Pljevlja II lignite power plant, Montenegro
CANCELLED: For several years the Montenegrin authorities planned a second unit at the Pljevlja lignite-fired power plant in the north of Montenegro, near the borders with Serbia and Bosnia-Herzegovina. An existing plant has been operating there since 1982. In 2019 the authorities finally admitted the second unit would not be built.
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The existing 225 MW Pljevlja thermal power plant in the north of Montenegro, near the borders with Serbia and Bosnia-Herzegovina, has been operating since 1982. The plant was originally planned to comprise two units but the second one was never built. The plant, along with the extensive use of coal and wood for heating, has caused unbearably bad air quality in the town.
In the early 2000s were revived to construct a second unit at the site. During 2013-2017 intensive activities took place to move the project forward. Instead of conducting a formal tender process for the main contractor in the Pljevlja II project, the Montenegro government chose a company through an informal selection process that lacked clear deadlines and specifications.
Several companies submitted preliminary offers for plants ranging between 220 and 350 MW and three companies – China’s CMEC and Hubei-Powerchina and the Czech Skoda Praha – were shortlisted.
A contract was signed for a 254 MW plant with Skoda Praha in September 2016, which reportedly included an obligation for Skoda to find financing for the project. The hope was that the Czech and Slovak export credit agencies would back the plans.
NGOs Green Home and MANS, with support from Bankwatch, demonstrated that the project was full of flaws, including:
- Doubts about its economic viability.
- Insufficient economically viable lignite reserves for the lifetime of the plant.
- The environmental situation in Pljevlja would have been further worsened.
In October 2016 it was reported that the Czech Export Bank and export credit agency EGAP had decided not to finance the project. The reasons cited were varied, from Montenegro’s unwillingness to provide a loan guarantee, to the project being too risky.
In December 2017 the Montenegrin government’s patience with Skoda Praha finally ran out and it annulled the contract, leaving the project with no main contractor and no financing.
Although Chinese company PowerChina later shown interest in the project, the Montenegrin government in 2018 de-prioritised the project, in favour of upgrading the existing plant to comply with its environmental obligations under the Energy Community Treaty and EU accession.
In September 2019 the Montenegrin government finally admitted that it had cancelled Pljevlja II.
Economic only with creative accounting – threat of stranded assets
In summer 2016, the Montenegrin government published an analysis purporting to show that Pljevlja II would be an economic investment. However, this was extremely unlikely and could only happen:
- If Montenegro managed to delay carbon pricing until 2026
- If electricity prices more than double by 2040 and
- If CO2 costs are 10% lower than projected and
- If Pljevlja mine manages to reduce production costs from 24.21 EUR/tonne to 17.5 EUR/tonne within a decade and
- If no VAT was paid for the EPC contract.
As well as the general unlikelihood of all the above coinciding, the need for a new coal plant in Montenegro was never proven. The future of Montenegro’s largest electricity consumer, the Podgorica Aluminium Factory (KAP) is uncertain and it seems unlikely to operate in the medium-long term, which will decrease demand.
Montenegro now plans to rehabilitate the existing unit at Pljevlja, which buys it time to cover its demand with additional energy efficiency, wind and solar within a few years.
Insufficient economic lignite reserves for the lifetime of the plant
Official documents related to the 254 MW Pljevlja II lignite power plant counted all lignite reserves in the Pljevlja area as being available for the use of the plant. However they did not take account of the fact that some of the deposits have been already found to be uneconomic and that the existing power plant will still use up more lignite before the end of its lifetime.
Confronted with this issue, in 2016 EPCG changed its tactic and commissioned Fichtner to come up with a study on how to make the mine deposits economically feasible. Fichtner found that the Pljevlja mine would have to reduce production costs from 24.21 EUR/tonne to 17.5 EUR/tonne within a decade, and that one of the ways to do this would be to reduce the number of employees from 872 in mid-2016 to somewhere between 520 and 544 by around 2025. It is unclear whether this can be achieved or not. So far, no plan has been put forward on how to carry out this reduction in a socially responsible and inclusive manner.
In the draft Detailed Spatial Plan for the Pljevlja power plant complex, citing data from the end of 2012, it was claimed that the total mineable reserves of nine lignite deposits around the town of Pljevlja amounted to 84 million tonnes of lignite. However three deposits are not foreseen for mining due to being insufficiently explored, which brought the total mineable reserves down to 73.7 million tonnes.
In addition, the June 2014 Montenegrin national Strategy for the Development of Energy until 2030 stated that four of the deposits – Kalušići, Grevo, Rabitlje and Komini – were economically unfeasible to exploit and that they should not be included in future energy projections. Of these, Kalušići was still included in the 73.7 million tonnes above, even though it would have high expropriation costs. Since Kalušići had 15.8 million tonnes of mineable reserves, this brought the total mineable reserves down to 57.9 million tonnes.
Another official source is the background study (Bazne studije) for the Pljevlja II Detailed Spatial Plan. This source saw the mine-able reserves as 65.7 million tonnes including Kalušići, Komini, Rabitlje and Grevo. If we subtract these four, this estimate goes down to 43.3 million tonnes.
However, not all of these reserves would be available for Pljevlja II because Pljevlja I would have used up some of the coal in the meantime. It is not exactly clear which year the data in the Bazne Studije come from, but if we assume they are also from 2012, then Pljevlja I could legally operate for around 8 more full years of operation from the time of the data, even before rehabilitation. Pljevlja 1 uses around 1.6 million tonnes of lignite per year. This means that even without rehabilitation, it would have used around 12.8 million more tonnes of lignite before Pljevlja II was even built.
Therefore the two sources above lead to either 45.1 million tonnes (Detailed Spatial Plan/Tehno-ekonomska analiza) or 30.5 million tonnes (Bazne studije) left for the new unit. Even these figures may be on the high side because for some deposits they include so-called C1 category reserves which have not been sufficiently researched to conclude whether they are economic to exploit.
According to the Montenegrin government’s calculations, a new 260 MW unit would have needed 1.6 million tonnes of lignite per year. So if there were 45.1 million tonnes of lignite left, it could operate for 28.1 years, or if there are only 30.5 million tonnes, it could operate only for only 19 years. This is much shorter than the usual lifetime of a coal power plant, which is at least 40 years – 25 years plus around 15 years after replacement of some equipment.
The environmental situation in Pljevlja would have been further worsened
Pljevlja already suffers from serious air pollution which is far away from EU ambient air quality standards.
The town is situated in a depression at around 720 m above sea level, and is prone to temperature inversion and smog. Thus the existing power plant has a disproportionate negative impact on local air quality.
The new plant was often touted by the Government as a solution for the pollution coming from the existing one, but in fact the Montenegrin government planned to continue running the existing plant as well, so the pollution from the new plant would be additional, not instead of, that from the existing plant.