central and eastern european hydro power outlook

ENERGY AND NATURAL RESOURCES

Central and Eastern European

Hydro Power Outlookkpmg.com

KPMG in Central and Eastern Europe’s Energy & Utilities Advisory Practice

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© 2010 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member fi rm of the KPMG network of independent member fi rms affi liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Central and Eastern European Hydro Power Outlook | 3

It is my pleasure to introduce the Central and Eastern European Hydro Power Outlook, which has been prepared by the KPMG in Central and Eastern Europe’s Energy & Utilities Advisory Practice located in Budapest, Hungary.

Based on the interest for our previous publications covering electricity, natural gas, renewable and nuclear energy, as well as the district heating sector we have assembled this report with the ultimate aim of highlighting the most important opportunities in the region’s hydro power sector.

On the following pages, it was our aim to turn market data into meaningful analysis, thus offering KPMG’s insight on available opportunities for business organizations and institutions interested in the Central and Eastern European hydro power sector.

I trust that this report will prove to be useful to you and I wish you all the best on your participation in, the development of the CEE hydro power sector, whether you are an investor, supplier or any other stakeholder on the market.

Sincerely,

Péter Kiss

Partner, KPMG Global Head of Power & Utilities

Dear Reader,

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Table of Contents

Executive Summary 7

1. Defi ning CEE Energy Markets 11

2. Introduction of the Technology 152.1. Hydroelectricity 152.2. Types of Hydroelectric Power Plants 162.3. Major Turbine Types and their Application 192.4. System Balancing Capabilities of Storage 20

and Pumped Storage HPPs 2.5. Possible other Roles of HPPs, their 22

Dams and Reservoirs 2.6. Environmental Impacts 23

3. Regulations 293.1. Are All Hydro Plants Renewable? 293.2. EU Regulations for Water Policy and 30

Renewable Energy 3.3. Greenhouse Gas Emission Measures 33

4. Electricity Demand Trends in the CEE Region 374.1. History 374.2. Future Outlook 384.3. Special Demand for Renewable Energy 39

Sources Including Hydro Power

5. Importance of Hydro Power in the CEE Region 41

6. Country Profi les 476.1. Albania 496.2. Bosnia and Herzegovina 526.3. Bulgaria 566.4. Croatia 606.5. Czech Republic 646.6. Estonia 676.7. Hungary 69

6.8. Kosovo 726.9. Latvia 746.10. Lithuania 776.11. Macedonia 806.12. Montenegro 836.13. Poland 866.14. Romania 896.15. Serbia 936.16. Slovak Republic 966.17. Slovenia 99

7. A Leading Example – Austria 102

8. Public Acceptance of Hydro Power 1058.1. Gabčíkovo-Nagymaros Hydro 105

Power Project 8.2. Mardøla and Alta Hydro Power Projects 1068.3. Hainburg Hydro Power Project 1068.4. Freudenau Hydro Power Project 1068.5. Conclusions 107

9. Economics of a Hydro Investment 1099.1. Investment/Operation Cost Ratio 1109.2. A Comparison with Other 116

Power Plant Types 9.3. Cooperation and Cost Sharing 121

10. Investment Potentials 123

Acronyms 126

What can KPMG Firms Offer to the Hydro 129Power Sector?

6 | Section or Brochure name

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Executive Summary

Hydroelectric generation is not new to Central and Eastern Europe (CEE). Hydro power’s key advantage – the absence of fuel costs – has historically underpinned signifi cant development, meaning that many of the obvious plant locations have been exploited, especially under the socialist regimes after World War Two.

Hence hydro facilities account for almost 29,000 MW, or 23% of the total 127,000 MW generating capacity in CEE, and every country, from Estonia to Bulgaria, has some hydro installations. In Albania and other countries in the Balkan Peninsula, hydro dominates the generation mix.

After 1990, in the fi rst years of transition to a market economy, the closure of heavy industry (and subsequent reduced electricity demand) coupled with political uncertainties, meant a reduced pipeline for new power projects in many CEE countries.

However, political stabilization and economic progress in the past decade have led to an upturn in electricity demand – albeit somewhat interrupted by the recent global economic crisis.

This turnaround, coupled with the need to replace ageing and often ineffi cient, polluting plants, has focused minds once more on the need for new investment in generation capacity.

Furthermore, the growing emphasis on clean energy, as mandated by the European Union, plus concerns regarding security of fuel supplies, makes investment in hydro power all the more attractive.

As this report highlights, the good news is that there remains huge potential for hydro development within CEE, where the total technical hydro capacity could generate an estimated 176,300 GWh per year.

In reality, current output stands at 62,700 GWh, meaning the regional utilization rate is a mere 30%.

This potential includes even those countries which already boast signifi cant levels of hydro investment.

In Albania, for example, hydro facilities account for 87% of total generation capacity and an astonishing 97% of electricity generated. Yet an analysis by the World Energy Council reveals Albania is exploiting only one-quarter of its total water-sourced potential.


8 | Central and Eastern European Hydro Power Outlook

Similarly in Bosnia-Hercegovina, the utilization rate of the technical hydro potential is a mere 19%, meaning the country could, under ideal conditions, generate an annual 24,000 GWh – fi ve times its current annual output.

Lithuania, for example, currently utilizes less than one-third of its technical hydro potential, which amounts to an annual 3,000 GWh. Poland is even more wasteful; the 2,700 GWh it sources from hydro generation being a mere fi fth of its technical potential.

But the most profl igate country in the region regarding water resources is Hungary, where hydro facilities amount to just 46 MW (0.6% of the total) and generate a paltry 200 GWh annually (again, 0.6% of the total).

This is just 3% of Hungary’s technical potential, where hydro capacity could generate 8,000 GWh annually, or about 20% of net production.

Hungary’s failure to harness its water resources to provide more electricity provides a series of case studies illustrating the pros and cons of hydro power – both real and perceived.

Hungary, together with the then Czechoslovakia, sought to tap into its potential hydro power when in 1977 the two countries announced plans for a system of dams and hydro-power stations on the Danube, which formed the common border between the two countries for some distance.

Known as the Gabickovo-Nagymaros Hydro Power Project, the scheme was intended to prevent fl ooding, improve navigability and provide generation capacity of 880 MW (to be shared between the two countries) at full capacity.

However, in Hungary the project was soon criticized by environmentalist groups, and it became a safe channel for protest by the growing anti-communist opposition during the 1980s. Shortly after the fi rst democratic elections in 1990 Hungary unilaterally abandoned the scheme, although Slovakia completed a simplifi ed version of the project on its territory.

As this report notes, there are certainly many environmental (and often political and social) factors that require careful evaluation when planning any hydro project, most particularly large schemes that involve damming rivers to hold back large volumes of water.

However, the creation of such dams often yields a number of secondary outcomes, which can further enhance the value of such schemes. These include the use of the reservoir for water sports and leisure activities (as has occurred in Slovakia in the modifi ed Danube scheme) and in some locations the dams themselves form useful communication links between riverbanks.

Indeed, with careful planning and consultation between all parties involved, hydro schemes can garner the support of the general public and, at best, become the ideal ‘win-win’ development.



This report emphasizes the experience of Austria, where a combination of 154 large and 2,400 hydro generators, built within the framework of clearly-defi ned regulatory support system, now provides 60% of the country’s electricity needs.

However, even in Austria, projects have foundered, most notably the Hainburg hydro scheme of the 1980s, where environmentalists, ignored by the authorities, fomented protests and eventually forced the abandonment of the project.

Austria learned its lessons, and just a few years later created intense public involvement for its proposed Freudenau hydro scheme in Vienna. The result was a 70% yes vote for the scheme in 1991, and seven years later the project was completed, providing over 1,000 GWh annually to the grid since 1998.

As our study stresses, Austria’s ability to so successfully exploit hydro power offers many lessons for other countries in the region. The Austrian banking sector, state and regional authorities function effectively, hence they have the means to provide systematic planning and support to hydro projects.

Many of the states in the region lack Austria’s administrative skills, nor do they possess the fi nancial means to fully fund even small hydro schemes (which are more expensive than large projects per kW installed).

Furthermore, much of the region’s potential hydro power will require some form of guaranteed electricity pricing to create a sound business case and attract external fi nance. Under these conditions, the most crucial role of the CEE states is to each create a sound regulatory and legal environment to assure potential investors (both domestic and international) that their money is safe and that it will earn a steady, if unspectacular, return.

From this study it is clear that much potential exists across CEE to develop hydro power, particularly (but not only) in mountainous countries such as Albania, Romania, Bulgaria and former Yugoslavia.

This potential includes hydro generation in all its forms, including renewal of older, ineffi cient facilities, new projects involving both large and small generators, and pumped-storage schemes that help system balancing and utilize low-cost electricity at times of low demand.

In addition, environmental concerns and public sentiment generally support the use of clean energy. But to exploit these potentials in practice will require governments and utility companies to employ a wide-ranging skill-set from careful, in-depth technical and fi nancial planning to innovative public relations techniques.

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1. Defi ning CEE Energy Markets


For the purposes of this study, the Central and Eastern European region is defi ned as the 17 countries – Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kosovo, Latvia, Lithuania, Macedonia1, Montenegro, Poland, Romania, Serbia, Slovakia, Slovenia – lying east and north of the EU-15 (neighbouring Germany, Austria, Italy and Greece) and west of Russia, Ukraine, Moldova and Belarus – see Figure 1).

Ten out of 17 of the above listed CEE countries are EU members at present, with Croatia being very close to receiving an accession date and Macedonia also on the path of accession.2

This study aims to collect and organize data, identify major trends and describe the similarities and differences between the countries in the CEE region.

Many of the CEE countries have shown remarkable economic development during the last decade. This development is expected to continue, which is represented by the fact that many of the CEE countries are regarded as having “converging” markets rather than emerging ones, meaning their economies are in the process of achieving parity with those of the EU-15 countries and are thus characterized by strong economic growth while having EU-based regulations and policies, offering reasonable risk-return ratio for investors.

Figure 1: The CEE Region in European Context

� Central and Eastern European countries

1 The country is often referred to as Former Yugoslav Republic of Macedonia; in the current report we refer to it as Macedonia

2 Source: European Commission Enlargement Newsletter http://ec.europa.eu/enlargement/press_corner/newsletter/index_en.htm accessed on 23 April 2009


The current fi nancial turmoil has hit some of the CEE countries hard, the Baltic countries were infl uenced the most, but others, such as Hungary and Romania also needed to apply for IMF credit to ensure their stability.

As international fi rms in the region affected by the economic downturn tried to stabilize their production in their countries of origin (mainly Western Europe) their Eastern branches were more exposed to suffer losses. The economies of the CEE countries heavily rely on these fi rms’ resulting performance drop. The rate of foreign investments coming in to the CEE region was also reduced signifi cantly, but as fi nancial stress is appearing to ease these countries also have a better outlook for the future.

Their major economic indicators and population data can be found in the table which follows.

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All GDP fi gures are quoted in Purchasing Power Parity and are 2009 estimates.

* Albania, Bosnia & Herzegovina, Macedonia and Kosovo have large informal economies that might reach 50% on top of the offi cial GDP.

Source: World Factbook, CIA, 2010 Population data represent 2010 estimates.


BG

RO

MK

KO

AL

ME

RSBA

HRSI

HU

SK

CZ

PL

LT

LV

EE


Economic and Population Data – Central and Eastern Europe

EU member statesBulgaria (BG)GDP: 90.51 billion • GDP growth: -4.9% • Population: 7.1 millionCzech Republic (CZ)GDP: USD 256.6 billion • GDP growth: -4.1% • Population: 10.2 millionEstonia (EE)GDP: USD 24.36 billion • GDP growth: -14.1% • Population: 1.3 millionHungary (HU)GDP: USD 184.9 billion • GDP growth: -6.7% • Population: 9.9 millionLatvia (LV)GDP: USD 32.4 billion • GDP growth: -17.8% • Population: 2.2 millionLithuania (LT)GDP: USD 54.84 billion • GDP growth: -15.0% • Population: 3.6 millionPoland (PL)GDP: USD 690.1 billion • GDP growth: 1.7% • Population: 38.5 millionRomania (RO)GDP: USD 255.4 billion • GDP growth: -7.2% • Population: 22.2 millionSlovakia (SK)GDP: USD 115.7 billion • GDP growth: -4.7% • Population: 5.5 millionSlovenia (SI)GDP: USD 55.84 billion • GDP growth: -7.3% • Population: 2.0 million

Non EU member statesAlbania (AL)GDP: USD 22.9 billion* • GDP growth: 3.7% • Population: 3.7 millionBosnia & Herzegovina (BA)GDP: USD 29.07 billion* • GDP growth: -3.4% • Population: 4.6 millionCroatia (HR)GDP: USD 79.21 billion • GDP growth 2006: -5.2% • Population: 4.5 millionKosovo (KO)GDP: USD 5.3 billion* • GDP growth: n/a • Population: 1.8 millionMacedonia (MK)GDP: USD 18.77 billion* • GDP growth: -1.5% • Population: 2.1 millionMontenegro (ME)GDP: USD 6.71 billion • GDP growth: -4.0% • Population: 0.7 millionSerbia (RS)GDP: USD 78.36 billion • GDP growth: -3.0% • Population: 7.3 million

Source: Alstom © 2

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2. Introduction of the Technology


This chapter aims to give you an overview on the basics of hydro-based electricity generation regarding technology. Figure 2 shows the general schematic structure of a usual Hydro power plant (HPP) to introduce the basic terms.

2.1. Hydroelectricity

Hydro power plants convert the energy of the waterfl ow into electricity. The electricity generation capability is determined by the following factors: volume of water, the fl ow, the level of the head created by the dam and the effi ciency of the power plant technology. The relevant rule of thumb is the following: the greater the head, the reservoir size and the fl ow, the more electricity is produced. Or in other words a HPP with higher head needs smaller reservoir and runoff for the same amount of electricity to be produced.

A typical HPP consists of a dam, reservoir, penstocks or waterways, a powerhouse (including turbine and generator) and an electrical power substation. The dam stores water and creates the needed head level; penstocks carry water from the reservoir to turbines inside the powerhouse; the water rotates the turbines, which drives generators that produce electricity. The electricity is then transmitted to a substation where transformers increase voltage to allow transmission to consumers.

Hydroelectric Dam

LongDistancePowerline

Electrical powersubstation

RiverTurbine

Penstock

Intake

Reservoir

Generator

Powerhouse

Figure 2: Schematic Cross Section of a Hydroelectric Dam

Source: KPMG

Defi ning Hydro Power Plant Terms

DamA structure made out of concrete or locally available material constructed in the water fl ow to block its way in order to gather water.

ReservoirThe reservoir is the artifi cial lake or water buffer created by the dam.

HeadThe head is the elevation difference between the upstream and downstream water.

IntakeThe headwater is lead through the intake to access the penstock after passing the gate. The gate is closed if the power generation needs to be halted.

PenstockHigh pressure steel penstock pipes deliver the incoming headwater to the turbine. In case of low head power plants penstocks are substituted by open waterways.

TurbineA turbine is a rotor in a housing that converts energy from the water fl ow into useful work and delivers it to the generator through the rotation of its shaft.

GeneratorThe generator utilizes the useful rotational work of the turbine to convert it into electricity.

PumpIn case of pumped storage power plants the water needs to be pumped upwards into the upper reservoir. The pump is utilized to fulfi l this task.

TailwaterTailwater is the downstream water which is disposed by the turbine.

SpillwayA structure used to release excess water through dam without producing electricity.


2.2. Types of Hydroelectric Power Plants

Run-of-river plants

The most common types amongst hydroelectric power plants are the run-of-river power plants (see Figure 3) whereby the natural fl ow and elevation drop of a river are used for the generation of electrical power, and there is only minimal or no storage of water.

These power plants are constructed on rivers with a consistent and steady fl ow. Large reservoirs are required on rivers with great seasonal fl uctuations in order to operate power stations during the dry season resulting in the necessity to impound and fl ood large tracts of land. In contrast, large impoundments of water are not required for run of river projects. Instead, some of the water is diverted from a river, and sent into the penstock. The penstock feeds the water downhill to the power station’s turbines. Because of the altitude difference between headwater and tailwater, potential energy from the water up river is transformed into kinetic energy on its journey downriver through the penstock, giving it the pressure required to spin the turbines that in return transform this kinetic energy into electrical energy through a generator unit. The water leaves the generating station and is returned to the river without altering the existing fl ow or water levels of the tailwater. According to the defi nition of ENTSO-E the fi lling period of these plants is determined in less than two hours.


Headwater

Run-offwater

� Generator� Turbine

Figure 3: Schematic Cross Section of a Run-of-River Hydroelectric Dam

Source: KPMG



Storage Hydroelectric Power Plants

There is not any strict threshold between run-of-river and storage type HPPs in term of technical parametres; the distinction can be made by the purpose of the dam in case of the two types. While run-of-river HPPs need the dam to create the appropriate head- and tailwater level difference for the operation of the turbines, the storage type HPPs (see Figure 4) – also known as “reservoir” HPPs – need the dams to store the appropriate amount of water on rivers where the natural parametres of the river are not suitable to ensure stable, continuous operation, or fl exibly adjustable performance is needed, which results in the necessity to impound and fl ood large tracts of land. A reservoir allows for the scheduled use of the potential energy of the water that fl ows from a higher to a lower elevation. These power plants are able to produce electricity throughout the year since the reservoir has the capacity to store extremely large quantities of water to offset seasonal fl uctuations in water fl ow.

These plants exploit the potential energy in the difference in altitude between the waters of a naturally fed high-level reservoir and a power generation plant at a lower level.

The reservoir usually fi lls up during the rainy season and the water lasts for the whole year till the next summer season. In these hydroelectric power plants a large reservoir is constructed behind the dam wall. ENTSO-E divides such plants in two categories, namely pondage is characterized by a fi lling period of between 2 and 400 hours and reservoir plants with a fi lling period exceeding 400 hours.

The water fl ows from the reservoir through pressure pipes or tunnels to drive the turbines of power plants located in valleys.

Storagebasin

Head racetunnel

High-pressurepipeline array

� Generator� Turbine

Surge tank

Figure 4: Schematic Cross Section of a Storage Hydroelectric Dam

Source: KPMG



Pumped Storage Power Plants

Pumped storage power plants (PSPPs – see Figure 5) are usually considered power plants, but they are in fact electricity storage facilities. They are a special type of storage HPP since not (only) a river is blocked by a dam, but the water is (also) pumped up from a lower basin to fi ll the reservoir. The losses from the pumping process (whose effi ciency is around 75-80%) makes the plant a net consumer of energy overall. PSPPs store energy in the form of the water’s potential energy that was pumped from a lower basin or river to a higher basin.

Pumping activities normally take place at night to exploit the excess electrical power of the off-peak demand period for pumping. As soon as demand increases during the day, the water is fed back to drive the turbines of the power plant. This is all controlled by the push of a button and the generators begin to produce electricity within seconds. Pumped storage is the largest capacity form of energy storage technologies available for electricity grid operators.

The main purposes of these plants are balancing the electricity demand and satisfying peak demands along with utilizing electricity surplus on the other side. The mandates for pumped storage plants can be various:

1. To fi t the production of low fl exibility power plants (like nuclear power plants) to the demand

2. To increase revenue by selling more electricity during periods of peak demand, when electricity prices are highest

3. To balance out the demand volatility of the power grid as an immediate response primary reserve

Head racetunnel

High-pressuredustribution pipeline

Upper basin Barrage intake structure

Cavern

Lower basin

� Generator� Turbine� Pump

Figure 5: Schematic Cross Section of a Pumped Storage Hydroelectric Dam

Source: KPMG



4. To balance out the production volatility of some renewable generation technologies (like wind, solar, tidal) and

5. To ensure best effi ciency load for thermal power plants (like coal/biomass fi red steam turbine based plants).

Other types

There are two additional types of HPPs, namely tidal and wave. Connected to oceanic or sea water movements, these plant technologies are currently in a pilot phase; consequently, in this study we are restricting our focus to conventional landlocked hydro power generation technologies.

2.3. Major Turbine Types and their Application

The history of the hydraulic wheel dates back to antiquity. Water wheels were already being utilized by mankind in the ancient Greek and Roman era and throughout medieval Europe.

Depending on the characteristics of a HPP, different types of water turbines are utilized to generate electricity. The two main categories are reaction turbines, and impulse turbines.

Reaction turbines

The runners of reaction turbines are under water and exploit water speed (kinetic energy) and pressure difference. Reaction turbines are used mainly at low (<30 metres) and medium head (30-300 metres) operations.

Most common types are:

Francis

Designed by James B. Francis in 1849, the Francis turbine was the fi rst and today still the most common water turbine technology in the world, reaching more than 90% effi ciency that was further improved later to reach about 95%. This reaction turbine is mainly utilized for medium altitude and medium water fl ow with a wide range of applicability.

Kaplan

This double regulated reaction turbine is a modifi cation of the Francis turbine designed by Victor Kaplan in 1913. The regulation ability of both fl ow and blades make this turbine type capable of operating at a high effi ciency level within a wide range of operational parameters. It is utilized at smaller altitude head operations, where water fl ow is signifi cant.

Figure 7: Kaplan turbine

Figure 6: Francis turbine

Source: Alstom

Source: Alstom



Impulse (or Action) Turbines

Impulse turbines utilize the kinetic energy of a free falling water jet that is transformed by a nozzle to drive the turbine. They are neither submerged into the water, nor utilizing water pressure differences before and after the turbine.

The most common type is:

Pelton

Lester Allan Pelton designed this type of impulse turbine in 1879, directly utilizing the kinetic energy of the drop of a water jet from a high altitude that reached 92% of effi ciency after being optimized by William Doble around 1895. Pelton turbines are used for very high altitude heads and light water fl ow.

Turbines Utilized in Pumped Storage Plants

There are two basic types of units utilized in pumped storage power plants.

1. Reversible type turbines utilized in pumped storage power plants are able to work both in pump and turbine mode in order to be able to reverse water fl ow in off-peak operation mode, and fi ll the high reservoir. For example modifi ed Francis turbines are used for this purpose.

2. Separate turbine and pump units can also be installed in pumped storage plants thus separate instruments are used in the two operation modes of the plant.

The effi ciency of a pumped storage power plant constitutes of two parts:

The effi ciency of the pumping mode

The effi ciency of the turbine mode

This results in a lower overall effi ciency than in case of other HPPs.

2.4. System Balancing Capabilities of Storage and Pumped Storage HPPs

Storage and especially pumped storage HPPs can fulfi l special function which only a limited number of other power plant types are able to cover (at all or effi ciently). This function is the balancing of the electricity system with an aim of fi tting the actual production to the demand. This is one of the major tasks of the system operators which is required because the predicted demand schedule never matches exactly the realized consumption. Although the capabilities of such power plants are given appliances need to be selected and installed accordingly to be able to fulfi l this role without drastically shortening the expected lifetime of the plant.

Figure 8: Pelton turbine

Source: Alstom



Why is balancing becoming increasingly important?

It can be attributed to several factors:

1. Total demand is growing, which results in more required balancing capacity in the system.

2. Wind and solar installed capacities are increasing their market share rapidly which makes for numerous volatile facilities whose production is not accurately predictable, generating extra balancing needs.

3. Nuclear power is undergoing a renaissance which could result in an enormous extra installed base load capacity. Even if third generation nuclear reactors are capable of following the demand curve, it is uneconomic to run them in peak mode instead of base load due to their large initial investment costs.

4. Fossil fuelled plants usually have a narrow optimal performance level, thus operating them at that level results in higher effi ciency, lower relative consumption and emission.

5. CHP plants without heat storage capabilities supplying heat at off-peak electricity demand periods are not exploiting their capability to produce low emission electricity.

Both storage and pumped storage HPPs can be rendered capable to provide supply-side ancillary services such as balancing out:

positive deviation of demand from the schedule by increasing production (if available), or

negative deviation of demand from the schedule by decreasing production.

