central and eastern european hydro power outlook - …€¦ · power plant types 9.3. cooperation...

ENERGY AND NATURAL RESOURCES

Central and Eastern European

Hydro Power Outlookkpmg.com

KPMG in Central and Eastern Europes Energy & Utilities Advisory Practice

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2010 KPMG Tancsad Kft., a Hungarian limited liability company and a member fi rm of the KPMG network of independent member fi rms affi liated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Central and Eastern European Hydro Power Outlook | 3

It is my pleasure to introduce the Central and Eastern European Hydro Power Outlook, which has been prepared by the KPMG in Central and Eastern Europes Energy & Utilities Advisory Practice located in Budapest, Hungary.

Based on the interest for our previous publications covering electricity, natural gas, renewable and nuclear energy, as well as the district heating sector we have assembled this report with the ultimate aim of highlighting the most important opportunities in the regions hydro power sector.

On the following pages, it was our aim to turn market data into meaningful analysis, thus offering KPMGs insight on available opportunities for business organizations and institutions interested in the Central and Eastern European hydro power sector.

I trust that this report will prove to be useful to you and I wish you all the best on your participation in, the development of the CEE hydro power sector, whether you are an investor, supplier or any other stakeholder on the market.

Sincerely,

Pter Kiss

Partner, KPMG Global Head of Power & Utilities

Dear Reader,

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Table of Contents

Executive Summary 7

1. Defi ning CEE Energy Markets 11

2. Introduction of the Technology 152.1. Hydroelectricity 152.2. Types of Hydroelectric Power Plants 162.3. Major Turbine Types and their Application 192.4. System Balancing Capabilities of Storage 20

and Pumped Storage HPPs 2.5. Possible other Roles of HPPs, their 22

Dams and Reservoirs 2.6. Environmental Impacts 23

3. Regulations 293.1. Are All Hydro Plants Renewable? 293.2. EU Regulations for Water Policy and 30

Renewable Energy 3.3. Greenhouse Gas Emission Measures 33

4. Electricity Demand Trends in the CEE Region 374.1. History 374.2. Future Outlook 384.3. Special Demand for Renewable Energy 39

Sources Including Hydro Power

5. Importance of Hydro Power in the CEE Region 41

6. Country Profi les 476.1. Albania 496.2. Bosnia and Herzegovina 526.3. Bulgaria 566.4. Croatia 606.5. Czech Republic 646.6. Estonia 676.7. Hungary 69

6.8. Kosovo 726.9. Latvia 746.10. Lithuania 776.11. Macedonia 806.12. Montenegro 836.13. Poland 866.14. Romania 896.15. Serbia 936.16. Slovak Republic 966.17. Slovenia 99

7. A Leading Example Austria 102

8. Public Acceptance of Hydro Power 1058.1. Gabkovo-Nagymaros Hydro 105

Power Project 8.2. Mardla and Alta Hydro Power Projects 1068.3. Hainburg Hydro Power Project 1068.4. Freudenau Hydro Power Project 1068.5. Conclusions 107

9. Economics of a Hydro Investment 1099.1. Investment/Operation Cost Ratio 1109.2. A Comparison with Other 116

Power Plant Types 9.3. Cooperation and Cost Sharing 121

10. Investment Potentials 123

Acronyms 126

What can KPMG Firms Offer to the Hydro 129Power Sector?

6 | Section or Brochure name

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Executive Summary

Hydroelectric generation is not new to Central and Eastern Europe (CEE). Hydro powers key advantage the absence of fuel costs has historically underpinned signifi cant development, meaning that many of the obvious plant locations have been exploited, especially under the socialist regimes after World War Two.

Hence hydro facilities account for almost 29,000 MW, or 23% of the total 127,000 MW generating capacity in CEE, and every country, from Estonia to Bulgaria, has some hydro installations. In Albania and other countries in the Balkan Peninsula, hydro dominates the generation mix.

After 1990, in the fi rst years of transition to a market economy, the closure of heavy industry (and subsequent reduced electricity demand) coupled with political uncertainties, meant a reduced pipeline for new power projects in many CEE countries.

However, political stabilization and economic progress in the past decade have led to an upturn in electricity demand albeit somewhat interrupted by the recent global economic crisis.

This turnaround, coupled with the need to replace ageing and often ineffi cient, polluting plants, has focused minds once more on the need for new investment in generation capacity.

Furthermore, the growing emphasis on clean energy, as mandated by the European Union, plus concerns regarding security of fuel supplies, makes investment in hydro power all the more attractive.

As this report highlights, the good news is that there remains huge potential for hydro development within CEE, where the total technical hydro capacity could generate an estimated 176,300 GWh per year.

In reality, current output stands at 62,700 GWh, meaning the regional utilization rate is a mere 30%.

This potential includes even those countries which already boast signifi cant levels of hydro investment.

In Albania, for example, hydro facilities account for 87% of total generation capacity and an astonishing 97% of electricity generated. Yet an analysis by the World Energy Council reveals Albania is exploiting only one-quarter of its total water-sourced potential.


8 | Central and Eastern European Hydro Power Outlook

Similarly in Bosnia-Hercegovina, the utilization rate of the technical hydro potential is a mere 19%, meaning the country could, under ideal conditions, generate an annual 24,000 GWh fi ve times its current annual output.

Lithuania, for example, currently utilizes less than one-third of its technical hydro potential, which amounts to an annual 3,000 GWh. Poland is even more wasteful; the 2,700 GWh it sources from hydro generation being a mere fi fth of its technical potential.

But the most profl igate country in the region regarding water resources is Hungary, where hydro facilities amount to just 46 MW (0.6% of the total) and generate a paltry 200 GWh annually (again, 0.6% of the total).

This is just 3% of Hungarys technical potential, where hydro capacity could generate 8,000 GWh annually, or about 20% of net production.

Hungarys failure to harness its water resources to provide more electricity provides a series of case studies illustrating the pros and cons of hydro power both real and perceived.

Hungary, together with the then Czechoslovakia, sought to tap into its potential hydro power when in 1977 the two countries announced plans for a system of dams and hydro-power stations on the Danube, which formed the common border between the two countries for some distance.

Known as the Gabickovo-Nagymaros Hydro Power Project, the scheme was intended to prevent fl ooding, improve navigability and provide generation capacity of 880 MW (to be shared between the two countries) at full capacity.

However, in Hungary the project was soon criticized by environmentalist groups, and it became a safe channel for protest by the growing anti-communist opposition during the 1980s. Shortly after the fi rst democratic elections in 1990 Hungary unilaterally abandoned the scheme, although Slovakia completed a simplifi ed version of the project on its territory.

As this report notes, there are certainly many environmental (and often political and social) factors that require careful evaluation when planning any hydro project, most particularly large schemes that involve damming rivers to hold back large volumes of water.

