Serbia: Analysis of electricity production costs within the EU environment harmonization, TPPs costs and electricity trading

15. September 2015. / News Serbia Energy

Serbia is an energy transition country with around 2/3 of the electricity production coming from lignite and the rest from hydro power plants. Specific target of 27% has been set for its RES goal until 2020.

The other two goals of CO2 reductions and reductions in TPPs, specific targets were not declared, and therefore they will be assumed to be 20%, as the Serbian energy policy will be aligned to the EU energy policy after 2020. The emissions reduction was focused on the electric utility sector, controlled by the CO2 tax. Taking into account that emission allowances currently at 6.17 €/tCO2, assumption is 10 €/tCO2 until 2020.

The energy strategy of the Republic of Serbia with an aim to be in line with goals of the energy strategy of the CP to the ECT and to comply with the EU acquis communautaire, has been drafted. The Strategy covers the topics and accounts for the contents of the following documents:

–Draft National Renewable Energy Action Plan (NREAP),

–National Energy Efficiency Action Plan (NEEAP), and

–Summarised list of projects, [39].

This Strategy continues the policy of least-cost end-user energy prices for electricity and heat without taking into account the total socio-economic costs of energy production (external costs of carbon dioxide and import/export payments are not covered).

The energy strategy was criticised especially for the huge fossil fuel investments, which could move the region further from reaching the EU 20:20:20 goals and increase socio-economic cost. In accordance with the LCPD Serbia is planning to close some (874 MW) of existing lignite-, gas- and oil-fired plants. The emissions intensity from the electricity sector in Serbia is approximately 850 gCO2/kWhe, with a goal to be at 600 gCO2/kWhe in 2020. In the Serbian case, this biomass is limited to 10%:90% of the energy composition between biomass and lignite. Among other policies e. g. the increase of variable renewable energy production with flexibility options on the demand side (smart grid, storage applications, etc.), a feasible policy for CO2 reduction could be the build big-close small approach and co-generation along with further shifting to natural gas also bearing in mind its socio-economic costs, especially local externalities, since they are huge barrier for economic growth in Serbia. A feasible future scenario should be based on the following assumptions:
– a part of the TPP is closed, while another part is upgraded according to LCPD,
– proposed new lignite TPP are not commissioned, according to the new investment policy of the European Investment Bank, World Bank and similar EU, U. S. based investment institutions, and

–a regional energy market is functional, according to the Energy Law the emissions trading scheme or equivalent CO2 tax mechanism used to include all socio-economic costs exists.

The projected CO2 emissions are 48.08 Mt CO2. According to LCPD, some TPP will be upgraded with investment costs (498 M€) and yearly operational costs (53 M€), some opted-out.

Based on retirement plan, TPP Kolubara will be shut down before 2020 (2017-2019), while others operated under opt-out until 2024: Morava (2020), TENT A1-2 (2020-2022), and Kostolac A (2020-2024).

Many of the energy projections models were produced by academic circles in Serbia, majority of assumptions were created for the year 2020, in which, according to the Strategy are:
– existing TPP have been upgraded according to LCPD, and operated under retirement plan, new Kostolac B3 has been built,
– instead of the existing, the new combined heat and power (CHP) plant in Novi Sad of 340 MWe, with combined electric efficiency (gas and steam) of 40%, and with total fuel utilization of 85%, has been built,

– Bistrica pumped storage hydro power plant has been built (680 MW, 60 GWh),
– consumption of lignite for district heating has been increased to 3.59 TWh/a, oil to2.5 TWh/a, natural gas to 6.75 TWh/a and biomass to 1.63 TWh/a,

– demand for electricity has been increased to 41.1 TWh/a of which 1.8 TWh/a for cooling, and 2.9 TWh/a for heating,
– wind capacity has been increased to 500 MW and PV capacity has been increased to 10 MW, – solar thermal generation for individual household has been increased to 1.95 TWh/a,