Pumped storage power plants can also balance out the electricity system surplus in off-peak periods by demand side balancing – consuming the electricity necessary to pump water to the upper reservoir.

These two fl exible HPP types are favourable for system operators to be able to stabilize and optimize the electricity systems they are responsible for, minimizing the risk of a possible frequency fl uctuation, overload or black out. Storage hydro plants are able to provide these services without additional emission. The pumped storage power plants do not have real competition in electricity storage of the same achievable size and effectiveness given the current status of technology.



2.5. Possible other Roles of HPPs, their Dams and Reservoirs

HPPs are commonly considered energy purpose facilities only, but in fact they may play other important roles. In several cases these other aspects are the primary reasons for building a dam on a river, and the generators are only extra features. From the energy industry’s perspective regarding a new HPP investment these other aspects need to be taken into account particularly when looking for fi nancing and investors, or convincing decision makers and the public.

Navigation

Navigation dams resolve the problems of seasonality and raise the water levels of shallow river sections.

The inland water channels of Europe suffer from seasonality and changing water levels. These symptoms make continuous commercial navigation impossible without the help of navigational purpose dams.

Flood Control

In several cases the primary purpose of building dams for reservoir hydroelectric power plants is actually fl ood control. In this case, the installation of hydro power facilities entails only smaller incremental investments.

Irrigation

Agriculture is often exposed to seasonal weather changes. This risk can be mitigated by using the water in a reservoir for irrigation to maintain a constant level of agricultural production.

Recreation

The enhanced water surface created by a dam is usually favourable for recreational purposes.



Bridge

Dams create interconnection between riverbanks, terminating the natural separation of the two sides.

2.6. Environmental Impacts

Just like all known technologies there are several possible negative impacts of hydroelectric systems that have recently been increasingly coming into focus. While most of the major dams have been completed within the last six decades, some of the environmental effects may not be realised yet, but being aware of the possible consequences these effects can be avoided or minimised. Environmental effects are perhaps the most topical aspects of sustainability for hydropower in the European context, however proper sustainability assessment also requires consideration of social and economic effects. An awareness building toolkit for hydro developers is the “Sustainability Guidelines” (2004) issued by the International Hydropower Association.

These guidelines introduce several environmental issues that must be addressed for an HPP development.3

Water quality

Changes in water quality are likely to occur within and downstream of the development as a result of impoundment. The residence time of water within a reservoir is a major infl uence on the scale of these changes, along with bathymetry, climate and catchment activities. Major issues include reduced oxygenation, temperature, stratifi cation potential, pollutant infl ow, propensity for disease proliferation, nutrient capture, algal bloom potential and the release of toxicants from inundated sediments. Many water quality problems relate to activities within the catchment beyond the control of the developer.

3 International Hydropower Association – Sustainability Guidelines, 2004

The Guidelines have been developed into the more comprehensive 2006 “Sustainability Assessment Protocol” (Protocol). From 2008 the “Hydropower Sustainability Assessment Forum” (Forum) has been working to produce an enhanced Protocol due in 2010. The Forum is a collaboration of international representatives from governments, the fi nance and hydropower sectors, and environmental and social civil society organisations.

Source: Andritz Hydro



Sediment transport and erosion

The creation of a reservoir changes the hydraulic and sediment transport characteristics of the river, causing increased potential sedimentation within the storage and depriving the river downstream of material. Sedimentation is an important sustainability issue for some reservoirs and may reduce the long-term viability of developments. Reduction in the sediment load to the river downstream can change geomorphic processes (e.g. erosion and river form modifi cation).

Downstream hydrology and environmental fl ows

Changes to downstream hydrology impact on river hydraulics, instream and streamside habitat, and can affect local biodiversity. Operating rules should not only consider the requirements for power supply, but also be formulated, where necessary and practicable, to reduce downstream impacts on aquatic species and human activities.

Rare and endangered species

The loss of rare and threatened species may be a signifi cant issue arising from dam construction. This can be caused by the loss or changes to habitat during construction disturbance, or from reservoir creation, altered downstream fl ow patterns, or the mixing of aquatic faunas in inter-basin water transfers.

Hydropower developments modify existing terrestrial and aquatic habitats, and when signifi cant changes cannot be avoided, mechanisms to protect remaining habitats at the local and regional scale should be considered in a compensatory manner.

Passage of fi sh species

Many fi sh species require passage along the length of rivers during at least short periods of their life cycle. In many places the migration of fi sh is an annual event and dams and other instream structures constitute major barriers to their movement. In some cases the long-term sustainability of fi sh populations depends on this migration and developing countries’ local economies can be heavily reliant on this as a source of income.

Pest species within the reservoir (fl ora & fauna)

In some regions a signifi cant long-term issue with reservoirs, irrespective of their use, is the introduction of exotic or native pest species. The change in environment caused by storage creation often results in advantageous colonisation by species that are suited to the new conditions and these are likely to result in additional biological impacts. In some instances, proliferation may interfere with power generation (e.g. clogging of intake structures) or



downstream water use through changes in the quality of discharge water (e.g. algal bloom toxins, deoxygenated water).

Health issues

The changes brought about by hydropower developments have the capacity to affect human health. Issues relating to the transmission of disease, human health risks associated with fl ow regulation downstream and the consumption of contaminated food sources (e.g., raised mercury levels in fi sh) need to be considered. The potential health benefi ts of the development should also be identifi ed.

Construction activities

Construction needs to be carried out so as to minimise impacts on the terrestrial and aquatic environment.

Where a new development is planned, there is a range of activities that can result in environmental impacts, both terrestrial and aquatic. Noise and dust may also be issues where the development is close to human habitation.

In addition to the above environmental impacts there is other possible harm that can be done to the environment although these may not pertain to European circumstances, have less importance or can be fully mitigated.

Greenhouse Gas Emission During the Initial Flooding of a Reservoir

It is accepted that hydropower is a low carbon energy technology. However, greenhouse gas emissions (GHG) emissions, mainly methane, can be produced by the decomposition of organic matter in anoxic conditions at the bottom of reservoirs. Proper assessment requires comparison between pre and post impoundment GHG emission conditions in order to yield a net result. In most cases, net GHG emissions are likely to be low but there has been no scientifi c consensus on measurement and calculation of the phenomena. As a result, since 2008 UNESCO and IHA have hosted an international scientifi c research project (Project), which published the state of the art “GHG Measurement Guidelines for Freshwater Reservoirs” in 2010 (Guidelines). The Guidelines and Project pave the way for scientifi c consensus as well as the development of a database and predictive modelling tools.

Water Evaporation

The water “footprint” of hydropower projects is an emerging issue, particularly in regard to evaporation from reservoirs. Proper assessment requires comparison between pre and post impoundment watercourse evaporation and plant transpiration conditions in order to yield a net result. The increased



temporal and spatial water management that a reservoir provides compared to natural conditions must also be factored in. While net evaporation is likely to be low in most cases, presently there is no scientifi c consensus regarding how to measure and calculate this, and ongoing debate on whether evaporation from reservoirs may be regarded as water loss.

A failure to consider the introduced environmental effects might result in serious harm, but most of these impacts can be mitigated if profound assessment is executed and the right preventive actions are selected. This task is preferably done before construction is started, but in case of existing facilities corrective actions can also make substantial achievements. Before making an investment decision the cost of all the necessary auxiliary preventive facilities should be taken into consideration to gain a full picture of the total overall investment and operational costs.


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3. Regulations


In this chapter we introduce the common legislative background relevant to hydro power investments.

3.1. Are All Hydro Plants Renewable?

A common assumption regarding HPPs that they are renewable, because they are producing electricity from renewable potential or the kinetic energy of fl owing water, but electricity produced in pumped storage units from water that has previously been pumped uphill should not be considered as electricity produced from renewable energy sources.4 In addition to this some regulators/governments acknowledge all scales of hydro generation renewable, but others consider that possible aspects like

disruption of aquatic ecosystems and birdlife,

adverse impacts on the river environment,

release of signifi cant amounts of GHG at construction and the initial fl ooding of the reservoir,

dislocation of people living in the reservoir area,

potential risks of sabotage and terrorism, and

in rare cases catastrophic failure of a dam wall

as good reasons for handling large hydro separated from other renewable energy sources.

On the other hand governments might offer investment subsidies for small hydro investments to foster reaching their renewable goals while excluding large hydro from such renewable incentives based on its relatively low generation cost and reasonable return potential, but the threshold between large and small hydro may vary country by country even inside the EU. In our analysis we use 10 MW as a border line between large and SHPPs.

4 Source: Directive 2009/28/EC



3.2. EU Regulations for Water Policy and Renewable Energy

Directive 2000/60/EC of the European Parliament and of the Council establishing a framework for the Community action in the fi eld of water policy5

Based on environmental concerns the protection of European waters has become a key issue, and as a result, the Directive aiming to establish a single system of water management came into force in 2000, which covers all types of water such as rivers, lakes, coastal waters, estuaries, groundwater, etc. Accordingly, the model supported by the EU determines natural geographical and hydrological units, and river basins, disregarding administrative and political boundaries.

On the one hand, the most important goal of the Directive is to protect European waters and avoid environmental burdens; on the other hand, there are essential uses of water such as fl ood protection and drinking water supply in which cases the policy objectives can be overridden (although there might be a signifi cant impact on the surroundings). Accordingly, the approach towards hydro power generation is not fully clear in the Directive. However, the aim of environmental protection and related authorization procedures may increase investment costs or even hinder the realization of some projects. Furthermore, the implementation of the Directive may have an impact on project economics in the future, as a key innovation is that it calls for all types of water services to be charged at a price that refl ects all occurring costs. As an example, this means that the price of electricity generated from an HPP may cover the damage caused to ecosystems by the reservoir. Based on the timetable for implementation insisted in the Directive water pricing policies have to be introduced by 2010 at the latest.

5 Source: http://ec.europa.eu/environment/water/water-framework/index_en.html



Promotion of Renewable Energy in the EU

The European Commission outlines the priority activities and objectives of the Community regarding energy sources, identifying three major objectives:

achieving security of supply

improvement of the competitiveness of the European economy

ensuring sustainability.

The development of renewable energy utilization – particularly energy from wind, water, solar, geothermal and biomass – is thus a central aim of the European Union. Increasing the share of renewable-based generation in the total energy consumption mix will signifi cantly reduce greenhouse gas emissions in the EU.

In order to promote renewable energy sources, the European Commission has implemented the Directives (EU level regulations) discussed in the following section.

COM (97) 599 White Paper: Energy for the future – renewable sources of energy

In 1997, the Commission published a White Paper on renewable energy which defi ned a strategy and action plan to promote the market penetration of renewable energy sources, with a target of doubling their use by 2010 (from 6% of total consumption in 1996 to 12% in 2010).

A key element of the action plan was the establishment of European legislation to provide a stable policy framework and clarify the expected development of renewable energy in each Member State.

The two key pieces of legislation (Directives 2001/77/EC and 2003/30/EC) set indicative 2010 targets for all member states and required actions to improve the access, growth and development of renewable energy.

RES-E shares and targets for EU according to Directive 2001/77/EC

RES-E %, 1999

RES-E %, 2010

EU-15 13.9 22.1

EU-10 5.4 11.1

EU-25 12.9 21

Source: European Small Hydropower Association http://www.esha.be/index.php?id=43



Directive 2001/77/EC: Directive on Electricity Production from Renewable Energy Sources

In Directive 2001/77/EC, all member states adopted national targets for the proportion of electricity consumption from renewable energy sources. The indicative targets set in the Directive add up to a 22.1% average share of electricity produced from renewable energy sources as a percentage of gross electricity consumption by 2010 in the EU15. With the 2004 accession, the EU’s overall objective became 21%. Additionally, the Directive encourages the countries to use national support schemes, as well as eliminate administrative barriers with respect to renewable energy investments; it encourages grid system integration, and lays down the obligation to provide renewable energy producers with guarantees of origin if requested.

Directive 2003/30/EC: Directive on the Promotion of the use of biofuels and other renewable fuels for transport

The Biofuels Directive entered into force in May 2003, promoting the use of biofuels for EU transport. It stipulates that national measures must be taken by member states aiming at replacing 5.75% of all transport fossil fuels with biofuels by 2010.

Regular assessments and reports have been prepared on the EU’s progress towards its 2010 targets and on its efforts in general to develop renewable energy. The reports issued in 2007 as well as the Renewable Energy Roadmap, highlighted the slow progress member states were making and the likelihood that the EU as a whole would fail to reach its 2010 target.

The Commission therefore proposed a new, more rigorous legislation covering all renewable energy and set new targets for 2020 to ensure a stable regulatory framework for the decade ahead. This new Directive has been approved on 26 March 2009 and repealed Directives 2001/77/EC and 2003/30/EC.

Directive 2009/28/EC: Directive on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC

Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009, on the promotion of the use of energy from renewable sources, published in the Offi cial Journal of the European Union on 5 June 2009, is a step forward. This Directive establishes a common framework to promote the use of energy from renewable sources and sets mandatory national targets for



the overall share of this energy in gross fi nal consumption of energy. The Directive also establishes rules relating to joint projects between member states and other countries, guarantees of origin, facilitating administrative procedures, and accessing networks.

Directive 2008/0016: Directive on the promotion of the use of energy from renewable sources

This Directive established a 10% share of renewable energy (including biofuels and RES-E) in the transport sector as well as an overall binding target of a 20% share of renewable energy sources in fi nal energy consumption and binding national targets by 2020 for every member state in line with this overall target. Each member state would be required to ensure the support of renewables through national action plans and support schemes in order to accomplish these goals.

3.3. Greenhouse Gas Emission Measures

The Kyoto Protocol

The Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) adopted at the Rio de Janeiro United Nations Conference on Environment and Development in 1992 was introduced to strengthen the international response to climate change.

The UNFCCC intended to prevent the unlimited growth of greenhouse gas emissions on a global level. However, it didn’t entail any mandatory limit for countries, but rather the treaty included provisions for updates (called “protocols”) that would set binding emission limits. The principal update was the Kyoto Protocol, which was adopted in 1997. The Protocol prescribed at least a 5% emission reduction at a global level by 2012 against the 1990 baseline.

All EU countries are parties to the Convention and have ratifi ed the Kyoto Protocol. Developed countries have committed themselves to reducing their collective emissions of six key greenhouse gases by at least 5%.

This is set down in a legally binding burden-sharing agreement (in Council Decision 2002/358/EC of 25 April 2002).



Kyoto Mechanisms (ET, CDM and JI)

Generators that cannot comply with the mandatory emission limits have an alternative to either purchase additional emission allowances on the open market (Emission Trading – “ET”) or implement a project under the umbrella of the Clean Development Mechanism (CDM) or the Joint Implementation (JI) scheme. If a company implements such a project, it receives Certifi ed Emission Reduction (CER) or Emission Reduction Unit (ERU) certifi cates which can be surrendered as a substitute for emission allowances.

Under JI, any country that has emission reduction targets (termed an Annex I country) can invest in emission reduction projects in any other Annex I country as an alternative to reducing emissions domestically. In this way countries can lower the costs of complying with their Kyoto targets by investing in greenhouse gas reductions in any Annex I country where reductions are cheaper, and then applying the credit for those reductions towards their commitment goal.

Under CDM, industrialized countries with a greenhouse gas reduction commitment (Annex B countries) can invest in projects that reduce emissions in developing countries as an alternative to more expensive emission reductions in their own countries.

The CDM allows net global greenhouse gas emissions to be reduced at a much lower global cost by fi nancing emissions reduction projects in developing countries where costs are lower than in industrialized countries.

European Union Emission Trading System – EU ETS

In order to adopt the UNFCCC on a more practical level, the EU issued Directive 2003/87/EC establishing the EU ETS. This is a market-based mechanism that translates Kyoto Protocol commitments to an operational level. It has been in operation since 2005, covering more than 40% of the total GHG emissions of the European Union and serves as a market mechanism for buying and selling CO2 emission credits, each of which allow the owner to emit greenhouse gases of 1 tonne of CO2 equivalent.

Under the framework of the EU ETS, emission allowances can be traded just as any other commodity. The EU ETS covers several industries, among which power generation has the largest GHG emission level.


Copenhagen Climate Change Conference (2009)

The Kyoto Convention will come to its end in 2012, thus as a successor a similar treaty was expected to be signed in Copenhagen in December 2009 for the post-2012 period, but the end result is widely considered a failure.

In aggregate the Copenhagen Climate Summit did not achieve its initial goal, however the participants signed a memorandum which expresses the non-binding common understanding of keeping the global climate change under 2 degrees’ increase of temperature without containing explicit commitments to emission reductions to achieve that goal. This document will be the basis of the next UN Climate World Summit, which takes place in Mexico between 29th November and 10th December in 2010.

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Due to population increase and economic growth (not taking into consideration the current fi nancial economic slowdown) energy demand in general and electricity consumption are increasing globally. This latter trend can also be observed in the Central and Eastern European region, although the change in the political and economic systems in the early 1990s resulted in a drop of electricity consumption in many countries.

4.1. History

CEE countries maintained centrally-planned economies during the communist era, and partially based on the principle of facilitating the development of heavy industry they consumed a signifi cant amount of electricity, which totalled about 339 TWh7 in 1990. After the change of system many of the large but at the same time uneconomical sectors were closed down which caused a signifi cant decrease in electricity demand within the region: total consumption was almost 23%7 less in 1993 than the corresponding value in 1990. Issues occurring on a country level such as monetary problems or the civil war in the Balkans as well as the initial general downturn of social welfare arising in line with the transformation also infl uenced consumption in a negative way.

Since then the electricity consumption of the region has recovered: the total demand of the region exceeded 348 TWh8 in 2007. One reason for this is that national governments have taken several actions in order to stabilize the newly established market-based economies (monetary restrictions, privatization, etc.),

4. Electricity Demand Trends in the CEE Region

120%

100%

80%

60%

40%

20%

0%

199

0

1991

1992

1993

199

4

1995

199

6

1997

1998

1999

200

0

2001

2002

2003

200

4

2005

200

6

2007

2008

Figure 9: Electricity Consumption Development in the CEE6 Region1990–2008 (1990=100%)

Source: World Bank data and KPMG estimates based on national statistics, EIU and UCTE data

6 Including Montenegro and Kosovo

7 Source: World Bank

8 Source: World Bank



which resulted in continued economic growth in the following years. As the standard of living has also risen, the signifi cance of residential and commercial consumption in total electricity demand has increased and thus these sectors have taken over the earlier role of heavy industry.

In the meantime, most of the countries in the CEE region have joined the European Union, which through the entry criteria and by infl uencing country-level decisions afterwards further facilitated stabilization and economic growth. In line with the goal of establishing a single European electricity market, actions fostering full liberalization have been implemented in CEE countries, which could result in a more transparent market with lower prices and in this way in additional demand. On the whole, EU membership has thus also increased directly or indirectly the electricity consumption of the region.

Although demand for electricity is in general relatively constant compared to that of other products (as it is a necessity good), due to the recent fi nancial turmoil the electricity industry is facing a downturn as well. Industrial production has decreased signifi cantly in the region, and household consumers are using less electricity in this insecure environment. As illustrated in Figure 11 below, monthly electricity consumption in the CEE region has been lower than the previous year’s consumption since October 2008.

4.2. Future Outlook

The development of electricity consumption shows an increasing trend globally, which is expected to continue in the future. Although the remarkable economic growth of the CEE countries has slowed down due to the global fi nancial crisis, they are still considered to be “converging” markets, which

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Figure 10: Distribution of Electricity Consumption by Sector in the CEE9 Region

Source: World Bank data and KPMG estimates based on national statistics, EIU and UCTE data

1990 2007

� Industry� Transport� Households� Services� Other sectors

9 Including Bulgaria, Czech Republic, Estonia, Croatia, Hungary, Lithuania, Latvia, Poland, Romania, Slovenia, Slovakia

Source: UCTE

Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Jan Feb

2008/2007 2009/2008

Financial crisis and related drop of demand

Figure 11: Monthly Electricity Consumption in the CEE – Change in Percentages Compared to Previous Year (2008–2009)

8%

6%

4%

2%

0%

-2%

-4%

-6%

-8%



implies that after stabilization the economic performance of the region is likely to resume its pace. In the coming decades all countries in the region are expected to become EU member states, which may further facilitate their development process. To sum up the introduced trends, in line with the economic growth of the region the level of electricity consumption looks to signifi cantly increase in the long term.

4.3. Special Demand for Renewable Energy Sources Including Hydro Power

Based on rising electricity consumption and on increasing concerns over climate change and energy security, the utilization of renewable energy sources has become a key issue worldwide. Among others, the European Commission has implemented and supported several actions aiming to grow the renewable proportion of gross electricity consumption within the European Union, which has an infl uence on most of the CEE counties. As a result, the share of renewables in power generation – and thus in consumption – has shown an increasing trend during the last decade in the region, with the key contributors being hydro, biomass and wind.

In parallel with the promotion of the utilization of renewable energy sources from the supply side, more and more consumers on the demand side are becoming aware of environmental issues in connection with electricity production and use. Accordingly, in line with the liberalization of the European electricity market and with the expansion of individual consumers’ room for decision-making, the opportunity of purchasing so-called green electricity has arisen in some countries.

As an example, the Netherlands was the fi rst country in Europe that promoted green power to consumers and suggested an extra charge for it to cover environmental concerns. Initially, in 1995 1% of electricity utility EDON’s customers (recently part of RWE Group) had signed up to the scheme, through which they could purchase 25-100% of their electricity from renewable energy sources. At that time, the additional charge was 4 cents per kWh on top of the regular price of 21 cents. The idea proved to be relatively successful as all utilities in the country now offer such a green energy scheme.10

Through this process, consumers support the electricity providers’ overall reliance on renewable energy sources, thus fostering the spread of sustainable energy-related technologies. Although such a special demand for renewable energy sources is not common within the Central and Eastern European region, it is expected to become more important in the future, thus this trend may result in a signifi cant additional demand for green energy, including electricity generated from HPPs considered renewable.

10 Source: http://www.ucc.ie/serg/pub/green.pdf

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Hydro power plays an important role in the energy production of the Central and Eastern European region today with a share of approximately 23% of the total installed capacity. Electricity generation from hydro power makes a substantial contribution to meeting the increasing electricity demand and is currently the most used resource which is not fossil fuel- or nuclear-based electricity generation technology. Hydro is one of the two energy sources along with fossil fuel that is utilized in all CEE countries for electricity generation.

Figure 12: Share of hydro generation capacities in the CEE region (2008)

5. Importance of Hydro Power in the CEE Region

CountryInstalled capacity (MW)

Share of hydro

Total Hydro

Albania 1,670 1,446 87%

Montenegro 870 660 76%

Latvia 2,566 1,560 61%

Croatia 3,762 2,007 53%

Bosnia and Herzegovina

4,021 2,064 51%

Macedonia 1,493 586 39%

Romania 16,582 5,843 35%

Serbia 8,355 2,831 34%

Slovakia 7,453 2,478 33%

Slovenia 2,894 879 30%

Bulgaria 11,359 2,993 26%

Lithuania 5,070 1,027 20%

Czech Republic 16,480 2,175 13%

Poland 32,509 2,327 7%

Kosovo 1,522 44 3%

Hungary 7,746 46 1%

Estonia 2,738 5 0%

Total 127,090 28,971 23%



Comparing this ratio to that of the UCTE region11, which is 20%, we can see that hydro power is a more popular source of electricity in the CEE region.

One reason to which this can be attributed is the favourable geographic situation of many of the countries in the region. Looking at the topographic map one can fairly easily tell which countries might bear signifi cant opportunities. Countries lying on the Balkan Peninsula, in the Carpathian Mountains and at the eastern slopes of the Alps harbour such potential.

