The decision of many Central and Eastern European states to join the European Union (EU) was always going to have massive repercussions for their power sectors. Communist era economic policies had centralised the control of power supplies, so many states had to introduce substantial reforms even during the run up to accession but all are continuing to introduce some level of competition, whilst making some alterations to their generation mixes. The period of reconstruction and reform is having major implications for the hydroelectric sector in the region, as many schemes are privatised and EU support for renewables is encouraging the development of more small and mini hydro ventures.
The impact of EU policy on the hydro sectors of new member states depends on two main factors: the current size and future potential of hydroelectric production in each state; and the timing of their accession. The ten countries that joined the EU in 2004, otherwise known as the EU10, had longer to plan for membership than Romania and Bulgaria, which joined in January 2007. They are also substantially more prosperous than their Balkan counterparts and have now experienced three years as EU member states, giving them more time to implement EU environmental and power sector policy.
Slovakia is the most hydro reliant country among the EU10. The hydro sector accounts for 2400MW out of total national generating capacity of 7200MW. The nuclear and thermal generation sectors provide roughly one third each of the country's balanced generation stock and the government is currently weighing up its options for new plant development over the next decade and beyond. However, the two nuclear reactors are being decommissioned and Bratislava is reluctant to rely completely on thermal power plants, so there should be some growth in hydro capacity. Slovenské Elektrárne still dominates the power sector but the government is in the process of privatising the company. It remains to be seen whether Bratislava can create an investment climate that will encourage private sector companies to opt for hydro over thermal plants.
The hydro sector is helping to improve grid reliability in Hungary, through the construction of a new 1000MW pumped storage hydroelectric power plant on the Tisza river in the east of the country. Hungarian engineering company Eroterv and the Szivattyus Energiatarozo consortium of other domestic firms are developing the project at a cost of around US$700M. The project's feasibility study has been completed and construction work is expected to begin by the end of this year or early in 2008, although a funding package must first be secured. The first electricity should be provided by 2012.
Pumped storage also dominates the Czech Republic's hydro sector. Conventional hydro contributes just a small fraction of national generating capacity of 16,500MW, but there is 1120MW of pumped storage generating capacity. National power utility CEZ produces about 616GWh of hydroelectricity per annum, although gross theoretical hydro power potential is 13,100GWh a year and technically feasible potential is 2711GWh a year. There are already 1200 mini and micro hydro projects, with total generating capacity of 200MW, producing 680GWh a year. They are mainly used for providing off grid electricity. However, the government has identified small hydro potential of about 500GWh a year and hopes to encourage the exploitation of more of the country's potential small hydro sites.
The evolution of the Polish hydro sector over the past 50 years has followed the pattern set by Hungary and the Czech Republic. The country possesses just 600MW of conventional hydro capacity, including the largest plant – the Wloclawek on the Vistula river – and all small and mini hydro schemes. However, there is a further 1660MW of capacity at three pumped storage schemes and three hydro project with a pumped storage element. Some expansion of the small hydro sector is planned but most dam construction has focused on flood control since flooding caused devastation in 1997.
The new entrants
While some of the EU10 are approaching the end of their original power reform plans, one of the more recent additions to the EU fold is currently restructuring its entire stock of hydroelectric plants. Romania's main hydroelectric producer, Hidroelectrica, is selling off 51 small power plants, mainly on the Suceava river, with others on the Casin river, following on the from the 38 hydro plants that have been sold since the privatisation process began in 2004.
In addition, a total of 14 micro hydro facilities are up for sale, largely on the Ilfov and Suha Mare rivers. The divestiture is required as part of the energy sector agreement that formed part of Romania's accession treaty. By the end of this year, Hidroelectrica is required to have sold off a total of 150 micro hydro schemes, although not all of these are actually in commercial use. A company spokesperson revealed: 'The company holds 227 micro hydroelectric plants, but only 150 are functional. These will be sold in order to attract foreign investment, thus sustaining regional development.'
