Energy & Competitiveness Twist Throughout Western Balkans

Aleksandar KovacevicSenior Visiting Research Fellow

Oxford Institute for Energy Studies

Western Balkans: Energy and Competitiveness Twist

• Overview• Governance

– Natural resource (& transit) rents– Barriers to entry– Access to international markets

• Supply – Energy cost and energy efficiency– Adequacy and security of supply

• Demand– Domestic aggregate demand and its– Seasonal character

1 Wood services Land Use REM Water Resources Crude oil resources

Direct wood resources

Indirect wood resources

Crude Import

Natural gas & regulation services import

Underground mines

Open pit lignite mines

Oil refineries Natural gas mains &

regulation

HPPs Handling & transport

TPPs

Drying facility

Oil products

Mazut

Energy Services

Storage & Blending

Transport

HoBs

Fuel wood / lignite retail market

Natural gas resources

Cutting & Transport

Storage

Storage

Storage

Storage

Transport Transport

Household Storage

T&D Grid, Metering, Billing & Collection

DH Grids

Filling stations

Distribution M&B&C

Retail market

Vehicles Heating devices

Heating devices

Appliances DHW tanks

Solid fuels burning devices

DHW Services

Heating Services

Houses

Apartment buildings

DH services

Cooking services

Food storage

Transport services

Mechanical services

Lighting

Living Space

Settlements

Inhabitants

Facilities Surrounding Areas

Import

Import

Concerns and Objectives

• Security of Supply

• Energy supply to selected social clusters

• Social affordability

• Budget revenues

• Natural Resource Rents

• Transit fees and rents

Key Energy Challenges:

1. Capacity building and policy formulation

2. Energy market reform and regulation

3. Energy security

4. Energy Efficiency

5. Environmental policy and climate change

6. Energy Poverty

7. Energy cooperation and trade

8. Oil and transportation in Southeast Europe

Western Balkans Region

Economic Overview

Energy Overview

Energy Indicators

Some Comparisons

New HV links support potentially lucrative electricity trade with the rest of Europe enhancing notion of opportunity costs but doing

little about market access and lowering barriers to entry

Access to international natural gas markets brings potential to lower barriers to entry to power markets and remove rents

thus improving quality of governance

Source: Aleksandar Kovacevic, "Potential Contribution of Natural Gas to Sustainable Development in South Eastern Europe", Oxford Institute for Energy Studies, 2007

http://www.oxfordenergy.org/pdfs/NG17.pdf

Tightening electricity supply situation

Power markets structure demonstrates poor diversification of generation portfolio

SEE lignite industry in the European context

Commitment to Environmental Remediation

While about 1/3 of electricity is generated from hydro sources, that are unpredictable and getting

more volatile

Source: EPCG

Secondary adjustments of industrial output

INDUSTRIJSKA PROIZVODNJA SRBIJE 2001–2009.INDEKSI (Ø 2008 = 100)

70

75

80

85

90

95

100

105

110

115

jan.

01

apr.0

1ju

l.01

okt.0

1ja

n.02

apr.0

2ju

l.02

okt.0

2ja

n.03

apr.0

3ju

l.03

okt.0

3ja

n.04

apr.0

4ju

l.04

okt.0

4ja

n.05

apr.0

5ju

l.05

okt.0

5ja

n.06

apr.0

6ju

l.06

okt.0

6ja

n.07

apr.0

7ju

l.07

okt.0

7ja

n.08

apr.0

8ju

l.08

okt.0

8ja

n.09

Originalna serija

Desezonirana serija

Trend-ciklus

Energy supply situation• High-risk portfolio• Inadequate security of supply with high probability for

further deterioration• Natural resource rent management facilitates economic

performance demonstrating character of governance– Example: subsidized cost of district heating services

delivered to urban areas supporting “low labor costs of skilled work”

• Further deterioration likely to reveal high cost nature of energy supply and eliminate remaining traces of competitiveness

• Investment projects promoted by Governments not likely to affect the difficult trend

Fuel wood is fuel of choice for more than half of households while the reduction of heated space is common practice (Serbia and Kosovo examples)

0.3%

1%

60.5%

22.2%

12.2%

3.8%

Wood/coal

District heating

Electricity

Gas

Propane-butane gas

Petrol/gas/fuel

Source: UNDP Survey, 2004 / 2007

Kosovo heating strategy

Demand Side Effects

• High energy intensity associated with very high unit energy cost and ex-economy nature of fuel supply

• Current or latent high energy costs affect aggregate demand and its orientation toward imported consumer goods

• Contributes to seasonal character of demand and low utilization of infrastructure

• Supports further devastation of human capital

• In search for active public policy

Energy and poverty: Concept of Affordable Energy

• Total social costs of energy that could be covered by productivity gains facilitated by suitable and secure energy

supply

• In a way that the people could conduct economic activity to support

• Appropriate standard of living for themselves and their families within

• A healthy environment