Kosova e Re lignite power plant, Kosovo
Kosovo currently wastes much of the electricity it produces in its two highly polluting lignite plants: In 2016, nearly 30 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, heavily backed by the US government, plans to build a new 500 MW lignite plant, Kosova e Re or New Kosovo.
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Plans to build a new coal plant close to capital Pristina have been around for over a decade, starting out as a planned 2000 MW unit 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.
Today, Kosova e Re is planned to have a capacity of 500 MW (around 450 MW net) and in December 2017, the Kosovo government signed a series of commercial contracts with UK-registered ContourGlobal for a 20-year concession to build and operate the plant.
Official estimates put the cost at around EUR 1.3 billion, but the IEEFA has estimated that the final price tag may be as high as EUR 4.2 billion. The World Bank is considering providing a partial risk guarantee for the project, while the IFC and EBRD may provide loans. In 2013 both the World Bank Group and EBRD committed to virtually halt financing for coal and it remains to be seen how they can justify treating Kosovo as an exception.
Civil society groups in Kosovo, grouped together in the Kosovo Civil Society Consortium for Sustainable Development (KOSID) oppose the construction of a new power plant for the following reasons:
1. It is massively expensive for consumers and the Kosovar state
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, and so someone is going to 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. Therefore ContourGlobal and the Kosovar government have signed a power purchase agreement 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 the government will manage to pass these prices onto consumers without causing a major revolt.
As if that is not bad enough, EUR 80/MWh does not cover the whole cost of the project, so the government has also obliged itself 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-profitable sectors such as hospitals and schools that has been widely criticised for their 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 amount for the 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.
2. The contract is almost certainly illegal
To add to the cost issues, the power purchase contract is almost certainly illegal under the Energy Community Treaty due to its promise of state aid that is incompatible with EU rules.
Although the Energy Community Secretariat has not published its preliminary findings on the deal, it has confirmed in its recent Western Balkans 6 Electricity Monitoring Report that:
“The recent contractual framework adopted for the new Kosovo e Re power plant will seriously hamper the development of a market” and “The absence of functioning authorities exacerbates the lack of State aid compliance of the contractual framework for the Kosovo e Re project.”
Given the EBRD’s explicit focus on developing markets, it would be a strange choice indeed to support a project that will prevent an electricity market developing for the next 20 years in Kosovo.
3. Kosovo needs to increase renewables and energy efficiency and decrease CO2 emissions
By 2020, Kosovo has committed through the Energy Community to source 25 percent of overall energy from renewable sources and improve energy efficiency by 20 percent. And as the country is aiming to join the EU, it will have to adhere to ever stricter CO2 reduction targets (likely to be 80-95 percent for the EU as a whole by 2050).
Kosovo is so far not on track to achieve its 2020 renewable energy target. Its national renewable energy action plan is unrealistic, and is centred around the construction of the Zhur large hydropower plant and other hydropower facilities, while underestimating Kosovo’s significant solar potential. Only 1.4 MW of wind capacity exists so far, with another 32 MW under construction, and as of 2016 only 0.6 MW of solar PV had been installed.
Considering the 30 percent of electricity still lost in distribution, it is clear that more needs to be done. Commercial losses are gradually being reduced but technical losses are staying at much the same level. In addition, much more energy is lost as a result of lack of energy efficiency measures in buildings and inefficient use of electricity for heating.
A range of sources are increasingly showing that Kosovo could make better use of alternatives to coal. Daniel Kammen, Professor at the University of California in Berkeley, has shown that a range of alternatives exists. While some options may be more acceptable than others from an environmental or geopolitical point of view, the study illustrates the fact that alternatives have not been adequately studied by the Kosovo government and World Bank.
4. Water shortage
Kosovo is already water-stressed and its water polluted, and a new plant would add to the problem. A paper by Bank Information Center and KOSID shows that the water modelling for the project miss out several factors including water use by the expanded open pit coal mining operations and conveyance of coal from the mine to the power plant, as well as the impact of a new plant on water pollution.
As of May 2018 still no environmental and social impact assessment process has been carried out for the project, meaning that none of these risks have been studied in any level of detail.
5. Resettlement and agricultural land shortages
A new power plant would require a new mine, and this will require resettlement of at least 7000 people. The resettlement that has occurred so far for mine expansion in 2004 and 2012 has been in breach of any known international standards for resettlement and an analysis by resettlement expert Ted Downing has shown that the new resettlement plans have already breached World Bank rules in their early design stages. This has been confirmed by the World Bank’s Inspection Panel.