The Energy Community of South East Europe

1. The Energy Community of South East Europe 4th Poverty Reduction Strategies Forum June 26-27, 2007 Athens, Greece Henk Busz Europe and Central Asia Region The World Bank

2. Why the Energy Community? • Connect or reconnect to EU and its networks • Replace aging power generation facilities: • Least cost regional approach would save € 3.0 billion in investment and operating costs (fuel) through 2020 • Enhance security of supply: • Increased interconnection and trade • Diversify the fuel mix based on least cost options • Diversify supply routes and sources of gas • Competition and customer choice (efficiency, prices) • Important pre-accession mechanism: • de facto condition of EU membership • integrate over time with EU energy market

3. Regional Energy Markets in European interim phase (?)

4. EC Treaty signed Oct.28, 2005 Regional Members EU Member States Observers Germany Ukraine Austria Hungary Moldova Slovenia Romania Croatia Italy Serbia & Montenegro Bosnia & Herzegovina Bulgaria Kosovo FYROM Albania Turkey Greece

5. Current Parties/Participants/Observers(source: EC Secretariat)

6. Parties/Participants/Observers (cont.) • Contracting Parties: • Albania, Bosnia and Herzegovina, Croatia, the former Yugoslav Republic of Macedonia, Montenegro, Serbia and UNMIK • Participants: • Austria, Bulgaria, the Czech Republic, Cyprus, Germany, Greece, Hungary, Italy, the Netherlands (applied for status, to be confirmed at MC), Romania, Slovakia, Slovenia, UK • Observers: • Moldova, Norway (applied for the status of Participant), Turkey, Ukraine, and Georgia (applied for status, to be confirmed at MC)

7. European Energy Agenda Security of Energy Supply Competition & Customer Choice Interconnection, creating European grid, regulation ensuring open access by suppliers to transmission, enforcing customer choice of supplier Diversification of routes and suppliers, integrated and well-coordinated networks, gas storage, energy efficiency, renewable energy Environment Energy efficiency, increased use of natural gas, emission standards, CO2 emission trading and sequestration, renewables, nuclear energy (?)

8. Energy Challenge in SEE Electric Power System of about 80,000 MW needs significant investment and upgrade • Turkey – 35,000 MW and growing, rapid demand growth projected, shortages potentially within this decade • Rest of South East Europe – 45,000 MW (nominal capacity is higher), lower demand growth but old and aging power systems requiring extensive rehabilitation and replacement • Environmental upgrades to meet EU standards (incl. SO2 and CO2) Natural Gas System not well developed and highly dependent on Russian gas • Security of supply concerns • Only Turkey has significant alternative sources of gas supply and could transmit large volumes of gas to SEE • Regional and national gas networks need to be developed

9. Power - Generation Investment Study • Rehabilitation: 11.5 GW (€6 billion) over 2005-11, but much less if FGD retrofitting is required (4.0 GW) • New capacity: 11.0 GW (€10 billion) over 2005-20: • 2.5 GW before 2010 • 50% lignite fired (Serbia, Kosovo, Bulgaria) • 21% gas fired (across region) • 26% nuclear (Romania) • 8.5 GW before 2020 • 45% lignite (Kosovo, Serbia) • 34% gas fired (across region) • 20% nuclear (Bulgaria) Study was updated in Oct 2006 to reflect changing gas and carbon prices. Large hydro (2,100 MW), imported coal, electricity imports and renewables (biomass, wind) now more cost-effective.

10. Gas- Proposed Priority Routes for Pipelines (2004)

11. Western Balkan Gas Ringa preliminary WB proposal

12. Western Balkan Gas Ring (cont.) • initial demand from combined cycle gas turbine (CCGT) power stations would be necessary to anchor development of the ring; • a 24-inch ring should be enough to serve the gas demand of five new-gas fired CCGT power stations totalling 2,100 MW; • four well-spaced injection points could deliver 7 bcm/year of gas with a 65% load factor; • the capital cost of 2,100 MW of CCGT would be about US$1.0 - 1.3 billion; • the capital cost of a 1,264 km 24-inch ring covering seven SEE markets would be about US$1.0 billion, incl. 5 compressor stations, 14 offtake stations and 8 border metering stations.

13. Energy Community: Main Objectives Establish EU-compatible energy policies, laws and regulations, and institutions (independent regulators, unbundled utilities) Establish a regionally integrated energy market for electricity and gas (promotes stability and prosperity) Contracting Parties to: Progressively integrate with the wider EU internal energy market by 2015 Liberalize electricity and gas markets in line with EU directives but with a transition period 2008 (non-res)/2015(res)

14. EC Coordination and Implementation Mechanisms • Ministerial Council • Permanent High Level Group • EC Regulatory Board • Power and Gas Fora (IFIs, donors, regulators, other stakeholders). Conclusions are sent to PHLG • EC Secretariat Task Forces: • Regulators Task Force, works with the Council of European Energy Regulators (CEER) • SEE Transmission System Operators (SETSO), works with the European Transmission System Operators (ETSO) and Union for the Coordination of Transmission of Electricity in Europe (UCTE)

15. Thank You! hbusz@worldbank.org