Framework Energy Strategy of Bosnia and Herzegovina until 2035
FRAMEWORK ENERGY STRATEGY OF BOSNIA AND HERZEGOVINA UNTIL 2035
Framework Energy Strategy of Bosnia and Herzegovina until 2035
INTRODUCTION
The previous global and European economic crisis, along with the regional socio-political aspect, had a negative impact on the development dynamics for Southeast Europe, including Bosnia and Herzegovina. Being a small open economy, Bosnia and Herzegovina needs smart investments to start economic activity in a more significant and targeted manner, wherein the energy sector plays a prominent role. The local and European energy context is currently full of major decisions, challenges and uncertainty. Western EU member states have been implementing a clean energy policy, thus considerably changing the energy paradigms, regulatory mechanisms and investment needs. Pressures on the wholesale electricity prices in the European power markets make it more difficult nowadays to make important decisions on investments into the energy sector. On the other hand, the EU clean energy agenda requires funds for a long-term adjustment of the generation portfolio and technology towards reduced greenhouse gas emissions. The Framework Energy Strategy provides the context and direction of energy development for Bosnia and Herzegovina, striving towards a true balance in the context of “energy trilemma”. Initiation of right investments, market and regulatory reforms in all energy segments, supported by sound and structural implementation by all key stakeholders, is an imperative for Bosnia and Herzegovina. Guidelines for Bosnia and Herzegovina are based on the sustainable development policies balancing amongst three aspects: a) security of supply, b) price competitiveness, and c) decarbonisation, i.e. clean energy policies. The sector’s targeted efficiency and efficient usage of resources are the only way for Bosnia and Herzegovina to achieve parallel convergence of the assumed commitments and EU policies entirely and to position energy as the engine to drive the economic development stability and feasibility. Secondary effects shall result in employment, public debt decrease and increase in competitiveness. This document (“Framework Energy Strategy”) is aimed at prioritising the key energy strategic guidelines of Bosnia and Herzegovina with clearly set objectives and implementation priorities to be reached in the years to come, bearing in mind the principles of free market and market factors which cannot be centrally controlled. This document’s clear strategic guidelines form a basis, among other things, for the application for and withdrawal of the IPA and WBIF funds for the Bosnia and Herzegovina energy sector. This document is a set of strategic guidelines harmonised with the Bosnia and Herzegovina Working Group, produced in cooperation with the relevant Ministries, institutions, research centres, associations and social partners and other energy sector stakeholders. The final outcome of this document is a strategic analysis and a review of the strategic energy priorities of Bosnia and Herzegovina in its key segments, with a focus on several indicative scenarios for the generation mix development until 2035.
| Framework Energy Strategy of Bosnia and Herzegovina until 2035
Content
1 APPROACH AND METHODOLOGY ...... 6 1.1 Assignment of institutional competence in the energy sector of Bosnia and Herzegovina ...... 6 1.2 Key information and approach to the development of the Framework Energy Strategy ...... 6 1.3 The Framework Energy Strategy development methodology ...... 7 1.4 Data ...... 8 2 SUMMARY ...... 9 2.1 Input guidelines for the Framework Energy Strategy ...... 9 2.2 Summary of priorities and vision of the Framework Energy Strategy of Bosnia and Herzegovina ...... 9 3 GENERAL DATA AND MACROECONOMIC DEVELOPMENTS ...... 12 3.1 Structure and general data ...... 12 Gross Domestic Product ...... 12 Unemployment ...... 14 Foreign Direct Investment and investment climate ...... 14 4 GLOBAL ENERGY TRENDS ...... 17 4.1 Electricity ...... 17 Global trends ...... 17 European trends ...... 18 European energy policies ...... 20 Current growth of RES generation ...... 22 Future development scenarios of installed capacity from RES ...... 22 Renewable energy technologies ...... 24 Trends in electricity wholesale and supply segment ...... 25 The impact of trends on the sector transformation and new business models ...... 26 Key implications of global trends for the framework energy strategy ...... 29 4.2 Oil and gas ...... 30 Crude oil market ...... 30 Natural gas market ...... 32 Crude oil refining ...... 34 Investment trends and business models of oil companies ...... 35 Key implications of oil and gas global trends to the Framework Energy Strategy ...... 37 5 ENERGY SECTOR OF BOSNIA AND HERZEGOVINA ...... 38 5.1 Review of regulatory and institutional framework ...... 38 Energy Community Treaty ...... 38 West Balkan 6 initiative ...... 42 Energy sector legislative framework ...... 43 5.2 Electricity sector ...... 45 Electricity market structure...... 45 Installed capacity and power generation ...... 46 Wholesale market ...... 51 Transmission ...... 53 Distribution and Supply ...... 56 Electricity prices ...... 60 Indicative scenarios for the development of the power generation mix in Bosnia and Herzegovina ...... 62 Elaboration of scenarios for generation mix development for Bosnia and Herzegovina until 2035 ...... 67 Regulatory and institutional framework ...... 82 Strategic guidelines ...... 88 5.3 Coal sector ...... 90 Introduction...... 90
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Coal reserves ...... 91 Coal production and mine efficiency ...... 95 Scenarios of the mine sector development in Bosnia and Herzegovina ...... 100 Cumulative effects of indicative scenarios on TPP sector development ...... 102 Regulatory and institutional framework ...... 103 Strategic guidelines ...... 104 5.4 Renewable energy sources ...... 105 Introduction...... 105 RES share in gross final consumption ...... 105 Regulatory and institutional framework ...... 116 Strategic guidelines ...... 120 5.5 Oil and petroleum products sector ...... 121 Oil market structure in Bosnia and Herzegovina ...... 121 Exploration and production of hydrocarbons ...... 121 Consumption of petroleum derivatives ...... 124 Petroleum products processing ...... 127 The emergency stocks program...... 129 Retail market of petroleum products ...... 131 Regulatory and institutional framework ...... 133 Strategic guidelines ...... 138 5.6 Gas sector...... 139 State and trends in the gas sector for the wider region ...... 139 Structure of gas market in Bosnia and Herzegovina ...... 142 Development of gas infrastructure in the region and in Bosnia and Herzegovina ...... 147 Regulatory and institutional framework ...... 151 Strategic guidelines ...... 153 5.7 District heating sector ...... 155 Consumption and production of heat ...... 155 District heating companies in Bosnia and Herzegovina ...... 157 Scenarios for the development of the district heating systems ...... 158 Other heating systems ...... 162 Regulatory and institutional framework ...... 163 Strategic guidelines ...... 164 5.8 Energy efficiency ...... 165 EU Directives and Action plans ...... 165 Key strategic elements ...... 167 Final consumption ...... 167 Transformation, transmission and distribution ...... 170 District heating systems ...... 172 Cross sectoral measures ...... 174 Regulatory and institutional framework ...... 176 Strategic guidelines ...... 178 5.9 Overview of key steps in creating a Strategic Environmental Assessment ...... 180 The need assessment and steps in creating SEA ...... 180 Indicative areas and goals ...... 180 Suggested measures of environmental protection in the Framework Energy Strategy ...... 181 6 INDICATIVE ROADMAP OF STRATEGIC GUIDELINES ...... 182 6.1 Transformation framework of energy sector in Bosnia and Herzegovina ...... 182 6.2 Indicative roadmap of strategic guidelines ...... 182 Abbreviations ...... 187 List of Figures ...... 190
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| Framework Energy Strategy of Bosnia and Herzegovina until 2035
List of Tables ...... 193
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| Framework Energy Strategy of Bosnia and Herzegovina until 2035
1 APPROACH AND METHODOLOGY
1.1 Assignment of institutional competence in the energy sector of Bosnia and Herzegovina
Bosnia and Herzegovina (BIH) is composed of two entities, Republika Srpska (RS) and the Federation of Bosnia and Herzegovina (FBIH), and the Brčko District of Bosnia and Herzegovina (BD BIH) as a separate administrative unit. Overview of the relevant institutions in the energy sector is provided below: The Ministry of Foreign Trade and Economic Relations of Bosnia and Herzegovina (MOFTER) is a part of the Council of Ministers of Bosnia and Herzegovina, exercising their rights and performing their duties according to the law. As stipulated in the Law on Ministries and Other Administrative Bodies of Bosnia and Herzegovina (Official Gazette of Bosnia and Herzegovina, Nos. 5/03, 42/03, 26/04, 42/04, 45/06, 88/07, 35/09 and 103/09) MOFTER is responsible for inter alia, performing the duties and assignments within the competence of Bosnia and Herzegovina, that is, for defining policies and basic principles, coordinating activities and consolidating entity plans with those of international institutions in the field of energy. MOFTER also holds competence in the field of concession spreads over the territory of both entities. MOFTER consists of the Energy Sector which performs the duties within the Department of Primary Energy and Policy, Department of Secondary Energy and Project and Department of Project Implementation. Federal Ministry of Energy, Mining and Industry (FMERI), holds authorities as stipulated in the Law of Federal Ministries and Other Administrative Bodies of Federation of Bosnia and Herzegovina (Official Gazette of Federation of Bosnia and Herzegovina, Nos. 58/02, 19/03, 38/05, 2/06, 8/06, 61/06, 52/09, 80/10 and 48/11), which include, inter alia, administrative, professional and other tasks carried out in the field of exercising the competence of the Federation of Bosnia and Herzegovina in the fields of industry, energy, mining, geological research and entrepreneurship. FMERI consists of Energy Sector and Mining Sector. Additionally, the cantons in the Federation of Bosnia and Herzegovina have, according to cantonal constitutions, their own power of attorney, related to the adoption of regulations on local energy generation facilities and ensuring their availability. The Ministry of Industry, Energy and Mining of Republika Srpska (MIER) holds authorities as stipulated in the Law on Republic Administration of Republika Srpska (Official Gazette of Republika Srpska, Nos. 118/2008, 11/2009, 74/2010, 86/2010 – corr., 24/2012, 121/2012, 15/2016 and 57/2016) which include, inter alia, general implementation of the energy policy, planning and managing the electric power strategy, electric power balancing and long-term planning, granting concessions for research, construction and exploitation of power plants, geological research and exploitation of natural and technological mineral resources, supervision over the operation of public and other companies as majority governmental property from within the sectoral competence, taking part in the development and issuance of technical regulations governing the sectoral competence and their harmonisation with the EU legislation, and other affairs in the field of industry, energy, mining and geology. Sector for Power Engineering, Sector for Energy and Sector for Mining and Geology are established within the MIER.
1.2 Key information and approach to the development of the Framework Energy Strategy
Making of Framework Energy Strategy is part of the project funded by the Department for International Development (DFID) of the Government of Great Britain and carried out by PricewaterhouseCoopers, in cooperation with other partners. The ultimate goal of this project is to develop the Framework Energy Strategy of Bosnia and Herzegovina, based on the updated Energy Strategy of Republika Srpska, Framework Energy Strategy of the Federation of Bosnia and Herzegovina and Brčko District of Bosnia and Herzegovina (within Framework Energy Strategy of Bosnia and Herzegovina.) The following will be developed within the project: • Strategic analysis of the current situation in the energy market, • Update of the existing energy strategy of Republika Srpska, through the Energy Strategy of Republika Srpska • Development of the energy strategy of Federation of Bosnia and Herzegovina through the Framework Energy Strategy of Federation of Bosnia and Herzegovina • Development of the energy strategy of Brčko District of Bosnia and Herzegovina through the Framework Energy Strategy of Bosnia and Herzegovina • Methodological harmonisation of the entity documents and the development of the Framework Energy Strategy of Bosnia and Herzegovina Timeframe for the development of the draft strategic documents is 5 months. Working Groups at all levels, appointed and authorised by the competent bodies to work on this project, are involved in the Framework Energy Strategy development process. Bosnia and Herzegovina is represented by the Working Group led by the Ministry of Foreign Trade and Economic Relations of Bosnia and Herzegovina (MOFTER), Federation of Bosnia and Herzegovina is represented by the Working Group led by the Federal Ministry of Energy, Mining and Industry (FMERI), Republika Srpska is represented by the Working Group led by the Ministry of Industry, Energy and Mining (MIER) and Brčko District of Bosnia and Herzegovina is represented by the Working Group led by “Komunalno Brčko”. During development of the Framework Energy Strategy, active cooperation was established with the representatives of the Working Group of the Ministry of Foreign Trade and Economic Relations of Bosnia and Herzegovina, Federal | 6
| Framework Energy Strategy of Bosnia and Herzegovina until 2035
Ministry of Energy, Mining and Industry, Ministry of Industry, Energy and Mining, Council of Ministers of Bosnia and Herzegovina, as well as the representatives of the donors (British Embassy in Bosnia and Herzegovina) and other stakeholders, such as the EU Delegation to Bosnia and Herzegovina.
1.3 The Framework Energy Strategy development methodology
Framework Energy Strategy (FES) is aimed at identifying the key priorities required for the development do the energy system in Bosnia and Herzegovina. The overall life-cycle approach includes six elements shown in the Figure below and described in the text that follows.
Figure 1.3.1 Strategic planning life-cycle
Source: Project Team methodology
1. Diagnostics: strategic analysis based on which a current overview was made and clear understanding of the current situation in entities and in Bosnia and Herzegovina energy sector achieved. This assignment consisted of active data collection, discussions with key stakeholders, analysis of a broader regional and European energy context and identification of the key hypothesis and strategic priorities. Diagnostics, that is, strategic analysis is pertained to the energy key segments. 2. Strategy: identification of strategic goals and vision, and elaboration of the key strategic priorities in all of energy segments (electric power, oil, gas, heating plants, energy efficiency, renewable energy sources, regulatory-legislative framework, end consumer, etc.), based on understanding of the current situation and global trends which change the industry. This step was taken based on the analyses made and hypotheses defined during the diagnostic stage, and it accordingly provides an overview of the key subject matters. This assignment is aimed at identification of the key strategic priorities and options which form the bases for further deciding on and implementation of the energy policies on entity level and the level of Bosnia and Herzegovina, which is one of the key elements of the Energy Framework Strategy at the level of Bosnia and Herzegovina. 3. Development plan: this strategic planning element focuses on further and detailed elaboration of the specific strategic topics up to the level of operational, technical and legislative plans. It forms an operational basis for the implementation of investments and measures in the energy sector. An action plan includes a definition of indicators for the energy policy monitoring and evaluation and for investments selected by the policy makers. 4. Preparation: the action plan preparation and implementation (a detailed project and planning) 5. Implementation: programme implementation defined at the programme levels 6. Monitoring and evaluation: monitoring of the programme outcomes and impacts and comparison with strategic goals defined during the planning phase
This document includes the development of the first two elements of the strategic planning life-cycle: 1. Phase 1 – Diagnostics 2. Phase 2 – Development of Framework Energy Strategy of Bosnia and Herzegovina
The key segments of energy market along the value chain are reviewed within the project, as shown in the following Figure (Figure 1.3.2).
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| Framework Energy Strategy of Bosnia and Herzegovina until 2035
Figure 1.3.2 Overview of key segments in energy markets and value chain
Note: 1) Subsectors are also included Source: Project Team analysis
This document provides a strategic overview of the regulatory and legislative framework for any of the elaborated parts of the energy market. In the part of the document which refers to electricity segment, the following topic are elaborated: European and regional trends, coal mine issues, market system organisation, electricity import and export balance, generation and generation mix, electric power infrastructure, that is, distribution and transmission, wholesale market, trading and supply and selected implications for the end user. Furthermore, in the context of the electricity market, the topics of renewable energy sources and heating, as well as energy efficiency as a fundamental principle and obligation, are elaborated from perspective of the end user (consumer) and through other value chain elements. In the oil segment, along with the global segment, the document is structured based on the upstream oil industry segment pertaining to the research and exploitation process and import of oil and oil derivatives, and on the downstream segment pertaining to refining and refinery business, warehousing and reserves, distribution and supply of the oil and petroleum derivatives markets and the end user implications. In the gas segment, along with the global, European and regional trends, the document provides an overview of the entire market and market structure, analysis of import activities, gas infrastructure development plan, movement of prices for the end users, etc. In its analyses and guidelines, the Framework Energy Strategy also focuses on the issue of a so-called “energy trilemma” wherein, through a prism of security of supply, price competitiveness and decarbonisation, i.e. clean and sustainable energy, elaborates the key energy segments and issues.
1.4 Data
The following was used while producing Framework Energy Strategy: 1) Public data (e.g. data maintained by the Institutes for Statistics at the entity, Bosnia and Herzegovina and EU level, websites of the institutions and business entities, regulatory reports, financial and auditors’ reports, global energy databases, etc.) 2) Data provided by the Working Group, including the results of the operational and strategic workshops 3) The Project Team’s analyses and databases
In the process of this study development, the GGF Project Team did not apply the audit procedures, nor did it, unless otherwise indicated herein, subject the financial and operational data obtained from the Working Groups or official documents to the verification or certification procedures.
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2 SUMMARY
2.1 Input guidelines for the Framework Energy Strategy
At the time of economic uncertainty, overall resources and efforts should be focused on identification of sources and enabling sustainable growth. This is only possible to achieve with clearly defined priorities and focus on efficiency and development, as well as consistent implementation. Coherence between the strategic goals and implementation is aimed at efficient usage of meagre resources, either financial or expert wise (human), or the natural ones. In accordance with the foregoing context, the energy system of Bosnia and Herzegovina may and must have a key role in growth of the overall economy. In order to address with key challenges which are present and will be happening in the sector, a focused and consistent set of structural reforms is required, which sometimes goes beyond the energy area. Considering a specific economic situation in Bosnia and Herzegovina in general, one of the main priorities built into the overall sectoral strategy must be competitive energy sector which considerably safeguards citizens’ standard of living and has a positive impact on competitiveness of other branches in the economy. Here, two main challenges emerge: a need for restructuring the key parts of the sector towards creating a larger value for end users and other stakeholders in the market, as well as finding new economic values through transformation and development of new products and services. The last period has shown that electricity generation provides security of supply in Bosnia and Herzegovina for domestic demand, despite the fact that this balance is sensitive due to high share and volatility of hydrology. However, if we consider trends of even more intensive integration of European markets, conclusion is that security of supply is not significantly impaired either in the scenario of a smaller deficit. Although the aspirations through the period of time until 2035 put security of supply as a priority, this goal should be approached carefully, being mindful of negative experiences of some European countries in the scenarios of being over- capacitated. Strategic goals of maintaining the energy sector competitive and having security of supply must be balanced with the agenda of sustainable development and reduction of negative impacts on the environment, particularly bearing in mind the current position of Bosnia and Herzegovina relative to the EU initiatives, energy-related trends, as well as current and future obligations towards the Energy Community and other bodies, including the Paris Agreement guidelines.
2.2 Summary of priorities and vision of the Framework Energy Strategy of Bosnia and Herzegovina
A long-term energy-related vision of Bosnia and Herzegovina is the creation of a competitive and long-term sustainable energy system taking into consideration security of supply. The vision needs to be realised within the scope of available capacities, resources and adequate dynamics. A stable energy system is required for stability and the establishment of other branches of economy and for keeping competitiveness of economy in general. In order to achieve this vision, five key priorities and related focus areas have been defined; Efficient use of resources – coal is currently dominant natural resource in the generation of electricity and as such it is one of the key bases of the energy sector. Although a long-term development of the energy sector of Bosnia and Herzegovina implies reduction of harmful emissions and generation of electricity from fossil fuels, it is still extremely important that the future coal exploitation and production activities are implemented in a more efficient manner, by applying an adequate technology and methods of operation. Natural potentials in the oil and gas segment are nowadays completely unexploited, therefore, continuation of exploration towards proving the existence of commercial reserves and potential exploitation would certainly contribute to the current balance. On the other hand, the future stronger orientation towards clean energy, which is nowadays predominantly based on hydropower potentials, requires good management of natural resources. This implies identification and mapping of natural resources and potentials in all segments of renewable energy, assessment of the exploitation possibilities, bearing in mind sustainability and impact on the environment, including long-term goals of decarbonisation and sustainable system. Considering that efficient transformation of renewable sources into electricity also implies exploitation of new, innovative technologies (which from the economic aspect become more affordable), it is important to create the most suitable environment to encourage their exploitation. The same rule is applicable to the rest of the energy sector in which digitalisation, new technologies and IT systems enable reduction of costs, operational quality improvements and new business models. Secure and affordable energy – are the two extremely important components of the energy trilemma in the context of the economic situation and geopolitical position of Bosnia and Herzegovina. In terms of energy security, it is important to understand that, at present times, Bosnia and Herzegovina cannot achieve the energy security in all segments on its own, primarily because of non-existence of its own oil and gas production. With this regard, it is primarily important to actively manage the physical market integration with the neighbouring countries, understand and implement the options of supply routes diversification develop partnership with business entities which supply the domestic market. In the oil and petroleum derivatives segment, an emergency stocks system should be established. Likewise, the adequate domestic infrastructure management towards promotion of quality and security of supply should not be disregarded. When it comes to electricity, in the context of Bosnia and Herzegovina, there is relatively high level of security of supply that need to be maintained in the forthcoming period, balancing its high share of domestic generation, integration with regional markets, energy efficiency trends, decentralised generation, and clean energy competitiveness.
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Figure 2.2.1 Illustrative overview of Bosnia and Herzegovina strategic priorities
Source: Project team analysis, Bosnia and Herzegovina Working Group
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Generation mix of Bosnia and Herzegovina is relatively price competitive. However, in the forthcoming period further price-related pressures may be expected (coal production price, Emissions Trading System, generation price deregulation, etc.), which could have negative impact on competitiveness. Furthermore, planned intensive construction of (thermal power) plants under the current price conditions and EU policies, increases the risk of fixed costs increase and possible decrease of power plant utilisation, thus putting pressure on future price competitiveness. Therefore, it is necessary to harmonise the generation portfolio development with economic potentials while taking into consideration market and regional context. Adjustment to new market reality needs to be initiated on time, through comprehensive transformation of energy sector and its key stakeholders, with the aim of achieving efficiency and unlock resources to invest in new market segments and establishment of modern competencies. Keeping the average generation price at the level of current HUPX price in the long run is considered a good result considering all types of pressures. With large investment projects, Bosnia and Herzegovina has a substantial hydro-power potential and has the opportunity to build other RES projects, which can create a positive multiplication effect on the economy and stimulate small and medium-sized enterprises. In that context, it is important to actively manage the models, that is, costs of RES incentives, that put pressure on the electricity end price, as well as to improve legal and regulatory framework in order to obtain faster and easier required permits to construct and utilise RES. Energy efficiency - the key elements of the energy efficiency strategy are proposed in line with the long-term vision of the EU member states, in a manner that they primarily respond to the actual potential interests of Bosnia and Herzegovina and meet the requirements of the Directive 2012/27/EU. There are three strategic levers to achieve the energy efficiency goals, i.e. savings in the interval 45,15 – 56,02 PJ (1,08 - 1,34 Mtoe), depending on the scenario, until 2035, which is more elaborated in the chapter on energy efficiency. The levers pertain to savings in final consumption, savings in the electricity, gas and heat transformation, transmission and distribution process, creation of conditions for highly efficient cogeneration as well as promotion and expansion of efficient district heating systems. Apart from the referenced elements, it is essential to improve the energy efficiency legal and regulatory framework, define financial measures and institutional implementation framework, and to conduct information campaigns, education and capacity building. Energy transition and environmental responsibility – goals towards clean energy and reduction of negative impacts on the environment are highly positioned on the agenda of Bosnia and Herzegovina that has adopted and implemented certain initiatives which are directly and indirectly related to the environment protection. Specifically, Bosnia and Herzegovina has committed itself, until 2028, to reduce SO2 by 95%, NOx by 67% and dust by 88% relative to 2014, with regard to large combustion plants. As for the RES share in the gross final energy consumption until 2020, the set goal implies the 40% target. With regard to consumption, energy efficiency measures are being defined. The foregoing initiatives require robust investment undertakings which, along with the strategic goal related to export of electricity, increase the transition sector complexity. A successful energy transition requires a systematic and consistent implementation of the environmental protection measures and more rational exploitation of resources. Specifically, it is necessary to monitor the results achieved and to define the new mechanisms for their implementation in practice. With already defined initiatives and Action Plans of Bosnia and Herzegovina, further trends in the European Union which have already been implemented and which will, as a consequence, reach Bosnia and Herzegovina should be taken into consideration. Accordingly, it is necessary to converge with the INDC scenarios for reduction of CO2 emissions defined at the level of Bosnia and Herzegovina compared to 1990, with continuous revision of goals in accordance with future EU policies and to prepare for a possible entry into the CO2 emissions trading system that shall additionally burden the thermal-power sector with costs in the period to come. With regard to the thermal power sector, EU approved new stricter standards for emission reduction LCP BREF in 2017, which will also have to be taken into account in the generation mix strategic planning process. In the petroleum derivatives segment, quality of imported products to be placed on the market of Bosnia and Herzegovina should be ensured. Energy transition of Bosnia and Herzegovina, in the electricity segment in particular, is a complex process within which, through a consistent implementation, it is necessary to converge towards the set goals and obligations, bearing in mind a social component and the required dynamics. It is proposed that the next step would be the preparation of Strategic Environmental Assessment (SEA) and the environment and nature protection strategy to adequately follow the energy strategy. Development and harmonization of regulatory and institutional framework – Harmonisation of legislation with the EU acquis communautaire is a complex task, considering that it implies the comprehensive and essential changes and overall reform of the energy sector. The basic strategic goal includes accelerated harmonisation of legislation with acquis, that is, transposition and implementation of the obligations assumed under the Treaty establishing the Energy Community. Bosnia and Herzegovina aims at harmonising the energy sector with the Third Energy Package and future EU Directives. Adequate market regulation within the mid-term and long-term period shall stimulate further efficiency and competitiveness, of which most benefits will be acquired by end users. A modern energy sector requires that all of its stakeholders actively contribute to its development – public services by setting a transparent and efficient legal framework and by monitoring its implementation, regulators by transparent implementation of stimulating regulatory mechanisms which shall, through an adequate economy, stimulate the regulated business subjects to promote their businesses. It is extremely important to define the new standards for the management culture towards the goals to be transposed to the public business subjects. Public institutions must be adequately capacitated and continuously upgrade their competence to be able to follow the sector development and provide adequate support thereof.
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3 GENERAL DATA AND MACROECONOMIC DEVELOPMENTS
3.1 Structure and general data
This chapter provides an overview of several key pieces of information on the organisation of Bosnia and Herzegovina and of the basic macroeconomic developments. Macroeconomic data are an important element in the preparing strategic documents in the context of economic development and standard as well as future dynamics in economy which are strongly correlated with the energy sector. Bosnia and Herzegovina consists of two entities, Republika Srpska (48,09 % of the territory) and the Federation of Bosnia and Herzegovina (50,95 % of the territory), and the Brčko District of Bosnia and Herzegovina (0,96 % of the territory). The Federation of Bosnia and Herzegovina and Republika Srpska are the entities with their own Constitutions which are harmonised with the Constitution of Bosnia and Herzegovina.
Table 3.1.1 General information
FBIH RS BD BIH Area (km2) 26.109,7 24.641 493 Population 2.334.348 1.415.776 93.028 10 cantons 64 local government units Organisation Local government unit 79 municipalities (7 cities and 57 municipalities) Source: website of the Republika Srpska Institute for Statistics
Federation of Bosnia and Herzegovina is the entity which is split into ten cantons (Unsko-sanski, Posavski, Tuzlanski, Zeničko-dobojski, Bosanko-podrinjski, Srednjobosanski, Hercegovačko-neretvanski, Zapadno-hercegovački, Kanton Sarajevo and Kanton 10), and cantons are further administratively divided to 79 municipalities. In Federation of Bosnia and Herzegovina legislative power is exercised by the House of Representatives and House of Peoples. Executive power is exercised by a President and two Vice-Presidents and the Government of Federation of Bosnia and Herzegovina. Sarajevo is the capital. In Republika Srpska legislative power is exercised by the National Assembly of Republika Srpska and the Council of Peoples. Laws and other regulations issued by the National Assembly, concerning the issues of vital national interest of any of the constituent peoples, shall enter into force only after their adoption in the Council of Peoples. Republika Srpska is being presented by the President, while the executive power is exercised by Government. Judicial power belongs to the courts. Protection of constitutionality and legislation is ensured by the Constitutional Court. Cultural and administrative centre of Republika Srpska is Banja Luka. Brčko District of Bosnia and Herzegovina has its own multi-ethnic government with elected parliament, executive board, jurisdiction and police force.
Gross Domestic Product
The main macroeconomic indicator of a country’s development is the gross domestic product (GDP). Figure 3.1.1 shows GDP in current price movements in Bosnia and Herzegovina, expressed in billions of euros per entity and the Brčko District of Bosnia and Herzegovina. In the period from 2010 to 2015, GDP of Bosnia and Herzegovina achieved stable growth of 2,4 % per year. In 2015, GDP of Bosnia and Herzegovina amounted to 14,6 billion euros of which, Republika Srpska GDP was 4,7 billion euros, Federation of Bosnia and Herzegovina was 9,55 billion euros and Brčko District of Bosnia and Herzegovina was 0,37 billion euros. Also, the basic assessment of the GDP growth was made in Bosnia and Herzegovina by 2035. The assessment results of the GDP development in Bosnia and Herzegovina by 2035 show an average annual growth rate of 3% in the basic scenario, which would lead to GDP of 8,45 billion euros.
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Figure 3.1.1 GDP historical movements and growth rate assessments in billions of euros in Bosnia and Herzegovina, 2010 - 2035 BD RS FBIH +3,0%
26,30 CAGR % 2010.-2015. +2,4% 14,58 14,58 13,58 13,96 12,96 13,40 13,39 0,35 4,3% 0,31 0,33 0,29 0,31 0,30 4,68 4,38 4,52 1,9% 4,25 4,44 4,39
9,55 2,6% 8,41 8,65 8,70 8,88 9,11
2010 2011 2012 2013 2014 2015 2015 2035 Note: the forecast by 2035 is consensus of a GDP long-term growth rate in Bosnia and Herzegovina according to Oxford Economics, Economist intelligence unit, Dun& Bradstreet Source: GDP according to production, income and expenditures approach 2015, BHAS, Project Team analysis
GDP per capita in Bosnia and Herzegovina, was 4,2 thousand euros, and for the period from 2010 to 2015 there was registered average growth rate of 2,6% per year. For the same period, Federation of Bosnia and Herzegovina had the same average growth rate, while Brčko District of Bosnia and Herzegovina had average growth rate of 4,3% per year and Republika Srpska of 1,9% per year. Compared to the South East Europe economies, Bosnia and Herzegovina has lower GDP per capita and it will need a more significant growth of 3% per year to reach today’s standard of the SEE region by 2035.
Figure 3.1.2 Comparative analysis of GDP and GDP per capita, 2010 - 2015
Note: th e forecast by 2035 is consensus of a GDP long-term growth rate in Bosnia and Herzegovina according to Oxford Economics, Economist intelligence unit, Dun& Bradstreet Source: Federation Institute for Statistics of Federation of Bosnia and Herzegovina – GDP in 2015 – production principle, Republika Srpska Yearbook 2016 - GDP, National GDP account for Brčko District of Bosnia and Herzegovina 2015, Eurostat, Project Team analysis
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Unemployment
Unemployment data at the Entity and the Brčko District of Bosnia and Herzegovina level were analysed for the period 2010-2015. The unemployment rate, according to the ILO definition, is relatively high on the level of Bosnia and Herzegovina, about 27%, with a continued growth trend which poses serious challenge to the country’s economy and prosperity, considering unemployment rate means the loss of valuable resource. In addition to being an economic problem, unemployment is also a social problem (Figure 3.1.3). In 2010, there were 478,2 thousands of unemployed persons in Bosnia and Herzegovina, while for 2015 this number increased to 507 thousands.
Figure 3.1.3 Movement of the unemployment rate expressed in thousands of citizens, 2010 - 2015
Note: The unemployment rate = the number of unemployed persons/working-age population Source: “Macroeconomic indicators per cantons of Federation of Bosnia and Herzegovina 2015“, Republika Srpska Statistical Yearbook, second amended edition, 2016, Brčko District of Bosnia and Herzegovina Bulletin – Statistical Data 2015, BHAS
Federation of Bosnia and Herzegovina has a much higher unemployment rate than the level of Bosnia and Herzegovina. In 2010, the unemployment rate was 45,4%, with total number of unemployed persons of 364,9 thousands, which increased to 390 thousands in 2015 and unemployment rate was 46,4%. Number of unemployed persons in Republika Srpska was 102 thousand in 2010, and 105 thousands in 2015. Therefore, the unemployment rate increased from 23,6% in 2010, to 25,2% in 2015. In Brčko District of Bosnia and Herzegovina, the number of unemployed persons increased from 11,3 thousands in 2010 to 12,2 thousands in 2015. Therefore, the registered unemployment rates were 39,8% in 2010 and 42,5% in 2015.
Foreign Direct Investment and investment climate
As a consequence of the continued globalisation process, foreign direct investment (FDI) have gained in importance, particularly to Bosnia and Herzegovina, being the transition economy. Due to the restricted internal financial and investment capacities, it is in the interest of all developing countries to create a better investment climate and business environment, considering that foreign direct investments have a positive impact on recovery and development of weak economies. Foreign direct investments certainly have a positive impact on the economy growth, including the productivity growth, because apart from capital, foreign investments may also include transfer of knowledge, technologies and other intangible assets. Also, new foreign companies may positively influence the business results of local companies due to increased competition and encouraged market development. Long-term, such economic developments will create positive externalities and even reduce the unemployment rate in the economy into which the investments are being made. Figure 3.1.4 shows the flow of foreign direct investment into Bosnia and Herzegovina in the period from 2010 to 2015. It is evident that the amount of investments ranges between 300 and 400 millions of euros a year, except in 2013 and 2015 when the amount of investments was much lower. Compared to other countries in the region, it is evident that the investments into Bosnia and Herzegovina are still much lower.
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Figure 3.1.4 Average annual foreign investment expressed in millions of euros, 2010 - 2015
Note: The close region implies: Croatia, Serbia, Montenegro, Macedonia, and Slovenia; 2) SEE region consists of Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Montenegro, Greece, Macedonia, Moldova, Romania, Serbia and Slovenia Source: World Investment Report 2016, IBRD - Doing Business 2017, Project Team analysis
The average foreign direct investment into the former Yugoslav countries (Bosnia and Herzegovina, Croatia, Serbia, Montenegro, Macedonia, Slovenia) amounted to 821 million of euros in the period 2010-2015, while into the SEE region (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Montenegro, Greece, Macedonia, Moldova, Romania, Serbia, Slovenia) it amounted to 976 million of euros. Of foreign investors into Bosnia and Herzegovina in 2015, most investments were made by Croatia and the Netherlands, having a share of more than 50% of total foreign investments.
Figure 3.1.5 The structure of countries that invested into Bosnia and Herzegovina, 2015
Source: fipa.gov.bas – FDI situation and performances
According to the document titled “Doing Business 2017” issued by the International Bank for Reconstruction and Development (IBRD) which presented a ranking list of countries by the business element, Bosnia and Herzegovina takes the 81st position. The key assessment parameters include starting businesses, obtaining bank loans, solving the liquidity issue and obtaining the building permits (Figure 3.1.6).
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Figure 3.1.6 Rank by easiness in doing business, 2016
Source: World Investment Report 2016, IBRD - Doing Business 2017, Project Team analysis
As indicated above, foreign direct investment into Bosnia and Herzegovina are much lower than in other countries in the region, mostly because of less favourable investment climate as well as administrative and legal barriers. The following Table shows and describes the main barriers to investments into the energy sector of Bosnia and Herzegovina, and includes the situation improvement strategic guidelines (Table 3.1.2).
Table 3.1.2 Review of the current situation and guidelines for reducing barriers for investments
Barrier Situation Strategic guidelines Complex and non-transparent process for obtaining the required permits and Process authorisations Define simpler permitting process to with the transparency Investors cannot receive straight and aim to make the process easier for investors quality information, in a foreign language in particular Different implementations of the law at various levels Non-harmonised The procedure for granting a “general Improve the laws at all levels and harmonise and insufficiently (public) interest” status is not harmonised the procedures for making it easier to be developed at the level of Bosnia and Herzegovina granted the right to build on or use a land in legislative Bosnia and Herzegovina framework Low level of harmonisation of the procedures for granting the right to build on/use the land at the inter-entity levels Construction of one single building requires more than 50 permits Reduce the process complexity and promote Required Insufficient staffing in the institutions efficiency of the institutions documentation relevant for the permits issuance affects Then assess the need for further capacity and duration of the length of the procedure building the procedure Sometimes the duration of obtaining next Extend validity of each permit (approval) to permit/approval lasts longer than the be able to obtain the following validity of the previous In Bosnia and Herzegovina, there are 14 Laws on concessions which are mainly Harmonise the laws on concessions and Concessions non-harmonised and contradictory, and upgrade institutional cooperation between and there is room for stronger institutional the institutions of Bosnia and Herzegovina compensations cooperation between the institutions of and entities Bosnia and Herzegovina and entities Source: USAID Draft report on the permit issuance regime and barriers for investments into the energy infrastructure projects in Bosnia and Herzegovina, Project Team analysis
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4 GLOBAL ENERGY TRENDS
4.1 Electricity
During several last years, the global energy sector has been subjected to excessive changes and transitions. The change has been primarily caused by global pure energy policies and by a rapid development of new technologies which are commercially increasingly available. Still, the trends in developed countries considerably differ from those in the developing countries which are the main carriers of growth.
Global trends
The assumption is that the global primary energy demand will increase by 24% until 2040, relative to 2015. However, it is worth noting that an increase in demand will primarily come from China and India and the developing countries whose industrialisation and fast growing economies create new demands. In the context of the demand structure at the global level, the trend of decreasing the oil and coal share is evident as their participation, which amounted to 60% in 2015, will decrease to 52% in 2040. Despite the decrease in relative shares, it is expected that the demand for oil-based primary energy will increase by 18% in absolute amounts, primarily because of the developing economies and increased demand in the transport sector and petrochemical industry. Despite the fact that conventional vehicles will still be predominant, owing to various stimulation systems, electrical and hybrid vehicles will make 15% - 20% of the total motor pool in the future, thus reducing the oil consumption. On the other hand, with a relative decrease to 20% in the coal share within the primary energy demand structure, its absolute contribution will also decrease. According to forecasts, demand for renewable energy sources will increase by 35% until 2040, relative to 2015, thus increasing their participation in the primary energy demand to 15%. The largest increase is expected with regard to nuclear energy and gas categories, the joint shares of which will exceed 30% in the total demand for primary energy.
Figure 4.1.1 Global primary energy demand structure, 2015 - 2040
Source: ExxonMobil, the Project Team analysis
As for the trends in the product mix global structure, they are consistent. In the future ten years or so, natural gas will dominate in the total demand increase, thus replacing coal which is the second most used fuel. The assumption is that, by 2040, nuclear energy and RES will cover about 22% of the global energy supply, similar to natural gas, while the remaining part will be covered by oil and coal. The global mix structure will be characterised by a strong role of gas in the future. Therefore importance of gas for Bosnia and Herzegovina should also be taken into account, by establishing conditions through modernisation and construction of gas pipeline and continuation of market and regulatory framework harmonisation with good EU practice. Share of coal in the global generation mix will decrease to 34%, while the increase will be registered by production plants which use gas and nuclear energy as fuel.
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Figure 4.1.2 Global generation mix structure, 2015 - 2040
Source: ExxonMobil, the Project Team analysis
When we distance ourselves from the global picture and focus on the developed countries, the trend of growth and production is opposite. The electricity sector in the developed (industrialised) countries found itself in a position to have to work simultaneously on the efficiency optimisation on one hand, and on the other to innovate itself continuously. The key reasons for initiation of efficiency optimisation arise from stagnation of income from end users. In USA, according to EIA (Energy Information Administration) data, the electricity sale growth rate has increased not more than about 1% per year since 2002, wherein over the last five years negative rates were also recorded. Such dynamics forms a significant change compared to the period 1980-1990-ies when the electricity demand rates increased even more than 2% a year.
European trends
According to Eurostat data, final consumption of electricity decreased during the last ten years or so in 22 of 28 EU member states. This trend is also evident in stagnation of electricity generation in Europe, which has been ranging about 3.300 TWh a year during the several past years
Figure 4.1.3 Electricity generation in Europe by region, in TWh, 2012 - 2015
Source: ENTSO-E statistical data, the Project Team analysis
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The electricity generation downturn trend in the developed countries may be explained by a number of reasons: an ever increasing focus on the energy efficiency measures in primary consumption as well as in the segments of transformation, transmission and distribution and high efficiency cogeneration, etc., replacement of old, less efficient equipment with the new one, availability of new, more efficient technology, demographic reasons, such as population decrease, Deindustrialisation of Europe due to migration of energy intensive industrial branches outside of the Europe.
In the context of the European generation portfolio structure, according to 2015 data, generation from power plants using conventional fuels dominated with ~51% of share, then renewable energy sources including hydropower plants with 31% of share, and nuclear power stations with ~18%. Projection of a reference scenario for 2040 indicates continued domination and intensive growth of renewable energy sources towards 48% of share in the total generation, which in absolute values indicates an increase of 88%. An increase in the generation share to ~25% in 2040 is also expected from the nuclear power plants. As expected, a share of generation from coal power plants will have an intensive dynamics of drop down to about 8% of share in 2040, which indicates the 60% decrease in total coal-based generation during the period 2015 - 2040. While comparing the Bosnia and Herzegovina context and the European trends, it is worth noting that, according to 2015 data, a share of generation from RES in Bosnia and Herzegovina slightly exceeded the European indicators. The target of European generation mix until 2040 could represent an orientation for Bosnia and Herzegovina (and entities) for the period until 2035, but taking into account domestic specifics.
Figure 4.1.4 Projections of generation mix structure in Europe, 2010 - 2040
Source: European Commission EU Reference Scenario 2016, Project Team analysis
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European energy policies
Following obvious changes in the dynamics and structure of the energy supply and demand, for many years now Europe has been leading in and encouraging the “decarbonisation” policy, that is, stimulating clean energy. Like the foregoing, this trend and direction of energy sector development considerably influences the development of energy strategies in all aspects.
Figure 4.1.5 European energy policies (example)
Note: Some aspects will be legally binding, such as emission reduction and regular review of this goal. However, national goals will not be binding according to the Paris agreement; BAU – “Business as usual” Source: BP Statistical Review of World Energy June 2015; Climate Action Tracker
One of the policies is the adoption of the 2008 climate and energy package “20-20-20“, at the European Union level, which sets the following goals for 2020: reduction of greenhouse gas emissions by 20% minimum compared to the level in 1990 binding goals to increase the RES share in gross final consumption to 20%, including 10% of biofuel share, increase in energy efficiency until 2020, that is, reduction of final consumption by 20% relative to projected levels until 2020. Although this measure initially did not address the overall energy efficiency matter, it was subsequently incorporated in a non-binding form, through Directive.
European policies proceed in the same direction, with more aggressive goals until 2030 and through the „Energy Roadmap 2050“ towards reduction of the greenhouse gas emissions, increased RES share and energy efficiency measures. The accent has also been put on the new policies and mechanisms, such as emissions trading system (“ETS“), new paradigms of the energy sector management followed by clear success indicators for a competitive, clean and more secure energy system. According to EU roadmap for low-carbon economy until 2050, the goal for EU is to reduce greenhouse gas emission by 80% below 1990s level. As intermediate steps to achieve the 2050 vision, is to reduce GHG emission by 40% until 2030 and by 60% until 2040, compared to the same levels for 2050 target. Following the energy – climate package, in 2016 European Union presented the „Clean energy for all European“ document, also known as the „Winter Energy Package“. The aim of new measures is to preserve competitiveness of the EU due to transition to cleaner forms of energy. Emphasis has been placed on three main goal which include increasing energy efficiency, taking global leadership in using renewable energy sources and providing better conditions for consumers. Winter Package guidelines refer to the following categories: Energy efficiency o 30% saving by 2030 due to energy efficiency o Extension of energy savings obligations after 2020, as set out in Energy Efficiency Directive, where energy suppliers and distributors commit to annual saving of 1,5% o Proposing measures to increase energy efficiency of buildings o Promoting energy efficiency through eco-design and energy labelling
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Renewable energy sources o At least 27% of RES share by 2030 at EU level, which is not binding at individual level of member states o Increasing the RES share that has variable generation and wholesale market development o Promoting investments for development of electricity grid by 2030 o Financial incentives for the use of biomass and it's efficient transformation or securing the priority of access to the grid Providing better conditions to consumers o Implementing measures to increase transparency of electricity market o Enabling consumer greater control over the choice of energy supplier and enabling easier access to smart technologies for control and consumption reduction o By changing regulations, consumers can become small producers of electricity o Implementing energy efficiency measures and monitoring the implementation in building sector to reduce energy poverty
Along with the EU clean energy and energy efficiency policies, a large focus is also put on the establishment of a uniformed energy market in the electricity and gas segment. With regard to electricity, since 2004, efforts to integrate the European market have been primarily focused on the “market coupling“ initiative, starting from the key, largest markets towards the remaining part of Europe. According to the study1 PwC Strategy& (former Booz&Co), the annual benefits of the market integration initiative in the “market coupling“ domain, that is, power market, would range between 2 - 4 billions of euros a year in the scenario with European markets integrated. In 2013, 58% - 66% of the referenced benefits have already been achieved, dominant with initiatives at the large markets in the North-western Europe and the Nordic region.
Figure 4.1.6 Illustrative presentation of the European energy infrastructure development
Source: Datamonitor: Power Assets Database 2011, icis.com, Enerlytics – Kraftwerke, the Project Team analysis
However, the “market coupling” initiative only enables a part of the total integration benefits. The total market integration would enable short-term and long-term trading in energy, renewable energy sources, balancing services and secured supply, regardless of political boundaries. Such market integration, along with considerably larger benefits, requires much more thorough integration methods, such as the application of the financial transmission rights method and, naturally, political consensus. The European Commission estimates that full integration of energy markets would annually generate net savings amounting to 15 - 40 bullions of euros until 2030. As for the risks, if the development of the transmission grid stopped at 50% of the targeted optimum, about 15%of net savings would be threatened, while a scenario in which all countries strive to reaching secured supply within their respective boundaries, the targeted savings would be lower by about 20% at the European level. The fact that Europe has taken the direction towards strengthening the energy market integration should also influence the strategy of Bosnia and Herzegovina, primarily in the segment of balancing the secured supply, clean energy and price competitiveness.
1 Benefits of an integrated European energy market – Prepared for Directorate-General Energy European Commission, Revised July, 2013 , Booz&Co (PwC’s Strategy&) | 21
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Current growth of RES generation
Growth of renewable energy sources (RES) results from energy policies, new social paradigms and the decreased prices of technology. In Europe, like throughout the world, a share of electricity produced from renewable energy sources registers a gradual increase. Renewable energy sources include all hydropower plants (small and large) and other renewable energy sources (wind, sun, biomass, geothermal energy). Countries which produce more than half of electricity from RES are the Northern Europe countries, such as Denmark, Norway, Sweden and Island, then Switzerland, Austria, Portugal and Spain. In 2012, a share of RES in Europe amounted to 27%, while until 2015, it grew up to 31% of total generation, i.e., increased by 4 percentage points.
Figure 4.1.7 Electricity generation from RES and share in total generation, in TWh, 2012 - 2015
Source: ENTSO-E Statistical Report 2015, Acer Market Monitoring Report 2015 Note: 1) Hydro energy encompasses both large and small hydropower plants
Generation from hydro potentials has already been stable for several years now. However, due to volatile hydrology, the amount of precipitation oscillated during the certain periods of time. From 2012-2015, the participation of wind, solar and biomass technology growth rates are considerable in the overall RES structure. Increase in generation from wind farms and electricity power plants using biomass approximately amounts to 13.5% per year, while generation from solar power plants used to increase by an annual rate of 11,6%.
Future development scenarios of installed capacity from RES
Continuation of the current trends is also expected in the forthcoming period. The Ten Year Network Development Plan by ENTSO-E (European Network Transmission System Operators for Electricity), includes among other things projections of installed RES capacity until 2030. In assessing RES (solar, wind, biomass, river flows, etc.), mandatory national goals were also taken into account, stimulated by the EU Directives, and RES incentives mechanisms. Considering high prices of constructing new hydro plants, the assessment only included large hydro projects which were already confirmed or under construction. Four different scenarios have been elaborated for the period until 2030: Scenario one (S1) presents a vision foreseeing the slowest progress. Under this scenario, the goal related to CO2 emissions has not been achieved. The assumption is that every country acts individually, outside the EU policy and coordination, with slow economic growth. Scenario two (S2) includes limited progress, with better economic and financial conditions than in S1, but still not securing sufficient support to reduction of CO2 emissions. The assumption is that under this scenario the energy efficiency will be partly developed and that it will be smaller than in S1 because of total demand for energy. Also, larger RES capacity already installed is expected under this scenario due to the implementation of further policies promoting RES after 2020.
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Scenario three (S3) is the one of a so-called “green transition”. Under this scenario, the assumption is that countries will have more funds for the implementation of the existing energy policies. Considering an expected large expansion of renewable energy sources, it is expected that the renewable energy price will be at the competitive level. Scenario four (S4) is a scenario of “green revolution“, under which many investments will be directed to sustainable energy. Generation mix has been defined by the European vision for reaching goals set for the implementation of the decarbonisation policy until 2050. Under this scenario also, renewable energy prices will be competitive due to a larger share of installed RES capacity.
Figure 4.1.8 Projections of installed RES installed capacity in Europe, in GW, 2025 - 2030
Note: 1) Refers to total installed hydropower plant capacity Source: ENTSO-E TYNDP Draft Executive Report 2016; ENTSO-E TYNDP 2016 modelling data
According to estimates, the total installed RES capacity under S1 and S2 will be about 690 MW, while under S3 and S4 it will increase ranging between 900 and 1000 MW, which means that, depending on the scenario, RES will cover ~ 60 – 70% of total installed power in Europe. Accordingly, it is expected that CO2 emissions will be reduced by 50 – 80% relative to the emission levels in 1990. Under scenarios S3 and S4, the largest increase will occur with the installed wind power in order to cover the planned increase in the energy demand. With regard to installed capacity, the RES share increase will considerably affect the development plans for the high voltage lines until 2030, with particular reference to direct connection of RES to the grid and to physical loading the grid which connects RES and load centres - large consumers. Consequently, according to ENTSO-E Ten-year Plan, investments are foreseen to include the amount of 150 billion of euros of which 80 billion have already been included in the national and/or interstate agreements until 20130. The assumption is that the investment into the network will indirectly influence the reduction of CO2 emission by 8% until 2030, enabling a larger entry of RES into the system and integration into the European market. Also, distributed sources of energy will require further automation and construction of modern networks within the distribution system.
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Renewable energy technologies
A strong trend of decline in price of technologies also supports the future RES development. Wind farms and solar power plants have a considerable capacity for improvement of technologies. That would reduce the investment costs, increase efficiency and create larger competitiveness in the market relative to fossil fuels. In 2015, the largest investment costs referred to the offshore wind farms amounting to 4.410 euro/kW. The estimate is that, until 2025, these investment costs will drop by 15%, while the costs of investments into the onshore wind farms will decrease by 12% and into the solar power plants by 57%. Continued investments into the wind farms upgraded technologies, such as into turbines, for example, better reliability and management system or into longer blades, will result in increased wind farm capacity, both onshore and offshore. Technological innovations will improve the solar power plants efficiency and reduce costs for the balance of system (BoS).
Figure 4.1.9 Investment costs in thousands of EUR/kW, 2015 - 2025
Source: IRENA – The power to change: solar and wind cost reduction potential to 2025
Considering the increase in generation from solar power plants and from wind farms in particular, the decrease of the average price of electricity generation in the referenced power plants is also expected (LCOE – levelised cost of electricity). The LCOE main factors are the sum of all costs during the power plant life cycle and total amount of produced electricity during the power plant life cycle. Until 2025, LCOE from solar panels (PV) could be reduced by even 59%, while the price of wind farms electricity produced onshore and offshore could be reduced by 26% and 35%.
Figure 4.1.10 Average cost of electricity generation in EUR/kWh, 2015 - 2020
Source: IRENA – The power to change: solar and wind cost reduction potential to 2025
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Trends in electricity wholesale and supply segment
Along with all benefits it offers, the European RES incentive policy, which is further stimulated by technologies becoming cheaper, also creates many challenges in the electricity market. Some of these challenges emerge in the segment of market balancing, periodic negative prices of electricity, in the medium-term, through a pressure on the final price of electricity due to the incentive mechanisms, etc. One of the largest effects of actual trends also concerns the low wholesale prices of electricity in the European power markets. Although a certain increase occurred after the first quarter in 2016 when the prices were extremely low, a general trend indicates that the energy market stakeholders should continue counting on relatively low wholesale prices in the power markets, at least in the medium-term.
Figure 4.1.11 Electricity price movements at various European power markets in EUR/MWh, 2008 - 2015
Source: ACER, the Project Team analysis
On the Day Ahead market, the trend of decrease of the wholesale prices of electricity continued in 2015 as well, due to, among other things, the increased generation of electricity from RES. Lower prices of electricity in 2015 relative to 2008 are mainly the consequence of the surplus of capacity in certain areas and increased installed capacity of electricity produced from RES, which has low, if any, limit/variable values. On the Intraday markets the price should reflect the electricity supply over shorter time intervals. With the increased share of electricity generation from RES, which is unpredictable, demand for flexible resources also increased in order to adjust to the generation from RES and by predicting errors (e.g. the time) which may lead to the periods of high prices in the intraday market. From perspective of power utilities and electricity traders, low wholesale prices create numerous opportunities, as well as risks. Due to low prices, power utilities which have deficits and which import electricity have relative low input costs compared to average retail prices. Similar situation is with traders. However, if they do not have a cost-competitive portfolio, power utilities with a high generation level or even surpluses are running a risk nowadays of losing the market share due to impossibility to compete with low wholesale prices, or high fixed costs due to low utilisation of non- competitive electric power plant blocks. There are many cases of public and private power utilities in Europe which were forced by the current situation to make financial write-offs, decommissions and/or mothballing of power plants and to undertake radical restructuring. On the other hand, the analysis indicates that a decrease of wholesale prices does not reach the end users. During the period 2012 – 2015, the final price of electricity in Europe stagnated, however, its structure considerably changed. A share of RES charges in the total price increased from 6% to 13%, while a share of price of electricity decreased from 41% to 36% of share. This is primarily the consequence of the increased subsidies for renewable sources of energy which is transferred to the end users. Although this is a new imposition, it is evident that the European countries, almost by consensus, accepted it expressing their willingness to finance transition to green energy as a part of the strategic goal.
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Figure 4.1.12 Movement of electricity price for households in Europe in EURcent/kWh, 2012 - 2015
Source: ENTSO-E Statistical Report 2015, ACER Market Monitoring Report 2015, the Project Team’s analysis
The impact of trends on the sector transformation and new business models
According to a survey conducted by the consulting company PwC, more than 70% of presidents of the energy companies in Europe believe that the existing business models are not sustainable. Likewise, it has been agreed that the changes should be introduced gradually, yet continuously, because the energy sector transformation is complex and affects a number of economic and social factors. New trends have already begun to modify the values of certain segments of electric power industry within a traditional value chain, and it is therefore expected that a share of values of traditional “centralised generation” will decrease from 30% - 40% to 20% - 30% of share in the overall value chain. Grid industry is expected to be subjected to an even stronger pressure, while the increase in value shifts to the behind-the-meter services and to distributed generation.
Figure 4.1.13 Modification of business models and income structure
Source: Project Team analysis
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Along with the consequences of the new energy sector paradigms, such as (i) decrease of price of electricity which does not enable adequate return on (large) investments (ROIC, ROI) and assets (ROA, RORAB), (ii) market structure changes wherein the linear systems are replaced by decentralised energy and production; by penetration of the “prosumers” concept which satisfies a part of its needs for electricity on its own, which will be even more emphasised in the scenario of nearly zero energy buildings (nZEB) that use very little energy (satisfied from RES); through ever stronger entry of small investors into the renewable energy projects; by investing into the battery systems; and (iii) strengthening of the European single market concept, with better interconnection capacity and cooperation, put the energy industry into position to (i) through restructuring, seek solutions to pressures on gross margins, (ii) considerably stop or delay large investment projects, (iii) start the processes of decommission or mothballing of power plants before the end of their life cycle, (iv) perform financial write-offs or sustain losses due to low rate of utilisation of the power plants which are not competitive at today’s market, (v) strengthen new knowledge and competence: new products and services; advanced “trading” activities; more accent on market and market activities in the retail domain (user retention and acquisition); M&A and partnerships; and to thoroughly review their business strategies and models which are becoming increasingly questionable.
Figure 4.1.14 Illustrative overview of trends in the domain of investment decisions for utility companies
Source: Datamonitor: Power Assets Database 2011, icis.com, Enerlytics – Kraftwerke | Invest Essentials | Project Overview, May 2012 | comsar.com, sourcewatch.org, websites of electric power companies, the Project Team analysis
According to the Oxford University research published in 2016, a number of current and future power plant using fossil fuels were analysed in order to keep global warming below 2ºC. Taking into account the assumption that all other sectors will reduce greenhouse gas emissions accordingly to targets, it is recommended that no new plants, that produce additional harmful emission, should be built, in order to keep global warming below 2ºC.
As a consequence, an unavoidable need for thorough restructuring and transformation arose, not only for power utilities but the entire sector, in which Western Europe takes the lead. Examples of German companies E.on and RWE are particularly interesting as they, propelled by radical changes on their national market, were forced to undertake major restructuring.
