1

The Energy Community of South East Europe

4th Poverty Reduction Strategies Forum

June 26-27, 2007Athens, Greece

Henk BuszEurope 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 Europe an interim phase (?)

4

EC Treaty signed Oct.28, 2005

Ukraine

Moldova

Germany

Austria Hungary

ItalySlovenia

Greece Turkey

Romania

Bulgaria

AlbaniaFYROM

Croatia

Bosnia & Herzegovin

aKosovo

Serbia &Montenegro

Regional Members

EU Member States

Observers

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

Environment

European Energy Agenda

Competition & Customer

Choice

Security of Energy Supply

Energy efficiency, increased use of natural gas, emission

standards, CO2 emission trading and sequestration,

renewables, nuclear energy (?)

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

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 energypolicies, laws and regulations, and institutions(independent regulators, unbundled utilities)

Establish a regionally integrated energymarket for electricity and gas

(promotes stability and prosperity)

Liberalize electricity and gas markets in linewith EU directives but with

a transition period 2008 (non-res)/2015(res)

Progressively integrate with thewider EU internal energy market by 2015

Contracting

Parties to:

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