However, the creation of such dams often yields a number of secondary outcomes, which can further enhance the value of such schemes. These include the use of the reservoir for water sports and leisure activities (as has occurred in Slovakia in the modifi ed Danube scheme) and in some locations the dams themselves form useful communication links between riverbanks.

Indeed, with careful planning and consultation between all parties involved, hydro schemes can garner the support of the general public and, at best, become the ideal win-win development.



This report emphasizes the experience of Austria, where a combination of 154 large and 2,400 hydro generators, built within the framework of clearly-defi ned regulatory support system, now provides 60% of the countrys electricity needs.

However, even in Austria, projects have foundered, most notably the Hainburg hydro scheme of the 1980s, where environmentalists, ignored by the authorities, fomented protests and eventually forced the abandonment of the project.

Austria learned its lessons, and just a few years later created intense public involvement for its proposed Freudenau hydro scheme in Vienna. The result was a 70% yes vote for the scheme in 1991, and seven years later the project was completed, providing over 1,000 GWh annually to the grid since 1998.

As our study stresses, Austrias ability to so successfully exploit hydro power offers many lessons for other countries in the region. The Austrian banking sector, state and regional authorities function effectively, hence they have the means to provide systematic planning and support to hydro projects.

Many of the states in the region lack Austrias administrative skills, nor do they possess the fi nancial means to fully fund even small hydro schemes (which are more expensive than large projects per kW installed).

Furthermore, much of the regions potential hydro power will require some form of guaranteed electricity pricing to create a sound business case and attract external fi nance. Under these conditions, the most crucial role of the CEE states is to each create a sound regulatory and legal environment to assure potential investors (both domestic and international) that their money is safe and that it will earn a steady, if unspectacular, return.

From this study it is clear that much potential exists across CEE to develop hydro power, particularly (but not only) in mountainous countries such as Albania, Romania, Bulgaria and former Yugoslavia.

This potential includes hydro generation in all its forms, including renewal of older, ineffi cient facilities, new projects involving both large and small generators, and pumped-storage schemes that help system balancing and utilize low-cost electricity at times of low demand.

In addition, environmental concerns and public sentiment generally support the use of clean energy. But to exploit these potentials in practice will require governments and utility companies to employ a wide-ranging skill-set from careful, in-depth technical and fi nancial planning to innovative public relations techniques.

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1. Defi ning CEE Energy Markets


For the purposes of this study, the Central and Eastern European region is defi ned as the 17 countries Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kosovo, Latvia, Lithuania, Macedonia1, Montenegro, Poland, Romania, Serbia, Slovakia, Slovenia lying east and north of the EU-15 (neighbouring Germany, Austria, Italy and Greece) and west of Russia, Ukraine, Moldova and Belarus see Figure 1).

Ten out of 17 of the above listed CEE countries are EU members at present, with Croatia being very close to receiving an accession date and Macedonia also on the path of accession.2

This study aims to collect and organize data, identify major trends and describe the similarities and differences between the countries in the CEE region.

Many of the CEE countries have shown remarkable economic development during the last decade. This development is expected to continue, which is represented by the fact that many of the CEE countries are regarded as having converging markets rather than emerging ones, meaning their economies are in the process of achieving parity with those of the EU-15 countries and are thus characterized by strong economic growth while having EU-based regulations and policies, offering reasonable risk-return ratio for investors.

Figure 1: The CEE Region in European Context

Central and Eastern European countries

1 The country is often referred to as Former Yugoslav Republic of Macedonia; in the current report we refer to it as Macedonia

2 Source: European Commission Enlargement Newsletter http://ec.europa.eu/enlargement/press_corner/newsletter/index_en.htm accessed on 23 April 2009


The current fi nancial turmoil has hit some of the CEE countries hard, the Baltic countries were infl uenced the most, but others, such as Hungary and Romania also needed to apply for IMF credit to ensure their stability.

As international fi rms in the region affected by the economic downturn tried to stabilize their production in their countries of origin (mainly Western Europe) their Eastern branches were more exposed to suffer losses. The economies of the CEE countries heavily rely on these fi rms resulting performance drop. The rate of foreign investments coming in to the CEE region was also reduced signifi cantly, but as fi nancial stress is appearing to ease these countries also have a better outlook for the future.

Their major economic indicators and population data can be found in the table which follows.

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All GDP fi gures are quoted in Purchasing Power Parity and are 2009 estimates.

* Albania, Bosnia & Herzegovina, Macedonia and Kosovo have large informal economies that might reach 50% on top of the offi cial GDP.

Source: World Factbook, CIA, 2010 Population data represent 2010 estimates.


BG

RO

MK

KO

AL

ME

RSBA

HRSI

HU

SK

CZ

PL

LT

LV

EE


Economic and Population Data Central and Eastern Europe

EU member statesBulgaria (BG)GDP: 90.51 billion GDP growth: -4.9% Population: 7.1 millionCzech Republic (CZ)GDP: USD 256.6 billion GDP growth: -4.1% Population: 10.2 millionEstonia (EE)GDP: USD 24.36 billion GDP growth: -14.1% Population: 1.3 millionHungary (HU)GDP: USD 184.9 billion GDP growth: -6.7% Population: 9.9 millionLatvia (LV)GDP: USD 32.4 billion GDP growth: -17.8% Population: 2.2 millionLithuania (LT)GDP: USD 54.84 billion GDP growth: -15.0% Population: 3.6 millionPoland (PL)GDP: USD 690.1 billion GDP growth: 1.7% Population: 38.5 millionRomania (RO)GDP: USD 255.4 billion GDP growth: -7.2% Population: 22.2 millionSlovakia (SK)GDP: USD 115.7 billion GDP growth: -4.7% Population: 5.5 millionSlovenia (SI)GDP: USD 55.84 billion GDP growth: -7.3% Population: 2.0 million

Non EU member statesAlbania (AL)GDP: USD 22.9 billion* GDP growth: 3.7% Population: 3.7 millionBosnia & Herzegovina (BA)GDP: USD 29.07 billion* GDP growth: -3.4% Population: 4.6 millionCroatia (HR)GDP: USD 79.21 billion GDP growth 2006: -5.2% Population: 4.5 millionKosovo (KO)GDP: USD 5.3 billion* GDP growth: n/a Population: 1.8 millionMacedonia (MK)GDP: USD 18.77 billion* GDP growth: -1.5% Population: 2.1 millionMontenegro (ME)GDP: USD 6.71 billion GDP growth: -4.0% Population: 0.7 millionSerbia (RS)GDP: USD 78.36 billion GDP growth: -3.0% Population: 7.3 million

Source: Alstom 2

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2. Introduction of the Technology


This chapter aims to give you an overview on the basics of hydro-based electricity generation regarding technology. Figure 2 shows the general schematic structure of a usual Hydro power plant (HPP) to introduce the basic terms.

