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From next year, a large number of lignite-fired power plants in the Western Balkans will no longer comply with the EU directive on large combustion plants. The key question is what they could replace them with, write Tanja Micevic and Christian Eggenhofer.
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The issue of phasing out coal remains a controversial topic globally, as further highlighted at COP28. This topic is now expected to become a key item on the agenda of the Energy Community ministerial meeting on December 14.
Although there has been a long history of goodwill to address this problem, there has been a lack of concrete action. However, this time, circumstances suggest that a different outcome is possible.
The reason behind this change is the application of the EU’s Carbon Border Adjustment Mechanism (CBAM) for electricity in the Western Balkans, which is primarily designed to encourage the reduction of CO2 emissions.
Unsurprisingly, this could lead countries in the region to cease electricity exports to the EU – a situation that could trigger a crisis in the region.
About two-thirds of the Western Balkans’ electricity is produced by lignite, often in plants that have been operating for more than 40 years, making modernization economically impractical or technically difficult.
The carbon intensity of the region’s electricity sector is three times higher than that of the EU. From next year, a large number of lignite-fired power plants – around two-thirds of total capacity – will not comply with the EU directive on large combustion plants established by the Treaty of the European Energy Community .
The imminent closure of these factories raises an important question: what to replace them with?
Are there any incentives for phasing out?
The extension of the EU Emissions Trading System (ETS) to the Western Balkans could provide the necessary incentives and financing for new investments, making it easier to close lignite plants.
The EU ETS, together with the Modernization Fund and Article 10C, are specifically designed to address coal-related issues.
These provisions allow Member States in Central and Eastern Europe to temporarily grant free emission allowances to contribute to the modernization of the electricity sector. Both mechanisms will remain valid at least until 2030.
In particular, the Modernization Fund, supported by 2% of total EU quotas (worth €48 billion with a CO2 price of €75), is an important element of EU cohesion. the EU.
In the case of the Western Balkans, the conditions for granting free quotas would require the phasing out of coal. As a result, the Modernization Fund could transform into a “Western Balkans Coal Phase-out Fund”.
By ministerial decision, the EU ETS will become part of the Energy Community acquis by 2026. In more difficult circumstances, Western Balkan countries, for example, could benefit from temporary free allocations for eight years.
Continued funding is needed
The key point is that power plants can retain these EU quotas regardless of their closed status. If they cease operations, they can exploit the value of these quotas for new investment projects.
On the contrary, if they choose to remain operational, they will face a situation without free allocation after the end of the temporary period.
To mitigate the impact of a CO2 price of €80 or more, a gradual introduction of the ETS obligation, similar to the gradual introduction for marine emissions, could be considered.
Continued funding from existing sources such as the EU Growth Plan for the Western Balkans, the EU Investment Framework for the Western Balkans and national and international development banks will be essential.
The important new elements are additional dedicated funding from free allocations used as collateral to accelerate the planned phase-out of coal and new investment projects.
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Estimates indicate that the free allocation could amount to around €20 billion over eight years, starting in 2026 and phased out by 2034. Around half of this amount will be available to support investment.
The total new production capacity needed in the region will be around 5 GWe, around a fifth of Belgium’s total capacity or less than 1% of the EU’s total production capacity.
Additionally, more than a third of the Western Balkans’ electricity supply comes from existing water sources, representing a low-carbon and fully dispatchable source. By integrating the remaining 20% of solar capacity, the rest can be supplemented by geothermal, wind, biomass and, in particular, by new technologies increasing efficiency, increasing load factors and increasing final efficiency at over time. -Efficiency of use.
The radical path is the only reliable path
This proposal is somewhat radical. However, no other reliable system exists.
Implementing this proposal will require foresight, political will and, above all, political courage. The road ahead will not be easy, politically and technically.
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Furthermore, there is no guarantee that this concept will work effectively in practice. The associated risks may be significant, but the potential benefits, particularly in terms of reducing CO2 emissions and political stability, are substantial.
Nevertheless, this initiative will demonstrate to the citizens of the Western Balkans and the reality of their European vision of the EU, the region’s willingness to commit to the EU’s ambitious climate goals.
Tanja Mišević is Minister of European Integration of the Republic of Serbia and Christian Eggenhofer is a senior research fellow at CEPS and the School of Transnational Governance at the European University Institute in Florence.
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