– demand in transport sector has been increased to 28.56 TWh/a equally among available fuels,
– waste to energy incineration plant of 3 MW has been modeled with 8,000 hours of work adding 0.024 TWh/a (0.015 TWh/a heat and 0.009 TWh/a electricity) to the group III district heating,

– biodiesel plants production will be increased to 2.9 TWh/a to substitute diesel in transport sector,

– biomass supply in district heating has been increased to 1.279 TWh/a and fixed for a group III CHP plant,
– biogas plant yearly output has been increased to 0.8 TWh/a of biogas,
– 0.8 TWh/a of biomass has been used to produce 0.29 TWh/a of bio petrol,
– small run-of hydro plants capacity has been increased to 471 MW producing additional 1.262 TWh/a, and
– landfill gas has been used as CHP plant fuel in district heating group III to replace 0.08 TWh/a of natural gas, and according to energy efficiency measures proposed in NEEAP

Future scenario (FS), quite a number of them were presented during years but joint scenarios are as follows:

The FS scenario was created based on the energy demand from the SEES scenario, but with different investment assumptions:
– instead of Bistrica, 600 MW of run-of-hydro power plants, according to [39], have been built,
– 700 MW of wind, 200 MW of PV plants and 200 MW of geothermal power plants have been built,

– co-firing of biomass with lignite has been fully increased in the existing TPP,

–0.5 TWh/a of electric heating has been replaced with heat pumps with same heat demand
–lignite and fuel oil consumption in large CHP plants connected to district heating (group III) has been replaced with natural gas and biomass,
–the CHP plant from district heating group III size has been increased for 860 MWel with efficiencies assumed as in SEES scenario,
–solar thermal yearly production has been doubled in comparison to the SEES, and
–new TPP units are not being built along with further closure of existing ones below 300 MW,

Kostolac A1 and TENT A3-4 opted-out and with other units upgraded with investment (326 M€) and operation cost of 39 M€.

The TPP yearly average energy generation of 3,156 MW in the BS (27.7 TWh/a) is increased to 3,240 MW in the SEES without a CO2 tax (“SEES no tax”). Due to favourable market conditions for export production of TPP was increased to 28.5 TWh/a. In the SEES scenario, the average operation in TPP was limited to 3,167 MW (27.8 TWh/a), where their market competitiveness and operation were decreased due to the 10 €/tCO2 tax. Further limitations in the average operation in TPP to 2,162 MW (19 TWh/a) is achieved in the FS. With an increased CO2 tax to 30 €/tCO2 in the FS (“FS HIGH tax”), the average operation of TPP is even further decreased to 2,026 MW (17.8 TWh/a). This further decrease indicates the high sensitivity of lignite based energy systems to the market conditions in the presence of CO2 tax.

The emission intensity of the Serbian electricity system in different scenarios compared with the average EU emission intensity and the national emission intensity reduction goal for 2020. In the SEES, the emission intensity is decreased to 785 gCO2/kWhe, but it remains higher than the national emission intensity reduction goal for 2020 (600 gCO2/kWhe). The further emission intensity reduction to 526 gCO2/kWhe was achieved in the FS, reaching the national intensity reduction goal for 2020, but is still significantly higher than the EU average (400 gCO2/kWhe). The emissions intensity could be used as a competitiveness indicator, which shows how difficult it will be for the lignite based transition countries to compete in market conditions with emissions trading and a higher CO2 tax.

The relative competitiveness increase in the SEES in comparison to the BS was achieved based on the efficiency increase of the average TPP. The further competitiveness increase in the FS is achieved through further average efficiency increases of the TPP and from the use of biomass used for co-firing with lignite. One should bear in mind that these costs should be increased for the average externalities from the dust, NOx,andSO2 calculated to be13.5 €/MWh for Serbia.

The long term security of supply, measured as the imported energy share in TPES during one year, has decreased from 48.8%, in the BS, to 46.8% in the SEES because TPES increased and the usage of locally available lignite increased. In the FS, the security of supply decreased because the imported energy share increased to 51.5%, mainly as a result of the increased natural gas imports. , transmits

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