The strong outlook for carbon pricing in the Western Balkans means that new lignite plants will be loss making.
2 GW of new lignite capacity is currently planned in the region. If built, these plants will generate a cumulative loss by 2040. This is because of low efficiency of lignite mining, costs to comply with air pollution regulation and limited export opportunities after establishment of the EU Carbon Border Adjustment Mechanism (CBAM). A phase-in of carbon pricing in Energy Community countries would further increase losses.
From an economic perspective, existing lignite units in the region should be closed by 2040.
A 2040 lignite exit increases system costs by 3–4 €/MWh in an unlikely scenario without carbon pricing. With the EU CBAM regime or any other form of domestic carbon pricing, closing lignite plants by 2040 lowers system costs.
The planned and gradual phase-out of lignite will ensure security of supply.
Security of supply is not an issue if the gradual phase-out of lignite is accompanied by a rapid scaling of renewables, enhanced interconnections, regional power market integration, strengthening of existing hydro-storage and targeted investments in flexible gas plants. Expanding renewables also reduces import dependency of the power and energy sectors.
A renewables-based power system is a ‘no regret’ strategy for the Western Balkans.
Replacing lignite generation by renewables lowers wholesale prices, hedges against carbon prices and avoids that fossil gas infrastructure will become stranded. Renewables deployment can largely be financed from market revenues, especially in case of carbon pricing. Renewables also come with many co-benefits such as improved air quality and new job opportunities. ‘Just transition’ policies would ensure that no one is left behind.
In November 2020, the six Western Balkan countries signed the ‘Sofia Declaration’ committing themselves to climate-neutrality by 2050. The Green Agenda for the Western Balkans, adopted together with the Sofia Declaration, could pool 28 billion euros of investments to support the region’s economic recovery and long-term convergence with the EU, particularly by accelerating climate protection and the clean energy transition.
Climate-neutrality by 2050 cannot be achieved without a phasing out of lignite for power production. Still, most of the power sector in the Western Balkans is yet to act. Apart from North Macedonia, no other lignite-reliant country has publicly announced a phase-out. On the contrary: 2 GW of additional lignite capacity is planned in the region either with Chinese or unclear financing; generally, in conflict with state aid rules and air pollution limits. The absence of a CO₂ pricing mechanisms contributes to these developments. Without a change in direction, countries and taxpayers will soon face stranded assets and unserviceable loans, particularly because the EU’s Carbon Border Adjustment Mechanism will make the newly planned lignite units unprofitable.
To support the necessary debate on a lignite phase-out strategy for the Western Balkans, we have teamed up with enervis energy advisors and our regional think tank partners RESET from Bosnia and Herzegovina, INDEP from Kosovo and ASOR from Serbia to develop analytically robust scenarios for a lignite phase-out by 2040. The results are clear: countries in the region should align their climate and energy policies with the EU’s 2030 and 2050 targets! The EU Green Deal is an opportunity for these countries to initiate a deep decarbonization of their power systems based on renewable energies. Now is the moment for the Western Balkans to seize that chance.
- Rita Kunert, Julius Ecke, Christoph Pfister
- Publication number
- Version number
- Publication date
4 October 2021
- Suggested Citation
- enervis (2021): The Future of Lignite in the Western Balkans. Scenarios for a 2040 Lignite Exit. Study on behalf of Agora Energiewende.
- This publication was produced within the framework of the project The future of lignite in the Western Balkans.
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The Future of Lignite in the Western Balkans
Scenarios for a 2040 Lignite Exit
Senior Associate European Energy Cooperation
Project Manager Southeast Europe (until October 2022)