appear to be duplicated: several fossil gas pipelines appear under both ‘Energy Security’ and ‘Integrating Energy Markets’.

In Annex I a list of measures per scenario finally appears, confirming that some of the most carbon-intensive measures are included only in the ‘With Existing Measures’ scenario, not the ‘With Additional Measures’ one. These include spending EUR 400 million on an oil pipeline, EUR 1.3 billion to ensure adequate coal stocks, and building no fewer than seven (!) fossil gas pipelines with neighbouring countries – even Kosovo. Not even in our worst nightmares would Serbia ever build seven gas interconnectors, so this looks like an attempt to make the ‘additional measures’ scenario look better by making the ‘existing scenarios’ one worse.

Still, the lists of measures still leave considerable gaps in understanding what the actual plan is, (especially as Annex I appears to have some mistakes, such as putting carbon pricing in the ‘existing measures’ scenario). No new coal plants seem to be planned after Kostolac B3, but there is no information about the phase-out timetable for existing plants. A list of coal plants that will still be open in 2030 under the ‘additional measures’ scenario appears in Annex II, however it is not clear when these or others will finally be closed.

Likewise, a pledge is made to reduce lignite coal generation by 25 per cent compared to 2019 levels, but without providing absolute figures. By our calculations based on energy regulator reports, in 2022 Serbia already generated 7.5 per cent less electricity from lignite than in 2019, making this commitment even less ambitious than it looks.

Seduced by false solutions

To make up for some of the coal decrease and increase system flexibility, the draft plans a new 350 MW fossil gas plant in the ‘additional measures’ scenario, as well as a EUR 50 million pipeline to gasify the south of Serbia, both of which would increase its import dependence and its vulnerability to price fluctuation. After the events of the last two years, it is hard to believe that there are no better alternatives, especially given draft’s unambitious energy savings goals.

Electricity transmission and distribution grid losses are planned to decrease only very slightly – to 14 per cent – in 2030, and to take until 2050 to get down to 10 per cent. For comparison, in 2018, total losses in the EU and selected neighbouring countries ranged between 2.5 and 11 per cent. Serbia can’t afford to throw away this much electricity.

Housing renovation plans are also unambitious, which has a significant impact on electricity demand due to use of electricity for heating by some households. The planned rates are 1-1.5 per cent annually for multi-family buildings and 0.5 per cent for single-family ones, intensifying after 2030. This must be ramped up now, not after 2030.

But it’s not just fossil gas. The draft is also too optimistic about the potential of forest biomass in district heating, despite its greenhouse gas emissions, air pollution and biodiversity impacts. Given the market disruptions in 2022, which saw a temporary export ban of certain wood products being imposed, we would expect a lot more caution on increasing biomass heating.

Only secondary forest biomass – offcuts from industry – should be considered for peak load for district heating, and only as a last resort. 4th generation district heating based on solar, heat pumps and other low-temperature sources should be prioritised, or geothermal where methane and other gases are captured and water is re-injected.

The authors are also too optimistic about renewable hydrogen in heating and advanced biofuels in transport. These will probably never be available in large enough quantities at a reasonable price. The draft also plans direct electrification in heating and transport, but needs to make clear that this is the priority.

Putting its money where its mouth is?

Despite our criticisms of the overall goals and ambition of the draft NECP, it does contain many worthwhile and potentially positive measures. But for some of them, only very small financial allocations and few details are given, providing insufficient assurance that they constitute real priorities.

For example, just transition is mentioned as being part of a separate Just Transition Action Plan and only has one measure (and only in the ‘existing measures’ scenario), with an allocation of EUR 2 million. However the actions for a just transition, as well as financial allocations, need to be part of the NECP, as this is the main document relied on by the European Commission, Energy Community and international donors.

Another example is the circular economy, where Serbia needs to achieve 60 per cent recycling in 2030 compared to 3 per cent in 2021. Around EUR 230 million is allocated for this, which is a significant sum, but compared to the size of the challenge, it still seems too little. Oddly, the measures to achieve this are labelled as belonging only to the ‘existing measures’ scenario and are not replaced by any corresponding measures in the ‘additional measures’ one.

Political consensus urgently needed

After years of energy policy limbo, Serbia desperately needs to build a consensus on its climate and energy plans and the NECP is the place to do it. But in order to achieve this, the Serbian government needs to make a clear decision – does it want to participate in the EU energy market or not?