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Figure 4.1.15 Illustrative example of power utilities restructuring and business model focus shifting
Source: Project Team analysis
The strategy of stated companies was ownership and management unbundling of companies, on the ground of their core business activities, competences and future added value sources in the energy sector. In both cases the traditional companies made a “spin-off” of a part of their business and, to put it simply, separated their operations related to generation of electricity from fossil fired plants from the operations related to new products and services, renewable energy sources, distribution and supply. In such a manner they achieved several essential effects: investor were provided with a more transparent portfolio, as required for investment security, the management received a clearer picture for allocation of investment funds and for setting the goals, and obtained a better focus for the development of competence, which make a difference in many aspects between the old and the new part of business. It is evident that the opportunity to cover the losses from stagnation of consumption and incomes within the traditional segment offers itself through new services enabled by technology. Technological innovations, such as the new battery systems/storage, “smart home” smart phone applications, etc. register progress pace which surprised not only the end users, but the technological sector developing them as well. Considering that the public electric power utilities nowadays dominate in their typical market segment which pertains to centralised generation and centralised generation from RES, it may be expected that the development of the market for new products and services in Bosnia and Herzegovina, modelled on more developed economies, will bring in a range of small investors and global actors (e.g. Google, NEST, telecom operators, etc.) which shall be present through partnerships or create a new economic value directly.
Figure 4.1.16 Illustrative presentation of potential of various business models
Source: the Project Team analysis
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In the context of Bosnia and Herzegovina, a need for preparation and implementation of the investment activities towards new technologies, such as power storage/battery, pumped storage hydro (“PSH“), has already been observed, especially considering the expected growth of installed wind farm capacity and building of new nuclear blocks in Hungary, which will increase the power supply during night not only from Hungary, but also from Ukraine and Bulgaria. The pumped storage hydro may have an important task, not only in the secondary, but also in the tertiary regulation. Therefore power utilities, especially those public, and other stakeholders in the market must accelerate their competence building efforts and enter into strategic partnerships thus securing their presence in the new value chain spectre. It is worth noting that the overall sector would benefit from the soon introduction of new processes related to relationships with the customers (their retention and acquisition) and new value added products and services. Successful implementation of the new business models in energy sector in the medium-term will be repaid through loyalty and more stable customer base and, with regard to customers, through increased satisfaction and obtained value. In order for the new business models to be successfully implemented on the market, it is necessary to also have a modern infrastructure in place. In this aspect, the role of TSO (transmission system operator) and DSO (distribution system operator) companies is extremely important as they form the “spine” of the system. Advanced products and services require two-way communication and agile infrastructure, as offered by modern smart grid networks, and a new paradigm of property management and network services which the companies must adopt. The energy policies aim at creating an institutional framework and environment to timely encourage the focus shift and the required key stakeholders’ activities on the energy market in the areas in which the new values will be created in the future.
Figure 4.1.17 Adjustment of energy network companies
Source: Project Team analysis
Key implications of global trends for the framework energy strategy
high growth rates of RES, but without domination in 2035 on global level EU has a leading role in the decarbonisation agenda in the world, through continuous implementation of binding policies and directives years long tendency and investments into the establishment of the European single energy market consumption stagnation in Europe, decrease in utilisation of conventional power plants and pressure on the power utilities’ margins pressure on wholesale price of electricity increasing compensations for RES, which are transferred to end users stoppage of large investment projects due to low prices of electricity and returns clear income decreasing trend in traditional segments of electric power value chain company and sector restructuring and transformation initiatives aimed at the business model adjustments the requirement for the establishment of agile and modern DSO companies the requirement for creation of an institutional framework to timely encourage and direct the sector transformation
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4.2 Oil and gas
Oil and gas are the most important global energy sources, wherein oil participated with about 32%, and natural gas with about 22% of share in total global energy consumption in 2015. Due to a relatively large share of hydrocarbons in the total global energy consumption, price changes of these energy sources might have a large macroeconomic impact.
Crude oil market
Crude oil is the key raw material because, when refined, it provides a range of products used in daily life on a regular basis. The transport sector holds the largest share in total oil consumption in 2015, with about 65%. Oil is also used in various industries, such as petrochemical, pharmaceutical and cosmetics, as raw material inputs for production of finished products. Because of a widespread use of crude oil and petroleum derivatives in the referenced sectors and in energy transformation, its price directly affects almost all industries. Due to extremely heterogeneous structure of crude oil supply and different customer needs, there is no uniform price of crude oil. Consequently, the reference benchmarks such as Dated Brent in the North Sea, WTI in USA and Dubai in the Middle East and Asia are most often used. Simply, the price of the regional crude oils is defined based on the differential with the related international benchmark. Movement of the Brent oil price from 2006 to 2017 (Figure 4.2.1) indicates a large volatility, especially in 2008 and 2014. The price of oil named Dated Brent is actually the oil price based on trade in physical loads of oil from four fields in the North Sea (Brent, Forties, Oseberg and Ekofisk) and financial instruments which are based on the Dated Brent price (Futures, Contracts for Differences, Dated-to-Front Line, etc.). The crude oil price on the global market is affected by supply/demand and various geopolitical and economic influences. Over the last 25 years, volatility of crude oil price has largely increased due to the changing supply and demand trends. Until 2000, supply and demand registered a balanced growth which was reflected in a stable and low price. During the period 2000-2008, demand increased more than supply which culminated to historically highest price in 2008, that is, 144,3 $/bbl. Global financial crisis in 2008 caused the 77% oil price decline (Figure 4.2.1), after which OPEC (Organization of the Petroleum Exporting Countries) reduced production for the purpose of price stabilisation. In the following period, development of new technologies and high prices of oil resulted in increased supply compared to demand. Excessive supply and competition between the largest crude oil producers for the largest possible market share led to 76% oil price decline on the global market in 2014. It appears that supply and demand ratio and geopolitical and financial factors will continue to have the most important impact on the oil price.
Figure 4.2.1 Spot price of Brent in US$/bbl, January 2006 – August 2016
Source: Bloomberg
Since the beginning of the 1980s, crude oil demand has been growing with an average annual rate of about 1,5% (Figure 4.2.2). The referenced graph shows that an increase of demand has been registered in both, the OECD and non-OECD countries. However, the increase of demand in the OECD countries is slowing down, and the new demand is primarily coming from the non-OECD countries, led by China, India, etc. The increase in oil demand varies depending on the region, therefore, demand in the North America and Europe registered a decrease of about 2% relative to 2003, while in the rest of the world the increase in demand exceeds 2% on an annual basis. A balanced growth of demand for crude oil is needed for stabilisation and higher prices of oil in the forthcoming period.
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Figure 4.2.2 Global oil demand and annual growth rate, 1966–2015
Source: BP Statistical Review of World Energy June 2016
In late 2016 and early 2017, the price of the Brent crude oil shows signs of recovery after a fall in 2014, as a consequence of supply and demand normalisation, primarily as a result of an agreement between the OPEC members and Russia on the reduced production output and a natural decrease of production in USA due to lacking investments into development of current and new fields. However, the stated reduction of production during a short period of time will not considerably affect the oil price, because of the high level of crude oil inventories, which are estimated to 3,1 billion of barrels at a global level. This is the 17% inventory increase compared to June 2014 which must be reduced prior to any sustainable increase of crude oil price. On the other hand, it is expected that the growth of demand for crude oil will slow down due to decreased demand in the developed countries and due to reduced growth of demand in the largest oil importers: China and India. According to IEA (International Energy Agency), demand for crude oil in 2016 increased by 1.6 million bpd, what exceeds the previous years’ forecasts which predicted the growth of about 1,3 million of bbl/day, however, according to 2017 forecasts, slowdown and the foreseen growth of 1,4 million of bbl/day are expected. Assessments of supply and demand movements in 2017 foresee their convergence, which will have a positive impact on the crude oil price. According to projected movements of the oil price from various sources (Figure 4.2.3), it is expected that the oil price will increase in the future. Forecasts of the International Energy Agency (IEA) take into account the effects of the implementation of the new regulations (NPS - new policy scenarios) issued at the climate change conference in Paris in 2015, and the forecasts based on the existing regulations (CPS – current policy scenario). The new regulations are aimed at restricting greenhouse gas concentrations to about 450 ppm, which is assessed to be the maximum permissible greenhouse gas concentration so as to keep global warming below 2°C. In 2015, consumption of crude oil amounted to 92,5 million of bpd (barrel per day), with a constant growth of 35 million of bpd over the last 30 years. If such trend continues the consumption of about 120 million of bpd is expected in 2040, while a CPC scenario foresees a demand of 117 million bpd, and the NPS scenario of 103 million bpd. Due to a lower prediction of oil demand, the price of crude oil under the NPS scenario is a bit conservative relative to the CPS scenario. Other assessments also indicate the increase in price of crude oil, however, the difference in assessments is large and the oil price in the future is uncertain. In general, forecasts indicate an increase in the price of crude oil in the upcoming decade, relative to the current price levels at the beginning of 2017.
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Figure 4.2.3 Brent price movement forecast in US$/bbl, 2004-2040
Source: EIA-AEO-January 2017, IEA World Energy Outlook 2016, Rystad Energy, Bloomberg CPF at January 2017
Natural gas market
Natural gas producers face challenges very similar to those faced by the crude oil producers. Oil sector stability is essential for the gas producers as well. According to the average monthly gas prices on certain markets (Figure 4.2.4), a gas price decrease compared to 2014 is evident. A decrease in the oil price partially had an influence on the gas price, however, expansion of regional commodity markets and an influence of LNG lead to a larger liquidity and spot market development what gradually dislocates the linkage between the gas and oil prices. At the same time, arrival of the new quantities of LNG on the natural gas markets puts pressure on the prices. Currently, LNG makes about 10% of total gas consumption in the world, with an average annual growth rate of 6.6%, in the period 2000-2014. The advantage of LNG is the possibility of the global maritime transport. However, gas pipelines will still have a considerable role. Thus, the new supply sources and directions, such as the Nord Stream 2, Turkish Stream, TANAP, TAP, IAP, etc. are important for Europe. During a long period of time in the past, trade in LNG was performed based on long-term contracts, however, over the past years trade of LNG based on short-term contracts has considerably increased. This trend may be attributed to an increasing role of gas commodity markets in the USA, EU and Asia and to the development of a spot gas market. In 2015, trading under short-term contracts reached 26% of total trade in LNG, which is a large leap compared to 2005 when trade under the short-term contracts amounted to not more than 8% of total trade in LNG. Due to the possibility of transporting large quantities of natural gas, further increase of LNG share in the total gas trade in the future is expected.
Figure 4.2.4 Average monthly gas price on selected markets in US$/mmBTU, January 2009. – August 2016
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Natural gas as a low-carbon fuel will potentially gain importance in the forthcoming period as a link between the current situation and the low-carbon future. There are reasons for believing that natural gas will become the second most used source of energy in the decades to come, following liquid fuels. It is estimated that currently confirmed reserves of natural gas are sufficient for more than 50 years providing the current level of consumption, and there is also a potential to discover new gas reserves in certain regions in the world, thus securing sufficiency in the future decades. Security of supply is essential in many aspects and it is one of the main preconditions for the economic growth. Natural gas enables supply from multiple sources, including development of national production. The most applicable method for gas supply currently is through the gas pipelines because it enables efficient transport of large quantities of gas. However, a small number of supply sources reduces flexibility in terms of buyers and secured supply in some cases. Due to extensive reduction of the gas volume when in liquid state, makes LNG one of the main methods of gas supply diversification, while the growth of the gas liquefying capacity, especially in Australia and North America, contributes to expansion of market competition and diversification of sources of supply. Sustainability is one of the main advantages of natural gas compared to other fossil fuels. According to current greenhouse gas emission trends, the aim to prevent the increase in global warming above 2°C relative to preindustrial era is unreachable. Increased energy efficiency and shifting from coal to natural gas would considerably reduce greenhouse gas emissions. For instance, gas fired power plants produce half as much carbon dioxide emissions than those using coal. Gas has a potential of becoming one of the most used fuels in the following decades due to its sufficiency, possibility to ensure supply and sustainability of the use. The role of gas is important to Europe in order to reach the goals of reduction of greenhouse gas emissions and diversification of energy sources by using gas instead of fossil fuels. Due to foreseen 20% increase in demand of natural gas until 2035 and 42% reduction of natural gas production in Europe in the same period, dependence on import will considerably increase. Increasing the number of supply directions is particularly important to EU which currently constitutes about 13% of the world gas demand and disposes with less than 1% of proven world reserves. EU currently relies on four countries: Russia, Norway, Algeria and Qatar, importing about 90% of natural gas and LNG (liquefied natural gas) from them. The global development of the LNG market and European single market which enables construction of new gas pipeline interconnections between the EU member states opens the possibility of diversification of import directions and increases the security of supply.
Figure 4.2.5 Market dynamics shaping the gas market
Source: Project Team analysis
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Crude oil refining
The oil price drop in 2014 caused an increase in the refining margins (Figure 4.2.6), due to which more complex refinery plants in the Northwest Europe registered better business results. Refinery margins mostly depend on the price of crude oil, level of modernisation which influences the type of produced derivatives and the price of derivatives on the market. Refinery margin trends serve as the main refinery business profitability indicator. Refineries of larger “complexity” predominantly produce light derivatives which have higher prices on the market, thus also improving refinery margins. Prices of oil derivatives generally follow the trend of crude oil prices because of a high share of the crude oil price in the derivatives costs, however, the oil derivatives market also follows its own supply and demand dynamics allowing for possible deviations. After the oil prices have fallen in 2014, production of oil derivatives has increased because the manufacturers strive to benefit from better market conditions and refining output is therefore larger than demand (Figure 4.2.7), which results in considerably larger amounts of oil derivatives being stored (Figure 4.2.8). Increased levels of petroleum derivatives in storage, makes pressure on the price of derivatives thus tightening refinery margins as a consequence.
Figure 4.2.6 NWE refinery margins in US$/bbl, January 2013 – August 2016
Source: IEA, BP, Wood Mackenzie
Figure 4.2.7 Global oil derivatives production and demand Figure 4.2.8 The amount of oil derivatives stored in the OECD balance in mil. bbl/d, 2012-2016 countries in mil. bbl, 2012 and 2016
Source: EIA, Short-term energy and summer fuels outlook, IEA Oil Market Report 2017
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Due to increased efficiency and decarbonisation strategy, drop in demand for petroleum derivatives in Europe is expected in the future decades (Figure 4.2.9). The decrease in demand of the petroleum derivatives is led by the Western European countries. Currently favourable situation for the refiners is reflected by an increase in the capacity utilization (Figure 4.2.10), however, due to a decreasing demand for petroleum derivatives in Europe a decrease in the total refining capacity is observed as well.
Figure 4.2.9 Demand for petroleum derivatives in kt, Figure 4.2.10 Refining capacity in Europe, 2004 – 2015 2010 – 2030
Source: IEA, BP, Wood Mackenzie
Investment trends and business models of oil companies
The foregoing crude oil price volatility suggests that the 2014 price drop most likely started one more cycle of low prices of crude oil. A range of factors, such as dollar strengthening, excessive supply of crude oil, reduced demand in developed countries, demand slowdown in China and opening the market to Iran, resulted in the crude oil price fall and diminished income of the upstream oil and gas sector. The companies reacted to the decreased income by considerably reduced drilling and investments into the exploration and production. Low crude oil prices have resulted in a reduction of capital expenditures (CAPEX) of oil companies on the global level by 38% in the period 2014-2016 (Figure 4.2.11). The level of reduced investments in exploration and production differentiates between regions in the world (Figure 4.2.12), due to varying field development costs and different decisions on the level of production in the crude oil exporting countries. The largest investment reductions have been registered in Australia, North America and Europe, which may be attributed to high production costs which, under the current crude oil price situation, make a considerable number of projects unprofitable. On the other hand, investment intensity in the Middle East experienced relatively smallest decline due to low production costs and also because of the decision of the country leaders to proceed with comparatively high levels of production.
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Figure 4.2.11 Global Upstream CAPEX by region in US$, Figure 4.2.12 Difference in CAPEX, 2014 and 2016 2010-2017
Source: Rystad Energy
Ratio between consumption of fossil and low-carbon fuels will most likely drastically change in the future compared to the current situation, with the aim of reducing climate change (Figure 4.2.13). Fossil fuels, coal and oil in particular, have so far been the most dominant primary energy sources. According to new regulations and goals defined to reduce global warming and environmental impact, natural gas and low-carbon fuels will assume the role of oil and coal in the decades to come. This is also supported by the trend towards increasing investments into clean energy (Figure 4.2.14), which is expected to continue in the future as well.
Figure 4.2.13 Global growth of demand for fuels in mil. t, Figure 4.2.14 Global investments into clean energy in US$, 1990-2040 2004 – 2015
Source: IEA
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Some of the world largest oil companies have already begun investing into clean energy, signalling their acceptance of a decarbonisation trend and positioning themselves for the new market segments that will grow in the future. The Tables below show the various models applied by oil companies towards adjustment to the new environment (Table 4.2.1, Table 4.2.2).
Table 4.2.1 Business models of oil companies
Table 4.2.2 Examples of the model changes
Source: Project Team analysis
Key implications of oil and gas global trends to the Framework Energy Strategy
the oil exploration and refining industry is about to face a challenging period which is primarily caused by low oil prices on one hand and demand for increased capital investments on the other due to investment uncertainty in the crude oil production segment, which cannot be influenced locally, the strategic framework for Bosnia and Herzegovina should be implemented in a manner to attract investments and encourage hydrocarbon exploration and production activities consumption decline trends and stricter regulatory conditions in the future will hinder refinery operations, especially those with a lower level of modernisation
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5 ENERGY SECTOR OF BOSNIA AND HERZEGOVINA
5.1 Review of regulatory and institutional framework
Energy Community Treaty
From the aspect of international obligations which affect the energy sector, the Energy Community Treaty (Official Gazette of Bosnia and Herzegovina – International Treaties), No. 9/06) is most important. Energy Community Treaty was signed on October 25th 2005 and took effect on July 1st 2006. On October 24th The Ministerial Council unanimously decided to extend the Treaty which was initially concluded for a period of ten years, for additional ten years. The Treaty was signed by the European Union on one side and Albania, Bosnia and Herzegovina, Montenegro, Kosovo2, Macedonia, Moldova, Serbia, Ukraine and Georgia on the other. In line with their expressed interest, the following countries take part in the work of the Energy Community’s bodies: Austria, Bulgaria, Czech Republic, France, Finland, Greece, Croatia, Italy, Cyprus, Latvia, Hungary, the Netherlands, Germany, Poland, Romania, Slovakia, Slovenia, Sweden and United Kingdom. These 19, so-called, European Union member countries take direct part in the work of the Energy Community’s bodies and, when voting, their positions are expressed by the European Commission. The observer status in the bodies of the Energy Community is granted to Armenia, Norway and Turkey. The Energy Community has been tasked with organising the relations between contracting and with establishing the rules and economic framework in relation to network energy in order to: a) create a stable legal and market framework capable of attracting investment in order to ensure a stable and continuous energy supply, b) to create a single regulatory space for trade in network energy, c) to enhance security of supply in this space and develop cross-border relations, d) to improve energy efficiency and the environmental situation related to network energy and develop renewable energy sources, e) to develop network energy market competition. In order to complete these tasks, the contracting parties are obliged to gradually adopt the parts of the acquis, by transposing into their respective legislations the requirements and rules of the relevant European Union directives and regulations governing the fields of electricity, gas, environmental protection, renewable energy sources, energy efficiency, oil, statistics and infrastructure. In its centre, Energy Community legal framework has directives and decrees from Third Energy Package that stipulate common rules for electricity and natural gas internal markets and regulate cross-border trade. Their purpose is as follows: consumer interest and protection, energy dependence reduction and environmental impact alleviation. From the market and competition aspect, the key changes pertain to guaranteeing the buyers’ right to make a choice of suppliers, and separation of network activities which are the natural monopoly and are regulated as such (transmission, distribution) from the business activities where competition is possible (generation, supply). Adoption of energy-related acquis is also required by the Stabilisation and Association Agreement. Implementation of obligations set by the Energy Community should be one of the key factors in the process of defining strategic priorities in energy sector, their role in development and the implementation itself.
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Table 5.1.1 Directives and regulations binding to Bosnia and Herzegovina
Electricity Implementation Legal act Date of issue deadline Commission Regulation (EU) No 543/2013 on submission and publication of data in electricity markets and amending Annex I to Regulation (EC) June 2013 December 24th 2015 No 714/2009 of the European Parliament and of the Council
Commission Regulation (EU) No 838/2010 of September 23rd 2010 on laying down guidelines relating to the inter-transmission system operator September 2010 January 1st 2014 compensation mechanism and a common regulatory approach to transmission charging
January 1st 2015, except for Article 9(1) Directive 2009/72/EC of the European Parliament and of under which the the Council of 13 July 2009 concerning common rules July 2009 deadline is 1 June 1st for the internal market in electricity and repealing 2016, Article 9(4): June Directive 2003/54/EC 1st 2017 and Article 11: January 1st 2017 Directive 2005/89/EC of the European Parliament and of the Council concerning measures to safeguard January 2006 December 31st 2009 security of electricity supply and infrastructure investment
Regulation (EC) No 714/2009 of the European Parliament and of the Council on conditions for access July 2009 January 1st 2015 to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003
Gas Implementation Legal act Date of issue deadline January 1st 2015, Directive 2009/73/EC of the European Parliament and of except for Article 9(1): the Council concerning common rules for the internal June 1st 2016, Article July 2009 market in natural gas and repealing Directive 9(4): June 1st 2017 and 2003/55/EC Article 11: January 1st 2017 Council Directive 2004/67/EC concerning measures to April 2004 December 31st 2009 safeguard security of natural gas supply
Regulation (EC) No 715/2009 of the European Parliament and of the Council on conditions for access July 2009 January 2017 to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005
Renewable energy sources Implementation Legal act Date of issue deadline Directive 2009/28/EC of the European Parliament and of the Council on the promotion of the use of energy from April 2009 January 1st 2014 renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC Energy efficiency Implementation Legal act Date of issue deadline
Directive 2012/27/EU of the European Parliament and of the Council on energy efficiency, amending Directives October 2012 October 15th 2017 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/EC
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Directive 2010/31/EU of the European Parliament and of May 2010 September 30th 2012 the Council on the energy performance of buildings
Directive 2010/30/EU of the European Parliament and of the Council on the indication by labelling and standard May 2010 December 31st 2011 product information of the consumption of energy and other resources by energy-related products
Directive 2006/32/EC of the European Parliament and of the Council on energy end-use efficiency and energy April 2006 December 31st 2011 services and repealing Council Directive 93/76/EEC
Oil Implementation Legal act Date of issue deadline Council Directive 2009/119/EC imposing an obligation on Member States to maintain minimum stocks of September 2009 January 1st 2023 crude oil and/or petroleum products. Infrastructure Implementation Legal act Date of issue deadline
Regulation (EU) No 347/2013 of the European Parliament and of the Council on guidelines for trans- European energy infrastructure and repealing Decision April 2013 December 2016 No 1364/2006/EC and amending Regulations (EC) No 713/2009, (EC) No 714/2009 and (EC) No 715/2009.
Statistics Implementation Legal act Date of issue deadline Commission Regulation (EU) No 431/2014 amending Regulation (EC) No 1099/2008 of the European Parliament and of the Council on energy statistics, as April 2014 December 31st 2016 regards the implementation of annual statistics on energy consumption in households Commission Regulation (EU) No 147/2013 amending Regulation (EC) No 1099/2008 of the European Parliament and of the Council on energy statistics, as February 2013 December 31st 2013 regards the implementation of updates for the monthly and annual energy statistics
Directive 2008/92/EC of the European Parliament and of the Council concerning a Community procedure to October 2008 December 31st 2013 improve the transparency of gas and electricity prices charged to industrial end-users
Regulation (EC) No 1099/2008 of the European October 2008 December 31st 2013 Parliament and of the Council on energy statistics
Competition Implementation Legal act Date of issue deadline Energy Community Treaty, chapter IV, regulates the ban on the competition. The following activities are prohibited: prevention, restriction or distortion of competition January 2017 Misuse of a dominant position within the common market Providing any aid granted by a state which distorts or threatens to distort competition
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Environmental protection Implementation Legal act Date of issue deadline Directive (EU) 2016/802 of the European Parliament and of the Council relating to a reduction in the sulphur content of certain liquid fuels and Commission Implementing Decision (EU) 2015/253 of 16 February May 2016 June 30th 2018 2015 laying down the rules concerning the sampling and reporting under Council Directive 1999/32/EC as regards the sulphur content of marine fuels Directive 2011/92/EU of the European Parliament and of the Council on the assessment of the effects of certain December 2011 January 1st 2019 public and private projects on the environment, amended by Directive 2014/52/EU
Directive 2010/75/EU of the European Parliament and of the Council on industrial emissions (integrated November 2010 January 1st 2018 pollution prevention and control) – only Chapter III, Annex V and Article 72(3)-(4)
Directive 2004/35/CE of the European Parliament and of the Council on environmental liability with regard to the prevention and remedying of environmental April 2004 January 1st 2021 damage, amended by Directive 2006/21/EU, Directive 2009/31/EU and Directive 2013/30/EU
Directive 2001/80/EC of the European Parliament and of the Council on the limitation of emissions of certain October 2001 December 31st 2017 pollutants into the air from large combustion plants
Directive 2001/42/EC of the European Parliament and of the Council on the assessment of the effects of certain June 2001 March 31st 2018 plans and programmes on the environment Article 4(2) of Directive 79/409/EC of the Council on the April 1979 July 1st 2006 conservation of wild birds Source: Project Team analysis
Considering intensity and scope of the energy sector reform effects on the entire society, it is necessary that all sector stakeholders, including general public and consumers, understand the changes. Furthermore, it is necessary to make the relevant institutions capable of establishing and implementing a new legal and regulatory framework. This segment is particularly sensitive in Bosnia and Herzegovina, considering complexity of political, institutional and social risks. Transposition and implementation of acquis in Bosnia and Herzegovina, as well as in entities, is not performed in line with the foreseen dynamics. A lot of deadlines have already expired and the Energy Community Secretariat has instigated the actions against Bosnia and Herzegovina due to violation of the contracted obligations. At the time of the development of this paper, five actions have been instigated against Bosnia and Herzegovina. The actions have been instigated for the following: failure to transpose the requirement of the Third Energy Package and to inform the Energy Community of the measures taken, noncompliance with the obligations referred to in the Directive 2006/32/EU on energy end-use efficiency and energy services, non-adoption of the National Renewable Energy Action Plan, failure to transpose and implement the obligations concerning the reduction of SO2 emissions from combustion of fuel oil and oil, failure to meet obligations concerning enactment of the relevant legislation in the natural gas sector, and failure to implement the state assistance rules. Harmonisation of Bosnia and Herzegovina legislation with the European Union acquis is a complex assignment, considering that it implies the comprehensive and essential changes to the energy sector, as well as and overall sector reform. The basic strategic goal of Bosnia and Herzegovina is to speed up harmonisation of its legislation with the acquis, that is, to transpose and implement the obligations assumed under the Energy Community Treaty. In the context of strategic and operational activities in the forthcoming period, it is suggested to perform due diligence process of the harmonization of the legislation at entity and the level of Bosnia and Herzegovina, and with the EU acquis. These activities are necessary for the preparation of action plans and for implementing further harmonisation of legislation.
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West Balkan 6 initiative
At the Western Balkan Summit Vienna 2015, six Western Balkan countries: Albania, Bosnia and Herzegovina, Kosovo3, Macedonia, Montenegro and Serbia, committed themselves to implement “soft” measures as a precondition for the development of a regional electric power market, that is: the spot market development, cross-border balancing, regional capacity allocations and cross-cutting measures. Representatives of the TSOs, regulatory boards and Ministries responsible for energy issues in the Western Balkan countries signed a Memorandum of Understanding in April 2016. In the Memorandum of Understanding, the countries specified the general principles of cooperation and specific steps to be taken towards developing the regional electric power market. In June 2016, the European Commission and the Energy Community Secretariat entered into an agreement on granting the funds for technical assistance to the development of the regional energy market of the Western Balkan countries. Technical assistance is intended for the countries to: harmonise the relevant legislation with the European Union acquis, thus supporting the regional energy market, organise the relevant corporative structure and technical infrastructure so as to secure the various processes implementation, establish a legal framework and models to enable energy trading, enter into the appropriate regional agreements on interstate energy trading. According to the report of the Energy Community within the West Balkan 6 initiative 2016, which tackled the countries’ progress in the field of electricity, Bosnia and Herzegovina has achieved most notable progress in the following: acceptance of the market balancing model which allows non-discriminating cross-border exchange of balance services and establishment of the balance market, which has been implemented in its entirety, deregulation of energy prices for suppliers and gradual abolishment of price regulation, as well as, securing the regulatory bodies’ independence, where the measure implementation exceeds 50%. However, progress has not been achieved in the following fields: spot market development (elimination of legislative and contractual barriers for the establishment of an organised electricity market, inclusion in the market or creation of its own market, securing liquidity on the local market, merger of the day-ahead market with at least one neighbouring country), ownership unbundling of the transmission system operator and certification. According to the report of the Energy Community within the West Balkan 6 initiative 2016 on the countries’ progress in the field of sustainable development, Bosnia and Herzegovina registers progress in the implementation of the following: establishment of the appropriate mechanisms for financing the energy efficiency measures, introduction of programmes for education, professional training, certification for the development of the required skills of individuals in the energy efficiency field and in utilisation of renewable energy sources.
Insufficient progress has been achieved in the following: detailed assessment of possibilities for the development of new central heating and cooling systems that will use renewable energy sources, development of programmes and strategies to encourage utilisation of renewable energy sources, educate the public and enable citizens to take part in the RES projects.
In March 2017, the Council of Ministers adopted the Road Map consisting of measures and activities to be taken by Bosnia and Herzegovina towards reaching the goals set within the West Balkan 6 initiative. The Road Map contains the goals and measures defined in the referenced documents, while the activities to be implemented in Bosnia and Herzegovina are prepared in a manner to reflect the actual situation in the field of the electric power sector reform. It is worth noting that the work towards reaching the goals and measures and completing the activities related to the regional issues will be carried out in coordination with the Energy Community Secretariat, while the implementation of “cross” measures and the related activities will be performed by the relevant national bodies. Holders of the activities are the MOFTER, SERC and ISO BIH. The Road Map clearly indicates the activities through which the foreseen measures will be implemented and goals achieved, and the institutions responsible for the implementation of these activities. The deadline set in the Road Map for these activities is July 2018.
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Energy sector legislative framework
This paper provides a review of most important laws regulating the energy sector norms in Bosnia and Herzegovina. These laws provided the basis for the issuance of Rulebooks and technical regulations, including subordinate acts to regulate certain issues in more detail. In addition to the listed laws, the laws governing other sectors closely related to the energy sector regulations are also applied, such as those regulating environmental protection, spatial planning and civil engineering, etc.
Bosnia and Herzegovina 1. Law on Transmission of Electric Power, Regulator and Electricity System Operator in Bosnia and Herzegovina (Official Gazette of Bosnia and Herzegovina, Nos. 7/02, 13/03, 76/09 and 1/11) 2. Law on Establishing the Company for the Transmission of Electric Power in Bosnia and Herzegovina (Official Gazette of Bosnia and Herzegovina, No. 35/04) 3. Law Establishing and Independent System Operator for Transmission System in Bosnia and Herzegovina (Official Gazette of Bosnia and Herzegovina, Nos. 35/04, 76/09, 20/14) 4. Law on Concessions of Bosnia and Herzegovina (Official Gazette of Bosnia and Herzegovina, Nos. 32/02 and 56/04)
Federation of Bosnia and Herzegovina 1. Electricity Law (Official Gazette of Federation of Bosnia and Herzegovina, Nos. 66/13 i 94/15) 2. Regulation on the Organization and Regulation of Gas Industry Sector (Official Gazette of Federation of Bosnia and Herzegovina, No. 83/07) 3. Law on Oil Derivatives in Federation of Bosnia and Herzegovina (Official Gazette of Federation of Bosnia and Herzegovina, No. 52/14) 4. Law on Exploration and Exploitation of Oil and Gas in Federation of Bosnia and Herzegovina (Official Gazette of Federation of Bosnia and Herzegovina, Nos. 77/13 and 19/17) 5. Law on Mining in Federation of Bosnia and Herzegovina (Official Gazette of Federation of Bosnia and Herzegovina, No. 26/10) 6. Law on Geological Works of the Federation of Bosnia and Herzegovina (Official Gazette of Federation of Bosnia and Herzegovina, No. 9/10) 7. Law on the Use of Renewable Energy Sources and Efficient Cogeneration (Official Gazette of Federation of Bosnia and Herzegovina, Nos. 70/13 and 05/14) 8. Law on Allocation and Direction of the Part of Revenue of the Company Generated Using Hydro-Accumulating Facilities (Official Gazette of Federation of Bosnia and Herzegovina, Nos. 44/02 and 57/09) 9. Law on Allocation and Direction of the Part of Revenue of the Company Generated Using Thermal Facilities (Official Gazette of Federation of Bosnia and Herzegovina, No. 80/14) 10. Law on energy efficiency (Official Gazette of Federation of Bosnia and Herzegovina, No. 22/17) 11. Law on Public Companies (Official Gazette of Federation of Bosnia and Herzegovina, Nos. 8/05, 81/08, 22/09, 109/12) 12. Law on companies (Official Gazette of Federation of Bosnia and Herzegovina, No. 81/15) 13. Law on Concessions (Official Gazette of Federation of Bosnia and Herzegovina“, Nos. 40/02 and 61/06) 14. Law on Spatial Planning and Land Utilization (Official Gazette of Federation of Bosnia and Herzegovina, Nos. 2/06, 72/07, 32/08, 4/10, 13/10 and 45/10)
Republika Srpska 1. Energy Law (Official Gazette of the Republika Srpska, No. 49/09) 2. Law on electricity (Official Gazette of the Republika Srpska, No. 8/08 – consolidated version, 34/09, 92/09 and 01/11) 3. Law on gas (Official Gazette of the Republika Srpska, No.22/18) 4. Law on Pipeline Transport of Gaseous and Liquid Hydrocarbons and Distribution of Gaseous Hydrocarbons (Official Gazette of the Republika Srpska, No. 52/12) 5. Law on Oil and Oil Derivatives (Official Gazette of the Republika Srpska, Nos. 36/09 and 102/12) 6. Law on Geological Works (Official Gazette of the Republika Srpska, No. 110/13) 7. Law on mining (Official Gazette of the Republika Srpska, No. 59/12) 8. Law on fees for use of natural resources for electricity generation (Official Gazette of the Republika Srpska, No. 52/14) 9. Law on Renewable Sources and Efficient Co-generation (Official Gazette of the Republika Srpska, Nos. 39/13,108,13 and 79/15) 10. Law on energy efficiency (Official Gazette of the Republika Srpska, No. 59/13) | 43
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11. Law on companies (Official Gazette of the Republika Srpska , Nos. 127/08, 58/09,100/11 and 67/13) 12. Law on public companies (Official Gazette of the Republika Srpska”, Nos. 75/04 i 78/11) 13. Law on Concessions (Official Gazette of the Republika Srpska”, No. 59/13) 14. Law on Public-Private Partnership (Official Gazette of the Republika Srpska , No. 59/09) 15. Law on Spatial Planning and Construction (Official Gazette of the Republika Srpska, Nos. 40/13, 106/15 and 3/16)
Brčko District of Bosnia and Herzegovina 1. Electricity Law Official Gazette of the Brčko District of Bosnia and Herzegovina, Nos. 36/04, 28/07, 61/10 and 4/13) 2. Law on General Conditions for Electricity Supply (Official Gazette of the Brčko District of Bosnia and Herzegovina, Nos. 36/04, 3/06, 28/07, 25/08, 4/13) 3. Law on Tariff System for Sale of Electricity (Official Gazette of the Brčko District of Bosnia and Herzegovina, Nos. 37/04, 28/07, 4/13) 4. Law on Communal Activities (Official Gazette of the Brčko District of Bosnia and Herzegovina, Nos. 30/04, 24/07, 9/13) 5. Law on companies of Brčko District of Bosnia and Herzegovina (Official Gazette of the Brčko District of Bosnia and Herzegovina, Nos. 11/01, 10/02, 14/02, 01/03, 08/03, 4/04, 19/07, 34/07, 49/11) 6. Law on Public Companies of Brčko District of Bosnia and Herzegovina (Official Gazette of the Brčko District of Bosnia and Herzegovina, Nos. 15/06, 5/07, 19/07, 1/08, 24/08, 17/16) 7. Law on Concessions (Official Gazette of the Brčko District of Bosnia and Herzegovina, Nos. 41/06, 19/07, 2/08) 8. Law on Public-Private Partnership (Official Gazette of the Brčko District of Bosnia and Herzegovina, No. 7/10)
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5.2 Electricity sector
Electricity market structure
The electricity market of Bosnia and Herzegovina is characterised by domination of 3 vertically integrated utilities: “JP Elektropriveda BIH d.d.” (in further text JP EP BIH or EP BIH), “Mješoviti Holding Elektroprivreda Republike Srpske a.d.” (in further text MH ERS or ERS) and “Elektroprivreda Hrvatske zajednice Herceg Bosne d.d.” (in further text EP HZHB), wherein Elektroprivreda BIH (EP BIH) generated ~7,2 TWh, Elektroprivreda RS (ERS) ~5,8 TWh, and Elektroprivreda Hrvatske zajednice Herceg Bosne (EP HZHB) ~1,5 TWh (Figure 5.2.1). Elektroprivreda RS is organised as a mixed holding and owns 2 thermal power plants with the related coal mines, 5 hydropower plants and 4 small hydropower plants. In Republika Srpska, energy is also generated in the plants using RES (16 small HPP and 38 solar power plants), with a total power capacity of 44,5 MW. Electricity is also generated by the company Alumina for its own needs. In 2016, thermal power plant Stanari also entered the system and generated ~ 1,5 TWh of electrical energy, while in the future it is expected to annually generate ~2TWh. In the Federation of Bosnia and Herzegovina, EP BIH produces energy from 2 thermal power plants, 3 hydropower plants and 7 small hydropower plants. On the other hand, EP HZHB produces electrical energy from 7 hydropower plants. Along with the listed energy generating facilities, in Federation of Bosnia and Herzegovina electrical energy is produced in privately owned generation units, 109 of them, and in 3 industrial power generating units for 2015. In 2016, there were registered 161 production units owned by 117 qualified producers. The trade is primarily conducted through bilateral contracts, in the range of ~7,8 TWh. In cross-border trading, Bosnia and Herzegovina exported ~5.3 TWh in 2016 (by 53% more than in 2015), in which 16 entities took part and, with regard to the volume, the top 3 were EFT- Rudnik and Thermal Power Plant Stanari (1.116 GWh), GEN-I (828 GWh) and Alpiq Energija BH (740 GWh). In addition, in 2016, cross-border import of electricity to Bosnia and Herzegovina amounted to ~1.5TWh (16% of growth compared to 2015), and the largest realisation was achieved by Energy Financing Team (338 GWh), BH Petrol Oil Company (333 GWh) and Interenergo (214 GWh). Elektroprijenos BH, with ~6.330 km of transmission network in four operational regions (Banja Luka, Sarajevo, Tuzla and Mostar), is responsible for transmission, maintenance and building, while Independent System Operator in Bosnia and Herzegovina (ISO BIH) manages the operation of the HV network, balances the power market, determines the generation development plan and reviews the transmission network development. Electricity distribution in Republika Srpska is performed by 5 distribution system operators being a part of ERS holding, while in the Federation of Bosnia and Herzegovina the distribution is integrated through EP BIH and EP HZHB. In the Brčko District of Bosnia and Herzegovina, JP Komunalno Brčko is responsible for distribution. Apart for distribution, JP Komunalno Brčko holds the licence for trade and supply of electrical energy on the territory of Bosnia and Herzegovina. Due to low prices, especially for the households, electrical utility companies still are not losing their market share. Customers are still dominantly supplied by the electrical utility companies, which besides the market supply have an obligation of public supply and universal service provider. The number of customers of electrical energy in 2016 was 1,5 million, from which 552,6 thousands are on the territory of the Republika Srpska, 943,65 thousand are on the territory of the Federation of Bosnia and Herzegovina and 35,5 thousand are in the Brčko District of Bosnia and Herzegovina. In the retail segment in 2016, at the Bosnia and Herzegovina level, first changes of suppliers were registered with 56 buyers within the distribution system along with 2 buyers on the transmission network obtaining ~321 GWh (~2,8%) from suppliers who are not obliged to provide public supply.
Figure 5.2.1 Electrical energy market structure in Bosnia and Herzegovina, 2016
Note: 1) Refers to the energy taken from the transmission network in 2016 Source: SERC Work Report 2016, ISO BIH, Elektroprijenos of BIH, FERK Work Report 2015, Project Team analysis | 45
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Installed capacity and power generation
Looking at the average generation of electricity and average exchange balance values of the countries in the region during the period 2010- 2015 (Figure 5.2.2 and Figure 5.2.3), it is evident that countries generating trade surplus, including also Bosnia and Herzegovina, mainly have a high share of coal in their national generation mix. Also, exchange balance deficit of the countries ranged, on average from -35% in Croatia, -25% in Hungary, -6% in Austria and up to -2% of domestic consumption in Slovakia. The foregoing clearly indicates different strategic position of the countries in the energy trilemma. For instance, current position of Serbia and the Czech Republic is to meet 100% of their own needs and generate surplus through the generation mix which is predominantly based on fossil fuels, while Austria relies on a clean generation mix which predominantly consists of production from hydro power plants and renewable energy sources, with a small share of import of electricity. As for Bosnia and Herzegovina, it is characteristic that, apart from thermal power plants, it also possesses a solid portfolio of hydro power plants, such as, for example, Croatia and Austria.
Figure 5.2.2 Exchange balances of electricity in the countries Figure 5.2.3 Domestic generation mix in the countries of the of the region in TWh, on average for the period 2010 - 2015 region in TWh, on average for the period 2010 - 2015
Note: 1) Trade surplus / deficit is a difference between generation and consumption in the country 2) For Croatia, 50% of generation in the nuclear power plant Krško has been defined as import Source: SERC Business Report 2010 – 2015, ENTSO-E Statistical Report 2015
Trade surplus generated in Bosnia and Herzegovina is volatile due to impact of hydrology, and not being influenced by domestic consumption (Figure 5.2.4 and Figure 5.2.5). Surplus of generated electricity at the level of Bosnia and Herzegovina ranged from 2% in 2012 to 28% in 2016. Consumption of electricity in Bosnia and Herzegovina registered an average annual growth of 0,8% for the period 2010 – 2016, while at the level of individual power utility companies it ranged within positive rates, on average from 1,6% with ERS and 1,4% with EP BIH by year. EP HZHB registered a negative annual rate of -2,5%, while JP Komunalno Brčko registered a slight drop in consumption amounting, on average, to -0,4% annually. At the level of Bosnia and Herzegovina in 2016 a historical maximum was reached in domestic consumption, amounting to 12,9 TWh. The largest number of consumers of electricity in 2016 were within EP BIH with ~5 TWh, ERS ~4 TWh, EP HZHB 2,9 TWh and, finally, JP Komunalno Brčko of 0.3 TWh. Also in 2016, other consumers were recorded who were not supplied by universal service providers, but by other suppliers, in the amount of ~322 GWh, i.e. 2.8% of the total energy consumed by end-buyers in Bosnia and Herzegovina.
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Figure 5.2.4 Exchange balances of electricity in Bosnia and Figure 5.2.5 Consumption of electricity in Bosnia and Herzegovina in TWh, 2010 – 2016 Herzegovina, by area in TWh, 2010 -2016
Note. Balance surplus is a difference between production and Source: SERC Business Report 2010 – 2016 consumption in the country Source: SERC Business Report 2010 – 2016
Structure of the installed capacities for power generation in period 2010-2015, did not change drastically on the level of Bosnia and Herzegovina, since in both entities generation is still mainly conducted in thermal and hydro power plants. The main increase in the installed capacity in 2016 is due to commissioning of TPP Stanari on the territory of Republika Srpska. It is necessary to emphasize that positive growth rates of the installed capacity form the renewable energy sources and other facilities have been registered in both entities. Still, incentivised RES have a relatively low share on the level of Bosnia and Herzegovina, ~4% (Figure 5.2.6). Considering power utility companies individually, the largest share of installed capacity has EP BIH, then ERS and EP HZHB. In 2016, due to commissioning of TPP Stanari which is in private ownership, a minor redistribution of relative shares in installed capacities per energy utility company has occurred (Figure 5.2.7).
Figure 5.2.6 Installed capacity in Bosnia and Herzegovina Figure 5.2.7 Installed capacity in Bosnia and Herzegovina, MW, 2010 - 2016 per energy utility company in MW, 2010 -2016
Note: 1) The category “Others” includes TPP Stanari, private Source: SERC Work Report 2014, 2015 and 2016, FERK Work subjects in both entities, small and other industrial power plants Report 2010-2015, Operator for RES and Efficient Cogeneration Source: SERC Work Report 2014, 2015 and 2016, FERK Work project register, Project Team analysis Report 2010-2015, Operator for RES and Efficient Cogeneration project register, Project Team analysis
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In further text an overview of the installed capacity per entity is given.
Figure 5.2.8 Installed capacity in Republika Srpska, per Figure 5.2.9 Installed capacity in the Federation of Bosnia source in MW, 2010 - 2016 and Herzegovina, per source in MW, 2010 - 2016
Source: RERS Work Report 2010-2015, SERC Work Report Source: FERK Work Report 2010-2015, SERC Work Report 2016, Project Team analysis 2016, Operator for RES and Efficient Cogeneration project register, Project Team analysis
In the period 2010 – 2016, in Bosnia and Herzegovina coal fired TPPs on average had a share of ~60% in total electricity generation. HPPs had, depending on the hydrology, a share of ~32% - 49%, while on average their share was ~38% (Figure 5.2.10). The largest generation was accomplished by EP BIH totalling 6,6 TWh – 7,6 TWh, then ERS totalling 5,1 TWh – 6,4 TWh, and the smallest share had EP HZHB totalling between 1,2 TWh – 2,6 TWh of generated electrical energy in the analysed period. In 2016, other subjects were active on the market outside the domain of power utility companies – TPP Stanari within the Republika Srpska (1.565 GWh), hydropower plants (35 GWh) and small and other hydropower plants (307 GWh) on the territory of Bosnia and Herzegovina (Figure 5.2.11).
Figure 5.2.10 Power generation in Bosnia and Herzegovina, Figure 5.2.11 Power generation in Bosnia and Herzegovina, per source in TWh, 2010 - 2016 per subject in TWh, 2010 - 2016
Source: SERC Work Report 2014, 2015 and 2016 Note: 1) Within the category “Others” in 2016 are included TPP Stanari (1.565 GWh), HPPs (35 GWh) and small and other power plants outside the domain of power utility companies (307 GWh) Source: SERC Work Report 2014, 2015 and 2016
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Although both entities have very similar portfolio structures within which most power generation comes from the thermal sector, Republika Srpska traditionally generates a larger surplus when compared to the Federation of Bosnia and Herzegovina, while Federation of Bosnia and Herzegovina generate more electrical energy. In Republika Srpska in 2016, production in coal fired TPPs amounted to 4,8 TWh (65% of total generation), while electricity generation from the hydro sector amounted to 2,5 TWh, that is, 34% of total generation. Larger share of the thermal sector in total generation is attributed to inclusion of the TPP Stanari which contributed to trend changes in Republika Srpska relative to the previous period. In Federation of Bosnia and Herzegovina generation of electrical energy from coal-fired TPPs in 2016 has amounted to 5,8 TWh (66% of total generation), while generation of electrical energy from the hydro sector has amounted to 2,9 TWh, or 33% of total generation (Figure 5.2.12 i Figure 5.2.13). On the designated figures, Brčko District of Bosnia and Herzegovina is not explicitly shown as a consumer of electrical energy.
Figure 5.2.12 Generation and consumption of electricity in Figure 5.2.13 Generation and consumption of electricity in the Federation of Bosnia and Herzegovina in TWh, 2010 -2016 Republika Srpska in TWh, 2010 -2016
Note: EP BIH and EP HZHB are included in Federation of Bosnia Note: TPP Stanari is shown in the generation part. Other small and Herzegovina. Other small and industrial power plants and industrial power plants as “Others” in the SERC Work Report categorized as “Others” in the SERC Work Report 2016, as well 2016, as well as transmission losses are not explicitly shown as transmission losses are not explicitly shown. Due to new Source: SERC Work Report 2014, 2015 and 2016; Project Team classification according to SERC, the consumption in Bosnia and analysis Herzegovina is realistically larger considering that generation of other smaller producers and transmission losses have not been taken into account. Source: SERC Work Report 2014, 2015 and 2016; Project Team analysis
According to the overview of the generation portfolio of larger facilities (Table 5.2.1), Bosnia and Herzegovina currently has a substantial share of HPPs in the generation mix. The thermal portfolio has increased with the commissioning of TPP Stanari, but it is necessary to emphasize that TPP Stanari, as per the Contract on Concessions, is not obliged to supply the domestic consumers. As a strategic challenge for the upcoming period, it is necessary to define the development of the thermal portfolio considering the expected consumption growth and decrease of the operational hours or foreseen decommissions of older blocks in both entities. Additionally, in order to create a strategic framework for larger utilizations of HPP and RES potentials it is required to eliminate administrative and financial barriers on all administrative levels of Bosnia and Herzegovina.
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Table 5.2.1 An overview of the existing production facilities per subject without small and other industrial power plants in Bosnia and Herzegovina, 2016
Source: SERC, ISO BIH Indicative Generation Plan 2017.-2026, EP HZHB, EP BIH, ERS, RERS, Project Team analysis
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Wholesale market
5.2.3.1 Current state
In the cross-border trade segment, during the period 2010-2016, Bosnia and Herzegovina generated a balance towards export. The export amount varied in proportion to generation oscillations during the referenced period. In 2016, an auction for granting the cross-border capacity with Croatia and Montenegro was organised by SEE Coordinated Auction Office (CAO), while auctions with Serbia were organised between two operators – ISO BIH and EMS. The largest volume of cross-border exchange was mainly achieved with Croatia, approximately 50% of total exchange, in which process the highest price was also reached. For example, the price in 2016 was 7.881 KM/MW, which is three times more than in the previous year. Transit of electricity via the transmission network of Bosnia and Herzegovina mainly ranged between 2 and 3 TWh a year, except in 2013 and 2014 when it ranged between 1,1 – 1,4 TWh (Figure 5.2.14).
Figure 5.2.14 Cross-border electricity trading by border, including registered transit in Bosnia and Herzegovina in TWh, 2010 – 2016
Source: SERC Work Report 2010 – 2016
Considering that Bosnia and Herzegovina still does not have a developed electricity market and auctions, wholesale is organised on bilateral agreement basis only. Since 2016, a balance market was established through a tender procedure, while in the future, auctioning should be applied. Taking into account the market development and importance of export within the region, Bosnia and Herzegovina necessarily needs further wholesale institutionalisation. The neighbouring countries such as Croatia, Serbia and Bulgaria launched in 2016 their platforms for the day-ahead markets. These power exchange platforms (CROPEX, SEEPEX, IBEX) are aimed at introducing transparency and liquidity on the Balkan electricity market, offering transparent prices. Further power exchange plans are directed towards coupling with other markets in order to increase liquidity and to reduce the price oscillations. The main advantages of the electricity market are: secure transactions and transparency, establishment of a reference electricity price, coupling with other markets and increased importance of intra-day market in the future. In March 2016, the region registered largest trading volumes on the HUPX (Hungary) being the electricity price benchmark for the region, which was followed by Slovenian BSP power exchange (Figure 5.2.15).
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Figure 5.2.15 Day-ahead volumes on power exchanges in GWh, 1 March – 1 April 2016
Note: Market coupling of 4 countries (Czech Republic, Slovakia, Hungary and Romania) Source: ICIS, BSP South Pool, CROPEX, IBEX, SEEBEX
5.2.3.2 Guidelines for the wholesale market development
As already indicated in the previous Chapter the wholesale market in Bosnia and Herzegovina has not been institutionalised entirely, instead, it has been organised based on bilateral transactions between 27 licensed suppliers/traders (companies) of which 16 entities were active in 2016. The ISO BIH registers all transactions related to quantities, but not to the prices as well. Since 2016, a balance market is in place where balance services are based on annual, monthly or daily tenders. To reach the next maturity level and develop further the wholesale market, Bosnia and Herzegovina should implement the auction models for purchase/sale of electricity and balancing service. Moreover, it is advisable to conduct additional studies in defining the optimal model for further organisation of the wholesale electricity market in Bosnia and Herzegovina. That will enable further development of transactions transparency as well as price formation of electrical energy, in line with good practices in Europe and guidelines of the European Community4 (Figure 5.2.16).
Figure 5.2.16 Guidelines for the wholesale market development
Source: SERC, WB – Electricity Auctions – An overview of Efficient Practices, Project Team analysis
4 Energy Community Secretariat, WB6 Electricity Monitoring Report, December 2016 | 52
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Transmission
“Elektroprenos - Elektroprijenos BIH“ a.d. Banja Luka is a company which is 58.9% owned by the Federation of Bosnia and Herzegovina, and 41.1% by Republika Srpska, and which is responsible for transmission and all other electricity transmission activities in Bosnia and Herzegovina, such as transmission system maintenance and expansion. Since 2005, the ISO BIH has been managing the electricity transmission system and balance market. Functioning of both companies has been regulated by SERC. Considering the current organizational situation, Bosnia and Herzegovina should adopt one of the standard European models for the establishment of the transmission system operator. In Europe, vast majority of countries apply the ownership unbundling model (OU) or an independent transmission operator (ITO) model (Figure 5.2.17). A new draft Law on Electricity and Natural Gas Regulator and Electricity Transmission and Market is currently put into enactment procedure, which should, among other things, define the model for the establishment of the transmission system operator. Further activities on the Law enactment and its implementation in practice should be prioritized.
Figure 5.2.17 Review of the electricity TSO unbundling models
Source: CEER – Status Review on the Implementation of Transmission System Operators' Unbundling Provisions of the 3rd Energy Package 2016
According to data held by “Elektroprijenos BIH”, the total power line length is 6.235 km. As indicated in the Long-term Transmission Network Development Plan of Elektroprijenos BIH and Indicative development plan of power generation prepared by ISO BIH, a need for new interconnections in the EES of Bosnia and Herzegovina are planned. Construction of 2 new 400 kV overhead powerlines for connection with the Croatian and Serbian markets, upgrade of one 400 kV overhead power line and construction of one 110 kV overhead powerline in the direction of the Republic of Serbia are planned (Table 5.2.2 i Figure 5.2.18). It is important to mention that further development plans of new facilities in the transmission system should be developed according to the dynamics of new generation facilities, analysis of power flow and safety criteria, what is current practice of “Elektroprijenos of Bosnia and Herzegovina”.
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Table 5.2.2 Planned transmission network interconnections in Bosnia and Herzegovina
Project Description Direction Current status Commissioning Comment
The aim of the project is to increase the transmission capacity Project SRB Trilateral within the region and to 227 New OHL 2x BA 1 (Bajina regional 2022 facilitate the exchange of CSE8 – 400 kV (Višegrad) Bašta) feasibility study energy between NE and 627 SW parts of Europe Part of the Transbalkan Corridor (PECI project1) Agreement This project contributes to reached increasing transboundary between HOPS, Project New OHL transmission capacity BA ISO BIH and 136 400 kV and HR 2 Elektroprijenos 2022 Market and RES related OHL (Banja CSE1 – (Lika/Brinje) BIH on starting integration between field 400 kV Luka) 227 an initiative Croatia and Bosnia and towards EU Herzegovina, and greater funds network flexibility The aim of the project is to replace the existing At the stage of interconnection lines from BA consideration, 220 kV to 400 kV Project Upgrading HR 3 (Tuzla/ there is a need 2030 241 OHL 400 kV (Đakovo) Market and RES Gradačac) for pre-feasibility integration between study Croatia and Bosnia and Herzegovina, and greater network flexibility The project is not included Planned on the in the list of important basis of bilateral projects Construction BA SRB agreement 4 - 2019 Construction would solve OHL 110 kV (Srebrenica) (Ljubovija) between Serbia and Bosnia and problems in the networks Herzegovina of Bosnia and Herzegovina and Serbia
Note: 1) Project of Energy Community Interest – refers to projects that are on the list for 2016, and that are supported by European Energy Community Sources: ENTSO-E TYNDP 2016 Project Sheets, SERC Work Report 2015, Elektroprijenos BIH – long-term network development plan 2015-2024, Volume I
Figure 5.2.18 Review of the current situation and planned interconnection lines of the transmission network in Bosnia and Herzegovina with neighbouring countries
Source: ENTSO-E TYNDP 2016 Project Sheets, SERC Work Report 2015, Elektroprijenos BIH
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Transmission losses on satisfactory levels, in 2016 they amounted 1,77%, what is in the range of the developed European EES. Compared with the available energy on the transmission network, that was in 2016 larger relative to 2015, lower losses were recorded (Figure 5.2.19 Figure 5.2.20). Availability of the system based on the nondelivered energy in the past 3 years is in the range of about 99,98%.
Figure 5.2.19 Losses in the transmission network, %, 2014 – Figure 5.2.20 Available energy in the transmission network, 2016 GWh, 2014 – 2016
Source: Elektroprijenos BIH
For the transmission network in 2016, the duration of power losses per customer (SAIDI) was 161,53 minutes, and a number of power losses per customer (SAIFI) was 1,52. SAIFI indicator has been almost the same in the last three years, while the SAIDI indicator was the highest in 2014, the cause of which were the floods of that year.