2.1. Hydroelectricity

Hydro power plants convert the energy of the waterfl ow into electricity. The electricity generation capability is determined by the following factors: volume of water, the fl ow, the level of the head created by the dam and the effi ciency of the power plant technology. The relevant rule of thumb is the following: the greater the head, the reservoir size and the fl ow, the more electricity is produced. Or in other words a HPP with higher head needs smaller reservoir and runoff for the same amount of electricity to be produced.

A typical HPP consists of a dam, reservoir, penstocks or waterways, a powerhouse (including turbine and generator) and an electrical power substation. The dam stores water and creates the needed head level; penstocks carry water from the reservoir to turbines inside the powerhouse; the water rotates the turbines, which drives generators that produce electricity. The electricity is then transmitted to a substation where transformers increase voltage to allow transmission to consumers.

Hydroelectric Dam

LongDistancePowerline

Electrical powersubstation

RiverTurbine

Penstock

Intake

Reservoir

Generator

Powerhouse

Figure 2: Schematic Cross Section of a Hydroelectric Dam

Source: KPMG

Defi ning Hydro Power Plant Terms

DamA structure made out of concrete or locally available material constructed in the water fl ow to block its way in order to gather water.

ReservoirThe reservoir is the artifi cial lake or water buffer created by the dam.

HeadThe head is the elevation difference between the upstream and downstream water.

IntakeThe headwater is lead through the intake to access the penstock after passing the gate. The gate is closed if the power generation needs to be halted.

PenstockHigh pressure steel penstock pipes deliver the incoming headwater to the turbine. In case of low head power plants penstocks are substituted by open waterways.

TurbineA turbine is a rotor in a housing that converts energy from the water fl ow into useful work and delivers it to the generator through the rotation of its shaft.

GeneratorThe generator utilizes the useful rotational work of the turbine to convert it into electricity.

PumpIn case of pumped storage power plants the water needs to be pumped upwards into the upper reservoir. The pump is utilized to fulfi l this task.

TailwaterTailwater is the downstream water which is disposed by the turbine.

SpillwayA structure used to release excess water through dam without producing electricity.


2.2. Types of Hydroelectric Power Plants

Run-of-river plants

The most common types amongst hydroelectric power plants are the run-of-river power plants (see Figure 3) whereby the natural fl ow and elevation drop of a river are used for the generation of electrical power, and there is only minimal or no storage of water.

These power plants are constructed on rivers with a consistent and steady fl ow. Large reservoirs are required on rivers with great seasonal fl uctuations in order to operate power stations during the dry season resulting in the necessity to impound and fl ood large tracts of land. In contrast, large impoundments of water are not required for run of river projects. Instead, some of the water is diverted from a river, and sent into the penstock. The penstock feeds the water downhill to the power stations turbines. Because of the altitude difference between headwater and tailwater, potential energy from the water up river is transformed into kinetic energy on its journey downriver through the penstock, giving it the pressure required to spin the turbines that in return transform this kinetic energy into electrical energy through a generator unit. The water leaves the generating station and is returned to the river without altering the existing fl ow or water levels of the tailwater. According to the defi nition of ENTSO-E the fi lling period of these plants is determined in less than two hours.


Headwater

Run-offwater

Generator Turbine

Figure 3: Schematic Cross Section of a Run-of-River Hydroelectric Dam

Source: KPMG



Storage Hydroelectric Power Plants

There is not any strict threshold between run-of-river and storage type HPPs in term of technical parametres; the distinction can be made by the purpose of the dam in case of the two types. While run-of-river HPPs need the dam to create the appropriate head- and tailwater level difference for the operation of the turbines, the storage type HPPs (see Figure 4) also known as reservoir HPPs need the dams to store the appropriate amount of water on rivers where the natural parametres of the river are not suitable to ensure stable, continuous operation, or fl exibly adjustable performance is needed, which results in the necessity to impound and fl ood large tracts of land. A reservoir allows for the scheduled use of the potential energy of the water that fl ows from a higher to a lower elevation. These power plants are able to produce electricity throughout the year since the reservoir has the capacity to store extremely large quantities of water to offset seasonal fl uctuations in water fl ow.

These plants exploit the potential energy in the difference in altitude between the waters of a naturally fed high-level reservoir and a power generation plant at a lower level.

The reservoir usually fi lls up during the rainy season and the water lasts for the whole year till the next summer season. In these hydroelectric power plants a large reservoir is constructed behind the dam wall. ENTSO-E divides such plants in two categories, namely pondage is characterized by a fi lling period of between 2 and 400 hours and reservoir plants with a fi lling period exceeding 400 hours.

The water fl ows from the reservoir through pressure pipes or tunnels to drive the turbines of power plants located in valleys.

Storagebasin

Head racetunnel

High-pressurepipeline array

Generator Turbine

Surge tank

Figure 4: Schematic Cross Section of a Storage Hydroelectric Dam

Source: KPMG



Pumped Storage Power Plants

Pumped storage power plants (PSPPs see Figure 5) are usually considered power plants, but they are in fact electricity storage facilities. They are a special type of storage HPP since not (only) a river is blocked by a dam, but the water is (also) pumped up from a lower basin to fi ll the reservoir. The losses from the pumping process (whose effi ciency is around 75-80%) makes the plant a net consumer of energy overall. PSPPs store energy in the form of the waters potential energy that was pumped from a lower basin or river to a higher basin.

Pumping activities normally take place at night to exploit the excess electrical power of the off-peak demand period for pumping. As soon as demand increases during the day, the water is fed back to drive the turbines of the power plant. This is all controlled by the push of a button and the generators begin to produce electricity within seconds. Pumped storage is the largest capacity form of energy storage technologies available for electricity grid operators.

The main purposes of these plants are balancing the electricity demand and satisfying peak demands along with utilizing electricity surplus on the other side. The mandates for pumped storage plants can be various:

1. To fi t the production of low fl exibility power plants (like nuclear power plants) to the demand

2. To increase revenue by selling more electricity during periods of peak demand, when electricity prices are highest

3. To balance out the demand volatility of the power grid as an immediate response primary reserve

Head racetunnel

High-pressuredustribution pipeline

Upper basin Barrage intake structure

Cavern

Lower basin

Generator Turbine Pump

Figure 5: Schematic Cross Section of a Pumped Storage Hydroelectric Dam

Source: KPMG



4. To balance out the production volatility of some renewable generation technologies (like wind, solar, tidal) and

5. To ensure best effi ciency load for thermal power plants (like coal/biomass fi red steam turbine based plants).

Other types

There are two additional types of HPPs, namely tidal and wave. Connected to oceanic or sea water movements, these plant technologies are currently in a pilot phase; consequently, in this study we are restricting our focus to conventional landlocked hydro power generation technologies.

2.3. Major Turbine Types and their Application

The history of the hydraulic wheel dates back to antiquity. Water wheels were already being utilized by mankind in the ancient Greek and Roman era and throughout medieval Europe.

Depending on the characteristics of a HPP, different types of water turbines are utilized to generate electricity. The two main categories are reaction turbines, and impulse turbines.