The following page contains a summary map of the installed hydro power capacities of the CEE countries. It is predictable, but still interesting to see how hydro’s proportion in the capacity mix and the topographic conditions of a country correlate.

Hydropower Nuclear Other RESThermal

70%

60%

50%

40%

30%

20%

10%

0%

65.9%

22.7%

10.1%

1.3%

52.6%

19.0% 17.1%11.3%

� CEE region � UCTE

Figure 13: Capacity mix in the UCTE and CEE region, 2008

Source: UCTE, BALTSO, Latvenergo, LEI, ERO KS, Statistics Estonia, USAID-NARUC

11 The UCTE region includes: Austria, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Denmark, Germany, France, Greece, Hungary, Italy, Luxemburg, Macedonia, Montenegro, the Netherlands, Poland, Portugal, Romania, Serbia, Slovenia, Slovakia, Spain, Switzerland

� Hydro� Thermal� Nuclear� Other RES

Country code

Large hydro

Small hydro

30%

46 %

24

%SI

863 MW

16 MW

54%45%

1%

HR

1970 MW

37 MW

49

%

51%

BA

2056 MW

8 MW

76 %

24%

ME

649 MW

11 MW

61

%

39%

MK

536 MW

50 MW

87 %

13%

AL

1432 MW

14 MW

97 %

3%

KO

35 MW

9 MW

66

%

34%RS

2818 MW

13 MW

55 %

26%18%

1%

BG

2480 MW

513 MW

57%

35%

8%

RO

4895 MW

7 MW

68%

24%

7%1%

HU

39 MW

7 MW

36 %

30% 33%

1%

SK

2254 MW

224 MW

6 5 %

21%

13%1%

CZ

1870 MW

305 MW

92 %

7%1%

PL

2176 MW

151 MW

52 %

2%

26%

20%LT

1001 MW

26 MW

61 %

1%

38%

LV

1535 MW

25 MW

9 8 %

2%

EE

0 MW

5 MW

Source: KPMG analysis

Figure 14: Installed capacities and topographic features of the CEE region

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Another reason is for hydro having a higher share in the CEE than in the UCTE countries is that western European countries have higher electricity consumption per capita which results in relatively higher installed capacity needs. After approaching the limitations of exploiting economically feasible hydro capacities they have had to turn to other sources.

But given a comparison of the UCTE countries and the CEE region in terms of installed hydro capacities divided by the populations of the countries, things may look different. In this case the UCTE countries have 241 MW per million capita installed capacity of HPPs versus 229 MW in the CEE region12.

Besides the fact that hydro power currently makes up a substantial share of the total installed generating capacity, arguments for the increasing utilization of hydro power are based on its advantages compared to other sources of energy that are largely based on low OPEX, effective, sustainable and renewable energy source through which energy can be stored in large quantities and which are able to play a major role in power system balancing.

Figure 14 shows the share of hydro power in the total generation capacity of the CEE region. We can see that the share of hydro power within the total installed capacity varies considerably between countries, ranging from ~0% to ~87%. The differences in countries refl ect both topographic and climate constraints or suitability. The table shows that hydroelectricity is of elemental importance in Albania, Montenegro, Latvia, Croatia and Bosnia-Herzegovina.

The following chart shows the technical hydro power potentials of each country of the CEE region. Most of the potential for future hydro power expansion lies in Romania, former Yugoslav republics (Kosovo, Bosnia and Herzegovina, Serbia, Slovenia, Croatia, Montenegro and Macedonia), Bulgaria and Poland. Yet despite the vast potential for future development, these countries have found it diffi cult to secure fi nancing for large hydro power projects. Out of the top fi ve countries it should be noted that two countries have enormous potential considering their size: Bosnia and Herzegovina and Kosovo.

12 Source: UCTE, KPMG analysis



Figure 15: Technical Hydro Power Potential vs. Utilization in the CEE Region

Country

Net generation

in 2007 (GWh/year)

Technical potential

(GWh/year)13

Unused technical potential

(GWh/year)

Utilization rate

Bosnia and Herzegovina 4,552 24,000 19,448 19%

Romania 16,794 35,000 18,206 48%

Bulgaria 3,570 15,000 11,430 24%

Albania 3,657 15,000 11,343 24%

Poland 2,668 14,000 11,332 19%

Serbia 10,011 19,000 8,989 53%

Hungary 208 8,000 7,792 3%

Slovenia 3,212 9,000 5,788 36%

Macedonia 881 5,000 4,119 18%

Croatia 5,284 9,000 3,716 59%

Montenegro 1,536 4,269 2,733 36%

Slovakia 4,306 7,000 2,694 62%

Lithuania 861 3,000 2,139 29%

Czech Republic 2,367 4,000 1,633 59%

Latvia 2,671 4,000 1,329 67%

Kosovo 76 800 724 10%

Estonia 28 263 235 11%

Total 53,682 176,332 113,650 36%

Sources: World Energy Council, 2009, 2007, Kosovo Ministry of Energy and Mining, UCTE, BALTSO, KPMG analysis, 2009

13 The World Energy Council determined the “technically exploitable capability” for end of 2005, but as hydro technology is mature, the potential is not expected to change.

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The aim of this chapter is to give you a short overview of the current status of hydro power in each country belonging to the CEE region. Through several recurring elements in the country profi les the goal is to provide a comparable overview of the CEE countries. These elements are as follows:

The characteristics of electricity generation: This comprises a quick wrap up of the country’s generation characteristics including the distribution of installed electricity generation capacities among the major types of energy sources and the generation mix.

Hydro capacities: The distribution of installed HPP capacities is introduced, including the major large HPPs and the share of large and small HPPs within the total HPP installed capacity. As a general rule we consider HPPs with less than 10 MW of installed capacity small HPPs. Consequently large HPPs have at least 10 MW installed capacity. An overview of the age of the existing HPPs is distributed into four categories: <10 years, 11-20 years, 21-30 years, 30< years.

RES and RES-E targets and RES-E share: As an indication of possible SHPP developments, the binding RES-E targets for 2010 and RES targets for 2020 set by the relevant EU directives 2001/77/EC and 2009/28/EC are demonstrated. The relevance of this information is underlined by the fact that HPPs are obvious tools for meeting these targets. Some non-EU countries also have available RES or RES-E targets that we also indicate in the study.

Introduction of current hydro development projects: The major HPP developments of each country have been compiled into charts based on publicly-available information from various sources.

Major rivers: As an indicator of potential opportunities major data on the most important rivers of a given country have been collective. This information should be considered indicative.

Relevant legislation and regulatory bodies: Electricity and green energy-related laws or other regulations are listed and the regulatory bodies relevant to HPP developments and their tasks are introduced.

Applied green generation support schemes: One of the most important questions regarding SHPP developments remains state electricity price incentives. One of the three typical systems is introduced in each of these countries:

1. Obligatory off-take and feed-in tariff system: TSOs/DSOs are obliged to buy the electricity generated by green generators at a price predetermined by the state.

6. Country Profi les


2. Green certifi cate and green quota obligation system: green generators sell their electricity production on the market, but additionally they earn tradable green certifi cates after the generated amount of electricity. Market players are obliged to procure a certain amount of green certifi cates representing that a certain percentage of the electricity sold or consumed by them is covered by RES-E. The prices of both electricity and green certifi cates are defi ned by the market.

3. Premium system: green generators have to sell the electricity on the market at market price, but they also receive a fi xed premium per each kWh from the state as a subsidy.


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Characteristics of electricity generation

Electricity generation in Albania is dominated by large hydroelectric facilities. It is the country where hydro contributes most to the generation mix with a 97% share in the CEE region as of 2008. The total installed power generation capacity is 1,670 MW, including 1,446 MW hydro and 224 MW thermal.14

The major player on the electricity market is the Albanian Power Corporation (KESH), but the Government of Albania is in the process of restructuring with the aim of accelerating private-sector participation in the energy sector.

Albania has six large HPPs accounting for about 96% of the total electricity generation15. These power plants are situated along three major rivers: Drini, Mati and Bistrica. The three largest HPPs are constructed on the Drini River comprising more than 80% of the country’s installed capacity16.

There are about 90 SHPPs in Albania, with installed capacity ranging from 0.02 MW to 9.2 MW, however, among these only 36 power plants are in operation. Fifty-four percent of the operating SHPPs are privately owned17.

Prospects for hydro generation

Albania does not have any binding target regarding the share of renewable energy in fi nal consumption.

The country is known for its enormous hydro power potential. The technical potential would enable 15,000 GWh18 per annum and the country has exploited only 24% of this, which was 3657 GWh18 in 2008.

� Hydroelectricity� Fossil fuels

Total installed capacity:1,670 MW

Total electricity generation: 3,770 GWh

• 86.6%• 13.4%

• 97%• 3%

Source: Albanian Energy Regulatory Entity; USAID-NARUC, 2008

6.1. Albania

14 Source: www.ere.gov.al

15 Source: www.bruessel.austria.be/al/news/local/AKBN.ppt

16 Source: http://www.energy-community.org/pls/portal/docs/36341.PDF

17 Source: http://www.kepa.uoa.gr/PROMITHEAS2_Conference_Policy_Business_Sessions.htm

18 Source: World Energy Council

Major operational HPPs

Name Type*Installed capacity

(MW)River

Komani S 600 Drini

Fierza S 500 Drini

Vau i Dejes

S 250 Drini

Ulza S 27 Mati

Shkopeti S 25 Mati

Bistrica S 23 Bistrica

*S: Storage; RoR: Run-of-river; PS-T: Pumped storage – turbine; PS-P: Pumped storage - pump

Installed HPP capacities

SizeInstalled capacity

(MW)

Large HPPs (>10 MW) 1,432

Small HPPs (<10 MW) 14

Source: Albanian Energy Regulatory Entity




Recent hydro power development studies have defi ned new sites for the complete exploitation of Albania’s main rivers. There is however, a concern to increase reliability in dry years when hydro power output is signifi cantly reduced. Biomass, solar and wind energy could be important in Albania’s future as the country has very good potentials of these energy sources.

The total hydro power potential on the Drini River is 1,750 MW of which 77% has already been utilized. There are projects for the construction of two additional large HPPs with a total installed capacity of 400 MW.

According to the above-mentioned studies, the Mati River has a hydro potential of 112 MW and only 40% of it has been exploited yet. There are already two HPPs built along the river and there is the possibility for a third one.19

On the Vjosa River the hydro potential is 400 MW. Currently there are no plants along the river, but according to estimates eight dams could be constructed. Technical and economic feasibility studies for HPPs construction projects exist20.

According to recent studies, 41 new sites have been chosen for small HPP installations with a technically feasible potential of around 140 MW21.

The existing HPPs provide inadequate supply for the population. The energy sector is currently being privatized and the government is determined to solve its energy problems by offering concessions for the construction and operation of HPPs on all of its major rivers.

Legislation

Relevant legislation in Albania consists of:

Law “On concessions” (2006)

Ministers Council Decision “On approval of rules for evaluation and concession procedures” (2008)

Ministers Council Decision “For the organization and function of Concession’s Treated Agency” (ATRAKO) (2007)

Ministerial decision “On regulations approval for the administration of the documents and requests for concessionary agreements and “Bonus evaluation criteria” (2007)

South-East European Energy Community Treaty (2006)

19 Source: http://www.kepa.uoa.gr/PROMITHEAS2_Conference_Policy_Business_Sessions.htm

20 Source: Hydro energy in Albania accessed at www.akbn.gov.al

21 Source: RES Opportunities in South East Europe, 2008

Age of large HPPs

1,600

1,400

1,200

1,000

800

600

400

200

0

MW

<10years

11–20years

21–30years

>30years

HPP developments


(MW)River

Skavica S 350 Drini

Devolli S 320 Devolli

Kalivaci S 90 Vjosa

Ashta S 50 Drini

Total 810




Law “On facilitating conditions establishment for new power generation resources construction” (2002)

Law “On foreign investments” (1993)

Law “On water reserves” (1996)

Albania currently only supports hydro power generation through its renewable generation support scheme. A feed-in-tariff for SHPPs below 15 MW was introduced in 2008.

Major rivers

River Length (km)

Drop(m)

Runoff (m3/s)

Buna 44 6 672

Drini 160 278 352

Vjosa 192 335 204

Mati 115 121 103

Semani 85 47 95.7

Shkumbini 181 1,205 61.5

Ishmi 74 115 20.9

Erzeni 109 1,300 18

Regulatory bodies

The Ministry of Economy, Trade and Energy (METE) is the highest state authority responsible for energy policy-making. Its main function is to promote steady and sustainable economic development. (http://www.mete.gov.al/index.php?l=e)

The regulatory functions of the state in the power sector are exercised by the Electricity Regulatory Entity (ERE). ERE has the responsibility of regulating the performance of market participants, under appropriate rules and regulations and in accordance with transparent procedures. (http://www.ere.gov.al/index.php?lang=EN)

The National Agency of Natural Resources (AKBN) is a public entity, which protects and administrates the interests of the Albanian Government in the areas of mining, hydrocarbons, hydro power and energy. AKBN, as a subordinate institution under the Minister of Economy, Trade and Energy, advises and provides government opinion on studies and projects within its activity area, as well as promoting the natural resources of the country. (www.akbn.gov.al)


Generation Characteristics

Electricity generation in Bosnia and Herzegovina (BiH) originates exclusively from domestic energy resources: coal (black and lignite) and hydro power. Total installed capacity for electricity generation in BiH was 4,021 MW, of which 2,064 MW comprises HPPs and 1,957 MW in thermal power plants in 200822. Apart from major HPPs and thermal power plants, the existing generation capacities in Bosnia and Herzegovina also include some small hydro power connected to the distribution network.

The power sector in BiH consists of three vertically integrated monopolies: Elektroprivreda Bosne i Herzegovine (EPBiH), Elektroprivreda of the Republic of Srpska (EPRS) and Elektroprivreda Hrvatske Zajednice Herceg-Bosna (EPHZHB)23. These power companies are interconnected and there is no competition among them; they are virtual monopolies within their exclusive, ethnically-based service territories.




• 51.3%• 48.7%

• 34.4%• 65.6%

Source: UCTE, 2008

6.2. Bosnia and Herzegovina


(MW)River

Čapljina PS 430 Trebisnjica

Višegrad S 315 Drina

Salakovac S 210 Neretva

Trebinje S 168 Trebisnjica

Jablanica S 165 Neretva

Rama S 160 Rama

Grabovica S 117 Neretva

Bočac S 110 Vrbas

Dubrovnik S 108** Trebisnjica

Jajce RoR 90 Pliva

Mostar S 75 Neretva

Peć-Mlini RoR 30 Tihaljina

*S: Storage; RoR: Run-of-river; PS-T: Pumped storage – turbine; PS-P: Pumped storage – pump

** The installed capacity of Dubrovnik HPP is 216 Mw. It is situated on the river border of Croatia and Bosnia and Herzegovina and used jointly, therefore half of the installed capacity value is indicated.




(MW)



Source: UCTE, 2008

22 Source: UCTE, 2008

23 Source: http://ebrdrenewables.com/sites/renew/countries/BosniaHerzegovina/profi le.aspx




The large HPPs provide the vast majority of BiH’s hydro-based electricity production with their more than 99% share of the hydro generation capacity.

The average age of the HPPs in BiH is over 32 years. The oldest HPPs were built during the 1950s and are owned by EPRS.


As Bosnia and Herzegovina is not a member of the EU, associated EU directives do not defi ne any binding targets for the country for gross electricity consumption generated from renewable sources (RES–E). BiH has not developed its own energy strategy yet; therefore the state does not have any requirements for the level of RES–E.

Forests and forestland make up more than the half of the country’s territory. As a result of this, there is a signifi cant biomass generation potential in BiH. Currently there is neither any wind power installed in BiH nor any complete wind atlas available in BiH. However according to recent studies the estimated technical potential for wind power generation is 2,000 MW 24.

Bosnia and Herzegovina’s geography includes fast-fl owing mountain streams and powerful rivers that are very well suited for hydro electricity production. The total installed capacity represents 26% of the theoretical potential (8,000 MW), 30% of the technical potential (6,800 MW) and 37% of the economic potential (5,600 MW)25. According to estimates, the technically potential capacity could generate 24,000 GWh annually. 26

As a result of the above, there is a signifi cant hydro potential among rivers of BiH that the government and investors should be aware of.

Currently the most urgent task in Bosnia and Herzegovina is the rehabilitation and reconstruction of most of the HPPs. Additionally, the construction of new hydro plants and reservoirs for water supply is also envisioned.

There are more than 10 projects in the preliminary design phase with a total installed capacity of 1,316 MW, though it is quite likely that there are more proposals hidden from public scrutiny.

Age of large HPPs

1,400

1,200

1,000

800

600

400

200

0

MW

<10years

11–20years

21–30years

>30years

Major rivers

River Length (km)

Drop(m)

Runoff (m3/s)

Sava 311 15 1,513

Driva 345 352 371

Neretva 208 1,225 233

Una 207 274 202

Bosna 271 471 174

Vrbas 240 1,687 102

Sana 140 801 90

Trebišnjica 99 167 24

24 Source: www.kepa.uoa.gr/2008_Presentation_CRES.ppt

25 Source: http://ebrdrenewables.com/sites/renew/countries/BosniaHerzegovina/profi le.aspx




Legislation

The legal framework for electric power sector in Bosnia and Herzegovina is defi ned by the following27:

Law on transmission, regulator and system operator of electricity in Bosnia and Herzegovina (2002)

Law on electricity in the Federation BiH (2005)

Law on electricity in the Republika Srpska (2003)

Law on establishing Transmission Company in Bosnia and Herzegovina (2004)

Law on establishing Independent System Operator in Bosnia and Herzegovina (2004)

South-East European Energy Community Treaty (2006).

BiH has a feed-in tariff system in operation with a purchase obligation; however, there are no other incentives for renewable power generation investments.28

27 Source: http://www.energy-community.org/pls/portal/docs/85835.PDF

28 Source: Energy Effi ciency and Renewable Energy – Bosnia and Herzegovina – national study’s summary by Plan Beu


(MW)River

Buk Bijela S 450 Drina

Glavaticevo S 188 Neretva

Dabar S 160 Trebisnjica

Konjic S 125 Neretva

Ustikolina S 63 Neretva

Mostarsko Blato S 61 Listica – Jasenici

Nevesinje S 61 Trebisnjica

Srbinje S 55 Drina

Krupa S 49 Vrbas

Banja Luka Low S 37 Vrbas

Bileća S 30 Trebisnjica

Vranduk S 21 Neretva

Novoselija S 16 Vrbas

Total 1,316

*S: Storage; RoR: Run-of-river; PS-T: Pump storage – turbine; PS-P: Pump storage - pump

HPP developments


Regulatory bodies

The State Electricity Regulatory Commission (SERC) is an independent and non-profi t institution founded pursuant to the Law on transmission, regulator and system operator of electricity in Bosnia and Herzegovina and it is in charge of the transmission of electricity, transmission system operations and international trade of electricity, according to the international norms and European Union standards. (http://www.derk.ba)

The Federal Ministry of Energy, Mining and Industry implements policy and enforces the laws as determined by the legislative body, executes the administrative supervision of implementation of laws and other regulations and enacts regulations for implementation of laws and other regulations. (http://www.fbihvlada.gov.ba)

The Regulatory Commission for Electricity in the Federation of Bosnia and Herzegovina (FERC) was founded pursuant to the Law on electricity, in order to prevent monopolies in the electric power sector, streamline electricity consumption, enable third-party access to the distribution network, and does everything for the purposes of the gradual electricity market opening. (www.ferk.ba)


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The total installed capacity for electricity generation in Bulgaria was 11,359 MW in 200829. The country’s hydro power stations’ installed capacity is 26.3% of total capacity and they are almost fully owned by the National Electric Company “NEK” (Natsionalna Electricheska Kompania EAD) which is responsible for transmission, system operation and electricity generation.

The majority of the installed capacities in Bulgaria is owned by NEK; 97% of hydro power is generated by its 14 largest HPPs, with a total installed capacity of 2,480 MW30 (excluding pumped storage facilities). They are operated within four hydro power cascades: Belmeken-Sestrimo-Chaira (BSC), Vacha, Batak and Dolna Arda. All are used to cover peak loads and to balance out the grid system. The average age of large Bulgarian HPPs is approximately 30 years.

� Hydroelectricity� Other renewables



• 26.3%• 1.0%• 55.0%• 17.6%

• 9.1%• 0.1%• 55.9%• 34.9%

� Fossil fuels� Nuclear power

Source: UCTE, 2008

6.3. Bulgaria

Name Type*Installed

capacity (MW)River

BS

C C

asca

de Chaira

PS-T 864Chairska

PS-P 788

BelmekenPS-T 375

KrikaPS-P 104

Sestrimo S 240 Krika

Momina Klisura S 120 Krika

Vac

ha

Cas

cad

e Teshel HPP S 60 Buinovska

Devin HPP S 80 Vacha

Orfeus PSHPPPS-T 160

VachaPS-P 45

Krichim HPP S 80 Vacha

Bat

ak

Cas

cad

e Batak HPP S 40 Matnitsa

Peshtera HPP S 125 Matnitsa

Aleko HPP S 66 Stara

Do

lna

Ard

a C

asca

de Kardzhali HPP S 106 Arda

Studen Kladenets HPP

S 60 Arda

Ivailovgrad HPP S 104 Arda

*S: Storage; RoR: Run-of-river; PS-T: Pumped storage – turbine; PS-P: Pumped storage - pumpSource: NEK (Natsionalna Electricheska Kompania) Annual Report, 2008


29 Source: UCTE

30 Source: http://www.nek.bg



(MW)



Source: Electricity System Operator (ESO EAD), 2008





Under an EU Directive (2001/77/EC) for the promotion of electrical energy produced from renewable sources in the domestic electricity market, Bulgaria has the obligation to achieve an 11% share of RES-E in gross electricity consumption by 2010. It also has a proposed binding RES Directive target for the share of energy from renewable sources in fi nal energy consumption of 16% by 202031. The share of RES-E in gross electricity consumption was 7.5% in 2007 (although the share of hydro is relatively high in the capacity mix, generation of pumped storages is not considered to be renewable). This share decreased by 3.7% points compared to data from 2006 when this ratio was 11.2%, reaching the 2010 renewable electricity target.

Currently RES-E is generated almost exclusively from hydro energy utilization. There is presently minimal electricity production from geothermal, wind, biomass or photovoltaic sources, however, studies reveal that Bulgaria has very promising renewable development opportunities due to its favourable climate and geographic characteristics that in practice have not yet been effectively exploited.

Bulgaria has vast technical hydro power potential, which could generate 15,000 GWh32 per annum. Approximately 24%33 of this potential had been utilized as of 2008. The country has tremendous wind energy potential and it has a sizable reserve of geothermal energy. There is a great opportunity to utilize biomass as well: 60% of the overall land area consists of arable and agricultural lands, and approximately 30% is forest cover.

Bulgaria has published a draft version of its new Energy Strategy in August 2008 in order to defi ne national objectives. According to the draft of the “Bulgarian Energy Strategy by 2020”34 the national target for RES will be met by promoting the use of biomass, SHPPs and wind power. In the medium-term, hydro resources (small and large HPPs) will continue to play a dominant role in the generation of electricity from renewables, contributing to exceeding the national RES target.

The Bulgarian government believes that a signifi cant contribution to the national target achievement would be the implementation of small hydro power projects. There are a signifi cant number of SHPPs under construction with a total installed capacity of 18 MW35.


