Overlooked carbon costs spell financial trouble for Western Balkan coal power plants

Overlooked carbon costs spell financial trouble for Western Balkan coal power plants
By bne IntelliNews March 29, 2017

Ten coal-fired power plant projects across the Western Balkans are facing serious financial problems as they have not taken properly into account carbon costs, according to analysis from environmental pressure group Bankwatch.

Bankwatch has examined the projects and found out that none of them has factored in the cost of carbon emissions allowances, which the plants have to pay under the EU’s Emissions Trading Scheme (ETS), one of Europe’s key instruments for reducing greenhouse gas emissions and tackling the climate crisis. ETS obliges companies to purchase allowances for every tonne of carbon dioxide they emit.

The analysis included Montenegro’s Pljevlja II project, Bosnia & Herzegovina’s Ugljevik III, Banovici, Tuzla 7 and Kakanj 8, Kosovo’s Kosova e Re, Serbia’s Kostolac and the reconstruction of Macedonia’s Oslomej. It found that even those that have included the carbon cost, have set it at its current level, which is unlikely to stay unchanged over the years.

“Even a CO2 price of €5 per tonne can cause unpleasant surprises for power plant operators who have not taken such a development into account during their investment planning, but it is highly unlikely that the ETS price will still be this low by the early 2020s when the planned plants are due to come online,” Bankwatch noted.

"New energy infrastructure built now will last for several decades and has to be future-proof. Legislation and demand patterns are going to change significantly, and investments have to be flexible enough to take account of this,” commented Pippa Gallop, research co-ordinator at CEE Bankwatch Network. 

“But the Balkan coal plans are the opposite of flexible – they are not even likely to be feasible under today’s conditions of low electricity prices, let alone tomorrow’s conditions with CO2 pricing and higher environmental standards.” The report noted that it is also unlikely that the price will stay at €15 or €25 per tonne beyond the 2020s.

“Even at just €5 per tonne of CO2, Montenegro’s Pljevlja II project, among the smallest in the region, would have to foot an additional €8mn bill every year for its carbon emissions. With CO2 price set at €35 per tonne - a price that may well be reached by 2030 - this extra annual cost would climb to no less than €55.6mn,” Bankwatch said.

The 254 MW plant in Montenegro is expected to be built by Czech Skoda Praha in partnership with General Electric. The project aims to extend the capacity of TE Pljevlja, which currently has only one 210MW unit. The new block will have a capacity of at least 254MW and a net electricity efficiency of no less than 39.5%. The project also envisages providing heating for the town of Pljevlja. 

In Serbia, Bankwatch noted that the planned 350 MW Kostolac B3 unit in the northeast is expected to generate 2,765 GWh per year in the first ten years, then 2,520 during the next ten, and 2,275 GWh for the last five years. The analysis pointed out that the feasibility study summary for the Kostolac B3 plant had left out the carbon costs, assuming they would be covered by the state. However, state aid rules in Serbia do not allow this kind of payment.

“At the same time, the project’s sensitivity analysis, which does include carbon costs, leaves no doubts that even a low CO2 price is enough to render the plant uneconomic,” according to Bankwatch’s assessment.

In Bosnia, Bankwatch has analysed five projects. It noted that for two of them - Stanari TPP, which was put into operation in September last year, and the planned Ugljevik III power plant - it had no information on whether the carbon costs were taken into consideration.

Meanwhile, the carbon costs were not properly calculated for the other three projects – the 350 MW Gacko II plant, which is to be built in Republika Srpska, and the Tuzla 7 and Kakanj 8 plants which will be built in the Muslim-Croat Federation.

There was a similar situation with the coal-fired plants in Kosovo and Macedonia, where there was no indication that the carbon cost had been included in the calculations.

 

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