Reaction turbines

The runners of reaction turbines are under water and exploit water speed (kinetic energy) and pressure difference. Reaction turbines are used mainly at low (



Impulse (or Action) Turbines

Impulse turbines utilize the kinetic energy of a free falling water jet that is transformed by a nozzle to drive the turbine. They are neither submerged into the water, nor utilizing water pressure differences before and after the turbine.

The most common type is:

Pelton

Lester Allan Pelton designed this type of impulse turbine in 1879, directly utilizing the kinetic energy of the drop of a water jet from a high altitude that reached 92% of effi ciency after being optimized by William Doble around 1895. Pelton turbines are used for very high altitude heads and light water fl ow.

Turbines Utilized in Pumped Storage Plants

There are two basic types of units utilized in pumped storage power plants.

1. Reversible type turbines utilized in pumped storage power plants are able to work both in pump and turbine mode in order to be able to reverse water fl ow in off-peak operation mode, and fi ll the high reservoir. For example modifi ed Francis turbines are used for this purpose.

2. Separate turbine and pump units can also be installed in pumped storage plants thus separate instruments are used in the two operation modes of the plant.

The effi ciency of a pumped storage power plant constitutes of two parts:

The effi ciency of the pumping mode

The effi ciency of the turbine mode

This results in a lower overall effi ciency than in case of other HPPs.

2.4. System Balancing Capabilities of Storage and Pumped Storage HPPs

Storage and especially pumped storage HPPs can fulfi l special function which only a limited number of other power plant types are able to cover (at all or effi ciently). This function is the balancing of the electricity system with an aim of fi tting the actual production to the demand. This is one of the major tasks of the system operators which is required because the predicted demand schedule never matches exactly the realized consumption. Although the capabilities of such power plants are given appliances need to be selected and installed accordingly to be able to fulfi l this role without drastically shortening the expected lifetime of the plant.

Figure 8: Pelton turbine

Source: Alstom



Why is balancing becoming increasingly important?

It can be attributed to several factors:

1. Total demand is growing, which results in more required balancing capacity in the system.

2. Wind and solar installed capacities are increasing their market share rapidly which makes for numerous volatile facilities whose production is not accurately predictable, generating extra balancing needs.

3. Nuclear power is undergoing a renaissance which could result in an enormous extra installed base load capacity. Even if third generation nuclear reactors are capable of following the demand curve, it is uneconomic to run them in peak mode instead of base load due to their large initial investment costs.

4. Fossil fuelled plants usually have a narrow optimal performance level, thus operating them at that level results in higher effi ciency, lower relative consumption and emission.

5. CHP plants without heat storage capabilities supplying heat at off-peak electricity demand periods are not exploiting their capability to produce low emission electricity.

Both storage and pumped storage HPPs can be rendered capable to provide supply-side ancillary services such as balancing out:

positive deviation of demand from the schedule by increasing production (if available), or

negative deviation of demand from the schedule by decreasing production.

Pumped storage power plants can also balance out the electricity system surplus in off-peak periods by demand side balancing consuming the electricity necessary to pump water to the upper reservoir.

These two fl exible HPP types are favourable for system operators to be able to stabilize and optimize the electricity systems they are responsible for, minimizing the risk of a possible frequency fl uctuation, overload or black out. Storage hydro plants are able to provide these services without additional emission. The pumped storage power plants do not have real competition in electricity storage of the same achievable size and effectiveness given the current status of technology.



2.5. Possible other Roles of HPPs, their Dams and Reservoirs

HPPs are commonly considered energy purpose facilities only, but in fact they may play other important roles. In several cases these other aspects are the primary reasons for building a dam on a river, and the generators are only extra features. From the energy industrys perspective regarding a new HPP investment these other aspects need to be taken into account particularly when looking for fi nancing and investors, or convincing decision makers and the public.

Navigation

Navigation dams resolve the problems of seasonality and raise the water levels of shallow river sections.

The inland water channels of Europe suffer from seasonality and changing water levels. These symptoms make continuous commercial navigation impossible without the help of navigational purpose dams.

Flood Control

In several cases the primary purpose of building dams for reservoir hydroelectric power plants is actually fl ood control. In this case, the installation of hydro power facilities entails only smaller incremental investments.

Irrigation

Agriculture is often exposed to seasonal weather changes. This risk can be mitigated by using the water in a reservoir for irrigation to maintain a constant level of agricultural production.

Recreation

The enhanced water surface created by a dam is usually favourable for recreational purposes.



Bridge

Dams create interconnection between riverbanks, terminating the natural separation of the two sides.

2.6. Environmental Impacts

Just like all known technologies there are several possible negative impacts of hydroelectric systems that have recently been increasingly coming into focus. While most of the major dams have been completed within the last six decades, some of the environmental effects may not be realised yet, but being aware of the possible consequences these effects can be avoided or minimised. Environmental effects are perhaps the most topical aspects of sustainability for hydropower in the European context, however proper sustainability assessment also requires consideration of social and economic effects. An awareness building toolkit for hydro developers is the Sustainability Guidelines (2004) issued by the International Hydropower Association.

These guidelines introduce several environmental issues that must be addressed for an HPP development.3

Water quality

Changes in water quality are likely to occur within and downstream of the development as a result of impoundment. The residence time of water within a reservoir is a major infl uence on the scale of these changes, along with bathymetry, climate and catchment activities. Major issues include reduced oxygenation, temperature, stratifi cation potential, pollutant infl ow, propensity for disease proliferation, nutrient capture, algal bloom potential and the release of toxicants from inundated sediments. Many water quality problems relate to activities within the catchment beyond the control of the developer.

3 International Hydropower Association Sustainability Guidelines, 2004

The Guidelines have been developed into the more comprehensive 2006 Sustainability Assessment Protocol (Protocol). From 2008 the Hydropower Sustainability Assessment Forum (Forum) has been working to produce an enhanced Protocol due in 2010. The Forum is a collaboration of international representatives from governments, the fi nance and hydropower sectors, and environmental and social civil society organisations.

Source: Andritz Hydro



Sediment transport and erosion

The creation of a reservoir changes the hydraulic and sediment transport characteristics of the river, causing increased potential sedimentation within the storage and depriving the river downstream of material. Sedimentation is an important sustainability issue for some reservoirs and may reduce the long-term viability of developments. Reduction in the sediment load to the river downstream can change geomorphic processes (e.g. erosion and river form modifi cation).

Downstream hydrology and environmental fl ows

Changes to downstream hydrology impact on river hydraulics, instream and streamside habitat, and can affect local biodiversity. Operating rules should not only consider the requirements for power supply, but also be formulated, where necessary and practicable, to reduce downstream impacts on aquatic species and human activities.

Rare and endangered species

The loss of rare and threatened species may be a signifi cant issue arising from dam construction. This can be caused by the loss or changes to habitat during construction disturbance, or from reservoir creation, altered downstream fl ow patterns, or the mixing of aquatic faunas in inter-basin water transfers.