Only with clear political decisions and commitments can the document do what it needs to: clearly state its goals, distinguish clearly and accurately between different scenarios and how they will be achieved and discuss the pros and cons of different options.

Hungary urgently needs a complete overhaul of its energy planning

The energy transition in Hungary faces the risk of slowing down or even regressing, a scenario that would further increase its heavy dependence on fossil fuels. This concerning situation stems from the upcoming finalisation of the review of Hungary’s national energy and climate plan (NECP) and the amendment of its recovery and resilience plan, which involves the introduction of an additional REPowerEU chapter. Hungary’s allocation under the Recovery and Resilience Facility (RRF), along with the additional funding supplied by the chapter, serves as a key source of financing for the implementation of the NECP. Both plans, which are currently approaching their submission deadlines, will profoundly shape Hungary’s climate and energy policies, investments and financing in the medium term. Unfortunately, as of 26 June, only the NECP review has been published and made available for public consultation.

Adding to the emergency, the Hungarian government is expected to decide by the end of June whether to reopen the old coal-fired units at Mátra power plant. In light of these developments, the National Society of Conservationists – Friends of the Earth Hungary (MTVSZ in Hungarian) is calling on the government to adopt an approach that ditches fossil fuels and gives priority to measures aimed at improving household energy efficiency. Such an approach is the most cost-effective way of reducing Hungary’s dependence on fossil fuels. According to Hungary’s National Energy Strategy for 2030, with an outlook towards 2040, investments in the energy efficiency of residential buildings, including the adoption of renewable technologies, are projected to reduce annual gas consumption for heating purposes by 2 billion cubic metres (m3) by 2030. This is equivalent to one-fifth of Hungary’s total fossil gas consumption per year. Of course, during the formulation of any such approach, meaningful public consultation should be at the heart of the decision-making process.

EU funds for accelerating the energy transition

By the end of June 2023, each Member State is required to revise its NECP in accordance with the EU’s climate and energy policy goals for 2030 and 2050, as well as with the commitments outlined in the Paris Agreement. These revisions are crucial for accelerating the energy transition, especially amid the ongoing fossil energy crisis.

Furthermore, as part of the EU’s REPowerEU initiative, Member States are expected to prepare and submit their respective national REPowerEU chapters by the end of the summer in order to accelerate the energy transition and reduce dependence on Russian fossil energy sources. Hungary also intends to request loans from the RRF to supplement its financing. In total, the combined REPowerEU and RRF loan package for Hungary is expected to amount to EUR 8.8 billion.

Hungary needs a green economic transition instead of re-industrialisation

The European Union shares our concerns over the direction of Hungary’s planning, as highlighted in its Country-Specific Recommendations recently adopted by the Council of the European Union. The document emphasises the need for a regulatory framework that systematically supports a diverse range of renewable energy sources. It recommends modernisation of the electricity grid to meet renewable demand and specifies the need for improvements to the energy efficiency of buildings to reduce gas consumption. It also calls on Hungary’s government to strengthen energy cooperation with other Member States and to provide the necessary investment, skills and retraining for a successful transition to a green economy. However, it appears that the opposite is happening in the form of continued reliance on fossil fuels.

National non-governmental organisations, including MTVSZ, have been actively monitoring all planning processes connected with the NECP review and the combined REPowerEU and RRF loan plan. In a joint letter sent to relevant ministries on 12 June, and in a similar advocacy letter sent to the European Commission on 13 June, MTVSZ and Hungary’s Clean Air Action Group (CAAG) stressed the importance of focusing on energy efficiency and reducing energy demand in households instead of pursuing health-damaging mega-investments that deplete natural resources, especially when public money is involved. As a result, the government invited our organisation and other groups to consult on the plans.

There is much cause for concern given that Hungary’s economic policy is now prioritising re-industrialisation, mostly to meet the energy needs of incoming foreign investors. The planned construction of three new gas-fired combined-cycle gas turbine (CCGT) power plants with a total capacity of around 1,500 megawatts (MW) has no place in an ambitious energy transition scenario, according to a recent study by the Regional Centre for Energy Policy Research (REKK). Such actions would further increase dependence on fossil fuels and hinder a just energy transition while exacerbating the health and environmental burdens on the population.

On 23 June, the Hungarian government published a draft NECP review, which is now open to public consultation until 7 July. Based on the 45-page review, which devotes only one page to information on financing, it is still unclear whether the government intends to finance these polluting CCGT projects, at least in part, with EU and/or Hungarian state funds. There is a further lack of transparency regarding which energy projects derive from REPowerEU chapter financing and which do not. Significantly, the draft NECP review reveals that a decision has been made to commission 1,500 MW of CCGT capacity. Based on this new information, and given that a public tendering process for the CCGT plants was launched in mid-March 2023 by MVM, Hungary’s leading state-owned energy company, we can safely assume that the move is going ahead.