The company plans to use the money it raises to modernise its remaining facilities to enable its entire stock to be run on a commercial basis. Hidroelectrica, which produces around 34% of all Romanian electricity, has recorded a profit over the past two financial years as a result of its reforms and improved revenue collection. At present, the company is 80% owned by the state, in the form of the Ministry of Economy and Commerce, while the Proprietatea Fund holds the remaining 20% stake.
Currently, 40% of the country's technically feasible hydro potential has been developed, yielding installed generating capacity of 5934MW, around 30% of total capacity. The largest plant is the 2100MW Portile de Fier scheme on the Danube, on the border with former Yugoslavia. The project and the six turbines on the Romanian side have been upgraded by ABB Schweiz and Sulzer Hydro. Elsewhere, Harza Engineering of the US is developing the Siriu Surduc Nehoiasu scheme, which will provide another 186MW of hydro capacity. Some of the funding for hydro sector expansion has been provided by the European Investment Bank and the European Bank for Reconstruction and Development.
The second new EU member state, Bulgaria, is also taking steps to reform its hydro sector. The government began privatising small hydro plants during the late 1990s and facilities have been sold off in tranches ever since. Attention has now turned to developing new projects, as the government seeks to maintain the country's position as an energy exporter and to provide sufficient electricity to supply anticipated demand growth over the next decade.
Sofia hopes to jointly develop a hydroelectric project on the Tundja river with the Turkish government. The exact scale of the venture has yet to be determined but a joint government assessment was completed in 2006 and a final decision is expected this year. More progress has been made on the 80MW Tsankov Kamak hydro plant on the Vacha river in the south-east of the country close to the Greek border. Construction work began at the start of 2004 and is expected to be completed by 2009. VA Tech Hydro is developing the venture for the national power company, Natsionalna Elektricheska Kompania (NEK), with funding provided by the government and a variety of foreign finance agreements. It is hoped that carbon credits from Tsankov Kamak can be traded internationally.
Renewable options
Of the EU10, the island states of Malta and Cyprus and the three Baltic states, Estonia, Latvia and Lithuania, have relatively little hydro capacity. Of the other five members, Poland, Hungary and the Czech Republic all rely heavily on thermal and nuclear power generation capacity and possess relatively little hydro capacity. Yet even in those states with relatively little existing hydro capacity, there should still be some potential for small and micro hydro ventures as a result of EU enthusiasm for promoting renewables.
The ten new member states were included in the European Commission's targets on renewables long before they became members, effectively forcing them to encourage small hydro and other renewable energy projects from the late 1990s. The EU10 will therefore play a key role in enabling the EU as a whole to reach its target of boosting renewables' share of EU generation capacity to 22.1% by 2010. This target was laid down in EU directive 2001/77/EC, which still forms the basis of the Union's renewable energy strategy.
As the table above shows, each of the EU10 states has been given targets on the proportion of their generation mix to be provided by renewables by 2010. While geothermal is likely to be a popular choice in Hungary, and biomass will be favoured in Poland, Germany is keen to export its wind power technology to the many states with substantial wind power potential. Each state will select renewable energy projects based on their ability to help reach their targets, as well as on the basis of technical and economic feasibility.
The role of hydro in helping to meet these targets is greater than might otherwise be thought. Unlike most EU national governments, the EU definition of renewable energy encompasses large hydro and so all forms of hydroelectric production will qualify. As a result, countries that already possess relatively substantial hydro sectors, such as Slovakia and Slovenia, have been set high targets, at 31% and 33.6% respectively. Moreover, out of Latvia's target for 2010 of 49.3%, an estimated 43.3% is expected to be provided by large hydro schemes.
However, there should also be some room for small hydro, which is most likely to make a contribution to meeting the renewables target in Romania and Bulgaria. According to the European Small Hydropower Association's (ESHA) Thematic Network on Small Hydropower, there are about 2800 small hydro plants in the EU10 and 400 in Romania and Bulgaria, with average generating capacity of 0.3MW and 1.6MW respectively. This provides a total of 820MW of small hydro capacity in the EU10 and 680MW in the two latest accession states.
