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07/12/2016

Commission fleshes out energy strategy for Southeast Europe

Central Europe

Commission fleshes out energy strategy for Southeast Europe

Fuel wood is commonplace in Bulgaria [Dnevnik]

As energy ministers of eight countries from Southeast Europe meet in Sofia today (9 February) to discuss the countries’ needs and ambitions, a leaked paper has shed light on the European Commission’s plans to help the region overcome its various problems.

An internal paper discussed by the Commission on 4 February suggests that the EU executive may at last decide to tackle the issue of “energy islands”, with the entire region of Southeastern Europe representing a particular challenge.

“Energy islands continue to exist and many markets, for instance in Southeast Europe, are not properly connected to their neighbours”, says the paper, which served as a basis for an “orientation debate” for the future Energy Union, led by Commission Vice President Maroš Šef?ovi?. A leaked version of the paper was published on the blog of Alice Stollmeyer.

Indeed, the EU countries Greece, Bulgaria and Romania, as well as aspiring EU members Serbia, Macedonia, Albania, Kosovo, Montenegro and Bosnia and Herzegovina could largely be seen as a vast energy island, poorly integrated with the rest of Europe.  The wider region consists also of Hungary, Croatia, Slovenia, Slovakia and Austria.

Electricity

The region is moderately interconnected as a historical legacy. Electricity supply companies in the region often act as monopolies and the regulators often fail to play an independent role. In Greece, the Public Power Corporation, a state company, distributes close to 100% of the electricity of the country. In Bulgaria, three utilities (CEZ, E.on and Energo Pro) have divided the country and each act as a monopoly on its territory.

In Romania, the Commission has opened inquiries into preferential tariffs granted by the state-controlled hydropower producer Hydroelectrica to several traders and electricity producers. Behind such practices the press suspects corruption and political brinkmanship.

The price of electricity in the region is not high, compared to older EU members. But because of the low living standards the entire region falls into the category of EU countries where an important percentage of the population (between 20% and 30%) are unable to heat their home adequately.

According to a recent study by E3G it requires significant investment to overcome key grid bottlenecks. The European Network of Transmission System Operators for Electricity (ENTSO-E) estimates at least €10.8 billion need to be invested in power transmission projects in the region by 2020. Moreover, the region has an ageing power plant fleet, with over 35% of the power capacity of Bulgaria and Romania expected to close by 2020.

Gas

In the context of the Ukraine crisis and the cancelled South Stream project to bring Russian gas to the EU via Bulgaria, the Commission advises that Southeastern Europe follows the example of Northern Europe and establishes liquid gas hubs with multiple suppliers.

It appears that Russia is following the same trend, as according to latest statements from Russian officials, Gazprom will deliver the gas intended for EU countries under the South Stream project at a planned gas hub at the Turkish-Greek border.

>> Read: Russia sheds light on Turkish Stream project

The Commission foresees that future intergovernmental agreements (IGA’s) of member states, as well as “other type of contracts” with gas exporting countries would be subject to prior scrutiny to make sure EU internal market rules and security of supply criteria are observed.

In December 2013, the Commission disclosed that the bilateral agreements for the construction of the Gazprom-favoured South Stream gas pipeline – concluded between Russia, Bulgaria, Serbia, Hungary, Greece, Slovenia, Croatia and Austria – are all in breach of EU law and need to be renegotiated from scratch. Later, EurActiv saw a letter sent by the Commission to the Bulgarian authorities, dated 14 August 2013. The letter identified series of grievances, ranging from giving Gazprom a most favoured tax regime, to deciding which companies would be subcontracted for building the pipeline.

“The European networks of Transmission System Operators for Electricity and gas (ENTSO- E/G) will be upgraded and regional operational centres created, so that they can more effectively plan manage cross-border electricity and gas flow”, the paper reads.

The Commission also advocates for strengthening regulation.

In view of the “particular vulnerability” of the Central and Southeastern parts of Europe, the Commission envisions new cooperation formats, called in the paper “a Southeastern and Central European Energy forum (SECEF or CESEC).

The ministers of eight EU countries (Bulgaria, Austria, Croatia, Greece, Hungary, Romania, Slovenia and Slovakia) are meeting today in Sofia in a meeting presided by Šef?ovi?. The gathering, held behind closed doors, is expected to requests of the respective capitals in terms of Commission support needed, but also to convey the views of Šef?ovi?’s services for the need of future reform.

Background

One of the big priorities of the Juncker Commission is to achieve an Energy Union by connecting infrastructures, enforcing legislation and increasing competition to help drive down costs for citizens and businesses and boost growth.

As means to achieve the Energy Union, it is envisaged that the EU will diversify its energy sources, will combine infrastructures and unite its negotiating power vis-à-vis third countries. The EU also aims at making Europe the number one in renewable energy. 

Further Reading