Figure 5.2.21 SAIFI indicator on transmission network per Figure 5.2.22 SAIDI indicator on transmission network in number of power losses per customer, 2014 – 2016 minutes, 2014 - 2016
Source: Elektroprijenos BIH
According to the estimates of the Long term Transmission Network Development Plan 2017 – 2026, total investment cost for development of the transmission network are 825,44 million KM (~ 419,8 million EUR). For construction of new facilities it is necessary to invest 206,12 million KM (~ 104,83 million EUR), while the cost of construction of new interconnection lines is 89,99 million KM (~ 45,77 million EUR). Funds in the amount of 529,33 million KM (~ EUR 269,22 million EUR) are intended for: along with the construction of new, reconstruction / renovation and extension of existing facilities and transmission lines is planned. Additionally, the installation of a choke control system is planned at the level of whole Bosnia and Herzegovina with the aim of voltage regulation at 400 kV and 220 kV levels. In addition, reconstruction of TK and SCADA systems in dispatch centres operating areas is planned. However, the criteria that have to be met during the creation of the Long term Transmission Network Development Plan are defined by the Network Codex. Apart from the general criteria during the creation of the Long term Transmission Network Development Plan 2017 – 2026 other criteria have been met ( standard criteria of planning that are used when creating a document of this type) that was defined by “Elektroprenos - Elektroprijenos BiH”, and approved by ISO BIH. These criteria, above all, are referring to construction of new transmission network facilities, application of safety measures (n-1) while conducting analysis of power flows and voltage conditions, and on the permissible load and lifetime of the individual transmission network elements. During the creation of the document a planning principle adopted by the Assembly of “Elektroprenos - Elektroprijenos BIH“ has been respected, based on which investments in the transmission network on the territory of the two entities has to be realized respecting the capital ratio in “Elektroprenos - Elektroprijenos BiH“ (Federation of Bosnia and Herzegovina – 58,89%; Republic Srpska – 41,11%). Beside the data defined by the Network Codex, the Long term Transmission Network Development Plan 2017 – 2026 contains: analysis of the voltage conditions in the transmission network based on the estimate of the simultaneously occurring maximal load of the transmission network considering the safety criteria (n-1), analysis of the voltage conditions in the transmission network based on the estimate of the simultaneously occurring minimum loads of the transmission network for normal total condition, overview of new interconnections toward neighbouring systems, calculation of transmission capacities with consideration to construction of new interconnections, assessment of the available funds for realization of necessary investments.
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Distribution and Supply
One of the goals of this document is to further encourage distribution system modernisation and, in that context, it is necessary to harmonise the regulatory and legislative frameworks. The further development of strategic framework is based on four main guidelines: 1. Harmonisation with EU Directives and energy packages 2. Upgrading of regulatory mechanisms towards encouragement of efficiency and quality and relationships with market stakeholders 3. Reduction of network losses and increased supply quality 4. Flexible and technologically modern DSOs as a basis for energy sector modernisation
5.2.5.1 Overview of unbundling status for distribution activities
On the level of Bosnia and Herzegovina further steps are necessary to harmonize the electricity markets with the laws on electricity in Federation of Bosnia and Herzegovina and Republic Srpska, with the Directive 2009/72/EC on common rules for the internal electricity market. All power utility company activities in EP HZHB are organisationally separated including the distribution and supply, while separation of accounting activities has not been fully realized in JP EP BIH. In JP EP BIH only accounting activities have been separated. JP Komunalno Brčko is currently in the process of separating the accounting activities. Unlike the rest of the power utility companies, ERS has separated all of their activities, apart from the supply which is completely integrated with the distribution part. The main priority is legal, functional and accounting separation of activities from the vertically integrated power utility companies and communal companies, with the main focus on JP EP BIH and EP HZHB. Moreover, it is necessary to create a legal framework to commence a legal process of separation of supply activities from network activities that are currently fully integrated in electro-distribution subjects. In line with the EC Directive, Brčko District of Bosnia and Herzegovina, as a local community with less than 100 thousand citizens, does not have the obligation to implement the full spectra of supply and distribution activities separation (Table 5.2.3).
Table 5.2.3 Status of separation of the power distribution activities in Bosnia and Herzegovina
Komunalno JP EP BIH EP HZHB MH ERS1 Brčko Distribution Subject type Vertically integrated and supply Communal Distribution function within EP YES YES YES company Status/organisation of the distribution function Legally separated X X X Organisationally/functionally separated X X Separated in terms of accounting Partially X Supply function separated from network X X X n/a function Harmonisation with EU Directives YES YES YES YES required Note: 1) MH ERS as a holding has a license to trade and supply electricity unlike the distribution companies. Therefore, the holding, unlike the distribution companies, has the ability to supply qualified customers Source: Working Group of Federation of Bosnia and Herzegovina and Republic Srpska, SERC Work Report 2016, Project Team analysis
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5.2.5.2 Regulatory model
Standard regulatory model for distribution of electricity are revenue or cost cap models. However, European regulators place a growing focus on development and quality of distribution through different mechanisms within the methodology for forming tariffs for distributors.
Table 5.2.4 Indicative comparison of the key regulatory models characteristics
Source: Project Team analysis, „Tariff Benchmark Study“ – European Commision 2015
Some of the selected mechanisms concern the regulator’ quality-related demands, and ex-post evaluations of investments of distributors through comparison, that is, benchmarking, or even suboptimal investment penalization. In addition, regulators in certain countries demand from distributors to further focus on promotion of operational business – e.g. in Romania, 50%-70% of losses are transferred to buyers, while the remaining part of losses is borne by DSO (Table 5.2.4). Taking into account the European practice as shown, further regulator maturity and new pressures on business and results may be expected in the forthcoming period. Accordingly, the figure below provides a review of the changes expected in the future with regard to tariff methodology formation, which shall certainly put new pressures on the distribution system operators and ask for their better quality and efficiency. The key changes of the tariff methodologies, that is, regulation of DSOs are expected through the review of investment decisions, review of operational efficiency, review of return rate, review of operational costs and justifiable distribution losses (technical and non-technical) and introduction of the new indicators in the methodology (Figure 5.2.23).
Figure 5.2.23 Potential changes in the tariff methodology
Source: Project Team analysis
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5.2.5.3 Indicative SAIFI and SAIDI indicators and losses in the distribution network
Comparison of the distribution network in Bosnia and Herzegovina with those in other European countries, clearly indicates the existing possibility of further improvement of the situation in Bosnia and Herzegovina’s power utility companies, especially in the supply quality management segment and in reduction of distribution losses in certain areas and the introduction of “smart” grids.
Figure 5.2.24 Indicative SAIDI and SAIFI indicators
Note: Indicators for electric power utility companies EP BIH, EP HZHB and ERS refer to 2015, for EDB – 2012, and for other countries they refer to 2013 Source: CEER Benchmarking Report 5.2 on the Continuity of Electricity Supply, South East European Distribution System Operators Benchmarking Study, FERK Work Report 2015, RERS Work Report 2015, data prided by the Brčko District of Bosnia and Herzegovina
Supply reliability is one of the elements of the quality of supply. Two most frequent indicators used for the supply reliability assessment of the electric power entity are the SAIDI (System Average Interruption Duration Index) and SAIFI (System Average Interruption Frequency) indicators. SAIDI indicates an average duration of interruption at the system level per buyer over a year and it is expressed in minutes or hours per buyer. SAIFI indicates an average number of supply interruptions per buyer during a year and it is expressed in the number of interruptions per buyer. For EP BIH, EP HZHB and other comparable power utility companies from other countries, data have been collected for the SAIDI and SAIFI indicators for all distribution voltages, taking into account both planned and unplanned interruptions. In 2015, the average duration of the supply interruptions per buyer (SAIDI) for all electric power utility companies in Bosnia and Herzegovina was 1.381,8 minutes (EP BIH - 677 minutes, EP HZHB - 817 minutes, ERS - 2.554 minutes, EBD - 1.135 minutes). On the other hand, the number of interruptions per buyer (SAIFI) on average for Bosnia and Herzegovina was 18,2 (EP BIH - 7,2, EP HZHB - 10,7, ERS - 35,8, EBD - 6,6). Comparison of the indicators with other countries in the region and the rest of Europe showed that Bosnia and Herzegovina had considerably higher values of SAIDI and SAIFI indicators, therefore, there is a large room for improvement (Figure 5.2.24). Apart from the number and duration of interruptions, the losses of electricity in the distribution network for all voltages have been analysed. Taking into account all power utility companies in Bosnia and Herzegovina, in 2015 the average electricity losses were 10%. As an example, EP BIH has losses that are below 9%, while EP HZHB and ERS have distribution losses around 11,6%, and Brčko District of Bosnia and Herzegovina around 13%. Despite the positive trend of reducing losses, Bosnia and Herzegovina continues to experience considerable losses in its power network in respect to other European countries. Although precise and quantitative goals and dynamics are part of action plans, it is recommended that through this document the ambition of distribution losses reduction is defined to 9,5% until 2020 and to 6,5% until 2035. The key mechanisms for accomplishment of these goals are: restructuring of the existing network, modernisation of old transformers and standardization optimisation of the new network design and shift to the 20 kV voltage level application of modern energy measurement systems (AMR) and network automation commercial (nontechnical) loss reduction
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Figure 5.2.25 Comparison of distribution losses in Bosnia and Herzegovina with other countries, 2015
Source: EPS Annual Report 2015, EP BIH, EP HZHB, Eurostat, JP Komunalno Brčko
5.2.5.4 Transformation of the distribution system operator
In the medium term, emphasis should be put on the modern infrastructure development and on introduction of new technologies with the distribution system operators. Although the activities on connection of the “distributed generation and energy” to the network are intensified nowadays, the DSOs predominantly have a so-called inherited network in their structure. According to the investment indicators, the basic activities of the DSOs include maintenance, reconstruction and replacement of the existing infrastructure towards reliability improvement. In this phase, in terms of organisation, DSOs are still relatively specialised per types/elements of physical assets. In terms of management, the main activity concerns the investment planning process, i.e. budgeting, without a comprehensive strategy and the asset management philosophy. In initial phase, reliability is the key success indicator and the essential criteria for the investment decisions, while the system efficiency and the process agility are secondary. Bosnia and Herzegovina DSOs are currently in the second phase of the DSO development. Focus in on the infrastructure digitalisation, smart meter/grid roll out, technical and IT integration activities, and adjustment of fieldwork processes, predominantly in the operations (dispatching) and maintenance segments. Activities on integration of sources of distributed energy are intensified in this phase, which requires adjustment of organisation, processes and relationship with the key market stakeholders. Adjustment of organisation is clearly evident again in the largest and operating intensive segment of maintenance and defects where the approach to the work organisation changes and where, through introduction of the basic IT solutions for DSO of the company, better operating efficiency is achieved in parallel, along with a better quality of supply. On the other hand, an ever increasing focus is placed on construction of a modern asset management function which is tasked with allocating the investment budgets efficiently and with planning the network development. Such activities are only possible with continued and structured collection and processing of data on the network and with their processing through standard IT solutions for the asset management. Investments into technology in this phase lead to faster and larger return on investment, considering that the network management paradigm is being thoroughly changed – from the linear into the decentralised systems. Still, implementation dynamics for the new technologies, such as advanced electricity meters, regardless of operating savings it brings, should be planned in a manner to balance between modernisation of the entire system and financial possibilities and justifiability for an investor. Considering that DSO must also be intensively changed in line with substantial transformation of the entire electricity power sector, it is important to impose the attitude that a modern, efficient and quality DSO, along with the transmission operator, is the backbone of the electric energy system whose modernisation will to a large extent dictate the modernisation pace of the entire sector. The foregoing is followed by the phase of further evolution and introduction of smart grid and control in real time. Advanced infrastructure will also be implemented on the low-voltage levels, which shall enable much more efficient digital network management, with a more specified and faster fieldwork. Such tools and methods will become increasingly important for the network voltages and loads management optimisation. Knowledge and competence the DSO companies will have to build will be based on sound IT and technological knowledge, while modern DSOs will be fully prepared to enable the existence of the new business models and products and services “behind the meter” (Figure 5.2.26).
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Figure 5.2.26 Implications of digital networks on strategic positioning on the market
Source: Project Team analysis
Electricity prices
In the entire Bosnia and Herzegovina, the highest electricity price is paid by commercial buyers at the voltage level of 0,4 kV, while the lowest price is paid by those at the 110 kV and 35 kV voltage levels (Figure 5.2.27). In general, the price levels of electrical energy in Bosnia and Herzegovina have been very low for years relative to the rest of the region. However, in the past few years there is a tendency of a mild price growth, while prices of electrical energy in the wider region5 are showing a gradual drop. Along with that, it is necessary to emphasize that the price trend depends on the customer category. So the average price of electrical energy for customers that are supplied by the public suppliers amounted to 13,15 fening/kWh (~67,2 EUR/MWh) in 2016, a decrease of 2,7% compared to the previous year, while the average household price was 13,98 fening/kWh (~ 71,5 EUR/MWh), which is 1,5% more than the previous year. With all other customers, a reduction of the average sale price of 5,8% has been recorded.
Figure 5.2.27 Average price of electricity in electric power utility companies, in EUR/MWh, 2016
Note: Prices are shown without VAT Source: SERC Work Report 2016.
In 2016, prices of electricity for industry without VAT and other levies in Bosnia and Herzegovina amounted to 61 EUR/MWh, and there were no significant changes compared to the previous years. For comparison, the average price of electricity in the region was 106 EUR/MWh in 2010, while in 2016 the average price amounted to 85 EUR/MWh,
5 Wider regions comprises of the following countries: Austria, Slovakia, Hungary, Czech Republic, Slovenia, Croatia and Serbia | 60
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which is much higher than the prices in Bosnia and Herzegovina. If the electricity prices are adjusted with the power purchase parity (PPP) criteria, i.e. based on the standard of living in a certain country, it is evident that there is certain convergence and gap reduction between the prices in Bosnia and Herzegovina and those in the region (Figure 5.2.28).
Figure 5.2.28 Electricity prices for industry in wider region, Figure 5.2.29 Electricity prices for households in wider without VAT and levies in PPP and EUR/MWh, 2010- 2016 region, total price in PPP and EUR/MWh, 2010 – 2016
Note: For industry, the consumer category taken: IC: 500 MWh < Note: For households, the consumer category taken: DC: 2.500 consumption < 2.000 MWh kWh < consumption < 5.000 kWh Source: Eurostat, Project Team analysis Source: Eurostat, Project Team analysis
Prices of electricity for households are also lower that the average in the region. Since 2010, the price of electricity ranged between 74 and 84 EUR/MWh, wherein the price in 2016 reached the highest amount of 84 EUR/MWh. During the same period, the average price of electricity for households in the region amounted to 138 EUR/MWh. Taking into account prices adjusted with purchase power parity, it is evident that there is a slight increasing trend in Bosnia and Herzegovina, while a slight decrease was characteristic for the region. However, prices in Bosnia and Herzegovina are still at the very low levels (Figure 5.2.29). Considering prices in 2016 by individual country, prices for industrial consumers were at the level of the average value in the wider region, while the prices for households in Bosnia and Herzegovina were lower than the average by 11%, wherein only Serbia had prices lower than Bosnia and Herzegovina (Figure 5.2.30 and Figure 5.2.31). In the forthcoming period it is necessary to work on continuous promotion of efficiency of production facilities and the generation mix price competitiveness at a liberalised market.
Figure 5.2.30 Electricity prices for industry in wider region, Figure 5.2.31 Electricity prices for households in wider without VAT and levies in PPP and EUR/MWh, 2016 region, total price in PPP and EUR/MWh, 2016
Note: For industry, the consumer category taken: IC: 500 MWh < Note: For households, the consumer category taken: DC: 2.500 consumption < 2.000 MWh kWh < consumption < 5.000 kWh Source: Eurostat, Project Team analysis Source: Eurostat, Project Team analysis
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Indicative scenarios for the development of the power generation mix in Bosnia and Herzegovina
5.2.7.1 Strategic framework for the development of power generation mix
Strategic framework for the development of the power generation mix in Bosnia and Herzegovina is based on four fundamental elements: vision and priorities of Bosnia and Herzegovina, EU regulations and decarbonisation agenda, electricity consumption dynamics, and the regional development and context. Based on elaboration of the key factors and iterations with the Working Groups, a framework has been created to contain elaborated indicative development scenarios for electricity generation mix at the level of Bosnia and Herzegovina (Figure 5.2.32). The levelised cost of electricity was applied to develop the scenarios. As a next step, further elaboration of the new power generation mix is suggested, which will be developed by the power utility companies.
Figure 5.2.32 Strategic guidelines
Source: Project Team analysis
5.2.7.2 Vision and priorities
The strategy for the development of the power generation mix in Bosnia and Herzegovina should be properly positioned within the key strategic goals of the energy trilemma, i.e. security of supply, price acceptability or sustainability (decarbonisation). Although historical data suggests that the intensity of the balance surplus largely depends on hydrology, generally a high security of domestic supply has been achieved. The aim for the forthcoming period is to maintain the security of supply by domestic electricity generation, however the goal needs to be aligned with the competitiveness objectives and new environmental standards.
Figure 5.2.33 Illustrative presentation of Bosnia and Herzegovina within the energy trilemma nowadays
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Additionally, it is not necessary to negatively characterize scenarios that have a mild reduction trend of electricity surplus rate. Bosnia and Herzegovina is underway of full integration into a single EU energy market, meaning that apart from the domestic electricity generation, a clear trend of integration of the European energy markets positively contributes to the security of supply, which is why it is important, along with physical integration, to continuously invest in electricity trading capabilities and competencies. However, since energy projects are dictated by the market itself, achieving a larger surplus does not have to be limited if price competitiveness for end users and the obligation to reduce negative environmental impacts is satisfied. The power generation mix of Bosnia and Herzegovina is currently relatively competitive in terms of price relative to the neighbouring countries, despite the decline of wholesale prices over the past several years (further trends and dynamics are uncertain). However, it is extremely important in the future to take into account all expected pressures on price competitiveness, such as low competitive coal production prices, costs of compensations for CO2 emissions which will continue having the increasing trend, RES fees, slowing down of electricity consumption and a potential scenario of more aggressive construction of larger generation (thermal) capacities. Taking into account the foregoing, retaining the current levels of average generation price in the medium term should be considered a good result. Despite the fact that (public) power utility companies in Bosnia and Herzegovina have a public supply obligation, which requires a certain level of safety and reliability of generation, from all of the previously mentioned there is a need for a more careful decision-making process regarding decisions on starting large capital investments. Although they would unavoidably result in a stronger surplus, they would also create a risk of lower system competitiveness in the long run. It is therefore needed to consider the future large investment decisions from a risk management perspective. In addition, realisation of certain projects should be based on market principles as the main factor, and without elements of state aid that can affect the sustainability and rationale of those projects. In case certain planned projects would not meet market competitiveness levels, thus would be cancelled, BIH would benefit from stronger regional electricity market contribution in meeting portion of BIH demand. A more conservative approach to large investments was adopted by the Western Europe economies several years ago, facing negative experiences of premature power plants decommissions or mothballing and debt write-offs of non- competitive parts of the portfolio. On the other hand, there is a clear trend of an ever increasing number of small projects, particularly in the RES segment, that is, in the incentive systems leading to a larger contribution of small and medium entrepreneurship in the overall economic activity. In order to accomplish long-term sustainability, it is important to emphasize that all scenarios require large focus on mining sector restructuring, whose dynamic and direction is necessary to harmonise with the selected thermal sector development strategy. Following the obligations but also the potential of further reduction of negative environmental impact, Bosnia and Herzegovina has to accelerate the transition of its power sector towards he renewable energy sources. Switching to cleaner energy requires the creation of an incentive framework for stronger utilisation of all forms of RES, and investing in new technology.
Table 5.2.5 Illustrative vision of strategic goals in Bosnia and Herzegovina
Bosnia and Herzegovina energy policy goals Strategic priorities Implications until 2035 Today Goal
Coverage of domestic consumption1 Security of supply Surplus
Share of RES in total production Clean energy (decarbonisation)
TPP pollution level
Price Generation mix price competitiveness
Economic Participation of small and diversification medium entrepreneurship2
Low High (Relative relations)
Note: 1) In line with the demand estimate, and with sensitivity of minimum applicable energy efficiency; 2) including the prosumer concept Source: Project Team analysis
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5.2.7.3 The EU decarbonisation agenda
European Union has issued the energy strategy covering the period until 2020, according to which the member states and those that wish to become members, such as Bosnia and Herzegovina, are expected to reduce emissions of greenhouse gasses by at least 20%, increase the share of RES not less than 20% of consumption and make energy savings of minimum 20%. Europe continues with even stronger intensity to stimulate the decarbonisation policy and energy efficiency through the Winter Package which sets goals for Europe until 2030. Furthermore, in April 2017, EU granted additional stricter standards for reduction of local emissions for thermal power plants, titled LCP BREF6 that will cause additional pressures on decisions to construct new thermal power plants.
Table 5.2.6 Bosnia and Herzegovina's goals in respect to EU goals until 2020 and 2030
Note: 1) At its 37th session held on 30 December 2015, the Council of Ministers of Bosnia and Herzegovina discussed and adopted the National Emission Reduction Plan for Bosnia and Herzegovina (NERP BIH), 2) In accordance with the Treaty establishing EC, the Ministerial Council on 18 October 2012 adopted a Decision on Implementation of Directive 2009/28 on the promotion of the use of energy from renewable sources Source: European Commission – BIH Progress Report 2014, World Bank – Rebalancing BIH, Systematic Country Diagnostic 2015, Bosnia and Herzegovina Renewable Energy Action Plan 2016, the Ministry of Foreign Affairs and Economic Relations, USAID – Bosnia and Herzegovina National Emission Reduction Plan 2015, World Bank – Energy Efficiency Project 2014, European Commission – Winter Energy Package – “Clean Energy for All Europeans”
The Table above (Table 5.2.6) shows the plans at the level of Bosnia and Herzegovina. With regard to energy efficiency, Bosnia and Herzegovina still did not adopt the Action plan for energy efficiency. On the Bosnia and Herzegovina level it is expected to achieve energy saving of 12,47 PJ, that are calculated as a sum of savings on the entity level. Bosnia and Herzegovina has adopted the Action plan for using RES, and committed itself to reach a 40% share in final consumption by 2020.
Furthermore, Bosnia and Herzegovina has undertaken to reduce SO2 emissions by 95%, NOx by 60% and solid particles for 90% until 2028 in respect to 2014.
With regard to reduction of CO2 emissions, the goal has only been set at the Bosnia and Herzegovina level. There are two scenarios for reduction until 2030, in accordance with the UNFCC INDC:
1. Moderate scenario under which the CO2 emissions level being 18% above the 1990 value should be reached
2. Strict scenario under which the CO2 emissions level being 3% below the 1990 value should be reached, with international assistance. As it was mentioned earlier, the efficiency rate of power plants and utilisation influence the power generation price. The highest generation cost have RES power plants due to given incentives, while HPPs (above 10 MW) have the lowest generation price. Average generation price in Bosnia and Herzegovina is 40 EUR / MWh, and it is competitive with the prices in the region. As reference, HUPX market prices have been taken for the average base and peak load consumption, and electricity retail prices in the region for 20157 (Figure 5.2.34).
6 In 28 April 2017, EU approved new updated and stricter emission reduction standards titled LCP BREF (for reduction of SO2, dust, NOx, HCl, HF and Hg emissions), which are expected to take effect in late 2017 7 Reference retail price refers to the average price for households DC: 2.500 kWh < x < 5.000 kWh Croatia, Serbia, Hungary, Austria, Czech Republic and Slovakia
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Figure 5.2.34 Actual power plant generation price in Bosnia Figure 5.2.35 Actual electric plant generation price in Bosnia and Herzegovina in EUR/MWh, 2015 and Herzegovina including CO2 cost in EUR/MWh, 2015
Note: 1) According to EP BIH inputs, Block 3 worked 21 GWh or Note: 1) According to EP BIH inputs, Block 3 worked 21GWh or 5% 5% of normal annual output due to a failure, so a price of normal annual output due to a failure, so a price correction was correction was made on an objective basis at 56 EUR / MWh. 2) made on an objective basis at 56 EUR / MWh. 2) After 2015, prices After 2015, prices have dropped in TE Kakanj, and now they are have dropped in TE Kakanj, and now they are below the HUPX below the HUPX Peak Peak Source: FERK Work Report 2015., RERS Work Report 2015, Source: FERK Work Report 2015., RERS Work Report 2015, ETF ETF Stanari, IEA HUPX DAM 2015 Report Stanari, IEA HUPX DAM 2015 Report, IEA, EEX
Considering the obligations related to CO2 emissions, Bosnia and Herzegovina may in the future enter the European CO2 emission trading system, which is based on Directive 2003/87/EC. If Bosnia and Herzegovina enters the trading system, the power plant generation price will be burdened with additional 5-6 EUR/MWh, considering the current emission prices of ~5 EUR/t. Although currently the price of emissions are on the record low levels, taking into account that the limit of permitted amounts of CO2 emissions will decrease in the forthcoming period, it may be expected that the CO2 prices will increase in the medium and long term. The said implications could thus reduce the Bosnia and Herzegovina’s thermal sector price competitiveness. It is also necessary to take into account the question of coal mines business sustainability and price interventions which prevent complete reflection of the coal production price on the final price of electrical energy (Figure 5.2.35). In addition, if we consider negative externalities or “hidden” costs of generation from TPPs like emission of harmful gases and dust that affect human health, this would lead to an increase of overall energy from conventional sources8.
5.2.7.4 Electricity consumption
One of the key input parameters in planning the power sector development is the assessment of movements in the electricity consumption. For the purpose of the electricity consumption assessment, the approach and logic used in the document was based on “ISO BIH Indicative Generation Development Plan, 2017-2026“. The applied methodology defined the elasticity coefficient – 0,59 between the GDP growth rate and electricity consumption growth rate, which at this point provides a sufficiently good base for further analyses. Still, considering that EU data indicate reduced correlation of the GDP rate and electricity consumption or even divergence, it is recommended that an in-depth analysis and more detailed assessments of scenarios of electricity consumption movements are made in the forthcoming period. Furthermore, for the purpose of the assessment of electricity consumption movements in Bosnia and Herzegovina until 2035, the GDP growth rate assumption of 3% a year10 during the period 2017 – 2035 was taken into account. Along with the elasticity coefficient of 0,5, that would lead to the average annual growth rate of electricity of 1.5%, in the medium scenario without the effects of the energy efficiency measures. The final effect of such rates would lead to the absolute consumption increase to 17,07 TWh in 2035. In addition, the assessment of electricity consumption with certain energy efficiency measures applied has also been made. During assessment along with the energy efficiency, the assumption of reduced consumption of -9%11 until 2035 was taken into account as a conservative minimum of realisation.
8 According to the "Study on the Need for Modernization of Large Combustion Plants in the Energy Community", a cost-benefit analysis of the externalities was made for electricity and heat generation from TPPs in three scenarios, considering costs of modernisation and reduction of SO2, NOx and dust. For Bosnia and Herzegovina, according to the first scenario, from Directive 2001/80 / EC, required investments in modernisation are 337 mil. EUR while total savings would amount to 25.254 mil. EUR. The second scenario takes the limits of Directive 2010/75 / EU, where investments would amount to 375 mil. EUR, while total savings amount to 26.426 mil. EUR. The third scenario involves the construction of new and modernisation of a part of existing facilities amounting to 945 mil. EUR, while the savings amount to 433 million EUR more than in the first scenario. 9 Correlation is based on the ISO Indicative Generation Plan 2017 - 2026. 10 Assumption based on consensus of the international analytics companies EIU, Dun&Bradstreet, Oxford Economics 11 The figure does not form an official goal under the energy efficiency measures, instead, it serves for sensitivity analysis of various generation mix development scenarios | 65
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Figure 5.2.36 Assessment of electricity consumption movement in Bosnia and Herzegovina, with and without EE, in TWh, 2017-2035
Source: Project Team analysis, EIU, Dun&Bradstreet, Oxford Economics, ISO BIH Indicative Generation Plan 2017-2026
5.2.7.5 Regional context
During development of the future generation portfolio, capacity development and generation growth in the region should also be taken into account, including the price dynamics on the market. Although realisation of the capacity dynamics in the region depends on a number of factors (e.g. due to low prices an investment may be ceased or prolonged, inability to close financial constructions, legal and ecological aspects, etc.), the fact is that, like Bosnia and Herzegovina, other countries also have ambitious development plans. For instance, it is expected that a nuclear power plant Paks 2 with capacity of 2.400 MW will be commissioned in Hungary in 2025 and its construction was approved by the European Commission. Additionally it is necessary to consider further EU market integration. Concretely, connection of Southeast Europe countries with subsea cables with Italy that will have an impact on future wholesale prices and generation capacity development12. Furthermore, although it is difficult to forecast the direction and dynamics of electricity prices movement on the markets in the region, low prices during the past several years constitute a certain risk for the future and should be put in the context when planning the new capital intensive projects. Stronger growth of wholesale prices would certainly form an environment which is slightly more favourable for investments.
Figure 5.2.37 Capacity development in the region and generation mix competitiveness in export
Source: Platts database, Project Team analysis
12 According to the document “SEE Electricity Market Perspectives until 2030. – Assessing the Impact of Regional Connections to Italy”, three scenarios are provided to assess the potential of SEE’s transmission network to withstand generation of various intensities, identify possible network congestion and suggest possible network enhancements
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Elaboration of scenarios for generation mix development for Bosnia and Herzegovina until 2035
5.2.8.1 Introduction and assumptions
By understanding the context, i.e. input parameters which significantly impact current and future investment decisions, this document elaborates on several different scenarios, i.e. indicative directions of power generation mix development. In order to understand the concept, the scenarios need to be interpreted in accordance with their goals: 1. The goal of power generation mix scenarios elaboration is to show a spectrum of various development options and policies, with indicative qualitative and quantitative effects (implications); 2. Selection of a specific scenario, combination, i.e. development direction for power generation mix until 2035, is a discretionary decision of energy policy-makers at entity and the level of Bosnia and Herzegovina, in accordance with current and future legal and regulatory obligations; 3. When developing scenarios, the goal is not to explicate nominate specific projects but to point out the share of a particular technology in electricity generation mix (coal, gas, hydro and other RES), as well as, possible quantitative and qualitative implications on key parameters and limitations (e.g. price competitiveness, coverage of domestic consumption, export potential, RES share, etc.) 4. Considering the substantial influence of thermal power plants on the generation mix, years of commission and decommission, according to most recent information, are explicitly shown. They are considered as one of the key assumptions for the scenario developments (which may be changed in the future); 5. The list of currently potential projects, containing indicative technical parameters, have been attached containing indicative technical parameters, and which could be implemented in accordance to selected strategic direction, on entity and the level of Bosnia and Herzegovina. Four substantially different indicative scenarios of generation mix development have been elaborated within this document, as well as the cogeneration scenario as an alternative option. The aim is to show understanding of various strategies and policies of the generation mix development and their indicative implications. The key stakeholders of the energy sector of Bosnia and Herzegovina should select a scenario or a combination of them which adequately addresses the energy sector vision, current and future legal and regulatory obligations and which enable sustainable and competitive system. More elaborated scenarios are the following: 1. Entity working group scenario or entity scenario which is based on the Republika Srpska and Federation of Bosnia and Herzegovina Working Group's inputs wherein the existing documents and relationship with current and potential investors and other stakeholders have been taken into account in the planning process. Since the scenario foresees a significant export of electricity surplus, special variant of scenario with electricity export limitation for thermal sector has been developed. For the Federation of Bosnia and Herzegovina, the limitation is 30% above domestic consumption and for Republika Srpska 70% above domestic consumption (excluding TPP Stanari which generates 2 TWh a year). The limit represent a hypothetical situation wherein the surplus of electricity cannot be exported in an entirely competitive manner. As a consequence, there is a decrease in export activity. 2. Second scenario is based on the Indicative plan (IP) 2017 – 2016, with the projection until 2035, and it represents generation mix framework according to nomination of various projects consolidated in ISO BIH report. The key goal of this scenario is to understand the implications on key parameters, in case of realisation of all investment decisions, according to ISO BIH, nominated by power utilities and other investors; 3. Cost optimised (IP) scenario is based on the generation mix development philosophy in accordance with the Indicative Plan, with certain corrections, primarily in the commissioning and/or decommissioning segment, as well as for the installed power of TPP Ugljevik from 600 MW to 300 MW; 4. Moderate renewable scenario stimulates higher share of renewable energy sources with energy efficiency measures as an alternative to other scenarios that are based on higher share of thermal sector. Although this scenario represents the most intense turnover in generation mix planning, it still highly relies on coal as dominant fuel source for electricity generation, having in mind the complexity of implementation of complete decarbonisation. Elaborated scenarios are the result of cooperation of the Federation of Bosnia and Herzegovina Working Group, Republika Srpska Working Group, Project Team's analysis and, partially, results of „BIH-Power Sector Note“, published by World Bank in 2017. The study was produced under the Levelised Cost of Electricity (LCOE) methodology in cooperation with key stakeholders of the energy sector of Bosnia and Herzegovina. According to the World Bank, key parameters pertain to year of commission and decommission of the most important power plants, and relay on other input parameters, such as fuel price, assessments of capital investment needs for new projects, operational costs, efficiency, etc. It is worth noting that, within assumptions, hydrology was planned conservatively and that the assumptions for CAPEX and OPEX, especially for RES projects, were made based on data from the utility company, as well as on global benchmark data. For this reason, there is a possibility that reported costs of construction and operation for power plants using RES are lower compared to today's actual cost in Bosnia and Herzegovina. However, on the other hand, they provide a cost structure framework for efficient planning and implementation and operational management of power plant, dominantly through operations and maintenance (O&M) costs. | 67
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The commission plan for RES power plants for Entity Scenario13 is based on Working Groups’ inputs and Project Team analysis for all technologies. In other scenarios, projection for WPPs are based on recommendations from “BIH-Power Sector Note” paper, while other technologies are based on input parameters from Working Groups and Project Considering that these options for generation mix are indicative and represent various development directions, it is suggested that next step should be more detailed elaboration od generation mix which shall, along with the cost competitiveness criteria, include additional criteria such as social aspect, movements of electricity prices, capacities in the region, RES incentive model strategy, cogeneration on power plant efficiency, etc. Cogeneration could additionally increase OPEX and price competitiveness efficiency of current and future thermal power plants, thus opening the possibility for the optimal year of commissioning to be earlier than predicted in elaborated scenarios. Decommissioning and commissioning of thermal facilities in both entities is shown in tables below (Table 5.2.7 i Table 5.2.8). In the Federation of Bosnia and Herzegovina, TPP Tuzla 6 and TPP Kakanj 7 will be operational after 2035. The Entity scenario assumes that in both units desulphurisation equipment will be installed, in accordance with EP BIH 2035 Strategic development plan that takes into consideration NERP for Bosnia and Herzegovina until 2035. The estimated value of equipment is additional ~105 million of euros of capital investments. It is assumed that, in other scenarios, there will be no control equipment installed in existing units due to cost efficiency and age, whereas for new thermal units this assumption is taken into consideration regardless of the scenario. Decommissioning is anticipated for other units, whereas the Entity scenario predicts somewhat earlier decommissioning related to other scenarios. Regarding the new planned thermal power plants in Entity scenario, commission of units Tuzla 7, Kakanj 8 and RiTE Kongora is based on EP BIH and EP HZHB development plans. Furthermore, the expected commissioning of private power plants is based on the assumptions made by the Federation of Bosnia and Herzegovina Working Group, whereby TPP Banovići is planned to be operational in 2025, while there is no planned commissioning for gas fired CHP Zenica due to current circumstances. As previously mentioned, IP scenario includes projects according to ISO BIH Indicative plan 2016 – 2027, with projections until 2035. Cost optimised scenario and moderate renewable scenario with energy efficiency predict later commissioning of thermal power plants or they do not take them into consideration at all. Regarding Tuzla 7 unit in mentioned scenarios, it is important to emphasize once more that it is based on LCOE methodology, and that other parameters such as cogeneration and existing customers on the district heating network were not taken into consideration. Additionally, since the Moderate renewable scenario does not foresee construction of Tuzla 7 unit, construction of biomass CHP is incorporated within the scenarios (110 MWe and 240 MWt installed power) as a potential alternative solution for Tuzla. In Republika Srpska, TPP Ugljevik will be operational under all scenarios until 2035 (because of repayment of a loan for desulphurisation equipment), the same as newly built TPP Stanari. In Entity scenario, TPP Gacko is replaced with new TPP Gacko 2 in 2024, or alternatively, is decommissioned 2031 in other scenarios. Additionally, commission of new TPP Ugljevik 3, with capacity of 600 MW or 300 MW, is planned in Cost optimised IP scenario. Moderate renewable scenario does not foresee commission of any new thermal power plant in Republika Srpska. Given that the scenarios are indicative, final decision on scenario or its combinations, should be made by the key energy sector stakeholders in Bosnia and Herzegovina in line with the vision of energy sector development.
Table 5.2.7 Decommissioning of existing thermal power plants
Moderate Power Indicative plan Cost optimised renewable Entity TPP Entity scenario (MW) (IP) IP scenario with EE Tuzla 3 90 2021 2024 2024 2024 Tuzla 4 180 2022 2024 2024 2024 Tuzla 5 180 2022 2030 2030 2030
FBIH Tuzla 6 200 >20351 >20352 >20352 >20352 Kakanj 5 100 2023 2024 2024 2024 Kakanj 6 100 2024 2027 2027 2027 Kakanj 7 208 >20351 >20352 >20352 >20352 Ugljevik 279 >2035 2035 >2035 >2035 RS Gacko 276 2024 2031 2031 2031 Stanari 263 >2035 >2035 >2035 >2035
Note: 1) Assumption of desulphurisation equipment installation value of 49 mil. EUR for Tuzla 6 and 46,5 mil. EUR for Kakanj 7, in accordance with EP BIH Strategic plan until 2035. Other scenarios do not take desulphurisation equipment into consideration due to cost efficiency and unit age. 2) Operational plans of Tuzla 6 and Kakanj 7, after 2035, are based on EP BIH inputs. Source: Republika Srpska Working Group, Federation of Bosnia and Herzegovina Group, World Bank – Power Sector Note 2016, Project Team analysis
13 The plan for generation and installed capacity has been elaborated in accordance with the NREAP until 2020 with the growth rate projection from 2020 to 2035 being the strategic view for sector development, in accordance with Working Groups’ inputs and Project Team analysis | 68
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Table 5.2.8 Commissioning of new thermal power plants
Moderate Power Indicative plan Cost optimised renewable Entity TPP Entity scenario (MW) (IP) IP scenario with EE Tuzla 7 450 2021 2020 2035* -* Kakanj 8 350 2024 2024 2024 2024
FBIH Banovići 350 2025 2020 2030 2028 Kongora 2x275 2026 - - - Zenica 385 - 2020 - -
Ugljevik 3 600 2022 2019 2025 - RS (300 MW) Gacko 2 350 2024 - - -
Note: According to the newest data from EP BIH, installed power capacity for Tuzla 7 is 450 MW and for Kakanj 8 350 MW. New projects require additional adjustment/development of grid infrastructure. In the context of the Ugljevik project, two blocks are being prepared, however, in the further course of the development it is necessary to consider possible reduction of the targeted installed capacity to 300 MW consistent with the needs of the Republika Srpska electric power sector and based on the investor’s assessment for market placement of the generated energy outside of Republika Srpska. In addition, the assumption is that in all scenarios, new thermal power plants will have local emission control equipment installed Source: Republika Srpska Working Group, Federation of Bosnia and Herzegovina Working Group, World Bank – Power Sector Note 2016, Project Team analysis
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5.2.8.2 Qualitative summary of indicative results for generation mix development scenarios in Bosnia and Herzegovina
A list of key strategic criteria, serving as guidelines for analysis and understanding of generation mix, is provided below including the breakdown of the quality results of individual scenarios, from which it is evident that scenarios provide accomplishment of different goals and implications (Table 5.2.9). Specifically, all scenarios achieve security of supply with its own generation at the level of Bosnia and Herzegovina. Export potential is highest in Entity scenario and IP scenario, where the lead initiator is the thermal sector. In cost optimised scenario and moderate renewable scenario with energy efficiency, surplus level has lower growth rate following projected consumption for Bosnia and Herzegovina. Price mix for Cost optimised scenario is the most favourable considering current market prices, which are at relatively low levels. The least favourable is the Entity scenario with export limitation above total domestic consumption, causing a decrease in utilisation ratio of thermal power plants and price increase due to fixed costs. IP scenario also has relatively high prices considering progressive construction of coal and gas fired plants. Other scenarios are moving towards relatively competitive price range in relation to current market prices.
Moderate renewable scenario has the biggest contribution to reduction of local and CO2 emissions, due to decreasing operation (dispatching) of old units and maximising operation of the new ones. Observing the contribution to reduce the local emission, improvement is significant in the Entity scenario due to replacement of old units and, additionally, installation of desulphurisation equipment in Tuzla 6 and Kakanj 7 units that are operational after 2035. Given that the additional expansion of thermal sector is planned, Entity scenario does not wholly contribute to overall reduction of local emissions. In case of entity scenario variant with export limitation, situation is significantly more favourable in terms of local and CO2 emissions due to reduced operation of thermal sector, but consequently with the highest cost of overall generation mix due to fixed costs of new power plants. Other scenarios are positioned low in meeting the criteria for reduction of local and CO2 emissions considering that there are no investments in control equipment for existing thermal units. Furthermore, ambitious plans are made for construction of new thermal power plants. For the RES share criteria in installed capacities, the increase in relation to current shares, is expected in all scenarios besides IP scenario. This trend is in line with planned construction of new hydro power plants and other RES power plants, especially WPPs. Along with the share of installed capacities and generation, positive impacts of RES should also be expected in the final electricity consumption structure. All scenarios require certain complexity in the implementation, particularly referring to a more progressive scenario of the Working groups (entity scenario) which requires considerable efforts in the preparation of the construction and project funding, wherein most of them should be implemented in relatively ambitious time frame. The situation is similar with the IP scenario, considering that objectively it is difficult to expect the accelerated realisation of the TPP Banovići, TPP Tuzla 7, TPP Ugljevik 3 and TPP-heat plant Zenica by 2020. Moderate renewable scenario also requires a certain difficulty in implementation considering that it requires larger coordination during construction of several hydro and other RES capacities, as well as the change in the philosophy towards clean energy and acknowledgement of a social aspect (primarily through restructuring of coal sector). The cost optimised scenario does not require a more progressive change of philosophy in the carbonisation context, while the construction timeline for new power plants moves after 2024/2025, leaving additional time for preparation and construction of the projects.
Table 5.2.9 Criteria and qualitative summary of scenarios of generation mix development
Source: World Bank BIH Power Sector Note 2016, Republika Srpska Working Group, Federation of Bosnia and Herzegovina Working Group, Project Team analysis
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5.2.8.3 Entity working group scenario
In 2016, total installed capacity in Bosnia and Herzegovina amounted to 4.055 MW, of which 46% are coal capacities, and other 54% are hydro and other incentivised RES capacities. Under this scenario, the installed capacity increase of 126% is reached by 2035, i.e. 5.129 MW including commissions and decommissions. Most facilities will be commissioned by 2025, with total capacity of 4.354 MW. During the same period, TPP Gacko in Republika Srpska, TPP Tuzla 3, 4 and 5 units as well as TPP Kakanj 5 and 6 units in the Federation of Bosnia and Herzegovina, are going to be decommissioned with total capacity of 926 MW. During the period 2025 – 2035, another 1.700 MW of capacities will be commissioned, with no additional decommissions. Share of hydro and other RES in the incentive system is expected to increase from 54% to 61% (Figure 5.2.38).
Figure 5.2.38 Installed capacity by technology in MW, 2016 – 2035 (entity scenario)
Source: Project Team analysis, entity Working Groups
Two variants of scenario have been developed for the Entity working group scenario: for generation without an export limitation, for generation with export limitation for thermal sector of 70% above domestic consumption for Republika Srpska (without TPP Stanari that generates 2 TWh a year), and of 30% above domestic consumption for the Federation of Bosnia and Herzegovina, with dispatch priority of HPPs and RES in the incentive system In the version without export limitation, new 5.128 MW of installed capacity would lead to ~100% larger generation of electricity in 2035 than in 2016. In that case, the surplus would amount to between 100% and 119% of consumption, depending if energy efficiency measure are applied or not. In the following years, according to the scenario, similar ratios of generation from coal would be retained, while RES share would significantly increase (from 2% in 2016 to 14% in 2035) (Figure 5.2.39)
Figure 5.2.39 Electricity generation movement in variant without export limitation in TWh, 2016 - 2035 (entity scenario)
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In case of export limitation for Republika Srpska and the Federation of Bosnia and Herzegovina, as mentioned earlier, the amount of generation would increase by 57% in relation to 2016. Relative share of generation from coal would decrease from 64% to 51% in 2035, while consequently generation share from all RES would increase. Surplus would without energy efficiency measures amount to 51%, and 66% of domestic consumption with energy efficiency measures (Figure 5.2.40).
Figure 5.2.40 Electricity generation movement in variant with export limitation in TWh, 2016 2035 (entity scenario)
Note: 1) Excluding TPP Stanari which has no export limitation Source: Project Team analysis, entity Working Groups
5.2.8.4 Indicative plan (IP) scenario
An adjusted ISO BIH indicative development plan foresees the growth of total installed capacity, as well as the share of renewable energy sources. According to the plan, 2.283 MW of new capacity should be installed by 2025, most of which using coal, as well as 350 MW of capacity using gas (CHP Zenica). After 2025, additional 602 MW of new RES facilities will be commissioned. The amount of installed capacity would be 6.338 MW in 2035, therefore, compared to 2016, 56% increase would be registered. A relative share of large hydro power plants would be relatively diminished, falling from the current 52% to 38%, however, a share of electric power plants using other renewable energy sources would considerably increase, from 3% to planned 14% (Figure 5.2.41).
Figure 5.2.41 Installed capacity by technology in MW, 2016 – 2035 (IP scenario)
Source: World Bank – Power Sector Note 2016, ISO BIH Indicative development plan 2016.2027, Project Team analysis
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With regard to generation, 79% increase has been planned by 2035, which means that the amount of electricity generated would be 29,5 TWh. TPPs using coal would still be dominant, with a share of 66&. A share of total renewable energy sources (large and small HPP jointly and other RES) would amount to about 28%. In this scenario, surplus would increase from, current 28% to ~ 72% - 90% of domestic consumption (Figure 5.2.42).
Figure 5.2.42 Electricity generation movement in TWh, 2016 2035 (IP scenario)
Source: World Bank – Power Sector Note 2016, Project Team analysis
5.2.8.5 Cost optimised IP scenario
According to the cost optimised IP scenario, the emphasis is on the later construction of coal-fired TPPs (after 2025) and there are no plans for gas-fired power plants. Until 2025, 1.385 MW of newly installed capacity will be commissioned, while 370 MW will be decommissioned. In the period 2025 – 2035, 800 MW of coal-fired TPPs will be commissioned. In the same period, 316 MW from hydro and other RES will be commissioned as well. Total installed capacity would amount to 5.440 MW by 2035, which will lead to an increase by 34% compared to 2016 (Figure 5.2.43).
Figure 5.2.43 Installed capacity by technology in MW, 2016 – 2035 (Cost optimised IP scenario)
Source: World Bank – Power Sector Note 2016, Project Team analysis
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Due to the installed capacity increase, production will also increase. Until 2035, generation would increase by 53% compared to 2016. Coal will keep its dominance in the generation structure participating with more than 70%. With the planned amount of generation, surplus should gradually increase to a level of ~ 48 – 62% (Figure 5.2.44).
Figure 5.2.44 Electricity generation movement in TWh, 2016 2035 (Cost optimise IP scenario)
Source: World Bank – Power Sector Note 2016, Project Team analysis
5.2.8.6 Moderate renewable scenario with energy efficiency
This scenario changes the structure of the generation portfolio compared to the before mentioned scenarios in a manner to considerably promote the renewable energy sources, while thermal sector still has satisfying significance. Until 2035, total installed capacity would increase by 34%. According to plan 869 MW from RES and ~750 MW of large HPPs should be commissioned. Coal-fired TPPs of 926 MW will be decommissioned, while on the other hand 700 MW of new TPPs will be commissioned. A share of installed renewable energy sources will amount to 70% of total installed capacities (Figure 5.2.45).
Figure 5.2.45 Installed capacity by technology in MW, 2016 – 2035 (Moderate renewable scenario with EE)
Source: World Bank - Power Sector Note 2016, Project Team analysis
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Under this scenario, the amount of generated electricity in 2035 will increase by approximately 3 TWh, and will amount to 19,4 TWh in 2035. TPPs share should decrease to 48%, which still represents relatively important role of thermal sector. The development of generation mix would develop with similar dynamics as the expected consumption growth. The scenario would meet the criteria for the security of domestic supply. With regard to the surplus, it would decrease from current 28% to 14% by 2035. In case of application of energy efficiency measures, the surplus would decrease only by 3 percentage points (Figure 5.2.46).
Figure 5.2.46 Electricity generation movement in TWh, 2016 2035 (Moderate renewable scenario with EE)
Source: World Bank – Power Sector Note 2016, Project Team analysis
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5.2.8.7 Summary of scenarios
The text below contains a summary of the indicative scenarios’ results which provide clear implications and key effects of the generation mix development at the strategic level. It should be emphasized that out of all elaborated indicative scenarios, Moderate renewable scenario is the only one compliant with Energy Community guidelines. In upcoming period, Bosnia and Herzegovina policy makers are to decide on the final generation mix scenario which should be compliant with current and future Bosnia and Herzegovina obligations towards Energy community and EU, but in the same time consider wider context of Bosnia and Hercegovina, associated risks, benefits and implementation factors. From the perspective of quantitative outputs, the largest capital investment has been assessed for the Entity scenario, ranging from 8,6 to 10,5 billion of euros while the amount of capital investments for other scenarios is about half as much as the foregoing amount. Due to the very progressive investment plan, it may be expected that the largest amount of electricity will be generated in the entity scenario, along with securing an extremely high export potential and affordable price comparing to current market prices. However, if export limitations for thermal sector were taken into account that would result in the largest generation price of 48 - 53 EUR/MWh. The lowest price range is foreseen in the cost optimised scenario, from 341 to 44 EUR/MWh. As already stated in the individual analyses of each scenario, domestic consumption would be satisfied, as well as a surplus for Bosnia and Herzegovina. Specifically, this refers to entity scenario and IP scenario, where a significant surplus for export would be achieved that would cumulatively range between 80% and 90% of domestic consumption for entity scenario and between 50% and 60% of domestic consumption for IP scenario. Somewhat lower surplus would be expected in cost optimised scenarios, between 30% and 40%, while the lowest surplus is expected in moderate renewable scenario, ranging from 23% to 33% of domestic consumption. Regarding RES in installed capacities, a higher share of RES and hydro capacity is predicted for all scenarios, compared to current shares (57% - 62%) except for the IP scenario where hydro and RES share would amount to 46%. High share of electricity generated from hydro and other RES potentials, form 43% to 50%, would be achieved in moderate renewable scenario, given that the scenario does not consider construction of new thermal capacities. The situation is similar with the entity scenario with export limitation (43% - 50% RES share in total generation). However, due to lower thermal sector utilisation, the price is consequentially higher. All scenarios, including even the moderate renewable scenario, continue emphasising importance of coal as the electricity generation fuel. Considering the largest capital investments are made into the thermal sector, the assumption is that most of coal will be used under the entity scenario without export limitation (total of 330 – 358 million tonnes of coal) and in IP scenario (300 – 322 million tonnes) in the reviewed period. Although the least quantity of coal is expected to be used in the moderate renewable scenario, with the estimated cumulative consumption of ~180 - 199 million tonnes, coal still has a relatively important role in the electricity generation mix (Table 5.2.10).
Table 5.2.10 Key effects of the generation mix development, 2016 – 2035
Average CAPEX Cumulative Average % Cumulative generation Cumulative Average % interval for export as % of RES in coal 14 price without generation RES in total new facilities domestic installed consumption CO2 (TWh) generation16 (billion EUR) consumption capacity (mil tonnes) (EUR/MWh)15 Entity scenario (without export 8.6 – 10.5 44 – 48 480 – 590 80% - 90% 59% 35% - 40% 330 – 358 limitation)
Entity scenario (with export 8.6 – 10.5 48 – 53 390 – 480 40% - 50% 59% 43% - 50% 230 – 250 limitation)
Indicative plan 4.3 – 5.2 46 – 52 410 – 500 50% - 60% 46% 29% - 40% 300 – 322 (IP)
Cost optimised 3.9 – 4.8 41 – 44 360 – 440 30% - 40% 57% 33% - 40% 260 – 278 IP
Moderate renewable 3.2 – 3.9 40 – 47 320 - 390 23% - 33% 62% 43% - 50% 180 – 199 scenario with EE Source: World Bank – Power Sector Note 2016, entity Working Groups, Project Team analysis
14 Refers to estimated total capital investments for new projects that start within reviewed period 15 CAPEX and OPEX are based on comparison with good industrial practices 16 If the export structure contains an equal share of electricity generated from all energy sources | 76
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Additionally, an estimate of the thermal sector impact on reduction of CO2 and local mission at the level of Bosnia and Herzegovina has been made (Figure 5.2.47). As previously mentioned in entity working group scenario, in Kakanj 7 and Tuzla 7 control equipment for local emissions will be installed, while Ugljevik already has built-in mentioned equipment in all scenarios (for which it repays a credit line). In other scenarios, except for entity scenario, it is assumed that in the existing thermal units control equipment will not be installed due to cost efficiency and age. For new thermal units the said assumption is taken into consideration regardless of the scenario, given that the main goal of energy policy creators is to create greater awareness for environmental concern, in accordance with good EU practices. According to estimated results, largest cumulative increase in CO2 emissions is expected in the variant of Entity working group scenario without export limitation and IP scenario. In cost optimised scenario, CO2 emission impact is somewhat smaller. In entity scenario variant with export limitation, there is higher contribution to reduction of emission due to lower utilisation level of thermal power plants. Lowest values of emissions in thermal sector are expected in moderate renewable scenario with energy efficiency due to most conservative assumptions on constructing and generating electricity from new thermal power plants in Bosnia and Herzegovina.
Regarding local emission (SO2, NOx and solid particles), contribution of installing control equipment in Kakanj 7 and Tuzla 6 is significantly positive when considering total contribution on the Bosnia and Herzegovina level. Since the assumption in other scenarios is that control equipment will not be installed in the existing units, values are consequently much higher. Highest values of local emission are in cost optimised IP scenario, considering that older units are operational for longer time period, until the new ones are being built. In IP scenario, commissioning date for most new efficient power plants (with control equipment) is by 2025 and their contribution is more expressed in time. Consequently, local emission are lower. Although there is an assumption that no control equipment will be installed in moderate renewable scenario, operation (dispatch) of existing units is decreased and maximised for new ones in order to reach goals set in NERP until 2028 and beyond. Comparing moderate renewable scenario with EE (which reaches goals set in NERP until 2028) and entity scenario which assumes control equipment installation (Kakanj 7 and Tuzla 6), it is clear that benefits of local emission reduction are much bigger in entity scenario despite greater expansion of thermal sector. If there is an assumption that, in all scenarios, control equipment for existing units is installed (and not just in entity scenario), the benefits would be much more significant (especially for SO2 reduction). It is, therefore, necessary to consider all risks and benefits of installing control equipment in existing units that need to be modernised or to consider the need for more efficient power plants in Bosnia and Herzegovina.
Figure 5.2.47 Assessment of total CO2 and local emission for thermal sector by each scenario at the level of Bosnia and Herzegovina, cumulative, 2016 - 2035
Source: World Bank Power Sector Note 2016, Project Team analysis
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5.2.8.8 List of potential projects for new power plants
A list of the key (possible) future power plants and their indicative technical characteristics17 is presented below. It serves as a list of possible planned projects. Implementation of prospective new projects should be planned and performed in accordance with the existing and future Action Plans, EU/EC obligations and long-term sustainability for Bosnia and Herzegovina and entities (Table 5.2.11 i Table 5.2.12).