According to ESHA, there is massive potential for increasing both nameplate generation capacity and efficient use of that capacity in small hydro plants across the region, through improving the efficiency of their operation and maintenance. Some of Eastern Europe's hydro schemes were developed many decades ago and have not been upgraded as required, although the lack of investment is now providing opportunities for investment. For example, a consortium of Voith Siemens Hydro and Siemens Budapest has been awarded a contract to upgrade the Tiszaloek station in Hungary by the plant's operator Tiszaviz Vizeroemue KFT. It is hoped that the generating capacity of the three 4.5MW turbines can be increased.
The key to guaranteeing growth in the small hydro sector is ensuring that it is economically competitive within the increasingly liberalised markets. While the power sectors of some established EU member states, such as France and Germany, continued to be dominated by vertically integrated utilities that allow little domestic or cross-border competition, the EU10 are generally more enthusiastic at embracing European Commission policy on power sector liberalisation.
A number of direct grants and loans are offered by a variety of EU institutions to support small hydro and other renewables schemes, but most relate to the development rather than the ongoing viability of such ventures. However, since the start of 2005, the Czech Republic, Estonia and Poland have guaranteed grid access and introduced feed in tariffs in order to create a relatively even market between small hydro and larger power producers in the nuclear and thermal power sectors. This is in line with national government policy in most of the established EU15 states.
In the Czech Republic, for example, small hydro and other renewable energy projects have a 15 year tariff guarantee. This will be set on an annual basis by the national power sector regulator, but 15 years should be sufficient to recoup investment costs and therefore persuade many niche investors to commit themselves. Although the European Renewable Energies Federation (EREF) has applauded the introduction of feed in tariffs, it remains concerned about the ability of grid regulators to block access if connecting small hydro schemes could threaten grid stability.
In addition, the Renewable Energy Partnership argues that funding levels are still far too low to enable all the planned projects to be developed. It insists that private sector investors are still deterred by the lack of potential profits. Nevertheless, the introduction of emissions trading within the EU in 2005 should also encourage investment in Eastern European small hydro. Credits from small hydro are likely to be more attractive to Western EU companies keen to promote an image of environmental responsibility.
Energy security
EU financial incentives and regulations are not the only factors that encourage investment in hydro in the region. Recent Russian gas sector strategy has caused many politicians to rethink their current dependence on imported Russian gas as a power sector feedstock. At the start of 2006, Russian gas giant Gazprom halted exports to Ukraine in an effort to force a sales deal that included much higher tariffs. This could not only force Kiev to agree to the deal but resulted in a drop in gas exports as far west as Austria.
Gazprom adopted a similar strategy at the start of this year in order to force higher gas tariffs in Belarus. This time, supplies from an oil export pipeline were suspended in order to force Minsk to agree to Gazprom's terms and again oil supplies to other European states, including Germany, were hit. The apparent willingness of Gazprom and the Russian government to cut supplies in order to force tariff changes prompted many to question such energy dependence on a single source.
Gazprom already provides around 60% and 82% of Polish and Czech gas consumption respectively and the figure is even higher in some other countries. Other pipelines to export Russian gas to East and Central European power plants are under development or on the drawing board, so this dependency is likely to increase. With so many Eastern European governments still struggling economically, politically and socially to come to terms with decades of Russian domination, they are more than eager to resist any increasing reliance on Moscow.
This should not only trigger more interest in securing alternative supplies of gas but also in promoting more independent power generation. Investment in nuclear as well as hydroelectric capacity is therefore likely to increase over the next decade. The head of energy at Bank of Austria, Christian Unger, says that small hydro and other forms of renewables are likely to be particularly favoured. He said: 'Due to skyrocketing oil prices, the need to reduce the dependence on foreign fossil fuel imports and national security considerations, investments will have to go more and more into smart renewable energy technologies.' Other benefits of small and mini hydro include job creation – a particularly attractive side effect in countries with high unemployment rates.
Membership of the EU appears to have triggered the rehabilitation of existing plants, the commercialisation of many schemes and the development of small and micro hydro projects across Eastern Europe. With so much gas on offer from Russia, it is easy to see why some governments have gone for the easy option with thermal power plants. Yet with EU enthusiasm for reducing carbon emissions likely to increase year by year, it would not be a surprise to see a growth in Eastern Europe's hydro capacity over the years to come.
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