Hydropower developments modify existing terrestrial and aquatic habitats, and when signifi cant changes cannot be avoided, mechanisms to protect remaining habitats at the local and regional scale should be considered in a compensatory manner.

Passage of fi sh species

Many fi sh species require passage along the length of rivers during at least short periods of their life cycle. In many places the migration of fi sh is an annual event and dams and other instream structures constitute major barriers to their movement. In some cases the long-term sustainability of fi sh populations depends on this migration and developing countries local economies can be heavily reliant on this as a source of income.

Pest species within the reservoir (fl ora & fauna)

In some regions a signifi cant long-term issue with reservoirs, irrespective of their use, is the introduction of exotic or native pest species. The change in environment caused by storage creation often results in advantageous colonisation by species that are suited to the new conditions and these are likely to result in additional biological impacts. In some instances, proliferation may interfere with power generation (e.g. clogging of intake structures) or



downstream water use through changes in the quality of discharge water (e.g. algal bloom toxins, deoxygenated water).

Health issues

The changes brought about by hydropower developments have the capacity to affect human health. Issues relating to the transmission of disease, human health risks associated with fl ow regulation downstream and the consumption of contaminated food sources (e.g., raised mercury levels in fi sh) need to be considered. The potential health benefi ts of the development should also be identifi ed.

Construction activities

Construction needs to be carried out so as to minimise impacts on the terrestrial and aquatic environment.

Where a new development is planned, there is a range of activities that can result in environmental impacts, both terrestrial and aquatic. Noise and dust may also be issues where the development is close to human habitation.

In addition to the above environmental impacts there is other possible harm that can be done to the environment although these may not pertain to European circumstances, have less importance or can be fully mitigated.

Greenhouse Gas Emission During the Initial Flooding of a Reservoir

It is accepted that hydropower is a low carbon energy technology. However, greenhouse gas emissions (GHG) emissions, mainly methane, can be produced by the decomposition of organic matter in anoxic conditions at the bottom of reservoirs. Proper assessment requires comparison between pre and post impoundment GHG emission conditions in order to yield a net result. In most cases, net GHG emissions are likely to be low but there has been no scientifi c consensus on measurement and calculation of the phenomena. As a result, since 2008 UNESCO and IHA have hosted an international scientifi c research project (Project), which published the state of the art GHG Measurement Guidelines for Freshwater Reservoirs in 2010 (Guidelines). The Guidelines and Project pave the way for scientifi c consensus as well as the development of a database and predictive modelling tools.

Water Evaporation

The water footprint of hydropower projects is an emerging issue, particularly in regard to evaporation from reservoirs. Proper assessment requires comparison between pre and post impoundment watercourse evaporation and plant transpiration conditions in order to yield a net result. The increased



temporal and spatial water management that a reservoir provides compared to natural conditions must also be factored in. While net evaporation is likely to be low in most cases, presently there is no scientifi c consensus regarding how to measure and calculate this, and ongoing debate on whether evaporation from reservoirs may be regarded as water loss.

A failure to consider the introduced environmental effects might result in serious harm, but most of these impacts can be mitigated if profound assessment is executed and the right preventive actions are selected. This task is preferably done before construction is started, but in case of existing facilities corrective actions can also make substantial achievements. Before making an investment decision the cost of all the necessary auxiliary preventive facilities should be taken into consideration to gain a full picture of the total overall investment and operational costs.


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3. Regulations


In this chapter we introduce the common legislative background relevant to hydro power investments.

3.1. Are All Hydro Plants Renewable?

A common assumption regarding HPPs that they are renewable, because they are producing electricity from renewable potential or the kinetic energy of fl owing water, but electricity produced in pumped storage units from water that has previously been pumped uphill should not be considered as electricity produced from renewable energy sources.4 In addition to this some regulators/governments acknowledge all scales of hydro generation renewable, but others consider that possible aspects like

disruption of aquatic ecosystems and birdlife,

adverse impacts on the river environment,

release of signifi cant amounts of GHG at construction and the initial fl ooding of the reservoir,

dislocation of people living in the reservoir area,

potential risks of sabotage and terrorism, and

in rare cases catastrophic failure of a dam wall

as good reasons for handling large hydro separated from other renewable energy sources.

On the other hand governments might offer investment subsidies for small hydro investments to foster reaching their renewable goals while excluding large hydro from such renewable incentives based on its relatively low generation cost and reasonable return potential, but the threshold between large and small hydro may vary country by country even inside the EU. In our analysis we use 10 MW as a border line between large and SHPPs.

4 Source: Directive 2009/28/EC



3.2. EU Regulations for Water Policy and Renewable Energy

Directive 2000/60/EC of the European Parliament and of the Council establishing a framework for the Community action in the fi eld of water policy5

Based on environmental concerns the protection of European waters has become a key issue, and as a result, the Directive aiming to establish a single system of water management came into force in 2000, which covers all types of water such as rivers, lakes, coastal waters, estuaries, groundwater, etc. Accordingly, the model supported by the EU determines natural geographical and hydrological units, and river basins, disregarding administrative and political boundaries.

On the one hand, the most important goal of the Directive is to protect European waters and avoid environmental burdens; on the other hand, there are essential uses of water such as fl ood protection and drinking water supply in which cases the policy objectives can be overridden (although there might be a signifi cant impact on the surroundings). Accordingly, the approach towards hydro power generation is not fully clear in the Directive. However, the aim of environmental protection and related authorization procedures may increase investment costs or even hinder the realization of some projects. Furthermore, the implementation of the Directive may have an impact on project economics in the future, as a key innovation is that it calls for all types of water services to be charged at a price that refl ects all occurring costs. As an example, this means that the price of electricity generated from an HPP may cover the damage caused to ecosystems by the reservoir. Based on the timetable for implementation insisted in the Directive water pricing policies have to be introduced by 2010 at the latest.

5 Source: http://ec.europa.eu/environment/water/water-framework/index_en.html



Promotion of Renewable Energy in the EU

The European Commission outlines the priority activities and objectives of the Community regarding energy sources, identifying three major objectives:

achieving security of supply

improvement of the competitiveness of the European economy

ensuring sustainability.

The development of renewable energy utilization particularly energy from wind, water, solar, geothermal and biomass is thus a central aim of the European Union. Increasing the share of renewable-based generation in the total energy consumption mix will signifi cantly reduce greenhouse gas emissions in the EU.

In order to promote renewable energy sources, the European Commission has implemented the Directives (EU level regulations) discussed in the following section.

COM (97) 599 White Paper: Energy for the future renewable sources of energy

In 1997, the Commission published a White Paper on renewable energy which defi ned a strategy and action plan to promote the market penetration of renewable energy sources, with a target of doubling their use by 2010 (from 6% of total consumption in 1996 to 12% in 2010).

A key element of the action plan was the establishment of European legislation to provide a stable policy framework and clarify the expected development of renewable energy in each Member State.