Adequate public consultation to help improve energy efficiency in households

The inclusion of measures and instruments aimed at gradually reducing domestic fossil energy consumption is vital for Hungary’s energy transition. The role of both the EU and domestic public funding should be duly considered in the design process of the NECP and of the REPowerEU and RRF loan plan.

To ensure the interests of the Hungarian public are adequately represented, it is crucial to expedite the publication of both draft plans and to conduct meaningful and extensive public consultation by the end of summer 2023. Such a consultation would provide valuable input from the wider public, allowing their perspectives and insights to shape and improve Hungary’s plans. By actively involving citizens in the decision-making process, the plans should be significantly refined and amended to meet the needs of Hungarian citizens.

Slovakia’s REPowerEU chapter is delivering, but focus needs to shift from big business to social organisations

Slovakia’s recovery and resilience plan was initially allocated EUR 6.3 billion, to be used starting in 2021. However, due to the growth of the country’s gross domestic product (GDP), the allocation was decreased by EUR 323 million. But the introduction of the new REPowerEU chapter has resulted in an increase of EUR 403 million, partially financed by the Brexit Adjustment Reserve.

The Slovak government engaged in internal discussions from summer 2022 to spring 2023 to determine how to adjust the recovery plan’s components in light of the original decreased allocation, significant inflation, and emerging challenges associated with phasing out Russian fuels. Unfortunately, the involvement of non-governmental organisations in the discussions occurred in the later stages after November 2022, which limited their opportunities to contribute to the improvement of the texts.

Disappointingly, the government also ignored the opportunity to secure favourable loans from the Recovery and Resilience Facility, instead prioritising the distribution of grants to large companies. As a result, not enough funds have been allocated for the renovation of social facilities, such as those for older people, crisis centres, shelters and pre-schools. Regrettably, the Slovak government has also showed zero ambition in transforming the district heating sector. But despite these setbacks, REPowerEU has helped Slovakia make strides in enhancing support for socially vulnerable households through initiatives such as the Renovate House scheme.

Building and energy support going in the right direction, but traps lie ahead

Slovakia’s recovery plan includes a generous allocation of EUR 2.7 billion for public buildings (including renovation) across various components. Unfortunately, the plan also includes support, albeit limited, for fossil gas boilers. Although this is compliant with the guidance on the application of the ‘do no significant harm’ principle, it only delays tackling the decarbonisation of heating sources.

On a positive note, Slovakia has effectively used REPowerEU to top up financing for energy poverty, specifically for energy efficiency and renewable energy projects, . This means that socially vulnerable households are not required to co-finance the costs associated with window replacements, home insulation or adopting renewable energy sources. This approach enables targeted support from EU funds, aligning with socially conscious objectives. The REPowerEU chapter will also be used to provide additional support to citizens for energy projects – such as financing for and project support for house renovation – which would greatly benefit socially vulnerable households.

Unfortunately, the Slovak government lacks a comprehensive plan for phasing out fossil fuels in the heating or district heating sectors. To address this issue, it is crucial for the Ministry of Economy to take the initiative and lead a reform of the heating sector, integrating building renovation with the modernisation of the heating sector to facilitate the transition to decarbonised low-temperature systems.

Although the first reform of the Slovak REPowerEU chapter mentions support for low-carbon hydrogen, it’s important to consider that promoting low-carbon hydrogen derived from nuclear power or even partially from fossil gas makes it economically and politically unwise. Such an approach contradicts the objectives of REPowerEU and the promotion of renewable energy sources. Slovakia is still 100 per cent dependent on uranium imports from Russia to fuel its nuclear power plants, and in 2022, it imported up to 60 per cent of its fossil gas from Russia. In addition, hydrogen from renewable sources should be used for hard-to-abate sectors only and not for heating, as it is six times less efficient than heat pumps.

Grants or loans for renewable energy?

In April 2021, the Slovak government approved a support package of EUR 232 million for renewable energy auctions. The Ministry of Economy then opened the first call for proposals between May and July 2022. Electricity prices were so high in 2022 that many companies in Slovakia financed solar installations out of their own pockets to reduce their energy costs and increase energy security.