32 World Energy Council

33 Source: UCTE

34 Source: Bulgarian Energy Strategy by 2020 – draft version, http://www.mee.government.bg/doc_vop/EnergyStrategy_ENG_22_01_2009.pdf

35 Source: http://ebrdrenewables.com/sites/renew/countries/Bulgaria/default.aspx

Age of large HPPs

1,800

1,600

1,400

1,200

1,000

800

600

400

200

0

MW

<10years

11–20years

21–30years

>30years

RES goals

Percentage of RES

2010 – RES-E goal 11%

2020 – RES goal for fi nal energy consumption

16%

2007 – RES-E utilization 7.5%

Major rivers

River Length (km)

Drop(m)

Runoff (m3/s)

Danube 472 24 6,100

Maritsa 322 2,335 107

Struma 290 2,112 76

Arda 241 1,381 72

Iskar 368 2,476 54



Large hydro power projects under construction (such as the rehabilitation of Dolna Arda, or the construction of Tsankov Kamak36), or in the process of deliberations (like Gorna Arda and hydro power sites along the Danube river between Nikopol-Turnu Mugurele and Silistra-Calarasi) are also in the pipeline.

Legislation

The main pieces of related domestic legislation are:

Renewable and Alternative Energy Sources and Biofuels Act (2007)

Energy Act (2003)

Energy Effi ciency Act (2004)


Ordinance on Setting and Applying Prices and Rates of Electricity (2002)

Regulation for Certifi cation of the Origin of Electric Power Generated by Renewable and/or Combined Generation Sources, Issuance of Green Certifi cates and Trading (2005).37

36 Source: http://reports.andritz.com/2007/print/andritz-report-2007-en-customer-project-hydro-power.pdf

37 Source: Renewable Energy Country Profi les (2008), Promotion and Growth of Renewable Energy Sources and Systems supported by the European Commission


(MW)River

Nikopol & Turnu Mugurele

N/A 880 Danube

Silistra & Kalarash N/A 530 Danube

Gorna Arda S 170 Arda

Tsankov Kamak S 80 Vacha

Surnica N/A 62

Dolna Arda rehab S 61 Arda

Shreden Iskar N/A 25 Iskar

SHPPS 18

Total 1,826


HPP developments


A combination of feed-in tariffs, tax incentives and purchase obligation exists. The relatively few incentives make penetration of renewables especially diffi cult, as the current commodity prices for electricity are still relatively low. A green certifi cate system to support renewable electricity developments has been proposed. Bulgaria recently agreed upon an indicative target for renewable electricity, which is expected to provide a good incentive for further promotion of renewable support schemes.


Regulatory bodies

The Ministry of Economy and Energy (MEE) is a state body responsible for the development of policies related to the energy sector. It was created in 2005 after the merger of the Ministry of Economy and the Ministry of Energy and Energy Resources (MEER). (http://www.mi.government.bg/eng/)

The State Energy and Water Regulatory Commission (SEWRC) is the main independent institution established in 1999, responsible for the state regulation of activities in the energy sphere and water supply as well as in sewerage services. In the energy sector, SEWRC carries out monitoring of the energy markets, prices and license regulatory control in regard to generation, transmission and distribution of electric power, transmission and distribution of natural gas, electric power and natural gas trading, generation and transmission of heating energy. (http://www.dker.bg/index_en.htm)

The Energy Effi ciency Agency (EEA) is a budget-supported legal entity with the status of executive agency to the Minister of Energy and Energy Resources, created in 2002. Its functions are related to development of programmes and projects for enhancing the energy effi ciency and use of renewable energy sources, providing funds for their co-fi nancing and implementation. (http://www.seea.government.bg/)





• 53.3%• 1.5%• 45.2%

• 46.3%• 0.4%• 53.3%

� Fossil fuels

Source: UCTE, 2008

6.4. Croatia


The Croatian electricity sector is run by the Hrvatska Elektroprivreda (HEP), a national electricity company engaged in electricity production, transmission and distribution. HEP generates about 95% of the power within Croatia. The remaining 5% is generated by industrial cogeneration plants and small private HPPs. With an eye on accession, in July 2001 the government passed energy legislation that brings the Croatian electric sector in line with EU standards.

The total installed power generation capacity was 3,762 MW in 2008, of which 2,007 MW was hydro, 1,700 MW thermal and 55 MW other renewable sources38.

The Croatian HPPs are predominantly located along the Adriatic coastline and near the Slovenian-Croatian border.



(MW)



Source: Electricity System Operator (ESO EAD), 2008


(MW)River

Zakučac S 486 Blato

VelebitPS-T 276 Zrmanja and Štikada

PS-P 240 Zrmanja and Štikada

Orlovac S 237 Buško Blato

Senj S 216 Gacka and Lika

Dubrovnik S 108** Trebišnjice

Varaždin RoR 87 Drava

Vinodol S 90 Gorski kotar

Čakovec RoR 82 Drava

Dubrava RoR 82 Drava

Gojak RoR 55 Mrežnica and Dobra

Kraljevac S 46 Cetina

Peruća S 60 Cetina

Đale S 41 Cetina

Rijeka RoR 37 Rječina

Miljacka RoR 24 Krka

Sklope S 23 Gacka and Lika

Buško BlatoPS-T 12 Buško Blato

PS-P 10 Buško Blato

*S: Storage; RoR: Run-of-river; PS-T: Pumped storage – turbine; PS-P: Pumped storage - pump** The installed capacity of Dubrovnik HPP is 216 Mw. It is situated on the border river of Croatia and Bosnia and Herzegovina and used jointly, therefore half of the installed capacity value is indicated.


38 Source: UCTE




Most of the Croatian HPPs are old; the fi rst HPP was constructed in the 1890s; the majority of the operational hydro plants were constructed during the 1960’s, while the most recent were constructed in the late 1980s39. For the last 15 years mostly refurbishment of the older HPPs has taken place, which in some cases has made for increases in the installed capacity and turbine effi ciency.

Currently, the total amount of installed power in SHPPs is 37 MW. According to studies, the economic potential is estimated at around 177 MW and 699 suitable locations have been identifi ed for further development of SHPPs40.


In Croatia, the share of renewable energy in gross electricity supply – excluding the generation of large scale HPPs – was 1.8%41 in 2007. In accordance with the relevant regulations (EU Directive 2001/77/EC), this ratio should have reached 5.8% by 201042.

However, including large scale HPPs, the share of renewable energy sources in gross electricity generation was 23% in 2007, which is relatively high compared to some other countries43.

The present RES-E is based on hydro and wind power. The country’s technical hydro power potential could generate 9,000 GWh annually.44 Approximately 59% of this potential is presently being utilized based on UCTE’s 2008 data. The most promising renewable energy resource besides them appears to be geothermal. There are good biomass project opportunities in Croatia as well, but further studies must be performed to identify specifi c opportunities.

There is a need for the construction of new HPPs in Croatia not only because of the consistent growth of power consumption, but also because of the forthcoming shut down of old facilities. There are several projects in the pipeline for development of both large and SHPPs with a total installed capacity of around 453 MW. The biggest investment would be the construction of the Novo Virje HPP on the Drava River with a total installed capacity of 138 MW.

39 Source: Hydro Power Potential in the Sava River Basin

40 Source: National Energy Programme

41 Source: Eurostat

42 Source: Directive 2009/28/EC on the promotion of the use of energy from renewable sources

43 Source: Eurostat


Age of large HPPs

1,800

1,600

1,400

1,200

1,000

800

600

400

200

0

MW

<10years

11–20years

21–30years

>30years

RES goals

Percentage of RES

2010 – RES-E goal 5.8%


n/a


Major rivers

River Length (km)

Drop(m)

Runoff (m3/s)

Danube 188 11 3,206

Drava 323 115 556

Sava 562 57 255

Cetina 105 385 105

Krka 73 242 50

Gacka 61 457 15.5



Legislation

The relevant legislation in Croatia comprises:

Energy Sector Development Strategy (2002)

Programme of Implementation of the Energy Sector Development Strategy – PROHES (1994)

National Energy Programmes (MAHE, 1997)

Law on Energy (2001)

Law on Electricity Market (2001)

Law on Regulation of Energy Activities (2001)

Environment Protection and Energy Effi ciency Fund (2003)45


Croatia has a feed-in tariff system in place, which can be complemented with interest free loans, capital grants for eligible producers and a tax exemption for solar generation investments.


(MW)River

Novo Virje S 138 Drava

Ombla S 69 Rijeka Dubrovacka

Podsused n/a 43 Sava

Lešće n/a 42 Gojačka

Kosinj n/a 22 Lika

Drenje n/a 39 Sava

SHPPs 100

Total 453


HPP developments

45 Source: Renewable Energy Country Profi les (2008), Promotion and Growth of Renewable Energy Sources and Systems supported by the European Commission



Regulatory bodies

The Croatian Parliament determines and passes the legal framework for the energy sector, receives direct reports from the Croatian Energy Regulatory Agency, reviews and approves fi nancial proposals and global energy policy stated in the Energy Sector Development Strategy. (http://www.sabor.hr/Default.aspx?sec=361)

The Government of the Republic of Croatia submits proposals for fi nancing energy needs to the Parliament, and establishes the energy policy including principles of environmental protection, which also includes energy effi ciency and energy production from renewable sources. (http://www.vlada.hr/en)

The Ministry of Economy, Labour and Entrepreneurship with its Energy and Mining Division, is the ministry in charge of energy policy. The Ministry of Economy submits energy needs and policy proposals to the Government, and drafts secondary legislation and regulations in collaboration with the Croatian Energy Regulatory Agency. (http://www.mingorp.hr/defaulteng.aspx)

The Croatian Energy Regulatory Agency (HERA) has been founded as an autonomous, independent and non-profi t public institution based on the Act on the Regulation of Energy Activities , in order to establish and implement regulation of energy activities. (www.hera.hr)

Croatian Energy Market Operator (HROTE)HROTE was established in March 2005 in accordance with the legislative changes related to the restructuring of the energy sector in the Republic of Croatia. The duties of the market operator are set out in the Electricity Market Act. HROTE carries out the activities of organizing the electricity market as a public service. It also promotes the development of the electricity market through its operations which are overseen by the Croatian Energy Regulatory Agency. (http://www.hrote.hr/en/)





• 13.2%• 1.2%• 64.2%• 21.5%

• 3.1%• 0.3%• 64.1%• 32.5%


Source: UCTE, 2008

6.5. Czech Republic

Characteristics of hydro generation

The electricity sector in the Czech Republic is made up of coal-fi red thermal, nuclear and hydroelectric power stations and a small contribution from other renewable sources. The 2008 total installed capacity for electricity generation was 16,480 MW.46 Sixty-fi ve per cent of generation capacity is owned by Czech Energy Works (CEZ), the country’s former incumbent electricity producer. The remainder is owned by independent producers. The majority of installed capacity is based on coal (64.2%), while shares of nuclear and hydro plants are 21.5% and 13.2%. Total installed capacity for hydroelectricity is 2,175 MW.47

Excluding two pumped storage facilities of 650 MW and 450 MW all other large hydroelectric power stations are situated on the Vltava River where they form a cascade system called the Vltava Cascade.



(MW)



Source: CEZ, UCTE, 2008


(MW)River

Dlouhé Stráně PS 650 Divoká Desná

Dalešice PS 450 Jihlava

Orlík S/RoR 364 Vltava

Slapy S/RoR 144 Vltava

Lipno S/RoR 120 Vltava

Štěchovice II PS 45 Vltava

Kamýk S/RoR 40 Vltava

Štěchovice I S/RoR 23 Vltava

Střekov S/RoR 20 Vltava

Vrané S/RoR 14 Vltava



46 Source: UCTE

47 Source: UCTE




The most important HPP in the country is the Dlouhé Stráně Hydroelectric Power Station situated in Moravia, which has the largest reversing water turbine in Europe, the largest head and the largest installed capacity in the Czech Republic, at 2 x 325 MW.

There are approximately 1,50048 SHPPs in the country contributing to a total installed capacity of 379 MW, equivalent to 17% of the Czech Republic’s total hydro capacity.

Total technical hydro potential of the Czech Republic could generate 4,000 GWh per annum, however roughly 59%50 of this was utilized in 2008.

The fi rst large HPPs were commissioned in the 1930s and most have an average age of more than 30 years,51 employing old technology.


According to the relevant EU Directive (2001/77/EC) the Czech Republic has the obligation to achieve an 8% share of RES-E in gross electricity consumption by 201052, with a binding RES Directive target for the share of energy from renewable sources in fi nal energy consumption of 13% by 202053

Currently Czech renewable electricity generation is dominated by HPPs, but wind and biomass are also experiencing strong growth and will be major contributors to achieving the RES targets. No further areas exist to accommodate large HPP development, meaning there is no room for growth in this sector. However, there is still unexploited potential for SHPPs to be built in the mountainous regions of the Czech Republic.

The Czech Republic aims to improve energy effi ciency and energy substitution (renewable fuel sources in place of fossil fuels) through the support of projects like SHPPs at Ceske Kopisty and Steti. Revitalization of its existing HPPs is considered to be of high importance as well54.

48 Source: www.esha.be


50 Source: UCTE

51 Source: www.cez.cz



54 Source: http://ebrdrenewables.com/sites/renew/hydro.aspx

Age of large HPPs

1,400

1,200

1,000

800

600

400

200

0

MW

<10years

11–20years

21–30years

>30years

RES goals

Percentage of RES

2010 – RES-E goal 8.0%


13.0%


Major rivers

River Length (km)

Drop(m)

Runoff (m3/s)

Elbe (Labe)

249 1,258 303

Vltava 430 1,016 150

Morava 284 1,228 120

Eger (Ohře)

251 314 38

Svratka 174 609 27.2

Lužnice 204 130 24.3



Legislation

Relevant legislation in the Czech Republic includes:

National Energy Policy until 2030 (2004)

Energy Act (2004)

National programme for the energy management and use of renewable sources of energy for 2006 – 2009.

There are relatively high feed-in tariffs with 15-year guaranteed support by investment funds. Producers can choose between a fi xed feed-in tariff and a premium payment (green bonus). For biomass cogeneration, only a green bonus applies. Feed-in tariff levels are announced annually.


(MW)River

Ceske Kopisty/Steti n/a 12 Labe

SHPPs (rehab) 89

Total 101


HPP developments

Regulatory bodies

The Energy Sector within the Ministry of Trade and Industry is a state body responsible for the development and implementation of national energy policies, plans and programmes. (http://www.mpo.cz/)

The Czech Energy Agency is a national organization responsible for the promotion of energy effi ciency and renewable energy sources. (http://www.ceacr.cz/)

The State Energy Inspection Board is the inspection body supervising the activities of the energy sector. Its responsibilities are defi ned in the Energy Act. (http://www.cr-sei.cz/)

The Energy Regulatory Offi ce is the national regulatory authority in the energy sector. Its main tasks are defi ned as the support for economic competition, for the use of renewable and secondary energy sources, and protection of consumers’ interests in areas of the energy sector where competition is not feasible. (http://www.eru.cz/)



Estonia’s power system is dominated by Eesti Energia AS, a state-owned company engaged in power production, transmission, distribution and sales. In 2008, the country’s total installed capacity amounted to 2,738 MW of which 2,668 MW came from thermal, 65 MW from wind power and 5 MW from hydro sources55.

Estonia has a long history of using hydro power. The fi rst SHPPs were established around the turn of the 20th century. The hydro power industry has played a considerable role in Estonia’s total electricity generation (approximately 28%) with a total installed capacity of more than 27.5 MW before World War II56. Unfortunately, most of these SHPPs were destroyed during the war.

Although Estonia has numerous rivers, it is a relatively fl at country and has modest hydroelectric potential. It does not have any large HPPs, only small scale hydro power facilities. Its most signifi cant HPPs are two SHPPs – Linnamäe, and Keila SHPP – accounting for only 0.1 % of the country’s total installed capacity57.


As a member of EU, Estonia has mandatory targets set by the Directive on the promotion of the use of energy from renewable sources. In accordance with this, the country has the obligation to reach a 5.1% share of RES-E on gross electricity consumption by 201058 and a 25% share of RES in the fi nal consumption of energy in 202059.



(MW)

Large HPPs (>10 MW) 0


Source: BALTSO, 2008




• 0.2%• 2.4%• 97.4%

• 0.3%• 1.3%• 98.1%

� Fossil fuels

Source: Statistics Estonia, BALTSO, 2008

6.6. Estonia


55 Source: Baltso, Annual Report 2007

56 Source: http://ebrdrenewables.com/sites/renew/countries/Estonia/profi le.aspx#hydro

57 Source: BALTSO, 2008


(MW)River

Narva 77 30 400

Emajõgi 101 3.7 70

Pärnu 144 76 48.2


Major rivers

RES goals

Percentage of RES

2010 – RES-E goal 5.1%


25%




Currently, renewable energy is mainly produced by SHPPs and wind parks, but the biomass sector has very promising potential in Estonia as well. As a result of this, the Government considers wind and biomass to be the major contributors toward achieving the binding targets set by the EU60.

Studies have shown that the country’s technical potential for hydro power could generate 263 GWh per annum, which is only exploited to a small extent (11%); even though larger hydroelectric projects are not possible, there are many places throughout the country where smaller environmentally-friendly projects might be feasible.

The government’s short-term perspective is the rehabilitation of previously constructed SHPPs and the construction of new hydroelectric facilities with a total output of 5 MW61.

Legislation

The relevant legislation in Estonia comprises:

Energy Law (1997)

Electricity Market Act (2003, amended in 2004)

Long-Term National Development Plan for the Fuel and Energy Sector until 2015 (2005)

National Energy Effi ciency Programme (2007).

There are feed-in tariffs paid for 7–12 years but not beyond 2015. The single feed-in tariff level is available for all technologies. The relatively low feed-in tariffs make new renewable investments very diffi cult.



60 Source: http://ebrdrenewables.com/sites/renew/countries/Estonia/default.aspx


Regulatory bodies

The Ministry of Economic Affairs and Communications through its Department of Energy defi nes, implements, and regulates the enforcement of energy policy. (http://www.mkm.ee/)

The Ministry of the Environment, established in 1989, it is responsible for organizing and coordinating international relations in environmental matters. (http://www.envir.ee/)

The Estonian Energy Market Inspectorate (EMI) was established in 1998. EMI is responsible for implementing the state control, supervision and monitoring of the fuel and energy market, including the issuance of market licenses and price controls. (http://www.eti.gov.ee/)





• 0.6%• 6.7%• 69.2%• 23.5%

• 0.6%• 4.2%• 55.3%• 39.9%


Source: UCTE, 2008

6.7. Hungary


Characteristics of electricity generation

The great part of Hungary’s energy industry is privately owned. However, the former state monopoly MVM (“Hungarian Power Companies”), in addition to some of power plants, has retained the transmission network and also controls cross-border capacities through its subsidiary, MAVIR. Furthermore, the company, which used to be the single buyer of electricity, still plays a dominant role in the Hungarian electricity system despite the market opening.

In 2008, 69.2% of the installed capacities (5,360 MW) were thermal units, while 23.5% (1,822 MW) were nuclear installations.62 In the Hungarian generation mix renewable sources are predominantly biomass (wood) co-fi red in conventional thermal power plants. A small amount of wind and biogas generation capacity also exists.

While Hungary is crossed by many rivers, it is a relatively fl at country with moderate hydro resources; the existing total installed capacity was 46 MW in 200863.

There are 31 hydro power generators in Hungary – by far the largest of which are the Kisköre and Tiszalök units on the Tisza River in the eastern part of Hungary, owned by the state through Tiszavíz Hydro Power Plants Ltd., with capacities of 28 MW and 11 MW respectively.

The average age of the large HPPs in Hungary is approximately 40 years.


Hungary has a relatively low renewable energy share in gross electricity consumption compared to other EU member CEE countries: its goal is 3.6% by 2010. Hungary has already met this objective through its intensive biomass usage, but additional signifi cant efforts will be needed to reach the 2020 objective of the Directive on fi nal energy consumption (13%)64.The present RES-E is based on biomass, wind power and hydro. Aside from these, the most promising renewable energy resource appears to be geothermal.

The country’s technical hydro power potential is around 8,000 GWh65; as the second largest river in Europe, the River Danube bears a great deal of this potential (72%) but on the Hungarian section of the river these resources are



(MW)



Source: UCTE, 2008


(MW)River

Kisköre (Tisza II.)

S 28 Tisza

Tiszalök (Tisza I.)

RoR 11 Tisza



62 Source: UCTE

63 Source: www.mavir.hu


65 Source: World Energy Council, 2009

Age of large HPPs

45

40

35

30

25

20

15

10

5

0

MW

<10years

11–20years

21–30years

>30years



not utilized. In the communist era efforts were previously implemented to jointly build a large HPP system (Gabčíkovo-Nagymaros Hydro Power Project) with the former Czechoslovakia, but the project was later terminated by the Hungarian state due to political opposition: near the time of the change of the regime the rising opposition considered defeating its construction an iconic opportunity to weaken the system.

In addition to existing HPPs, the development of a limited number of small and micro-sized HPPs is in progress. Besides the implementation of new sites, existing facilities are also being modernized. The renovation of the Tiszalök HPP is being accomplished in three phases and is set for completion in 2010.

There are also far-reaching plans on several possible locations for the construction of a pumped storage hydroelectric power plant in Hungary in order to rationalize the energy system and to support the extension of the Paks Nuclear Power Plant and a greater number of wind turbines to be installed. However none of the pumped storage plans had been approved by the authorities as of 2009.

Legislation

The relevant legislation in Hungary includes:

Act No. 86/2007 on Electricity

Governmental decree No 389/2007. (XII. 23.) on Obligatory off-take and purchase price of electricity generated from waste or from renewable energy sources, or by CHPG

40/2008 Parliamentary Decree on the National Energy Strategy 2008-2020 (IV.17.)

Act No. 57/1995 on Water Management.

An obligatory off-take and feed-in tariff system is present in Hungary for electricity generation from renewable sources. This regulation contains the actual tariffs.

There are fi xed feed-in tariffs (since January 2003, amended in 2005) combined with purchase obligation and grants. The support is granted for the payback period of the facility.

RES goals

Percentage of RES

2010 – RES-E goal 3.6%

2020 – RES goal 13%


Major rivers

River Length (km) Drop(m)

Runoff (m3/s)

Danube 417 40 2,350

Tisza 596 42 820

Dráva 357 45 653

Rába 215 108 63

Hernád 118 69 28


(MW)River

SHPPs 3


HPP developments



Regulatory bodies

The Ministry of Transport, Telecommunication and Energy (KHEM or MTTE) is responsible for the execution of energy-related acts, and issues enforcement decrees in the energy sector including mining. It is supported by the Hungarian Energy Offi ce and Hungarian Mining and Geological Offi ce. (http://www.khem.gov.hu/en)

The Ministry of Environment and Water is the central coordinating and regulatory administrative body for environmental and water-related issues, setting related policies, and forming legislation. (http://www.kvvm.hu/index.php)

The Hungarian Energy Offi ce (MEH or HEO) is the general supervisory body for the gas, electricity and district heating markets. It issues licenses for trade, supply, distribution, transmission and storage, and supervises the operation of the market participants, approves the terms of business thereof, examines consumer complaints, prepares regulated price levels, undertakes price reviews and sanctions non-compliance and may suspend or withdraw licenses. The Hungarian Energy Offi ce acts under the Government’s control and the supervision of the Minister of Transport, Telecommunication and Energy. (http://www.eh.gov.hu/)

Based on appeals or as a supervisory body, fi rst instance decisions related to environmental issues are reviewed by the National Inspectorate for Environment, Nature and Water. The authority work performed by regional inspectorates is coordinated and controlled by the National Inspectorate. As a fi rst instance authority - set by legislation for environment, nature and water - the National Inspectorate issues permits for certain activities, gives expert authority opinions, and imposes fi nes and penalties. (http://www.orszagoszoldhatosag.gov.hu/)



In 2008, the total installed generation capacity of Kosovo was 1,522 MW including 97.1% thermal and 2.9% hydro.

