Hunger for energy and needs of investments in power sector in CEE growing rapidly

2010-06-01

The demand for primary energy in the region of Europe and Central Asia will grow by 50% by 2030. If the countries of Central and Eastern Europe do not initiate investment programmes for the next 20 years, the problem of lack of energy sources may reach a dramatic scale and lead to energy destabilisation in the region.

The countries of Central and Eastern Europe and the Commonwealth of Independent States, being major suppliers of energy to Europe, may face an energy crisis within the next 5-6 years, as the demand for primary and electric energy will grow, while all the energy sectors in the region are underinvested and may not meet increasing needs, according to a report recently released by the World Bank (WB) regarding the outlook for energy in Eastern Europe and the former Soviet Union. Without major discoveries and boosting investments in infrastructure, the region as a whole may transform from being a net energy exporter to a net energy importer.
The expected decrease in primary energy supplies poses a threat not only to the CEE region, but also to the western part of the continent, which depends largely on energy imports. However, western European countries possess the finances to secure the necessary energy supplies. When considering the projections of Western Europe increasing its import needs while the region’s energy exports are set to decline, those countries of Central and South East Europe as well as members of Commonwealth of Independent States (CSE/CIS) which are dependent on energy imports but whose financial means are relatively lower will be in a worse situation. These states, according to WB, may be squeezed financially as well as in terms of access to energy.
Although some have domestic coal resources which could be expanded, growing concerns about greenhouse gas emissions and their influence on climate change are leading to demands pertaining to the reduction of acceptable domestic coal usage in European Union countries as well as in those which want to become EU members. In Central Europe, the Czech Republic and Poland feature sufficient reserves of coal to expand output by up to 2% per year. In 2005 the proportion of Central European electricity coming from coal accounted for 65%, the energy from nuclear power for 19%, while that from gas or other sources for 11%, according to WB. The future possibility of expanding production and improving efficiency in existing mines, or developing new deposits, will however greatly depend on the carbon and other emissions caps of the EU and the costs of obtaining emissions credits.
The other problem for the CSE/CIS region is energy infrastructure, for electricity generation and district heating in particular. Most facilities are old, many thermal plants, specially coal-fired, work unreliably and inefficiently, considerably polluting the environment at the same time. The generation facilities in the region are aging, while the investments in their modernisation have fallen since 1990. According to WB, almost 80% of all plants in the region were erected before 1980, meaning the average age of power plants is 35-40 years. Therefore the improvement of energy efficiency is considered one of the region’s major challenges. Investments in this field would have a great impact on, among others, improving energy security, decreasing greenhouse gas emissions along with strengthening sustainable economic growth.




As the region with old power plants and generation technology as well as a huge reliance on coal makes a huge contribution to global warming, fuel switching is currently one of the major long-term aims. As the gradual replacement of high-carbon fuels for low-carbon fuels is necessary, the directions being considered are the expansion of nuclear power and the expansion of renewable energy – several countries of the CSE/CIS region intend to take steps in this direction. The World Bank expects that between 2005 and 2030 nuclear power generation in this region will treble. It will be produced mostly in countries with existing plants, such as Bulgaria, Romania, Ukraine and Russia, but it will probably also come from some new planned projects, for example a new plant which is to be carried out by Poland and Latvia as investors and Lithuania as the host country.
Developing renewable resources is also becoming more intensively promoted in the region of Central Europe, particularly in those countries dependent on energy imports. Before the economic crisis foreign investments in wind power in Central Europe were growing and its increase is expected to continue once the market situation improves. In 2008 the annual growth rates for wind energy, according to WB’s data, reached 178% in Bulgaria, 95% in Hungary and 71% in Poland. The latter country is considered one of the most receptive countries, due to state support and land availability. By 2020 Poland is to have around 13 GW of renewable installed capacity.




According to World Bank estimates, over the next 20-25 years around $1.5tn (in 2008 dollars) in investments will be needed in the electric power sector in the region, plus another $500bn should be spent on district heating. The total projected energy sector investment requirements for the region amount to $3.3tn, i.e. 3% of accumulated GDP during the period. This scale of investment cannot be carried out by the public sector alone. Improving the investment climate and encouraging investors from the private sector to invest in this field seems to be essential.

Katarzyna Grabarz
Business Editor
PMR Publications