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Renewable sources: the right fuel to drive Western Balkans’ decarbonisation

The Western Balkans have huge potential for developing green energy, with its rivers providing hydroelectric power, its mountains and plains enabling wind power, its underdeveloped solar energy and the inhabitants of its many cities keen for sustainable development.

Especially for a region highly dependent on coal. North Macedonia relies predominantly on fossil fuels, especially low-grade lignite and gas. Plus, the country had a target for the share of renewable energy sources in gross final energy consumption of 28 per cent which was then adjusted to 23 per cent. The same applies to other countries. Although Albania can count a lot on hydropower, it is one of the few Balkan countries producing oil. Also, electricity production in Serbia still relies around 70 per cent on coal.

“We are witnessing a global energy transition that will change the way we live and do business in the years and decades to come,” said Petar Mitrovic Vice Chairman of AmCham Serbia Energy Committee, opening the online webinar Western Balkans: from coal to clean? organised by Invest In Network. “It is not the first time that the world is making a transition from a major energy source to another but the key driver of this one is new: decarbonisation.”

Indeed, the European Union has set the target to become the first carbon-neutral continent by 2050. Not an easy task for the Western Balkans to follow. However, Mr Mitrovic noticed some encouraging signs.

Last November, the leaders of the Western Balkan countries signed a Declaration on the Green Agenda, expressing their intention to join the path set out by the EU, during their summit organised in Sofia within the Berlin Process, which was established to help the integration of the Western Balkan countries into the EU. The Green Agenda for the Western Balkans came as part of the presentation of a 9 billion euros Economic and Investment Plan for the Western Balkans adopted by the European Commission and the majority of this support would be directed towards key productive investments and sustainable infrastructure in the region.

The countries of the Western Balkans now have to demonstrate their readiness and commitment to achieving the goals of the European Green Deal, by making a significant contribution to the Green Agenda for the region. And we see promising signs and investments.

Wind to drive Serbia’s green growth

Norwegian renewable energy company WV International NBT is developing the largest portfolio of projects, with a capacity of 800 megawatts (MW). The target is to have all the wind farms in operation by 2026, with the first 168 MW coming online in 2023. The company is also developing solar power to diversify its green portfolio in Serbia.

“Wind can drive Serbia’s green growth,” said Magnus Johansen Vice President of NBT speaking at Invest In Network’s webinar. “Now the largest component of energy comes from coal but wind and solar are on the rise.”

Between 2018 and 2019 solar and wind sources grew by more than 429 per cent.

“Decarbonisation in Serbia is like driving a car,” continued Mr Johansen. “To go from A (fossil fuels) to B (decarbonisation) we need different players: the country management is the driver, the stakeholders are the engines but the fuels that will take the cat to its destination is the regulatory framework and I am very happy so far and impressed by what has been achieved.”

Earlier in March, Serbia’s National Assembly has adopted the country’s first Law on Climate Change, one of the first countries in the Western Balkans to adopt such a law. A decision welcomed by companies and investors who expect things to move also a bit further.

For Dejan Jankovic, Project Manager of the Wind Farm Alibunar operated by ELICIO, a company active in renewables and operating 1.1 gigawatts (GW) in offshore installed capacity and 400 MW onshore, the most critical thing to address is to have bankable projects minimising the risks or at least recognising them before financing.

“Investors must be ready to make the best possible predictions, which when it comes to wind is not always easy,” he said. “We are trying to use new technology and new software to have better predictions but the cost of balancing will be a very big challenge. We expect the government to prepare bylaws that recognise different possibilities to have good predictions and to describe possible costs for balancing.”

North Macedonia and Albania: a good regulatory environment

Very good signs are coming also from North Macedonia, which plans to reach a 50 per cent share of renewables in electricity production by 2024 and to phase out coal.
Marija Filipovska, Partner of the CMS Law Firm has mentioned that there is an underdeveloped market of renewable energy with 90 per cent of the total domestic production coming from the State-owned company and predominantly dependent on coal.

“Because of huge water resource, hydropower is traditionally used, with more than 100 privately-owned,” she said. “However, compared to the region (maybe with the exception of Bosnia and Herzegovina and Serbia) what we don’t see as many projects in solar and wind.”

For Mrs Filipovska, energy law and bylaws are harmonised with the EU Third Energy Package. However, the institutions lack experience and the legal framework is incomplete. Furthermore, North Macedonia is highly dependent on other countries. For example, the total annual production of electricity in 2019 was 5,447 gigawatts-hour (GWh) and an additional 2,297 GWh were imported.

So, does the current legal system provide a secure gourd for investors? Does it create opportunities? Mrs Filipovska highlighted many laws and regulations like the Decree on Supportive Measures for Electricity Production from RES, adopted by the Government in 2019 which regulates favourable conditions for investors (Premiums, Feed-in Tariffs for RES).

“The Law on Energy Efficiency fully implements the relevant European Union regulations and encourages private and public companies to use sustainable energy,” she continued. “And the Law on Strategic Investments, which is relatively new, provides a really nice ground for very big projects not necessarily PPPs or concessions.”

Thus, considering that further projects exploiting hydropower need to be assessed to avoid a negative impact on the environment, photovoltaic and wind power plants are expected to be the growing technology.

Almost the same could be said for Albania which currently has no installed wind power plants but, at the end of 2020, launched a 150 MW wind tender, restricted to projects with a minimum capacity of 30 MW and a maximum capacity of 75 MW. Each successful bidder will sign a 15-year PPA for the sale of 100 per cent of electricity generated through the CfD support mechanism. At the same time, two solar projects in Albania were awarded to renewable energy developer Voltalia in 2021. One hundred-forty MW of solar will be built in Karavasta, near the city of Fier, of which 70 MW will be supported through a PPA, while the rest will be sold at market price. Another project is a 100 MW solar PV plant in Durrës.

“Albania has also announced the largest hybrid auction prepared with the EBRD, for a total of 150 MW to be announced in the comings,” added Lorenc Gordani lecturer of Public and Business Law at Tirana Business University.

Although the Western Balkans have come a long way, more things need to be done, in a transparent and sustainable way. We all want to see the region working as a perfectly functioning machine, moving forward with the right fuel: renewable sources.

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