The electricity sector in Kosovo is dominated by a vertically integrated power generation company, Kosovo Energy Corporation (Korporata Energjetike e Kosovës, “KEK”). KEK operates two lignite power plants with an overall capacity of 1,478 MW.66

Kosovo has three HPPs that supply electricity directly to local distribution systems: HPP Ujman with an installed capacity of 35 MW that is operated by an irrigation company (Hidrosistem Ibar- Lepenac); SHPP Lumbardhi with a generating capacity of 8.3 MW; and SHPP Radavc with an installed capacity of 0.34 MW operated by private producers67.

The fi rst HPP to be built in Kosovo was a SHPP at Radavc that was put into operation in 1934. Besides SHPPs, presently HPP Ujman is the only HPP generating electricity in the country, commissioned in 1983.


The present RES-E is generated only from hydro power. However, there is 800 GWh68 technical potential for hydro power in Kosovo that is barely being utilized.

The Ministry of Energy and Mining (MEM) of Kosovo set annual and long-term indicative targets (2007-2016) for electricity produced from renewables.

As a fi rst priority, MEM is to increase the consumption of RES-E, and there are plans for revitalization of the existing SHPPs and for construction of new ones. A recent study identifi ed 18 technically suitable and economically feasible sites69 for construction of SHPPs, with a total installed capacity of 64 MW70, representing an important step towards the realization of this objective.

Currently, one of the biggest energy-related projects in Kosovo is the construction of the country’s largest HPP that will be situated along the White Drin River. HPP Zhur will have an installed capacity of 305 MW, thus the installed hydro power capacity of Kosovo will signifi cantly be increased, while there will still be room for further investments. The project is expected to be launched in Q4 2010.




(MW)



Source: ERO KS, 2008


(MW)River

Ujman S 35 Iber


Age of large HPPs

40

35

30

25

20

15

10

5

0

MW

<10years

11–20years

21–30years

>30years

66 Source: www.kek-energy.com

67 Source: Reforms in Kosovo’s power system, 2008

68 Source: Ministry of Energy and Mining http://www.lignitepower.com/pdfdocs/brochure-en.pdf

69 Source: Renewable Energy Resources of Kosovo, Ministry of Energy and Mining

70 Source: Energy Strategy of Kosovo 2005-2015




Legislation

Relevant legislation in Kosovo consists of:


Law on Electricity (2004)

Law on Energy Regulatory (2004)

Energy Strategy of Kosovo 2005-2015 (2005)


Kosovo National Plan on Energy Effi ciency (2009-2016) (2009).

Kosovo is in the initial phase of renewable energy utilization and as such, there is no support scheme in place yet, however, introduction of a feed-in-tariff covering SHPPs is expected soon.71

Major rivers

River Length (km) Drop(m)

Runoff (m3/s)

White Drin 156 221 56

Ibri 42 274 33

Sitnica 90 61 9.5

Lepenci 60 1,490 9

Morava e Binçes 60 n/a 6


(MW)River

Zhur S 305White Drin

SHPPs 64

Total 369


HPP developments

71 Source: http://www.ero-ks.org/Price%20and%20Tariffs/Price%20ang%20Tariffs%202008/Pergjigje_ndaj_Komenteve_Hidrocentralet_e_vogla_eng.pdf

Regulatory bodies

The Ministry of Energy and Mining (MEM), established in 2004, is a body responsible for the implementation of Government policies in the fi elds of energy and mining. (http://www.ks-gov.net/mem)

The Energy Regulatory Offi ce (ERO) was established in 2004 to exercise economic regulation in the energy sector independently from any Governmental Department. (http://www.ero-ks.org/)

The Kosovo Environmental Protection Agency (KEPA) performs regulatory tasks related to environmental protection at the national level. It is responsible for preparing reports and analyses to the Government of Kosovo on the environmental state and natural assets of the country. (http://www.ks-gov.net/akmm/)



In 2008, the country’s total installed capacity was 2,566 MW, consisting of 1,560 MW hydro, 981 MW thermal and 25 MW other renewable sources72.

Large-scale hydroelectric power is the dominant source of electricity in Latvia, providing 58.7% of total electricity generation.

All of the large scale HPPs are owned by Latvenergo AS, a state-owned energy utility whose core business is the generation and sale of electricity and thermal energy. Kegums HPP is the oldest power plant on the river Daugava and the average age of the Latvian large HPPs is roughly 45 years. With an output of 869 MW, Plavinas HPP is the second largest HPP in the European Union in terms of installed capacity73.

In recent years, the number of SHPPs in Latvia tripled. Currently there are about 150 SHPPs in the country with a total installed capacity exceeding 25 MW74. This rapid development of small-scale hydro plants was mainly stimulated by the regulations adopted by the government on the purchase of electricity produced in small power plants.




• 60.8%• 1.0%• 38.2%

• 58.7%• 1.8%• 39.4%

� Fossil fuels

Source: BALTSO, Latvenergo, 2008

6.9. Latvia



(MW)





(MW)River

Plavinas S 869 Daugava

Riga S 402 Daugava

Kegums S 264 Daugava


Age of large HPPs

1,800

1,600

1,400

1,200

1,000

800

600

400

200

0

MW

<10years

11–20years

21–30years

>30years

72 Source: Baltso Annual Report 2008

73 Source: www.latvenergo.lv







Latvia has a high rate of renewable electricity production based on hydro power, however there is still room left for further developments. Technical potential is 4,000 GWh73 per annum, of which 67% is already utilized. In addition to hydro, the country has wind power and biomass generation capacities as well.

The target in the framework of Directive 2001/77/EC for Latvia is 2010 is 49.3% of electricity consumption from renewable sources, and is to be expanded to 40% of total energy production by 202075.

The Daugava HPP is a proposed hydro power project that will deliver up to 300 MW power. Additionally, there are plans for the construction of HPP Jekabpils with a total output of 30 MW and for the utilization of 80% of the country’s potential for small scale hydro power76.

Legislation

The relevant legislation in Latvia consists of:

Energy Law (1998, amended in 2001)

Law on Electricity Market (2005)

National Energy Programme until 2020

Guidelines for Energy Sector Development 2007-2016

The Strategy for the Utilization of Renewable Energy Sources 2006-2013

Regulations on Electricity Generation from Renewable Energy Sources (2007).



RES goals

Percentage of RES

2010 – RES-E goal 49.3%


40%



(MW)River

Daugava S 300 Daugava

Jekabpils n/a 30 Daugava

SHPPs 24

Total 354


HPP developments

Major rivers

River Length (km)

Drop(m)

Runoff (m3/s)

Daugava 352 100 678

Lielupe 119 10.8 106

Gauja 452 234 70.7

Venta 178 49 44



There is a quota obligation system (since 2002) combined with feed-in tariffs. Frequent policy changes and the short duration of guaranteed feed-in tariffs have resulted in a high level of investment uncertainty. The main policy instrument was reformed in 2007, maintaining the basic structure of the scheme. At a national level there are yearly quotas and a mandatory purchase framework set up for RES-E (combined with tendering for wind).

Regulatory bodies

The Ministry of Economics develops and enforces the structural policy of the national economy and ensures the representation of the economic interests of Latvia abroad, develops the policies of industry, energy, internal market, business activities, as well as competitiveness and technologies. (http://www.em.gov.lv/)

The Ministry of Environment has the responsibility to prepare and implement a national policy for environmental protection, nature protection, preservation and rational use of natural resources and planning of regional development, to draft legal acts within its jurisdiction, harmonizing them with requirements of the European Agreement and the European Commission, as well as ensure their implementation. The Department of Climate and Renewable Energy Sources of the Ministry of Environment is directly involved with energy and environment issues and policies. Its main tasks are the introduction of innovative and best available technologies in the fi eld of energy and ensuring an increase of the RES share in the Latvian energy balance. (http://www.vidm.gov.lv/)

The Construction, Energy, and Housing State Agency is an institution operating under the supervision of the Ministry of Economics. The main function of the Agency is the development of energy programmes and establishment of cooperation with local and foreign governmental and no-governmental institutions. (http://www.ma.gov.lv/)





• 20.3%• 1.7%• 52.4%• 25.6%

• 7.0%• 1.0%• 21.0%• 71.0%


Sources: BALTSO, Lietuvos Energija 2008

6.10. Lithuania



Lithuania has two large HPPs: PSP Kruonis with an installed capacity of 900 MW and HPP Kaunas with a net output of 101 MW, both owned by Lietuvos Energija, the main energy company in Lithuania.77

The total installed capacity of these 2 HPPs and the SHPPs of Lithuania added up to 1,027 MW in 2008, contributing 20.3% to the total installed capacity in Lithuania (5,070 MW). Besides hydro, 2,655 MW came from thermal, 1,300 MW from nuclear and 88 MW from other renewable sources78.

The fi rst HPP to be built was HPP Kaunas in 1960; PSP Kruonis was erected in 1992. Most of the SHPPs were built in the period 1990-2000 when their development became an attractive business for private investors.

According to the relevant EU Directive (2001/77/EC), Lithuania has to achieve a share of RES-E of 7% by 201079. It also has a binding target of 23% for the share of RES in fi nal energy consumption by 202080.

Renewable generation capacities are essentially based on the hydro sector, however Lithuania has very good potentials in the fi elds of biomass and wind power.

Due to the topographical conditions of the country, the potential for hydro power utilization is rather low, estimated to be 3,000 GWh81 annually. Approximately 29% of this is being utilized.

In order to improve utilization of effective hydro energy resources, there are plans for the construction of SHPPs with a total output of 55 MW by 2020 in Lithuania. This will be completed in two stages; during the fi rst stage the abandoned SHPPs will be rehabilitated, whilst during the second stage new SHPPs will be built on new sites in line with environmental requirements.



(MW)





(MW)River

Kruonis PS 900 Nemunas

Kaunas S 101 Nemunas





79 Source: Eurostat



Age of large HPPs

1,000

800

600

400

200

0

MW

<10years

11–20years

21–30years

>30years



In order to improve utilization of effective hydro energy resources, there are plans for the construction of SHPPs with a total output of 55 MW by 2020 in Lithuania. This will be completed in two stages; during the fi rst stage the abandoned SHPPs will be rehabilitated, whilst during the second stage new SHPPs will be built on new sites in line with environmental requirements.

The development of two large HPPs (Birstonas and Alytus) on the middle section of Nemunas River is also planned. The total installed capacity of each HPP would be about 75 MW. Moreover, the capacity of the Kruonis pumped-storage HPP is also expected to be increased by constructing additional four generating units in the long term, but in the foreseeable future one unit of 250 MW installed capacity is to be added.

Legislation

National Energy Strategy until 2025 (2007)

National Energy Effi ciency Programme for 2006-2010 (2006)

Law on Energy (2002 amended in 2007)

Law on Electricity (2002)

Procedure for the Promotion of Generation and Purchase of Electricity generated from Renewable Energy Sources

The main policy for the support of renewable energy is a feed-in tariff system introduced in 2002. The tariffs are combined with a purchase obligation guaranteed for 10 years. Investment subsidies are also available.

RES goals

Percentage of RES

2010 – RES-E goal 7%


23%



(MW)River

Kruonis PS 250 Nemunas

Alytus S 75 Nemunas

Birstonas S 75 Nemunas

SHPPs 55

Total 205


HPP developments

Major rivers

River Length (km)

Drop(m)

Runoff (m3/s)

Nemunas 359 80 616

Neris 235 118 182


Regulatory bodies

The Ministry of Energy, established in 2009, is responsible for implementing state policy and developing international cooperation in the energy sector.

The State Enterprise Energy Agency, founded in 1993, is responsible for preparation of legal, economic and organizational energy effi ciency measures for implementation of national policy. It is engaged in organizing international cooperation in the energy sector, and coordination of foreign technical assistance to the energy sector in accordance with the priorities laid down in the National Energy Strategy and National Energy Effi ciency Programme. (http://www.ena.lt/)

The Ministry of Environment is the main managing authority of the Government of the Republic of Lithuania forming the country’s state policy of environmental protection, forestry, utilization of natural resources, geology and hydrometeorology, construction, provision of residents with housing, utilities and housing, as well as coordinates its implementation. (http://www.am.lt/VI/en/VI/index.php)

Source: Freudenau Hydro Power Plant, Austria

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• 39.2%• 60.8%

• 15.0%• 85.0%

Source: University Ss. Cyril & Methodius Skopje, 2009; UCTE, 2008

6.11. Macedonia


In 2008, the total installed generation capacity of Macedonia was 1,493 MW including 586 MW hydro and 907 MW thermal82.

The country has seven large hydro generation systems whose overall installed capacity represents 28% of the estimated technical potential of 2,100 MW83. The great majority of these belong to AD ЕLEM (Electric Power Company of Macedonia), a state-owned company responsible for electric power generation. The Mavrovo Cascade, totalling 206 MW with its three plants (HPP Vrutok, HPP Raven and HPP Vrben), is the most complex facility within the Macedonian electric power system. In the total installed hydro capacity in the country, this facility contributes 35% of the total.

The fi rst HPPs were built at the end of the 1950s and their average age in Macedonia is 36 years.

There are SHPPs up to 5 MW having a generation capacity of 49.6 MW in Macedonia, which is only 19% of the theoretical potential (256 MW84) for small hydro. In order to further utilize the remaining potential, more than 400 sites have been identifi ed for the construction of SHPPs in the country.

The reason behind the low level of the potential’s utilization in the past is the lack of investments for modernization and expansion of the existing capacities, as well as for construction of new capacities.



(MW)



Source: University Ss. Cyril & Methodius Skopje, 2009

Age of large HPPs

<10years

11–20years

21–30years

>30years

MW

0

50

100

150

200

250

300

350

400


(MW)River

Mavrovo Cascade

Vrutok S 172 Mavrovska

Raven RoR 22 Mavrovska

Vrben RoR 13 Gorna Radika

Tikves S 116 Crn Drim

Shpilje S 84 Crn Drim

Kozjak S 50 Treska

Globocica S 42 Crn Drim

*S: Storage; RoR: Run-of-river; PS-T: Pump storage – turbine; PS-P: Pump storage - pump


82 Source: UCTE, 2008

83 Source: Incentives and barriers for the development of renewable energy sources, Macedonia: country analysis

84 Source: www.esha.be





The only renewable energy source used in Macedonia for electricity generation is hydro power. However, there is further space for improvement as the technical potential for hydro power is estimated to be 5,000 GWh85 per annum. Additionally, the country has very good unexploited potentials for geothermal, biomass and wind.86

Macedonia has defi ned its strategy for energy development for the period 2008-2020. This strategy has a goal to increase the share of renewable energy sources in fi nal energy consumption by 20% compared to 2006 data. According to the plan, this ratio should be 22.8% by 202087.

The strategy for energy development also envisages the revitalization and utilization of the existing HPPs and construction of new HPPs with a total installed generation capacity of 953 MW88.

The biggest hydro project development is the construction of Cebren, a pumped storage HPP located in the southern central part of Macedonia. This HPP is designed with reversible units and an installed capacity of 332 MW in turbine mode and 347 MW in pump mode.


(MW)River

CebrenPS-T 332

Crn DrimPS-P 347

Vardar Cascade (including 13 HPPs)

S 324 Vardar

Galiste S 193 Crn Drim

Boskov Mort S 68 Mala

Sv. Petka S 36 Treska

Total T 953

P 347


HPP developments

Major rivers

River Length (km)

Drop(m)

Runoff (m3/s)

Vardar 300 640 174

Crni Drim 45 241 116

Strumica 81 341 9

85 World Energy Council

86 Source: EnerCEE, Slovenian Energy Programme 2004

87 Source: In 2006, RES in fi nal energy consumption was 16.5%.

88 Source: ELEM, Macedonian Power Plants



Legislation


Strategy for Energy Development in the Republic of Macedonia for the period 2008-2020 with a vision to 2030 (Draft version, 2009)


Macedonia applies a feed-in tariff scheme for the promotion of SHPPs among other renewable electricity generation sources. Purchase obligation is defi ned and the off-take is guaranteed for 20 years.

Regulatory bodies

The Ministry of Economy is responsible for strategic planning and legislation development. One of the bodies of the Ministry of Economy is responsible for energy sector-related issues and it is in charge of conducting the energy policy of the state, developing laws and sub-laws on energy and implementing the policy for energy sector restructuring. (http://www.economy.gov.mk/default-en.asp)

The State Energy Agency, established in 2004, is responsible for professional technical support on data management, strategy analysis, policy and project assessment and implementation coordination. (http://www.ea.gov.mk/)

The activities related to regulating specifi c issues connected with the performance of energy activities specifi ed in the Law on Energy are performed by the Energy Regulatory Commission (ERC) of the Republic of Macedonia. (http://www.erc.org.mk/DefaultEn.asp)

The Macedonian Centre on Energy Effi ciency (MACEF) is responsible for increasing energy effi ciency and environmental protection at a national level by implementing measures and investing in capacity building in cooperation with governmental institutions, local municipalities, engineers, sponsoring organizations and ecologists. (http://www.macef.org.mk/en/index.html)



Total installed capacity:870 MW


• 75.9%• 24.1%

• 57.1%• 42.9%

Source: UCTE, 2008

6.12. Montenegro



Montenegro’s installed generation capacity includes hydro (660 MW) and thermal (210 MW) which equates to a total installed capacity of 870 MW in 200889.

The electricity sector is run by the state owned by a vertically integrated company, Montenegrin Electric Enterprise (Elektroprivreda Crne Gore AD Niksic, EPCG) that is responsible for carrying out activities in electricity generation, transmission, distribution and supply.

The country’s two large HPPs (Piva and Perucica) are of particular importance to the Montenegrin energy sector, providing more than 74% of the country’s generating capacity. Beside these large HPPS, there are seven SHPPs of insignifi cant capacity for electricity production.

Montenegro’s HPPs are old; the fi rst ones were constructed during the 1950s and the latest HPP has been put into operation in 197690.


Based on the Energy Community Treaty for South Eastern Europe (ECSEE Treaty), the Republic of Montenegro has defi ned desired strategic aims to be achieved through utilization of its renewable energy sources. The country has agreed to achieve a 3-5% share of energy from renewables in its fi nal energy consumption by 2015 and a 2.5% share of SHPPs generation in gross electricity consumption by 201591.

Montenegro’s renewable electricity generation is dominated by hydro generation. Large hydro plants have an installed capacity of 649 MW, while small hydro plants account for less than 2% in terms of capacity92.

There is a considerable hydro power potential for SHPPs in Montenegro. The technical hydro power potential in main and small water fl ows is about 11,000 GWh annually, of which only approximately 14% was being utilized as of 200793.



(MW)



Source: UCTE, 2008


(MW)River

Piva S 342 Piva

Perucica S 307 Zeta



89 Source: UCTE

90 Source: Socio economic analysis of the northern region of Montenegro, 2008

91 Source: Strategy for the development of small hydro power plants, Government of the Republic of Montenegro (2006)

92 Source: Montenegrin Electric Enterprise, accessed at: http://www.epcg.co.me/enindex.html

Age of large HPPs

<10years

11–20years

21–30years

>30years

MW

0

100

200

300

400

500

600

700



The Government plans to construct SHPPs with total installed capacity of 5 MW by 2010 as well as to provide an additional 15 MW in a number of sites in the period until 2015. This means that within eight years, the installed capacities and production in SHPPs should triple in comparison with what existed at the end of 2007.94 Based on recent plans, until 2025, the annual electricity production of SHPPs may reach 78 GWh in Montenegro.92

In addition to the construction of new HPPs, the long-term goal of the Government of the Republic of Montenegro is the maintenance, rehabilitation and modernization of the existing HPPs, primarily the major revitalization of HPP Perucica which would imply total increase of the existing power of the power plant by 59 MW.93

Legislation

The relevant legislation in Montenegro consists of the following:

Energy Law of the Republic of Montenegro (2003)


Strategy on energy development up to 2025 (2007).

Montenegro has no renewable support system in place, however the country has been very active in establishing the foundation of an effi cient energy market, and thus initial steps have been taken in order to facilitate future renewable energy utilization.

93 Source: http://re.jrc.ec.europa.eu/biof/pdf/data_gathering_res_istanbul/montenegro.pdf

94 Source: http://www.gov.me/eng/


(MW)River

Kostanica N/A 544 Kostanica

Moraca HPPs (including 4)

S 238 Moraca

Ljutica N/A 224 Ljutica

Komarnica N/A 168 Komarnica

Perucica Rehab S 59 Zeta

SHPPs 20

Total 1,263


HPP developments

Major rivers

River Length (km)

Drop(m)

Runoff (m3/s)

Moraca 112 1,600 152

Tara 110 666 64

Piva 82 189 34

Cehotina 100 732 22.4


Regulatory bodies

The Ministry for Economic Development was established in 2006. This state body is responsible for monitoring the situation within the energy sector, for providing inputs for and supporting the preparation of energy strategy development proposals, as well as for creating laws and other legal documents on energy. (http://www.gov.me/eng/minekon/)

The Regulatory Energy Agency of the Republic of Montenegro, founded in 2004, is an independent and non-profi t organization with public authorization. The Agency’s main activities include the implementation of the Energy Law and revision and approval of market regulations within the energy sector. (http://www.regagen.cg.yu/)

Source: Freudenau Hydro Power Plant, Austria

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• 7.2%• 1.5%• 91.4%

• 1.8%• 0.7%• 97.5%

� Fossil fuels

Source: UCTE, 2008

6.13. Poland


Existing capacities for electricity generation in Poland include HPPs and thermal power plants. In 2008, the country’s total installed generation capacity amounted to 32,509 MW95, which was largely based on domestic coal.

Hydro power makes up a 1.8% share of the total amount of electricity generated in the country with 2,668 GWh and 7.2% of the total domestic installed capacity with 2,327 MW.96 There are more than 700 HPPs in operation and most of them are located in the southern and western part of the country. State-controlled power generation and distribution companies operate the majority of these HPPs, while some are privately owned.



(MW)



Source: UCTE, 2008


(MW)River

ZarnowiecPS-T 680

PiasnicaPS-P 800

Porabka-ZarPS-T 500

SołaPS-P 540

SolinaPS-T 200

SanPS-P 60

Włocławek S 160 Vistula

ZydowoPS-T 150

RadewPS-P 136

NiedzicaPS-T 93

DunajecPS-P 89

DychówPS-T 80

BóbrPS-P 30

Roznów R/RoR 50 Dunajec

Koronowo S 26 Brda

Debe S 21 Narew

Tresna S/RoR 20 Soła

Porabka S/RoR 14 Soła



95 Source: UCTE

96 Source: UCTE




The Elektrownie Szczytowo-Pompowe SA company (Pumped Storage Power Plants Company, “ESP”) operates 23 hydroelectric power plants in Poland accounting for approximately 75% of the total installed capacity in the country’s hydroelectric power plant system97. In addition to ESP, ZZW Czorsztyn-Nidzica-Sromowce Wyżne SA is another major hydroelectric power plant operator in Poland.

The average age of Polish HPPs exceeds 30 years, whereas the newest hydro plant has been put into operation in 200098.


According to the EU Directive on the promotion of the use of energy from renewable sources, Poland’s objective for the share of RES-E is 7.5% by 201099. For the share of renewable energy sources in fi nal energy consumption, Poland has a proposed target of 15% by 2020100.

Currently, hydroelectric power plants play the most signifi cant role in the production of renewable energy in Poland, but still only about 19% of the 14,000 GWh101 annual technical potential is being tapped.

The country has thousands of sites where small hydroelectric power plants could be built102. Roughly 70% of the total capacity is available in the Vistula River basin and the Oder River, coastal rivers account for the remaining 30%. The Government’s long-term objective is the construction of small HPPs as well as modernizing some existing facilities, in particular transforming them into peak-load pumped-storage water power stations. This requires working out a water management strategy in Poland. The largest HPP development is the Mloty HPP project which will have a total installed capacity of 786 MW.