Table 5.2.11 List of potential new larger projects in the Federation of Bosnia and Herzegovina
Installed Planned Indicative Indicative # Type Facility power generation CAPEX year of (MW) (GWh/year) (mil. EUR) commission 1 Coal TPP Tuzla 7 450 2.650 820 2020-2035 2 Coal TPP Kakanj 8 350 2.000 520 2024-2028 3 Coal TPP Banovići 350 2.200 525 2020-2030 4 Coal TPP Kongora 2x275 3.000 1.100 2025-2035 5 Gas CHP Zenica 385 3.250 380 2020-2035 6 Hydro HPP Vranduk 20 95 70 2019-2023 7 Hydro HPP Ustikolina 59 240 90 2022-2030 8 Hydro HPP Glavatićevo 28 100 60 2030-2034 9 Hydro HPP Han Skela 12 50,78 29 2022-2028 10 Hydro HPP Vrletna Kosa 11,2 22,54 6,93 2022-2028 11 Hydro HPP Bjelimići 100 220 140 2023-2035 12 Hydro HPP Janjići 13 80 55 2021-2028 13 Hydro HPP Kovanići 10 45 40 2025-2028 14 Hydro HPP Babino Selo 5 25 30 2023-2026 15 Hydro HPP Neretvica I 9 40 20 2017-2019 16 Hydro HPP Neretvica II 15 50 30 2023-2025 17 Hydro HPP Una Kostela 6 20 12 2018-2020 18 Hydro PSHPP Vrilo 66 196,13 89,11 2020-2023 19 Hydro PSHPP Kablić 52 73,13 58,42 2020-2027 20 Hydro HPP Ugar Ušće 11,6 33,19 12,87 2020-2023 21 Hydro HPP Ivik 11,1 21,88 6,93 2020-2026 22 Hydro Small HPPs on Cetina 13,1 32,68 23,37 2024-2035 23 Biomass CHP plant1 1102 800 140 2022-2024 24 Wind WPP Mesihovina 50,6 165,17 81 2017-2018 25 Wind WPP Poklečani 72 258,6 108 2020-2025 26 Wind WPP Velika Vlajna 32 89,36 52,72 2023-2028 27 Wind WPP Borova Glava 52 149,62 78 2026-2030 28 Wind WPP Podveležje 48 120 70 2018-2019 29 Wind WPP Vlašić 48 120 70 2021-2025 30 Wind WPP Bitovinja 54 145 80 2027-2035 31 Wind WPP Zukića Kosa 15 35 25 2028-2035 32 Wind WPP Medveđak 40 95 60 2031-2035+ 33 Wind WPP Rostovo 20 50 30 2033-2035+ 34 Wind WPP Borisavac 48 115 70 2035-2035+
Note: all other types of RES technologies are shown as indicative goals until 2035 in chapter on renewable energy sources; The river Ugar is on the line of delimitation of the entity 1) Planned CHP plant is a possible option for heating, as well for generating electricity in moderate renewable scenario considering planned decommissioning of existing units 2) 110 MWe + max. 240 MWt Source: Federation of Bosnia and Herzegovina Working Group, Project Team analysis
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Table 5.2.12 List of potential new larger projects in the Republika Srpska
Installed Planned Indicative Indicative # Type Facility power generation CAPEX year of (MW) (GWh/year) (mil. EUR) commission 1 Coal TPP Ugljevik 3 600 4.000 850 2019-2025 2 Coal TPP Gacko 2 350 2.000 460 2024-2025 251 + 265 3 Hydro HPP Dabar 159,15 (downstream 177,56 2020-2022 effect) 4 Hydro HPP Nevesinje 60 100,60 97,40 2023-2028 5 Hydro HPP Buk Bijela 93,52 332,30 193,42 2022-2024 6 Hydro RHPP Buk Bijela 600 1.164,85 376,10 2022-2030 7 Hydro HPP Foča 44,15 175,9 118,87 2024-2028 HPP Dubrovnik 2 (RS 8 Hydro 152 159,20 84,32 2021-2030 part) 9 Hydro HPP Sutjeska 44,08 95,62 138,66 2024-2028 10 Hydro HPP Paunci 43,21 166,90 125,34 2024-2028 11 Hydro HPP Rogačica (RS part) 56,64 206,71 121,63 2025-2030 12 Hydro HPP Tegare (RS part) 60,47 224,02 140,97 2025-2028 13 Hydro HPP Doboj 8,39 36,8 36,42 2021-2028 14 Hydro HPP Bileća 33 116,40 48,26 2021-2028 15 Hydro HPP Cijevna 1 14,1 67,7 36,49 2021-2028 16 Hydro HPP Cijevna 2 14,2 69,6 35,70 2021-2028 17 Hydro HPP Cijevna 3 13,9 69,0 42,39 2021-2028 18 Hydro HPP Cijevna 4 13,9 69,9 42,42 2021-2028 19 Hydro HPP Cijevna 5 13,2 62,4 n/a 2021-2028 20 Hydro HPP Cijevna 6 12,9 63,1 n/a 2021-2028 21 Hydro HPP Ulog 35 100 60 2017-2020 22 Hydro HPP Mrsovo 43 123 85 2017-2020 23 Hydro HPP Cehotina 18 80 40 2021-2028 24 Hydro HPP Kozluk (RS part) 44,25 188 153,02 2025-2035 25 Hydro HPP Drina I (RS part) 43,85 181,85 144,89 2025-2035 26 Hydro HPP Drina II (RS part) 43,90 189,90 166,02 2025-2035 27 Hydro HPP Drina III (RS part) 50,5 234,55 215,61 2025-2035 28 Hydro HPP Dubravica (RS part) 43,61 167,74 172,46 2025-2035 29 Hydro HPP Trn 21,42 89,09 72,17 2025-2035 30 Hydro HPP Laktaši 21,42 92,99 103,14 2025-2035 31 Hydro HPP Kosjerevo 21,42 93,05 128,93 2025-2035 32 Hydro HPP Razboj 21,42 92,02 13,330 2025-2035 33 Hydro HPP Dub 9 20 12 2018-2018 34 Hydro HPP Bočac II 8,76 41,6 n/a n/a 35 Hydro HPP Novoselija 16,4 69,98 n/a n/a 36 Wind VPP Trusina 51 160 65 2018-2020 37 Wind VPP Hrgud 48 126 64,29 2019-2021 38 Wind VPP Grebak 48 110 65 2031-2035
Note: all other types of RES technologies are shown as indicative goals until 2035 in chapter on renewable energy sources Source: Republika Srpska Working Group, Project Team analysis
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5.2.8.9 Indicative (alternative) option – cogeneration scenario
The following text provides an indicative analysis and comment on the alternative approach to reaching a stronger renewable scenario, based on the idea of intensive utilisation of cogeneration plants using biomass (and dual-fuel), which would dominantly replace the existing coal-based thermal power plants. The referenced scenario has not been thoroughly elaborated as was the case with other scenarios. Instead, it underwent a higher level of qualitative and quantitative elaboration. A cogeneration renewable scenario requires a very complex implementation and a number of conditions to be met so as to make the scenario sustainable in long-term. The goal of the referenced scenario, which strives towards the total energy system decarbonisation, is to present an option which may be, if not dominant, at least a part of the future elaboration of the generation mix development for Bosnia and Herzegovina. Plants for cogeneration (electricity and heat) using biomass must be economically competitive to the existing systems using coal as fuel. According to the European Directive on energy efficiency, the states must assess the potential for cogeneration of electrical and heat energy, as well as remote heating and cooling. Efficient cogeneration requires that the power plant is located in the close vicinity of the area in which produced heat is being used. Also, the plant construction cost must be minimal thus requiring utilisation of the existing heat plants. Considering small population density and a small number of urban centres, the possibility of introducing biomass cogeneration exists in Tuzla and Kakanj in the Federation of Bosnia and Herzegovina and in Banja Luka and Bijeljina in Republika Srpska. In case of construction of planned units in mentioned cities, whose capacity is 260 MWe and 240 MWt, (1-2 units in Tuzla and 2-3 units in Kakanj), the estimation for needed fuel per year has been made (Table 5.2.13).
Table 5.2.13 Required amount of fuel needed for optimal TPP-heat plant portfolio (indicative)
Electricity generation Heat generation Maximum annual Maximum required Power plant capacity (MWe) capacity (MWt) electricity gen. (GWhe) quantity of fuel (GWhf)
Tuzla 160-320 480 2.400 6.000
FBIH Kakanj 320-480 720 3.600 9.000
Banja Luka 160 240 1.200 3.000
RS Bijeljina 160 240 1.200 3.000 Total 800-1.120 1.680 8.400 21.000 Source: Project Team analysis
With regard to Banja Luka, designing and construction of a cogeneration plant may start immediately, which would ensure commissioning in late 2022, and eventually second unit in late 2023. During construction of this plant, it is necessary to build and develop a heat network as well. There is the possibility for the grid to be spread throughout Tuzla and also to connect Lukavac, Živinice and other surrounding settlements. The construction of new biomass units in Kakanj also implies grid expansion and modernisation of heat network, as well as connection of Zenica and surrounding settlements. For mentioned area, two units using biomass should be built in TPP Kakanj. Designing and construction of units may start immediately, which would ensure commissioning of the first unit in 2022, and of the second unit in 2023. There is a possibility to connect Sarajevo with steam pipeline and, in that case, a construction of third unit in TPP Kakanj would be necessary. The problem of the construction of mentioned unit is the lack of space in the existing power plant, so old blocks would have to be removed in order to build new ones. Planned period for the realisation of the projects is in late 2026, which corresponds to dynamics of heat network expansion. With regard to Banja Luka, designing and construction of a cogeneration plant may start immediately, which would ensure commissioning in late 2021. There is the possibility for the grid to be spread throughout Banja Luka and also to connect Laktaši, Čelinac and other surrounding settlements. As for Bijeljina, spatial plans should be produced and transport system developed and, as a consequence, possible commissioning of the said power plant is to take place not earlier than in 2026. Also, it is necessary to develop the poplar tree plantations to secure the cogeneration fuel supply. The most convenient locations for the cogeneration plants are those within the existing power plant Ugljevik or in the area surrounding Bijeljina. Market for heat generated in cogeneration potentially consist of Bijeljina, Novi Dvorovi, Banja Dvorovi, Popovi, Janja, Ugljevik and larger economic entities such as greenhouse manufactures and fish ponds. Assessment of the anticipated generation of electricity and heat has been made according to electricity and thermal capacity of the cogeneration plant and according to the market size (Table 5.2.14). Apart from consumption of heat by physical persons and legal entities for heating premises and hot water preparation, heat may also be used for biomass drying, thus increasing its quality and utilisation efficiency.
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Table 5.2.14: Expected electricity and heat generation (indicative)
Expected electricity generation Expected generation of Expected gen. of heat used for Power plant (GWhe/year) commercial heat (GWht/year) biomass drying (GWht/year)
Tuzla B1 192 2.200 1.000 Tuzla B2 192
Kakanj B1 1.100 530 192
FBIH Kakanj B2 1.100 530 192 Kakanj B3 1.100 530 192
Banja Luka 1.100 530 192
RS Bijeljina 1.100 400 192 Total 7.700 3.520 1.344 Source: Project Team analysis
Cogeneration renewable scenario replaces coal-fired cogeneration of electricity and heat with biomass-fired cogeneration, which is considered to be a “carbon neutral” source. Switching to biomass, CO2 emissions resulting from coal combustion are totally eliminated. Along with coal combustion emissions developed in the energy generation process, CO2 emissions from transport fuels used in coal mines shall also be eliminated, but fuel combustion emissions produce during forest works and transport of biomass shall increase. Considering that with regard to biomass, the quantity of transported material is about 6 times smaller but transport distance is slightly longer, with better efficiency of internal combustion engines and electrification of a part of transport, emissions resulting from fuel combustion in transport can be considered to be equivalent. Bosnia and Herzegovina has a potential of afforestation of about 99.000 ha of devastated and waste land. Afforestation in the said areas shall result in CO2 sequestration of about 2,1 MtCO2/year over a four-year period. During these 4 years, before first cutting, total CO2 sequestration shall amount to about 8,4 MtCO2, thereafter sequestration stops and the CO2 balance shall keep being around zero. The elaborated scenario shall secure the heat system spreading to the settlements in the vicinity of the planned thermal systems, thus considerably replacing non-efficient individual heating systems with much more efficient heat systems.
5.2.8.10 Other
In the considered period of this paper, Bosnia and Herzegovina has no plans in using nuclear power plants for electricity generation. Therefore, construction of nuclear power plants was not planned for the considered period. Bosnia and Herzegovina is a member of International Atomic Energy Agency (IAEA) since 1995, and regularly participates in multilateral and safeguard agreements. In accordance with stated IAEA agreements, as well as European standards, Bosnia and Herzegovina has established a policy on nuclear safety and radiation protection. The policy on the Safety of Ionizing Radiation Sources should ensure the protection of people and the environment from the harmful effects of ionizing radiation. It should also establish a regulatory framework for activities of State Regulatory Agency for Radiation and Nuclear Safety. It is of primary importance to advance radiation protection in medicine, where more than 9.000 people in five major hospitals are exposed to radiation. For the purpose of regular use of ionizing radiation without affecting human health and environment, the State Regulatory Agency for Radiation and Nuclear Safety has adopted the Strategy of radioactive waste managements in Bosnia and Herzegovina. The goal is to establish a centralized approach to radioactive waste management, which implies the storage of radioactive waste in a single storage facility for the territory of Bosnia and Herzegovina. By 2020, Bosnia and Herzegovina will completely harmonise regulatory framework for nuclear energy with EU Directives that include the following: Council Directive 2011/70/EURATOM in establishing a Community framework for the responsible and safe management of spent fuel and radioactive waste, Directive 2013/59/EURATOM on laying down basic safety standards for protection against the dangers from exposure to ionising radiation, Council Directive 2006/117/EURATOM on the supervision and control of shipments of radioactive waste and spent fuel, Directive 2009/71/EURATOM and Council Directive 2014/87/EURATOM amending Directive 2009/71/EURATOM establishing a Community framework for the nuclear safety on nuclear installation, as well as Council Directive 2013/51/EURATOM laying down requirements for the protection of the health of the general public with regard to radioactive substances in water intended for human consumption.
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Regulatory and institutional framework
5.2.9.1 Level of Bosnia and Herzegovina
Institutions at the level of Bosnia and Herzegovina are responsible for transmission of electricity. According to the provisions of the Law on Transmission of Electric Power, Regulator and System Operator of Bosnia and Herzegovina: Regulation is performed by: State Electricity Regulatory Commission System is maintained by: Independent System Operator Transmission network and assets management is performed by: Elektroprijenos of Bosnia and Herzegovina Policy-maker: Ministry of Foreign Trade and Economic Relations.
By 2020, Bosnia and Herzegovina will completely harmonise regulatory framework for nuclear energy with EU Directives
5.2.9.1.1 State Electricity Regulatory Commission (SERC)
SERC has jurisdiction over and responsibility for transmission of electricity, transmission system operation, international trade in electricity as well as generation, distribution and supply of electricity for customers in Brčko District of Bosnia and Herzegovina, in accordance with international norms and the European Union standards. The SERC’s jurisdiction includes: 1) issuance, modification, suspension, revocation, and monitoring of and enforcing compliance with licenses within its jurisdiction; 2) regulating, approving and monitoring tariffs and tariff methodologies for transmission services, ancillary services and operation of the Independent System Operator (ISO BIH), as well as supplying electricity customers in Brčko District of Bosnia and Herzegovina; 3) issuance of rules and regulations within its competency, including revision and approval of market rules and grid codes, and terms and conditions for connection and access to network; 4) establishment, monitoring and enforcement of rules related to fair and non-discriminatory third party access to the transmission network; 5) monitoring and enforcement of conditions related to international trade in electricity, in particular ensuring that international technical requirements are met and adhered to; 6) establishing, monitoring and enforcing quality standards for electricity transmission and ancillary services; 7) coordinating and approving investment plans of the company for transmission of electricity, including the plans related to the transmission network and the quality of electricity transmission; 8) monitoring of the efficiency of mechanisms and methods securing the system balance between demand and supply of electricity; 9) consumer protection ensuring: fair and non-discriminatory treatment, high-quality services, competition and the prevention of anti-competitive activity; 10) resolution of disputes among system users, in accordance with regulatory powers and applicable laws at the level of Bosnia and Herzegovina; 11) creation and maintenance of competitive markets when practicable, and prevention of any anti-competitive conduct; 12) approving mechanisms for dealing with congestions of the electricity transmission system capacities; 13) regulation of standards of service, codes of conduct and accounting requirements for licensees; 14) issuance of annual reports and other public information about the SERC.
SERC approves the Indicative Generation Development Plan and the Long-term Transmission Network Development Plan for Bosnia and Herzegovina that are made on an annual basis for a ten-year period. The Indicative Plan informs current and future users of electric energy system about the needs and the existing projects of construction of new production capacity. The Long-term Plan defines the needs for reinforcements of the existing and construction of new transmission network facilities, covering the issue of new cross-border lines.
SERC’s decisions are public and are published in the Official Gazettes of Bosnia and Herzegovina, Federation of Bosnia and Herzegovina and Republika Srpska.
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5.2.9.1.2 Independent System Operator in Bosnia and Herzegovina (ISO BIH)
The Law on the Establishment of Independent System Operator of Bosnia and Herzegovina established the ISO BIH, whose competence and function is to manage the electricity transmission system in Bosnia and Herzegovina in order to secure continued electricity supply under the defined quality standards. ISO BIH is a non-profitable company owned by the entities, Republika Srpska and Federation of Bosnia and Herzegovina, which operates throughout Bosnia and Herzegovina.
ISO BIH competence and authorisations include the following: 1. managing the work of all high voltage transmission facilities in Bosnia and Herzegovina at voltage level of 110 kV or above, 2. issue the dispatching instructions to producers and importers, 3. managing the central control centre devices and assets and any remote control device, 4. managing the balancing energy market in Bosnia and Herzegovina, 5. obtaining ancillary services and offering system services, 6. preparation, modification and implementation of reliability standards, market rules and network code, 7. securing non-discriminatory conduct towards the system users, 8. development and distribution of invoices as specified in the ISO BIH Tariff Statute, based on ISO BIH system operating costs and for the balance market transactions, 9. coordination and approval of planned interruptions in transmission and power plants and coordination and approval of modifications in the interruption schedules, 10. review, approval, direct audit and publication of a long-term transmission development plan submitted by Elektroprijenos, 11. defining an indicative production development plan with data provided by producers, distribution companies and end users directly connected to the transmission system, 12. defining a relevant business policy and rules for handling the confidential information, which is subject of SERC audit, 13. preparation of annual and three-month reports on functioning of the transmission system and electricity balance market.
A network code which is prepared and adopted by ISO BIH and approved by SERC: a) defines minimum technical and operational requirements for connection to electric power system of directly connected generation units, and customers directly connected to transmission network and distribution systems within Bosnia and Herzegovina, b) defines the operating procedures and principles of mutual relations between ISO BIH, Elektroprijenos of Bosnia and Herzegovina and transmission network users in Bosnia and Herzegovina, under the normal and disturbed conditions of work of the electric energy system (EES), c) aims at enabling the transmission network maintenance and management in accordance with the ENTSO rules and positive European practice in this field d) it is connected to and harmonised with the market rules and relevant Books of Rules pertaining to connection to and utilisation of the transmission network of Bosnia and Herzegovina e) defines in more detail the ISO BIH’s competence and authorisation for the following activities: • supervision over and management of the transmission network functioning in Bosnia and Herzegovina, at the voltage levels of 400, 220 and 110 kV. ISO BIH may transfer the managing functions for certain transmission network elements to Elektroprijenos by a special agreement; • remote control of devices required for the management of the transmission network operation in real time; • remote reading of measuring devices required for the balance market and settlement management; • issuing instructions to parties responsible for the balance towards meeting the planned exchange and imbalance annulment programme; • harmonisation and approval of planned exclusion of transmission network elements and production facilities; • approval and control of transmission network transit, adhering to technical limitations; • communication, exchange of data and coordination of all activities with the neighbouring system operators, ENTSO-E of the control block and ENTSO-E; • review, approval, direct revision and publication of the Long-term Transmission Network Development Plan; • preparation, that is, establishment of an Indicative Production Development Plan; • procurement of ancillary services and provision of system services.
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f) prescribes that any activity directly connected to 110/x kV transformers falls within the competence of Elektroprijenos, g) ISO BIH and Elektroprijenos to cooperate and coordinate activities related to any issue concerning the implementation and enforcement of law and the Network Code, and to other issues related to efficient functioning, maintenance, development and spreading of transmission network, h) for all technical requirements which are not explicitly defined by the Network Code, ISO BIH may refer to international standards and recommendations
ISO BIH also prepares the Market Rules which are to be approved by SERC, and which cover the economic aspects of work and management of the electric power system and which, among other things, define the following: • role, rights and obligations of participants in the electricity market in Bosnia and Herzegovina • method of daily schedule nomination and re-nomination and the contract notification procedures • method of calculation of electricity injected and taken over in the network, • balance responsibility, • market aspects of procurement, activation and calculation of ancillary services • method of defining the imbalance price • calculation of imbalance and imbalance costs of balance-responsible parties.
The Market Rules are primarily aimed at having a safe and reliable electric power system in Bosnia and Herzegovina, through an efficient and cost-effective system of supporting services and balance market, and through creation of conditions for further development of wholesale and retail electricity market in Bosnia and Herzegovina. Basic principles of the Market Rules are: • market aspects of balancing of the electric power system in Bosnia and Herzegovina and procurement of a services • equal and non-discriminatory treatment of all market participants, • transparency.
ISO BIH is prohibited from performing, in any manner possible, the activities which include generation, supply, trading in or distribution of electricity, or from performing any other activity. The ISO BIH functioning is regulated by SERC.
5.2.9.1.3 Elektroprijenos of Bosnia and Herzegovina
"Elektroprenos-Elektroprijenos BiH" a.d. Banja Luka was established by the Law on Establishing the Company for the Transmission of Electric Power in Bosnia and Herzegovina in March of 2004 and was created from power companies in Bosnia and Herzegovina.by transferring the assets, liabilities and ownership rights over the property necessary for the transmission of electric power and activities related to the transmission. The goal was to create conditions for unlimited and free trading as well as continuous supply of electricity in Bosnia and Herzegovina. Legally, Elektroprijenos holds a natural monopoly on the market and its work is regulated by SERC. The Company deals with the transmission of electric power and everything else related to the transmission of electric power, which includes, but it's not limited to, the transmission of electric power, maintenance, construction and development of electric power network in Bosnia and Herzegovina. Objectives defined by Law on Establishing the Company for the Transmission of Electric Power in Bosnia and Herzegovina are: provision of continuous electricity supply by defined quality standards for the benefit of citizens in Bosnia and Herzegovina support to creating an electricity market in Bosnia and Herzegovina market integration into the regional electricity market regional development activities related to energy.
In order to carry out the activity of transmission of electricity, Elektroprijenos must possess a license to perform activity. In accordance with the Terms of use of license to conduct electricity transmission activities, Elektroprijenos performs the following: in accordance with the Network Code, it manages, maintains (including repairs and replacements if necessary) and protects its network to ensure a reliable and secure transmission of electricity, taking into account the principle of cost-effectiveness and productivity at work, plans system expansion and development to meet consumer needs while coordinating development planning with other neighbouring systems, makes a Long-term Transmission Network Development Plan for Bosnia and Herzegovina for a ten-year period, which includes the issue of new cross-border lines; this Plan is submitted to the ISO BIH for a review
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and direct audit; revised Plan is after submitted to SERC for approval and then, if approved, is published by ISO, on the basis of a Long-term Transmission Network Development Plan, makes an annual investment plan and submits it to SERC for approval, by the end of November for the following year, designs and builds power plants and pipelines; uses them in a way to not jeopardize the health of the population and to minimize changes in the natural environment, complies with the rules or standards related to security, in order to protect facilities and equipment as well as the population, must not cease to perform or modify licensed activity or any mean of transportation without prior approval of SERC, by the end of February, submits a request for updating the License as of December 31st of the previous year, if there were any changes; with the request for updating, Elektroprijenos attaches a permit with supporting documents and updates map of the EES; informs SERC on all changes and everything related to the topic, provides access to all relevant information on its website, regarding to its activities that are of public interest or required by market participants, regularly makes all necessary reports and submits them to the SERC, in accordance with defined obligations, Elektroprijenos conducts the procedure for connecting the user to the transmission network; the procedure is defined by the Network Code and Rulebook on connection in accordance with the decrees from the Rulebook on connection, Elektroprijenos has, in the previous period, created and adopted paper necessary to carry out the procedure of connection of the user to the transmission network; papers are published and available on the company's website, for the purpose of informing the customer about the status of individual request, the list – register of submitted user request is regularly updated and is available on the website.
5.2.9.2 Regulatory framework in the Federation of Bosnia and Herzegovina
The Electricity Law regulates functioning of the power sector, electric activity, electricity market development, market regulation, general conditions for electricity supply, planning and development, reconstruction and maintenance of power plants, law enforcement and other issues of importance for the performance of electric activity in the Federation of Bosnia and Herzegovina.
The Regulatory Commission's jurisdictions, performed by the Regulatory Commission for Energy in the Federation of Bosnia and Herzegovina (FERK), are: 1. supervision and regulating the relations between power generation, distribution and electricity customers including power traders, 2. monitoring of the electricity market, 3. prescribing methodology and defining tariffs deadlines and conditions for usage of distribution systems, 4. prescribing methodology and defining prices for service of public supply until the electricity market opening or granting consent to the prices defined by public supplier after electricity market opening, 5. prescribing methodology for calculation of connection charges and defining terms and conditions for connection to distribution network, 6. granting consent to the amount of charges for connection to distribution network, 7. issuing, renewal, transfer or revocation of permits for electricity generation, distribution, supply and trade and for RES and efficient cogeneration Operator, 8. issuing a prior consent for the construction on direct power lines, 9. defining General Conditions for Electricity Supply and Network Rules for distribution 10. prescribing the methodology to determine feed-in prices for electricity purchased from plants using renewable energy sources and efficient cogeneration, 11. defining referent electricity price for power plants using renewable energy sources and efficient cogeneration, 12. prescribing the procedures and criteria for selecting alternative electricity supplier, including the duration of alternative supplier's service and supervising prices defined by the alternative supplier, 13. initiating the procedure for issuing misdemeanant warrants, 14. prescribing methodology and criterion for defining the prices and quantities for supplying of non-eligible customers.
Electric power sector activities are the following: generation of electric power, distribution of electric power,
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supply of electric power, trade, representation and mediation in the domestic electric power market.
An entity that performs two or more electricity activities, or carries out other activity, is obliged to functionally unbundle those activities. Functional unbundling is defined by Article 14 on the Electricity Law in the Federation of Bosnia and Herzegovina includes: 1) separation of accounts in internal accounting of vertically integrated company in a way that: a) business records and accounting are kept separately for generation, distribution and trade of electric power, b) business records and accounting for other non-electric power sector activities are kept separately, c) compile and publish separate financial reports (balance sheets, cash flow report) and other reports for each electric power activity and non-electric power activity separately, in accordance with the accounting and auditing regulations. 2) Separation of business management with the goal of: a) providing a separate business management of different electric power activities that ensures separation and independent realisation of mutual commercial interests, b) providing conditions that members of governance structure in one electric power activity cannot be members of governance structure of a vertically integrated company, c) providing conditions that persons employed in one electric power industry cannot perform jobs in another electric power activity. . Electricity generation activities for the purpose of selling on the power market and the supply of electricity to qualified customers are conducted in accordance with rules regulating market relations in which power companies are freely negotiating quantity, price and terms for delivering of electricity by concluding short and long term contracts or by direct participation in and organised market. Electricity generation for non-qualified (tariff) and qualified customers who have not chosen suppliers on the open market, distribution of electricity and supply of electricity are carried out within performing public service.
Distribution system consist of LV and MW electricity facilities (power plants and lines) through which electricity distribution is performed. Distribution system must be available to all users in an objective, transparent and non- discriminatory manner. The power utility that owns the license to perform distribution activity – Distribution System Operator (DSO) is responsible for the operation, management, maintenance, construction and development of the distribution system. DSO is obliged to connect all interested customers/producers to its facilities, in and objective, transparent and non-discriminatory way. Operation and management of distribution network is regulated by Network Rules for Distribution that are proposed by DSO and adopted by SERC. Electricity Law also stipulates that DSO, that is part of vertically integrated company, functions independently in terms of legal form, organisation and decision-making.
General Conditions for Electricity Supply defines energy conditions, technical conditions and economic relations between producer, distributor, supplier, network user and end customer, including the applicant for obtaining electric power approval.
The supply of qualified customers i san activity in which qualified customer and supplier, possessing a license for electricity supply, contract quantity, dynamics and price of delivered electricity.
As a part of public service obligation, electricity entities granted the status of a public supplier by the Government of the Federation of Bosnia and Herzegovina's Decision on establishing a public/universal service provider and service of ancillary supplier, are required to provide a universal service of electricity supply to all end customers from household sector, small companies and commercial customer, within their territory of providing services. The above categories of customers have the right to be supplied with electricity of a certain quality are reasonable, easily and clearly comparable and transparent prices. Public supplier status in the Federation of Bosnia and Herzegovina is granted to EP BIH and EP HZHB. Electric power utilities were established in accordance with the Law on Public Companies and Law on Companies in the Federation of Bosnia and Herzegovina.
In accordance with the provisions of the Electricity Law and the Rulebook on Electricity Supply to Qualified Buyers and the Procedure for Changing a Supplier, in the Federation of Bosnia and Herzegovina, the market became open on January 1st 2015. In 2016, the Competition Council of Bosnia and Herzegovina provided its Opinion indicating that the electricity market was not open to competition. However, in 2017, the Competition Council believes that a formal and legal framework for market liberation has been established and that the electricity market is open to competition in the segment of electricity production and supply to the II category customers.
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5.2.9.3 Regulatory framework in Republika Srpska
The Law on Energy of Republika Srpska, being the key legal regulation governing the energy field, has defined the energy-related business activities. Among other things, the energy – related business activities include electricity generation, distribution and supply and trading of electricity. The Law on Electricity provides the rules for electricity generation and distribution on the territory of Republika Srpska and domestic trading on behalf of Republika Srpska. Pursuant to this Law, the Regulatory Energy Commission of Republika Srpska (RERS) has been established in order to regulate monopoly conducts and to secure transparent and non-discriminatory status of all participants on the electricity market in Republika Srpska. In the field of electric power, RERS has the following authorisations: 1) Monitoring and regulation of relationships between generation, distribution and customers of electricity including traders of electricity, 2) Prescription of methodology and criteria for determination of both, the price for using distribution network and for supply of non-eligible customers with electricity as well as the methodology for determination of the fee for connection to the distribution network, 3) Making tariff system for selling electricity and using distribution network, 4) Determination of tariff rates for distribution system users and tariff rates for non-eligible customers, 5) Issuance or revocation of the licenses for generation, distribution and trade of electricity, 6) Making general conditions for delivery of electricity, 7) Determination of the electricity price at the plant outlet.
An energy entity performing two or more energy-related business activities or which, apart from an energy-related business activity also performs some other activity which is not considered to be an energy activity shall be obliged to separate these business activities in accordance with a special law regulating performance of that business activity. Energy entities dealing with electricity generation shall have the right to use, on their premises, sources of energy they consider to be most favourable adhering to technical characteristics and environmental protection conditions, agree distribution and sale of electricity and access to transmission network, all in accordance with the requirements stipulated in the law, regulations and licence issued by RERS. The electricity producer shall be obliged to comply with the license requirements, to possess a measuring device which enable establishment of energy to be sold into a certain network acting in compliance with the rules for electricity market transactions and to meet and respect the stipulated technical and plant requirements, including the environment protection and influence on the environment.
Distributive network must be accessible to all users in a transparent and non-discriminating manner, towards undisturbed functioning of the electricity market in Republika Srpska. Operation, maintenance and development of the distribution system is the responsibility of the Distribution System Operator (DSO). DSO is obliged to enable electricity transmission through its network, including electricity distribution based on the network users’ demand. DSO has the rights and obligations to supply the system users and customers with electricity within its domain of operation if that is defined in the licence for performing the business activity. It is obliged to enable the network access to electricity producers and qualified customers of electricity in an unbiased manner, under the principles of the regulated third party’s access. When an electricity producer and a buyer intent to enter into the supply agreement and could not have access to the network, they could build a direct line, with prior RERS permission. Electricity supply shall be performed in accordance with law, electricity distribution general requirements, electricity sale tariff system and a contract signed by the supplier and the customer. The energy-related business activity of generation of electricity to supply tariff buyers, electricity distribution and tariff buyer electricity supply are of general importance and performed within the public service domain. A qualified customer may select an electricity supplier on its own. A qualified customer and selected supplier shall contract the amount and price of electricity. Non-qualified (tariff) buyers shall be supplied with electricity within the public service supply obligations at the prices indicated in the tariff system for sale of electricity. RERS shall define the price for public electricity supply to end buyers falling within the category of household consumers and small customers (tariff positions) in accordance with the Law on Electricity and the Book of Rules on Tariff Methodology and Tariff Procedure. Electricity generation, distribution and supply within the scope of a public service shall be performed on territory of Republika Srpska by a mixed holding company ERS, established in accordance with the Law on Economic Entities of Republika Srpska and the Law on Public Companies of Republika Srpska. In accordance with the provisions of the Law on Electricity and the Rulebook on Electricity Supply to Qualified Buyers and the Procedure for Changing a Supplier in Republika Srpska, the market became open on January 1st 2015. End customers of electricity falling within the household consumption and customer category who did not select a supplier on the market shall have the right to be supplied with electricity of standard quality at economically reasonable, yet clearly comparable and transparent prices, within the public supply system. In 2016, the Competition Council of Bosnia and Herzegovina provided its Opinion indicating that the electricity market was not open to competition. However, in 2017, the Competition Council believes that a formal and legal framework for market liberation has been established and that the electricity market is open to competition in the segment of electricity production and supply to the II category customers.
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Strategic guidelines
For the period until 2035 it is necessary to define an energy framework for the development of electricity sector in Bosnia and Herzegovina. Strategic priorities and guidelines related to the market development and regulations are provided in the table below (Table 5.2.15). Regulatory recommendations pertain to meeting the obligations defined under the Directive 2009/72/EC, being the basic recommendations of the Energy Community as well.
Table 5.2.15 Strategic guidelines for market development
Strategic priority Strategic guideline An overall transformation of the electricity sector through restructuring the key participants and adequate market regulation in accordance with the Third Energy Package and legislation as a result of the Winter package. The goal is to achieve mature market liberalisation towards Electricity sector restructuring further encouragement of electric power subjects in achieving cost and transformation efficiency thus freeing financial resources for investments into the new products and services, technologies, knowledge and competence and price competitiveness. The ultimate goal is to increase the value for final consumers and create a new value on the market. Increase share of renewable energy sources in installed capacity, total electricity generation and electricity consumption in accordance with the Reaching a larger share of clean assumed and future obligations. Increase in the share of RES, along energy in the future generation with contribution of traditional power utility companies, will also be mix and consumption stimulated through the future incentive models. Transition dynamics needs to be put into the implementation prospect frameworks. Reduction of local pollutants Implement measures to reduce emissions of polluting substances and emissions from TPPs achieve emission limit values in accordance to EU standards.
environment Implement measures aimed at Bosnia and Herzegovina's contribution to Reduction of greenhouse gas reduce greenhouse gas emissions in line with INDC objectives, with emissions from TPPs further revisions and adjustments in line with EU objectives in the future Investment and generation Market participants should adjust the investment plans with market Marketand portfolio development plan needs competition and circumstances and seek synergies at the level of the to be created in accordance with overall power system. It is necessary to adequately manage investment the system needs and risks and balance construction plans with the goal of achieving competitiveness goals competitiveness and clean energy. Continue with the activities on further competence building and wholesale transparency through the establishment of auctioning and Further improvement of wholesale balancing of electricity, connectivity and harmonisation of the wholesale market and electricity supply market system with the neighbouring countries, while also considering further wholesale market development Price competitiveness of Guiding the market participants to adopt the market principles with the electricity generation at power aim of realistic allocation of inefficiency and taking over the mandate for plant improvement. Organisation of the transmission Regarding the transmission system, ISO BIH has the authority to system operator in accordance manage electricity transmission system and Elektroprijenos carries out with one of the three models the activity of electricity transmission and all activities related to prescribed by Directive maintenance, construction and extension of the transmission network in 2009/72/EC (ownership Bosnia and Herzegovina. Since this model does not conform to any of unbundling, independent the prescribed models, it is necessary for the TSO to be organised in transmission operator, accordance with one of the models provided in Directive 2009/72/EC independent system operator)
Certification of Transmission Amend existing laws and prescribe the obligation to certify transmission System Operator system operator with afterward implementation. Harmonisation with the Third Energy Package through law amendments Restructuring and modernisation and further elaboration of bylaws and their implementation in practice so Regulation of DSOs as well as legal and as to promptly start the unbundling activities of distribution and supply. functional unbundling of Additionally, it is suggested to put a greater focus on the development distribution and supply activities and quality of electricity distribution through the improvement of regulatory mechanisms. Deregulation of public suppliers’ Instead of regulated prices (rigid methodology) for public supply, it is electricity prices for the category necessary to move towards market prices and further market of household consumers, small liberalisation in practice, but protecting the socially vulnerable categories enterprises and commercial by a special programme buyers | 88
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It is necessary to develop a program for the protection of vulnerable customers, which will define activities related to protection of vulnerable Development of the protection customers from the exclusion of electricity and the protection of programme for vulnerable customers in remote areas, as well as the programme for the bills categories payment for socially vulnerable categories.
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5.3 Coal sector
Introduction
The coal sector is an important segment in the energy sector and economic structure of Bosnia and Herzegovina. Out of total energy potentials of the country, coal covers more than 90%18 thus currently making a dominant energy potential. About 14 major mines are currently active in Bosnia and Herzegovina. The key coal deposits19 are located in the basins of Tuzla (Kreka, Banovići, Đurđevik i Ugljevik), Central Bosnia (Kakanj, Breza, Zenica and Bila), Bugojno (Gračanica), Livno-Duvno (Tušnica), Gacko (Gacko) and Doboj-Banja Luka (Stanari). „Kamengrad” mine in the Kamengrad basin has not been significantly activated after war, while the Mostar mine in the Mostar basin has been closed down.
Figure 5.3.1Illustrative view of key mines in Bosnia and Herzegovina
Source: Project Team analysis, EIHP, Soluziona, EIBL, RIT, Energy Sector Study in Bosnia and Herzegovina, 2008.
On the territory of Bosnia and Herzegovina, lignite and hard coal reserves are distributed in several key basins2021: Tuzla (RU Kreka, Banovići, Đurđevik i Ugljevik), Central Bosnia (RU: Kakanj, Breza, Zenica and Bila), Bugojno (RU: Gračanica), Livno-Duvno (RU: Tušnica) are basins on Federation of Bosnia and Herzegovina’s territory, while Gacko, Ugljevik, Stanari, Miljevina, Kotor Varoš, Lješljani and Ramići are basins on Republika Srpska’s territory. Other locations, with smaller reserves, are not considerably interesting from the aspect of the energy sector or have been abandoned due to inconvenient exploitation conditions. In terms of major mines in Federation of Bosnia and Herzegovina, there are eight active mines mainly being a part of thermal power plants: Mine Kreka, RMU Abid Lolić, RMU Breza, and RMU Đurđevik, RMU Kakanj, RMU Zenica, Mine Granačnica and RMU Banovići. For Republika Srpska in addition to others, 5 important mines are active, mainly being part of thermal power plants: ZP RITE Ugljevik, TP RITE Gacko, Stanari, mine Luke – Ugljevik, new mine Miljevina.
18 EIHP ,”BiH Energy Sector Study” 2008 19 Data from Working groups FMERI, MIER 20 Strategic plan and Development Program of Energy Sector in Federation of BIH, 2009 21 Energy Strategy of Republika Srpska till 2030 | 90
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Table 5.3.1 Basic information on key mines in Bosnia and Herzegovina, 2015
Method of Mine Owner Location Coal type extraction JP EP BIH Surface and Rudnici Kreka d.o.o. Tuzla Lignite (Concern) underground JP EP BIH RMU Abid Lolić d.o.o. Travnik-Bila Hard coal Underground (Concern) JP EP BIH Surface and RMU Breza d.o.o. Breza (Concern) Hard coal underground JP EP BIH Surface and RMU Đurđevik d.o.o. Đurđevik (Concern) Hard coal underground JP EP BIH Surface and RMU Kakanj d.o.o. Kakanj (Concern) Hard coal underground
FBIH JP EP BIH RMU Zenica d.o.o. Zenica Underground (Concern) Hard coal JP EP BIH Gornji Vakuf- Rudnik Gračanica d.o.o. Lignite Surface (Concern) Uskoplje FBIH (69,5%), Surface and RMU Banovići d.o.o. Banovići Hard coal private (30,5%) underground Gov. of HB county Lignite/hard RU Tušnica d.o.o.22 Livno Surface (Kanton 10) coal ZP RiTE Ugljevik (Bogutovo selo ERS (65%), Ugljevik Hard coal Surface and Ugljevik Istok 1) other (35%) ERS (65%), ZP RiTE Gacko Gacko Lignite Surface other (35%)
EFT Rudnik and TE Rudnik Stanari Stanari, Doboj Lignite Surface
RS Stanari d.o.o. Pavgord d.o.o. Surface and New hard coal mine Miljevina Miljevina, Foča Hard coal Foča underground Dominantly Other1 Private Various Surface hard coal Note: 1) Other mines include, e.g. New Mine Miljevina, Terex Kop, Luke mine, Ugljevik, etc. Source: Federation of Bosnia and Herzegovina Working Group, Republika Srpska Working Group, Project Team analysis
In the Federation of Bosnia and Herzegovina, apart from the partially privatized Banovići mines, the remaining key mines are owned by JP EP BIH and are process wise integrated with thermal power plants. Mine Kreka has lignite coal with surface and underground extraction. Along with Kreka, Gračanica has lignite coal with surface and underground extraction. The remaining key mines are hard coal and usually combine surface and underground extraction.
In Republika Srpska, ZP RiTE Ugljevik and ZP RiTE Gacko are integrated mine systems with thermal power plants in majority ownership of power utility Elektroprivreda Republike Srpske (65%). Ugljevik mine is a hard coal mine with surface extraction, while Gacko mine with lignite coal also has surface extraction. In addition to Gacko, surface extraction of lignite is also performed in the Stanari mine which is in private ownership. At other locations, including the new mine Miljevina, hard coal dominates.
Coal reserves
Overview of coal reserves in Bosnia and Herzegovina in 2009 / 2010 is compiled according to the “Strategic Plan and Development Program of Energy Sector of the Federation of Bosnia and Herzegovina” from 2009 and based on current energy strategy of Republika Srpska (Table 5.3.2). For the Federation of Bosnia and Herzegovina in 2009, total balance reserves of coal amounted to 1.946,8 million tonnes of which lignite dominated with 1.051,9 million tonnes, and exploitation amounted 1.355,7 million tonnes. For Republika Srpska in 2010, total balance reserves of coal were 683 million tonnes, off-balance reserves were about 106 million tonnes, and potential reserves were about 175 million tonnes. Total geological reserves amounted to 814 million tonnes, while exploitation reserves were 578 million tonnes23. Lignite dominates in the structure of balance reserves. In accordance with the above stated documents, Bosnia and Herzegovina had in 2009/2010 about 2.630 million tonnes of balance reserves, 603 million tonnes of off-balance reserves and 2.511 million tonnes of potential reserves. Total geological reserves amounted to 5.593 million tonnes, while exploitation reserves amounted 1.934 million tonnes.
22 No production 23 Kotor Varoš, Lješljani and Ramići mines were explored at that time and coal reserved proved, however, no exploitation was performed | 91
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Table 5.3.2 Historical breakdown of coal reserves in Bosnia and Herzegovina, 2009 / 2010
RESERVES (000 t) Production capacity and coal type Balance Off-balance Potential Total Exploitation (A+B+C1) (A+B+C1) (C2+D1+D2) geological (A+B+C1)
Mine Kreka (L) 743.954 322.833 59.407 1.126.194 456.008 Mine Banovići (HC) 194.085 13.935 0 208.020 162.429 Mine Đurđevik (HC) 60.183 4.963 0 65.146 54.524 Mine Kakanj (HC) 256.536 56.525 127.604 440.665 204.839 Mine Breza (HC) 49.244 23.928 0 73.172 28.098
Mine Zenica (HC) 179.843 59.931 721.369 961.143 131.000
1,2 Mine Bila (HC) 26.808 10.373 25.354 62.535 16.091
FBIH Mine Gračanica (L) 10.657 0 0 10.657 10.657 Mine Tušnica (L) 76.201 1.111 0 77.312 68.528 Mine Tušnica (HC) 16.274 0 1.865 18.139 11.433 Mine Kamengrad (HC) 112.001 3.722 120.000 235.723 68.671 Bugojno (L) 14.651 0 1.280.105 1.294.756 12.893 Kongora (L) 206.411 0 0 206.411 129.765 Mine Ugljevik (HC) 247.409 17.792 114.558 265.507 206.507 Mine Stanari (L) 82.559 34.668 9.596 126.823 73.271 Mine Gacko (L) 269.958 37.862 / 307.320 245.662
2 Mine Miljevina (HC) 21.200 15.800 40.100 77.100 19.080
RS Kotor Varoš (HC)* 16.410 1.359 Lješljani (HC)* 8.843 195 10.000 Ramić (L)* 37.596 37.596 33.836,4 Total lignite 1.441.987 396.474 1.349.108 3.187.069 1.030.620
Total hard coal 1.188.836 207.164 1.162.209 2.406.844 903.472
BIH TOTAL 2.630.823 603.638 2.511.317 5.593.913 1.934.092 Note: 1) In the document “Strategic Plan and Development Program of Energy Sector of the Federation of Bosnia and Herzegovina” there is a note stating that the reserves are questionable with emphasis on exploitation reserves; 2) The data for coal reserves in the Federation of Bosnia and Herzegovina are based for year 2009, while the data for coal reserves in Republika Srpska for year 2010 Source: „Strategic Plan and Development Program of Energy Sector of the Federation of Bosnia and Herzegovina“, 2009; Energy Strategy of Republika Srpska until 2030, February 2010
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Based on the data provided from the entity working groups for 2015, an overview of the coal reserves in Bosnia and Herzegovina was made (Figure 5.3.2). According to the consolidated data for Bosnia and Herzegovina, the estimate of total balance reserves amounts to 2,5 billion tonnes. Reserve structure in the Federation of Bosnia and Herzegovina comprises of 2 billion tonnes of balance reserves, 801,6 million tonnes of off-balance reserves, and 2,7 billion tonnes of potential reserves. In the structure of balance reserves, lignite has a share of 56%, while at the level of total (geological) reserves the estimated lignite share is 62,9% and hard coal 37,1%. In Republika Srpska, reserve structure for major active mines indicates 543 tonnes of balance reserves, 98 million tonnes off-balance reserves, 50 million tonnes of potential reserves and about 750 million tonnes of geological reserves. It is important to note that, for year 2015 the Working group of Republika Srpska does not have an overview for off-balance reserve structure based on methodology A+B+C1, but containing only category C1.
Figure 5.3.2 Reserves structure of mines in Bosnia and Herzegovina, in billion tonnes, 2015
Source: Federation of Bosnia and Herzegovina Working Group, Republika Srpska Working Group
For the Federation of Bosnia and Herzegovina, out of total balance reserves in key mines, mine Kreka dominates with 44,5% share, and together with mines Banovići and Kakanj constitutes over 65% of balance reserves (Figure 5.3.3).
Figure 5.3.3 Balance reserves of key mines in Federation of Bosnia and Herzegovina, in thousand tonnes, 2015
Source: Federation of Bosnia and Herzegovina Working Group
For Republika Srpska, out of total balance reserves in key active mines, Rudnik RiTE Gacko, Rudnik Stanari and Novi Rudnik Ugljevik constitute over 80% of balance reserves. If the quantities of mine Novi rudnik Ugljevik were to be added to quantities of RiTE Ugljevik Bogutovo Selo and Ugljevik Istok 1, then that share would be even greater (Figure 5.3.4).
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Figure 5.3.4 Balance reserves of key mines in Republika Srpska, in thousand tonnes, 2015
Source: Republika Srpska Working Group
Uneven exploration of coal reserves in individual basins in Bosnia and Herzegovina might be a constraining factor in development, and a continuous research is required in accordance with regulation. However, due to economic development of the energy sector, the decision to increase the activity of coal exploitation on existing or new basins needs to be related to the strategy for development of the thermal power plant segment in Bosnia and Herzegovina on entity level.
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Coal production and mine efficiency
5.3.3.1 Production
Coal production analysis for key mines in Bosnia and Herzegovina was made on entity level, and it can be noticed that the mines in the Federation of Bosnia and Herzegovina produce more coal in absolute term, while the production growth is significantly higher in Republika Srpska. Average annual growth rate of coal production from key mines in Federation of Bosnia and Herzegovina amounted to 2,1% for period 2000 – 2015, which is in absolute terms an increase of 1,6 million tonnes (Figure 5.3.5). The total amount of produced coal in 2015 amounted to ~6 million tonnes, out of which ~5 million tonnes were used for thermal power plants, which met the needs of generating 5,4 TWh of electricity. According to Study of Energy Sector in Bosnia and Herzegovina from 2008, the mill production plan for 2015 was 8,6 million tonnes, which lead to the conclusion that the actual realization was about 30% less than planned. In the observed period, mine Kreka dominated with highest production volumes, while the largest absolute production increase was recorded for mine Banovići.
Figure 5.3.5 Production dynamics for key mine in Federation of Bosnia and Herzegovina, in thousand tonnes, 2015
Source: Federation of Bosnia and Herzegovina Working Group, Study of Energy Sector in BIH, Module 8 – coal mines
By analysing key mines in Republika Srpska (Figure 5.3.6), the average annual production growth rate in period 2000 – 2015 amounted to 4,5% with a production of ~5,8 million tonnes in 2015. When normalising the data in 2015 with an average realised production volume from mine Stanari, then the annual production amounted to 6,76 million tonnes, which is more than double compared to year 2000. In the observed period, mine Gacko dominated with largest production volumes, while the largest absolute production increase was recorded for mine Stanari.
Figure 5.3.6 Production dynamics of key mines in Republika Srpska, in thousand tonnes, 2015
Note: *data adjustment in 2015 for new production trend of mine Stanari. Source: Republika Srpska Working Group, Study of Energy Sector in BIH, Module 8 – coal mines | 95
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Taking into consideration coal market placement in 2015, as well as the integrated business model of mines and thermal power plants, it can be concluded that the vast majority of coal produced in Bosnia and Herzegovina (~83% in Federation of Bosnia and Herzegovina, over 95% in Republika Srpska) is used as a raw material for thermal power plants, i.e. that the placement is secured. Due to high correlation of individual mine with the thermal power plant, production plans and development of thermal power plants directly affect the operation of mines that do not have a diversified structure of buyers. Strong correlation and dependency of the thermal portfolio for utility company JP EP BIH means that the future development and the need for coal production will depend on the development of thermal power plant portfolio of JP EP BIH and eventually other thermal power plants on Bosnia and Herzegovina that will be calibrated to the quality of coal delivered by mines. In Republika Srpska, this dependency is more emphasised, especially after the operation of new TPP Stanari, where all major mines almost exclusively deliver produced coal to thermal power plants.
Table 5.3.3 Correlation between coal mines and thermal power plants, 2015
Production Placement to key Mine Key buyer (thousand tonnes) buyer Rudnici Kreka d.o.o. 1.808 93% RMU Đurđevik d.o.o. 517,4 85% TPP Tuzla RMU Banovići d.o.o. 1.500 70%
RMU Breza d.o.o. 473 96% RMU Kakanj d.o.o. 1.008 99% FBIH TPP Kakanj RMU Abid Lolić d.o.o. 137 77% Rudnik Gračanica d.o.o. 312 79% RMU Zenica d.o.o. 266,3 61% Arcelor Mit. RiTE Gacko 2.532 99% TPP Gacko
RiTE Ugljevik 2.030 97% TPP Ugljevik
RS RU Stanari 1.260 36% JP EP BIH RU Stanari (estimate 2017) 2.200 98% TPP Stanari Source: Federation of Bosnia and Herzegovina Working Group, Republika Srpska Working Group, Project Team analysis
5.3.3.2 Mine efficiency and productivity
In the last ten year period between 2005 and 2015, mines in the Federation of Bosnia and Herzegovina recorded a total increase in coal production of 6%. During this period, there was a decrease in the total number of employees in mines of 16% (Figure 5.3.7). In Republika Srpska, with total production growth of 72% in period 2005 – 2015, or 100% considering the new trend of TPP Stanari operation since mid-2016, the total number of employees in the mining sector grew by 38% (Figure 5.3.8).
Figure 5.3.7 Dynamics of coal production and number Figure 5.3.8 Dynamics of coal production and number of of employees in key mines in Federation of Bosnia employees in key mines in Republika Srpska, 2005 - 2015 and Herzegovina, 2005 - 2015
Source: Federation of Bosnia and Herzegovina Working Note: *) Coal production, number of employees and productivity for Group, Study of Energy Sector in BIH, Module 8 – coal 2015* are adjusted for the new trend of mine Stanari from 2017 mines, Project Team analysis Source: Republika Srpska Working Group, Study of Energy Sector in BIH, Module 8 – coal mines, Project Team analysis, interviews with mine management
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A decrease in total number of employees and production increase in the Federation of Bosnia and Herzegovina, while on the other hand a slower increase in the number of employees compared to the increase in production in Republika Srpska resulted in an increase of productivity for the mining sector in Bosnia and Herzegovina. At entity level, productivity in the Federation of Bosnia and Herzegovina increased by 26% in the period 2005 – 2015, which represents an average annual growth of 2,3%, while for Republika Srpska productivity in the mining sector grew 25%, i.e. 45% in the same period (Figure 5.4.9,Figure 5.3.10).
Figure 5.3.9 Dynamics of mines labour productivity in Figure 5.3.10 Dynamics of mines labour productivity in Federation of Bosnia and Herzegovina vs. EU, produced Republika Srpska vs. EU, produced tonnes per FTE tonnes per FTE
Note: Data adjusted for the ratio between employees and FTE Note: Data adjusted for the ratio between employees and FTE (full (full time equivalent) (1,05). EU data are from 2012 for; time equivalent) (1,05). EU data are from 2012 for; Slovenia, Slovenia, Germany, Bulgaria, Czech Republic, Slovakia, Germany, Bulgaria, Czech Republic, Slovakia, Greece, Romania, Greece, Romania, Poland and Hungary. Poland and Hungary. Coal production, number of employees and Source: Federation of Bosnia and Herzegovina Working productivity for 2015* are adjusted for the new trend of mine Stanari Group, Study of Energy Sector in BIH, Module 8 – coal mines, from 2017 Project Team analysis Source: Republika Srpska Working Group, Study of Energy Sector in BIH, Module 8 – coal mines, Project Team analysis, interviews with mine management
Despite the growth, mine productivity in Bosnia and Herzegovina remains lagging behind the EU median, especially in the Federation of Bosnia and Herzegovina. The lowest productivity of the observed EU countries is 194% higher compared to the mines in Federation of Bosnia and Herzegovina, while the median value of EU mine productivity is up to seven times higher. The productivity of mines in Republika Srpska in 2015 is 25% higher compared to 2005, and 45% when the data on the productivity rate for 2015 are adjusted for mine Stanari. The average productivity of mines in Republika Srpska are around 3.144 tonnes/FTE, which is better than the lower EU value, but still below the EU median value, indicating that there is significant room for improvement. Key factors affecting the productivity of mines are: volumes, technology, logistics cost, level of outsourcing, type of mine and geological characteristics (surface / underground extraction), skills and mining equipment.
Given hereafter is an analysis and comparison of the coal mines productivity and efficiency in Bosnia and Herzegovina for 2015. Despite the fact that the year 2015 was less favourable for mining operations, data shows clear strategic position of mines on strategic level. At the level of individual mines of the Federation of Bosnia and Herzegovina, there are significant deviations in labour activity, although almost all are below the lower EU value. Mine Zenica achieved the lowest labour productivity with ~196 tonnes of coal per FTE (full time equivalent), while on the other hand mine Gračanica achieved the best result in labour productivity with ~1.665 tonnes/FTE, which represents the best result of the Federation of Bosnia and Herzegovina and is in line with lower value of the observed EU countries. The average productivity in the Federation of Bosnia and Herzegovina amounted to 553 tonnes/FTE, while the lowest value of observed EU countries was 1.626 tonnes/FTE, and median value was 4.416 tonnes/FTE (Figure 5.3.11).
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Figure 5.3.11 Comparison of mines labour productivity and efficiency in Federation of Bosnia and Herzegovina vs. EU, 2015
Note: EU benchmark has been adjusted according to coal structure (lignite and hard coal) Source: Federation of Bosnia and Herzegovina Working Group, Project Team analysis
In terms of price efficiency, the average coal price of key coal mines in Federation of Bosnia and Herzegovina amounted to 47 EUR/tonne, which is an inferior result from the lower EU value that was 21,4 EUR/tonne. The best price efficiency was for mine Gračanica 18,9 EUR/tonne and mine Banovići 28,2 EUR/tonne. According to recent data at individual mine level in Republika Srpska, there are also significant deviations in labour productivity, but all above lower EU values. Mine Gacko in 2015 had a labour productivity of 3,5 thousand tonnes of coal per full time equivalent (FTE). Higher productivity was achieved in mine Stanari (data represent the trend of full capacity for year 2017) with over 3,7 thousand tonnes/FTE, while mine Ugljevik had the worst result below 2,4 thousand tonnes/FTE. The average mine productivity in Republika Srpska amounted to 3,14 tonnes/FTE, while the EU median value was 4,4 thousand tonnes/FTE (Figure 5.3.12).
Figure 5.3.12 Comparison of mines labour productivity and efficiency in Republika Srpska vs. EU, 2015
Note: EU benchmark has been adjusted according to coal structure (lignite and hard coal). *Republika Srpska’s average adjusted with the new trend of mine Stanari after 2016 Source: Republika Srpska Working Group, Project Team analysis, interviews with mine management
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The average coal mining production of key mines in Republika Srpska amount to 18,1 EUR/tonne, which is a better result compared to lower EU value which was 21,4 EUR/tonne. However, average result of mines in Republika Srpska is still 26% less price efficient compared to EU median value of 14,3 EUR/tonne. In the observed period, the highest price efficiency was achieved by mine Gacko (RiTE Gacko) with the production price of 16,6 EUR/tonne, while the lowest result was in mine Ugljevik (RiTE Ugljevik) with price of 20 EUR/tonne.
Price efficiency, as well as productivity, depend on a large number of factors. Along with the caloric value of coal, other key factor are technological equipment used in the mine, type of extraction, distance from TPP and operational model which may affect business results. Given that the productivity and efficiency of mines in Republika Srpska are below the EU median, it is necessary to create a framework for further modernisation and increase of efficiency in mining sector. In the Federation of Bosnia and Herzegovina, the productivity of mines is even below the lower EU value, and therefore is necessary to create as soon as possible a framework for further modernisation and increased efficiency of the mining sector through a comprehensive restructuring program followed by a structured and consistent implementation of the measures.
5.3.3.3 Financial overview
Financial overview is made exclusively for mines in the entity Federation of Bosnia and Herzegovina because the data for mines in Republika Srpska were not accessible as mines operate within thermal power plants and costs are not completely separated. In 2015, total revenues of mines in the Federation of Bosnia and Herzegovina amounted to 218 million EUR, but due to low efficiency and productivity, a financial loss of ~55 million EUR was realised in the same period. As stated in the previous chapter, the major reasons for inefficiency come from low productivity and high labour costs as a result of many factors. Out of all observed mines, mine Gračanica has only achieved a positive financial result in 2015. It is important to note that the sales price of coal in its structure does not include full production cost, thus the inefficiency of the sector by intervention is not fully transferred to the cost of electricity generation or final customer. The difference between production and selling price is accumulated on the financial results of the mines, resulting in problems in settlement of liabilities (e.g. deferred payment of tax liabilities, surtaxes, contributions etc.), which is not in line with the Energy Community Treaty.
Figure 5.3.13 Financial overview of mines in the Federation of Bosnia and Herzegovina, in million EUR, 2015
Source: Project Team analysis, Federation of Bosnia and Herzegovina Working Group, Decision on appointing a coordinating and expert team for the restructuring of mines
Such measure covers electricity prices in the short run and sends message to the management of mines to optimise production costs to acceptable level. However, in the long run, such policy is not sustainable and will have to reflect on the final price of electricity to a certain extent. Financial and operational indicators exhibit the need for restructuring and transformation of coal mines in the Federation of Bosnia and Herzegovina with the goal to achieve long term sustainability since short term measures and interventions are not a sufficient solution.
