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Electricity sector of SEE

Our view on the electricity sector of South East Europe

Introduction

Faced with a harsh reality of environmental changes, energy policies across the globe started to focus on new sustainable energy solutions in order to reduce the negative impact the energy sector. Helped with favourable policies, the renewable energy sector has been recording significant growth rates during past years. It is a regulated sector that offers guaranteed returns. However, despite the rarity of guaranteed production offtake in other business branches, there are several serious drawbacks when investing in renewables.

We identified three key issues when investing in renewables:

Complex permitting procedures;

 

High capital requirements;

 

Demanding process of acquiring project funding.

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Macedonia in efforts to facilitate its energy transition

December 10, 2018

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Energy system offers complex investment opportunities that require a multidisciplinary approach in order to reconcile a string of technical and regulatory issues that projects face. The constricting and sometimes unstable regulation offers a string of issues that project developers have to address in order to produce a successful project. Regulatory issues are often particularly problematic when it comes to energy-related investments in the countries of South East Europe.

European energy policy

EU 2020-2030 targets

EU 2020 targets

Reduce greenhouse gas emissions by at least 20%

Increase the share of renewable energy to at least 20% of consumption

Achieve energy savings of 20% or more

1.

2.

3.

Main points

  • European Union carried out a number of regulatory actions on renewable energy sources, which have been prioritised as an environmentally sustainable and cost-effective source energy supply.

  • The promotion of a liberalised energy market and the ratification of the COP21 Paris and COP22 Marrakech  laid the foundations for a common European policy that identifies the actions to be taken to build an energy system in line with environmental protection and consistent with sustainable development.

  • The framework (2030) was adopted by EU leaders in October 2014 and is based on the Climate and Energy 2020 package.

EU 2030 targets

Reduce greenhouse gas emissions by at least 20%

Increase the share of renewable energy to at least 20% of consumption

Achieve energy savings of 20% or more

Achieve energy savings of 20% or more

1.

2.

3.

In order to fulfil environmental goals, rather aggressive developments strategies are put in place across the globe. Renewable energy represents one of the cornerstones upon which a sustainable energy system of the future is to be built. Following a path towards a 100% renewable energy system offers a number of difficulties. Inconsistent regulation causes uneven market positions for different participants. These problems are both territory and technology related as countries offer various incentive schemes and have different implementation issues.

 

As the implementation of renewable energy sources (RES) progressed, some countries faced serious issues undermining their respective policies. Offering high feed-in tariffs and having no limitations on the maximum installed generation capacity proved to be too heavy of a burden for the rest of the energy sector. There are two constricting issues regarding a fast-paced implementation of renewables strongly present in the region:

 

Technical constraints regarding the integration of renewables on the grid are all related to the volatile nature of their production. Thermal power plants utilising renewable sources of energy such as biomass and biogas are able to offer a constant output throughout the year. However, these units are tied to several constrictions that limit their large-scale implementation. On the other hand, wind and solar are the dominant sources of renewable energy, but cannot guarantee a constant power output. This is where the specificity of electricity as a commodity comes to play. Until electric energy cannot be stored at a more significant quantity, it will have to be produced and consumed instantaneously. Having a high penetration of intermittent energy sources such as wind and solar can cause supply interruptions. Needless to say, each disruption in energy supply is potentially very costly to the economy as a whole. Balancing out the intermittent production of wind farms and photovoltaic units requires significant infrastructural investments and raises operational costs through several types of balancing services.

Issues related to the implementation of renewables forced a number of countries to invoke a maximum quota of installed capacity. Additionally, as the economic gap between renewables and traditional energy sources is gradually reduced, so are the incentives. Helped with quotas and incentive reductions, both technical and financial risks the energy sector is exposed at are limited to a desired extent. However, from an investors’ perspective, a constricting regulatory framework and tight profit margins generate a considerable amount of uncertainty complicating investment decisions.

 

Confronted with a fast-changing sector characterised by a strict regulatory framework and placed within a complex technological environment, players of the energy market require multidisciplinary knowledge upon which to base their investment decisions.

Technical constraints of the system

Financial limitations of the sector

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Climate change is frequently referred to as one of the defining challenges of the twenty-first century. We concur. In broad terms, the climate challenge is relatively straightforward. However,  clean energy transition is not easy. The political economy of energy transitions is of interest across both the developed and developing worlds. As emphasized, the mitigation challenge cannot be addressed by developed countries alone.

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