Age of large HPPs

<10years

11–20years

21–30years

>30years

MW

0

200

400

600

800

1,000

1,200

97 Source: www.elsp.com.pl/

98 Source: Datamonitor, KPMG analysis

99 Source: Eurostat



102 Source: http://www.warsawvoice.pl/


(MW)River

Mloty PS 786 Bystrzyca

SHPPs 9

Total 795


HPP developments

RES goals

Percentage of RES

2010 – RES-E goal 7.5%

2020 – RES goal for fi nal energy consumption 15.0%


Major rivers

River Length (km)

Drop(m)

Runoff (m3/s)

Vistula 1,047 1,106 1,054

Oder 742 194 574

Narew 448 72 328

Warta 808 181 195



Legislation

Law on Energy (1997, amended in 2006)

Guidelines for Poland’s Energy Policy until the year 2020 (2000)

Strategy for the Development of Renewable Energy Sector (2001)

Long-term Strategy for Sustainable Development for Poland Until 2025

There is a green certifi cate and quota obligation system in place. Obligations on electricity suppliers with targets are specifi ed from 2005 to 2010 and penalties for non-compliance are enforced.

Regulatory bodies

The Energy Department of the Ministry of Economy is responsible for the implementation of tasks related to shaping energy policy and the regulatory environment in the scope of the power and heat engineering sectors. (http://www.mg.gov.pl/)

The Polish National Energy Conservation Agency (KAPE) is a non-profi t national organization founded in 1994. The strategic aim of KAPE is to develop and promote governmental, regional, local and individual initiatives on energy effi ciency and renewable energy sources utilization. (http://www.kape.gov.pl/)

The Energy Regulatory Offi ce (URE) issues operating licenses and monitors developments in prices and tariffs. It is also responsible for the promotion of energy effi ciency. (http://www.ure.gov.pl/)





• 35.2%• 56.9%• 7.8%

• 28.1%• 54.6%• 17.3%

� Nuclear power

Source: UCTE, 2008

6.14. Romania



Electricity generation in Romania is primarily made up of thermal power plants (coal, natural gas and oil) with the remainder fulfi lled by hydroelectric and nuclear facilities. The total installed capacity was 16,582 MW in 2008 including 1,300 MW nuclear, 9,431 MW thermal, 5,843 MW hydro and an additional 8 MW of other renewable sources103.

In Romania there are 362 hydroelectric power plants whose overall annual production of 16,794 GWh104 represent 48% of the 35,000 GWh105 technical potential. Geographically, the hydroelectric reserves of the country are concentrated along the Danube and in the valleys of rivers emerging from the mountain core of the country.

All of these HPPs are owned by Hidroelectrica SA, a state-owned company responsible for the production and delivery of hydroelectric power.

The most important hydroelectric power plant of Romania is Portile de Fier I (Iron Gate I or Đerdap I) on the River Danube, shared by Serbia and Romania. It is one of the largest hydroelectric power plants in Europe with an installed capacity of 2,224 MW. At completion in 1972, it had an installed capacity of 2,052 MW of electricity divided equally between the two countries. Since then, the Romanian part of the dam has been modernized and the nominal capacity of the HPP was increased from 1,026 MW to 1,166 MW. On the Serbian part of the dam modernization is still in progress.

The average age of Romanian hydroelectric plants is around 31 years. The fi rst HPPs were built in the 1950s while the majority were built at the end of 1980s.



(MW)



Source: UCTE, 2008

103 Source: www.entsoe.eu

104 Source: UCTE


Age of large HPPs

<10years

11–20years

21–30years

>30years

MW

0

500

1,000

1,500

2,000

2,500

3,000

3,500




As per the European Union Directive (2001/77/EC), Romania should produce 33% of its electricity from renewable energy sources including large HPPs and 8.3% excluding those by the year 2010107. The country’s binding target for the share of energy from renewable sources in fi nal energy consumption is 24% for 2020108.

The present RES-E is generated from hydro power utilization. The Romanian government is planning to implement a new programme for increasing the use of renewable energy including photovoltaic, wind energy, biomass, and geothermal energy.


(MW)River

Portile de Fier I RoR 1,166 Danube

Lotru- Ciunget S/RoR 510 Lotru

Retezat S 335 Raul Mare

Portile de Fier II106 RoR 314 Danube

Mariselu S 221 Somesul Cald

Vidraru S 220 Arges

Stejarul-Bicaz PS 210 Bistrita

Ruinei S 153 Bistra Marului

Galceag PS 150 Sebes

Sugag S 150 Sebes

Bradisor S 115 Lotru

Nehoiasu – Surduc Head

PS 110 Basce Mare

Tismana S 106 Tismana

Remeti PS 100 Dragan

Turnu RoR 70 Olt

Munteni PS 58 Iadului

Tarnita S 45 Somesul Cald

Racaciuni RoR 45 Bistrita

Vaduri RoR 44 Bistrita

Sasciori PS 42 Sebes

Nehoiasu – Siriu Head PS 42 Basce Mare



RES goals

Percentage of RES

2010 – RES-E goal 33%


24%


106 Source: The total output of Portal de Fier II (Iron Gate II) is 540 MW divided equally between Serbia and Romania

107 Source: http://epp.eurostat.ec.europa.eu/portal/page/portal/energy/data/database

108 Source: www.euractiv.com/en/energy/eu-renewable-energy-policy/article-117536



Major rivers

River Length (km)

Drop(m)

Runoff (m3/s)

Danube 1,020 65 6,500

Siret 470 295 240

Olt 615 1,060 174

Mures 695 1,268 155

Someş 345 130 120

Prut 695 129 110

Jiu (Zsil) 331 1,875 94

Argeş 350 2,025 73

Ialomiţa 417 2,155 40

The country is considered to have the highest wind energy potential in the region and the third highest geothermal potential of European nations. Its wind resources are well documented, and there is a broad range of existing applications from small autonomous units for rural areas to large off-shore potential. The potential market for biomass and solar applications is very large but specifi c incentives will be needed so this potential can be realized.

Romania’s hydro power potential is extremely vast; it has an abundance of water fl ows and mountains. Its rivers fl ow over a total length of 30,000 kilometres and the country has about 2,500 lakes. As a result, there are numerous opportunities for hydro developments. Currently, several hydroelectric power plants, whose total capacity comprises 1,662 MW, are under construction. These projects began 20-25 years ago, but were stalled due to the lack of fi nancing. The Romanian government considers realizing a 1,000 MW hydroelectric pumped-storage power plant in Tarniţa-Lăpuşteşti as a priority objective of the Energy Strategy of Romania for 2007-2020.The second largest recent development is the Nehoiasu HPP along the Buzau River, situated in the central part of Romania, whose installed capacity is set to reach 166 MW.


(MW)River

Tarniţa – Lăpuşteşti PS 1,000 Someşul Cald

Nehoiasu PS 166 Buzau

Cosmesti S 40 Siret

Rîul Alb PS 36 Riul Alb

Rastolita PS 35 Rastolita

Valea Sadului S 35 Jiu

Others (10<HPP<30 MW)

325

Small and micro HPPs

25

Total 1,662


HPP developments



Legislation

Relevant legislation in Romania is as follows:

Energy Law (2007)

Law on electricity (2007)

Law on energy effi ciency (2006)

National Strategy for Energy Effi ciency (2007-2020)109 (2007)

Government Decision regarding the “Strategy for the Promotion of Renewable Sources of Energy” (2003)

Government Decision regarding the “Promotion of electricity produced from RES (2004).


A system of tradable green certifi cates is in place, including a purchase obligation for distribution companies and the obligation to fulfi l an annual quota of purchased green electricity since 2004, available for SHPPs under 10 MW installed capacity.

109 The main objective of this strategy is the identifi cation of possibilities and means to increase energy.

Regulatory bodies

The Ministry of Economy and Commerce (MEC) is responsible for drawing up the national energy strategy in terms of evolution, covering power and thermal energy, hydroelectric and nuclear power, oil, natural gas, mineral resources, and mine-geology fi elds. (http://www.minind.ro/)

The Romanian Energy Regulatory Authority (ANRE) established according to the Law no.99/2000, is organized as an independent public legal entity of national interest under the co-ordination of the Prime Minister. ANRE’s mission is to create and implement fair and independent regulations to ensure effi cient, transparent and stable functioning of the electricity and heat market, while protecting the interests of consumers and investors. (http://www.anre.ro/)

The Ministry of Agriculture, Forests, Water and Environment (MAPAM) is responsible for the development of the general environmental policy and specifi c legislation related to water management and environmental protection. Responsibility for the implementation of the environmental policy at the local level lies with local authorities. (http://www.mapam.ro/)

The Romanian Agency for Energy Conservation (ARCE) is in charge of promoting energy effi ciency at the national level. Responsibilities include energy effi ciency policymaking and programme implementation. ARCE has legal authority, its operational and fi nancial autonomy subordinate to the Ministry of Economy and Commerce.

The Romanian Ministry of Environment and Sustainable Development promotes the Romanian environmental policy, creates the legal framework and the short- and long-term strategy of Romania regarding environmental protection. (http://www.gov.ro/)





• 33.9%• 66.1%

• 28.6%• 71.4%

Source: UCTE, 2008

6.15. Serbia



The Serbian electricity sector is run by the 100% state-owned Elektroprivreda Srbije (“EPS”), the only electricity provider in Serbia110. The country’s total installed capacity was 8,355 MW in 2008, including 5,524 MW of thermal and 2,831 MW of hydro111.

There are 10 HPPs with 50 hydro units run by two enterprises in Serbia. The larger player is HPP Djerdap Plc. which consists of four generating plants: Djerdap I,II (Iron Gate or Portile de Fier), Pirot and Vlasina. The other, HPP Drinsko-Limske Plc., includes the following subsidiaries: Bajina Basta (a storage type and a pumped-storage plant), Limske, Zvornik and Elektromorava (operating SHPPs).112

HPP Djerdap I is owned and operated jointly by Romania and Serbia. When the HPP was completed, it had a total capacity of 2,052 MW that was divided equally between the two countries. Romania has rehabilitated its side of the dam, increasing its total capacity by 140 MW, while the modernization of the generating units on the Serbian side is in process.



(MW)



Source: EPS Annual Report, (Technical) 2008

110 Source: http://www.eps.rs/english.htm

111 Source: UCTE

112 Source: http://www.eps.rs/onama/hydroplants.htm

113 The total output of Djerdap II (Iron Gate II) is 540 MW divided equally between Serbia and Romania


(MW)River

Djerdap I RoR 1,058 Danube

Bajina Basta PS 614 Drina

Bajina Basta RoR 364 Drina

Djerdap II RoR 270 Danube

Vlasina S 129 Vlasina

Bistrica S 102 Lim

Zvornik RoR 92 Drina

Pirot S 80 Nisava

Potpec RoR 51 Lim

Uvac S 36 Lim

Kokin Brod S 22 Lim





The age of an average Serbian HPP is 36 years. Construction of the fi rst HPPs started at the beginning of the 1950s and these were put into operation in 1955.


Since Serbia is not a member of the EU, there are no binding targets set for the country.

Serbia has extensive unused potential for production from hydro and biomass capacity and there is some potential to use wind energy as well114. However, there are several obstacles to increasing the production of these renewables – for one, the lack of the proper regulatory environment is a key roadblock to further advances. While several laws are in place, often there is no guidance on how to implement them.

According to recent studies, about 55% of the 18,200 GWh total technical hydro power potential has been utilized up to now115. The largest part of the remaining potential is in the catchment areas of the Drina and the Morava Rivers.116

There are around 900 potential locations for the utilization of small hydro power in Serbia. The total potential for SHPPs is 500 MW and only less than 3% of it has already been exploited117.

Among the top priorities of the Serbian government is the revitalization of the existing HPPs as well as the development of new hydro power sites, including the construction of the Brodarevo and Ribarici HPPs118 by EPS and the development of 3,000 MWs of installed hydropower capacity by RWE at several sites.

Within the framework of Serbia’s energy development strategy, the government has recently accepted plans for the construction of three big hydroelectric power plants on the Danube near Novi Sad and Bezdan and for the construction of a hydroelectric power plant on the Sava River. The details of the plans for these developments have not yet been published.

Age of large HPPs

<10years

11–20years

21–30years

>30years

MW

0

500

1,000

1,500

2,000

Major rivers

River Length (km)

Drop(m)

Runoff (m3/s)

Danube 450 48 4,000

Sava 206 10 1,564

Tisa 160 7 794

Drina 220 298 371

Great Morava

185 67 232

Ibar 272 233 60


(MW)River

RWE (including several plants)

RoR, PS 3,000 Danube, Morava, Drina

Brodarevo RoR 51 Lim

Ribarici S 49 Ibar

Svodje S 48 Vlasina

Vrtuci S 32 Djetina

Total 3,180


HPP developments

114 Source: Serbia’s capacity for energy effi ciency and renewable energy, accessed at: http://www.watersee.net/fi les/sava_river/8_Djuric.pdf

115 Source: The value of hydro potential is calculated by KPMG based on the information of the following two sources, because the technical potential data of the World Energy Council dates from 2005 thus includes Kosovo: World Energy Council, http://www.lignitepower.com/pdfdocs/brochure-en.pdf

116 Source: www.eps.rs/razvoj/potentials.htm

117 Source: Renewable Energy Policy, Republic of Serbia

118 Source: http://www.eps.rs/razvoj/newfacilities.htm



Legislation

Serbia has an extensive body of laws addressing energy issues including the following119:


Energy Development Strategy (2005)

National Energy Effi ciency Programmes (2002)


Ratifi cation of Kyoto Protocol (2007).

The Energy Development Strategy foresees efforts to improve the use of renewable sources, including the adoption of additional legislation, implementation of investment projects, establishing new expert institutions and the training of additional experts. Despite these ambitious plans, the lack of necessary regulations to enable these laws appears to have prevented their full implementation until recently.

119 Source: Renewable Energy Sources, Republic of Serbia

Regulatory bodies

The Ministry of Mining and Energy is the leading institution in the energy sector, in charge of preparation of proposals for the Government’s adoption of energy legislation regulations and instruments, and conducting the relevant laws, secondary legislation and regulations. (http://www.mem.sr.gov.yu/)

The Energy Agency of the Republic of Serbia (EARS), established by the Energy Law, is a regulatory body with all the rights, liabilities and responsibilities stipulated by the Energy Law and other regulations. (http://www.aers.org.yu/IndexEng.asp)

The Energy Effi ciency Agency (SEEA) is an independent state organization focusing on providing counselling, expertise and education on energy effi ciency and renewable energies. It was founded in 2002 by the Ministry of Mining and Energy. (http://www.seea.sr.gov.yu/English/Prezentacija1.htm)





• 33.2%• 0.8%• 36.4%• 29.5%

• 15.7%• 1.1%• 26.6%• 56.5%


Source: UCTE, 2008

6.16. Slovak Republic


Slovenské Elektrárne, a.s. (SE) is the national power generation utility in Slovakia, accounting for over 80% of power generation in the country and operating 67% of Slovakian hydro power facilities. In 2008, the total installed generating capacity was 7,453 MW, consisting of 2,478 MW hydro, 2,714 MW thermal, 2,200 MW nuclear and 61 MW other renewable sources120.

Hydro power has played a major role in Slovakia’s electricity generation ever since the fi rst large HPP was constructed in the 1950s. HPPs in Slovakia are quite old, their average age 44 years. Currently there are 243 hydroelectric power plants making up a 15.7% share of the total electricity generated in Slovakia.



(MW)



Source: UCTE, 2008

Name Type*Installed

capacity (MW)River

Čierny Váh PS 735 Váh

Gabčíkovo S/RoR 720 Danube

Liptovská Mara PS 198 Váh

Mikšová RoR 94 Váh

Žilina S/RoR 72 Váh

Nosice R 68 Váh

Ružín PS 60 Hornad

Považská Bystrica RoR 55 Váh

Kráľová S 45 Váh

Madunice S 43 Váh

Lipovec RoR 38 Váh

Sučany RoR 38 Váh

Hričov S 32 Váh

Others (10 MW<HPP<30 MW)

250



120 Source: www.entsoe.eu




Much of the hydroelectric development in Slovakia is throughout the Váh River valley, with more than 20 HPPs found there whose total installed capacity is 1,600 MW.

Moreover, there are approximately 180 SHPPs operating in Slovakia with a total capacity of 58 MW121 and it is expected that a signifi cant amount of additional small hydro capacity will be realized in the mid-term.

The average age of large hydro installations in Slovakia is approximately 30 years.


Under the EU Directive (2001/77/EC), Slovakia has a binding target to reach a 31% share of RES-E by 2010122. It also has the obligation to achieve a 14% share of energy from RES in fi nal energy consumption by 2020123.

In Slovakia, biomass, wind and hydro power have the highest additional mid-term potentials of all renewable energy sources. However, current renewable electricity generation is almost solely based on hydro power generation. The government needs to recognize and support RES sector development in order to utilize other RES potentials.

The technical hydro power potential for electricity generation is estimated at about 7,000 GWh124 annually, thus approximately 62%125 of this was harnessed in 2008. The Slovakian hydro power development programme focuses on the continued and increased utilization of hydro power via rehabilitation of existing facilities and construction of new ones. The major projects designed to enhance hydro power potential utilization are the HPP Sereď (51 MW) and the HPP Nezbudská Lúčka (23 MW) on the Váh river and PSPP Ipeľ (entailing 600 MW on river Ipeľ).

121 Source: Austrian Energy Agency

122 Source: Eurostat


124 Source: Energy Policy of the Slovak Republic

125 Source: UCTE

Age of large HPPs

<10years

11–20years

21–30years

>30years

MW

0

100

200

300

400

500

600

700

800

900

RES goals

Percentage of RES

2010 – RES-E goal 31%


14%


Major rivers

River Length (km)

Drop(m)

Runoff (m3/s)

Danube 172 32 2,320

Váh 367 196 152

Hron 278 789 55

Hornád 193 891 31

Poprad 144 1,567 22


(MW)River

Ipel’ PS 600 Ipel'

Sereď S 51 Váh

Nezbudská Lúčka

RoR 23 Váh

SHPPs 93

Total 767


HPP developments



An extended development programme exists that has identifi ed 250 potential sites on major Slovakian rivers as suitable for the development of SHPPs, with capacities of 0.1 to 5 MW, which could amount to a total installed capacity of 93 MW126. The site which bears the greatest potential for SHPPs is the Hron river, where 23 small-scale hydro power facilities can be constructed127.

Legislation

The following regulations are relevant in Slovakia:

Programme Supporting Energy Savings and Utilization of RES (2000)

Renewable Energy Concept (2003)

Energy Act (2005)

Energy Policy of the Slovak Republic (2006)

Energy Security Strategy of the Slovak Republic (2007).

A programme exists for supporting RES and energy effi ciency, including feed-in tariffs and tax incentives. The system of fi xed feed-in tariff for renewable electricity was introduced in 2005. Prices are set so that the rate of return on investment is 12 years when drawing a commercial loan.

In the past weak support, lack of funding and lack of longer-term certainty have made investors very reluctant.

126 Source: Austrian Energy Agency

127 Source: Slovenské Elektrárne, www.seas.sk/

Regulatory bodies

The Ministry of Economy (MHSR) is a central body of state administration, which is responsible for policy-making in the energy sector, and bears the mandate to develop energy legislation. Within the MHSR the “Section of Manufacturing and Energy Branches Policy” is in charge of related tasks. (http://www.economy.gov.sk/)

The Regulatory Offi ce for Network Industries (ÚRSO), established in 2001, is responsible for the technical and fi nancial regulation of the energy sector. It sets the calculation of energy prices for heat, gas and electricity generation, distribution and transmission. (http://www.urso.gov.sk/sk/udaje-o-urade)

The Slovak Innovation and Energy Agency (SIEA) acts as the advisory body to the Ministry of Economy as well as to the Regulatory Offi ce, and is involved in creation of a legal framework and its harmonization with the EU energy acquis. SIEA participates in the development of local and regional policies and cooperates with other state administration bodies on development of legal and economic instruments supporting the effi cient and environmentally friendly utilization of energy. (http://www.sea.gov.sk/index.htm)





• 30.4%• 45.4%• 24.2%

• 22.7%• 38.1%• 38.4%

� Nuclear power

Source: UCTE, 2008

6.17. Slovenia



In 2008, the country’s total installed power generation capacity was 2,894 MW, consisting of 1,315 MW thermal, 879 MW hydro and 700 MW128 nuclear.129

The economic hydro power potential of the country in terms of installed capacity is estimated to be between 7000-8500 GWh out of which approximately 46% has already been exploited130.

The Drava River is the country’s major source of hydroelectric power. There are eight large hydroelectric plants along the river constituting the Dem Cascade which has an overall 581 MW of installed capacity131. These HPPs are owned and operated by the Dravske Elektrarne power company. Soske Elektrarne manages a cascade on the Soča River (Sel Cascade)132, representing about 136 MW in total



(MW)



Source: UCTE, 2008

128 Please note that the Krsko nuclear plant is fully included in the capacity mix of Slovenia as it is located in the territory of this country. However, as it was a joint project, half of the generated electricity belongs to Croatia based on the bilateral agreement.

129 Source: http://www.entsoe.eu

130 Source: Targets, strategies and measures till the year 2020 on the fi eld of green electricity production in Slovenia accessed at: http://www.esv.or.at/fi leadmin/res_e_regions/WP_1/Regional_strategy_-_Summary_Slovenia.pdf

131 Source: www.dem.si/eng/


(MW)River

Dem

Cas

cade

Zlatolicje S/RoR 120

Drava

Formin S/RoR 116

Ozbalt S/RoR 73

Vuhred S/RoR 72

Mariborski Otok S/RoR 60

Fala S/RoR 58

Vuzenica S/RoR 56

Dravograd S/RoR 26

Sel

Cas

cade

Avče PS-T 185

Soča

Avče PS-P 180

Doblar II. S/RoR 40

Solkan S/RoR 32

Doblar I. S/RoR 30

Plave II. S/RoR 20

Plave I. S/RoR 14

Sen

g C

asca

de

Mavcice S/RoR 38

Sava

Vrhovo S/RoR 34

Medvode S/RoR 25

Moste S/RoR 21

Bostanj S/RoR 34





generating capacity. Savske Elektrarne has four hydroelectric power plants on the Sava River whose installed capacity totals 127 MW (the Seng Cascade)133.

The fi rst HPPs in Slovenia were built at the end of the 1930s and their average age is approximately 40 years.

In addition to the country’s large hydroelectric power plants, there is a number of small units along the Sava and Soča rivers and various other rivers and streams. Most of these SHPPs were built before the end of the 1980s, and therefore need to be refurbished to keep them operational.

Renovation of these units will increase their effi ciency and could add as much as 150 MW in generating capacity134.


In accordance with the relevant EU Directive (2001/77/EC), Slovenia has a binding RES-E target of 33.6% by 2010135. It also has the obligation to achieve a 25% share of RES in fi nal energy consumption by 2020136.

HPPs represent the highest share among RES and the highest potential in Slovenia for the future. Out of the annual 9,000 GWh137 technical potential, 36%138 was utilized in 2008. Beside hydro, the greatest potentials lie in combined heat and power from biomass and the construction of wind power plants.

In the short term, the Slovene government’s renewable energy strategy is to concentrate on the refurbishment of the existing small scale HPPs, as well as increasing the capacity of large-scale units.

Currently there are only a few plans for the construction of SHPPs in Slovenia. The main barrier to building SHPPs is the complicated process of license acquisition.

The Government’s long-term objective includes developing pumped-storage power plants: the fi rst plant (Avče) was commissioned in 2009, while the HPP Kozjak, with a total capacity of 400 MW, along the Drava River, and four hydro sites along the Sava River, which could add 189 MW of new hydro capacity to the system. These HPPs will be located at Blanca, Brezice, Krško and Mokrice.