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Scenarios of the mine sector development in Bosnia and Herzegovina
The fact is that mines, that is, coal represent the key natural resource in Bosnia and Herzegovina. That is actually the reason for coal to be the dominant fuel in the electricity generation nowadays. In 2016, Bosnia and Herzegovina had 46% of coal fired TPP installed capacities for electricity generation, which is about 1.876 MW. Total generation of electricity from coal fired TPPs in 2016 made about 64% of share in total production, which is about 10,6 TWh. Following the global and European trends in the electric power sector and in accordance with the obligations arising from the EU Directives, this document also elaborates alternative options of the production portfolio development, some of which, at a certain pace, diverge themselves from electricity generation based on (dominantly) fossil fuels. Considering that mines in Bosnia and Herzegovina are integrated in thermal power plants and are highly correlated in the market placement context, the scope of their activities will directly depend on the selected generation portfolio development strategy. Having in mind that coal is a dominant resource, all scenarios of the generation mix in its structure foresee considerable amount of coal, nowhere less than 30%. Prior to further analyses, it is important to note one more time that future selected strategies and policies of the Bosnia and Herzegovina generation mix development may, but not necessarily, follow some of scenarios stated herein, that is, they may also define their own direction combining them. Comparison of four potential options of the production portfolio development: a) Entity working groups scenario or Entity scenario, b) Scenario according to the ISO BIH Indicative plan, c) Scenario according to Cost optimised ISO BIH Indicative plan, d) Moderate renewable scenario with energy efficiency, clearly indicates that, among them, only one option continuously decrease the need for production of coal as fuel in the electricity generation, while the remaining three increase at the various rates the need for coal.
5.3.4.1 Entity working groups scenario
The Entity working groups scenario is based on input information proposed and confirmed by the Federation of Bosnia and Herzegovina Working Group and Republika Srpska Working Group. More details about the assumptions may be found in chapters on electricity and generation mix. According to this scenario, during the period 2016 – 2035, a considerable increase of TPP installed capacity is foreseen in Bosnia and Herzegovina from 1.876 MW in 2016 up to 3.000 MW till 2025 and 3.550 MW till 2035. Such development of thermal sector would lead to potential electricity generation by using coal at the level of 21,5 TWh in the period 2030 – 2035, which is approximately a double increase relative to coal fired TPP production in 2016. It is important to note that the scenario in which the referenced installed capacity generates such amount of production also implies a placement of the overall quantity of generated electricity, at which point the profitability and risk arising from such assumption is raised. For this exact reason, a sub-version of this scenario has been developed under the assumption that for the stated installed capacity, a total production is limited to 70% exports above the domestic consumption for Republika Srpska (excluding TPP Stanari) and 30% exports above the domestic consumption for Federation of Bosnia and Herzegovina as an indicative simulation of possible market reality. In the first variant of this scenario, without export limitation, an aggressive growth of installed capacity and electricity production from coal would lead to an average annual growth rate (CAGR) of coal consumption in TPPs amounting to 3,2%. During the period 2016-2035, such growth rates would result in maximum coal consumption of about 21,4 million tonnes, which would commence around 2024, while the average annual coal consumption of around 17,8 million tonnes. The second variant of this scenario, with export limitation, implies the same structure of installed capacity, but lower production level as a consequence of potentially difficult placement of electricity. Under these assumptions, demand for coal is considerably lower than in the scenario without export limitation, however, it nevertheless shows a slight increase of 0,6% a year in average over the period 2016-2035. Maximum coal consumption under the referenced scenario would amount to 13,2 million tonnes, 11,8 million tonnes minimum, while the average value would amount to 12,5 million tonnes.
5.3.4.2 Scenario according to Indicative plan
Indicative Development Plan scenario is based on the document titled “Indicative Generation Development Plan 2017- 2026”. More details about scenario’s assumptions and logic can be found in chapters on electricity and generation mix. In accordance with the referenced scenario, during the period from 2016 to 2035, it is foreseen that there will be a considerable increase in installed capacity of TPPs in Bosnia and Herzegovina from 1.876 MW in 2016 to 3.256 MW in 2025, and to 2.700 MW in 2035 (43%). Such development of thermal sector would lead in potential generation of electricity from coal at 19,5 TWh in period 2025 – 2035. In terms of coal demand, this scenario envisages an average coal consumption growth rate for TPPs of 2,5% CAGR, which would lead to maximum coal consumption of 16,1 million tonnes in period 2016 – 2035. After 2019, coal consumption would be higher in every year compared to coal consumption in 2016.
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Figure 5.3.14 Scenarios of TPP generation and implications for coal production needs in Bosnia and Herzegovina, 2016 - 2035
Source: Project Team analysis, World Bank, BIH Power Sector Note, 2016, Indicators ZD 2016, Financial and operation indicators of mines, Republika Srpska Working Group and Federation of Bosnia and Herzegovina Working Group, EP BIH web page
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5.3.4.3 Scenario according to Cost optimised Indicative plan
Scenario according to cost optimised ISO BIH indicative development plan relies on the document titled “Indicative Generation Development Plan 2017-2026“ with projections till 2035 and the World Bank’s document “Power Sector Note“. More details about the assumptions and logic of the scenario can be seen in chapters on electricity and generation mix. In accordance with the referenced scenario, during the period from 2016 to 2035, it is foreseen an increase in the coal fired TPP installed capacity from 1.876 MW in 2016 to 2.156 MW in 2025 and 2.400 MW till 2035 which is still above the 40% share. Such development of thermal sector would lead to potential electricity generation from coal at levels of about 15,7 TWh in 2030, i.e. 17,7 TWh in 2035, which represents also the maximum generation from TPPs in the observed period. Maximum expected coal demand in the observed period would amount to 17,0 million tonnes, and with an average consumption growth rate of 1,9%.
5.3.4.4 Moderate renewable scenario with EE
Moderate renewable scenario of generation mix development with energy efficiency represents the most significant detachment from the current structure of installed capacity and electricity generation in Bosnia and Herzegovina. More details about the assumptions and logic of the scenario may be read in chapters on electricity and generation mix. According to this scenario, during the period 2016 – 2035 in Bosnia and Herzegovina, it is anticipated to reduce installed capacity of TPPs from 46% (1.876 MW) in 2016 to 30% (1.650 MW) in 2035, in which HPPs with 52% of share, and other RES with 18% of share would dominate. Such development would lead to a decrease from TPP generation from 10,6 TWh (64%) in 2016 to 9,3 TWh (48%) in 2035. Such TPP sector development is the only one which is continuously decreasing need for coal until 2035 compared to other scenarios. Estimated coal consumption would decrease with an average annual rate of -1,9% in the period from 2016 to 2035, even though coal would still keep its importance in the overall mix. The average coal demand would amount to 9,9 million tonnes, which is lower than the produced coal volumes in 2016. Minimum coal demand would be registered during period 2030-2035, amounting to ~8,1 million tonnes.
Cumulative effects of indicative scenarios on TPP sector development
Depending on the generation mix strategy, total coal production in Bosnia and Herzegovina between 2016 and 2035 could be lower or higher compared to the scenario from the ISO BIH Indicative Plan. According to the current TPP sector development, total coal need for period 2016 – 2035 would amount to 322 million tonnes, while the expected coal demand in the moderate renewable scenario would be ~199 million tonnes. In the scenario of entity working groups without export limitation, the cumulative coal demand would be over 350 million tonnes, which is 11% than IP scenario. In case of convergence of future politics towards moderate renewable development of energy sector, the expected cumulative coal consumption could amount 38% less compared to the Indicative development plan of TPP sector in 2016. In case of optimising number / locations of mining operations, it is necessary to put focus on land expropriation, including the obligation for re-cultivation, which will require the establishment of adequate funds.
Figure 5.3.15 Assessment of cumulative coal needs, depending on thermal sector development scenario in Bosnia and Herzegovina, in million tonnes, 2016 - 2035
Source: Project Team analysis, WB - BIH Power Sector Note, 2016, Financial and operational mines indicators, Federation of Bosnia and Herzegovina Working Group, Republika Srpska Working Group
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Regulatory and institutional framework
5.3.6.1 Bosnia and Herzegovina level
In the coal sector at the level of Bosnia and Herzegovina, activities are performed by the MOFTER, within its competence for performing the duties and assignments falling within the Bosnia and Herzegovina competence, which pertain to defining policies and basic principles, coordination of activities and harmonisation of entity plans with those at the international level in the field of energy, including concessions when the concession value spreads over the territories of both entities
5.3.6.2 Regulation in the Federation of Bosnia and Herzegovina
The field of ore reserves and mineral raw materials has been regulated at the entity level. Exploration and exploitation of mineral raw materials in Federation of Bosnia and Herzegovina have been standardised by Law on Mining and Law on Geological Researches. Some cantons have their own regulations on mining and geological exploration. Assignment of the right to use mineral raw materials and the determination of the fee is made in accordance with the Law on Concessions and by-laws on concessions. The procedure for granting geological exploration approvals of interest for the Federation of Bosnia and Herzegovina is conducted in accordance with the Law on Public Procurement. The Law on Mining regulates: the legal status of mining raw material, mineral resources, the manner and conditions of mineral raw materials management, protection, mining works, occupational safety measures, cessation of work and permanent interruption of mining works, technical documentation and design, mining and mining plans, inspection, protection and regulation of premises, penal provisions and other issues related to the management of mineral resources in the territory of the Federation of Bosnia and Herzegovina. Mineral resources are goods of public interest and under special protection. The Laws on Geological Exploration regulates: geological explorations, geological exploration phases, geological exploration of interest for the Federation of Bosnia and Herzegovina, creation and distribution of geological maps, exploration area, cadastre management, geological documentation production and revision, approval for geological exploration activity, and approval of geological exploration, geological exploration, geological exploration reports, issuance of decisions on the recognition of reserves of mineral raw materials, procedure after exploration completion, collection and production of geological database, financing geological explorations of interest for the Federation of Bosnia and Herzegovina, abolition of approvals for geological explorations, taking professional exams, establishment of a professional chamber, validation of geological documentation and international agreements, and inspection and administrative oversight. The Federal department for geology is responsible for explorations and expert-analytical activities in the field of geological exploration, production of mineral raw materials, exploration of mineral raw materials and the definition of potential exploration sites, provision of data for strategic minerals, provision of data that will attract direct foreign investment in exploration and exploitation of mineral raw materials, geothermal energy mapping, mineral resource cadastre production, and improvement of standards in geological exploration. FMERI carries out administrative and expert tasks in the field of mining and geological exploration. FMERI (or the competent cantonal ministries) is licensed to conduct geological exploration and mineral exploration licenses.
5.3.6.3 Regulation in Republika Srpska
The field of ore reserves and mineral raw materials has been regulated at the entity level. Exploration and exploitation of mineral raw materials in Republika Srpska have been standardised by the Law on Mining and the Law on Geological Researches. The new Law on Mining and amendments and supplements to the Law on Geological Researches are put into procedure. Assignment of the right to use mineral raw materials and definition of the relevant fees are performed in accordance with the Republika Srpska Law on Concessions and Bylaws in the field of concessions. The Law on Mining regulates the conditions and methods of exploitation of ores underground and on the surface, in the river and the lake beds or underneath, construction, utilisation and maintenance of mining facilities, mining projects, mining and geodetic surveys and plans, protection measures, supervision and other issues pertaining to utilisation of mineral raw materials on the Republika Srpska territory. Ore reserves are considered to be all organic and inorganic mineral raw materials. According to the Law on Geological Researches, geological researches are explorations and examinations performed to provide information about the composition, development and structure of earth crust, development of geological maps, detection and establishment of quantities and the quality of mineral raw materials and economic effects of their utilisation, establishment of geological characteristics of soil and rocks for construction of buildings and terrain rehabilitation, identification, studying and protection of geo-inheritance objects, spatial planning, environmental protection and promotion on the principles of sustainable development, development and review of geological documentation and technical supervision activities. MIER performs administrative and technical activities in the field of mining and geological researches. The Republic Institute for Geological Researches is responsible for researches and technical and analytical activities in the field of geological researches (it produces the planning documentation and geological maps, maintains a bank of exploration core drilling), and conducts the basic geological researches of general interest for Republika Srpska. For mineral raw materials exploration and exploitation, concession is to be granted. Licenses for and Decisions on geological researches are to be issued by the MIER.
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Strategic guidelines
Table 5.3.4 Summary of strategic guidelines for coal sector
Strategic priority Strategic guideline The priority is to define and select a clear direction for the Transformation of thermal sector as a generation mix development, i.e. role of TPP sector for the period prerequisite for further coal mine until 2035. In accordance with that strategy, it is necessary to work business optimisation on transformation of mines and coal production that will serve the needs of thermal power plants Creation of an institutional framework by setting clear and measurable goals and dynamics for promotion of coal mines’ business results. Setting the timeline for initiation and Creation of an institutional framework implementation of the efficiency promotion programme to encourage continuous improvement (subsequently economic sector obligations) of coal mines Supporting initiatives for continuous change management, promotion of corporative culture and investment in knowledge and skills of employees in the mining sector Due to unfavourable financial situation in the coal sector, it is necessary to commence the process of restructuring and transformation as soon as possible, following the chosen scenario for the development of the TPP sector. In addition, it is necessary to select the optimum restructuring dynamic while taking into consideration the social component and large number of employees in the mining sector, in order to ensure a fair social transition of labour. Market Development and execution of a Along with cost measures, it is necessary to allocate funds for restructuring and transformation required modernisation and investments in technology that would programme in coal sector enable growth of productivity and more competitive production price. Investment funds should be allocated to the most perspective mines, were new technologies and economy of scale would have the strongest effect on productivity and production price. Consequently, mines need to adapt their investment plans with the aim of allocating more efficiently current and future resources that will come from a comprehensive restructuring programme. Long term intervention that manifests in determining coal production price is not sustainable in the long run. There is a Improvement of production efficiency substantial risk that the sector inefficiency will increasingly as a long term solution for current transpose to end users, and is currently creating difficulties to interventions in the coal production develop the mining sector while making financial burden to local price community. In order to control and minimize the negative impact on the production price, it is necessary to continuously work on reducing production costs.
Update and harmonisation of relevant Continuous update and harmonisation of mining-geological and legislation and regulations towards other related legislation and regulations in accordance with good creation of the institutional framework practices and standards, including the strategy for the existing/ in line with good industrial practice development of new basins, with spatial strategies and plans
Regulation
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5.4 Renewable energy sources
Introduction
Hydro, solar, wind, biomass, geothermal and waves/tidal energy are considered to be renewable energy sources (RES). Careful exploitation of renewable sources is being increasingly put on the agenda of global and European economies, as evident in the dynamics and changes in the structure of RES share in generation and gross final consumption. With ever larger technology accessibility, the key role in popularisation of RES is played by energy policies and laws which clearly support that trend. In accordance with the Directive on renewable energy (2009/28/EZ), in the European Union until 2020, a share of renewable energy sources in consumption must be 20%. In the long-term, the goals related to the share of RES in energy consumption until 2040 in the European Union goes even beyond 50% (Figure 5.4.1).
Figure 5.4.1 Targets for RES share in EU, 2040
Source: IEA – World Energy Outlook 2016.
With regard to the electricity and heating segment, Bosnia and Herzegovina already has a sufficient RES share in gross final consumption relative to the EU countries. This is the result of the hydro energy potentials in the electricity segment, as well as utilisation of biomass in the heating segment. According to the latest report from 2017 “Cost – competitive renewable power generation: Potential across South East Europe” published by IRENA (International Renewable Energy Agency), there is a significant technical potential of renewable energy sources in Bosnia and Herzegovina: for example, solar potential is 2.963,7 MW, wind potential 13.141 MW, hydro potential 6.110 MW, etc. Apart from hydro power plants that have a cost-competitive potential of 2.510 MW, Bosnia and Herzegovina has a large cost-competitive solar and wind potential. In 2016, the above mentioned potential for wind power plants ranged from 2.556,2 MW to 5.861,3 MW, while solar potential amounted to 993,5 MW. Therefore, further exploitation of RES in the future will largely depend on the decreasing of the costs of particular technologies, incentive mechanisms, administrative barriers, etc. Despite a good position of Bosnia and Herzegovina in terms of natural resources, additional activities should be taken within further strategic planning towards updating data on potentials for their further utilisation, in the hydro energy segment in particular.
RES share in gross final consumption
Based on the Decision of implementation of the Directive 2009/28/EC, a binding goal has been defined pertaining to 40% of share of RES in total final consumption until 2020 for the entire Bosnia and Herzegovina, which equals 1.940 ktoe. Accordingly, a goal has also been defined for both entities with regard to the RES share in final consumption, in order to achieve the goal at the level of Bosnia and Herzegovina. According to Action plans, the goal for the Federation of Bosnia and Herzegovina is to reach 41% of RES share, and for Republika Srpska 48%. Goals related to increased RES share in gross final consumption are divided on three key sectors: electricity, heating and cooling, transport. The target is calculated as a sum of indicative targets for the Federation of Bosnia and Herzegovina, Republika Srpska and Brčko District of Bosnia and Herzegovina. Heating and cooling sector should contribute the most to achieving the target for Bosnia and Herzegovina with share of 56% in total RES energy consumption. It is expected that the share of electricity sector will be 38% and for transport 6%.
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Figure 5.4.2 Sector contribution for RES share in final energy consumption in ktoe and %, 2020
Source: National renewable energy action plan BIH
The Action Plan has estimated RES share movements in total final consumption. For 2017, that share amounts to 37,5%, for 2018 amount 38,4%, for 2019 amounts 39,2% and for 2020 amounts 40%. At the level of Bosnia and Herzegovina, as well as on entity levels, progress in promotion of RES utilisation, in the context of share and actual RES consumption by sector, and contribution of any technology in an individual sector has been made. The results of actual utilisation in 2014 of renewable energy sources show that realisation was above planned for 8,3 percentage points.
Figure 5.4.3 Plan and realisation of RES utilisation in final consumption in ktoe, 2014
Source: National renewable energy action plan BIH, Progress report of the Contracting Parties in accordance with Directive 2009/28/EC
5.4.2.1 Electricity sector
For the overall goal to be achieved with regard to RES share in total final consumption, projections of movement of RES share in final consumption are presented for the electricity sector. The results achieved in 2014 were also presented. In electricity sector, the goal is to achieve consumption from RES of 741,4 ktoe – 8.632,6 GWh, i.e. to achieve share of 56,9% in final energy consumption in 2020. Planned relative RES share for 2014 was 45,5% (514,4 ktoe – 5.982,5 GWh). Taking into consideration actual realisation, relative share is by 7 percentage points lower than planned and is 37,6%, which is equivalent to 510,3 ktoe – 5.934,8 GWh (Figure 5.4.4).
Figure 5.4.4 RES dynamics in final consumption in electricity sector and realisation in ktoe, 2010 - 2014
Source: National renewable energy action plan BIH, Progress report of the Contracting Parties in accordance with Directive 2009/28/EC
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RES technologies contributing to final consumption of the electricity sector are hydro energy, wind, biomass and solar energy. It was planned that in 2015 the largest contribution would be given by hydro energy with 97,5% (220.6 ktoe) of total RES energy quantity, then wind with 1,7%, biomass with 0,6% and solar energy with 0,2%. Looking at the realisation in 2015, hydro power plants had the biggest contribution (99,9%), while the rest was from solar power plants (Figure 5.2.2). Plans until 2020 are very similar to that for 2015. Relative share of hydro power plants should be reduced to below 90% while the biggest increase is expected from wind power plants. Their relative share should increase to 8,9%, while the share of biomass should increase to 1,4% (Figure 5.2.3).
Figure 5.4.5 RES contribution in electricity sector – plan and Figure 5.4.6 RES contribution in electricity sector – plan in % realisation in % (GWh), 2015 (GWh), 2020
Source: National renewable energy action plan BIH, Progress Source: National renewable energy action plan BIH report of the Contracting Parties in accordance with Directive 2009/28/EC, Project Team analysis
According to vision until 2035, contribution of every individual technology will increase. Vision is based on movement dynamics presented in Action plan until 2020 and average of generation portfolio development scenarios until 2035. The largest contribution to total RES share will be made by hydro power plants, however, their relative share will be diminished due to increase in the share of other renewable energy sources and the assumption is that it will amount to 84%. When planning hydropower projects, it is necessary to work on detailed analyses from the aspect of environmental protection, legal framework, diversification of water use and sustainable development. Relative wind share will remain roughly at 2020 levels and will amount up to ~9%, while their absolute contribution will increase due to construction of several wind farms. For the estimated contribution of biomass to be achieved and which amounts to ~ 4%, it is necessary to encourage consumption of solid biomass in cogeneration plants. Considering that solar energy will become competitive on the market by 2035, a slight increase in share of this type of energy in RES is expected and at that time it would amount to about ~2% (Figure 5.4.7).
Figure 5.4.7 Vision for contribution of RES in electricity sector as scenario average in % (GWh), 2035
Source: Project Team analysis, Working Group guidelines
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5.4.2.2 Stimulation of generation from RES
From the aspect of incentive system participation, hydro power plants with capacity up to 10 MW are considered as renewable energy, as well as all previously mentioned renewable sources (wind power plants, solar power plants, power plants using biomass). The amount of energy generated from renewable sources, which is planned to be stimulated at the level of Bosnia and Herzegovina, was calculated as a sum of planned subsidised quantities at entity levels. Through the incentive system, a significant increase in the share of wind energy is planned in Bosnia and Herzegovina, which will in that case exceed the share of small HPPs by 2035. Therefore, the next step is to analyse technical conditions for WPP integration into the grid in the forthcoming period.
According to the Action Plans, until 2020, 345 MW in capacities that enter the incentive system should be installed in Bosnia and Herzegovina. Small HPPs and WPPs will have the largest share. Therefore, in 2020, 1.197GWh of electricity would be generated from the stated capacity. Considering various scenarios for the generation mix development until 2035, the amount of installed capacity and generation from RES differ. As a representation, a sum of entity scenarios is taken. Accordingly, in 2035 the amount of installed capacity from RES in Bosnia and Herzegovina would be 1.453 MW. Considering the potentials and possibilities, construction of ~ 800 MW in new capacities has been planned until 2035 and, at that time, the wind farms would generate about 2.500 GWh a year, which would account for 58% of total generation. Total generation under this scenario would then amount to 4.325 GWh.
Comparison of the scenario with high values which promotes consumption of renewable energy the most and the median of all scenarios indicates that the amounts of installed capacity and production in 2035 would considerably differ (Figure 5.4.8 i Figure 5.4.9). The main difference is in the installed wind power capacities, considering that when calculating median, the limit of installed power of 350 MW was taken into account. Regarding technical potential of WPPs as well as plans for their construction for the period after 2020, it is necessary to work on adjusting incentive mechanisms for all RES technologies, reduction of administrative barriers and creating conditions for integration of larger WPP capacities to the grid.
Figure 5.4.8 Installed RES capacity in Bosnia and Herzegovina in the existing and new capacities within the incentive system in MW, 2015 - 2035
Note: 1) Data was calculated as sum of data from Federation of Bosnia and Herzegovina and Republika Srpska, 2) Selection of projects for realisation of targeted capacity of RES is subject of further decisions in the profitability studies and environmental influence studies (e.g. impact on controlling floods, impact on the environment and health, etc. ) Source: Federation of Bosnia and Herzegovina Working Group, Republika Srpska Working Group, Generation portfolio of Republika Srpska 2015-2035, Generation portfolio of Federation of Bosnia and Herzegovina, Project Team analysis
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Figure 5.4.9 Generation by each RES in Bosnia and Herzegovina in existing and new capacities within incentive system in GWh, 2015 - 2035
Note: 1) Data was calculated as sum of data from Federation of Bosnia and Herzegovina and Republika Srpska Source: Federation of Bosnia and Herzegovina Working Group, Republika Srpska Working Group, Generation portfolio of Republika Srpska 2015-2035, Generation portfolio of Federation of Bosnia and Herzegovina, Project Team analysis
Considering the existing incentive system, certain subsidies should be secured to stimulate production from renewable energy sources. In the Federation of Bosnia and Herzegovina, total planned funds for RES subsidies consist of funds for incentive part, balancing costs and operating costs of operator, while in Republika Srpska total planned funds for RES fees consist of funds for premiums, operating costs of the transmission system operator, balancing costs and expenses of the Environmental Protection and Energy Efficiency Fund. In both entities, the planned fees are compensated from the funds collected through RES fee by end consumers. Premiums vary depending on the particular technology, while the RES fee itself is unique and is paid by all buyers per kilowatt hour. Fees for RES by entity are different. An estimate of cost reimbursement has been made for entity scenarios, given the most aggravating RES growth is assumed, in order to see the ultimate pressure on electricity prices. During the estimation until 2035, planned generation per technology and by year was taken into account. In Republika Srpska, funds amounting to 8,2 million euros are planned for 2017, and are higher than the ones in the Federation of Bosnia and Herzegovina, which amount to 6,1 million euros. Total amount of funds for Bosnia and Herzegovina amounts to 14,3 million euros. By 2035, the total amount of necessary funds will grow at an average annual rate of 17,8% in Federation of Bosnia and Herzegovina and 12,5% in Republika Srpska. In Bosnia and Herzegovina, average annual rate of 15,2% is expected, with total amount of approximately 184 million euros in 2035. Depending on the portfolio development strategy and goals adopted from EU, that amount could be corrected subsequently (Figure 5.4.10).
Figure 5.4.10 Assessment of growth of planned costs of RES subsidies in million EUR, 2017 - 2035
Note: Data for Bosnia and Herzegovina were calculated as sum of Federation of Bosnia and Herzegovina and Republika Srpska data Source: Federation of Bosnia and Herzegovina Working Group, Republika Srpska Working Group, Project Team analysis
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Costs of RES subsidies shall be borne by end consumers through the electricity bills to which a unit RES charge is added. In 2017, that unit fee amounts to 0,0022 EUR/kWh (0.0044 KM/kWh) in Republika Srpska with expected growth of 14,8% by 2035, and 0,001 EUR/kWh in Federation of Bosnia and Herzegovina with expected growth of 12%. The increase in charges has direct impact on increment of electricity price for households. The assessment was made to indicate that the amount of the unit fee could increase by ~13% in 2035 in Bosnia and Herzegovina, assuming that other items in the electricity bill remain unchanged (electricity costs, network fee and VAT) (Figure 5.4.11).
Figure 5.4.11 Impact of planned RES subsidies on the final electricity price in EUR/kWh, 2017 - 2035
Note: Data for Bosnia and Herzegovina are calculated as the average of Federation of Bosnia and Herzegovina and Republika Srpska. The assessment is made based on the entity working group scenario. Its purpose is to provide an indicative assessment of future pressures of the RES compensations on the price of electricity in the scenario of unchanged amount of compensations ("ceteris paribus"). Source: Project Team analysis
Taking into account certain assumptions, such as the amounts of production from RES, funds for incentives and operator’s operating costs, costs of balancing, the referenced assessments are made to show that the additional pressure will be made on the final prices of electricity. It is therefore required to periodically review the incentives system model for RES generation, against the model of other European countries. If the planned GDP increase of 3% a year is achieved, the growth of living standard would exceed the currently assessed increase in the final price of energy.
A regulatory framework to stimulate renewable energy sources in the Federation of Bosnia and Herzegovina and Republika Srpska is shown below (Table 5.4.1 and Table 5.4.2).
Table 5.4.1 Regulatory framework for stimulation of RES in Federation of Bosnia and Herzegovina
Federation of Bosnia and Herzegovina RES incentive model Feed-in tariff with guaranteed price
Plant operator needs to obtain the status of „privileged producer“ Privileged producer needs to conclude „Power purchase agreement for a guaranteed price“ with RES Operator Feed-in tariff procedure RES Operator is obliged to purchase the total amount od produced energy from RES at a preferential price RES Operator is responsible for the collection of the funds and pays the incentive part of the guaranteed price to privileged producer Technologies All technologies are eligible Connection to the grid RES producers have priority to grid connection Source: Res-legal, Federation of Bosnia and Herzegovina Working Group
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Table 5.4.2 Regulatory framework for stimulation of RES in Republika Srpska
Republika Srpska
Feed-in tariff RES incentive Premiums – producers generating electricity for their own need or who sell it on the model market shall be covered by incentives Net metering – for small producers up to 50 kW
Plant operator most obtain a „Certificate for the Electricity Production from Renewable Energy Sources“ and the Decision on the Right to Support by the Regulatory Feed-in tariff Commission for the Energy (RERS) procedure Incentive System Operator and RES producer conclude an „Agreement od compulsory purchase at the guaranteed price“
Eligible technologies for feed-in tariff Depending of the technology, capacity limitations are up to 1 MW (SPP, biogas), up to 10 MW (WPP, geothermal, biomass, HPP) Technologies Eligible technologies for premiums Over 10 MW (WPP) Over 30 MW (biomass cogeneration) Connection to the grid RES producers have priority to grid connection Source: Res-legal, rers.ba – Rulebook on Incentives for Generation EE from RES and efficient cogeneration, Republika Srpska Working Group
Currently, in the Federation of Bosnia and Herzegovina generation from RES is stimulated through feed-in tariffs. Producers that are in the incentive system have guaranteed tariff in term of 12 years. This model excludes the price risk of new producers and reduces their capital cost, but the producer is also excluded from active participation in the market, considering that the Operator is obliged to buy the generated energy. Generation from RES in Republika Srpska is currently stimulated through the feed-in tariffs and premiums. In the premium model, producers also have a guaranteed premium during the period of 15 years. Under this model, the producer is obliged to find a buyer on the market, thus stimulating buying energy from renewable sources. Most countries of the South East Europe also apply the feed-in tariff system. After reaching a satisfactory level of RES in the incentive system, transfer to other incentive mechanisms should be considered that are more adjusted to future goals and market based priniciples. One of the possible incentive mechanisms is a quota system, under which a supplier is obliged to buy a certain quantity of renewable energy, thus creating the market among producers and suppliers for trading in energy or in “green certificates”. European countries apply different models to encourage generation from RES (Figure 5.4.12). In 2013, EU announced complete reallocation of the incentive systems that Member State should have offered to the RES sector, where premium and quota systems have advantage over the common feed-in tariff system.
Figure 5.4.12 Incentive model sin the European countries
Source: SEERMAP, DIA-CORE, Fraunhofer, ECOFYS, European Commission
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5.4.2.3 Management of RES market for electricity
In 2016, Bosnia and Herzegovina established a balance market through a tender procedure and it is currently managed by the Independent System Operator in Bosnia and Herzegovina (ISO BIH). Currently, there are 17 balance-responsible parties in Bosnia and Herzegovina, of which 8 were active during 2016. It is currently characteristic for Republika Srpska that all privileged producers from RES belong to the balance group managed by Elektroprivreda RS. Electric power plants using renewable energy sources and wind farms in Republika Srpska are always given dispatching priority and are obliged to pay excessive imbalance above 500 kW, including 25% of balancing costs. On the other hand, in the Federation of Bosnia and Herzegovina, privileged and qualified producers, with installed power over 150 kW, pay balancing costs for their own generation to RES Operator. Currently, in Bosnia and Herzegovina, there is no technical infrastructure nor defined mechanism for the entire balancing process considering all RES producers from whom the electricity is purchased and who deliver mentioned electricity to distribution network.24 Considering that an increase in RES is expected, it may also be expected that there would occur a larger imbalance in EES. Imbalance is primarily caused by drastic increase in installed capacities in wind farms. The main problem in electricity generation in wind farms is inability of accurate forecasting the generation. If wind generation is above the forecast, a low price of imbalance will be paid to WPP, otherwise, WPP will pay a high price of imbalance.
In order minimise the imbalance issues, it is necessary to properly solve the issue of system organisation and integration of privileged producers from RES into EES of Bosnia and Herzegovina, therefore the guidelines have been provided for the establishment of the RES balance market and managing RES both on entity and the level of Bosnia and Herzegovina.
In the Federation of Bosnia and Herzegovina privileged and qualified RES producers connected to distributive network may choose whether to belong to RES balance group or be independent as part of the existing balance responsible parties, whose operating is defined by Market Rules. It is necessary to establish a coordination body to manage and lead RES balance group in the name of privileged and qualified producers. Federation of Bosnia and Herzegovina is currently in the process of preparing a Draft Rule on the methodology for allocating balancing costs and determining the share of costs that will be paid from the incentive fees, which will define the way for bearing RES imbalance costs. In Republika Srpska, the current Law and Bylaws stipulate that all RES producers in the incentive system belong to certain balance responsible group. Balance responsible party and balance group are defined by the Market Rules. Considering the possibility of imbalance in the EES, Republika Srpska has adopted mechanisms for bearing imbalance costs. Likewise, in order to minimise imbalance problems, Republika Srpska already prepared several software for precise forecast of daily generation, especially from WPPs. One of the options is integration of RES power plants, especially WPPs, directly to the transmission network. In such case, if a responsible RES balance group is formed (Eco-balancing group), an establishment of the coordinating body is required. Mentioned role can be obtained by RES operator in accordance with territorial (entity) jurisdiction, one of the balance group members or may be allocated to future market operator in Bosnia and Herzegovina. If two eco-balanced groups are formed (at each entity level), it is necessary to foresee the possibility of interest association in order to optimise balancing costs (netting). It is necessary to use advanced programs for accurate forecasting of daily production at the level of Bosnia and Herzegovina in order to increase planning accuracy and consequently reduce system’s imbalances.
In the forthcoming period, it is necessary to follow European trends through new incentive mechanisms and modalities of electricity generation, as well as in RES markets
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Additionally, examples of how RES electricity is managed in selected European countries is given below, where the market operator or the TSO is in charge of managing RES balance group and balancing energy (Table 5.4.3).
Table 5.4.3 Timeline of sale of electricity from RES in selected countries
Course of development of the sales channels Market operator BORZEN → manager of the eco-balance group and balancing energy for RES Slovenia 2010. – non-standard product in auctions (with balancing) + electricity power market (BSP) 2011.-2015. – standard product, auctions and electricity power market 2016 balance group is bought by GEN-I, and in 2017 by HEP Operator EE APCS, within OeMAG → manager of the eco-balance group and balancing energy for RES Austria 2003.-2006. – heads of the eco-balance group responsible for purchasing, subsiding and allocation of electricity 2006.-today – OeMAG (APCS) allocates electricity directly to active suppliers depending on their market share TSO MAVIR → manager of the eco-balance group and balancing energy for RES 2008. – suppliers take electricity from RES in accordance with their market share Hungary 2014. – new sales channel on HUPX, difference between planned daily amounts of RES and base energy are being sold on the electricity power market 2016. – all energy from RES is offered via HUPX Market operator GSE → manager of the eco-balance group and balancing energy for RES Italy 2008.-onward – GSE offers to small producers to purchase electricity from RES which it sells on intraday or day ahead market
Source: BORZEN, HROTE, MAVIR, Res-legal, APG, GSE, Europex, Project Team analysis
5.4.2.4 Heating and cooling sector
As in the case of the previous sector, projections of the RES share in final consumption were also provided for the heating and cooling sector. For heating and cooling, the RES share target is 52,4%, thus forecasting an increase in the absolute value to 1.085,2 ktoe in 2020. The planned share for 2014 amounted to 51,4%, that is, 1.005 ktoe of RES energy. Realisation in 2014 was by 10 percentage points below the plan, which means that the realised RES share amounted to 41,1% (Figure 5.4.13).
Figure 5.4.13 RES dynamics in final consumption in heating and cooling sector and realisation in ktoe, 2010 - 2020
Source: National renewable energy action plan BIH, Progress report of the Contracting Parties in accordance with Directive 2009/28/EC
In most cases biomass and geothermal energy are used for heating and cooling. In 2015 was planned that biomass and firewood contribution would be 99,9%, while the rest of the contribution would be from geothermal energy. With regard to actual contribution, all energy spent for heating and cooling originated from biomass. In 2020, an increase of geothermal share is expected, from 0,1% to 0,3% (Figure 5.4.14 and Figure 5.4.15).
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Figure 5.4.14 RES contribution in heating and cooling sector Figure 5.4.15 RES contribution in heating and cooling sector – plan and realisation in % (GWh), 2014 – plan in % (GWh), 2020
Note: Data for heating and cooling sector are from 2014 Source: National renewable energy action plan in Bosnia and Source: National renewable energy action plan in Bosnia and Herzegovina Herzegovina, Progress report of the Contracting Parties in accordance with Directive 2009/28/EC, Project Team analysis
For this sector, estimates of RES share movements until 2035 were made for moderate renewable and cogeneration renewable scenario. RES share movement in moderate renewable scenario is based on 2015 realisation and 2020 plan, and also takes into consideration development of distributed generation. Biomass will continue being the main fuel for heating and cooling. Broad consumption of solar panels, for household heating primarily, is expected due to continued solar panel price fall. Under the cogeneration renewable scenario, it is necessary to focus on the remote heating systems (Figure 5.4.16 i Figure 5.4.17). There is also possibility of using waste for energy generation (“waste to energy”) that needs to be considered in the future, but these ambitions have to be in line with EU targets for recycling. As net step for Bosnia and Herzegovina and entities, it is recommended to develop a comprehensive cost-benefit analysis of biomass policy which will include, inter alia, CO2 impact analysis, availability of raw materials, cogeneration application, etc.
Figure 5.4.16 Vision for contribution of RES in heating and Figure 5.4.17 Vision for contribution of RES in heating and cooling sector – moderate renewable scenario in %, 2035 cooling sector – cogeneration renewable scenario in %, 2035
Source: Project Team analysis Source: Project Team analysis
5.4.2.5 Transport sector
For transport sector, the RES share target is 10%, thus forecasting an increase in absolute value to 113,9 ktoe in 2020. In the transport section so far the renewable energy sources have not been used at all (Figure 5.4.18).
Figure 5.4.18 RES dynamics in final consumption in transport sector and realisation in ktoe, 2010 - 2020
Source: National renewable energy action plan BIH, Progress report of the Contracting Parties in accordance with Directive 2009/28/EC
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According to estimates, in 2015 approximately 64% of renewable energy used in transport should have been produced from biofuels, and about 34% from electricity generated from RES. However, according to available data, no biofuels or any other form of RES were used in 2015 in Bosnia and Herzegovina. The assumption is that in 2020, biofuels will have a share of ~ 94%, primarily biodiesel, while also using bioethanol that so far has not been in the plans (Figure 5.4.19 and Figure 5.4.20).
Figure 5.4.19 RES contribution in transport sector – plan and Figure 5.4.20 RES contribution in transport sector – plan, realisation, 2015 2020
Source: National renewable energy action plan in Bosnia and Source: National renewable energy action plan in Bosnia and Herzegovina, Progress report of the Contracting Parties in Herzegovina accordance with Directive 2009/28/EC
For the period until 2035, estimates for biofuels and electricity generated from RES were made. Estimates were made for two scenarios – baseline scenario and scenario that promotes stronger usage of electric vehicles. Taking EU decrees on CO2 reduction, the use of biofuels in absolute amounts needs to be increased. The assumption is that, for baseline scenario, share of biofuels and electricity generated from RES will remain at almost the same levels as planned for 2020. Taking into consideration a very rapid technology development, new commercial technologies are also expected in the transport sector. Considering the global trends, Bosnia and Herzegovina expects popularisation and incentives to buying electric cars. The European trend indicates the growth of social and ecological responsibility in companies, such as railways that buy green energy, or the use it for charging electrical vehicles will lead to increase in usage of electricity generated from RES in transport sector (~ 15%) (Figure 5.4.21 and Figure 5.4.22).
Figure 5.4.21 Vision for contribution of RES in transport Figure 5.4.22 Vision for contribution of RES in transport sector – baseline scenario, 2035 sector –scenario that promotes stronger usage of electric vehicles, 2035
Source: Project Team analysis Source: Project Team analysis
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5.4.2.6 RES development in Brčko District of Bosnia and Herzegovina
When it comes to renewable energy sources and their share in final consumption, the goals are divided into three previously mentioned key sectors (electricity, heating and cooling and transport). According to vision until 2035, contribution of every individual technology will increase, especially solar energy, for household heating primarily, due to continued solar panel price fall. In Brčko District of Bosnia and Herzegovina, there is 50.000 m2 of rooftop surfaces (public and commercial facilities) where solar panels, with total power of 6,5 MWe, could be installed. Therefore, 6,3 GWh of electricity would be generated from stated capacities, thus enabling efficient coverage of energy consumption peak during the summer. To increase RES share in heating and cooling sector, there is a potential option of the construction of a biomass cogeneration plant of 2x200 MWe, as well as two thermal units with maximum power of 2x40 MWt, with more details in the heating sector. Under the cogeneration renewable scenario it is necessary to focus on the remote heating systems, as well as improve management of forestry sector and link the industries. Biomass will continue to be the main fuel for heating and cooling, while it will be necessary to change the structure of used biomass, in order to reduce firewood consumption and to increase pellet and waste usage. It is necessary to increase share of biofuels, primarily biodiesel, in transport sector. Apart from biofuels, it is expected the share of electricity from RES to be increased, primarily through electric vehicles popularization and construction of electric charging stations. The European trend indicates the growth of social responsibility in companies, such as railways which buy green energy.
5.4.2.7 Measures for achieving the targets
The existing Action Plan has defined several measures for planning an increased utilisation of energy from renewable sources, thus meeting the set indicative goals: 1. Strategic Policy of Energy Sector Operations in Bosnia and Herzegovina 2. Development and improvement of the Renewable Energy Action Plan for Bosnia and Herzegovina in line with entity action plans 3. Development, management and reporting on Projects of Energy Community Interest (PECI) 4. Harmonisation of incentive programmes with other countries 5. Progress report concerning promotion and use of renewable energy sources 6. Promotional programmes for sustainable use of energy in local communities 7. Establishing mechanisms for monitoring, production, export/import, and consumption of biofuel 8. Programme of promoting use of biofuel on the level of Bosnia and Herzegovina – including reconsidering provisions on the Law on Excise and the Law on Customs Tariffs with regards to the use of biofuel
Regulatory and institutional framework
5.4.3.1 Level of Bosnia and Herzegovina
The Council of Ministers adopted the Renewable Energy Action Plan for Bosnia and Herzegovina (NREAP BiH) in March 2016. The Action Plan for RES for Bosnia and Herzegovina is based on previously adopted Entity Action Plans for renewable energy sources. The national and entity Action Plans have been produced in a form regulated by a decision of the European Commission on the establishment of a form for national Action Plans for renewable energy in accordance with the Directive 2009/28/EZ. Also, the Action Plan for RES for Bosnia and Herzegovina contains parameters related to Brčko District of Bosnia and Herzegovina, which have not been the subject matter of adoption by the Government of Brčko District. The Action Plan Bosnia and Herzegovina shall be harmonised with the strategic and planning documents of Republika Srpska, Federation of Bosnia and Herzegovina and Brčko District of Bosnia and Herzegovina. The Action Plan for RES of Bosnia and Herzegovina shall define the review of energy consumption from RES in the referenced 2009 year and in the period 2010-2020, including: planned total final consumption of energy from RES for heating and cooling, electricity and transport, taking into account the effects of energy efficiency and energy saving expressed in equivalent oil kilo tonnes (ktoe), planned share of RES in total final consumption of energy from RES for heating and cooling, electricity and transport expressed in percentages, a share of renewable energy of every sector in final energy consumption, a share of renewable energy in transport, assessment of total share (installed capacity of total electricity production) expected from any renewable energy technology, maximum level of installed capacity of privileged producers for any technology (hereinafter: dynamic quota), policy and measures for promotion and stimulation of utilisation of energy from RES, in accordance with regulations governing competition and governmental assistance, joint measures of ministries and institutions.
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The energy statistics is being developed and not entirely functional to secure sufficient data for monitoring and updating of the developments in the RES sector in Bosnia and Herzegovina. The MOFTER notifies the Energy Community of the implementation of the Action Plan for RES for Bosnia and Herzegovina, in accordance with the entity reports on implementation of the action plans and reports on the implementation of measures conducted by the authorities at the level of Bosnia and Herzegovina.
5.4.3.2 Regulatory framework of Federation of Bosnia and Herzegovina
The Action Plan for renewable energy sources of Federation of Bosnia and Herzegovina (APOEF) defines the policies, measures and mandatory goals concerning the share of energy from RES in the total final consumption of electricity, heating/cooling energy and transport energy, acknowledging the effects of regulatory measures which pertain to promotion of energy efficiency and energy savings by final consumers, and other measures towards meeting the set goals. The Law on the use of renewable energy sources and efficient cogeneration regulates the promotion of the use of renewable energy sources and efficient cogeneration, RES potential testing, as well as measures to promote the usage of RES in transport for domestic consumption and increase of RES share in final energy consumption and to ensure incentive measures development, regulatory framework and technical infrastructure for RES and efficient cogeneration.
The incentives models in the Federation of Bosnia and Herzegovina are feed-in tariff with guaranteed price. Producers of energy from RES are entitled to priority connection to the grid. The Law foresees that the Incentive System Operator shall be established to perform administrative, financial or other operational activities within the system stimulating energy generation from renewable sources and in efficient cogeneration. The Law established an Operator of renewable sources and efficient cogeneration (RES Operator) with the aim of creating an institutional structure for operation of the incentive system for the generation and purchase of electricity from RES power plants.
RES Operator has the following competencies: 1. collects, processes and keeps records of total electricity generated by qualified producers, 2. at the request of the privileged producer, concludes a contract for electricity purchase at guaranteed prices and purchases total amount of electricity from privileged producer, 3. at the request of the privileged producer, concludes a contract for electricity purchase at reference prices and purchases total amount of electricity from qualified producer, 4. at the request of the privileged producer, concludes a preliminary contract for electricity purchase at guaranteed purchase prices, 5. performs calculation and payments of financial funds for electricity to privileged producers who have concluded the contract with RES Operator at guaranteed prices, or to qualified producers at reference price for delivered quantities of produced energy, 6. concludes contract for the purchase of electricity with micro-producer and calculates and disburses financial resources for delivered electricity, 7. concludes a contract, with each individual supplier from the Federation of Bosnia and Herzegovina and a qualified customer purchasing electricity for its own needs from a supplier outside of the Federation of Bosnia and Herzegovina, that will detail all mutual rights and obligations, including the collection of charges, as well as the obligations of the suppliers and qualified customers to issue appropriate guarantees for payment security to RES Operator, 8. conducts analysis of realised quantities of electricity produced from RES in relation to planned, 9. performs invoicing and billing from suppliers regarding delivered electricity that is produced from privileged producers at reference price 10. collects and processes data on total final electricity consumption in the Federation of Bosnia and Herzegovina, delivered by grid operator, suppliers and qualified customers on a monthly basis for the purpose of calculating fees, 11. collects incentive feed from suppliers and qualified customers 12. takes part in proposing rules for EES balancing in cooperation with authorizes institutions, including rules for the calculation of imbalance fees, which are within competence of ISO BIH, 13. makes payment of the EES balancing funds in the name of privileged producers 14. conducts a special transaction account for calculation and payment of electricity produced from RES 15. performs prescribed activities relate to promotion of RES 16. submits semi-annual and annual business reports to FMERI and SERC 17. keeps Register of Guarantees of origin, issues, transfers and annuls guarantees of origin for electricity and energy used for heating and cooling 18. keeps Project Registry, 19. keeps records of the realisation and observance of purchase procedures for energy from RES.
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Regulatory functions in the field of RES are performed by SERC, and are following: 1. adoption of a methodology for the determination of reference price of electricity 2. regulating and supervising operation of RES Operator 3. approval of the Rulebook on the procedure for submitting a request for issuing a guarantee of origin at the proposal of RES Operator, 4. adopting the Rulebook on acquiring the status of qualified producers, and issuing the Decision on acquiring the status of qualified producers, 5. adopting the Rulebook on compulsory share and takeover of electricity produced from RES and on the basis from that, determination of compulsory share for all suppliers 6. adopting the Methodology on determining guaranteed prices for electricity from RES for privileged producers, as well as the criteria for their change and on the basis of which the calculation of the proposal f guaranteed prices of electricity 7. adopting the Rulebook for micro-plants using renewable energy sources, which determines the procedure for the construction of electricity facilities, condition of connection on the distribution network, metering methods and calculation of the produced electricity 8. giving consent to the Rulebook on determining the methodology for the allocation of balancing costs for privileged and qualified producers, as well as the share that will be paid from fees collected for RES promotion at the proposal of the RES Operator 9. informing the public about stimulating measures for RES and efficient cogeneration
Decree on the promotion of electricity production from renewable energy sources and efficient cogeneration and on the determination of the incentive fee (Official Gazette of Federation of Bosnia and Herzegovina, No. 48/14) regulate that the incentive fees for generation from RES and efficient cogeneration are provided from RES fee charged from all end customers in Federation of Bosnia and Herzegovina. The supplier is required to indicate the RES unit fee and total amount of incentive on the electricity bill. Previously states is determined based on the amount of sold and delivered electricity. Supplier is obligated to transfer the collected funds to the RES Operator's account.RES Operator and producer conclude a purchasing contract for electricity. RES Operator is obligated to purchase all energy produced from RES at privileged price. RES Operator collects incentive fees and pays incentive part and guaranteed prices for electricity produced from RES to privileged producers. By the Rulebook on the Methodology on determining the guaranteed prices for electricity from renewable energy sources and efficient cogeneration (Official Gazette of Federation of Bosnia and Herzegovina, No. 50/14), FERK prescribes the methodology on determining guaranteed purchasing prices for electricity from qualified producers, who acquired the privileged producer status, for each type and group of RES and efficient cogeneration facilities, as well as criteria for changing the established guaranteed price. By the Rulebook on the Methodology for Determining the Reference Price for Electricity (Official Gazette of Federation of Bosnia and Herzegovina, Nos. 50/14, 100/14), FERK prescribes the methodology for determining the reference price of electricity as he purchase price of electricity from facilities using RES and efficient cogeneration, whose generation is not stimulated and is used to determine fees paid for RES. By the Rulebook on compulsory share and takeover of electricity produced from RES (Official Gazette of Federation of Bosnia and Herzegovina, No. 99/16) FERK prescribes the obligation, method and procedures for takeover of electricity from RES for all suppliers that are supplying end customers in the Federation of Bosnia and Herzegovina and qualified customers who import electricity for their own needs. By the Rulebook on acquiring the status of qualified producers (Official Gazette of Federation of Bosnia and Herzegovina, No. 53/14), FERK established the requirements and procedures of obtaining the status of qualified producer, for those who produce electricity by using waste or RES or those using combined heat and power generation, economically feasible in accordance with environmental protection measures. The Rulebook on the Procedure for submission of applications for the issuance of the Guarantee of the Origin (Official Gazette of Federation of Bosnia and Herzegovina, No. 101/15) defines the content of application for Guarantee of origin for electricity and content of the issues Guarantee of the Origin, as well as the establishment of transparent procedure and provision of equal condition for the issuance, transfer and annulment of the Guarantee of the Origin for electricity. The Rulebook for micro-plants using renewable energy sources (Official Gazette of Federation of Bosnia and Herzegovina, No. 50/14) defines clear terms and conditions for connection of RES micro-plants to the distribution network, which ensure and enable equal conditions for the connection of RES micro-plants, as well as metering method and calculation of electricity produces in RES micro-plants.
5.4.3.3 Regulatory framework of Republika Srpska
The Action Plan for renewable energy sources of Republika Srpska defines the policies, measures and mandatory goals concerning the share of energy from RES in the total final consumption of electricity, heating/cooling energy and transport energy, acknowledging the effects of regulatory measures which pertain to promotion of energy efficiency and energy savings by final consumers, and other measures towards meeting the set goals. The Law on Energy of Republika Srpska stipulates that utilisation of renewable energy sources and efficient cogeneration is of general interest for Republika Srpska. The Law on Renewable Energy Sources and Efficient Cogeneration of Republika Srpska, as the umbrella regulation for the RES area, regulates the generation planning and promotion, and energy consumption from renewable sources and in efficient cogeneration, technologies for utilisation of renewable energy sources, incentive measures for electricity generation from renewable energy sources and in efficient cogeneration, implementation of the energy generation incentive system and construction of a plant for electricity generation from renewable energy sources. The Law foresees | 118
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that the Incentive System Operator shall be established to perform administrative, financial or other operational activities within the system encouraging energy generation from renewable sources and in efficient cogeneration. Until such time as the establishment of the Incentive System Operator, these activities will be performed by EP RS. EP RS is obliged to maintain separate accounting records and a separate special-purpose account for purchase and sale of electricity generated from renewable sources and in efficient cogeneration which is subject to incentives. The Incentives System Operator and producer shall enter into a contract on mandatory purchase at the guaranteed price. The Republika Srpska incentives models are feed-in tariff, premiums and net metering. Producers of energy from RES are entitled to priority connection to the grid. RERS performs the regulatory activities in the RES area. RERS issued the Book of Rules on incentives for electricity generation from renewable sources and in efficient cogeneration (Official Gazette of Republika Srpska, Nos. 114/13, 88/14 and 43/16), which set forth the conditions and procedure for the execution of the right to incentives, a method of verification of available capacities and amount of electricity to be subject of incentives, methodology for the establishment of guaranteed purchase price of electricity and premiums, calculation and collection of fees for renewable energy sources and efficient cogeneration, method for the establishment of operational costs of the system operator, and other issues. RERS rendered a Decision on the amount of guaranteed purchase prices and premiums for electricity generated from renewable sources or in efficient cogeneration of Republika Srpska (Official Gazette of Republika Srpska, Nos. 116/13, 128/11, 88/14 and 43/16) and a Decision on the amount of fees for stimulation of generation of electricity from renewable sources and in efficient cogeneration of Republika Srpska (Official Gazette of Republika Srpska, Nos. 116/13, 128/11, 4/15 and 14/16),which have been applied since 2012. The Decision on the amount of guaranteed prices has defined the guaranteed purchase prices and premiums, and it is applied when issuing a decision on the right to incentives and when entering into the sales contract with the incentives system operator. A Decision on the amount of the fee for incentives shall define the fee by which the funds are secured for the payment of premiums to producers of electricity who are entitled to mandatory purchasing at the guaranteed purchasing price, the right to premium, funds required for functioning of Operators and funds allocated for the Environmental Protection and Energy Efficiency Fund. Fee shall be charged to any end customer in Republika Srpska in the amount which is equal to the unit fee product and assumed active electricity and presented as a separate item on the invoice for the customer, also issued a Book of Rules on the issue of certificates for generation plants generating electricity utilising renewable energy sources or in efficient cogeneration of Republika Srpska (Official Gazette of Republika Srpska, No. 112/13). This Book of Rules stipulates the criteria for the issue of certificates, the issue procedure, text of the certificates, extension of their validity, transfer, cancellation and withdrawal. By the Rule Book on the issue of guarantees on the origin of electricity (Official Gazette of Republika Srpska, No. 1/14) RERS regulates the content of the guarantee, conditions and the issue procedure, transfer and cancellation of the guarantee for origin of electricity.
The foregoing legislation and regulations pertain to incentives for utilisation of RES in the electricity generation process. However, utilisation of RES in the sectors of transport and heating and cooling still remains without standardisation and the regulatory guidelines are therefore provided in the Table of strategic guidelines below. .
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Strategic guidelines
Considering that the measures stated above have been adopted from the Action Plans defined for the period until 2020, the energy framework should be set for the renewable energy sector strategy of Bosnia and Herzegovina. The strategic priorities and guidelines for the development of the RES sector until 2035 are provided below (Table 5.4.4).
Table 5.4.4 Strategic guidelines
Strategic priority Strategic guideline Currently in Bosnia and Herzegovina, there is no legislation that regulates cooperating mechanisms with other EC Member States, Standardisation of cooperation which would enable the agreement on measures and programmes mechanisms with other countries in for stimulation of electricity generation from RES and achievement order to implement measures and of targets set out in Action plans, as laid down in Directive programmes for stimulating electricity 2009/28/EC. Therefore, it is necessary to access drafting of this generation from RES legislative. Measures may include, for example, statistical data transfers between member states, joint projects and support programmes, data and best practice exchange, etc. Prescribing the benefits of connecting Although the entity legislation stipulate the priority connection to to the transmission system for power the distribution network for power plants that use RES, it is plants that generate energy from RES, necessary to prescribe the priority connection to the transmission if it provides safe system operation and network at the level of Bosnia and Herzegovina, in accordance with is based on transparent and non- the requirements of Directive 2009/28/EC discriminatory data Systematic planning of increased production from other renewable energy sources, considering the available potentials through development of action plans for period after 2020 Increase of RES (that enter incentive Further development of the market organisation and holistic system) share in electricity generation, management of electricity and balancing from RES, through along with adequate system defining the competence authority for coordination and selling of organisation electricity generated from RES Ongoing auditing of the amounts of fees and consideration of new market based incentive mechanisms until 2020 to reduce pressure
Marketand regulations on final consumers Currently, utilisation of the minimum levels of energy from RES has It is necessary to regulate the not been standardised for construction of new or rehabilitation of utilisation of the minimum levels of the existing facilities. There are no regulations on the energy from RES for construction of implementation of cogeneration. There are no measures to new or renovating existing facilities increase a share of RES in final consumption in the heating and and enactment of regulations to govern cooling sectors. This matter has not been harmonised with the the implementation of cogeneration in Directive 2009/28/EC, and their standardisation is therefore heating and cooling sector necessary. Enactment of regulations to standardise utilisation of fuels and Achievement of the goal of 10% share definition of criteria for sustainability of motor biofuels and other of RES in energy generation in liquid biofuels in order to meet the goals referred to in the Action transport in 2020, and continued Plan and to properly transpose the requirements of the Directive promotion of biofuels by 2035 2009/28/EC, but also to continue to promote the use of RES in transport after 2020
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5.5 Oil and petroleum products sector
Oil market structure in Bosnia and Herzegovina
Bosnia and Herzegovina currently does not have domestic production of crude oil and natural gas, but investments in geological exploration have been carried out since 2011. Jadran Naftagas (66% owned by NIS and 34% by NefteGazInKor a.d.) has the rights to exploration and exploitation throughout the Republika Srpska; while on the territory of the Federation of Bosnia and Herzegovina exploration is currently not being conducted. However, in the period 2011 – 2015 old data has been reinterpreted, based on which the Dinarides have been claimed perspective for further exploration. So far, commercially viable reserves of hydrocarbons have not been discovered. Imported crude oil is processed in the Brod and Modriča oil refineries, which belong to the Optima Group (100% owned by NefteGazInKor a.d.). Over 90% of the processed products in the aforementioned refineries are distributed on the local market. The petroleum products retail network is characterized by a large number of small retailers that own less than 5 petrol stations, and make up about 75% of the market. The highest consumption of petroleum products is in the transport sector, with motor gasoline and diesel used the most (Figure 5.5.1).
