Pljevlja II lignite power plant, Montenegro
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.
View of Pljevlia and the existing power plant.
We closely follow international public finance and bring critical updates from the ground.
Since the early 2000s plans have been 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.
- The claim that it is economically viable is only possible with some creative accounting, and there is a high risk of it ending up as a stranded asset. Read more >>
- Insufficient economically viable lignite reserves for the lifetime of the plant. Read more >>
- The environmental situation in Pljevlja will be further worsened. Read more >>
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 2017 an environmental impact assessment was approved for the project but is being challenged in court by Green Home and MANS. The second version of the environmental study was not available for public commenting and the approval decision did not contain conditions for the plant’s operations, nor a justification on why the decision was taken.
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 has shown interest in the project, the Montenegrin government has decided to de-prioritise it for now, in favour of upgrading the existing plant to comply with its environmental obligations under the Energy Community Treaty.
It now remains unclear whether anyone is ready to take on such an uneconomic project as Pljevlja II in a town with a heavy environmental legacy. Pljevlja needs a just transition to a cleaner economy, not another coal plant.
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, even a brief examination of the document showed that this is extremely unlikely:
- If Montenegro somehow manages to delay the implementation of the EU Emissions Trading Schemeuntil 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 the next ten years and
- If no VAT is paid for the EPC contract,
Then the Pljevlja II power plant might just turn out economically viable.
As well as the general unlikelihood of all the above coinciding, there is no real overall need for a new coal plant in Montenegro. The future of Montenegro’s largest electricity consumer, the Podgorica Aluminium Factory (KAP) is in question and it seems unlikely to function in the medium-long term, which will make a significant impact on demand. In addition, official documents are unclear on whether the rehabilitation of the existing Pljevlja power plant is planned. If it is, the new unit is almost certainly unnecessary. If it isn’t, Montenegro can cover its demand with additional energy efficiency, wind and solar within a few years if it steps up its level of activity in this field.
Montenegrin decision-makers often highlight the idea of exporting electricity, however an analysis by the University of Groningen and consultancy The Advisory House has shown that for the next ten years at least, there is likely to be a surplus of electricity in the EU, thus it is questionable whether there will be a market for potential electricity exports from Montenegro and other Balkan countries.
Study | March 19, 2015
Insufficient economic lignite reserves for the lifetime of the plant
Official documents related to the 254 MW Pljevlja II lignite power plant count all lignite reserves in the Pljevlja area as being available for the use of the plant. However they do 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 the next ten years, and that one of the ways to do this would be by reducing 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. In addition, the government is in denial, promising new jobs with Pljevlja II while in reality the number of jobs will shrink, whether it is built or not. There is no plan 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, which cites data from the end of 2012, it is claimed that the total mineable reserves of nine lignite deposits around the town of Pljevlja equals 84 million tonnes of lignite. However three deposits are not foreseen for mining due to being insufficiently explored, which brings 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 says that four of the deposits – Kalušići, Grevo, Rabitlje and Komini – are economically unfeasible to exploit and that they should not be included in future energy projections. Of these, Kalušići is still included in the 73.7 million tonnes above, even though it would have high expropriation costs which make it unfavourable to exploit. Since Kalušići has 15.8 million tonnes of mineable reserves, this brings 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 sees 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, unit 2 will not start operating while the reserves are at these levels. It is not clear exactly from which year the data in the Bazne Studije come from, but if we assume they are also from 2012, then Pljevlja I can legally operate for around 8 more full years of operation from the time of the data, if it is not rehabilitated. Pljevlja 1 uses around 1.6 million tonnes of lignite per year. This means that in 8 years it will use around 12.8 million more tonnes of lignite.
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 need 1.6 million tonnes of lignite per year. So in case there are 45.1 million tonnes of lignite, 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 around 40 years – 25 years plus around 15 years after replacement of some equipment.
The environmental situation in Pljevlja will be 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.
While the new plant is likely to be less polluting than the existing one, the Montenegrin government plans to continue running the existing plant, so the pollution from the new plant would be additional, not instead of, that from the existing plant.
In addition to the air quality problems mentioned above, the existing plant has left other serious legacies which pose risks for local people and the plant and mine owners.
The most visible is the massive Jagnjilo spoil tip, consisting of an estimated 70,000,000 tonnes of marl waste dug out from the lignite mine which causes dust to blow around on windy days. Local people report that in 2005-2006 – presumably due to the pressure caused by the weight of this tip – a 5-m wide rift in the ground downhill from the heap opened up, which has now been filled in with rock waste.
Ash pond pollutes the air
The Maljevac ash pond serving the existing power plant is within just a few metres of the nearest houses and the ash is often not adequately covered with water, so that it too blows around in windy weather. People in Pljevlja complain of a high rate of illness, especially in the village of Zbljevo next to the ash pond, and there are concerns about the stability of the earth bank around the landfill. EPCG plans to expand the landfill upwards and in a few years, to build a new one for the new plant.