Kosova e Re lignite power plant, Kosovo
Kosovo currently wastes much of the electricity it produces in its two highly polluting lignite plants: In 2018, nearly 28 percent was lost from the distribution system through technical losses and non-payment (around half each), and much more is wasted through lack of energy efficiency measures. Yet the Kosovo government plans to build a new 500 MW lignite plant (around 450 MW net), Kosova e Re or New Kosovo.
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Plans to build a new coal plant close to the capital, Prishtina, have been around for over a decade, starting out as a planned 2000 MW facility that would turn the country into the leading energy exporter for the Balkans. Yet, lack of investors, lack of demand, and resistance to a massive lignite project have gradually diminished ambitions.
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, as of January 2020, no financing has been 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 is almost certainly illegal under the Energy Community Treaty because it results 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 Kosovo government has 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 obliges itself to buy the plant’s electricity, thus giving itself no incentive to develop low-carbon and potentially cheaper options. As electricity prices have already caused protests in Kosovo, it remains to be seen how these prices could be passed onto consumers without causing a major revolt.
EUR 80/MWh does not even cover 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. Quite how the Government can claim that the project will not burden the state budget is unclear, as there is no way that the Kosovar public can pay EUR 80/MWh plus an unspecified availability fee.
Concerns about costs have been 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 government has been congratulating itself for securing a reduction of the internal rate of return from 27 percent to 18.5 percent, but this is still very high indeed.
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. Both are pending as of January 2020.