Kosova e Re lignite power plant, Kosovo
CANCELLED: For more than a decade, successive Kosovo governments planned to build a new 500 MW lignite plant (around 450 MW net), Kosova e Re or New Kosovo. The controversial project was finally cancelled in 2020 after concession-holder ContourGlobal pulled out.
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According to Kosovo’s Energy Regulatory Office, in 2020 transmission losses were at an acceptable level of around 1.18 per cent, but Kosovo has a serious issue with distribution losses, which amounted to 25.4 per cent. Around half of these are technical losses and half are commercial losses (electricity that is not paid for) and around half of the commercial losses take place in the north of Kosovo. Combined with artificially high demand through poorly insulated buildings, there is enormous potential for the country to save energy.
Yet for more than a decade, successive Kosovo governments planned to build a new 500 MW lignite plant (around 450 MW net), Kosova e Re or New Kosovo.
In fact, the plans started out as a planned 2000 MW facility which, it was hoped, would turn the country into a leading energy exporter for the Balkans. Yet, lack of investors, lack of demand, and resistance to a massive lignite project gradually diminished ambitions.
One step forward, two steps back
In December 2017, the Kosovo government signed a series of contracts with UK-registered ContourGlobal for a 20-year concession to build and operate a plant with a net capacity of around 450 MW.
Yet just as the project seemed to be taking a significant step forward, its long-time backer, the World Bank, was getting cold feet. In October 2018, the Bank’s President Kim ended years of speculation by confirming that the Bank had dropped the project because its assessment had shown that it was no longer the least-cost option for Kosovo.
Around a month later, the EBRD also confirmed it would not support the project.
ContourGlobal’s CEO put on a brave face and claimed that financing was expected from the US Overseas Private Investment Corporation (OPIC) – now renamed as the U.S. International Development Finance Corporation (DFC) – and various export credit agencies. However, financing was never approved for the project.
As well as a general trend of banks increasingly avoiding coal due to its environmental and economic liabilities, one of the reasons for this might be the project’s flagrant legal violations.
Illegal power purchase agreement and massive costs for consumers and the State
The power purchase contract was almost certainly illegal under the Energy Community Treaty because it would have resulted in the transfer of almost all risks from the investor to the State.
The Energy Community Secretariat had repeatedly warned the Kosovar government about this, but seeing no inclination on the Government’s side to cancel the contract, in May 2019 a group of NGOs filed an official complaint to the Energy Community.
In December 2019 the Secretariat opened a case against Kosovo, stating that certain measures, such as guaranteed energy purchase and availability payments over 20 years, the sale of the plant site below market value, and several other measures constitute State aid. In addition, the measures had not been notified to the competent State aid authority and are therefore automatically illegal.
The then Kosovo government consistently claimed that the project would not burden the State budget because it would be financed via the private concessionaire. But ContourGlobal is not a charitable organisation, it is a profit-making company, so someone would have to pay.
In principle, this should be consumers. But no-one is going to pay the plant’s “target price” of EUR 80/MWh if they have a choice. The power purchase agreement was therefore signed to make sure that no-one has too much of a choice.
The Kosovar state obliged itself to buy the plant’s electricity, thus giving itself no incentive to develop low-carbon and potentially cheaper options.
EUR 80/MWh would not even have covered the whole cost of the project, so the Government has also committed to pay ContourGlobal an availability fee, just for having the plant in an operational state.
Sound familiar? This is the same mechanism used for public-private partnership projects in non-profit sectors such as hospitals and schools that has been widely criticised for poor value for money.
Concerns about costs were heightened by the Kosova e Re project only receiving a single bid, which meant there was never any real chance of getting good value for money. The internal rate of return was reduced from 27 percent to 18.5 percent, but this is still very high indeed.
For all these reasons, the Kosovo parliament never ratified the commercial contracts and the project was left hanging for several years.
Illegal environmental impact assessment process
Poor quality environmental impact assessments (EIAs) are unfortunately common in the Balkans, but approving an EIA for a 500 MW coal plant without any public consultation taking place is still quite exceptional.
The news slipped out during a Parliament session in January 2019 and when BIRN Kosovo followed up with the Government, it was confirmed that the environmental impact assessment had been approved in December 2018. Kosovar NGOs therefore initiated a lawsuit against the Government and submitted a complaint to the Energy Community regarding violations of the EU EIA Directive
An end to the agony
In March 2020, ContourGlobal finally announced its exit from the project. The company stated that would now impossible for the project to meet the required milestones, citing, among other things, the fact that the new government in Kosovo had publicly opposed the contract.