Figure 5.5.1 Oil market structure in Bosnia and Herzegovina, 2015 (estimate)
Note: Exploration of hydrocarbons is conducted only on the territory of Republika Srpska Source: WoodMackenzie BiH downstream oil long-term outlook 2016, Energy Statistics BIH – Oil, Petroleum Products, 2015
Exploration and production of hydrocarbons
In the region of Bosnia and Herzegovina, hydrocarbon production has been in place for many years, especially in the Pannonian Basin on the territories of Croatia and Hungary. Due to maturity of production areas in Croatia and Hungary, the production is in decline, but it is still the highest in the region (Table 5.5.1). Judging by the presence of oil in the region, in the structures similar to those that include part of Bosnia and Herzegovina, there is a potential for the presence of oil reserves. There are various legal models and contracts that define the relationship between oil companies and the country during all stages of the crude oil production process. The most important part is to define the method of allocating revenues from crude oil production, and to define how the costs will be managed. Countries choose the type of a legal model that will render them competitive in attracting investments in the oil sector, and maximize their profits from the production of crude oil. For example, when comparing the description of Croatia's and Hungary's legal models (Table 5.5.1) with Montenegro, it is noticeable that the conditions are more favourable in Montenegro, which is trying to attract investments in exploration and production of oil and gas, and there are no confirmed reserves and production, while Croatia and Hungary achieve higher profits from production. In Bosnia and Herzegovina terms and conditions of awarding concession rights are in jurisdiction of entities, apart from the case when the concession area is located on the territory of two entities. According to the Law on Concessions of Bosnia and Herzegovina, in case of the joint jurisdiction of Bosnia and Herzegovina and/or Federation of Bosnia and Herzegovina and/or Republika Srpska and/or District of Brčko of Bosnia and Herzegovina for concession rights, the governing bodies of all sides determine the terms and conditions for rights to a concession.
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Table 5.5.1 Hydrocarbon production and legal models in the region
Hydrocarbon Country / Legal Description production entity Model (kboe/day) The concessionaire is required to pay a fee for the exploration and production of hydrocarbons depending on the exploration/ Hungary Royalty2 40,9 production surface area, and 16% of the value of the hydrocarbons produced Oil and gas exploration and exploitation fee in Croatia consists of the annual fee determined on the basis of the exploration / PSA1+ Croatia exploitation surface area, the fee of 10% of the value of the 37,6 Royalty2 hydrocarbons produced, and the distribution of the produced hydrocarbon quantities where the state is entitled to 10% - 25% The geological exploration fee is set per square kilometre of the Serbia Royalty2 exploration area. The oil and gas exploitation fee is set at 8% of 31.7 the market price of the exploited mineral resources The concessionaire is required to pay a fee per square kilometre of the exploration/production area, and the amount of production Montenegro PSA1 0 share ranging from 5% to 12% for oil depending on the quantity of daily production and 2% for gas In Albania, the operator is obliged to concede a part of the PSA1+ Albania production to the state in the ratio stipulated in the contract, as 25 Royalty2 well as pay a fee of 10% of the value of the hydrocarbons sold Potential investors enter into direct negotiations with the BIH – PSA1+ Federation od BIH and agrees on the fees in the exploration and 0 FBIH entity Royalty2 exploitation phase on the basis of legal frameworks
The amount of the mineral rents is fixed and stipulated by law, BIH - PSA1+ while the PSA defines the fee rate according to the legal 0 RS entity Royalty2 frameworks
Note: 1) Production sharing agreement (PSA): The operator shall bear all the costs of exploration and production and, according to the contract concluded with the state or the national oil company, shall be entitled to a part of the hydrocarbon production, 2) Royalty: The operator is entitled to exploration and production with payment of a certain annual fee and tax on income from the crude oil sales. Source: Albania’s regulatory and fiscal hydrocarbons regime, Montenegro's Ministry of Economy, Regulation on Fees for Exploration and Exploitation of Hydrocarbons, Law on Fees for the Use of Public Goods, naturalgasworld.com, tradingeconomics.com, molgroup.info, nis.eu
During the period 1963 – 1991, geological exploration on the territory of Bosnia and Herzegovina has been carried out on multiple occasions, but commercially viable discoveries have never been found. During 1986 -1991 in the regions of Northern Bosnia and Dinarides detailed geological, geochemical and geophysical research has been carried out.
Figure 5.5.2 The areas of hydrocarbon exploration in Bosnia and Herzegovina
Source: Project Team analysis
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The North Bosnia – “Sjeverna Bosna” project covers the areas of the Federation of Bosnia and Herzegovina and Republika Srpska (Table 5.5.2). Geological exploration of this area lasted continuously from 1974 to 1991. The described area is the Southwestern part of the Pannonian Basin, where countries such as Croatia and Hungary have already declared reserves of crude oil, which confirms the perspectives of this area. The project was partly financed by the World Bank, and the study "Estimation of regional exploration in Northern Bosnia" was made by the English company ECL (Exploration Consultants Limited). The study consisted of the evaluation of the potential reserves in the area (Table 5.5.2).
Table 5.5.2 Potential reserves of crude oil and gas on the area of North Bosnia
Potential Reserves Potential Reserves Area (mil. bbl.) (mil. t.)
1 Bosanski Šamac 64,5 9,2
2 Orašje 42,5 – 108,4 6,1 – 15,5 3 Tuzla 99,8 14,3
4 Lopare 83,2 11,9 Source: ESSBIH book A; Preliminary exploration results nis.rs (2012); Joint venture with NIS spuds first exploration well in Bosnia and Herzegovina gazprom-neft.net (2013)
Geological exploration resumed in 2011 when Jadran Naftagas obtained the rights for exploration in Republika Srpska, including a part of the Dinarides area. A minimum investment in exploration of $ 40,7 million has been agreed upon for the period of three years. Over the aforementioned three years, the reserves have not been confirmed, and in 2015 the rights for exploration were extended until 2019. During the research, the old seismic data have been reinterpreted and the old wells were tested. Some of the wells have shown the existence of oil and gas, but only in traces. New 2D and 3D seismic studies have been carried out for the purpose of finding structures favourable to the existence of hydrocarbons. A new borehole was also drilled near the village of Obudovac in Posavina in 2013, and it showed the presence of hydrocarbons, but the reserves have not been confirmed. The area has proven to be promising, but further exploration investments are needed. The Dinarides exploration area extends from Southwestern Slovenia all the way to Montenegro and includes south and south western part of Bosnia and Herzegovina (Figure 5.5.2). Due to difficult terrain and complex geological formations, exploration of the Dinarides requires larger investments due to which this area has not been thoroughly explored. The latest geological work has been done by an American company AMOCO during 1989 -1991. AMOCO has published the data about source rocks, collectors and geological structures according to which it has been assessed that the potential of hydrocarbon bearing formations exists. Based on the data presented by AMOCO, potential reserves have not been estimated. In 2011 – 2015, Shell Exploration Company has reinterpreted existing geological data and has made a report on the evaluation of the oil and gas potential in the Federation of Bosnia and Herzegovina (Table 5.5.3). In the report, the area has been assessed as perspective, but new geological exploration has not been conducted since 1992, therefore further investments in exploration of the Dinarides area is necessary to discover and estimate reserves of hydrocarbons.
Table 5.5.3 Conducted activities on the potential of the designated area
Period Conducted activities
Exploration of the Dinarides and Sarajevo – Zenica basin has been done by 1963. – 1992. INA-Naftaplin, Energoinvest and AMOCO. The area has been declared perspective based on elementary geological research.
A Memorandum of Understanding has been signed between the Government 2011. – 2013. of the Federation of Bosnia and Herzegovina and Shell Exploration Company for data exchange
Based on the data gathered by earlier research Shell has published a report 2013. on the evaluation of the oil and gas potential in the Federation of Bosnia and Herzegovina
Estimate of the potential of Federation of Bosnia and Herzegovina for exploration of crude oil and natural gas contains basic data about petroleum 2015. systems that indicate justification to continue exploration of hydrocarbons in Federation of Bosnia and Herzegovina, but due to the global state of the petroleum market Shell has not extended the Memorandum of Understanding.
Source: First exploration wells in Bosnia and Herzegovina are possible next year already energetika-net (2015), Information on conducted activities on completion of the project of exploration and production of crude oil (2015)
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Consumption of petroleum derivatives
By comparing the structure of final consumption of petroleum products by derivative (Figure 5.5.3) and final consumption of petroleum products by sector (Figure 5.5.3), it can be seen that Bosnia and Herzegovina follows the trend of the region and that diesel and petrol are used the most, which is the result of the major consumption of 81% in the transport sector. In respect to that, gas and diesel oil have share of 76% in the structure of final consumption, and motor gasoline is the second most consumed derivative with a consumption share of 16%. Other derivatives are relatively little consumed in respect to diesel and motor gasoline.
Figure 5.5.3 Final consumption of petroleum derivatives per sector, kt, 2014 and 2015
Note: 1) Data is from 2014 Source: Energy Statistics BIH – Oil, Petroleum Products, 2015, IEA, Project Team analysis
Figure 5.5.4 Final consumption of petroleum derivatives per derivative, kt, 2014 and 2015
Note: 1) Data is from 2014 Source: Energy Statistics BIH – Oil, Petroleum Products, 2015, IEA, Project Team analysis
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The most dominant role in the total consumption of petroleum products, by derivative and by sector, belongs to gas and diesel oil (Figure 5.5.5), both in the transport sector and in households. It should be noted that the law prohibits the use of fuel oil in transport, and that fuel oil is most widely used in households for heating, while diesel is used in the transport sector as a fuel for motor vehicles. The use of LPG (liquefied petroleum gas) is relatively low compared to other derivatives; it is most commonly used in the transport sector. Its use in the energy sector and households is roughly equal, and relatively low in industry, while in energy production it is not used at all. Motor gasoline is almost exclusively used in the transport sector for the motor vehicles. Fuel oil is most used in the energy sector, then energy production input, slightly less in industry, and the least in households and other sectors. Other derivatives, such as lubricants, bitumen and other heavy hydrocarbon fractions, are used in the energy sector and other industries such as construction and agriculture.
Figure 5.5.5 Total consumption of petroleum derivatives per sector and derivative in Bosnia and Herzegovina, kt, 2015
Note: The law prohibits the use of fuel oil in transport Source: Energy Statistics BIH – Oil, Petroleum Products, 2015
A trend of growth in consumption of petroleum products has been recorded in Bosnia and Herzegovina from 2000 to 2014 (Figure 5.5.6). GDP growth in Bosnia and Herzegovina ranged from 1% to 3% between 2010 and 2016, and a similar trend is anticipated for the coming period, due to which further growth is expected in demand for petroleum products. Diesel has absolutely the highest demand growth, reflecting an increased percentage of vehicles using diesel fuel. Due to an increase in the total number of kilometres travelled by road in Bosnia and Herzegovina, further growth in diesel and petrol demand is expected.
Figure 5.5.6 Annual demand for petroleum products in Bosnia and Herzegovina in kt/yr., 2000 – 2015
Note: 1) Due to the unavailability of earlier data, only the data for 2015 have been taken from the document "Energy Statistics - Oil, Petroleum Products, 2015", while other data are from the IEA Source: IEA BiH Oil for 2000-2014, Agency for Statistics BIH - Energy Statistics – Oil, Petroleum Products, 2015 | 125
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Bosnia and Herzegovina is a net importer of petroleum derivatives, and in the period from 2012 to 2015 net import has increased. Republika Srpska possesses a refinery Brod from which the majority of petroleum derivatives consumption is being settled, while Federation of Bosnia and Herzegovina does not possess any infrastructure for crude oil processing due to which it is completely dependent on import. In regard to the aforementioned, export of petroleum products comes from the refineries Brod and Modriča on the territory of Republika Srpska and the majority of petroleum derivatives are imported for the market of Federation of Bosnia and Herzegovina (Figure 5.5.7). In the referred period export has been decreasing with an average annual rate of -23,2% and import has been increasing with an average annual rate of 9,1%. This has resulted in an increase of net import with an average annual rate of 12,1%.
Figure 5.5.7 Import and export of oil derivatives in Bosnia and Herzegovina in kt/year, 2012-2015
Source: Republika Srpska Energy balance – Plan for 2016, Federation of Bosnia and Herzegovina Work Group, Project Team analysis
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Petroleum products processing
The wider region is characterized by a strong processing overcapacity, as well as a good connection with the Mediterranean markets. The consumption of derivatives in the countries of the region amounts to approximately 28 million tonnes per year (Figure 5.5.8), and the total production capacity of refined petroleum products is 39,5 million tonnes per year, which is why the majority of the refineries shown operate at a reduced capacity. The processing capacity of the Brod refinery amounts to 4,2 million tonnes per year; however, due to damages during the war and the lack of investment in reconstruction and modernization, the refinery processes only about 900 thousand tonnes of crude oil annually. The derivatives produced in the Brod refinery are mostly marketed in the Republika Srpska, and partly in the Federation of Bosnia and Herzegovina. Crude oil processed in the refinery is imported from Russia via Omišalj Terminal located in Croatia. Crude oil is transported through the Adria oil pipeline managed by JANAF (Jadranski Naftovod).
Figure 5.5.8 The crude oil processing capacity of refineries in the region in millions of tonnes/yr.
Source: molgroup.info, omv.com, rafinerija.com, luka-ploce.hr
Compared to the refineries in the region, the Brod refinery produces a relatively high level of heavy derivatives. According to our estimates and internal databases, the share of fuel oil and other heavy derivatives is about 47% of total processing, which is higher than percentage in the refineries in the region and the Mediterranean refineries' average. Oil refineries of greater complexity produce lighter derivatives that achieve higher prices in the market. By investing in modernization of the Brod refinery, the added value of the products would increase, thus resulting in higher revenues.
Figure 5.5.9 Analysis of derivatives production in refineries according to the latest production data
Note: 1) Data for 2015, 2) Data for 2016, 3) Data for 2014 Source: Regulatory Commission for Energy of the Republika Srpska Activity Report 2015, mol.info, Annual Company reports, Republika Srpska balance of oil and petroleum products 2015, Project Team analysis | 127
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The average crude oil production in the Brod refinery dropped by 5,21% per year in the period from 2011 to 2015 (Figure 5.5.10). The reduced refining margins due to high oil prices until 2014 have had an impact on refinery operations, and have also affected the processing quantities. The continued decline in processing after 2014, when global refining margins rose due to the fall in oil prices, indicates difficult business circumstances and insufficient complexity of the refinery.
Figure 5.5.10 Production of derivatives in the Brod refinery in thousands t/yr., 2011 – 2015
Source: Regulatory Commission for Energy of t Republika Srpska Activity Report 2015, Banja Luka Stock Exchange Audit Reports
The certificates indicating the quality of petrol and diesel which the refinery possesses, are BMB 95, BMB 98 and Euro Diesel which correspond to the EURO IV quality and Euro Diesel 10 ppm (parts per million) corresponding to the EURO V quality. The quality of the fuel produced by the Brod refinery is in accordance with the current Federation of Bosnia and Herzegovina and Republika Srpska regulations relating to the production and import of derivatives. In 2007 the Government of Republika Srpska allowed the production of EURO IV quality fuel until 2010, but it is still being produced. The EURO IV quality fuel has not been allowed on the EEA market since 31 December 2010. For the complete production of EURO V quality products and the improvement of the processing economics, additional investments are needed to modernize and increase the complexity of the Brod refinery.
Figure 5.5.11 Production of derivatives in the Brod refinery, 2015
Source: Regulatory Commission for Energy of the Republika Srpska Activity Report 2015
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The emergency stocks program
According to EU Directive 2009/119/EC, Bosnia and Herzegovina (and entities) must harmonize laws and regulations to ensure the creation and maintenance of emergency stocks of oil and petroleum products. In correspondence with the Directive, within the existing bodies at the level of Bosnia and Herzegovina, it is necessary to define a body and its roles and responsibilities in the process of coordinating the maintenance of the emergency stocks of crude oil and petroleum products (CES – Central Stockholding Entity) and a subject on entity level, that would take over the task of managing the emergency stocks of petroleum products. The oil and petroleum products emergency stocks must be greater than the average quantity of 90-day imports or the average 61-day consumption. The required reserves of oil and petroleum products according to the EU directive amounted to about 490.000 m³ in 2016. Bosnia and Herzegovina has a total of about 800.000 m³ of storage space for crude oil and derivatives, of which about 530.000 m³ are located in the Brod oil refinery and 82.000 m³ in the port of Ploče operated by "Naftni terminali federacije". The creation of emergency stocks of oil and petroleum derivatives in Federation of Bosnia and Herzegovina is regulated by the Law on Oil Derivatives, which authorizes “Operator-Terminali Federacije” to form and maintain emergency petroleum derivatives stocks and is 100% owned by the Federation of Bosnia and Herzegovina. Methodology to form emergency stocks is not yet defined by regulations in Federation of Bosnia and Herzegovina what is not in line with the Directive 2009/119/EC. Federation of Bosnia and Herzegovina has not yet started to form the emergency stocks. The formation of emergency stocks of oil and petroleum products in the Republika Srpska is defined by the Law on Oil and Petroleum Products, which stipulates that the Government will determine the required quantities of oil and petroleum products, organize the creation of reserves and their replenishing, and provide storage capacities. It was specified in 2012 that "JP Robne rezerve RS" shall be responsible for the creation, maintaining and replenishing of the emergency stocks of petroleum products. After establishment of the necessary regulatory framework, Republika Srpska will create the prerequisites for the implementation of the aforementioned Directive. Republika Srpska has not yet started the creation of oil and petroleum products stocks.
Figure 5.5.12 Storage capacities for crude oil and derivatives in Bosnia and Herzegovina, in m³
Source: Energy Community Emergency oil stocks in the energy community level
Republika Srpska currently has 238.307 m3 of storage capacity for petroleum products (Figure 5.5.12). In addition to that, on the territory of Republika Srpska, Brod refinery also possesses 163.000 m3 of crude oil storage capacity and 122.863 m3 of storage capacity for unfinished products that require further processing. Part of the storage infrastructure has been damaged during the war, and part of it doesn’t meet the EU safety standards and needs to be modernised. On the territory of the Federation of Bosnia and Herzegovina there is 281.777 m3 of storage capacity for petroleum products (Figure 5.5.12). Along with existing storage facilities for petroleum products in the Federation of Bosnia and Herzegovina, the underground terminals Pajtov Han, Misoča, Pokoj, Roštani were taken over from the Federal Ministry of Defence in 2006 but are devastated and not in use. Also, none of the remaining oil storage capacities on the territory of the Federation of Bosnia and Herzegovina are operable, therefore investments are needed for modernisation and reconstruction of the storage infrastructure. In order to finance the "Operator – Terminali Federacije" activity, the obligation to pay taxes on oil derivatives in the amount of 0.01 KM / l (0.005 EUR / l) was determined which represents the income for the Operator. The total annual revenue from the tax, that can be used to invest in the storage capacities in accordance with decisions on the allocated funds spending, is estimated to EUR 2,56 million. The reconstruction cost per unit of volume is estimated at 255 EUR/m3, “Operator – Terminali Federacije” possesses 172.000 m3 of storage capacity, therefore the total cost of reconstruction is estimated at EUR 42 million. In case that the project is solely financed from the annual tax, it will take roughly 16 years for the completion of the project. Referring to the data provided by “Operator – Terminali Federacije” final activities are under way on publishing of a prospectus for conducting
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repair work on the first storage capacities. The completion of repair works is expected in the first half of 2018. Furthermore, start of repair works in Živnice is expected during 2017, and complete reconstruction of capacities in 2020.
Table 5.5.4 Storage capacities for petroleum products in Bosnia and Herzegovina
Entity Storage Product Capacity (m3) LPG 3.241 Motor gasoline 31.272 Refinery Diesel 80.279 Brod1 Blue diesel 4.705 Gas oil 47.735 RS Other 79.475 Vrbanja - 20.900 Brezičani - 17.600 Banja Luka (Krajinapetrol a.d.) - 4.600 Vardište-Višegrad - 3.500 Liquid fuels 42.000 Blažuj LPG 1.000 Liquid fuels 17.400 Živnice LPG 1.000 Liquid fuels 32.000 FBIH Ploče Diesel 50.000 Liquid fuels 36.377 Mostar LPG 1.000 Bihać Liquid fuels 18.100 Subsurface terminals Liquid fuels 83.000 Total - 521.084
Note: 1) The Brod refinery also owns crude oil storage facilities of 163,000 m³ and storage facilities of 122,863 m³ for products requiring further processing Source: Energy Community Emergency Oil Stocks in the Energy Community Level
In order to establish a complete system of management over emergency oil stocks in Bosnia and Herzegovina, it is necessary to fulfil the basic assumptions (Figure 5.5.13), which should be put in a time frame and further developed in order to be implemented. The implementation has to be defined by a project plan along with elaborated all steps of realisation (e.g. regulation, institutional framework, monitoring, storage cost methodology, financial alignment, capacity planning, elements of cooperation etc.)
Figure 5.5.13 Basic assumptions for the establishment of emergency oil stocks programs
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Retail market of petroleum products
The retail market in Bosnia and Herzegovina is very fragmented and dominated by a large number of small private retailers, which is the result of the post-war liberalisation of the import of petroleum products into the market. In 2007, Government of Republika Srpska had sold to NefteGazInKor the majority of shares in the Brod refinery, the oil refinery of Modriča and the retail chain Petrol Banja Luka, making the retail chain Nestro the dominant player in the petroleum products retail market in Bosnia and Herzegovina. Nestro currently owns 86 petrol stations, out of which 74 are in Republika Srpska, 10 in the Federation of Bosnia and Herzegovina and 2 in the Brčko District of Bosnia and Herzegovina. The second two largest companies on the retail market are Energopetrol and INA which operates as HoldINA. In September 2006, INA bough majority of shares in Energopetrol, 67%, from the Government of Federation of Bosnia and Herzegovina. In that process INA has bound to invest in modernisation of Energopetrol infrastructure within the first 3 years since the takeover. Despite the initially small investments, in the last few years the investments have intensified. INA has also invested in modernisation of its own filling stations, modernising approximately 37 petrol stations by 2014. In 2012 Gazprom has taken over petrol stations from an Austrian company OMV and entered the market in Bosnia and Herzegovina.
Figure 5.5.14 Number of petrol stations in Bosnia and Herzegovina, estimate for 2016
Source: holdina.ba, energopetrol.ba, mol.info, nespetrol.com, gazprom-petrol.ba, Project Team analysis
Table 5.5.5 The main retail companies in Bosnia and Herzegovina
Companies Comment
Member of the ”Optima Group” owned by the Brod refinery Nestro Petrol Owns 74 petrol stations in Republika Srpska, 10 in Federation of Bosnia and Herzegovina and 2 in Brčko District in Bosnia and Herzegovina
The ownership structure of Energopetrol is: 67% INA, 22% the Government of Energopetrol the Federation of Bosnia and Herzegovina and 11% small shareholders All 64 petrol stations are located in the Federation of Bosnia and Herzegovina
Part of INA and has 45 petrol station in Federation of Bosnia and Herzegovina HoldIna Owns a storage of petroleum products in Plugovi, where oil is imported from the Sisak and Rijeka refineries
Petrol BH Oil 100% owner Petrol d.d. Ljubljana Company Owns 25 petrol station in Federation of BIH and 9 in Republika Srpska
Gazprom has 56% share in NIS and possesses 21 stations in Federation of Gazprom Bosnia and Herzegovina, 5 in Republika Srpska and 1 in Brčko District of Bosnia and Herzegovina Source: holdina.ba, energopetrol.ba, mol.info, nespetrol.com, gazprom-petrol.ba, Project Team analysis
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Small private entrepreneurs with relatively low sales levels dominate in Bosnia and Herzegovina. The market has been liberalised, so the prices of petroleum products are formed freely. In Bosnia and Herzegovina, 75% of the petrol stations are owned by small private retailers, but their market share is only 67% (Figure 5.5.15) which indicates the inefficiency and lower quality operations of a large number of privately owned petrol stations. The petroleum products retail market in Bosnia and Herzegovina is more fragmented than the markets in the region, where the top 5 companies have a significantly higher market share (Figure 5.5.16). Due to the highly fragmented petroleum products market, investments have been reduced in modernisation of petrol stations that are related to safety and environmental improvements.
Figure 5.5.15 Market shares of the main retail companies in Figure 5.5.16 Comparison of the retail market structures in Bosnia and Herzegovina in %, 2011 – 2015 (estimate) the region in %, 2015
Source: WoodMackenzie Austria, Croatia, Serbia and Bosnia and Source: WoodMackenzie Austria, Croatia, Serbia and Bosnia and Herzegovina downstream oil long-term outlook (2016) Herzegovina downstream oil long-term outlook (2016)
The market fragmentation affects the productivity of small private companies, which is very low. Productivity of the distribution network is calculated as the ratio of the quantities of petroleum products sold to the number of petrol stations. The quantity of the derivatives sold is determined according to the total quantity of petroleum products sold and the market share of the company. The highest productivity have companies with larger market shares in Bosnia and Herzegovina. According to the estimate from the “WoodMackenzie Bosnia and Herzegovina downstream oil long-term outlook 2016” report, productivity of the larger retailers is in the range between 1,0 - 2,0 (the ratio of the quantity of sold petroleum derivatives and a number of filling stations). Small retailers productivity, despite the large market share, is rather smaller and is on average below 1,0.
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Regulatory and institutional framework
5.5.7.1 Bosnia and Herzegovina level Exploration and production of crude oil and gas is regulated on the entity level, excluding granting of concessions in a case when the concession property extends to the territory of both entities. According to the Law on Concessions of Bosnia and Herzegovina, in case of a joint jurisdiction of Bosnia and Herzegovina and/or Federation of Bosnia and Herzegovina and/or Republika Srpska and/or Brčko District of Bosnia and Herzegovina for granting a concession, the superior bodies determine the terms and the conditions for granting a concession (Figure 5.5.17).
Figure 5.5.17 Legal framework for exploitation and exploration of hydrocarbons in Bosnia and Herzegovina
Note: 1) The new Law on Mining is under procedure, 2) The amendments to this Law are also under procedure Source: MIER, FMERI
The Council of ministers of Bosnia and Herzegovina issues a Decision on the quality of liquid petroleum fuels („Official Gazette of Bosnia and Herzegovina“, number: 27/02, 28/04, 16/05, 14/06, 22/07, 101/08, 71/09, 58/10 and 73/10). The Decision on the quality of liquid petroleum fuels determines the quality standards that must be met for the liquid fuels used on the territory of Bosnia and Herzegovina in internal combustion engines, as well as for liquid fuels intended for combustion for heat generation, and prescribing standards that define physical and chemical characteristics of liquid fuels, the limit values of the essential characteristics of fuels, the methods for testing these characteristics, the way of marking and proving that the fuel quality complies with the requirements of the Decision, as well as monitoring and manner of authorizing bodies to heck compliance and requirements for their completeness. The Decision is binding on the entire territory of Bosnia and Herzegovina. At the time of writing this document, a new Decision was being made.
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5.5.7.2 Regulatory framework in Bosnia and Herzegovina
Federation of Bosnia and Herzegovina is responsible for exploration and exploitation of hydrocarbons. The Law on exploration and exploitation of oil and gas in Federation of Bosnia and Herzegovina has the significance of a special law regulating the issue of granting a concession contract for exploration / production of oil and gas when the concession contract is proclaimed a strategic contract of interest to the Federation of Bosnia and Herzegovina. In this case, the Government of the Federation of Bosnia and Herzegovina as a concessionaire with the approval of the Parliament of the Federation of Bosnia and Herzegovina, may sign a concession contract for the exploration and exploitation of oil and gas without going through the selection procedure prescribed by the concession laws. The procedure is to determine the terms and conditions of the contract through direct negotiations. The concessionaire is a legal entity registered for the exploration and exploitation of oil and gas, with a successful track record and financial and technical capabilities for exploration and exploitation of oil and gas, with headquarters or a branch office in the Federation of Bosnia and Herzegovina or, exceptionally, in another country. According to the Law on exploration and exploitation of oil and gas, concessionaire is obliged to sell up to 30% of total production of hydrocarbons to the Government of the Federation of Bosnia and Herzegovina. The concession fee is determined by the concession contract, in accordance with the Decree on the contents of concession contracts for exploration and exploitation of oil and gas, manner of calculation and payment of fees and control over produced quantities of oil and gas in Federation of Bosnia and Herzegovina (“Official Gazette of the Federation of Bosnia and Herzegovina”, No: 70/14). Competitive rates of progressive fees and transparent fee collection system are necessary for promotion of exploration investments. In Federation of Bosnia and Herzegovina, concessionaire is obliged to pay a concession fee during exploration and exploitation of hydrocarbons which is proportional to the surface area of the exploration area. Moreover, during the process of production of oil and gas a concessionaire is obliged to pay a royalty proportional to the produced quantities of hydrocarbons. The royalty rate is determined in a concession contract and is not regulated by law. Federation of Bosnia and Herzegovina must keep the royalty rates low enough to attract investments, but also high enough to assure sufficient revenue from the produced mineral resources. Royalty rate u the Federation of Bosnia and Herzegovina is not defined, unlike in the countries in the region, what makes the fee collection system non-transparent are reduces competitiveness with regard to the countries in the region (Figure 5.5.18)
Figure 5.5.18 Maximum rates of mineral rents or equivalent fees in % for the Federation of Bosnia and Herzegovina
Source: Law on exploration and exploitation of oil and gas in the Federation of Bosnia and Herzegovina, Project Team analysis
Federal Department for geology manages expert work on maintaining an oil and gas exploration database, controls the implementation of the concession contract in the phase of exploration of oil and gas and participates in determination of exploration blocks on the territory of the Federation of Bosnia and Herzegovina. Administrative and expert activities related to exploitation of oil and gas are conducted by FMERI. The Law on Oil derivatives regulates the development strategy of the oil sector, oil sector development policy, strategic plan of oil sector development, action plan, plan alignment, balance of oil derivatives, energy sector activities in oil sector, conditions and method of performing energy activities, import of petroleum products, data delivery, regulation of the oil sector, jurisdictions obligations of FERK, work permits, contents and method of issuing work permits, work permit register, secure supply of the market with petroleum derivatives, price of petroleum derivatives, tax for creation of emergency oil stocks, quality of oil derivatives, fuel pump labelling, quality control, bottled LPG sales, operative stocks, emergency stocks, stocks of oil derivatives, establishment and activities of the oil derivatives stock Operator and administrative and inspection supervision of the oil sector.
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Energy activities in the oil sector are: a. production of oil derivatives b. wholesale of oil derivatives excluding LPG c. road and railway transport of oil derivatives d. retail of oil derivatives e. storage of oil derivatives excluding LPG f. trade of LPG.
FERK jurisdictions in the oil sector: 1. regulation of energy activities: production of oil derivatives, wholesale of oil derivatives excluding LPG, road and railway transport of oil derivatives, retail of oil derivatives, Storage of oil derivatives excluding LPG and trade of LPG 2. supervision and regulation of the relationship between the importers, wholesalers, retailers, transporters and customers of oil derivatives in accordance to the law and implementing acts of FERK 3. issue or requisition of licenses for performing energy activities 4. adoption of a methodology for calculation of costs of performing the monitoring of fuel quality 5. ensuring non-discrimination, efficient competition and efficient functioning of the oil derivatives market, paying particular attention to security of supply of oil derivatives 6. ensuring transparent and equitable relations between all market participants in accordance with the policy and reform of the oil sector 7. protecting the rights of participants in the oil sector (importers, wholesalers, retailers, transporters and buyers of oil derivatives) by harmonizing their interests 8. establishing conditions for the competitiveness of the petroleum products market. Prices of oil derivatives are formed freely, according to the market conditions. Oil derivatives which are imported, produced and put on the market have to comply with the conditions determined by the Decision on the quality of liquid petroleum fuels in Bosnia and Herzegovina. FMERI supervises and takes measures to assure safe, regular and quality supply of oil derivatives. Government of Federation of Bosnia and Herzegovina at the suggestion of FMERI provides an intervention plan in case of disturbances on the market of the Federation of Bosnia and Herzegovina and the unexpected or continuous lack of petroleum derivatives, major natural disasters, technological disasters or unexpected and high growth of oil and oil derivatives prices on the global market. Operational stocks of petroleum products are formed to ensure the stability of production of electricity and / or thermal energy for the market and for customers who require special supply quality and security in Federation of Bosnia and Herzegovina, and for the stable and safe conduct of air traffic. Operational stocks are formed based of the average fifteen day consumption in the previous year. The stocks are formed for the following oil derivatives: diesel fuels, fuel oil, jet fuel and LPG exclusively in the storage facilities located on the territory of Federation of Bosnia and Herzegovina. Tributaries of assurance of operative stocks are energy entities that for production of electrical and heat energy for the market, tariff customers or their own consumption use the specified petroleum products, public institutions in the sectors of education, health and social care that produce or can produce electricity or heat for their own needs from the specified petroleum products and energy entities that provide the service of petroleum products supply to international airports. The law as well prescribes that emergency oil stocks will be formed to secure supply of petroleum products in the event of a threat to the energy security of Bosnia and Herzegovina caused by extraordinary supply disruptions, in accordance with the Directive 2009/119/EC. Implementing regulations on the methodology for the formation and maintenance of the emergency stocks do not exist. There are no emergency oil stocks in the Federation of Bosnia and Herzegovina. Reserves of oil derivatives: motor gasoline, diesel and gas oil, are formed and used for the security of supply and are stored as finished products. Stocks and reserves or oil derivatives are kept exclusively by the Operator – Terminali Federacije d.o.o., an entity 100% owned by the Federation of Bosnia and Herzegovina. Activities of the Operator, amongst the other, are: 1. wholesale of liquid fuels and similar products, 2. storage of oil derivatives, 3. placing reserves of petroleum products on the market in case of supply disruption, 4. organization, supervision and management of the quantities and quality of the petroleum products in stock, 5. collection and processing of data on the condition and turnover of operative reserves of petroleum products and reserves of oil derivatives, 6. cooperation with ministries and inspectors in charge in accordance with special regulations, 7. cooperation with domestic and international energy entities and/or subjects and 8. ensuring technical-technological correctness of the plants and storage facilities for petroleum products. A tax has been established by law to finance establishment of the petroleum product reserves in the Federation of Bosnia and Herzegovina. The tax is paid on the turnover of the petroleum derivatives that are used in final consumption
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with a fixed value of 0,01 KM/l (0,005 EUR/l), including LPG that is used in the internal combustion engines. The tax is added to the predetermined retail price of the liquid fuels. Criteria for the quality of the liquid petroleum fuels are regulated by the Law on oil derivatives (quality determined by standards) and by the Rulebook on the quality of liquid petroleum fuels. Monitoring of the quality and the quantity of oil derivatives is conducted in accordance to the Decision on the quality of liquid petroleum fuels in Bosnia and Herzegovina (“Official Gazette of Bosnia and Herzegovina”, no: 27/02, 28/04, 16/05, 14/06, 22/07, 101/08, 71/09, 58/10 and 73/10) and the Law on oil derivatives. An initiative to amend the Law on oil derivatives of the Federation of Bosnia and Herzegovina is currently underway.
5.5.7.3 Regulatory framework in Republika Srpska
The field of exploration and exploitation of mineral resources in Republika Srpska is regulated by the Law on Mining and the Law on Geological Explorations. The new Law on Mining and the amendments to the Law on Geological Explorations is been under procedure. The granting of the right to use mineral resources and the determination of the fee is carried out in accordance with the Law on Concessions of Republika Srpska and the legal acts in the field of concession. The granting of a concession for a concession property that extends to the territory of both entities is carried out in accordance with the Law on Concessions of Bosnia and Herzegovina (Figure 5.5.17). The Law on Mining regulates the conditions and the manner of exploitation of the mineral resources both underground and on the surface, in the river and lake beds or below them, the construction, use and maintenance of mining facilities, the mining projects, the mining geodetic measurements and plans, the protection measures, supervision and other issues related to the use of mineral resources in the territory of Republika Srpska. All organic and inorganic mineral resources are considered the mineral wealth. Exploitation of mineral raw materials also includes performance of works on the preparation, enrichment and refining of mineral resources, and oil and natural gas exploitation includes oil and gas separation, preparation of oil and gas in the exploitation field for transport and storage, extraction of natural gas liquids (ethane, propane, butane and natural gasoline) in degasification and similar plants, as well as transport of these raw materials via oil gathering pipelines and gas gathering pipelines in the exploitation field. According to the Law on Geological Explorations, the geological explorations are explorations and tests conducted in order to learn about the composition, development and structure of the Earth's crust, the making of geological maps, finding and determining the quantity and quality of mineral resources and the economic effects of their use, determining the geological characteristics of soil and rocks for construction of facilities and terrain remediation, the identification, study and protection of the geological inheritance objects, space planning, protection and improvement of the environment on the principles of sustainable development, creation and revision of geological documentation and expert supervision tasks. The MIER conducts administrative and expert tasks in the field of mining and geological exploration. The Republika Srpska Institute for Geological Research is responsible for research and expert analysis work in the area of geological exploration (prepares planning documentation and geological maps, runs the borehole cores data bank) and conducts basic geological explorations of general interest to Republika Srpska. A concession is granted for the exploration and exploitation of mineral resources. Licenses and decisions for carrying out geological explorations are issued by MIER. According to the Rulebook on the amount of concession fees and bank guarantees in the field of electricity, energy sources, mining and geology ("Official Gazette of Republika Srpska", No. 67/14), in the field of energy sources (oil and gas), the one-off fee is 0,5% of the value of the planned investment, and the concession fee amounts to 3,6% of the total revenues generated by performing the concession activity. The amount of the concession fee is determined by the concession contract, in accordance with the methodology prescribed by the Rulebook. Republika Srpska must maintain the rent on mineral resources low enough to attract investments, but at the same time high enough to ensure the inflow of funds into the budget. The rent on mineral resources in Republika Srpska is considerably lower compared to the countries in the region, making it competitive for investing in oil exploration and production (Figure 5.5.19).
Figure 5.5.19 Maximum rates of mineral rents or equivalent fees in % for the Republika Srpska
Source: Rulebook on the amount of concession fees and bank guarantees in the field of electricity, energy sources, mining and geology, Law on Mining of Republika Srpska | 136
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The Law on Oil and Petroleum Products regulates activities in the field of oil and petroleum products, their regulation, the functioning of the oil and petroleum products market, the conditions for the quality and safe supply of oil and petroleum products to consumers, and the creation and maintenance of operational and emergency petroleum product stocks. RERS acts as a regulator for the energy sector activities including production of petroleum products, oil pipeline transport, petroleum products pipeline transport and storage of oil and petroleum products. In this regard, the RERS is responsible for: 1. determining the methodology for calculating the costs of oil pipeline transport and petroleum products pipeline transport, 2. adopting a tariff system for calculating the price for the use of the oil pipelines, and the product pipelines, 3. approving the price for the use of the oil pipelines, and the product pipelines, 4. determining the criteria and prescribing the requirements for obtaining, amending and revoking the license for performing the activities, making decisions on the procedure for obtaining, amending and revoking the license for carrying out activities in the field of oil and petroleum products, and keeping a register of the issued and temporarily or permanently seized licenses for performing activities in the field of oil and petroleum products, 5. adjudication in the second instance upon appeal, 6. supervision over the performance of activities for which it issues licenses in the field of oil and petroleum products in accordance with the Law on Oil and Petroleum Products and the principles laid down in this Law, including monitoring the application of tariff systems and methodologies for access to and use of oil or product pipelines.
Petroleum product prices are formed freely, according to the market conditions. Energy entities engaged in the wholesale oil and petroleum products trade and retail petroleum products trade are obliged to submit to the Ministry of Trade and Tourism and MIER data on import and trade of oil and petroleum products related to the quantity, origin, price and quality. The petroleum products imported, manufactured and marketed must meet the requirements set out in the Decision on the quality of liquid petroleum fuels in Bosnia and Herzegovina. The MIER monitors and undertakes activities for the purpose of safe, regular and high quality supply of petroleum products. At the MIER's proposal, the Republika Srpska Government may adopt an oil and petroleum products intervention plan, in the event of exceptional situations and market disturbances, unexpected or continuous shortage of petroleum products, major natural disasters, technological disasters, or unexpected and high growth of oil and petroleum product prices in the world market. Therefore, the Law on Oil and Petroleum Products prescribes the obligation to form emergency petroleum products stocks in order to ensure security of supply in Republika Srpska. Amendments to the Law on Oil and Petroleum Products stipulate that the creation, safekeeping and replenishing of emergency petroleum products stocks shall be performed by the public company "Commodity Reserves of Republika Srpska" a.d. Banja Luka. No methodology for calculating the quantity of emergency stocks has been established. There is no standardised method of establishing, financing and maintaining the emergency stocks of petroleum products in Republika Srpska, nor are there any emergency stocks yet.
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Strategic guidelines
Considering the current situation in the exploration, production, processing, wholesale, storage and retail sectors, the strategic guidelines have been defined (Table 5.5.6).
Table 5.5.6 Strategic guidelines of the strategy for the sector of oil and petroleum derivatives in Bosnia and Herzegovina
Strategic priority Strategic guidelines
Further harmonization and alignment of hydrocarbon exploration Increase the level of hydrocarbon and production processes with the aim to support investment exploration in Bosnia and Herzegovina processes and stimulate investment activities of potential investors.
In partnership with the owner of the Brod refinery, define the key Creating an incentive framework for the
objectives and investment plan for the modernisation of the refinery modernization of the Brod refinery, (e.g. hydrocracking). The aim is to increase the quality of the with the aim of ensuring the required derivatives processed by the refinery, and reduce the negative quality of the petroleum products
Market impact on the environment and health
Further improvement of the capacity and the quality control Active control of the quality of the mechanisms applied to petroleum derivatives that are sold through petroleum products that are sold on the a fragmented retail network. Active management of spatial plans fragmented retail market with the aim to control further fragmentation of the network Conduct an analysis of the state of the existing storage capacities, Ensuring storage capacity and creating identify the necessary investments in the reconstruction of existing a billing system and the construction of new capacities, and develop a system for financing emergency stocks In accordance with the requirements of Directive 2009/119 / EC, the legislative framework for emergency oil and petroleum products reserves is currently not fully established. MOFTER has formed a Establishment of a legislative working group in early 2016 that analysed the sector and framework for emergency stocks of oil suggested guidelines for creation of emergency oil stocks. In order and petroleum products to ensure the security of oil supply and compliance with the
commitments undertaken, it is necessary to complete the legislative framework for emergency oil reserves as soon as possible. A Decision on the quality of liquid petroleum fuels in Bosnia and Regulation Herzegovina is made at the national level. In 2016 a commission was formed consisting of representatives from MOFTER, entity Ensuring the quality of petroleum competent ministries and inspection authorities. The Decision products prescribes the quality of oil and petroleum products on the market, in accordance with the contract on Energy Community establishment and EU standards
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5.6 Gas sector
State and trends in the gas sector for the wider region
Natural gas as an energy source in gross domestic consumption has accounted for a low share of total consumption for Bosnia and Herzegovina at ~2% in 2015, while in other countries of the region ranged between ~10% and 30%. One of the reasons is that Bosnia and Herzegovina, among other, has no installed TPP gas capacities in the generation mix, which in practice represent larger consumers. For countries that have gas-fired thermal power plants in their generation mix (e.g. Austria 20% and Hungary 50%), gas share is consequently significantly higher in gross domestic consumption.
Figure 5.6.1 Share of gas in gross domestic consumption of Figure 5.6.2 Share of gas installed capacity in generation mix energy sources in mtoe, 20151 in GW, 20151
Note: 1) For Bosnia and Herzegovina, gross domestic Note: 1) For Bosnia and Herzegovina, gross domestic consumption refers to 2014 according to the latest available data consumption refers to 2014 according to the latest available data from the BIH Agency for Statistics, while the installed capacities from the BiH Agency for Statistics, while the installed capacities relate to 2016 according to the ISO BIH Indicative Plan 2017 – relate to 2016 according to the ISO BIH Indicative Plan 2017 – 2026 2026 Source: Eurostat 2015, BIH Agency for Statistics Total energy Source: ENTSOE Statistical Factsheet 2015, ISO BIH Indicative balance BIH, 2014 generation development plan 2017 – 2026.
In terms of gas demand (Figure 5.6.3), the countries in the region are meeting most of their demand through import, which is 73% of the total needs, i.e. 51 billion m3 per year. Romania has the largest share of its own production amounting of 79% of their gas demand, while other countries with own production of more than 15% are Croatia, Hungary and Austria. Bosnia and Herzegovina does not have its own production and is completely dependent on imports in order to meet the annual gas needs of ~0,2 billion m3. According to the ENTSO-G projections (Figure 5.6.4), demand will increase to ~59 billion m3 per year by 2035 for the countries in the region25, but with further growth in imports at an average annual growth rate of 1,7% and with the fall in production of -3,3% per year. Consequently, it can be expected that the increase in imports will continue until 2035, which will account for 87% of the total natural gas demand.
25 Refers to Bosnia and Herzegovina, Croatia, Serbia, Slovenia, Hungary, Austria, Slovakia, the Czech Republic, Bulgaria and Romania | 139
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Figure 5.6.3 Gas supply in the expanded market, by country Figure 5.6.4 Development of gas supply in the expanded and source in billions of m³ (bcm), 2017 market, by source in billions of m³ (bcm), 2017 – 2035
Source: ENTSO-G TYNDP 2017 (Blue Transition Scenario) Source: ENTSO-G TYNDP 2017 (Blue Transition Scenario)
According to ENTSO-G projections, there are four scenarios showing gas demand trends by country in Europe. The scenarios are based on possible economic growth and ambition for clean energy on EU level (reaching CO2 targets till 2050, cooperation between countries on RES and energy efficiency integration, CO2 price projections, financial possibilities etc.). For Bosnia and Herzegovina’s gas demand projections, only the Slow Progression scenario envisages consumption stagnation, while other three scenarios envisage growth primarily after 2025. For scenario European Green Revolution, the expected percentage growth of demand amounts to 32% until 2035, while for scenarios Green Evolution and Blue Transition the expected demand growth amounts to 63% until 2035 (Figure 5.6.5).
Figure 5.6.5 ENTSO-G gas demand scenarios in Bosnia and Herzegovina, in billion m3 (bcm), 2017 - 2035
Source: ENTSO-G TYNDP 2017 Main Report, ENTSO-G TYNDP Demand & Supply Projections, Project Team analysis
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Currently, most of the gas imports for wider region are supplied from Russian sources, accounting for ~73% of total imports (Figure 5.6.6). Russian gas is delivered via Ukraine, and then via transit routes through Hungary and Slovakia. Hence, it is evident that the region is traditionally highly dependent on one source of gas. The aforementioned fact is in particular relevant for countries that do not have their own gas production and storage facilities, such as Bosnia and Herzegovina, which meets 100% of its needs from Russian imports.
Figure 5.6.6 Sources of gas in the expanded market (% of total import, estimates), 2014
Note: The low value of Russian gas for Slovakia reflects a decline in imports via Lanzhot interconnection in 2013 Source: IEA Gas Trade Flows 2014, ENTSOG 2015, Eurostat 2014, Gazprom Export Report 2014
Given the great dependence of the wider region on a single gas source and interruptions of gas supplies from Russia to Ukraine due to political issues in the last ten years (2006, 2009 and 2014), the EU has conducted a European stress test for gas supply. The stress test results indicated that the gas shortage would be at least 60% of demand in Eastern European countries26. According to the results of the test, the share of unmet gas demand for Bosnia and Herzegovina and Macedonia would amount to more than 80%. A similar situation occurs for the rest of the countries, where the unmet demand for gas in, for example, Serbia and Bulgaria would be 60%-80% (Figure 5.6.7).
In line with the above mentioned issues, in 2014 the EU has made a European Energy Security Strategy (EESS) in order to support countries to achieve diversification and security of supply. In 2015, the Central and South Eastern Gas Connectivity (CESEC) group was established, with the aim of coordinating and accelerating the realization of cross- border and trans-European supply diversification projects in SEE, and further harmonisation of gas rules. Furthermore, Energy Community also provides support to contracting states through PECI/PMI list of projects. On the latest PMI projects for 2016, two relevant projects for Bosnia and Herzegovina are listed: Bosnia and Herzegovina (Tržac – Bosanska Krupa) – Croatia (Lička Jesenica) interconnection point, Bosnia and Herzegovina – Croatia interconnection point (Zagvozd – Posušje – Novi Travnik, with main branch towards Sarajevo). In addition, the Ionian – Adriatic Pipeline is also a PMI project which is relevant for Bosnia and Herzegovina and represents a potentially new gas supply route.
26 Relates to the six-month interruption of Russian gas under average winter conditions and two-week colder period, non-cooperative scenario | 141
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Figure 5.6.7 Results of the European stress test for gas supply and key activities on the EU supply security
1) Six-month interruption of Russian gas under average winter conditions and two-week coldness, non-cooperative scenario Source: Oxford Institute for Energy Studies, Reuters, European Commission – Energy – Infrastructure, European Commission „Stress Tests Communication” 2014
Structure of gas market in Bosnia and Herzegovina
Bosnia and Herzegovina does not have its own gas production and is entirely dependent on import (Figure 5.6.8). The gas is being supplied through one transport pipeline from Russia via Ukraine, Hungary and Serbia (Beregovo – Horgoš – Zvornik). In Bosnia and Herzegovina, the entities of the Federation of Bosnia and Herzegovina and Republika Srpska use a 16-inch gas pipeline that crosses the border at Šepak, then runs in the Zvornik - Kladanj - Sarajevo direction. BH- Gas operates as a transmission system operator in the Federation of Bosnia and Herzegovina with the largest length of the gas pipeline of 189 km. The gas pipeline in Republika Srpska is jointly owned by Gas Promet a.d. Istočno Sarajevo - Pale (22 km from the border with Serbia to Zvornik) and Sarajevogas d.o.o Lukavica (40 km between Zvornik and Kladanj). Gas Promet a.d. Istočno Sarajevo - Pale has the license for carrying out the activity of managing the system for natural gas transmission. Gas Promet Istočno Sarajevo - Pale and Sarajevo-gas, a.d. Istočno Sarajevo have the license to carry out natural gas transmission activities. By analysing regional countries27, the number of transport countries is limited to one or maximum two subjects, while the median length of gas transportation system amounts ~2.700 km. In addition, the existing gas pipeline, built in 1979, is characterized by obsolescence and overload demand during the winter period when gas consumption is at its highest. Therefore, in the future it is necessary to manage assets (infrastructure) through the coordinate and active implementation of the necessary modernization, reconstruction, construction and maintenance, in accordance with the needs of the system. On the wholesale market based on current Decree (Article 59), Energoinvest and BH-Gas companies are responsible of performing the activities related to the wholesale supply of gas to the Federation of Bosnia and Herzegovina. As earlier mentioned, BH-Gas is performing activities of wholesale supply and managing transportation system which is not in line with the Third Energy Package. As a next step, further harmonization with the Third Energy Package is needed, and unbundling of activities according to the foreseen gas models. On the wholesale market of Republika Srpska, company Gas Res is active in the wholesale market, which was established by the Government of Republika Srpska by virtue of the Law on Public Companies (Article 2) and the Companies Act (Articles 7 and 101), and which has signed a contract with Gazprom. In terms of distribution and retail, the market is being characterised by vertically integrated subjects Sarajevogas and Visoko Ekonenergija in Federation of Bosnia and Herzegovina. Vertical integration is not in line the Third Energy Package, and thus further harmonization of regulatory framework and unbundling of distribution and supply is needed. The sales of public suppliers in 2014 amounted to 101,9 mil. m3 for Sarajevogas and 5,3 mil. m3 for Visoko Ekoenergija. Apart the fact that city of Sarajevo is the main gas consumer, a large part of gas was consumed by industrial players Arcelor Mittal (39,4 mil. m3) and Energtek Herz (11,6 mil. m3) in 2014. On the territory of Republika Srpska there are also vertically integrated subjects for distribution and supply Sarajevo-gas Istočno Sarajevo with consumption of 3,1 million m3 in 2015 and 2016. Zvornik Stan is an integrated company for distribution and supply in the territory of Zvornik Municipality, which also has a heating plant in the town of Zvornik, with a realised consumption of 2,5 million m3 in 2015 and 2,6 million m3 in 2016. In the upcoming period, the gasification of the city of Bijeljina through the Bijeljina-gas company is expected, upon the connection of transmission and distribution. In Republika Srpska there are also companies CNG Energy and Energy Prime RS registered for the natural gas trade and supply activities. It is also necessary to harmonise regulatory framework and unbundling of distribution and supply in line with the Third Energy package. Total consumption of gas in Bosnia and Herzegovina in 2015 amounted ~220 mil. m3 where the Federation of Bosnia and Herzegovina consumed
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~80%, and Republika Srpska ~20%. In 2016, total gas consumption amounted ~221 mil. m3 out of which share for Federation of Bosnia and Herzegovina was 72,43% and Republika Srpska 27,57%28.
Figure 5.6.8 Gas market structure in Bosnia and Herzegovina, 2014 and 2015
Note: 1) Refers to the market share of gas transmission network coverage; 2) Refers to the total consumption of gas for 2015 Source: RERS Activity Report 2015, BH-Gas, Federal Institute of Statistics – Natural gas balance 2015, Energy balance of Republika Srpska for 2016
On Bosnia and Herzegovina level, gas consumption trend was negative in the period 2010-2015 (Figure 5.6.9) with an average annual rate of -2.3%. In absolute terms, the consumption ranged from ~0.19 to 0.28 billion m3, and has primarily oscillated because of the energy sector (heating plants) and the industrial sector. In the industrial sector, the largest gas consumers are related to the production of coloured metals (35%-55% of industrial consumption) and iron and steel (32%-42% of industrial consumption) in the observed period.
Figure 5.6.9 Total gas consumption in Bosnia and Herzegovina, by categories in billion m3 (bcm), 2010 – 2015
Source: BiH Agency for Statistics – Energy statistics - gas 2010 - 2015
In period 2010 – 2016, gas consumption in Federation of Bosnia and Herzegovina amounted ~160 – 213 million m3 per annum (Figure 5.6.10). Consumption is characterized by a slight decline, which averaged -3,6% on annual basis. Households’ gas consumption in Federation of Bosnia and Herzegovina amounted 107 – 157 million m3, where the share of households was 70% – 80% of total gas consumption. Industrial consumption in the observed period was ~35 – 57 million m3. Besides supplying gas to Federation of Bosnia and Herzegovina, BH-Gas also supplied gas to Republika
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Srpska. For industrial customers in Republika Srpska, a total of 154,3 million m3 was delivered for the period 2010 – 2013, while for households for period 2010 – 2014 a total of 7,4 million m3 of natural gas was delivered. For Republika Srpska total gas consumption amounted ~24 – 70 million m3 per annum in period between 2010 and 2016 (Figure 5.6.11). Consumption is characterised by high volatility of industrial customers that historically accounted for the largest share of total consumption ~80%-90% in the observed period. Gas consumption in Republika Srpska households amounted to 2 – 2,3 million m3 per year, with a slight decreasing trend of an average -1,4% per annum. It can be expected that the growth trend in households, after 2017, will increase with regard to the gasification of the city of Bijeljina after construction and connection with the transmission system. The growth of gas consumption in the future for Bosnia and Herzegovina will significantly depend on the construction of planned gas pipelines, as well as market conditions, i.e. gas prices.
Figure 5.6.10 Gas consumption in Federation of Bosnia and Figure 5.6.11 Gas consumption in Republika Srpska in Herzegovina in millions of m3(mcm), 2010 – 2016 millions of m³ (mcm), 2010 – 2016
Note: BH-Gas has supplied gas also to Republika Srpska. For Source: Republika Srpska Institute for Statistics – Natural gas industry 2010 – 2013 total of 154,3 million m3, and for households balance 2014 and 2015, Energy balance of Republika Srpska 2010 – 2014 a total of 7,4 million m3 natural gas 2016 Source: BH-Gas
As earlier mentioned, gas in Bosnia and Herzegovina is imported from Russian sources, i.e. Gazprom, where the total amount of imported gas was 4,6 billion m3 between 1997 and 2015 (Figure 5.6.12). For the Federation of Bosnia and Herzegovina, the Contract for supply of natural gas is being prolonged each year where company Energoinvest is the signatory and BH-Gas is the co-signatory. The Contract for transportation of natural gas through Hungary lasts until 2023, but with annexes being made which allow BH-Gas to reduce drastic differences in gas consumption during winter compared to summer period in order to avoid paying penalties for the full booked capacity for transport. The contractor with the TSO in Hungary is BH-Gas / Energoinvest. The same is also for transport (transit) of natural gas through Serbia. On the wholesale market in Republika Srpska, company Gas Res has been operating since 2015. For the period 07/2015 – 12/2016 a total of 106 million m3 of gas was delivered to Republika Srpska by Gas Res. Gas Res is signing annual contracts with Gazprom, and is working on signing a long-term contract.