The first component of the recovery plan provides funding for 45 to 60 per cent of the costs associated with renewable energy installations. This support may seem highly efficient, as financial assistance is granted to power plants expected to produce the highest amount of renewable electricity per euro. However, the situation is much more complex than it seems.

In March 2023, the Ministry of Economy approved grants totalling more than EUR 20 million to 58 companies. Interestingly, half of the grant recipients were capable of covering these costs from their profits in just one year (2021). The payback period for photovoltaic (PV) installations varies greatly, ranging from 7 years (during the period of high electricity prices in 2022) to 16 years (a conservative estimate for rooftop solar installations), while the lifespan of PV systems generally exceeds 20 years.

How can the government incentivise large companies to invest in photovoltaics?

Public funds should encourage profitable companies to invest a portion of their profits. Photovoltaics are a very low-hanging fruit for large companies. With favourable loans, these companies would be able to invest more effectively, leading to greater sustainability.

Moreover, the REPowerEU chapter includes the investment ‘Modernisation and digitalisation of the transmission and distribution systems’, which has an allocation of EUR 129 million until 2026. However, distribution companies (DSOs) would be able to pay this amount from their one-year profits (EUR 159 million in 2021). Slovakia is also a shareholder in all of these DSOs.

We are facing multiple crises at once, ranging from energy, war and migration to climate change. For these reasons, we cannot afford to subsidise companies whose profits amount to tens of millions of euro annually.

By comparison, ‘Investment 2: Improvement of energy performance and efficiency of state buildings (“Fast Measures”)’ has a relatively small allocation of EUR 20.42 million. The National Implementation and Coordination Authority has expanded the beneficiaries to include municipalities. But non-profit organisations, civic associations, and foundations are notable for their absence. Such a small allocation does not cover the needs of organisations active in the social field.

Social organisations need support for ‘quick action’

In March 2023, 66 social sector organisations, primarily social service providers, completed a questionnaire on the impact of the energy crisis. Twenty-six respondents estimated that they could use more than EUR 13 million in total. They expressed interest in implementing energy-saving measures and renewable energy solutions in 150 out of the 192 buildings where they provide their services, accounting for 78 per cent of the surveyed buildings. There are more than 1,300 facilities in Slovakia. The overall need for so-called ‘quick savings’ measures in this sector can be very roughly and conservatively estimated at over EUR 120 million.

The energy bills for the 66 respondents have increased by an average of 125 per cent. Out of these, 25 (41 per cent) were ineligible for compensation for the increased energy prices, and seven reported only partial opportunities for compensation. However, 29 respondents were eligible for compensation from the government. Social organisations mostly specified a preference for the installation of photovoltaics, new energy-saving LED lights and the introduction of energy management, but expressed negligible interest in biomass boilers.

Source: Friends of the Earth-CEPA, Analýzy k Plánu obnovy a odolnosti a RePowerEU, March 2023.

More detailed results of the questionnaire analysis can be found in the full publication.

Also, social non-governmental organisations and municipalities significantly helped the state during the humanitarian crisis at the beginning of Russia’s military aggression in Ukraine. Before that, they were fundamentally affected by the COVID-19 pandemic. For these reasons, the state administration should not forget to support all of the organisations that help socially vulnerable people.

Moreover, Slovakia has the lowest share of wind and solar energy in the EU, according to comprehensive data from EMBER. This is an unfortunate legacy of previous governments. Slovak ministries need to combine grants with loans to catch up with the rest of the EU.

Lastly, the projected costs for implementing the 55 per cent decarbonisation target by 2030 in Slovakia are EUR 2.7 billion, and EUR 5 billion for a 67 per cent decrease in greenhouse gases. However, decarbonisation costs will rise to more than EUR 100 billion by 2040 and by more than another EUR 100 billion by 2050 due to more complex measures. To put these figures in context, Slovakia currently has about EUR 6 billion until 2030. Therefore, the new government must understand that to achieve climate neutrality, loans are necessary and the share of grants must decrease. This is especially true for large companies.

It would be highly beneficial if the European Commission and the Slovak government took the initiative to incentivise and motivate ministries and state agencies to:

properly phase out all support for fossil gas;
re-evaluate support for low-carbon hydrogen;
commence discussions about the transformation of district heating;
gradually replace grant support with favourable loans for renewables from large companies;
prepare special grants for social organisations.

By implementing these measures, both the European Commission and the Slovak government can play a key role in promoting sustainable energy practices and using EU funds more effectively, targeting first those that have the most pressing needs.

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