Cheaper than lignite: an open debate about Kosovo’s energy options

After repeated calls for a proper study of alterative energy options in Kosovo, the World Bank published a Background Paper on the Development and the Evaluation of Power Supply Options for Kosovo in December 2011. In the Executive Summary the purpose of the paper is explained:

World Bank support for coal-fired projects requires that full consideration be given to other viable alternatives and their economic costs, as compared to the coal-fired alternative.

This paper therefore analyzes the cost of the alternatives available to Kosovo for meeting energy consumption and peak demand until 2025 and presents a consolidated review. The analysis includes consideration of the environmental externalities associated with each option.

The paper concludes that there are available alternative energy options in hydro and wind, however:

“Even if all of this renewable capacity could be built by 20178, there would be a remaining gap for firm base-load capacity which averages about 600 MW in the period 2017-19, and grows to about 1,000 MW by 2025.”

INDEP and Sierra Club analyzed this document and published their assessment of it in January 2012 – Revaluating Kosovo’s Least Cost Options. This assessment saw major flaws in World Bank’s background paper:

“The Background Paper erroneously concludes that over 1,200 MW of base load generating capacity should be brought online before load following and peaking generating needs are determined, current distribution waste and theft are reduced to reasonable levels, and end use efficiency opportunities are quantified and implemented.”

And recommended that reduction of losses, improvement of energy efficiency, improvement of Kosovo B power plant and development of the renewables (which were also mentioned in the WB Backgrounder) should be implemented first, before a new plant is considered. New lignite fired power plant, the assessment concludes, will be too costly and does not represent a least cost energy option.

It also called on the World Bank to get an independent assessment of the various Energy Options in Kosovo.

At the same time, RAEL – Renewable & Appropriate Energy Laboratory Energy & Resources Group?University of California, Berkeley, had started working on an independent study of their own that reached the same conclusions as the INDEP/Sierra Club assessment. RAEL’s study looks into the potential for renewable energy options in Kosovo – published in January 2012 (and revised in May 2012) – titled Renewable Energy Options for Kosovo. It concludes that the current plan of the Kosovo Government to build a new power plant:

 “…dominated by an expanded use of low-quality coal, is not the least-cost energy option for Kosovo given the social cost of thermal generation. A coal dominant energy path burdens future generations with an energy mix that is neither environmentally sustainable nor is it a path that maximizes job creation.”

And recommends:

“The priority is placed on Energy Efficiency and Electricity grid improvement and International financial assistance is allocated towards these issue prior deciding on new thermal generation.”

In April 2012, the World Bank wrote a confusing response to the Assessment that the INDEP/Sierra Club had produced. It concluded that it agrees with the notion that losses should be reduced, yet it kept arguing that the energy production capacities needed to satisfy base demand are more than double than what the data suggests. This, of course, leads them to conclude that there is a need for a new lignite fired power plant (see: Kosovo’s Energy Options: Response to the Sierra Club/INDEP Report: Re-evaluating Kosovo’s Least Cost Electricity Option).

(Please note that Kosovo Electricity Corporation – KEK – also wrote a long response to the INDEP/Sierra Club Report. It is in Albanian and can be found here: Analiza dhe Komenetet e KEK-ut mbi Raportet e Sierra Club Appendix)

In July 2012, INDEP and Sierra Club wrote a response to the World Bank reiterating its proposal for how Kosovo can meet its energy demand:

“…through a system- wide solution at significantly less cost and risk, and with much greater economic and environmental benefits. This would include a mix of (1) reduced transmission system losses; (2) demand side management; (3) base load lignite-fired generation from a refurbished Kosovo B plant; (4) peaking hydropower from within Kosovo and from neighbors with substantial hydropower resources (and possibly wind power)…[which would also provide for]…30% more jobs, and would do so “at an estimated cost savings of 50% relative to a base-case scenario that includes a new coal power plant.”

In addition, INDEP/Sierra Club clarify where the key differences between the World Bank and them are:

“Sierra Club/INDEP and the World Bank agree that losses in the transmission and distribution system are a major problem in Kosovo’s energy system. However, Sierra Club/INDEP and the World Bank differ significantly on what the World Bank should do about it. We contend that the World Bank and the Government of Kosovo should address this problem as a matter of urgency by taking aggressive, near-term actions to reduce these losses before investing in new thermal base load generating capacity that will not be needed for many years. To support this position, we note that if technical and non-technical losses are each reduced to 5 percent…a refurbished Kosovo B could supply almost twice Kosovo’s 2010 firm base load consumption.”

And concludes:

“The Response Paper does little to redress the fundamental shortcomings of the Background Paper. Even with the clarifications that the Bank has provided, it remains evident that the Background Paper (1) considered only base load “thermal supply” options, and did not model the opportunities to reduce transmission and distribution losses, improve end-use efficiency, or employ other demand-side management strategies; (2) did not analyze the real shortage of load following and peaking electric generating capacity in Kosovo and (3) failed to consider the economic impacts of the tariffs increases that will be needed to support the proposed project. These issues should be fully assessed before the Bank moves forward with an appraisal of the proposed project.”

For more please see: INDEP, Sierra Club, and RAEL’s Reply to the World Bank Group’s Kosovo’s Energy Options: Response to the Sierra Club/INDEP Report: Re- evaluating Kosovo’s Least Cost Electricity Option.

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