Figure 5.6.12 Gas supply in Bosnia and Herzegovina in billion m3 (bcm), 2010 - 2015
Source: Gazprom Export Reports 2010 – 2015 | 144
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Gas prices in Bosnia and Herzegovina have historically been significantly higher than the prices for the wider region. Consequently, it can be said that the gas market is significantly determined by the fact that it is based on one natural gas entry point at the end of the system, which implies a considerable share of transmission costs across the third countries. Furthermore, in internal transmission there is a division between entity's system operators with a non-unified approach in determining tariffs. Since the purchase and sales prices of gas are largely dependent on tariffs applied across third countries, but also on domestic transmission, greater co-operation between regulatory bodies and transmission system operators is required, as well as further harmonization of the regulatory framework with the Third Energy Package in order to obtain marketable gas price. According to the dynamics of the gas price trends for industry in Bosnia and Herzegovina (Figure 5.6.13, Figure 5.6.14), it is apparent that, on average, the price excluding VAT, taxes and other levies was 38 EUR/MWh, while the price in the wider region was, on average, 33 EUR/MWh. By wholesalers adjustments in Bosnia and Herzegovina in 2016, a significant drop in prices of -34% occurred compared to 2015. This resulted that the domestic prices converged to the rest of the region. Reduction is a result of the change of oil price on exchange markets to which the gas price is indexed. However, looking at the prices adjusted for the purchasing power parity (PPP), the difference is greater than for the rest of the region.
Figure 5.6.13 Gas prices for industry in Bosnia and Figure 5.6.14 Gas prices for industry in Bosnia and Herzegovina and extended region, excluding VAT, taxes Herzegovina and extended region, excluding VAT, taxes and and levies in EUR/MWh, 2010 – 2016 levies in PPP/MWh, 2010 – 2016
Note: The consumer category taken for the industry is I3: 10,000 Note: The consumer category taken for the industry is I3: 10,000 GJ Comparing Bosnia and Herzegovina and other countries in 2016, gas prices in Bosnia and Herzegovina of ~27 EUR/MWh are at similar levels compared to more developed countries in the region such as Austria, the Czech Republic, Hungary and Slovenia, whose prices range from ~25 to 29 EUR/MWh. However, given the adjustment for the standard of living of each country, prices are higher compared to the rest of the region, with the exception of Serbia having the highest prices for industry (Figure 5.6.15, Figure 5.6.16). | 145 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Figure 5.6.15 Gas prices for industry in Bosnia and Figure 5.6.16 Gas prices for industry in Bosnia and Herzegovina and extended region, excluding VAT, taxes and Herzegovina and extended region, excluding VAT, taxes and levies in EUR/MWh, 2016 levies in PPP/MWh, 2016 Note: The consumer category taken for the industry is I3: 10,000 Note: The consumer category taken for the industry is I3: 10,000 GJ Similar dynamics of gas price trends are also present for households, but with less price difference compared to other countries. The total gas price for households in the observed period amounted to an average 48 EUR/MWh for Bosnia and Herzegovina, while the average price for the region was 50 EUR/MWh. Bosnia and Herzegovina recorded a significant decline in prices for households in 2016, -29% in relation to 2015, resulting in the final price of 36 EUR/MWh, which is below the regional average. Looking at the prices adjusted for the purchasing power, i.e. the standard of living in Bosnia and Herzegovina, positive developments and convergence towards the wider region were achieved. The price for Bosnia and Herzegovina was 77 PPP/MWh in 2016, and for the countries in the region on average 71 PPP/MWh (Figure 5.6.17, Figure 5.6.18). Figure 5.6.17 Gas price for households in Bosnia and Figure 5.6.18 Gas price for households in Bosnia and Herzegovina and extended region, including VAT and other Herzegovina and extended region, including VAT and other levies in EUR/MWh, 2010 – 2016 levies in PPP/MWh, 2010 – 2016 Note: The consumer category taken for the households is D2: 20 Note: The consumer category taken for the households is D2: 20 GJ < consumption < 200 GJ ,1) The countries in the region GJ < consumption < 200 GJ ,1) The countries in the region covered are Croatia, Serbia, Slovenia, Hungary, Austria, the covered are Croatia, Serbia, Slovenia, Hungary, Austria, the Czech Republic, Slovakia, Bulgaria and Romania Czech Republic, Slovakia, Bulgaria and Romania Source: Eurostat Source: Eurostat At the individual country level, Bosnia and Herzegovina was positioned below the regional average by -19% in 2016. Countries with the lower gas prices for households than Bosnia and Herzegovina are Hungary, Serbia, Bulgaria and Romania, ranging from ~33 to 35 EUR/MWh, but not significantly lower than the prices in Bosnia and Herzegovina, which amounted to 36 EUR/MWh. However, with adjustment for the purchasing power parity of the population, Bosnia and Herzegovina (77 PPP/MWh) is positioned in the top ranking countries by the level of prices, with Serbia (79 PPP/MWh) and the Czech Republic (90 PPP/MWh), but they are still much more favourable for Bosnia and Herzegovina | 146 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT compared to previous years. The countries with the lowest prices for households are Hungary, Croatia and Austria (Figure 5.6.19, Figure 5.6.20). Figure 5.6.19 Gas price for households in Bosnia and Figure 5.6.20 Gas price for households in Bosnia and Herzegovina and extended region, including VAT and other Herzegovina and extended region, including VAT and other levies in EUR/MWh, 2016 levies in PPP/MWh, 2016 Note: The consumer category taken for the industry is I3: 10,000 Note: The consumer category taken for the industry is I3: 10,000 GJ Development of gas infrastructure in the region and in Bosnia and Herzegovina Taking into consideration geopolitical events, there are possibilities that the status of certain projects might change. Accordingly, although the South Stream was cancelled in 2014, the negotiations on the construction are being renewed in 2017. Furthermore, Ionian Adriatic Pipeline (IAP) and LNG regasification terminal in Croatia represent cross-border projects relevant for Bosnia and Herzegovina. The commercial operation date of LNG terminal in Croatia and construction of evacuation pipeline should be expected in the upcoming period. Furthermore, IAP project, as the planned branch of Trans Adriatic Pipeline (TAP), represents a perspective gasification option for Albania, Montenegro, Croatia and Bosnia and Herzegovina (dominantly Federation of Bosnia and Herzegovina). The mentioned cross-border projects would enable Bosnia and Herzegovina access of gas from multiple routes to meet future demand and security of supply. Understanding the options for diversification of gas sources and routes, and the possible implementation of such projects is important in the context of bargaining power and achievement of price competitiveness, both for end users (households) and also industry where it can have a major role in competitiveness. Figure 5.6.21 Potential cross-border gas supply routes for portfolio diversification Note: 1) A Memorandum of Understanding (MoU) of the IAP joint initiative was signed between the Socar company from Azerbaijan and Croatia, Albania, Bosnia and Herzegovina and Montenegro on 25 August 2016 Source: TANAP, TAP, LNG Croatia, IEA, Turkish Stream, World Bank, Natural Gas World | 147 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Pipeline development plans for Bosnia and Herzegovina are in line with planned cross-border projects relevant for Bosnia and Herzegovina and part of South East Europe. The goal for Federation of Bosnia and Herzegovina is to increase the importance of natural gas as an energy source in the economy with the aim of strengthening the integration of gas market and security of supply. The strategic vision of systematic vertical linkage to the Croatian gas pipeline system is based on the paradigm of gas ring formation and gas supply from multiple sources. This would ensure gas from LNG, the Caspian region transported through IAP, or in general EU gas hubs. For Republika Srpska, the goal is also to increase the importance of natural gas in the economy where the first focus is new interconnection with Serbia in the Bijeljina area and construction of the Bijeljina – Banja Luka gas pipeline and further on. In addition, the gasification of Bijeljina and completion of gas pipeline Šepak - Bijeljina is also a priority for Republika Srpska. After that comes the gasification of Gornje Podrinje. As the lowest priority for Republika Srpska is the option of connecting with Croatia through the connection point Slobodnica – Brod, and also the possibility of gasification of Trebinje if there is economic rationale for the project. The following are gas pipeline project plans in line with the vision of both entities (Figure 5.6.2 and Table 5.6.1). Figure 5.6.22 Gas pipelines in Bosnia and Herzegovina (current state and plan) Note: Numbers of planned interconnections are not linked with the prioritization focus of construction 1) According to the document „Preliminary Technical Study of IAP” there are two options for pipeline route to pass. First option for the pipeline route starts at the border and passes by Neum toward the border with Croatia on the west. Second option for the pipeline route passes by lake Hutovo Blato in parallel with river Neretva towards Mostar, and then towards Posušje with the continuation towards Zagvozd in Croatia. Source: ENTSO-G TYNDP 2017, Working groups of Federation of Bosnia and Herzegovina and Republika Srpska, BH-Gas, Project Team analysis | 148 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Table 5.6.1 The dynamics and focus of gas pipeline projections in Bosnia and Herzegovina Commercial operation date Level Gas project Focus By 2020 By 2025 By 2030 By 2035 Southern interconnection (Zagvozd - Imotski – Posušje – Novi Travnik / Travnik with branch towards Mostar) ● Northern interconnection (Slobodnica – Brod – Zenica) ● Western interconnection (Rakovica – Tržac – Bosanska Krupa with section towards Bihać & Velika Kladuša as part of phase I.) ◑ Western interconnection – extension (B. Krupa – Ključ as part of phase II. and Ključ – B. Petrovac i Pećigrad – Bužim as part of ◔ phase III.) FBIH LNG supply via Port of Ploče by railway or trucks ◑ Gasification of Gornje Podrinje ◔ Network expansion Travnik – Gornji Vakuf and Jajce ◔ Gasification of Orašje ◔ Underground gas storage Tetima with connection pipeline Kladanj – Tuzla – Tetima ◔ Gasification of Bijeljina ● Interconnection with Serbia in the area of Bijeljina (Novo Selo) ● Main gas pipeline (Bijeljina - Banja Luka - further) ● RS Gasification of Gornje Podrinje ◑ Gasification of Trebinje from IAP ◔ Connection with Croatia (Gradiška and Brod) ◔ BD Gasification of Brčko District of Bosnia and Herzegovina BIH ◑ ● High ○ Low Note: 27th April 2017, a Memorandum of Understanding has been signed between TSOs BH-Gas and Plinacro for projects development of Southern interconnection, Northern interconnection and Western interconnection (phase I.) Source: BH-Gas, ENTSO-G TYNDP 2017, Strategic plan and program of energy sector in Federation of Bosnia and Herzegovina, Working group of Republika Srpska, Project Team analysis Southern interconnection between Bosnia and Herzegovina and Croatia (Zagvozd – Imotski – Posušje – Novi Travnik / Travnik with branch towards Mostar) is the highest priority for Federation of Bosnia and Herzegovina, since it is based on concept of gas source and route diversification to achieve security of supply. The Southern interconnection is on the Energy Community’s PMI list for gas. In terms of operational realization of the route, the pipeline Zenica - Travnik is currently in the phase of obtaining the use permit. The planned route of gas pipeline Slobodnica - Brod – Zenica i.e. Northern interconnection is also on high focus for the Federation of Bosnia and Herzegovina, given that the route is economically most profitable due to the existence of large consumption centres in both entities. However, part of the route connecting to the Croatian gas pipeline system, and passing the territory of Republika Srpska to Federation of Bosnia and Herzegovina, is on low focus for Republika Srpska. It is important to emphasize that the Northern and Southern interconnections are planned as reverse flow (both entry and exit) with the expected commercial operation date till 2025. In addition to the Northern and Southern interconnection, the Western interconnection project is also relevant on mid-level focus for Federation of Bosnia and Herzegovina. The project implies, as part of phase one, the route Rakovica – Tržac – Bosanska Krupa with sections towards Bihać and Velika Kladuša. This part of the route is on the Energy Community’s PMI list for gas. The Western interconnection also envisages a potential expansion of pipeline on lower priority towards B. Krupa – Ključ (phase II.), and Ključ – B. Petrovac – Bužim (phase III.). Another possibility is also being considered that this gas pipeline would be connected through the territory of Republika Srpska with the planned pipeline Travnik – Jajce. Realisation of phase II and phase III of Western interconnection is planned in the period till 2025 or 2030. Taking into account development of new technologies in gas sector, consideration should be given to the option of transporting gas without the use of gas pipeline infrastructure. Concretely, it is possible to | 149 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT transport liquefied natural gas (LNG) using the existing railway from Ploče or using road traffic29. This option should be considered as a possibility in case of prolongation of gas pipelines or as a possibility to satisfy one part of domestic demand. However, the role of gas pipelines will continue to be dominant. In addition to large-scale projects that link to cross-border routes with neighbouring countries, smaller projects have also been identified to extend the existing system, and are also part of BH-Gas’ development plans. This includes the gasification of Gornje Podrinje, extension of network Travnik – Gornji Vakuf and Jajce, and gasification of Orašje. These projects are on lower focus with the expected dynamics of operation till 2030 or 2035. In addition, given that Bosnia and Herzegovina has no gas storage facilities, the only potential site for the construction of a gas storage was identified near salt caverns Tetima, with connection pipeline Kladanj – Tuzla - Tetima. Gas storage would contribute to greater security of supply due to large peaks in consumption during the winter, and meet the growth of consumption in the future. In the short run, the biggest focus for Republika Srpska is the connection of the Bijeljina distribution system to the gas transmission system that is in progress (completion planned by the end of 2017), with the extension of the gas pipeline to Brčko and Ugljevik. Furthermore, in the medium and long term, the project of a new interconnection with Serbia would connect the cities of Banja Luka and Brod, with potential connection of other areas along the main route of the gas pipeline, as well as branches towards Doboj and Zenica. In the upcoming period Republika Srpska is planning gas pipeline routes in Gornje Podrinje region (planned pipeline is ~150 km of various diameters). As the lowest focus is the option of connecting the north of the Republika Srpska with Croatia (Gradiška and Brod). For the south of Republika Srpska, there is a potential gasification option for the city of Trebinje if there is market rationale after the completion of IAP project. When planning new gas pipeline routes, amendments to the Spatial Plan of Republika Srpska until 2025 are needed. Gasification of the city of Brčko should also be considered as a possible strategic option for Brčko District of Bosnia and Herzegovina on mid-level focus and indicative realisation between 2025 and 2035. The realization will greatly depend on market trend i.e. price of gas. Considering the relatively small area of Brčko, the potential gasification of Brčko should be systematically considered in line with entity plans of gas network development. In addition, Brčko District of Bosnia and Herzegovina leaves the option of being a transit route for gas pipelines towards entities in the future. 29 The LNG terminal on the island of Krk envisages to offer also bunkering services for trucks and vessels, where smaller vessels could transport LNG to the Port of Ploče, and then by railway or road traffic towards the Federation of Bosnia and Herzegovina. The aforementioned trend in LNG value chain (break-bulking services and small scale LNG) has an increasingly important role in the Baltics, with strong growth expected in the Mediterranean as well. | 150 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Regulatory and institutional framework 5.6.4.1 Bosnia and Herzegovina level At the level of Bosnia and Herzegovina, legislation regulating the gas sector exists only at the entities but not at the level of Bosnia and Herzegovina. It is necessary to meet the requirements of the Third Energy Package to regulate gas sector topics at the level of Bosnia and Herzegovina. At the Ministerial Council of the Energy Community, which was held in October 2016, an agreement was signed between MOFTER, MIER, FMERI, Energy Community and European Commission, which agreed the adoption of the Law on Electricity and Gas Regulator, Transmission and Electricity Market in Bosnia and Herzegovina, and adoption of harmonised entity laws regulating the gas sector in accordance with the Third Energy Package. The Energy Community has suspended measures against Bosnia and Herzegovina temporarily, by 31 March 2017 under this Agreement. Since the Agreement has not been met, the measures are automatically re-activated. 5.6.4.2 Regulatory framework in Federation of Bosnia and Herzegovina The Regulation on the Organization and Regulation of the Gas Sector in Federation of Bosnia and Herzegovina regulates the organization, rules and conditions for carrying out energy activities in the natural gas sector, rights and duties of natural gas sector participants, separation of the system operator's activities, third party access to the natural gas system, and the opening of the natural gas market. The Regulation is set out in the commitments under the Energy Community Treaty and the EU Gas Directive 2003/55/EC, which has been superseded by Directive 2009/73/EZ. The Regulation defines energy activities in the gas sector: Gas supply, Gas transport, Gas distribution, Gas storage, LNG facility management. Participants in the gas sector are: Gas supplier, Transmission system operator, Distribution system operator, Gas storage system operator, LNG facility operator, Eligible customer, Tariff customer, Protected customer. There is currently no gas regulator in the Federation of Bosnia and Herzegovina. In the proposal of the Gas Act in the Federation of Bosnia and Herzegovina, gas authority should be given to FERK, except for gas transportation regulation. The cantons are responsible for monitoring the relation between gas supply and demand in its area, making estimates of future consumption and available supply, planning of additional capacity and development of the distribution system in its area, as well as proposing and taking measures. FMERI is responsible for issuing the license for conducting energy activities, monitoring the relation between supply and demand on the gas market, making estimates of future consumption and available supply, planning the construction and development of additional gas capacity, and proposing and undertaking measures in the event of a crisis. The gas operator in the Federation of Bosnia and Herzegovina is BH Gas d.o.o. Sarajevo, who is responsible for gas transport activities with supply and trade activities. The transmission system operator, distribution system operator, gas storage system operator and LNG facility operator is obliged to secure efficient and non-discriminatory access to the network of transmission system, distribution system, gas storage system and LNG facility. The Regulation stipulates that the access to transmission system, distribution system, gas storage system and LNG facility is defined by the independent regulator of energy activities, in terms of regulated or negotiated approach. Since there is no regulator for gas in the Federation of Bosnia and Herzegovina, the possible third party access to infrastructure is provided based on ad hoc decision by FMERI. Regulated access is based on published tariff system, i.e. methodology and tariff items, which are applied objectively and equally for all gas market participants. The transmission system operator, distribution system operator, gas storage system operator and LNG facility operator has the right to refuse access to the system in the event of capacity shortages, to prevent access to the system in case the performance of the public service would not be possible or when access to the system would cause serious financial and economic difficulties. If an energy subject wants to contract supply of gas, but due to technical or other reasons | 151 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT cannot be provided with the right to access the distribution or transport system, it can build a direct gas pipeline. Construction of a direct gas pipeline can be accessed only on the basis of FMER approval. Gas supply and prices have not been liberalized for all users in the Federation of Bosnia and Herzegovina. The Government of the Federation of Bosnia and Herzegovina, at the proposal of the Federal Ministry of Commerce, with its previously obtained opinion by FMERI, regulates the gas supply price based on its Decision to incumbent gas suppliers for their tariff customers as part of public service in the Federation of Bosnia and Herzegovina. For the rest of tariff customers BH Gas regulates the price with the obligation to inform FMERI on any changes in written form. The regulation of natural gas is linked based on oil and petroleum derivatives prices on global markets as a basis for calculations, defined periods of delivery, ratio between contracted and delivered gas quality and other elements used in the calculations of delivered gas. The price for industrial consumers is determined based on the contract with the customer. Due to mentioned price regulation, cross-subsidization of different consumer categories occurs. A transmission system operator belonging to a vertically integrated energy subject must be independent of other non- transport related activities in terms of legal status, organization and decision making, which does not create the obligation to separate the ownership of the transport network assets from a vertically integrated company. Activities of a distribution system operator, that is part of a horizontally integrated subject, must be organized in an independent legal subject and independent of the activities outside the gas sector. Exceptionally, the activity of the transmission system operator, distribution system operator, gas storage system operator and LNG facility operator may be organized together, within the context of mixed operator activity, but independent of its legal status, organization and decision- making from gas supply activities, which does not create the obligation to separate the ownership of the transport network assets from a vertically integrated company. A mixed operator, which is part of a vertically integrated energy subject, must organize its activities in an independent legal subject independent of gas production and supply. 5.6.4.3 Regulatory framework in Republika Srpska The Law on Gas regulates the manner of organization, regulation and functioning of natural gas, the conditions for the proper, high quality and safe supply to the natural gas consumers, the manner of carrying out the production activities, transmission, distribution, supply and storage of natural gas and trade in the territory of Republika Srpska. All aforementioned activities except natural gas trade are considered the regulated activities of general interest. The new Law on Gas is in the process. The RERS has the following regulatory powers in the gas sector: 1. Determining the methodology for calculating the costs of production, transmission, distribution, storage and supply of natural gas, 2. Determining the methodology for calculating network connection costs, 3. Adopting the tariff system for calculating prices for use of the production, transmission, distribution, natural gas storage and tariff system for calculating the natural gas prices for the supply of tariff consumers, 4. Determining the criteria and prescribing the requirements for obtaining, amending and revoking licenses for performing the activities, as well as making decisions on the procedure for obtaining, amending and revoking licenses for carrying out activities in the natural gas sector, 5. Rendering decision on appeals against the decisions of the transmission and distribution system operators in the procedures of granting approvals for the use of the network and the approvals for connection to the network, 6. Determining the minimum annual natural gas consumption by which the status of a qualified consumer is acquired, and establishing the status and keeping a register of qualified natural gas consumers, 7. Approval of the operating rules of the system operators and the general requirements for the natural gas supply, 8. Granting consent to energy entities to the prices of services and the price of natural gas supply. Transmission system operator in Republika Srpska is Gas Promet. In the case where the transmission of gas is the activity of an integrated energy subject, the transmission system operator shall be obliged to separate the activities of the gas transmission from other activities and must not engage in mutual subsidization for the activities carried out within such energy subject. The same rules apply to gas storage and distribution activities. Gas prices are regulated only for public supply of households. The prices are being determined based on market prices of natural gas, and are in line with all criteria related to regulation. The transmission, distribution and storage operator shall be obliged to provide third party access to any person requiring access to the system, without discrimination, in accordance with the technical capabilities and depending on the degree transmission or distribution network or storage overload. Prices of access and use of the system are regulated and public. The prices are determined by the operator of the transmission or distribution system or storage based on the methodology and tariff system to which RERS gives approval. New facilities within the gas infrastructure may be built in accordance with the Law on Concessions and Law on spatial planning and construction. At the investor's request, the RERS may exempt such infrastructure from the regulated third- party access rules and regulated prices for access to and use of this infrastructure, subject to the fulfilment of prescribed requirements and informs the Ministry responsible for energy sector. Qualified consumers buy gas in the free market. According to the Law on Gas, the gas market has been formally liberalised since 1 January 2015. | 152 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Strategic guidelines The following is a summary of strategic guidelines, which are elaborated in accordance with the current state of gas sector on Bosnia and Herzegovina, and entities level. Further implementation of the legislative and legal framework is required in accordance with EU practices at the level of Federation of Bosnia and Herzegovina and Republika Srpska, as well as Bosnia and Herzegovina (with mutual collaboration between entities). In addition, new gas pipeline directions are needed along with further integration of transport systems and gasification of entities and potentially Brčko District of Bosnia and Herzegovina, in order to increase the importance of natural gas as an energy source in the economy. Table 5.6.2 Summary of strategic guidelines in gas sector for entities and Bosnia and Herzegovina Strategic priority Strategic guideline It is necessary to construct new gas pipelines since natural gas is being imported into Bosnia and Herzegovina from a single transportation route on a relatively small market. The priorities to construct gas pipelines for the Federation of Bosnia and Herzegovina comprise of Southern interconnection as the most important, and the Northern and Western interconnection also at high development focus. In addition, new technologies such as the supply of liquefied natural gas by Construction of new gas infrastructure in railway or road traffic should be considered in the future. the context of security of supply and The priority of gas pipeline construction for Republika Srpska is diversification of gas sources and routes the interconnection with the Republic of Serbia, and then potentially with Croatia in low focus. For the Brčko District of Bosnia and Herzegovina, it is also necessary to consider the option of gasification in the future. These projects provide diversification of gas sources and directions to ensure security of supply and increase the importance of natural gas as an energy source for households and industry. It is also important to provide uninterrupted capacity for TSO in accordance with the Third Energy Package Market The existing gas pipeline, built in 1979, is characterised by obsolescence and high demand peaks during winter period. Therefore, it necessary to actively manage assets Modernisation and adequate maintenance (infrastructure) in the upcoming period by conducting of the existing gas infrastructure in the modernizations, reconstructions, constructions and context of security of supply, energy maintenance in accordance with the needs of the gas system. efficiency and further gasification The above mentioned activities, in accordance with Directive 2012/27/EU, should aim at continuous increase in energy efficiency. Gas prices have made a positive trend and converged towards regional market prices in the last period. Although the share of gas in total consumption is relatively low, due to sensitive economic situation, is necessary to continue managing actively Manage gas price competitiveness and gas prices by raising competition, improving market efficiency, continue to converge towards regional considering diversification options and building competencies prices in trading with greater focus on short term contracts and spot markets. It is necessary to ensure the same price conditions for suppliers in both entities (and Brčko District of Bosnia and Herzegovina). The gas sector is regulated at entity level. A new draft of the Standardisation of key topics in gas sector Law on Electricity and Gas Regulators, Transmission and at the level of Bosnia and Herzegovina, in Electricity Market in Bosnia and Herzegovina, foresees in its accordance with the requirements of the text to regulate part of the gas sector at the level of Bosnia and Third Energy Package Herzegovina. There is currently no gas regulator at the level of Bosnia and Herzegovina. Therefore, it is proposed to give certain regulatory jurisdictions for gas sector to SERC upon the adoption of mentioned Law. It is proposed that the coordination Regulation Allocation of regulatory authority for the of regulatory activities is carried out at the level of Bosnia and gas sector to SERC Herzegovina within the future responsibilities of SERC, following the harmonization of this issue by the competent entity institutions and the competent ministry at the level of Bosnia and Herzegovina. | 153 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT The total debt of supplied natural gas for Bosnia and Herzegovina for the period 1991 - 1995 amounts to 104,8 mil. USD. Currently, the debt is partially paid by the Federation of Bosnia and Herzegovina and amounts to ~98 mil. USD, but the Resolving the issue of war debt for gas repayment is too slow (according to the current payment towards Russian Federation dynamics thorough a transitional solution of a 5 USD fee on 1000m3 gas, it would take ~100 years till full repayment). Therefore, it is necessary to resolve the issue of war debt for gas with Russian Federation at the level of Bosnia and Herzegovina. In Federation of Bosnia and Herzegovina, the gas operator BH Gas is responsible for transmission with supply and trading activities, and therefore it is necessary to unbundle these Unbundling of transmission and activities according to one of the foreseen gas unbundling distribution from supply according to EU models (ISO, ITO or ownership unbundling). In addition, it is practice necessary to carry out unbundling activities of distribution and supply (and supervision of the regulatory authority) in line with the provisions of the Third Energy Package in both entities to enable further market liberalisation and competitiveness. In Bosnia and Herzegovina there is no overall legal framework regulating natural gas in line with the Third Energy Package, and thus the degree of liberalisation and market organisation in Bosnia and Herzegovina is not fully uniform. At the Ministerial Council of Energy Community held in October 2016, an agreement was signed between the three competent ministries, Energy Community and European Commission, which agreed to adopt the Law on Electricity and Gas Regulators, Transmission and Electricity Market in Bosnia and Herzegovina, and the adoption of harmonised entity laws regulating the gas sector, in accordance with the Third Energy Package, that would lead to the harmonisation of the normative framework for the establishment of an organised natural gas market in Bosnia and Herzegovina. Because of this, the natural gas market in Bosnia and Herzegovina is segmented and activities are being performed at entity level in accordance with entity regulations. Continuation of gas market opening Gas supply and prices are not liberalised for all users in the Federation of Bosnia and Herzegovina – wholesale natural gas price for distribution companies is formed on the basis of the Government Decision of the Federation of Bosnia and Herzegovina, while the price for industrial consumers is determined according to the Consumer Contract and changes in natural gas price at supplier Legally and regulatory, the gas market is opened (wholesale and supply) in Republika Srpska since 01.01.2015, according to the current Law on Gas, but the continuation of related activities will be implemented with the provisions of the new Law on Gas. In accordance with the above, it is necessary to adopt harmonised legislation in Bosnia and Herzegovina as soon as possible with the Third Energy Package in accordance with the Agreement from October 2016 | 154 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT 5.7 District heating sector The public service of district heating in Bosnia and Herzegovina is available exclusively in urban areas, or sometimes only in certain parts of urban areas (Figure 5.7.1). District heating systems in the Republika Srpska are more commonly supplied with the heat energy from heating plants that are organized as public companies, while in the Federation of Bosnia and Herzegovina the heat is mainly supplied from local thermal power plants or industrial capacities. In the further text an emphasis is given on the systems in larger cities, while strategic guidelines for systems in smaller cities and improvements to individual heating systems are briefly reviewed. Figure 5.7.1 Location of district heating systems in Bosnia and Herzegovina Source: ESSBIH Module 9 District heating 2008, Project Team analysis Consumption and production of heat Thermal energy in Bosnia and Herzegovina is mainly used in households, accounting for around 77% of the final consumption in 2015 (Figure 5.7.2). Thermal energy is exclusively supplied for space heating and there is no supply of hot water. The downward trend in thermal energy consumption is driven by a reduction in household consumption, primarily due to high heating prices, uncertainty in supply and outdated installations. For these reasons, an increasing number of households switch to other sources of heating. Thermal energy generation plants in Bosnia and Herzegovina are 25 or more years old, and will soon reach their intended lifetime. According to the Balance of heat for 2015, heat losses in distribution are 6,5% (out of the total heat produced). Due to age limitation, a problem of low efficiency is present in some systems, and in some cases heat losses reach as much as 60%. In the last 20 years modernisation of systems is conducted at a slow pace mostly focused on basic maintenance, with an exception of a few systems such as Sarajevo and Tuzla. Due to poor business performance, heating companies have difficulties to engage adequate investments into modernisation and network development. | 155 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Figure 5.7.2 Final heat consumption trend in Bosnia and Figure 5.7.3 Trend of the structure of total consumption of Herzegovina, TJ, 2011 - 2015 heat in Bosnia and Herzegovina, TJ, 2011 - 2015 Source: Agency for statistics of Bosnia and Herzegovina – Energy Source: Agency for statistics of Bosnia and Herzegovina – Energy statistics- electricity and heat 2011-2015, Project Team analysis statistics- electricity and heat 2011-2015, Project Team analysis Thermal energy in Bosnia and Herzegovina is mostly produced in heating plants, around 59%, and the rest in industrial energy plants and thermal power plants (Figure 5.7.4). In Republika Srpska, majority of heat is supplied from heat plants. On the other hand, in the Federation of Bosnia and Herzegovina majority of the systems rely on local thermal power plants, what is the result of pre-war industrial development supported by large reserves of lignite and hard coal. Energy mix for production of heat is dominated by natural gas with a 40,4% share, but gas is only used in the systems in Sarajevo and Zvornik. However, according to the planned gasification projects of cities through new supply routes and extension of the existing gas pipeline network, an increase of gas use for heat generation may be expected in the future. In the rest of the district heating systems, coal and fuel oil have a dominant role in heat generation. A large increase in the production of heat from biomass has been recorded in the same period, as a result of the commissioning of a new heating plant in Prijedor. Currently, biomass holds a 9% share in the total heat generation energy mix, but in the future an increase in the share is expected due to the global trend of shifting to renewable energy sources and a reduction of share of fossil fuels in the energy mix (Figure 5.7.5). Figure 5.7.4 Production of heat in Bosnia and Herzegovina, Figure 5.7.5 Production of heat by energy source in Bosnia TJ, 2011-2015 and Herzegovina, %, 2015 Source: Agency for statistics of Bosnia and Herzegovina – Energy Source: Balance of electricity and heat, 2015 Federation of BIH, statistics- electricity and heat 2011-2015, Project Team analysis Balance of heat Republika Srpska 2015, Project Team analysis | 156 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT District heating companies in Bosnia and Herzegovina District heating companies are publicly owned and are located in larger urban areas (Table 5.7.1). War events left great consequences to a large share of district heating systems, primarily due to the inherited debts, which along with the damage and the age of the installations are the major reasons for the difficult recovery of the heating companies. There are no district cooling systems in Bosnia and Herzegovina, and their installation and implementation is currently not certain. Table 5.7.1 An overview of main district heating companies in Bosnia and Herzegovina Ownership Company City Main energy source Majority public Majority private Toplana Ad Banja Luka Banja Luka Fuel oil, biomass „Gradska Toplana” ODJP Doboj Coal (lignite) JP „Gradska Toplana” Pale Biomass (70%), coal (30%) „Centralna Toplana” Prijedor Fuel oil, biomass JODP „Toplane-INS“ Istočno Sarajevo Sarajevo Fuel oil JP „Gradska toplana“ Brod Brod Fuel oil RS "IEE" PJ „Toplana“ Gradiška Biomass JP „Nova toplana“ Sokolac Biomass JP „Gradsko grijanje“ Čelinac Coal JP „Gradska toplana“ Bijeljina Coal „Zvornik stan“ a.d. Zvornik Natural gas JP „Rad” Lukavac Coal „Centralno Grijanje” D.D. Tuzla Coal JP „Grijanje” Kakanj Coal FBIH JP „Grijanje” Zenica Coal (85%), nat. gas (15%) KJKP „Toplane Sarajevo” D.O.O. Sarajevo Natural gas JP „Toplana” D.D. Tešanj Coal Source: webpages of the companies, ESSBIH Modul 9 District heating 2008 District heating prices for physical persons in Bosnia and Herzegovina are in line with prices or lower than the prices in the cities in the region (Figure 5.7.6), and the most common way of payment is flat-rate according to the surface area. Prices are generally determined at the local level and are not based on the actual cost of generation and delivery of heat, which is why most of the heating companies receive incentives from local authorities. The main reasons for the poor business of heating companies, despite the reasonable cost of heating, are: age and low efficiency of generation capacities, considerable losses in heating networks, difficulties in measuring, calculating and billing the delivered thermal energy for certain entities, high prices of energy sources (coal, fuel oil and natural gas), difficult economic situation of the company due to which the renovation of the infrastructure is not possible. Figure 5.7.6 The average monthly heating price for households in EUR/m2, 2016 0.94 0.86 0.89 0.87 0.84 0.82 0.76 0.70 0.72 0.73 0.57 0.51 0.43 RS FBIH Region Doboj Bijeljina Banja Pale Prijedor Tuzla Kakanj Zenica Tešanj Sarajevo Novi Sad Beograd Zagreb1 Luka Note: 1) Calculated according to the average bill for heating the apartment of 50 m², 2) All prices are reduced to the equivalent price for the 12-month invoicing with the VAT included Source: bltoplana.com, toplanapd.com, toplane-sa.co.ba, grijanjezenica.ba, official information obtained via telephone interview (data for 2016), Project Team analysis | 157 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Scenarios for the development of the district heating systems District heating strategic framework options have been developed in line with the inputs from the working groups of the Republika Srpska and the Federation of Bosnia and Herzegovina, scenarios for the development of the energy production mix and the future needs (Figure 5.7.7). Strategic options for achieving development in the district heating sector take into account the use of waste heat from coal-fired thermal power plants, heat and power cogeneration, the use of hot-water boilers and other methods and technologies that would improve service, energy efficiency, operations and other factors crucial to the development of district heating. In the context of the development of the district heating systems in the EU, the market share of the district heating system is now 12%. The goal at the EU level is to increase the market share to 30% by 2030, and to 50% by 2050. Figure 5.7.7 Prerequisites for development of district heating scenarios Source: Project Team analysis 5.7.3.1 Sarajevo Current heating system in Sarajevo consists of 3 large hot-water boilers on gas and a large number of small gas systems. This system is the most modern in Bosnia and Herzegovina, however it is necessary to continuously conduct maintenance and adjustments in line with development plans. Sanitary hot water service is not introduced yet in Sarajevo. In all scenarios the use of the current system is assumed even after 2035, because the system in Sarajevo in the past 20 years has been restored and is in a good condition. In addition to current gas based system, another option could be possible by connecting Sarajevo and TPP Kakanj with heat pipeline from 2024, in line with constructing TPP Kakanj 8. In the meantime, it is necessary to implement adjustments to the current system and construct a heat pipeline between Kakanj and Sarajevo. With regard to that, as an additional source of heat for Sarajevo a new block 8 in TTP Kakanj is proposed as a main option, while the current block 7 would serve as backup. It is recommended to develop a flexible system module for waste heat utilisation using heat pumps. By utilising the waste heat from blocks 7 and 8, production of heat and power is separated making the system more efficient. Figure 5.7.8 Sarajevo – utilisation of waste heat per blocks in accordance with the scenarios for electrical energy Source: EP BIH, Federation of Bosnia and Herzegovina Working Group, Project Team analysis | 158 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT 5.7.3.2 Tuzla Currently Tuzla is supplied with heat form blocks 3 and 4 in TPP Tuzla. Heat is generated from the steam used in the steam turbine that reduces the electrical energy generation and efficiency. Waste heat or heat from the exhaust gasses is not used. In accordance with the entity scenario the decommissioning of block 3 will be conducted by 2021, and block 4 by 2022. Construction of the new block 7 is expected by 2021, and it will take over the production of heat after the decommissioning of blocks 3 and 4. It is planned to connect the towns of Živinice and Lukavac on the district heating system and invest into increase of energy efficiency of the current distribution network in Tuzla. In this scenario heating of Tuzla, Lukavac and Živinice after 2022 will be secured from the new block 7, while keeping block 6 as backup. The new block 7 will use coal as its energy source. The indicative plan (IP) proposes decommission of the existing blocks 3 and 4, which currently supply the consumers with heat, by 2024. However, commissioning of the new block 7 will be implemented by 2020 and it will take over the electricity generation. The cost optimised indicative plan suggests that blocks 3 and 4 are stopped by 2024, and the new block 7 is commissioned in 2035. In that case, in order not to cut off the supply of heat to consumers, it is necessary to construct a separate module of heat pumps that will use waste heat from blocks 5 and 6. In such a system, generation of heat and power is separated consequently increasing the efficiency and flexibility of the system. In addition to that, the need for cooling water used to cool the chimneys of the TPP is reduced. After decommissioning of blocks 5 and 6, a separate module of heat pumps utilises the waste heat from the block 7 and continues to supply the consumers with heat. The moderate renewable scenario assumes decommission of current blocks 3 and 4 by 2024, without commissioning of the new block 7. In order to supply the consumers with heat, construction of a new cogeneration plant on biomass is suggested as an alternative. Commissioning of one or two blocks, of 240 MWt and 110 MWe, on biomass is suggested. Availability of biomass in the Tuzla area is sufficient to satisfy the consumption of one block, and in the case of a need for two blocks there is a possibility of using devastated areas beside the bank of the Sava river as an additional source of biomass. In all scenarios, development of a system for sanitary hot water supply is considered. Figure 5.7.9 Tuzla – utilisation of waste heat per blocks in accordance with the scenarios for electrical energy Source: EP BIH, Federation of Bosnia and Herzegovina Working Group, Project Team analysis 5.7.3.3 Zenica Zenica is currently supplied with heat generated in a high temperature hot water (HTHW) boiler that is located in the perimeter of the Zenica steel producer Arcelor Mittal. Aforementioned boiler is in a poor condition and with the aim of increasing energy efficiency and security of heat supply, possible development options have been suggested. Depending on the implementation dynamics, the considered options can be implemented in the period between 2020 and 2024. In all scenarios common solutions have been presented, while in the Indicative plan (IP) scenario additional possibility of constructing a CHP Zenica has been introduced as well. The capacity of this gas fired cogeneration plant would be 385 MWe and 90 MWt, in addition to the modification of the existing distribution system it is necessary to build the infrastructure that connects the CHP plant to the transmission network for electrical energy, requiring additional investments. Commissioning of CHP Zenica according to the Indicative plan is expected in 2020, but it is assessed that a more realistic deadline is 2024 due to large capital expenditures and preparatory activities required. Other options are common to all scenarios considering that they are not directly linked to the electrical power generation mix development. The first option is using heat from the Arcelor Mittal steel plant, what considers construction of a plant that will use waste heat produced by the kilns in the steel plant. Accordingly, it is implied that heat generation is dependent on the | 159 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT production processes in the steel plant which affects the security of supply. This option requires relatively smallest modifications to the current system, making it the most realistic in the short time frame until 2020. The second option is construction of the new high temperature hot water boiler on biomass with the capacity of 150 MWt, representing a switch to renewable energy sources and increase of the security of supply as the system is no longer dependent on the operation of the steel plant. Additionally, electricity is not generated so there is no need to build infrastructure to connect the plant in Zenica to the electricity transmission system. Due to larger investments and the need to adjust the current heat distribution network, this system can be implemented by 2024. The third suggested option considers development of the heat pipeline form TPP Kakanj to Zenica, representing a secure and efficient heat supply system, including possible connection of the local towns between Kakanj and Zenica to the heat pipeline. This option assumes development and adjustment of the current system in Zenica and construction of the heat pipeline between two cities, what is estimated to require 5-6 years for realization. Accordingly, this option becomes possible after 2024, what is in line with the estimated time of construction of the block 8 in Kakanj. Figure 5.7.10 Zenica – utilisation of waste heat per blocks in accordance with the scenarios for electrical energy Source: EP BIH, Federation of Bosnia and Herzegovina Working Group, Project Team analysis 5.7.3.4 Kakanj The city of Kakanj is currently supplied with heat from blocks 6 and 7 in TPP Kakanj. Decommission of block 6 is predicted for 2024 in the entity scenario, while in all other scenarios it is assumed that it will be decommissioned in 2027. The construction of block Kakanj 8 in all scenarios is planned for 2024, making it the primary source of heat for the city Kakanj. In that case block 7, planned for decommission after 2035 would serve as backup. Figure 5.7.11 Kakanj – utilizing waste heat per block in accordance with the scenarios for electrical energy Source: EP BIH, Federation of Bosnia and Herzegovina Working Group, Project Team analysis | 160 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT 5.7.3.5 Banja Luka The existing Banja Luka district heating system is not sustainable under the current circumstances. Thermal energy in Banja Luka is produced by a fuel oil fired hot-water boiler and two biomass fired boilers of 6 MW each. The use of fuel oil as a primary fuel prevents the use of a low temperature and flexible heat distribution system due to the increased concentration of sulphur and nitrogen oxides (NOx) in the exhaust gases. Improvements that could be achieved by better heat distribution control are not sufficient to ensure a competitive heating price. Figure 5.7.12 Banja Luka – utilizing waste heat per block in accordance with the scenarios for electrical energy Source: Republika Srpska Working Group, Project Team analysis Two options for the development of the heating system in Banja Luka are presented in four scenarios, the presented options are reflected by the scenarios for the development of the power generation mix (Figure 5.7.12). The Entity and IP scenarios include the construction of a system of several biomass-fired condensing boilers or, in the case of gasification of the northern part of the Republika Srpska, there is the possibility of building a CCGT (combined cycle gas turbine) cogeneration power plant. Bearing in mind the advances in technology and the evolution of the financial market towards renewable energy sources, it can be assumed that such a biomass-fired facility should be considered a potential solution. The potential construction of a Banja Luka gas-fired cogeneration plant can be expected after a minimum of ten years in view of the gas pipeline construction plan to Banja Luka by 2025 or 203030. The second option, according to the cost- optimized IP scenario and a slightly renewable scenario, includes the construction of a biomass-fired cogeneration plant (CHP) with its corresponding flexible heating module. Both options imply the improvement of the distribution systems energy efficiency by using the tools for managing heat distribution systems, thereby transforming the existing heating system into a low-temperature flow control system. The development of district heating in Banja Luka also implies the introduction of the possibility of supplying consumers with sanitary water, and the expansion of the district heating network to the entire Banja Luka - Laktaši area, which would increase the market and improve the operations of heating companies. 5.7.3.6 Bijeljina In the city of Bijeljina, the district heating service is provided by “JP Gradska toplana Bijeljina", which uses coal as the main energy source. Considering the city of Bijeljina's connection to the gas transmission system (scheduled for operation by the end of 2017), gas could be used as an energy source for heat generation. The city gasification plan is in its final phase, and is included in all the generation mix development scenarios (Figure 5.7.13). As an additional option of developing a new heating system for the wider area of Bijeljina, there is a possibility of using waste heat from the Ugljevik thermal power plant. It is understood that the development of a low-temperature heat distribution system will be developed in accordance with modern standards for heat distribution management. This system envisages supplying all consumers with sanitary hot water, thus increasing the efficiency and the market. In the vicinity of the city of Bijeljina, there is also a prospect of using geothermal energy that can be used as a source of thermal energy for certain parts of the city. Due to the lack of research, the commercial potential of geothermal energy in the Bijeljina area is unknown. Therefore, geothermal resources research needs to be carried out in this area. 30 The gas option within the electricity generation in the Republika Srpska has not been explicitly defined as the construction of a gas pipeline infrastructure to Banja Luka is required, which is currently at a lower maturity stage. | 161 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Figure 5.7.13 Bijeljina – utilizing waste heat per block in accordance with the scenarios for electrical energy Source: Republika Srpska Working Group, Project Team analysis 5.7.3.7 Prijedor and Doboj Heating in Prijedor and Doboj has been provided by newly built plants. Specifically, in the city of Prijedor, a biomass- fired cogeneration (CHP) plant was built, while in the city of Doboj, a coal-fired hot-water boiler was installed, which has a concession obligation with the Stanari TPP for coal use. These solutions are adequate for the upcoming period, and no need is expected for additional options to meet the heat consumption. Other heating systems 5.7.4.1 Small individual heating systems Heating systems, except for the aforementioned systems in large cities, are part of small independent heating systems (Table 5.7.2). The goal for all systems, including small independent heating systems, is to develop an advanced heat distribution management system, prepare or achieve the transition to low-temperature distribution systems and enable the delivery of sanitary hot water in the coming period. Since most households use electricity for the provision of hot water, the successful realisation of the sanitary hot water supply would significantly reduce electricity consumption. For the development of small independent heating systems (Table 5.7.2), the local sources of geothermal energy or biomass can be considered sufficient. These systems do not face the competition of larger and more efficient biomass consumers in any scenario. Table 5.7.2 Selected overview of small independent heating systems Heating system Envisaged development Brod Čelinac Istočno Sarajevo Switch to a biomass-fired condensing boiler and a low temperature regime Pale Sokolac RS Derventa Consider the use of geothermal energy. The alternative would be switching to a Gradiška biomass-fired condensing boiler and a low-temperature regime Retention of the existing solution with a possible transition to the gas-fired Zvornik condensing boiler and a low-temperature regime Tešanj Konjic Switch to a biomass-fired condensing boiler and a low temperature regime Sanski Most Connection to a heating system in Kakanj, or switch to a biomass-fired Breza FBIH condensing boiler and a low temperature regime Banovići Connection to a heating system in Tuzla, or switch to a biomass-fired Lukavac condensing boiler and a low temperature regime Source: Project Team analysis | 162 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT 5.7.4.2 Development of the heating system in Brčko District of Bosnia and Herzegovina According to the Action plan for energy-sustainable development adopted by the Brčko District of Bosnia and Herzegovina in 2015, the construction of a cogeneration plant and the development of a heating system is foreseen. On the territory of Brčko District of Bosnia and Herzegovina, considering the existing infrastructure, there are a few locations for construction of the cogeneration plant that are suitable for energy transport, access and environmental impact and have a source of cooling water. Considering the current consumption of Brčko District and projections of future development, two unites of the capacity 2 x 20 MWe and 2 x 40 MWt, what would secure supply of 220 GWhe and 180 GWht energy, sufficient to cover the needs. A biomass-fired plant of the specified capacity would annually spent roughly 20.000t of poplar wood or biomass equivalent, and it is assessed that capacities for production of the designated amount of biomass exist on the unused land in the Brčko District of Bosnia and Herzegovina. An additional option of using the wood waste from the wood industry and partially burning the city waste exists. The planned construction time of the cogeneration plant is 4 years, and in that time it is necessary to develop the heating system and biomass plantations needed as a source of energy. 5.7.4.3 Individual heating The available data indicate that a majority of the population uses individual heating systems, most of which are biomass and coal-fired systems. Likewise, in larger cities, such as Banja Luka, district heating systems are being abandoned in favour of individual solutions. The individual systems are characterized by a small number of efficient systems, such as pellet condensing boilers, heat accumulators and integrated systems for the sanitary hot water production. It is necessary to reduce energy poverty caused by the wide presence of inefficient individual systems that are characterized by ineffective and expensive use of firewood, the use of coal in individual ventilated furnaces in the populated areas, and the problem of internal and urban pollution. For the purpose of reducing energy poverty, it is necessary to promote the use of district heating systems by reducing the cost of services, the expansion of the heating network, as well as to encourage the increase of the individual heating systems energy efficiency. It is necessary to, in the next 10 years, at least double the average efficiency of solid and gas fuels individual heating systems by using condensing boilers, kilns and furnaces with an integrated heat storage, as well as sanitary hot water production. Wherever possible, consideration should also be given to the use of solar energy, heat pumps and geothermal sources. Although, it is expected that rural areas will in the most part continue to use firewood as the main heating source. Regulatory and institutional framework 5.7.5.1 Bosnia and Herzegovina level The district heating sector is regulated at the entity level and there is no regulation governing this sector at the level of Bosnia and Herzegovina. MOFTER performs activities within its competence to carry out operations and tasks within Bosnia and Herzegovina’s competence related to the definition of policies, basic principles, coordination of activities and alignment of entity Government bodies and institutions with the international developments in the field of energy, as well as in the area of concession when the concession property is located in the territory of both entities. 5.7.5.2 Regulatory framework in the Federation of Bosnia and Herzegovina Heating activities are regulated by regulations that define communal activities and are operated by public communal companies (heating plants), on cantonal and municipal level. Measurement and billing of the consumed heat is some cases is not done according to the actual heat consumption, which negatively affects rationalisation of heat consumption and energy efficiency. The existing infrastructure does not support introduction of sanitary hot water prepared using heat from the central heating system. Plans or resources do not exist for construction of the cogeneration infrastructure. Due to the outdated infrastructure, high energy losses are recorded. Some cantons in the Federation of Bosnia and Herzegovina have adopted laws on a public-private partnership. These laws provide a framework for achieving cooperation between private investors and local communities in regard to the implementation of infrastructure projects to secure funding for the purpose of building, renovating, reconstructing, managing or maintaining infrastructure, providing services and building infrastructure, with the aim to suffice public needs. Therefore, potential investments in district heating infrastructure could also be realized on the basis of these laws. 5.7.5.3 Regulatory framework in Republika Srpska According to the Law on Energy, heating is an energy activity. However, the district heating services are performed by communal companies in accordance with the Law on Communal Activities and the Law on Building Maintenance. Measuring and billing are not carried out according to actual consumption for some consumers, which negatively affects the streamlining of consumption and energy efficiency. The existing infrastructure does not support the introduction of sanitary hot water by heat from the central heating system. There are neither plans nor funds to build the cogeneration infrastructure. High energy losses are recorded due to outdated infrastructure. The Law on Public-Private Partnership in Republika Srpska provides a framework for the establishment of cooperation between private investors and local communities with regard to the implementation of infrastructure projects in order to secure financing for the purpose of construction, rehabilitation, reconstruction, management or maintenance of infrastructure, provision of services and building the facilities with the aim of meeting public needs. Therefore, potential investments in district heating infrastructure could also be realized on the basis of this law. | 163 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Strategic guidelines Considering the current state of the heating sector, the strategic guidelines of the district heating strategy have been defined in the field of market and regulation (Table 5.7.3) Table 5.7.3 Strategic guidelines for the district heating sector Strategic priority Strategic guideline Extension and improvement Planning and modernisation of infrastructure regarding the development of of the district heating sector district heating system and the introduction of sanitary hot water from the through district heating heating system (use of heating systems in industrial processes), which would systems increase the market Future development of district heating needs to be built on the basis of optimal techno-economic decisions; however, bearing in mind the basic needs for addressing heating issues for households and other consumers Consider models of heating network development and expansion of the district heating system: o Creation and continuous update of a heating system map with the purpose to serve as a basis for the investments into district heating systems o Generating a comprehensive assessment of the potential of the high-efficiency cogeneration and efficient district heating and cooling systems, as well as establishing concrete measures and investments in line with the requirements of the Energy Efficiency Development of feasibility studies on the optimal options Directive (the deadline is 30.11.2019) for district heating o Reconstruction of the existing boilers and a switch from fuel oil to Market biomass o Following EU trends aimed at increasing the use of district heating systems to 30% by 2030, or o 50% by 2050 o Increase the share of cogeneration plants (ex. biomass) that will suffice heat consumption o Utilising waste heat from boilers that use coal/other energy sources (according to the development of the TPP sector and industry where possible) o Use of biomass-fired condensation boilers where it is an optimal solution o Further integration of RES into district heating systems Optimise the measuring and billing system of consumption and relationship Implementation of energy with consumers. Define measures and set up an implementation framework efficiency measure according for the rationalization of losses (even up to 60%) and unit consumption of to the EU Directive 2012/27/EU thermal energy through energy efficiency measures both on the thermal energy generation side and the consumers side Currently legislation that particularly regulates the heating sector does not Adoption of laws and by-laws exist. It is necessary to adopt laws in order to regulate the issues of that regulate the heating generation, distribution, thermal energy supply, tariffs policies and the sector relationship between suppliers and consumers of heat and other relevant issues in this sector Regulation | 164 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT 5.8 Energy efficiency EU Directives and Action plans Energy efficiency has been given a role as one of the most important elements of modern energy sectors and the initiatives of the energy policies of the European Union member states. For Bosnia and Herzegovina, the energy efficiency is gaining increasing importance. Therefore, in the coming period it is necessary to adopt a set of decisions and measures that would not only transpose the binding EU Directives under the Energy Community Treaty, but would also fully enable their implementation. Figure 5.8.1 Directives related to energy efficiency Source: EUR-lex The Directive 2012/27/EU on Energy Efficiency was introduced to Energy Community Treaty framework in October and has been binding on Bosnia and Herzegovina since. Implementation deadline is October 15th 2017. The transposition of the new directive is expected in the form of amendments to the existing Law on Energy Efficiency, and amendments to the secondary legislation. Directive 2012/27/EU introduces the concept of cap consumption expressed in primary and final energy, setting the limit at the level of the Energy Community countries. In fact, in addition to the expected savings in final energy, this directive expects savings on the primary energy side in transformation, transmission and distribution, and promote cogeneration and efficient district heating systems. This means changing the manner of planning, as well as including the entire energy sector in the preparation, implementation and monitoring phase of the proposed programs and planned measures. The European Commission has set the target of reducing primary and final energy consumption by 20% by 2020 compared to the estimated consumption, and it amounts to 187 Mtoe for primary energy and 133 Mtoe for final energy. The PRIMES model was used in target calculations. It is important to emphasize that the target is common to all countries at the Energy Community level. The Member States, thus also Bosnia and Herzegovina, are obliged to analyse their expected consumption in primary and final energy, and to adopt programs and plans in order to remain within the envisaged consumption limits. Bosnia and Herzegovina is currently working on the adoption of the Action Plan, which is also the obligation according to Energy Community Treaty. Action Plan is under preparation according to Energy Community Secretariat template so it is aligned with entity action plans and new Directive 2012/27/EC. The Republika Srpska is currently working on the preparation of the Action Plan according to the Energy Community Secretariat template, but which is not fully compatible with the national plans of the EU countries. For this reason, it will only be partially aligned with the new Directive. The Secretariat named the Action Plan a transitional plan, and it represents a preparatory phase prior to the preparation of the next action plan, which should be ready by April 30th 2019, and which will be fully aligned with the new Directive. In the Federation of Bosnia and Herzegovina, an Action Plan for energy efficiency has not yet been adopted, and is currently working on draft of Energy Efficiency Guidelines. | 165 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT The three key Articles of the new Directive to which the quantified targets are to be linked, are: Article 3 – refers to the indicative target of each country expressed in the consumption of primary or final energy in 2020, primary or final energy savings or energy intensity indicators Article 5 – refers to the renovation of central government buildings Article 7 – refers to the obligation schemes and/or alternative measures and the quantified required savings expected as of the beginning of 2017 Figure 5.8.2 Timeline for three key Articles of Directive 2012/27/EU Source: Directive 2012/27/EU, Project Team analysis Figure 5.8.3 Timeline for other selected Articles of Directive 2012/27/EU Source: Directive 2012/27/EU, Project Team analysis | 166 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Key strategic elements The key elements of the energy efficiency strategy are modelled on the long-term vision of the EU countries, primarily to respond to the real potential interests of Bosnia and Herzegovina, and meet requirements of the Directive 2012/27/EU. A long-term strategy in the field of energy efficiency has three key elements (Figure 5.8.4): Savings in final consumption Savings in the process of transformation, transmission and distribution of electricity, gas and heat Creating conditions for highly efficient cogeneration and promotion and expansion of efficient district heating systems. In addition to the aforementioned elements, it is important to improve the legal and regulatory framework for energy efficiency, define financial measures and the institutional framework for implementation, as well as conduct information campaigns and various trainings. Figure 5.8.4 Key elements of long-term energy efficiency strategy Source: Project Team analysis Final consumption The savings in final consumption are still in focus when talking about short-term and long-term goals. Referring to Article 7 of the new Energy Efficiency Directive, each country is required to implement projects on final consumption, in proportion to total sales to final customers, excluding the transport sector 5.8.3.1 Current status Data on the existing indicative targets in final consumption were obtained as a sum of planned savings in Federation of Bosnia and Herzegovina, Republika Srpska and Brčko District of Bosnia and Herzegovina. According to the current Directive 2006/32/EC, Bosnia and Herzegovina has taken the target of achieving savings in the amount of 9% of the average final energy consumption for the period 2006-2010 by 2018, and it amounts to 12,47 PJ (0,3 Mtoe). The overall target is divided into four sectoral targets for the: residential sector service sector industry transport The most savings are planned to be realizes in the industry and residential sector. | 167 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT So far, the implementation of the savings realised in 2015 has been followed. At the level of Bosnia and Herzegovina, saving amounted to 5,23 PJ (of which 3,71 PJ were at the level of Federation of Bosnia and Herzegovina and 1,52 PJ on level of Republika Srpska). The most saving were achieved in the service sector (2,50 PJ) and residential sector (2,11 PJ.) (Figure 5.8.5). Figure 5.8.5 Sectoral targets and savings in PJs, 2015 i 2016 Source: Action plan for the Energy efficiency in Republika Srpska until 2018, National renewable energy action plan of Bosnia and Herzegovina, Project Team analysis 5.8.3.2 Planned savings Bosnia and Herzegovina has great potential for savings, especially in the building sector, which has over 50% share in total final consumption. As a first step, it is necessary to make a reliable database on the existing housing fund in Bosnia and Herzegovina and prepare a cost-effective methodology for all categories of buildings. For this reason, it is necessary to prepare a Long-term strategy for mobilising investment in the renovation of buildings, which is also an integral part of Article 4 of the new Directive and is being prepared on the basis of an existing building inventory, the cost-effective methodology, and the analysis of all applicable measures. Besides the obligation for the full implementation of the 2010/31/EU directive, within the energy efficiency program the following options should be considered: thermal renovation of facilities with room heating and reduction of their energy needs installation of central heating in these facilities (radiators and piping network) connection to the new district heating system Article 7 of the new Directive sets quantified targets for savings in final energy consumption, regardless of whether the obligation schemes or the alternative approach is used as an instrument of implementation. The amount of expected savings is based on the average value of annual energy sales to the end consumers, over a period of three years before 1 January 2016. The first Paragraph of Article 7 allows the transport sector to be excluded, thus reducing the basis for achieving the targets. It has been planned for Bosnia and Herzegovina to achieve savings of 0.5% in the first two years of implementation (2017 and 2018), and in the other two years of implementation (2019 and 2020) the share will increase to 0.7%. Accordingly, the total savings of 15,25 PJ will be expected by 2020. Preliminary estimates of the expected savings for the period from 2020 onwards have been made for each entity and Brčko District of Bosna and Herzegovina, modelled on the EU countries. In the period from 2020 to 2035 the annual savings of 1.5% are expected, which is 5,35 PJ per five-year period, with the 1.5% referring to the consumption in the base year used for the targets of Article 7. In this manner, the envisaged reduction in final consumption in 2035 with regard to the BAU scenario would amount to 31,31 PJ compared to the reference year 2010. Specifically, breakdown by which total savings were calculated is as follows: The Federation of Bosnia and Herzegovina – 20,76 PJ Republika Srpska – 9,67 PJ Brčko District of Bosnia and Herzegovina – 0,88 PJ | 168 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Figure 5.8.6 Planned savings in final consumption for Bosnia and Herzegovina in PJ by 2035 Source: Project Team analysis Using the data from the APEE for the Republika Srpska, the estimated investments for achieving the target in the three- year period 2016 - 2018 amount to BAM 316 million, or slightly over EUR 160 million. Within the Action Plan, in the section referring to the obligation schemes, the unit investment per saved kWh was estimated at 0,781 BAM/kWh (0,4 EUR/kWh). Taking into account this estimate from the official document and projecting this ratio of investments per saved kWh of energy, it follows that, for the expected savings, it is necessary to invest BAM 73,2 million (EUR 37,4 million) annually in the period between 2021 and 2035, which brings us to the significant amounts that should be invested in energy efficiency. This means that, if the desired target is to be achieved by 2035, it is necessary to invest a total of BAM 1,1 billion (around EUR 560 million). After the adoption of Action Plans for Energy Efficiency in the Federation of Bosnia and Herzegovina and Brčko District of Bosnia and Herzegovina, the next step is to evaluate necessary investments in energy efficiency measures in order to achieve set targets. In the analysis of the savings realized under the first action plan, it has already been stated that the smallest amount of saving was achieved in the industry and transport sector. It is, therefore, necessary to intensify the programs and projects targeted at mentioned sectors through existing and future action plans. Bearing in mind the fact that energy efficiency projects in industry, as demonstrated by the experience in the region, are significantly more favourable from the standpoint of financial viability, then it is understandable why within this strategy the focus is on energy efficiency in that sector (Table 5.8.1). Table 5.8.1 Proposed programmes for achieving saving in final consumption Sector Measures/programmes for improving energy efficiency Renovation of central government/public buildings Implementation of Long-term strategy for mobilising investment in the renovation buildings Buildings Renovation of public buildings, with the help of donors and technical assistance Introduction of energy management into public buildings Increasing the energy efficiency of industrial processes (fuel substitution, combustion optimisation, frequent control of pumps, compressors and fans, replacement of old and oversized pumps, etc.) Promotion of cogeneration Industry Introduction of energy management in industrial plants Mandatory energy audits of large consumers (over 10 GWh per year) Promotion of the introduction of energy management in small and medium enterprises Infrastructure measures on the road network with energy saving effects (construction of bypasses and roundabouts, improvement of the traffic signalling system, improvement of the public transport Transport infrastructure, etc.) Replacement of old vehicles with energy efficient vehicles in public and freight transport | 169 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Transformation, transmission and distribution The new directive addresses energy efficiency to all participant in the energy chain, so that the measures planned and implemented in the area of transformation, transmission and distribution are placed under the same roof with savings in final energy consumption when reporting on the results achieved. It is also important to emphasize that the new approach requires achievement of savings expressed in primary and final energy in order to keep the consumption below the envisaged limit values. What is to be achieved is, of course, the integral planning throughout the energy chain, from generation via transmission and distribution to the end consumers. Since the energy efficiency action plans have so far been made under the Directive on energy end-use efficiency and energy services (2006/32/EC), no efficiency measures have been envisaged for primary energy. The Action plan, that needs to be prepared until April 30th 2019, will have to address realized and planned savings measures for primary energy. In addition to the saving of primary energy, which are the result of interventions in final consumption, it is important to emphasize that in the Federation of Bosnia and Herzegovina certain savings in the primary energy are expected due to commissioning of new blocks in TPP Tuzla and TPP Kakanj. 