Age of large HPPs

<10years

11–20years

21–30years

>30years

0

100

200

300

400

500

600

700

MW

Major rivers

River Length (km)

Drop(m)

Runoff (m3/s)

Drava 144 188 300

Sava 221 1,088 255

Soca 95 1,037 140


(MW)River

Kozjak PS 400 Drava

Blanca RoR 43 Sava

Brezice RoR 42 Sava

Krško RoR 40 Sava

Mokrice RoR 32 Sava

Total 557


HPP developments

132 Source: www.sel.si/

133 Source: www.seng.si/eng/

134 Source: http://ebrdrenewables.com/sites/renew/Shared%20Documents/Country%20Notes/old%20website%20country%20profi les/Slovenia.pdf

135 Source: Eurostat



138 Source: UCTE

RES goals

Percentage of RES

2010 – RES-E goal 33.6%


25.0%




Legislation

Relevant legislation in Slovenia includes139:

Law on Energy (1999, amended 2006)

Regulation on CO2 emission tax (1996, amended 2002)

National Energy Programme (2004)

Decree on Prices and Premiums for Purchase of Electricity from Qualifi ed Producers (2004).

A feed-in system and premium, CO2 taxation exists as well as public funds for environmental investments. Renewable electricity producers can choose between fi xed feed-in tariff and premium systems. Tariff levels and premiums are defi ned annually by the Slovenian government. Tariffs are guaranteed for fi ve years, and then reduced by 5%, and after 10 years are reduced by 10% (compared to the original level). The relatively stable tariffs combined with long term guaranteed contracts make the system quite attractive for investors.

Regulatory bodies

The Ministry of the Economy has overall responsibility for energy policy in Slovenia through its Directorate for Energy headed by the State Secretary for Energy. The Ministry of the Economy is responsible for the preparation of the national energy strategy as well as for support programmes to promote the effi cient use of energy. Furthermore it is responsible for energy tariffs, legislation and exploitation licenses. (http://www.mg.gov.si/en/)

The Energy Agency of the Republic of Slovenia acts as an independent regulatory body for liberalizing the energy market, opening up the market to newcomers, licensing new entrants and ensuring fair competition. It is responsible for maintaining a sustainable level of electric power production in presently-existing power plants, promoting RES in line with EU targets and meeting Kyoto Protocol targets (CO2 emissions reduction by 2008-2012). (http://www.agen-rs.si/en/)

The Ministry of the Economy/Energy and Mining Inspectorate performs assignments that involve overseeing implementation of the regulations and general documents regulating electrical and thermal energy. The Inspectorate oversees whether legal persons or individuals adhere in their work to the laws, technical regulations, standards and other regulations governing the areas of electrical and thermal energy, the gas and oil pipeline networks and pressurized containers. (http://www.mg.gov.si/en/)

The Environmental Agency is a body of the Ministry of the Environment and Spatial Planning. It performs expert, analytical, regulatory and administrative tasks related to the environment at the national level. Thus the Agency’s mission is to monitor, analyze and forecast natural phenomena and processes in the environment, and to reduce natural threats to people and property. (http://www.arso.gov.si/en/)

139 Source: http://www.res-progress.eu/index.php?action=documents&lang=NL


Austria is a landlocked country of roughly 8.3 million people in Central Europe, traditionally belonging to the western part of Europe. The territory of Austria covers 83,872 square kilometres of highly mountainous terrain due to the presence of the Alps. Only 32% of the country is below 500 metres, and its highest point is 3,797 metres (Großglockner), resulting in high levels of precipitation and mountainous rivers. This topography ensures favourable conditions for hydro generation, namely 75 TWh per year technical potential of which 54.2% was utilized in 2008.140 However without systematic state support, commitment and long term planning Austria could not have become one of the countries with the highest renewable shares in total generation.

There are 154 large HPPs in Austria – 90 run-of-river and 64 storage and pumped storage – with an overall yearly output of 35,862 GWh and a total of about 2,400 small hydropower plants with an output of electrical energy volume of 4,816 GWh in 2008.141 The above values place Austria among the highest ranking countries in terms of hydro and other renewables based electricity production in the UCTE.

Verbund is the market leader in electricity generation from hydro power: 20 storage and pumped storage power plants are to be found high in the Alps, and a total of 88 large run-of-river power plants are operated by it on all the country’s main rivers. The company in charge of production of electricity from hydropower is Verbund-Austrian Hydro Power AG. It operates a total of 108 HPPs with a maximum combined output of more than 6,000 megawatts and an average annual generation of around 22.8 TWh.142

In Austria nuclear generation is completely missing from the generation mix, although there was a nuclear plant built in Zwentendorf an der Donau. Via a public referendum in 1978, the completed plant was never allowed to go online. This event shows the strength of public sentiment in Austria.




• 59.4%• 6.9%• 33.7%

• 60.6%• 6.5%• 32.8%

� Fossil fuels

Source: E-Control, 2008

7.0. A Leading Example – Austria



(MW)



Source: E-Control, 2008

140 E-Control

141 E-Control

142 Verbund-Austrian Hydro Power AG

143 Commission Staff Working Document – The support of electricity from renewable energy sources, 2008




How does Austria support investments in the hydro sector?

Hydro plants are eligible to receive a feed-in tariff for their production as a state subsidy for 10+2 years. From 2006 onwards, full feed-in tariffs for new renewable electricity generation are available for 10 years, while for the 11th and 12th years gradually decreasing incentives are available (75%, 50%). Feed-in tariffs are announced annually and their value is dependent on the production of a plant.143

Mid-scale HPPs (10-20 MW installed capacity) receive investment support of up to 10% of their direct investment costs, with a maximum of EUR 400/kW.144

HPPs producing more than 25 GWh/annum are classifi ed as the lowest feed-in tariff category (EUR 37.7/MWh).

What are the roots of success for the Austrian hydro generation sector?

1. Enormous technical potential

2. Commitment of the state and the society

3. Friendly economic climate

4. Strong fi nancial backing

As is apparent, Austria is in an optimal situation with regard to hydro power generation. It has reached a two-thirds share of RES-E in total generation, mostly via utilization of hydro power. Large HPPs are already present at the country’s most main sites, so the opportunities of the country are limited. New, large run-of-river and storage hydro investments appear unlikely; only three projects in the 20-100 MW range exist. However, a number of large pumped storage plants, with a cumulated installed capacity of approximately 3000 MW, are under development, including Obervermuntwerk II, Feldsee, Koralpe, Gepatsch, Kaunertal II, Kühtai, Malfon, Tauernbach,145 Reisseck II, Limberg II, Limberg III, Jochenstein, and Tauermoos. Development opportunities for the more widely accepted small- and (with some constraints) mid-scale (10-20 MW installed capacity) HPPs, which are subsidized by the state. Favourably situated CEE countries are at an earlier stage of development, still having some sites available for large hydro investments and a bulk of small hydro sites. Applying the right legislation and incentives, this enormous potential can be realized.

144 http://www.pedz.uni-mannheim.de/daten/edz-kr/gdv/08/2008_03_progress_country_profi les.pdf

145 http://www.wasser-osttirol.at/media/veoe_mai_09_s8.pdf

Source: Andritz Hydro © 2

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A complex hydro power investment, especially for large HPPs, can involve economical, technological, as well as social, environmental and political factors. As public acceptance may be a key issue in connection with the realization of such a project, all of these aspects must be dealt with at the same time and they must receive proper emphasis to adequately and consciously communicate them to the public.

Based on previous experience regarding European hydro power developments, in some cases the lack of public involvement and adequate communication have had a major impact on the outcome of planned hydro power projects. Public opposition at a local level brought on by various reasons can generate extensive campaigns against the construction of a dam and its auxiliary facilities, while the support of a majority of stakeholders might speed up the process and even go hand in hand with lower costs and decreased risks.

In the following sub-sections some European examples will be introduced as an indication to show the importance of public acceptance and emphasize the necessity of facilitating extensive public participation and the need for suffi cient PR activities from the very beginning; however, in some special cases the right timing is also a must.

8.1. Gabčíkovo-Nagymaros Hydro Power Project

The Gabčíkovo-Nagymaros Dam Project was started in 1977146 within the framework of an international treaty between two (at the time socialist) countries: Hungary and the former Czechoslovakia. The aim of the enormous project was to dam the Danube, all the way from Bratislava to the Danube Bend above Budapest, thus to utilize the potential of the river and generate a large amount of peak load hydroelectricity. In 1989, when the Gabčíkovo Project was already close to completion, Hungary decided to renege on its commitments and insisted on the termination of the Treaty in 1992.

The reasons cited were potential environmental harm, but politics were clearly just as important as the environment: public opposition against the project became a symbol of fi ghting against the socialist system and the project’s shutdown is now considered to be an important milestone of the process which led to the country’s political changes in 1989. As a result, the completed facilities of the Hungarian portion were demolished and the site (the Danube Bend) has been rehabilitated. However, the topic is still a hot button issue for politicians and Hungarian society.

8. Public Acceptance of Hydro Power

146 Source: http://www.slovakia.org/history-gabcikovo.htm



The Slovak portion of the cascade was completed along with detouring the Danube from Hungary to a channel in Slovakia and started its base load operation (instead of peak load as was planned originally) in 1992, generating tension between the two countries which ended up in legal deliberations at the Hague International Court of Justice, resulting in an adversely interpreted judgment without leading to any practical progress.

8.2. Mardøla and Alta Hydro Power Projects

Even though Norway has around a 99% share of hydro power in its generation mix, producing enough electricity for huge exports, Norwegians have traditionally protested against HPP projects as they typically divert the fl ow of rivers, thus harming the environment. The fi rst major and confrontational public opposition actions occurred in the 1970s, aiming at the protection of the Mardøla River, but there have also been serious confl icts in relation to plans that resulted in a strong impact on the Alta River in 1980. The signifi cant number of people who participated in these demonstrations from all around the country tried to hinder dam construction by showing up on the project sites and blocking the way for workers and their equipment. Although the projects were still realized, at the end of the day the protests had major implications for the incorporation of conservation concerns into Norwegian hydro power policy.147

8.3. Hainburg Hydro Power Project148

By the time the government decided to build the Hainburg hydro scheme in 1983, several similar type projects were already in operation in Austria. However, this was the fi rst time when environmental concerns were raised by experts from various fi elds. Despite this, the project passed through all procedures and acquired all necessary licenses successfully. When the experts’ concerns were overridden, activist groups supported by the media occupied the construction site and stopped construction.

Eventually, the government decided to suspend further construction in 1985, and the project concession was cancelled within the same year. Although several alternative plans were discussed later on, the Hainburg hydro scheme project failed due to inadequate communication and lack of public involvement.

8.4. Freudenau Hydro Power Project

As a result of the previous negative experience, the approach towards hydro power development projects has been changed at the governmental level in Austria and the construction of Freudenau HPP is considered to be a best practice with regards to public involvement and PR activities.

147 Source: www.cicero.uio.no/media/1424.rtf

148 Source: http://www.boku.ac.at/iwhw/integratedfl ood/Nachtnebel_Module4_PublicPP.pdf



The initial plans of hydro power the Freudenau project, which is in fact located in Vienna, dates back to 1985. As part of the planning process, in addition to preparing a feasibility study, a contest was organized for hydro power experts, architects, landscape designers and ecologists. The aim of this competition was to identify an optimal design for the dam by taking into consideration the requirements of harmonious integration into the environment, ecological aspects as well as the needs of local people. An international jury selected one of the proposals. Public discussions were also held among other intensive PR activities. Following these efforts the project’s documentation was submitted to the responsible water authority for approval in 1988. The provincial government of Vienna required an environmental impact assessment and suggested a referendum be held in the city. Further improvements were made based on the recommendations of 10 different expert groups and following a broad information campaign performed by the development company, more than 70% of participants approved the construction of the power plant in a vote in 1991.149,150

Construction commenced in 1992 and commissioning fi nished in 1998. Since then the power plant has been providing a signifi cant amount of electricity to Vienna and to the whole country based on a renewable energy source. Its peak performance is 172 MW while its annual production is 1,037 GWh.151 Besides this it is a multi-purpose plant: in addition to improving navigation canals and groundwater levels, it also offers advantages in terms of urban planning and ecology.

8.5. Conclusions

Based on the previous detailed European examples public acceptance can play a key role in the success (or failure) of a hydro development project. The involvement of experts and the public at all levels may facilitate a project’s realization, while the lack of adequate participation and communication may result in enormous losses and project failure. Project objectives have to be transparent and benefi cial for all parties as well as for the planner/developer who must be credible in order to convince stakeholders. Developing and transitional countries are considered less sensitive regarding environmental issues and accept hydroelectricity en gross as a favourable green technology. Still, voices of the opposition are rapidly rising all over the world, so large infrastructural investments must address these aspects which need to be handled carefully.

There are several tools that can be used such as public hearings, informational materials, requesting expert opinion, harmonization of interests, referendums, etc. Although these actions might increase investment costs they considerably decrease the related risks.

149 Source: http://www.ieahydro.org/reports/Annex_VIII_CaseStudy1204_Freudenau_Austria.pdf

150 Source: http://www.boku.ac.at/iwhw/integratedfl ood/Nachtnebel_Module4_PublicPP.pdf

151 Source: www.andritz.com

Source: Alstom © 2

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One of the main motivations of investing into different types of HPPs is the fact that these facilities are able to produce electricity without incurring fuel costs. By the utilization of water fl ow the generation-related expenditures of such a power plant are stable irrespectively of changes in the price of fossil fuels like oil, natural gas or coal, which is of key importance considering the instability of prices as well as the recent economic situation. Furthermore, the need for fuel imports decreases, thus related risks are eliminated too. Another advantage of HPPs is that contrary to other broadly used renewable generation methods these facilities can be signifi cantly larger which allows for economies of scale.

However, compared to some other power plant types a more signifi cant initial capital expenditure is needed per each kW of installed capacity for hydroelectricity, but the cost can vary widely based on the size, type and location of the facility. Besides the fact that huge efforts may be necessary at the beginning, in line with the long life-time of these power plants the payback period of such projects can last relatively long, thus usually governments or large corporations fund these schemes. Moreover, as the impact of a hydro investment may be signifi cant depending on the technology and impact from an environmental and a social point of view, public and state support is a must at both local and national levels.

When a fi nancial decision must be made about investing into an HPP project several factors must be considered. The success of the project is determined by geographical characteristics, the availability and prices of other energy sources and further related costs of generation with different technologies, as well as by potential future electricity demand, support schemes and the risks entailed in certain countries or regions, etc. Moreover, hydro power investments also involve other aspects: externalities must be taken into consideration, such as alternative utilization of a man-made lake and the dam itself (which can shorten the payback period by generating additional revenues or cost sharing) and negative impacts like the loss of a certain terrain for example.

In the following sections some of the previously mentioned aspects will be introduced in more detail and thus the characteristics of hydro investments in general will be summarized.

9. Economics of a Hydro Investment



For our investigation we used the dataset of a European Commission staff working document152 that was prepared for the Second Strategic Energy Review in 2008 and also applied as a basis for the Strategic Energy Technology Plan Information System (SETIS) energy cost calculator153 prepared by the European Commission. Although there exists literature mentioning lower cost factors for hydro developments, the conclusions drawn support the long-term advantages of hydro generation technologies against benchmarked technologies from an economic point of view. To preserve comparability we decided to use this source as the basis of the following analysis. However, detailed economic analysis must be done before deciding on such an investment, as the costs are highly dependent on location and other factors.

9.1. Investment/Operation Cost Ratio

Generation Cost Structure

As mentioned above, although the initial investment might be relatively high for an HPP, these facilities can operate for a long period: 50 years or more; several plants still in operation were built more than 100 years ago, and there is no need for fuel to generate electricity. However, it is hard to determine the actual cost of generating electricity by using the energy the water’s potential or kinetic energy, as production related expenditures vary from plant to plant based mainly on the size and complexity of the facility and on the technology applied. On the whole, similarly to several other industries, the larger the HPP, the lower the unit cost is.

152 Source: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=SEC:2008:2872:FIN:EN:PDF

153 https://odin.jrc.ec.europa.eu/SETIS/SETIS1.html

Source: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=SEC:2008:2872:FIN:EN:PDF

Figure 16: Cost structure of HPPs including initial capital investments and O&M costs for 50 years of operation (in EUR2007)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Hyd

ropo

wer

2 M

W

Hyd

ropo

wer

10 M

W

Hyd

ropo

wer

20 M

W

Hyd

ropo

wer

75 M

W

Hyd

ropo

wer

250

MW

EU

R/k

W

O&M costCapital investment



In case of SHPPs (under 10 MW) both production-related costs and initial investments can differ considerably depending particularly on the head of the plant. Moreover, capital expenditures are also infl uenced by the fl ow rate, local geological and topographical characteristics, the type of HPP (run-of-river, storage, pumped storage) and the equipment applied (turbines, generators), and as a consequence the volume of related civil engineering works needed. Those projects which operate with low head and high fl ow usually require a relatively higher initial investment.

Large HPPs usually have a greater impact on their environment, thus obtaining all necessary licenses might take longer compared to smaller ones, which can result in delays and cause extra losses. Besides external costs to be taken into consideration, there is a greater potential for cooperation and cost-sharing as these facilities can generate signifi cant additional revenues with multiple functions.

As a result large HPPs are usually competitive players in the electricity generation market compared to other conventional technologies, while smaller plants, particularly those operating with a low head, could face diffi culties without additional incomes such as state-level support or lack of extra charge allocated to electricity producers using fossil fuels for GHG emission.

As for the future, the cost of generating electricity in HPPs will probably remain stable, as this is a mature technology with low development potential. However, it is conceivable that installation-related capital expenditures may increase in the coming years, as within the last century many of the suitable locations have already been utilized, thus in many countries of the region only sites with less favourable conditions remained. Accordingly, further development efforts will probably concentrate on the installation costs – predominantly for small hydro plants. Recently, the most expensive facilities are the ones with low water heads and the cost per installed kW decreases rapidly as the height increases till about 15 metres (above this level capital expenditures get more and more stable). On the whole, this reveals two main directions of potential technological improvement in the future: reducing costs for heads smaller than the above mentioned 15 metres, and developments supporting reduced installation costs for facilities smaller than 250 kW as available sites for larger HPP projects could be limited in the coming years.154

Prospects in the CEE Region

Besides geographical and technological characteristics determining the success of HPP investments by infl uencing the cost of generating electricity, the economic environment must be supportive in order to run a profi table business. When analyzing the feasibility of such a project several aspects need to be taken into account. The current demand for electricity and current off-take prices on the target market or end-user tariffs have to be calculated,

154 Source: http://www.esha.be/fi leadmin/esha_fi les/documents/publications/publications/State_of_the_Art.pdf



as well as possible future trends in order to forecast future revenues. Among others the generation mix, import dependency and the energy strategy of the target country should also be taken into account, so that the need for hydro-based electricity generation compared to other technologies can be analyzed. Furthermore, a support system is implemented in most of the countries that may cover different types of hydro-based electricity generation, as well as EU or state funds that might be available to facilitate the realization of renewable and/or strategically important projects.

A comparison of the estimated generation cost and the current end-user tariffs in a target country could provide a starting point for analyzing the viability of a specifi c project. In Figure 17 a summary of relevant information on each CEE country is provided. The two left columns show the range of electricity generation related total costs in EUR/MWh in for both large and small scale HPPs. Electricity retail prices for medium size households and medium size industrial consumers without taxes in the CEE countries as of 2007 are also included.

Source: KPMG elaboration based on data provided by working papers of the European Commission, Eurostat, Energy Community

Figure 17: Hydro generation cost in the EU versus electricity prices in the CEE region (2007)

151

193

129

10295 90 89

77 74 70 66 64 58 5855

37 33

93

81

54

78 7570

54 51

67

5344 49 47

3225

86

69

55

0

20

40

60

80

100

120

140

160

180

200

Gen

erat

ion

cost

rang

e –

larg

e hy

dro

Gen

erat

ion

cost

rang

e –

smal

l hyd

ro

Slo

vaki

a (S

K)

Hun

gary

(HU

)

Pol

and

(PL)

Cze

ch R

epub

lic (C

Z)

Slo

veni

a (S

I)

Rom

ania

(RO

)

Alb

ania

(AL)

Cro

atia

(HR

)

Kos

ovo

(KO

)

Mon

tene

gro

(ME

)

Lith

uani

a (L

T)

Est

onia

(EE

)

Latv

ia (L

V)

Bos

nia

and

Her

zego

vina

(BA

)

Bul

garia

(BG

)

Mac

edon

ia (M

K)

Ser

bia

(RS

)

EU

R/M

Wh

electricity prices – household consumerselectricity prices – industrial consumers

possible effect of state subsidies

expected future development of electricity prices

37

84

63



As for ranges of generation cost it should be noted that the minimum and maximum values originate from the working papers of the European Commission155 which summarize information about certain projects. Their scope includes countries beyond the CEE region with relatively high GDP, labour cost and consumer prices. Thus, it is likely that the level of generation costs in the countries surveyed can be found somewhere in the lower segment of the higher ranges, close to the minimum level.

Electricity prices presented in the fi gure are average values based on information provided by Eurostat and Energy Community. Accordingly, it is conceivable that lower prices exist in case of large industrial consumers and higher prices for small households. Therefore, the exact prices shown in the fi gure serve as a basis for a general comparison only. In addition, the fi gure shows the situation as of 2007, and while generation costs of HPPs are expected to remain stable, electricity prices are expected to grow in the long run after economies recover from the global fi nancial crisis.

Based on the the comparison provided in Figure 17, generating electricity in HPPs is likely to become profi table in most CEE countries. Based on 2007 electricity prices, projects aiming to develop large-scale facilities appear risky only in Macedonia and Serbia, while 70% of the countries (including most of the large ones) provide an appropriate economic environment for SHPPs – even if there were no subsidies other than off-take price based support.

The electricity generation cost values for SHPPs presented here include all relevant expenses, however the opportunity of applying for various state subsidies has not been taken into account in the comparison. External support in the form of feed-in tariffs, green certifi cates, investment subsidies, etc. results in additional funds or revenues, thus decreasing generation cost directly or indirectly. Therefore, although it is more expensive to produce electricity in SHPPs compared to large facilities, such development projects often proved to be excellent investment opportunities in the past. For more detailed information about the impact of support systems on the economics of SHHPs, please see Figure 18. Please note that the following prices are average values in most EU member states. In case of the Czech Republic a range is shown as the tariff setting methodology can be chosen by the generators from feed-in-tariff and green premium. Furthermore, average prices could not be determined in some non-EU countries, thus – instead of discrete values – ranges are provided based on minimum and maximum tariffs determined by national regulations.




Again generation cost calculations are based on worldwide experience, thus the CEE cost range is expected to sit in the lower segment of the indicated range.

As can be seen in Figure 18 all CEE countries promote electricity generation in SHPPs and have some kind of a support system that can include, among others, a feed-in-tariff system. However, based on the maturity of the market and the history of regulation, on policies and on geographical characteristics a wide range of prices might occur in different countries; tariffs can also vary within one country primarily depending on the parameters of the facilities. When comparing generation costs to takeover prices of local markets, it is apparent that most CEE economies provide a benefi cial environment for SHPP investments – profi tability may be uncertain in Lithuania, Estonia and Bosnia only. However, it has to be taken into account that generation costs presented in Figure 18 provide a range of reference only, while focusing on specifi c project characteristics it is conceivable that investing in SHPPs still might result in a pay off in the above cited countries.