The two key pieces of legislation (Directives 2001/77/EC and 2003/30/EC) set indicative 2010 targets for all member states and required actions to improve the access, growth and development of renewable energy.

RES-E shares and targets for EU according to Directive 2001/77/EC

RES-E %, 1999

RES-E %, 2010

EU-15 13.9 22.1

EU-10 5.4 11.1

EU-25 12.9 21

Source: European Small Hydropower Association http://www.esha.be/index.php?id=43



Directive 2001/77/EC: Directive on Electricity Production from Renewable Energy Sources

In Directive 2001/77/EC, all member states adopted national targets for the proportion of electricity consumption from renewable energy sources. The indicative targets set in the Directive add up to a 22.1% average share of electricity produced from renewable energy sources as a percentage of gross electricity consumption by 2010 in the EU15. With the 2004 accession, the EUs overall objective became 21%. Additionally, the Directive encourages the countries to use national support schemes, as well as eliminate administrative barriers with respect to renewable energy investments; it encourages grid system integration, and lays down the obligation to provide renewable energy producers with guarantees of origin if requested.

Directive 2003/30/EC: Directive on the Promotion of the use of biofuels and other renewable fuels for transport

The Biofuels Directive entered into force in May 2003, promoting the use of biofuels for EU transport. It stipulates that national measures must be taken by member states aiming at replacing 5.75% of all transport fossil fuels with biofuels by 2010.

Regular assessments and reports have been prepared on the EUs progress towards its 2010 targets and on its efforts in general to develop renewable energy. The reports issued in 2007 as well as the Renewable Energy Roadmap, highlighted the slow progress member states were making and the likelihood that the EU as a whole would fail to reach its 2010 target.

The Commission therefore proposed a new, more rigorous legislation covering all renewable energy and set new targets for 2020 to ensure a stable regulatory framework for the decade ahead. This new Directive has been approved on 26 March 2009 and repealed Directives 2001/77/EC and 2003/30/EC.

Directive 2009/28/EC: Directive on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC

Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009, on the promotion of the use of energy from renewable sources, published in the Offi cial Journal of the European Union on 5 June 2009, is a step forward. This Directive establishes a common framework to promote the use of energy from renewable sources and sets mandatory national targets for



the overall share of this energy in gross fi nal consumption of energy. The Directive also establishes rules relating to joint projects between member states and other countries, guarantees of origin, facilitating administrative procedures, and accessing networks.

Directive 2008/0016: Directive on the promotion of the use of energy from renewable sources

This Directive established a 10% share of renewable energy (including biofuels and RES-E) in the transport sector as well as an overall binding target of a 20% share of renewable energy sources in fi nal energy consumption and binding national targets by 2020 for every member state in line with this overall target. Each member state would be required to ensure the support of renewables through national action plans and support schemes in order to accomplish these goals.

3.3. Greenhouse Gas Emission Measures

The Kyoto Protocol

The Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) adopted at the Rio de Janeiro United Nations Conference on Environment and Development in 1992 was introduced to strengthen the international response to climate change.

The UNFCCC intended to prevent the unlimited growth of greenhouse gas emissions on a global level. However, it didnt entail any mandatory limit for countries, but rather the treaty included provisions for updates (called protocols) that would set binding emission limits. The principal update was the Kyoto Protocol, which was adopted in 1997. The Protocol prescribed at least a 5% emission reduction at a global level by 2012 against the 1990 baseline.

All EU countries are parties to the Convention and have ratifi ed the Kyoto Protocol. Developed countries have committed themselves to reducing their collective emissions of six key greenhouse gases by at least 5%.

This is set down in a legally binding burden-sharing agreement (in Council Decision 2002/358/EC of 25 April 2002).



Kyoto Mechanisms (ET, CDM and JI)

Generators that cannot comply with the mandatory emission limits have an alternative to either purchase additional emission allowances on the open market (Emission Trading ET) or implement a project under the umbrella of the Clean Development Mechanism (CDM) or the Joint Implementation (JI) scheme. If a company implements such a project, it receives Certifi ed Emission Reduction (CER) or Emission Reduction Unit (ERU) certifi cates which can be surrendered as a substitute for emission allowances.

Under JI, any country that has emission reduction targets (termed an Annex I country) can invest in emission reduction projects in any other Annex I country as an alternative to reducing emissions domestically. In this way countries can lower the costs of complying with their Kyoto targets by investing in greenhouse gas reductions in any Annex I country where reductions are cheaper, and then applying the credit for those reductions towards their commitment goal.

Under CDM, industrialized countries with a greenhouse gas reduction commitment (Annex B countries) can invest in projects that reduce emissions in developing countries as an alternative to more expensive emission reductions in their own countries.

The CDM allows net global greenhouse gas emissions to be reduced at a much lower global cost by fi nancing emissions reduction projects in developing countries where costs are lower than in industrialized countries.

European Union Emission Trading System EU ETS

In order to adopt the UNFCCC on a more practical level, the EU issued Directive 2003/87/EC establishing the EU ETS. This is a market-based mechanism that translates Kyoto Protocol commitments to an operational level. It has been in operation since 2005, covering more than 40% of the total GHG emissions of the European Union and serves as a market mechanism for buying and selling CO2 emission credits, each of which allow the owner to emit greenhouse gases of 1 tonne of CO2 equivalent.

Under the framework of the EU ETS, emission allowances can be traded just as any other commodity. The EU ETS covers several industries, among which power generation has the largest GHG emission level.


Copenhagen Climate Change Conference (2009)

The Kyoto Convention will come to its end in 2012, thus as a successor a similar treaty was expected to be signed in Copenhagen in December 2009 for the post-2012 period, but the end result is widely considered a failure.

In aggregate the Copenhagen Climate Summit did not achieve its initial goal, however the participants signed a memorandum which expresses the non-binding common understanding of keeping the global climate change under 2 degrees increase of temperature without containing explicit commitments to emission reductions to achieve that goal. This document will be the basis of the next UN Climate World Summit, which takes place in Mexico between 29th November and 10th December in 2010.

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Due to population increase and economic growth (not taking into consideration the current fi nancial economic slowdown) energy demand in general and electricity consumption are increasing globally. This latter trend can also be observed in the Central and Eastern European region, although the change in the political and economic systems in the early 1990s resulted in a drop of electricity consumption in many countries.

4.1. History

CEE countries maintained centrally-planned economies during the communist era, and partially based on the principle of facilitating the development of heavy industry they consumed a signifi cant amount of electricity, which totalled about 339 TWh7 in 1990. After the change of system many of the large but at the same time uneconomical sectors were closed down which caused a signifi cant decrease in electricity demand within the region: total consumption was almost 23%7 less in 1993 than the corresponding value in 1990. Issues occurring on a country level such as monetary problems or the civil war in the Balkans as well as the initial general downturn of social welfare arising in line with the transformation also infl uenced consumption in a negative way.

