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Balanced energy mix is the long-term solution for Southeast Europe’s energy security dilemma

The EU’s increased efforts to lessen its dependence on Russian oil and gas while maintaining its focus on decarbonisation and Green Deal targets placed energy security at the centre of policy discussions. In Southeast Europe, high dependence on fossil fuels and the current volatile energy pricing environment gave ground to new types of challenges.

To better understand and to interpret correctly the energy sector’s progress and trends in the region, we need continuous market surveillance and analysis. This was the goal of the third SEE Energy Outlook, a comprehensive study which was introduced by Costis Stambolis Executive Director of the Institute of Energy for South-East Europe (IENE) at the 13th SE Europe Energy Dialogue.

The study covers 15 countries in the region, plus several so-called peripheral countries, which are economically and geographically related to SEE core countries. This year IENE added two countries to the core countries, namely Hungary as it became an important regional hub for electricity, and Israel which started to influence gas flows in the region.

Source: IENE

This region is a significant part of European energy consumption, averaging around 20 per cent of Europe’s fuel consumption, so the interaction of the energy economies of the region is becoming even more important. IENE’s report found that the energy mix of the region is not changing so rapidly, there are small, gradual changes. In the electricity mix on the other hand the changes are more pronounced, in light of accelerated decarbonisation efforts.

Although the region is highly complex and diverse there are some common characteristics that define the energy scene of these countries. One of the main challenges the report identifies is the divergence between EU and SEE energy strategies and applied policies. There is a clear failure, according to IENE at the EU policy level in achieving national targets, especially in terms of renewables. Also, there is a considerable divergence between stated objectives and actual progress on the ground related to decarbonisation or RES penetration.

The region is also more vulnerable to energy security than the rest of Europe and has a historically high hydrocarbon dependence. There is generally a lack of electricity and gas interconnections, therefore coal and lignite are and will continue to be relevant in the region, especially as in light of the current energy crisis many countries made a U-turn to increase coal in local production. Overall, the SEE region’s path towards decarbonisation remains difficult and uncertain, says the study.

“Energy security is a complex issue and as such, it cannot be considered in isolation,” said the Executive Director of IENE adding that this region faces higher energy security threats than the rest of Europe. The strengthening of the Emergency and Solidarity Mechanism – which works for instance very successfully between Bulgaria and Greece – and the maintenance of adequate oil, coal and gas stocks are short-term relief solutions while in the long term, the region needs a balanced energy mix, highlighted Mr Stambolis.

Source: IENE

Natural gas is becoming increasingly important in the energy mix of various SEE countries both for power generation and for commercial and domestic use. Mr Stambolis underlined the importance in this regard of the extended South Gas Corridor which brings Caspian gas to Europe. Additionally, there is a growing interest in LNG in SEE Europe, with currently 6 operating LNG import terminals: two land-based and two FSRU in Turkey, one FSRU in Croatia and one land-based in Greece. By 2025, the region will see four additional LNG terminals to come online; one FSRU in Turkey, two in Greece and one in Cyprus.

The push toward renewables will be complicated according to the report as it has to be accompanied by electricity grid expansion and storage. Alongside power grid reinforcement, a diverse mix of flexible generation technologies can facilitate the integration of RES, especially wind and solar PV.

Although it only contributes to 4 per cent of gross inland consumption, nuclear is still a viable option to increase clean power generation since it covers important base load requirements in certain key countries such as Romania, Bulgaria, Hungary, Croatia and Slovenia and it is back in the public discussion as there is an ongoing debate on its inclusion in the EU Taxonomy.

Market functioning is definitely a big challenge for the region as we see electricity and gas prices skyrocketing. The report underlines that market liberalisation in the electricity sector has made huge strides over the last five years in the regions. However, there is less impressive progress in the natural gas sector where competition is largely limited to the industrial sector with retail lagging seriously behind.

The report also includes projections for the development of the energy systems of the SEE countries under a Baseline scenario approach to present the possible future pathways of energy demand and supply projections paved by current policies until 2040.

As an outcome, the projections differentiated three groups with considerably divergent pathways. Looking at the projections of the gross inland consumption in the EU Member states of the SEE region the overall tendency shows a stabilisation and even a small reduction in the time horizon until 2040. In the six Western Balkan countries gross inland consumption is expected to increase by almost 40 per cent between 2015 and 2040, with the amount of coal being held constant, natural gas as the emerging fuel, with a constant, gradual increase supported by the pipeline expansion projects. Separately, in Turkey gross inland consumption is expected to increase by more than 50 per cent until 2040, however, the role of RES seems to increase notably, while the role of gas will decrease.

The study describes the investment prospects in the energy sector in the SEE region for the next ten years as positive indicating that over the last five years, interest and commitment for projects have increased by 50 per cent according. Although funding and finance so far haven’t been a problem, Mr Stambolis warned that from now on it will be questionable.

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