Source: KPMG elaboration based on data provided by European Renewable Energies Federation - Prices for Renewable Energies in Europe, Report, 2009 and www.ceteor.ba/images/stories/savjetovanje/403.pdf

*Please note, that tariffs are calculated based on 2009 information and modified with inflation in order to present comparable values given in EUR

2007

Figure 18: Generation cost of SHPPs in the EU versus relevant feed-in-tariffs in the CEE region (2007)

193

113

94 91

176

94 93 9281 78 77 75

6858

63

65

92

505254

91

36

5742

0

20

40

60

80

100

120

140

160

180

200

Gen

erat

ion

cost

ran

ge –

sm

all h

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Latv

ia (L

V)

Mac

edon

ia (M

K)*

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Pol

and

(PL)

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a (S

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Cze

ch R

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Z)

Rom

ania

(RO

)

Ser

bia

(RS

)*

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)

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garia

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Alb

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*

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ovo

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onia

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)

Bos

nia

and

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)*

EU

R/M

Wh

maximum priceminimum price

31



After a global, high level analysis of the opportunities in a target country – as part of a usual power plant project feasibility check – the next step should be a detailed merit order analysis of the target country’s power generation sector, which is defi ned by installed capacities and generation costs. The merit order along with a demand forecast indicate how high the utilization ratio of the planned plant will be. In general, as HPPs (excluding pumped storage power plants) generate electricity at a very low-cost level as they operate without consuming fuel, such units are usually placed in the fi rst section of the merit order rankings. Figure 19 illustrates a fi ctive merit order with price/cost plus margin on the Y-axis and demand/production volume on the X-axis.

Figure 19: Merit order analysis – hydros usually take first place in the ranking (Capacity A or Capacity B)

Supply curve

Capacity A Capacity B Capacity C Capacity D Capacity E

Q

P

Q

P

Q+Qe

Pe Export

Renew-ables

Q+Qe-Qr

P(e-r)

Demand


9.2. A Comparison with Other Power Plant Types

As emphasized in this report, producing electricity via HPPs is relatively cheap compared to other technologies.

In general a power plant’s main costs comprise:

initial capital expenditures

operation and maintenance related expenses and

fuel costs, if applicable (for thermal and thermonuclear plants or if fossil fuel is burnt as secondary fuel as for concentrating solar power).

European Union working papers156, which provide reliable data about certain EU power plants, were used as a basis for compiling the main expenses of various technologies. In addition to providing information about natural gas, oil, coal, nuclear-fuelled power plants and renewable generation methods, a distinction is made between special production types within these categories as well. The result is a more comprehensive analysis.

Figure 20 shows a comparison of several power plant types’ capital expenditures by providing cost ranges for each technology as well as an reference cost level, which is determined by the European Commission.



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As is apparent in the fi gure, fossil fuel-based technologies, especially natural gas fi red power plants, are the cheapest per kW in terms of initial investment needs. Oil and coal are somewhat more expensive in terms of capital expenditure, and power plants equipped with carbon capture and storage related facilities may cost even more. The installation of nuclear power plants involves enormous investments on the whole that result in upper-level costs per kW compared to the other prevalent technologies representing a high share in TPES. Renewable energy generation usually requires a high level of capital expenditure (excluding on-shore wind and landfi ll gas), and solar power is the most expensive among the technologies considered here. In general, HPPs are relatively competitive regarding the reference investment cost per installed kW – although they might necessitate varying but always-signifi cant initial outlays depending on their size. The investment cost of an SHPP per 1 kW of installed capacity is considerably more expensive than large facilities.

Source: European Union with KPMG elaboration

0

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Figure 20: Range and accepted reference level of overnight capital expenditures by power generation technology (2007)



However, in order to provide a more comprehensive comparison of technologies, a wider scale of factors must be considered such as the life-time of the facilities, O&M related expenses and fuel costs.

As an example, HPPs usually have a longer economic life than other types of plants: 50 years or more compared to an average of 25 years for natural gas-fi red technologies. This aspect will also be taken into consideration in the cost structure of different technologies in Figure 21 which follows.

Modern hydro plants are usually automated and require only a few on-site personnel, thus operation and maintenance costs are also typically low. In Figure 21 the annual O&M expenses per kW of different power generation technologies is presented in EUR2007. It should be noted that, similarly to Figure 20 presenting capital expenditures, an accepted reference level and range are shown based on European Union153 working papers. However, ranges for this type of costs for HPPs were not disclosed, thus reference levels have been calculated for the analyzed HPP facility sizes: 2 MW, 10 MW, 20 MW, 75 MW and 250 MW.

Source: European Union with KPMG elaboration

Figure 21: Range and accepted reference level of annual O&M costs by power generation technology (2007)

0

50

100

150

200

250

300

350

Ope

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Gas

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There is a notable divergence in annual O&M costs per kW among HPPs depending on the size of facilities. Small-scale biomass combustion cycles’ and biogas plants’ O&M costs are reasonably higher compared to the average, while the operation of landfi ll gas plants are quite expensive as well. Reference values for fossil fuel generation tend to be low with the exception of technologies with CCS. Nuclear power plants are reckoned rather expensive primarily because of the special safety requirements. When analyzing renewable generation related O&M costs, hydro appears benefi cial compared to others, although large-scale facilities remain competitive.

When evaluating the viability of various power generation technologies, fuel cost also has to be taken into consideration – if it applies. As for an HPP there is no fuel consumption, such a comparison on its own does not make sense. Figure 22 shows how high CAPEX, mid-range O&M expenses and non-existent fuel expenditures compare to the cost structure of 19 other generation technologies.

Source: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=SEC:2008:2872:FIN:EN:PDF with KPMG elaboration

-

100

200

300

400

500

600

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800

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Hyd

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EU

R/M

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Fuel costs O&M costs Capital investment

Figure 22: Range of production cost structure in case of various power plant types (annual values in EUR2007, corrected with load factor)



Final values have been calculated based on high and low case scenario production cost levels provided by the European Union158 distributed among fuel, O&M and CAPEX costs159.

Large-scale hydro power generation can be cheaper than other technologies, but its production cost varies over a wide scale, meaning that the parameters of a site highly infl uence the cost of production through CAPEX. SHPPs are also competitive on the market, although their similarly wide production costs range can obstruct their economic benefi t on conventional (or even some other renewable) technologies, so again careful site selection is vital for return on investment.

Most importantly, hydro power technology is capable of beating any other generation technologies in terms of generation costs, but to exploit this advantage sites need to be chosen very carefully to keep CAPEX (fi rst of all) and OPEX as low as possible. In spite of the fact that enormous unexploited hydro power potentials are available in the CEE region, economically optimal sites are only available in a limited number, determined by three parameters:

1. geographic characteristics

2. current status of hydro power exploitation (the ratio of occupied sites) and

3. electricity price level.

First mover advantage is vital in this sector to obtain the most valuable locations.

CCGT, coal and nuclear fi ssion plants represent the cheapest power plant technologies which challenge the competitive advantage of large scale HPPs.

Fossil-fuel power plants are more expensive than the lower limit of HPPs’ cost range. Their range is much narrower, less dependent on geographical determination, but more dependent on fuel costs. Gas and oil-fi red plants are relatively cheap to build, but they may be less profi table because of signifi cant fuel costs even if a low price scenario is assumed.

Coal-fi red plants represent a lower cost level, but they face an obligation to purchase vast CO2 quotas in the future, while renewable generators including HPPs could avoid this obligation.

Nuclear fi ssion plants represent a slightly higher cost level than fossil plants, including higher CAPEX and OPEX, but bear lower fuel cost. Thus nuclear plants’ cost level is more predictable than fossil/thermal plants’.


159 Please note that for Concentrating Solar Power the use of natural gas for backup heat production is assumed



Another large advantage exists for hydropower versus low cost fossil or even nuclear plants. Due to the low level of variable costs hydro facilities are not excluded from the merit order, as long as the price covers the variable O&M costs. In comparison gas-fi red plants are immediately closed out of the merit order or start generating loss as soon as they are unable to cover their high fuel costs and their O&M costs.

The chart above illustrates convincingly the economic competitiveness of hydro power generation technologies as the only renewable technology capable of outpacing thermal power plant technologies, purely in terms of economic viability.

9.3. Cooperation and Cost Sharing

Large hydro dams typically provide alternative utilization opportunities, such as irrigation, fl ood control, navigation, recreation, interconnection for road transportation and utilities, etc. that may result in extensive cooperation, and as consequence cost sharing opportunities for stakeholders; thus this can attract additional investors interested in other sectors. Such cooperation can result in both CAPEX and OPEX reductions for a power generation investment or additional income from the secondary utilization depending on the nature of the cooperation. Also, applying for state support can be a realistic option, as such cooperation opportunities are broadly considered as state responsibilities and, additionally, during construction many jobs may be created for locals and opportunities usually arise for service providers, thus likely resulting in prosperity for the local economy. Furthermore, due to the formation of a lake recreational possibilities may arise that facilitate tourism.

In contrast, utilization of existing weirs and dams by installing power generation capacities could remarkably reduce their initial investment costs as well as decrease the level of overall environmental burden by saving on fossil fuels and eliminating their emissions. Consequently, for a multi-purpose dam (which provides additional equity, incentives or future revenues for the project) both risks can be reduced and the payback period can be shortened.

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Although hydro power bears the largest share of generation among the renewable technologies, still less than one-third of the technical hydro power potential is being exploited in the CEE region. This tremendous unused technical potential promises a number of project opportunities and the favourable long term fi nancial attributes of HPPs make HPP investments attractive for strategic investors.

It should be noted that HPP investments, especially large HPP investments have a signifi cant downside regarding achieving public consensus (as illustrated in several cases), but by involving all shareholders in the planning and implementation processes and employing the appropriate preventive actions these risks might be mitigated.

Hydro Power Potential Index

As a comprehensive summary of both country profi les and the economic aspects this report provides an indicative tool for comparing the countries surveyed here: the Hydro Power Potential Index is based on unused technical potential, average electricity prices and the electricity consumption of the individual countries. It is aimed at creating a ranking regarding the investment potential density of countries in the CEE region.

The formula of the index is as follows:

The higher index fi gure indicates better potential. Please note, that in order to facilitate the analysis the fi nal values were divided by 1,000.

As the illustration reveals, some of the small countries on the Balkan Peninsula such as Albania, Bosnia-Herzegovina, Montenegro or Slovenia have tremendous untapped hydro investment potential, but the unused potential of other CEE countries leaves opportunity for hydro power investments.

10. Investment Potentials

Hydro Power Potential Index of CEE countries

� x > 30

� 30 ≥ x > 15

� 15 ≥ x > 8

� 8 ≥ x

17

28

16

9

203

41

790

1337

17

11

2

6

11

9

2

Unused technical HPP potential (GWh) * Electricity price (EUR/kWh)

Electricity consumption (GWh) /1000



This index does not incorporate state subsidies offered for these investments by the region’s governments. Overall prospects can be radically altered by this factor, but naturally in a positive way. In order to take this aspect into consideration as well, another similar index was created aiming to rank the potential of small hydro investments in the CEE region, but it was necessary to devise index provisions, because of the limited availability of relevant information. In case of SHPPs only economic potential was available in terms of installed capacity (MW) instead of technical potential of electricity production (GWh) as in the previous index. In line with the previously introduced index the price of electricity was also incorporated, however, the maximum offered subsidized off-take price was used. In order to facilitate the analysis the fi nal values were multiplied by 100.160

The result of the calculation shows that – again – some of the Balkan countries may be the best places to invest in SHPPs, highlighting the attractiveness of Romania. In general, less developed countries with a higher level of state support combined with suffi cient geographical characteristics (like Montenegro and Macedonia) provide a more benefi cial environment for such project developments, while, as could be expected, fl at countries appear to be less attractive (like the Baltics and Hungary).161

Small Hydro Potential Index of CEE countries

� x > 150

� 150 ≥ x > 75

� 75 ≥ x > 40

� 40 ≥ x

52

158

281

71

175

362

114180

74101

4

61

25

21

19

n/a

14

160 Please note that there is no reliable data available with regard to the economic potential for small hydro in Latvia. However, based on geographical characteristics, on information provided by the World Energy Council and on the renewable strategy of the country (a target of 50MW small hydro is set for 2010 while an annual generation of 150-300 GWh up to 2025 is assumed), it is conceivable that the potential is relatively low. Furthermore, trustworthy information regarding this topic could not be found for Bulgaria either.

161 The rankings of Romania and Slovakia are defi nitely a surprising. However, the economic potential used in the calculation is based on information provided by the World Energy Council as of 2005 and might be out of date due to technological development and changes to the market environment. Thus, although in fact in these countries there is a signifi cant amount of existing installed SHPP capacity, the relatively low index values might be a result of unreliable data for hydro potential and should be evaluated accordingly.

Unused economic SHPP potential (MW) * Maximum off-take price (EUR/kWh)

Electricity consumption (GWh) *100



SWOT Analysis

This SWOT analysis is aimed to shed light on the major positive and negative attributes of HPP investments:

Strengths

No fuel requirement

Low operational costs

The highest effi ciency amongst all generation technologies

Power generation without direct GHG emission

Controllable performance

Electricity system balancing capabilities

Multipurpose capabilities (navigation, irrigation, fl ood control, etc.)

Stable water supply

Long lifetime

Matured technological background

Opportunities

Unused hydro potentials

EU RES and RES-E targets and Kyoto mechanisms stipulate (amongst other renewable) hydro investments

Hydroelectric upgrade of existing dams

Weaknesses

Location dependent technology

High initial investment needs

Long lead times for project realization

Needs considerable public support

High rate of cost and time overruns

Load factor might be restricted by weather characteristics

Threats

“Hydrological risk” – changes in rainfall patterns due to global warming

Possible environmental impacts

Political issues hindering the projects



BALTSO – Baltic Transmission System Operators

BiH – Bosnia and Herzegovina

CAPEX – CAPital EXpenditure

CCS – Carbon Capture and Storage

CEE – Central and Eastern Europe

CER – Certifi ed Emission Reduction

CDM – Clean Development Mechanism

DSO – Distribution System Operator

EBRD – European Bank for Reconstruction and Development

EC – European Commission

EIU – Economist Intelligence Unit

ENTSO-E – European Network of Transmission System Operators for Electricity

ERU – Emission Reduction Unit

ET – Emission Trading

EU – European Union

EU ETS – European Union Emission Trading System

GHG – GreenHouse Gas

GW – GigaWatt

GWh – GigaWatt hour

GDP – Gross Domestic Product

HPP – Hydro Power Plant

Acronyms


JI – Joint Implementation

kW – kiloWatt

kWh – kiloWatt hour

MW – MegaWatt

MWh – MegaWatt hour

NARUC – National Association of Regulatory Utility Commissioners

NPP – Nuclear Power Plant

OPEX – OPerational EXpenditure

O&M – Operation and Maintenance

PR – Public Relations

PS – Pumped Storage

PSPP (or PSP) – Pumped Storage Power Plant

S – Storage type HPP

RES – Renewable Energy Sources

RES-E – Electricity from Renewable Energy Sources

RoR – Run-of-River

SHPP – Small HPP

SWOT – Strengths, Weaknesses, Opportunities, Threats

TPES – Total Primary Energy Supply

TSO – Transmission System Operator

TW – TeraWatt

TWh – TeraWatt hour

UCTE – Union for the Co-ordination of Transmission of Electricity

UNFCCC – United Nations Framework Convention on Climate Change

USAID – U.S. Agency for International Development


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KPMG is a global network of professional fi rms providing audit, tax and advisory services. We operate in 146 countries and have more than 140,000 professionals working in member fi rms around the world.

KPMG’s Power & Utilities practice has one clear vision: to be the leading provider of professional services to the power and utilities sector. This means more than just having a strong client base. KPMG member fi rms provide services to numerous global power and utilities businesses, state-owned providers, national businesses and service companies across many regions.

KPMG member fi rms offer global connectivity. We have 12 dedicated Power & Utilities Centres of Excellence in key locations around the world, working as one global network. They are a direct response to the rapidly evolving power and utilities sector and the specifi c challenges that this is placing on industry players.

Located in Budapest, Calgary, Dallas, Essen, Hong Kong, Johannesburg, London, Melbourne, Moscow, Paris, Sao Paulo, and Tokyo, the centres support companies in the upstream, downstream and service industries around the world, helping them to anticipate and meet their business challenges.

What can KPMG Firms Offer to the Hydro Power Sector?

London

Johannesburg

Calgary

Tokyo

Melbourne

Hong Kong

Dallas

Sao Paulo

Paris

Budapest

Essen Moscow

Power & Utilities Centres of Excellence in key locations around the world



In each centre, there are professionals with practical, in-depth power and utilities experience. They draw on our wider global network of power and utilities practitioners to provide our clients with immediate access to the latest industry knowledge, skills, resources and technical developments.

Our Centres of Excellence also enable us to transfer knowledge and information globally, quickly and openly. With regular calls and effective communications tools, we share observations and insights, debate new emerging issues and discuss what is on our clients’ management agendas. The Centres also produce regular surveys and commentary on issues affecting the sector, business trends, changes in regulations and the commercial, risk and fi nancial challenges of doing business.

Building on the resources and knowledge base of the KPMG global network of member fi rms, our regional industry practice has access to market information both on a global and regional basis. This allows us to offer strategies to our clients on both domestic and international assignments based on international experience and detailed knowledge of the local market.

KPMG’s Advisory services to the Power & Utilities sector

We provide complex advisory services to all of the links in the value chain, as illustrated by the following references:

Strategy

Market analysis and forecasting within the Central and Eastern European energy sector

Overview of European regulatory regimes and industry models

Impact assessment of regulations

Regulated price setting methodology

Detailed industry benchmarking studies

Assistance with national energy policy creation

Customer segmentation, competitive product development, sales channel development

Unbundling strategies

Financial modelling

BG

RO

MK

KO

AL

ME

RSBA

HRSI

HU

SK

CZ

PL

LT

LV

EE

KPMG practices in the Central and Eastern European region



Operational

Development of detailed domestic operational models and regulatory regimes

Tariff structure and calculation modelling

Finance function and key performance indicators development

Energy trading function development

Maintenance function development

Organization development and cost optimization

Support of regulatory cost reviews

Strategy for fi nancial management of assets’ maintenance and renewal

Strategy for the monitoring, management and motivation of work crews in the terrain

Predicting weather dependent time series in the energy sector

Transactions

Initial feasibility study

Financial and commercial forecasts

Mergers and acquisition planning and implementation support

Preparation of energy procurement, tender preparation, bid evaluation, contracting support

Assistance with tendering and license acquisition

Project coordination involving engineering and law fi rms

Investor search



Modelling

StrategicCommercialIntelligence

Commercial due diligence,market assessment feasibility

AuditAccounting /reporting issuesidentification

Transaction-related accountingstandards, understanding /interpretation (international)

Tax Tax due diligence Post transactionintegration

Taxefficientexit

-Creation of taxefficient dealstructures

BusinessPerformanceServices

Analysis in support ofcontract compliance anddispute resolution, analysisin support of renew /dispose decisions

Project management and change management support, operational due diligence support, organisational design/ restructuring, contract managementprocess design, performance metrics

Project management support,transaction impact analysis(stakeholders, etc.), organisationalimpact assessment, changemanagement, public sector andinfrastructure sector knowledge

RiskManagement

Risk analysis and assessment, retained risk / technical risk analysis, advice on risk-sharingissues, advice on valuing risk for inclusion inpricing mechanism options, regulatory /legislative compliance assessment

Information management /security assessment,privacy protection issuesadvice, risk mitigation /monitoring

Monitoring of majorprogrammes

ForensicUpfront corporate intelligence,counterparty integrity due diligence,conflict of interest management

Counterparty risk assessment(fraud / criminal risk)

Contract compliance andgovernance –royalty review

TransactionServices/Restructuring

Restructuring: On-going contractcompliance and performancemonitoring (covenants, financialmetrics / gain sharing, capex)

Initial financial / commercial /counterparty solvency duediligence

Detailed due diligence,investigation of negotiating issues

CorporateFinance

Strategy planning / support, financialmodelling / model integrity review(demand planning / financial forecasts),assess delivery options / funding / pricing/ risk sharing, develop procurement /transaction strategy, initial transactionvaluation support

Support vendor / partnerevaluation and selection process,finalise business case, supportdeveloping negotiating positions,support fulfilling closingconditions

Support to subsequent contractchanges, dispute resolution,annual investment valuation /review and refinancing

ProcurementInfra-

structureStrategy

TransactionStrategy

Implemen-tationPlan

Negotiateand Close

Implement Monitorand Control

Renew/Dispose

KPMG Services

PROGRAM MANAGEMENT

New Investments

Across the globe, KPMG member fi rms provide clients with offerings in relation to the following services:



Modelling

PROGRAM MANAGEMENT

InformationRiskManagement

Systemsoptimisation,IT governance

Pre-deal strategyStrategicCommercialIntelligence

Commercial due diligence

AuditAccounting /reporting issuesidentification

Transaction-related accountingstandards, understanding /interpretation (international)

Creation of tax-efficientdeal structures

Tax Tax due diligence Post transactionintegration

BusinessPerformanceServices

Performance improvement /value realisation, mergerintegration, ongoingperformance monitoring,analysis in support of renew/ dispose decisions

Project management and changemanagement support, operationaldue diligence support, organisationaldesign / restructuring, contractmanagement process design,performance metrics

Project management support, transactionimpact analysis (stakeholders, etc.),organisational change management,public sector and infrastructure sectorknowledge

RiskManagement

Risk analysis and assessment, retained risk /technical risk analysis, advice on risk-sharing issues,advice on valuing risk for inclusion in pricingmechanism options, regulatory / legislativecompliance assessment

Information management /security assessment,privacy protection issuesadvice, risk mitigation /monitoring

Design of governance,compliance and controls

ForensicUpfront corporate intelligence,counterparty integrity due diligence,conflict of interest management

Counterparty riskassessment (fraud /criminal risk)

Contract compliance andgovernance – royalty review

TransactionServices /Restructuring

Initial financial / commercial /counterparty solvency due diligence

Detailed due diligence,investigation of negotiatingissues

Restructuring: ongoing contractcompliance and performancemonitoring (covenants, financialmetrics / gain sharing, capex)

CorporateFinance

Strategy planning / support,deal criteria / objectives,initial opportunityidentification / assessment,pre-deal evaluation, financialmodelling

Deal hypothesis, transactionstructuring, detailed financialmodelling / model integrity review,demand planning / financialforecasts, initial transactionvaluation, bid strategy, bidpreparation

Support bid analysis,investigate / model issues,incorporate risk analysis /mitigations, developnegotiating positions,fulfill closing conditions

Support forsubsequentcontract changes,dispute resolution,annual investmentvaluation / review

Enhance/Operate

Negotiateand Close

DueDiligence

Renew/Dispose

OpportunityIdentification/Assessment

AcquisitionStrategy

DealHypothesis/TransactionStructuring

BidPreparationAcquisitions

KPMG Services

Across the globe, KPMG member fi rms provide clients with offerings in relation to the following services:



KPMG’s Energy and Utilities Advisory Services’ Thought Leadership publications

Central and Eastern European Nuclear Energy Outlook – in English

Central and Eastern European Renewable Electricity Outlook

KPMG Energy Yearbook 2008 – in Hungarian

Central and Eastern European Nuclear Energy Outlook – in Hungarian

“Think BRIC! Key considerations for investors targeting the power sectors of the world’s largest emerging economies” – Comparative study

Central and Eastern European District Heating Outlook

Global Power and Utilities – KPMG’s Profi le and Perspectives

Prospects for the Central and Eastern European Electricity Market

KPMG Energy Yearbook 2010 – in Hungarian

KPMG Energy Trend Observer

A monthly, bi-lingual (English-Hungarian) electronic newsletter.

You can subscribe to the newsletter/order our free publications by sending a request to: [email protected]

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity.


KPMG’s Energy & Utilities Advisory Services contact in Central and Eastern Europe

Péter KissKPMG’s Global Head of Power & UtilitiesHead of Sector, Energy, KPMG in Central and Eastern EuropeT: +36 1 887 7384M: +36 70 333 1400F: +36 1 887 7392E: [email protected]

If you would like to order further copies of this publication please send an E-mail to [email protected]

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