Since then the electricity consumption of the region has recovered: the total demand of the region exceeded 348 TWh8 in 2007. One reason for this is that national governments have taken several actions in order to stabilize the newly established market-based economies (monetary restrictions, privatization, etc.),

4. Electricity Demand Trends in the CEE Region

120%

100%

80%

60%

40%

20%

0%

199

0

1991

1992

1993

199

4

1995

199

6

1997

1998

1999

200

0

2001

2002

2003

200

4

2005

200

6

2007

2008

Figure 9: Electricity Consumption Development in the CEE6 Region19902008 (1990=100%)

Source: World Bank data and KPMG estimates based on national statistics, EIU and UCTE data

6 Including Montenegro and Kosovo

7 Source: World Bank

8 Source: World Bank



which resulted in continued economic growth in the following years. As the standard of living has also risen, the signifi cance of residential and commercial consumption in total electricity demand has increased and thus these sectors have taken over the earlier role of heavy industry.

In the meantime, most of the countries in the CEE region have joined the European Union, which through the entry criteria and by infl uencing country-level decisions afterwards further facilitated stabilization and economic growth. In line with the goal of establishing a single European electricity market, actions fostering full liberalization have been implemented in CEE countries, which could result in a more transparent market with lower prices and in this way in additional demand. On the whole, EU membership has thus also increased directly or indirectly the electricity consumption of the region.

Although demand for electricity is in general relatively constant compared to that of other products (as it is a necessity good), due to the recent fi nancial turmoil the electricity industry is facing a downturn as well. Industrial production has decreased signifi cantly in the region, and household consumers are using less electricity in this insecure environment. As illustrated in Figure 11 below, monthly electricity consumption in the CEE region has been lower than the previous years consumption since October 2008.

4.2. Future Outlook

The development of electricity consumption shows an increasing trend globally, which is expected to continue in the future. Although the remarkable economic growth of the CEE countries has slowed down due to the global fi nancial crisis, they are still considered to be converging markets, which

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Figure 10: Distribution of Electricity Consumption by Sector in the CEE9 Region

Source: World Bank data and KPMG estimates based on national statistics, EIU and UCTE data

1990 2007

Industry Transport Households Services Other sectors

9 Including Bulgaria, Czech Republic, Estonia, Croatia, Hungary, Lithuania, Latvia, Poland, Romania, Slovenia, Slovakia

Source: UCTE

Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Jan Feb

2008/2007 2009/2008

Financial crisis and related drop of demand

Figure 11: Monthly Electricity Consumption in the CEE Change in Percentages Compared to Previous Year (20082009)

8%

6%

4%

2%

0%

-2%

-4%

-6%

-8%



implies that after stabilization the economic performance of the region is likely to resume its pace. In the coming decades all countries in the region are expected to become EU member states, which may further facilitate their development process. To sum up the introduced trends, in line with the economic growth of the region the level of electricity consumption looks to signifi cantly increase in the long term.

4.3. Special Demand for Renewable Energy Sources Including Hydro Power

Based on rising electricity consumption and on increasing concerns over climate change and energy security, the utilization of renewable energy sources has become a key issue worldwide. Among others, the European Commission has implemented and supported several actions aiming to grow the renewable proportion of gross electricity consumption within the European Union, which has an infl uence on most of the CEE counties. As a result, the share of renewables in power generation and thus in consumption has shown an increasing trend during the last decade in the region, with the key contributors being hydro, biomass and wind.

In parallel with the promotion of the utilization of renewable energy sources from the supply side, more and more consumers on the demand side are becoming aware of environmental issues in connection with electricity production and use. Accordingly, in line with the liberalization of the European electricity market and with the expansion of individual consumers room for decision-making, the opportunity of purchasing so-called green electricity has arisen in some countries.

As an example, the Netherlands was the fi rst country in Europe that promoted green power to consumers and suggested an extra charge for it to cover environmental concerns. Initially, in 1995 1% of electricity utility EDONs customers (recently part of RWE Group) had signed up to the scheme, through which they could purchase 25-100% of their electricity from renewable energy sources. At that time, the additional charge was 4 cents per kWh on top of the regular price of 21 cents. The idea proved to be relatively successful as all utilities in the country now offer such a green energy scheme.10

Through this process, consumers support the electricity providers overall reliance on renewable energy sources, thus fostering the spread of sustainable energy-related technologies. Although such a special demand for renewable energy sources is not common within the Central and Eastern European region, it is expected to become more important in the future, thus this trend may result in a signifi cant additional demand for green energy, including electricity generated from HPPs considered renewable.

10 Source: http://www.ucc.ie/serg/pub/green.pdf

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Hydro power plays an important role in the energy production of the Central and Eastern European region today with a share of approximately 23% of the total installed capacity. Electricity generation from hydro power makes a substantial contribution to meeting the increasing electricity demand and is currently the most used resource which is not fossil fuel- or nuclear-based electricity generation technology. Hydro is one of the two energy sources along with fossil fuel that is utilized in all CEE countries for electricity generation.

Figure 12: Share of hydro generation capacities in the CEE region (2008)

5. Importance of Hydro Power in the CEE Region

CountryInstalled capacity (MW)

Share of hydro

Total Hydro

Albania 1,670 1,446 87%

Montenegro 870 660 76%

Latvia 2,566 1,560 61%

Croatia 3,762 2,007 53%

Bosnia and Herzegovina

4,021 2,064 51%

Macedonia 1,493 586 39%

Romania 16,582 5,843 35%

Serbia 8,355 2,831 34%

Slovakia 7,453 2,478 33%

Slovenia 2,894 879 30%

Bulgaria 11,359 2,993 26%

Lithuania 5,070 1,027 20%

Czech Republic 16,480 2,175 13%

Poland 32,509 2,327 7%

Kosovo 1,522 44 3%

Hungary 7,746 46 1%

Estonia 2,738 5 0%

Total 127,090 28,971 23%



Comparing this ratio to that of the UCTE region11, which is 20%, we can see that hydro power is a more popular source of electricity in the CEE region.

One reason to which this can be attributed is the favourable geographic situation of many of the countries in the region. Looking at the topographic map one can fairly easily tell which countries might bear signifi cant opportunities. Countries lying on the Balkan Peninsula, in the Carpathian Mountains and at the eastern slopes of the Alps harbour such potential.

The following page contains a summary map of the installed hydro power capacities of the CEE countries. It is predictable, but still interesting to see how hydros proportion in the capacity mix and the topographic conditions of a country correlate.

Hydropower Nuclear Other RESThermal

70%

60%

50%

40%

30%

20%

10%

0%

65.9%

22.7%

10.1%

1.3%

52.6%

19.0% 17.1%11.3%

CEE region UCTE

Figure 13: Capacity mix in the UCTE and CEE region, 2008

Source: UCTE, BALTSO, Latvenergo, LEI, ERO KS, Statistics Estonia, USAID-NARUC

11 The UCTE region includes: Austria, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Denmark, Germany, France, Greece, Hungary, Italy, Luxemburg, Macedonia, Montenegro, the Netherlands, Poland, Portugal, Romania, Serbia, Slovenia, Slovakia, Spain, Switzerland

Hydro Thermal Nuclear Other RES

Country code

Large hydro

Small hydro

30%

46 %

24

%SI

863 MW

16 MW

54%45%

1%

HR

1970 MW

37 MW

49

%

51%

BA

2056 MW

8 MW

76 %

24%

ME

649 MW

11 MW

61

%

39%

MK

536 MW

50 MW

87 %

13%

AL

1432 MW

14 MW

97 %

3%

KO

35 MW

9 MW

66

%

34%RS

2818 MW

13 MW

55 %

26%18%

1%

BG

2480 MW

513 MW

57%

35%

8%

RO

4895 MW

7 MW

68%

24%

7%1%

HU

39 MW

7 MW

36 %

30% 33%

1%

SK

2254 MW

224 MW

6 5 %

21%

13%1%

CZ

1870 MW

305 MW

92 %

7%1%

PL

2176 MW

151 MW

52 %

2%

26%

20%LT

1001 MW

26 MW

61 %

1%

38%

LV

1535 MW

25 MW

9 8 %

2%

EE

0 MW

5 MW

Source: KPMG analysis

Figure 14: Installed capacities and topographic features of the CEE region

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Another reason is for hydro having a higher share in the CEE than in the UCTE countries is that western European countries have higher electricity consumption per capita which results in relatively higher installed capacity needs. After approaching the limitations of exploiting economically feasible hydro capacities they have had to turn to other sources.

But given a comparison of the UCTE countries and the CEE region in terms of installed hydro capacities divided by the populations of the countries, things may look different. In this case the UCTE countries have 241 MW per million capita installed capacity of HPPs versus 229 MW in the CEE region12.

Besides the fact that hydro power currently makes up a substantial share of the total installed generating capacity, arguments for the increasing utilization of hydro power are based on its advantages compared to other sources of energy that are largely based on low OPEX, effective, sustainable and renewable energy source through which energy can be stored in large quantities and which are able to play a major role in power system balancing.

Figure 14 shows the share of hydro power in the total generation capacity of the CEE region. We can see that the share of hydro power within the total installed capacity varies considerably between countries, ranging from ~0% to ~87%. The differences in countries refl ect both topographic and climate constraints or suitability. The table shows that hydroelectricity is of elemental importance in Albania, Montenegro, Latvia, Croatia and Bosnia-Herzegovina.

The following chart shows the technical hydro power potentials of each country of the CEE region. Most of the potential for future hydro power expansion lies in Romania, former Yugoslav republics (Kosovo, Bosnia and Herzegovina, Serbia, Slovenia, Croatia, Montenegro and Macedonia), Bulgaria and Poland. Yet despite the vast potential for future development, these countries have found it diffi cult to secure fi nancing for large hydro power projects. Out of the top fi ve countries it should be noted that two countries have enormous potential considering their size: Bosnia and Herzegovina and Kosovo.

12 Source: UCTE, KPMG analysis



Figure 15: Technical Hydro Power Potential vs. Utilization in the CEE Region

Country

Net generation

in 2007 (GWh/year)

Technical potential

(GWh/year)13

Unused technical potential

(GWh/year)

Utilization rate

Bosnia and Herzegovina 4,552 24,000 19,448 19%

Romania 16,794 35,000 18,206 48%

Bulgaria 3,570 15,000 11,430 24%

Albania 3,657 15,000 11,343 24%

Poland 2,668 14,000 11,332 19%

Serbia 10,011 19,000 8,989 53%

Hungary 208 8,000 7,792 3%

Slovenia 3,212 9,000 5,788 36%

Macedonia 881 5,000 4,119 18%

Croatia 5,284 9,000 3,716 59%

Montenegro 1,536 4,269 2,733 36%

Slovakia 4,306 7,000 2,694 62%

Lithuania 861 3,000 2,139 29%

Czech Republic 2,367 4,000 1,633 59%

Latvia 2,671 4,000 1,329 67%

Kosovo 76 800 724 10%

Estonia 28 263 235 11%

Total 53,682 176,332 113,650 36%

Sources: World Energy Council, 2009, 2007, Kosovo Ministry of Energy and Mining, UCTE, BALTSO, KPMG analysis, 2009

13 The World Energy Council determined the technically exploitable capability for end of 2005, but as hydro technology is mature, the potential is not expected to change.

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The aim of this chapter is to give you a short overview of the current status of hydro power in each country belonging to the CEE region. Through several recurring elements in the country profi les the goal is to provide a comparable overview of the CEE countries. These elements are as follows:

The characteristics of electricity generation: This comprises a quick wrap up of the countrys generation characteristics including the distribution of installed electricity generation capacities among the major types of energy sources and the generation mix.

Hydro capacities: The distribution of installed HPP capacities is introduced, including the major large HPPs and the share of large and small HPPs within the total HPP installed capacity. As a general rule we consider HPPs with less than 10 MW of installed capacity small HPPs. Consequently large HPPs have at least 10 MW installed capacity. An overview of the age of the existing HPPs is distributed into four categories:


2. Green certifi cate and green quota obligation system: green generators sell their electricity production on the market, but additionally they earn tradable green certifi cates after the generated amount of electricity. Market players are obliged to procure a certain amount of green certifi cates representing that a certain percentage of the electricity sold or consumed by them is covered by RES-E. The prices of both electricity and green certifi cates are defi ned by the market.

3. Premium system: green generators have to sell the electricity on the market at market price, but they also receive a fi xed premium per each kWh from the state as a subsidy.


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Characteristics of electricity generation

Electricity generation in Albania is dominated by large hydroelectric facilities. It is the country where hydro contributes most to the generation mix with a 97% share in the CEE region as of 2008. The total installed power generation capacity is 1,670 MW, including 1,446 MW hydro and 224 MW thermal.14

The major player on the electricity market is the Albanian Power Corporation (KESH), but the Government of Albania is in the process of restructuring with the aim of accelerating private-sector participation in the energy sector.

Albania has six large HPPs accounting for about 96% of the total electricity generation15. These power plants are situated along three major rivers: Drini, Mati and Bistrica. The three largest HPPs are constructed on the Drini River comprising more than 80% of the countrys installed capacity16.

There are about 90 SHPPs in Albania, with installed capacity ranging from 0.02 MW to 9.2 MW, however, among these only 36 power plants are in operation. Fifty-four percent of the operating SHPPs are privately owned17.

Prospects for hydro generation

Albania does not have any binding target regarding the share of renewable energy in fi nal consumption.

The country is known for its enormous hydro power potential. The technical potential would enable 15,000 GWh18 per

central and eastern european hydro power outlook - …€¦ · power plant types 9.3. cooperation...

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