5.8.4.1 Planned savings in transformation According to the energy balance for 2016, the share of thermal power plants in total electricity generation in Republika Srpska was 65.4% (4.742 GWh) and in the Federation of Bosnia and Herzegovina was 66%. According to the ISO BIH report, the specific consumption of units in the TPP Gacko amounts to 11.520 kJ/kWh, TPP Ugljevik 11.470 kJ/kWh and TPP Stanari 9.500 kJ/kWh, which means that the average efficiency of power plants (eta) is 33,6% 31. It should be emphasized that within the entity scenario in the generation mix, the construction of a new block in the TPP Gacko has been planned, with a capacity of 350 MW, the potential input of which would create additional savings in primary energy consumption. According to the same report, specific consumption of units in TPP Tuzla amounts to 12.248 kJ/kWh, while average efficiency of power plants (eta) is 29,4%. The long-term goal is to achieve from 35% to 40% of the average efficiency of the units in 2035. Three scenarios have been created to calculate planned savings: S1 – power plants efficiency 35% (specific consumption of 10.286 kJ/kWh) S2 – power plants efficiency 38% (specific consumption of 9.474 kJ/kWh) S3 – power plants efficiency 40% specific consumption of 9.000 kJ/kWh) The calculation also takes into account the mean value of estimated consumption by 2035 in the transmission network, with and without energy efficiency measures: Republika Srpska – average consumption value without EE – 4.655 GWh Republika Srpska - average consumption value with EE – 4.431 GWh Federation of Bosnia and Herzegovina – average consumption value without EE – 7.812 GWh Federation of Bosnia and Herzegovina – average consumption value with EE – 7.435 GWh Raising the average degree of efficiency of thermal power plants in primary energy will generate the savings planned in final consumption in the period until 2035. Table 5.8.2 Planned savings in transformation until 2035 Savings (PJ) Scenario Consumption estimate without EE measures Consumption estimate with EE measures S1 13,19 12,56 S2 19,60 18,65 S3 23,33 22,20 Source: Project Team analysis 31 As a basis for the further estimate, the eta has been calculated without the Stanari TPP, and amounts to 31.3% | 170 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT 5.8.4.2 Planned savings in transmission and distribution Transmission network with its level of development and construction meets all current needs of EES in Bosnia and Herzegovina. Losses in the transmission network, which are already previously mentioned in the chapter on electricity, are rather satisfactory and at the level of losses of developed European systems. Therefore, planned saving were not explicitly estimated for the transmission network. However, in the forthcoming period, it is suggested to keep track of future trends for transmission network losses reduction through further IT system development, grid modernisation, etc. There is a continuous trend of reduction in distribution losses in Bosnia and Herzegovina, from 16% in 2010 to approximately 11,7% in 2015 for EP HZHB, from 9,7% to 8,7% for EP BIH and from 16,5% to 11,7% for EP RS (Figure 5.8.7). This trend of reducing distribution losses comes as a joint result of numerous regulatory and technical measures and activities implemented in both entities in the past period. Reduction of distribution losses is a long-lasting and complex process, which requires a high degree of regulation at all organisational and technical levels in distribution companies. Figure 5.8.7 Electricity distribution losses, 2010 - 2015 Source: RERS annual reports, Republika Srpska Working Group, Federation of Bosnia and Herzegovina Working Group In the distribution network, technical and commercial losses represent one of the biggest problems to the DSO, and for that reason their reduction is one of the electricity sector's strategic goals. The calculation takes into account the mean values of estimated consumption until 2035 in the distribution network, with and without energy efficiency measures The aim is to reduce distribution losses to 9% in 2020 and to 6,5% in 2035. Taking into account the stated goals, the estimate of potential savings has been developed (Table 5.8.3). It is important to note that EP BIH already had distributive losses below 9% in 2015, therefore savings until 2020 were not calculated. The calculation takes into account the mean values of estimated consumption until 2035 in the distribution network, with and without energy efficiency measures: EP RS - average consumption value without EE – 3.621 GWh EP RS - average consumption value with EE – 3.396 GWh EP BIH – average consumption value without EE – 6.778 GWh EP BIH – average consumption value with EE – 6.401 GWh EP HZHB – average consumption value without EE – 1.042 GWh EP HZHB – average consumption value with EE – 942 GWh Table 5.8.3 Planned savings in distribution Savings (PJ) Goal Consumption estimate without EE Consumption estimate with EE measures measures 0,35 0,33 EP RS (97 GWh) (91 GWh) EP BIH 0 0 9% by 0,16 0,15 2020. EP HZHB (43,4 GWh) (41,3 GWh) 0,51 0,48 TOTAL (140,4 GWh) (132,3 GWh) 0,53 0,50 EP RS (146,2 GWh) (138,3 GWh) 0,68 0,63 EP HZHB 6,5% by (187,6 GWh) (175,9 GWh) 2035. 0,17 0,16 EP HZHB (47,8 GWh) (43,2 GWh) 1,38 1,28 TOTAL (381,8 GWh) (357,4 GWh) Source: Project Team analysis | 171 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT These goals shall be achieved through the implementation of a number of technical investment measures (Table 5.8.4), as well as various activities and programmes, such as the introduction of a reward and punishment system of distribution companies for achieving the goals and designing the distribution system operator programmes in order to reduce losses, and monitoring the implementation of measures and the effects by the regulatory authorities. Table 5.8.4 Instruments of achieving goals in the distribution network Loss type Measures, activities and programs Continuous modernisation - replacement of certain devices with new and modern devices, which contribute to a more reliable distribution network operation, better power supply Transition to 20 kV voltage level Technical Installation of new transformation stations in the existing network to shorten the LV network Automation and remote network management Reconstruction of connectors Introduction of multifunction meters with the feature of registering unauthorized access/actions to Commercial the meter Electronic remote meter reading and consumption measuring Source: Project Team analysis District heating systems 5.8.5.1 Current status According to the data taken from the energy balance for 2016, district heating in Republika Srpska supplies about 2,3 million m2 of residences, and 460 thousand m2 of business premises, while there are about 970 thousands apartments that are heated through larger heating companies. There is no system for hot water preparation in Bosnia and Herzegovina and heat supply is used only for heating purposes. According to the Republika Srpska regulations, the production and supply of thermal energy is considered a communal activity of particular public interest, for performance of which the local self-government unit is competent and establishes a public utility company under the Law on Communal Activities. Article 5 of this Law obliges local self-government units, utility service providers and utility services consumers to apply long-term measures related to energy efficiency, i.e. to reduce the amount of energy and switch to renewable energy sources, and to provide measurements of delivered energy and services, as well as the installation of automatic meter reading systems in buildings. The primary fuel used in Republika Srpska is fuel oil with the highest share of about 42%, then coal, natural gas and wood waste and wood. The primary fuel used in the Federation of Bosnia and Herzegovina is solid fuel and fuel oil, except in Sarajevo where primary source is natural gas. Currently, there are 23 heat plants in Bosnia and Herzegovina, from which 13 are in Republika Srpska (Banja Luka, Prijedor, Doboj, Zvornik, Gradiška, Brod, Istočno Sarajevo, Čelinac, Bijeljina, Pale and Sokolac) and 10 in the Federation of Bosnia and Herzegovina (Sanski Most, Tešanj, Lukavac, Tuzla, Banovići, Zenica, Kakanj, Breza, Sarajevo and Konjic). In addition to these heating plants, the Ugljevik TPP, which provides thermal energy for Ugljevik needs, is included in the supply system. The main problem in the operation of the district heating sector are the following: poor conditions and losses in hot water network, difficulties in measuring, calculating and billing the delivered heat, low purchase prices and difficult economic position of distribution companies. | 172 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT 5.8.5.2 District heating development According to article 14 of the new directive, each country is obliged to conduct a comprehensive analysis on its territory in order to promote efficient cogeneration, taking into account cost-optimal solutions for district heating. At the EU level, the market share of the district heating system is 12%. The goal is to increase the market share to 30% by 2030, and to 50% by 2050. This strategic path has been outlines in two phases: 1. Increase of energy efficiency o Increase od district heating share to 30%, and then to 50% o Increase of cogeneration plants share (CHP) o Increase of trigeneration plant share (CHPP) 2. Use of waste heat and renewable energy sources o Waste heat from industrial plants o Waste incinerators o Geothermal energy use o Use of solar energy from large plants o Use of biomass It is important to note that the market share of the district heating system in Bosnia and Herzegovina will be significantly lower than the vision of the developed EU countries. Nevertheless, in the long term this is an acceptable perspective, given the potential that Bosnia and Herzegovina has. In this segment Bosnia and Herzegovina's strategic goals are the promotion and expansion of district heating systems, wherever possible and economically viable, biomass or waste heat fired from the existing industrial plants. As far as the existing district heating systems are concerned, there is certainly a potential for savings primarily in transmission and distribution network, which should, following the adoption of the legal framework governing this area, be based on the following elements: renovation of the existing fuel oil fired boilers and replacement with biomass-fired boilers rehabilitation of the dilapidated transmission and distribution network and replacement with flexible pre- insulated pipes automatic control of the substations optimization of the substation operations (sliding to external temperature) hydraulic balancing of the distribution network (differential pressure regulators) and frequency control pumps directing building renovation programs to a group of buildings connected to one substation For the time being, no estimates of the increase in the share of the district heating system have been carried out, and the next step is to conduct the studies in order to make a more detailed assessment. Only then will it be possible to determine, on the basis of an appropriate economic analysis, the increase in DHS that would be cost-optimal for Bosnia and Herzegovina in the long run. | 173 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Cross sectoral measures Cross sectoral measures, which are the key to successful implementation of the strategy, programmes and energy efficiency action plans, include the amendments and upgrades of existing legal framework, sources of funding, training and education of engineers, technicians and installers, and promotion and targeted information campaigns for different target groups. Additionally, cross sectoral measures must stimulate economic activities related to industry and create “green jobs”. 5.8.6.1 Legal and regulatory framework In order to enable the implementation of the strategy in key segments, and harmonise it with the new Directive, it is necessary to amend the legal framework in the context of primary and secondary legislation in both entities (Table 5.8.5 and Table 5.8.6). Table 5.8.5 Guidelines for amending legal framework in the Federation of Bosnia and Herzegovina Guideline Description Adopting Energy It is necessary to start the process of preparing and adopting the Action Plan as soon Efficiency Action Plan as possible. Adopting subordinate The Law on energy efficiency envisages the adoption of series of subordinate legislation as defined legislation that will further elaborate energy efficiency measures defined by Law. in the Law on energy Subordinate legislation should be adopted within 6 month of the entry into of the Law efficiency and should be aligned with requirements from Directive 2012/27/EC. Source: Project Team analysis Table 5.8.6 Guidelines for amending legal framework in Republika Srpska Guideline Description Harmonization of the existing Law on Energy Efficiency with the requirements of the Harmonization of new Directive, and drafting the Law on Thermal Energy or, optionally, amendments to primary legislation the Law on Communal Activities with the elaboration of the part related to heat energy. Drafting the rulebook and methodology for energy audits of large consumers Drafting the rulebook on measurement and verification (methodology) Harmonization of Introducing feed-in tariffs for efficient district heating systems in the existing rulebook secondary legislation Amending regulations for the construction of new TPPs and DHSs of more than 20 MW, with a compulsory cost-effectiveness study Drafting rulebook and methodology for ESCO market Source: Project Team analysis 5.8.6.2 Promotion, trainings and qualification programmes Promotion is one of the most important segments of the energy efficiency policy, which has recently brought significant results, and is more specifically detailed in the action plan. In this regard, the action plan, currently underway, proposes introducing informative campaigns on energy efficiency in order to raise citizen awareness, and provide basic information on the importance of energy efficiency, and raise the level of motivation for carrying out activities and achieving savings. According to the action plan under preparation, examples of priority training topics are as follows: energy characteristics of buildings and the best technologies for increasing the EE of the outer envelope of the building, water supply systems and street lights, efficient cogeneration and trigeneration generation and use of energy from RES in various sectors of final consumption introduction and implementation of energy management in public and commercial buildings, utility service systems, industrial plants and technological processes energy efficiency economy, cost analysis and EE measures effects urban planning in the function of energy efficient transport a new energy-saving monitoring and verification platform (MVP) EE criteria in public procurement - legal obligations and good practices modern design and control methods for low-temperature heating systems, advanced automatic control of heating and cooling systems, etc. | 174 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Table 5.8.7 Guidelines for education and communication improvement Guideline Description Promotion of good practice used in final consumption, district heating Introduction of public systems and cogeneration information campaigns and Education of engineers and installers for planning and designing efficient education on EE systems, education of economic analysts, service providers, etc. Introduction of a curriculum on energy efficiency and energy management Source: Project Team analysis Energy efficiency represents a broad spectrum of opportunities, both from the context of savings in electricity consumption and the promotion of economic activity in other related industries. With adequate financial models and funds, the implementation of good practise in energy efficiency segment can also positively effect on new jobs creation, which is especially important for the economy of Bosnia and Herzegovina. Typical job positions opened through the implementation of various programmes and initiatives are for local industry experts, architects, construction engineers, local contractors, manufacturers of building material, etc. In addition, for energy efficiency measures in primary consumption (buildings), it is necessary, among other things, to activate local potential in production of sustainable material such as wood, clay, wool, etc., that could be used as raw materials in energy efficiency measures. 5.8.6.3 Financial instruments and institutional framework Financing energy efficiency projects is key to successful implementation and is often the biggest obstacle to a successful implementation of measures. One of the instruments proposed in the new directive are the obligation schemes that impose on distributors and/or energy suppliers the obligations to implement energy efficiency projects in all sectors of final consumption, in proportion to their sales volume in the market. The new Directive also gives the possibility of implementing the obligation schemes, alternative measures or their combination. For the success of the obligation schemes and/or other financing measures, it is essential to set up adequate mechanisms for their implementation. In the context of monitoring the implementation of energy efficiency measures, good practices point out the introduction of certification and auditing procedures to be carried out by authorizes bodies and institutions. Table 5.8.8 Guidelines for financial framework development Guideline Description Strengthening the Environmental Protection Fund and their role in the implementation of energy efficiency programs and measures, the revolving Development of a financial fund, public ESCOs with models of factoring from private ESCOs framework with the aim of Introduction of the obligation schemes and, consequently, finding an financing energy efficiency optimal mix of the obligation schemes and alternative measures projects Use of international funds for financing – IDA, WeBDEFF, GGF Source: Project Team analysis | 175 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Regulatory and institutional framework 5.8.7.1 Level of Bosnia and Herzegovina Activities at the level of Bosnia and Herzegovina are extensively being carried out for the adoption of the Energy Efficiency Action Plan, which is an obligation under the Energy Community Treaty. The Energy Efficiency Action Plan in Bosnia and Herzegovina should reflect the goals set by the entity action plans. 5.8.7.2 Regulatory framework of Federation of Bosnia and Herzegovina In the Federation of Bosnia and Herzegovina, an Action Plan for energy efficiency has not yet been adopted, and is currently working on draft of Energy Efficiency Guidelines. The Energy Efficiency Law entered into force in April 2017, following a three-year adoption procedure. This Law regulates: energy efficiency in final consumption whose increase of general interest, adoption and implementation for improving energy efficiency, measure for energy efficiency improvement, including energy services and energy audits, public sector obligations, obligations of large consumers, right and obligations of end consumers, including public and commercial sector in term of energy efficiency measures, energy efficiency financing and other issues of importance to energy efficiency. The Law does not apply to energy efficiency in power plants, transmission, distribution and energy transformation. Distribution system operators, energy distributors and energy suppliers must not interfere with the provision of energy services or other measures to improve energy efficiency. They are also required to offer energy services at competitive prices to their end customers, either directly or through other energy service providers. They are obliged to report to FMERI once a year regarding taken measures. It is stipulated by the Law that energy service is provided by the energy service company (ESCO) or other legal entity, i.e. energy service provider, based on the energy service contract. The supply of energy services must contain information on the energy service provider, measures to improve energy efficiency, prices, financing mechanisms, contract model and other information. The Law also defines the structure of the energy performance contract, according to which the contracting subject and the energy service provider conclude the contract in writing. The option has been introduced that the costs of providing energy services may be borne by the energy service contractor, the provider or a third party. The value of the investment for the provision of the energy services invested by the energy service provider shall be repaid from the energy savings realized in relation to energy consumption before the provision of energy services, either in whole or in part, from their own sources or through third-party financing. The energy service provider or a third party assumes full or partial financial, technical and commercial risk of providing energy services in accordance with the concluded energy service contract. In accordance to regulations regulating public procurement, beneficiaries of the budget of the Federation of Bosnia and Herzegovina funds or cantonal funds or local government funds are obliged to evaluate energy efficiency of goods and services along with other criteria when deciding on the supplier in the public procurement process. They must give priority to procurement of equipment and services that enable higher level of energy efficiency. The Energy Efficiency Law stipulates the obligation to establish energy management in public administration bodies, organisations, regulatory bodies, public institutions and agencies and public companies for used premises and other means with which they operate. The Ministry of Spatial Planning of the Federation of Bosnia and Herzegovina is responsible for the implementation of the 2010/31/EU Directive relating to the energy performance of buildings and, accordingly, shall adopt relevant laws and secondary legislation in the form of regulations governing this field. So far, the Law on Spatial Planning and Land Utilisation stipulates the obligation of energy certification of buildings. The Ministry has also issued subordinate acts on this issue. Environmental Fund of the Federation of Bosnia and Herzegovina carries out activities related to obtaining funds, stimulating and financing the preparation, implementation and development of programmes, projects and similar activities in the field of sustainable use, protection and improvement of the environment and use of renewable energy sources. 5.8.7.3 Regulatory framework of Republika Srpska The Government of Republika Srpska has adopted the Energy Efficiency Action Plan of the Republika Srpska 2013- 2018, in accordance with the Law on Energy Efficiency. This Action Plan is based on Directive 2006/32/EC on energy end-use efficiency and energy services, Directive 2010/30/EU on the indication by labelling and standard product information of the consumption of energy and other resources by energy-related products, and Directive 2010/31/EU on Energy performance of buildings. The new Energy Efficiency Action Plan for Republika Srpska is currently under development. | 176 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT The legal framework for the energy efficiency sector consists of three umbrella laws, namely the Law on Energy Efficiency and the Law on Spatial Planning and Construction and Law on energy. The Ministry of Spatial Planning, Civil Engineering and Ecology is responsible for the implementation of the 2010/31/EU Directive relating to the energy performance of buildings and, accordingly, shall adopt relevant laws and secondary legislation in the form of regulations governing this field. This Ministry coordinates the Law on Spatial Planning and Construction, which among other things stipulates obligations related to the energy characteristics of buildings, energy audits of buildings and energy certification of buildings. In the construction of new buildings or in the case of a larger reconstruction of the existing buildings, it is mandatory to install metering devices for utility products for each individual flat owner in all new buildings, and for the existing buildings to provide them when carrying out a major reconstruction - if the technical characteristics of the building permit and when it is economically viable, or to provide at least a measuring device at the level of the building as a whole. It is stipulated to stimulate the use of a district heating or cooling system that is entirely or partially based on energy from renewable energy sources. There is an obligation for the public sector that uses buildings with a usable area of more than 500 m² to introduce the energy management system in accordance with the provisions of the energy efficiency regulations. Republika Srpska has adopted a set of regulations that meet the requirements of the Directive 2010/31/EU, namely: the Rulebook on minimum requirements for energy performance of buildings ("Official Gazette of Republika Srpska", No. 30/15), the Rulebook on the methodology for calculation of energy characteristics of building ("Official Gazette of Republika Srpska", No. 30/15) and Rulebook on the performance of energy audits of buildings and issuance of the energy certificate ("Official Gazette of Republika Srpska", No. 30/15). Environmental Protection and Energy Efficiency Fund of the Republika Srpska (the Fund) performs the following activities in the energy efficiency sector: 1. participates in the implementation of the procedures for selection and financing or co-financing of projects related to the reduction of total energy consumption in buildings, which are allocated for these purposes according to special regulations, as well as from donations, grants or loans of Republika Srpska 2. establishes and maintains databases on the energy efficiency of buildings and the energy certificates issued 3. performs independent control of the issued certificates 4. proposes energy efficiency projects in the public sector 5. promotes energy efficiency measures and informs and encourages the public interest in the importance and objectives of energy efficiency MIER is responsible for creating the energy efficiency policy. The Law on Energy Efficiency defines an energy service that encompasses activities and actions that result in measurable or assessable improvement in the energy efficiency of buildings and other facilities, technical systems and generation processes, or energy savings that can be expressed in monetary terms by using energy-efficient technology, and the procedures that achieve energy savings. Energy service is provided by the Energy Service Company (ESCO) or other legal entity, i.e. energy service provider, based on the energy service contract. The supply of energy services must contain information on the energy service provider, measures to improve energy efficiency, prices, financing mechanisms, contract model and other information. The Law also defines the structure of the energy performance contract, according to which the contracting entity and the energy service provider conclude the contract in writing. The option has been introduced that the costs of providing energy services may be borne by the energy service contractor, the provider or a third party. The value of the investment for the provision of the energy services invested by the energy service provider shall be repaid from the energy savings realised in relation to energy consumption before the provision of energy services, either in whole or in part, from their own sources or through third-party financing. The energy service provider or a third party assumes full or partial financial, technical and commercial risk of providing energy services in accordance with the concluded energy service contract. The Law on Energy Efficiency prescribes the obligation to establish energy management in public buildings and large consumers with a usable area of more than 500 m². Distribution system operators, energy distributors and energy suppliers must not interfere with the provision of energy services or other measures to improve energy efficiency. They are also required to offer energy services at competitive prices to their end customers, either directly or through other energy service providers. In the case they do not offer this service, they are obliged to pay the equivalent amount to the Fund, in accordance with the methodology prescribed by the Rulebook on the methodology for estimating the cost of the energy services supply ("Official Gazette of Republika Srpska", No. 28/14). Energy suppliers have an obligation to clearly indicate the total energy cost, current prices and actual energy consumption in the billing period on the energy bills, and the comparison of the current energy consumption of the end consumer with the consumption in the same period of the previous year, preferably in a graphic form. | 177 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Strategic guidelines For the period until 2035, it is necessary to set the framework of key measures for achieving savings on the final consumption and transformation, and the promotion of the district heating system. Table 5.8.9 Strategic guidelines Strategic priority Strategic guideline Creating a database on the existing state of residential buildings Preparation of a programme for long-term renovation of buildings and preparation of cost-optimal methodology for all Improving energy efficiency in the building building categories sector and for end consumer Renovation of central government buildings and public buildings, in accordance with the requirements of Article 5 of the new Directive and implementation of the long-term strategy for the renovation of residential buildings Bosnia and Herzegovina Increasing the energy efficiency of industrial processes and consumption renovation of plants (compressed air, boilers, furnaces, Increase of realized savings in the industry cooling systems...) sector on an annual basis with the aim of Final Promotion of biomass-fired cogeneration reaching the target Implementation of the obligations of large consumers, introduction of energy management Creating support programs for replacing old vehicles with Increase the energy efficiency of vehicles of energy-efficient vehicles all categories Reconstruction and improvement of the public sector infrastructure New replacement units for the thermal Planning and reporting on the achieved savings in primary power plants energy consumption of the new units Continuation of the program of reducing non-technical losses with constant monitoring of the implementation of measures for achieving the targets established for each distribution area Transition to 20 kV voltage level Substation installation and grid redesign Reduction of technical and commercial Conducting an AMR installation study and setting the target losses in the distribution network by 2035 (proposal - 90%) distribution Assessment of potential for increasing energy efficiency of gas and power infrastructure in accordance with the requirements of Directive on Energy efficiency Transformation, transmission andTransformation, transmission (implementation deadline is September 2018) Creation of heat maps for cities in Bosnia and Herzegovina Expansion of the DHS and regulation of the Regulation of the legal framework that will stimulate the legal framework DHS promotion of DHS (75% cogeneration, 50% RES, 50% waste heat or a combination) Promotion of good practice used in final consumption, district heating systems and cogeneration, education of engineers Introduction of public information and installers for planning and designing efficient systems, campaigns and education on energy education of economic analysts, service provider, etc. as well efficiency measures as introduction of a curriculum on energy efficiency and energy management Energy efficiency measure would have an positive impact on Stimulation of „green jobs“ and economic increasing the number of job openings and economic activities activities in industries such as construction, architecture, building material production, ram material production, etc. Cross sectoral | 178 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Strengthening the Environmental Protection Fund, creating a Development of a financial framework with suitable environment for ESCO market growth and the aim of financing energy efficiency introducing the optimal obligation scheme model, as well as projects the use of other international funds It is necessary to start the process of preparing and adopting Adopting Energy Efficiency Action Plan for the Action Plan, according to EC Secretariat template, as Bosnia and Herzegovina soon as possible. In the Federation of Bosnia and Herzegovina, an Action Plan for energy efficiency has not yet been adopted. It is Adopting Energy Efficiency Action Plan for necessary to start the process of preparing and adopting the the Federation of Bosnia and Herzegovina Action Pan as soon as possible (including also direct involvement of cantons in line with constitutional competences) Adopting the legislation on energy Energy Efficiency Law stipulates the adoption of a series of efficiency in the Federation of Bosnia and subordinate acts that will further elaborate energy efficiency Regulation Herzegovina and adopting subordinate measures defined by the Law. The subordinate acts should regulations as defined in Energy Efficiency be adopter within six month of the entry into force of the Law Law, which will be aligned with 2012/27/EU and should be aligned with the requirements of the Directive on energy efficiency 2012/27/EU Directive The existing legislative framework regulating the energy Harmonisation of the legislation in efficiency sector in Republika Srpska is not fully in line with Republika Srpska with the requirements of the requirements of the new Directive, so it needs to be the new Directive 2012/27/EU harmonised | 179 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT 5.9 Overview of key steps in creating a Strategic Environmental Assessment The need assessment and steps in creating SEA Strategic Environmental Assessment (SEA) applies to a variety of public plans or programmes and its implementation is suggested for policies, strategies and legislation according the Directive 2001/42/EC. The objective of the Strategic Environmental Assessment is to identify the issues and potentials, and consider key trends and assess the environmentally viable and sustainable options for achieving the goals of the strategy. Plans and programmes subject to SEA Directive must be prepared or adopted by the governing body (national, regional or local level) and must be prescribed by legislative, regulatory or administrative provisions. According to the aforementioned directive, SEA is mandatory, amongst the others, for projects or plans in energetics which sets the framework for future development consent of projects listed in the EIA Directive (85/337/EEC). Strategic Environmental Assessment includes certain steps (Figure 5.9.1). Figure 5.9.1 Steps in creating a Strategic Environmental Assessment Source: SEA Directive 2001/42/EC – Strategic Environmental Assessment overview, Project Team analysis Indicative areas and goals In the following text, examples of goals and indicative areas are listed for whom, amongst others, is recommended to implement the Strategic Environmental Assessment (Figure 5.9.2). All areas must have defined objectives, and also associated laws and programmes that will ensure their implementation in practice. As the next step for Bosnia and Herzegovina and the entities, it is recommended to create a Strategic Environmental Assessment in which all relevant areas with associated goals will be defined, as well as exhaustively list current and future legislation / programs that will regulate the question of environmental protection in Bosnia and Herzegovina. | 180 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Figure 5.9.2 Indicatively defined scope of the Strategic Environmental Assessment report Source: SEA Directive 2001/42/EC, Project Team analysis Suggested measures of environmental protection in the Framework Energy Strategy Certain areas regarding environmental protection are addressed within the energy strategy as well as strategic guidelines directly or indirectly linked within the environmental protection objectives. These areas are also typically an integral part of the Strategic Environmental Assessment. Within the global and European trends, general objectives and trends in pollution reduction and sustainable development are taken into account. Moreover, it is recommended to further harmonise the legislation with the EU directives that promote creation of a low carbon system in Europe (ex. 20- 20-20 EU objectives, The Winter Package and the European Commission 2050 Energy Strategy). Concretely for Bosnia and Herzegovina and entities, the need for further reduction of harmful emissions from TPPs as well as achievement of larger share of clean energy in the future generation mix is emphasised. In the context of decarbonisation, influential factors for Bosnia and Herzegovina that are expected in the near future are also listed – entry into the CO2 emission trading system, new stricter standards on local emissions and other. While creating possible options for the generation mix until 2035, amongst the others, the moderately renewable scenario was analysed that presumes gradual reduction of coal share in the generation mix and increase of share of renewable energy sources. In the upcoming period, Bosnia and Herzegovina should place focus on creating legislation that will adequately address the question environmental changes, create institutional capacities and formally define authorities and responsibilities in that domain, including implementation of the greenhouse gas inventory reporting system. Through the future stronger orientation towards clean energy it is suggested to responsibly manage the natural resources and to utilise renewable energy sources. In the sector of oil and petroleum derivatives, further control of oil products’ quality used in transport, industry and households in line with the European standards is emphasized. An increase in consumption of natural gas is foreseen due to its low-carbon nature, and due to the gas characteristic that combustion releases half the amount of greenhouse gases compared to coal. In terms of demand and resources utilisation, guidelines have been defined regarding the role of energy efficiency through the new EU directive applicable for Bosnia and Herzegovina, which includes strategic guidelines for final energy consumption reduction, as well as reduction of transmission, distribution and transformation energy losses. Additionally, as a part of the energy efficiency and district heating sections the importance of the district heating sector has been emphasized. Concretely, it is suggested to increase the promotion level of highly efficient cogeneration and further development of district heating pipeline network in the urban areas. In the field of environmental protection and human health, EU directives on ionizing radiation have been listed, according to which the regulation of Bosnia and Herzegovina should be harmonised until 2020. | 181 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT 6 INDICATIVE ROADMAP OF STRATEGIC GUIDELINES 6.1 Transformation framework of energy sector in Bosnia and Herzegovina The transformation framework of energy sector in Bosnia and Herzegovina is based on several key elements that allow a systematic and complementary development, as well as further integration of Bosnia and Herzegovina in the European market and trends. The Framework Energy Strategy identifies the vision and key strategic goals and guidelines while taking into account resources and competencies of Bosnia and Herzegovina. As a next step, it is necessary to develop further, agree upon and implement specific directions that will have implications on the operational, technical and legislative level. When transforming the sector, it is necessary to set up mechanisms and deadlines in detail, and to measure defined results for efficiency and quality improvement. In this way it will be possible to allocate investments to priority areas that will create the largest added value in energy sector and economy of Bosnia and Herzegovina. Transparent investment policy based on clear energy development goals will create a stable framework for domestic, and especially foreign investors. In addition, it is expected that significant funding shall also come from international and EU financial institutions and funds. As a basis for the transformation of the entire energy sector, active involvement of institutions in developing further the legislative framework at cross-sectoral level is needed for more effective management and market based competition. 6.2 Indicative roadmap of strategic guidelines The indicative strategic roadmap is broken down into five elements: efficient use of resources, safe and accessible energy, energy efficiency, energy transition and responsibility towards environment, as well as development and harmonisation of regulatory and institutional framework. Each strategic guideline is determined by a responsible administrative level for implementation (Bosnia and Herzegovina, Federation of Bosnia and Herzegovina, Republika Srpska or Brčko District of Bosnia and Herzegovina) and estimated time frame for implementation divided into three categories; short-term (S, 2021), mid-term (M, 2026) and long-term period (L, till 2035). It is important to note that time categories do not limit earlier completion or implementation of a particular strategic guideline. The roadmap defines guidelines related to coordinated management and energy sector development, as well as necessary reforms in the legislative institutional framework of Bosnia and Herzegovina and entities. Active engagement of institutions and other energy policy makers is needed to achieve these guidelines. Good governance practice indicate the need for a co-ordinating body (and/or more of them) that will monitor activities and report on implementation progress of agreed strategic priorities. In the case of Bosnia and Herzegovina Framework Energy Strategy, further coordination and supervision over implementation is important for several reasons: Considering that the Framework Energy Strategy offers several options and directions for infrastructure development, it is necessary to conduct further analysis and selection of optimal projects on strategic level. Planning needs to be fast and coordinated as many sectors are interdependent. Therefore, the next few years are crucial for a successful transformation and adjustment of investments plans in the energy sector. It is expected that significant benefits will be achieved and additional value created in the medium and long term after identifying and elaborating interdependent links for particular sectors (e.g. selection of generation mix development and restructuring of coal sector according to the selected scenario, etc.). However, potential deviations in the planned cross-sectoral linkages may create delays which will result in under performance, additional costs and longer period for implementation. Therefore, a sustainable and balanced development in the mid and long run requires extra efforts of institutions and other relevant stakeholders for consistent implementation of measures in practice. It is necessary to continue with the implementation and/or alignment of regulatory and institutional framework in accordance with EU directives and obligations of Bosnia and Herzegovina towards the Energy Community as soon as possible. One of the positive effects of further institutional framework alignment and development will be seen through greater sector stability, which is a prerequisite to leverage considerable amount of foreign and private investments, enhanced diversification as well as promotion of entrepreneurship and economic activities. | 182 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Table 6.2.1 Indicative roadmap of strategic guidelines Strategic Area/ Key decision maker Time Level of Measure # Specific strategic guidelines priority sector BIH FBIH RS BD frame priority interdependency Transforming the power sector with the aim to reduce inefficiency, increase value for end customers, and 1 Electricity unlock resources for investments in new higher-added-value priorities (new technologies, products & M ● 3, 6, 8 services) on market Adequate usage and management of RES potentials, and higher share of clean energy in electricity, 2 RES L 30, 32, 33, 34 heating and cooling as well as transport sectors through creation of Actions Plans ◕ Restructuring of mining sector following the selected strategy for development of thermal sector (taking 3 Coal into account the social component), as well as allocation of investment capacities in modernisation and S, M ● 1, 5, 6 new technologies to increase efficiency and productivity Increase the degree of hydrocarbon potential exploration and create a favourable environment for Efficient use of resources of use Efficient 4 Oil & gas M, L - investors ◔ Finalisation of generation mix development scenario (in line with decarbonisation restrictions) with 5 additional criteria and analysis (electricity price dynamics, CO2 emissions, capacity development in the S ● 2, 21, 22 region, cogeneration etc.) and selection of the optimal generation mix Adjustment of investment plans of generation mix in line with real domestic needs and situation in the 6 region through a comprehensive overview of benefits and risks. The goal is to achieve a balanced S, M ● 5 approach between competitiveness, security of supply and long term sustainability Electricity Further development of transmission network in accordance with development plans of new generation 7 L 5, 6 capacities, analysis of power flows and market integration with neighbouring countries ◕ Development of modern infrastructure and introduction of new technologies in the distribution system 8 L 1, 5 (platform for new business models and service market development) ◔ 9 Further development of wholesale by introducing electricity and balancing market auctions S ◕ 1 10 Study design with the aim to define the optimal model for further electricity market organisation S ◑ - Conduct a thorough analysis of current storage capacities’ status and create a plan to modernise / alter 11 S - Oil & them according to domestic needs ◕ petroleum Management of emergency oil and petroleum derivatives stocks for the purpose to secure supply of oil and 12 derivatives L 36, 37 Safe and accessible energy energy accessible and Safe petroleum derivatives ◔ Study design to determine projections of gas consumption and calculation of potential price dynamics for 13 customers (gas prices and tariffs for transport and distribution) in entities and the level of Bosnia and S ◑ - Herzegovina, by analysing the development of supply, demand and infrastructure Gas Development of new supply routes with modernisation and adequate maintenance of existing gas 14 M, L 13 infrastructure in the context of security of supply and diversification ● Management of price competitiveness of gas and continuation of price convergence towards regional 15 L 14, 38, 39, 40 prices as well as the implementation of market liberalisation elements in practice ● | 183 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Further development and implementation of energy efficiency measures in savings for final consumption of 16 M, L 2, 19, 20, 42, 43 buildings, industry, transport and other areas in accordance with the new Directive 2012/27/EU ◕ Development and improvement of efficiency measures in transformation, transmission and distribution of 7, 8, 19, 20, 42, 17 electricity as a new integrated approach across the energy chain to achieve savings in primary and final M, L ◕ 43 consumption Energy Promotion and expansion of district heating system and high-efficiency cogeneration using waste heat, efficiency 18 M, L 6, 19, 20, 42, 43 efficiency waste and renewable energy sources wherever possible and economically viable ◕ Active campaigns for end users on the measures and benefits of energy efficiency as well as the Energy 19 establishment of a financial framework with the aim of successful implementation (by strengthening the M, L ◑ 42, 43 role of funds for energy efficiency, introducing ESCO, bond schemes and using international funds) Creating new “green” jobs and stimulating new economic activity that can contribute to the implementation 16, 17, 18, 19, 20 M, L of energy efficiency measures ◕ 42, 43 Reduction of local emissions from existing large combustion plants in accordance with the National 21 Emission Reduction Plan (NERP) in Bosnia and Herzegovina, and continuation of further monitoring and M, L ● 5, 6, 16, 17, 18 reduction of emissions according to EU practices in case of the expansion of thermal sector Electricity The contribution of thermal sector to converge towards CO2 emission reductions according to INDC 22 scenarios set for Bosnia and Herzegovina against 1990 as a preventive instrument in the case that Bosnia M, L ● 5, 6, 16, 17, 18 and Herzegovina and entities enter into the EU Emissions Trading System (ETS) Oil & Control an quality improvement of petroleum products on the fragmented retail market in Bosnia and environment 23 petroleum S 37 Herzegovina ◔ derivatives Energy transition and and Energy transition responsibility towards towards responsibility Preparation of the Strategic Environmental Assessment (SEA) to establish the basis for long-term 24 General S 5 sustainable environment and habitat development for Bosnia and Herzegovina ◕ Organisation of the transmission system operator in accordance with one of the three models prescribed 25 by Directive 2009/72/EC (ownership unbundling, independent transmission operator, independent system S ● 1 operator), and certification of transmission system operator 26 Further unbundling of distribution and supply activities in accordance with the Third Energy Package S ◕ 1 Electricity Deregulation of electricity price of public suppliers for households, small business entities and commercial 27 S 1 customers in order to enable market prices but protecting the social category by a special program ◔ Ensure price competiveness of generation for the purpose of steering the subjects towards market based 28 S 1 principles ◕ Development of a social category protection program for the protection of vulnerable customers from 29 S - electricity disconnection as well as the program for payment and socially vulnerable categories ◕ Prepare legislation that regulates co-operation mechanism with other Energy Community member institutional framework institutional 30 countries, which would enable agreement on measures and programs to encourage energy production S ◕ - from the RES and to achieve objectives set out in the Action Plans, as stipulated in Directive 2009/28/EC RES At the level of Bosnia and Herzegovina prescribe the priority and criteria for access to the transmission grid 31 S 34 from plants that produce energy from RES in accordance with requirements from Directive 2009/28/EC ◕ Standardising the use of minimum levels of energy from the RES when building new or renovating existing Development and harmonisation of regulatory and and of regulatory harmonisation and Development 32 S - buildings, adopting regulations on the application of cogeneration and adopting measures to increase the ◑ | 184 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT share of RES in final consumption in heating and cooling sectors in accordance with Directive 2009/28/EC Adoption of regulations to establish sustainability criteria for biofuels and other renewable biofuels for 33 transport in order to meet the objectives from the Action Plan and correctly transpose requirements from S ◑ - Directive 2009/28/EC Further development of market mechanisms and modalities for production based on market mechanisms, 34 S, M 31 sales and balancing of electricity from RES ◕ Continuously update and comply with mining, geological and other related legislation and regulation in 35 Coal accordance with god practice and standards, including strategy for existing / development of new basins S, M ◑ 3, 5, 6 with spatial strategies and plan Establishment of legal framework for compulsory oil reserves at the level of Bosnia and Herzegovina and entities in accordance with EU Directive 2009/119/EC, and prescribing methods and methodologies for the 36 S - Oil & formation and preservation of compulsory stocks of petroleum products (implementation of methodology ◕ petroleum and data entry system 90/61, and implementation of the billing system) derivatives The decision on the quality of petroleum fuels is prescribed at the level of Bosnia and Herzegovina, and is 37 therefore necessary to regulate the quality of oil and petroleum products on the market in accordance with S ◔ - EU standards in a consistent and continues manner Prescribing agreed responsibilities to the SERC in the gas sector in accordance with the Directive 38 2009/72/EC and Directive 2009/73/EC on the formation of one regulatory body for electricity and gas at the S ● - level of Bosnia and Herzegovina Gas Harmonisation with the Third Energy Package for the separation of transport and distribution from supply 39 S, M - and trade is required, using one of foreseen EU models for separation of gas operators (OU, ITS or ISO) ● 40 It is necessary to address and resolve gas debt issues with the Russian Federation S, M ● 15 District Preparation of legislation to regulate issues of production, distribution and supply of heat energy, tariff 41 S, M - heating policies and the relationship between suppliers and heat consumers, as well as other relevant issues ◕ Adoption of the Energy Efficiency Action Plan of Bosnia and Herzegovina (prepared according to the 42 template of the Energy Community Secretariat), and the same Action Plan for Federation of Bosnia and S ◕ - Energy Herzegovina efficiency Adoption of by-laws and regulations as defined in the Energy Efficiency Act, which will be aligned with the 43 S 42 requirements of the new energy efficiency Directive 2012/27/EU ◕ Due diligence on legislation alignment of entities with the levels of Bosnia and Herzegovina, as well as with 44 General EU acquis and obligations towards Energy Community. After performing the due diligence, it is necessary S ● - to prepare action plans and to implement further harmonisation of legislation at all levels Source: Project Team analysis, guidelines of Working Groups Legend: Implementation time frame: S - short term, M - mid-term, L - long term Level of priority: ◔ - Lower, ◕ - Higher | 185 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT *** | 186 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Abbreviations AMR Automatic meter reading BAU Business as usual bbl Barrel bcm billion cubic meters BD BIH Brčko District of Bosnia and Herzegovina BHAS Bosnia and Herzegovina Agency for Statistics BIH Bosnia and Herzegovina bl Billion BoS Balance of System BTM Behind the meter BTU British thermal unit CAGR Compound annual growth rate CAO Coordinated Auction Office CAPEX Capital expenditure CCGT Combined cycle gas turbine CEE Central East Europe CHP Combined heat and power CHPP Trigeneration plant CO2 Carbon dioxide CPS Current Policy Scenario CSP Concentrated solar power DFI Direct Foreign Investment DFID Department for international development DHS District heating systems DSO Distribution system operator EC Energy Community EE Energy efficiency EEA European Economic Area EED Energy Efficiency Directive EEX European Energy Exchange EIA Energy Information Administration EMS Elektromreža Srbije ENTSO-E European Network of Transmission System Operators for Electricity ENTSO-G European Network of Transmission System Operators for Gas EP BIH Elektroprivreda Bosne i Hercegovine EP HZHB Elektroprivreda Hrvatske zajednice Herceg Bosne ERS Elektroprivreda Republike Srpske ESCO Energy Service Company ETS Emission Trading System EU European Union EUR Euro EUR/PC Euro per capita EV Electric vehicle FBIH Federation of Bosnia and Herzegovina FERK Regulatory Commission for Energy in the Federation of Bosnia and Herzegovina FES Framework Energy Strategy FMERI Federal Ministry of Energy, mining and industry FTE Full time equivalent GDP Gross domestic product GW Gigawatt GWh Gigawatt hours HPP Hydro power plant | 187 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT HTHW High temperature hot water HV High voltage IAP Ionian Adriatic Pipeline IBRD International Bank for Reconstruction and Development IEA International Energy Agency INDC Intended Nationally Determined Contributions IPA Instrument for Pre-accession Assistance IRENA International Renewable Energy Agency ISO BIH Independent System Operator in Bosnia and Herzegovina ISO Independent system operator IT Informational technology ITO Independent transmission operator KM/BAM Bosnian Mark KPI Key Performance Indicators kt Kilo tonne ktoe Kilo tonne of oil equivalent kV Kilovolt kW Kilowatt kWh Kilowatt hour LCOE Levelized cost of electricity LNG Liquefied natural gas LPG Liquefied petroleum gas LV Low voltage M&A Merger and acquisition m2 Square meter mcm million cubic meters MIER Ministry of Industry, Energy and Mining mil Million MOFTER Ministry of Foreign Trade and Economic Relation of Bosnia and Herzegovina Mtoe Megatonne of oil equivalent MV Medium voltage MVA Mega volt amp MVP Monitoring and verification platform MW Megawatt MWe Megawatt electric MWh Megawatt hour MWt Megawatt thermal NERP National Emission Reduction Plan NOx Nitric oxide NPP Nuclear power plant NPS New Policy Scenario NRA National Regulatory Agency NREAP National Renewable Energy Action Plan nZEB Nearly zero energy buildings O&M Operation and Maintenance OECD Organization for Economic Cooperation and Development OPEX Operating expenses OPL Overhead power line OU Ownership unbundling p.p. Percentage point PECI Project of energy community interest PJ Peta joule PMI Project of mutual interest PPP Public-private partnership | 188 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT PPP Purchasing power parity PSA Production sharing agreement PV Photovoltaics (solar panel) R&D Research and development RERS Regulatory Commission for Electricity of Republika Srpska RES Renewable energy sources RiTE Mine and thermal power plant RMU Hard coal mine RS Republika Srpska SAIDI System average interruption duration index SAIFI System average interruption frequency index SCGT Simple cycle gas turbine SEA Strategic Environmental Assessment SEE South East Europe SERC State Electricity Regulatory Commission SHPP Small hydro power plant SO2 Sulphur dioxide SPP Solar power plant t Tonne TAP Trans Adriatic Pipeline thous Thousand TJ Tera joule toe Tonne of oil equivalent TPP Thermal power plant TSO Transmission system operator TWh Terawatt hour UNFCC United Nations Framework Convention on Climate Change US$/USD US Dollar USAID US Agency for International Development VAT Value added tax VPP Virtual power plant WACC Weighted average cost of capital WB World Bank WBIF Western Balkans Investment Framework WPP Wind power plant | 189 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT List of Figures Figure 1.3.1 Strategic planning life-cycle...... 7 Figure 1.3.2 Overview of key segments in energy markets and value chain ...... 8 Figure 2.2.1 Illustrative overview of Bosnia and Herzegovina strategic priorities ...... 10 Figure 3.1.1 GDP historical movements and growth rate assessments in billions of euros in Bosnia and Herzegovina, 2010 - 2035 .... 13 Figure 3.1.2 Comparative analysis of GDP and GDP per capita, 2010 - 2015 ...... 13 Figure 3.1.3 Movement of the unemployment rate expressed in thousands of citizens, 2010 - 2015 ...... 14 Figure 3.1.4 Average annual foreign investment expressed in millions of euros, 2010 - 2015 ...... 15 Figure 3.1.5 The structure of countries that invested into Bosnia and Herzegovina, 2015 ...... 15 Figure 3.1.6 Rank by easiness in doing business, 2016 ...... 16 Figure 4.1.1 Global primary energy demand structure, 2015 - 2040 ...... 17 Figure 4.1.2 Global generation mix structure, 2015 - 2040 ...... 18 Figure 4.1.3 Electricity generation in Europe by region, in TWh, 2012 - 2015 ...... 18 Figure 4.1.4 Projections of generation mix structure in Europe, 2010 - 2040 ...... 19 Figure 4.1.5 European energy policies (example) ...... 20 Figure 4.1.6 Illustrative presentation of the European energy infrastructure development ...... 21 Figure 4.1.7 Electricity generation from RES and share in total generation, in TWh, 2012 - 2015 ...... 22 Figure 4.1.8 Projections of installed RES installed capacity in Europe, in GW, 2025 - 2030 ...... 23 Figure 4.1.9 Investment costs in thousands of EUR/kW, 2015 - 2025 ...... 24 Figure 4.1.10 Average cost of electricity generation in EUR/kWh, 2015 - 2020 ...... 24 Figure 4.1.11 Electricity price movements at various European power markets in EUR/MWh, 2008 - 2015 ...... 25 Figure 4.1.12 Movement of electricity price for households in Europe in EURcent/kWh, 2012 - 2015 ...... 26 Figure 4.1.13 Modification of business models and income structure ...... 26 Figure 4.1.14 Illustrative overview of trends in the domain of investment decisions for utility companies...... 27 Figure 4.1.15 Illustrative example of power utilities restructuring and business model focus shifting ...... 28 Figure 4.1.16 Illustrative presentation of potential of various business models ...... 28 Figure 4.1.17 Adjustment of energy network companies ...... 29 Figure 4.2.1 Spot price of Brent in US$/bbl, January 2006 – August 2016 ...... 30 Figure 4.2.2 Global oil demand and annual growth rate, 1966–2015 ...... 31 Figure 4.2.3 Brent price movement forecast in US$/bbl, 2004-2040 ...... 32 Figure 4.2.4 Average monthly gas price on selected markets in US$/mmBTU, January 2009. – August 2016 ...... 32 Figure 4.2.5 Market dynamics shaping the gas market ...... 33 Figure 4.2.6 NWE refinery margins in US$/bbl, January 2013 – August 2016 ...... 34 Figure 4.2.7 Global oil derivatives production and demand balance in mil. bbl/d, 2012-2016 ...... 34 Figure 4.2.8 The amount of oil derivatives stored in the OECD countries in mil. bbl, 2012 and 2016 ...... 34 Figure 4.2.9 Demand for petroleum derivatives in kt, 2010 – 2030 ...... 35 Figure 4.2.10 Refining capacity in Europe, 2004 – 2015 ...... 35 Figure 4.2.11 Global Upstream CAPEX by region in US$, 2010-2017 ...... 36 Figure 4.2.12 Difference in CAPEX, 2014 and 2016 ...... 36 Figure 4.2.13 Global growth of demand for fuels in mil. t, 1990-2040 ...... 36 Figure 4.2.14 Global investments into clean energy in US$, 2004 – 2015 ...... 36 Figure 5.2.1 Electrical energy market structure in Bosnia and Herzegovina, 2016 ...... 45 Figure 5.2.2 Exchange balances of electricity in the countries of the region in TWh, on average for the period 2010 - 2015 ...... 46 Figure 5.2.3 Domestic generation mix in the countries of the region in TWh, on average for the period 2010 - 2015 ...... 46 Figure 5.2.4 Exchange balances of electricity in Bosnia and Herzegovina in TWh, 2010 – 2016 ...... 47 Figure 5.2.5 Consumption of electricity in Bosnia and Herzegovina, by area in TWh, 2010 -2016 ...... 47 Figure 5.2.6 Installed capacity in Bosnia and Herzegovina MW, 2010 - 2016...... 47 Figure 5.2.7 Installed capacity in Bosnia and Herzegovina, per energy utility company in MW, 2010 -2016 ...... 47 Figure 5.2.8 Installed capacity in Republika Srpska, per source in MW, 2010 - 2016 ...... 48 Figure 5.2.9 Installed capacity in the Federation of Bosnia and Herzegovina, per source in MW, 2010 - 2016 ...... 48 Figure 5.2.10 Power generation in Bosnia and Herzegovina, per source in TWh, 2010 - 2016 ...... 48 Figure 5.2.11 Power generation in Bosnia and Herzegovina, per subject in TWh, 2010 - 2016 ...... 48 Figure 5.2.12 Generation and consumption of electricity in the Federation of Bosnia and Herzegovina in TWh, 2010 -2016...... 49 Figure 5.2.13 Generation and consumption of electricity in Republika Srpska in TWh, 2010 -2016 ...... 49 Figure 5.2.14 Cross-border electricity trading by border, including registered transit in Bosnia and Herzegovina in TWh, 2010 – 2016 51 Figure 5.2.15 Day-ahead volumes on power exchanges in GWh, 1 March – 1 April 2016 ...... 52 Figure 5.2.16 Guidelines for the wholesale market development ...... 52 Figure 5.2.17 Review of the electricity TSO unbundling models ...... 53 Figure 5.2.18 Review of the current situation and planned interconnection lines of the transmission network in Bosnia and Herzegovina with neighbouring countries ...... 54 Figure 5.2.19 Losses in the transmission network, %, 2014 – 2016 ...... 55 Figure 5.2.20 Available energy in the transmission network, GWh, 2014 – 2016 ...... 55 Figure 5.2.21 SAIFI indicator on transmission network per number of power losses per customer, 2014 – 2016 ...... 55 Figure 5.2.22 SAIDI indicator on transmission network in minutes, 2014 - 2016 ...... 55 Figure 5.2.23 Potential changes in the tariff methodology ...... 57 Figure 5.2.24 Indicative SAIDI and SAIFI indicators ...... 58 Figure 5.2.25 Comparison of distribution losses in Bosnia and Herzegovina with other countries, 2015 ...... 59 Figure 5.2.26 Implications of digital networks on strategic positioning on the market ...... 60 Figure 5.2.27 Average price of electricity in electric power utility companies, in EUR/MWh, 2016 ...... 60 Figure 5.2.28 Electricity prices for industry in wider region, without VAT and levies in PPP and EUR/MWh, 2010- 2016 ...... 61 Figure 5.2.29 Electricity prices for households in wider region, total price in PPP and EUR/MWh, 2010 – 2016 ...... 61 Figure 5.2.30 Electricity prices for industry in wider region, without VAT and levies in PPP and EUR/MWh, 2016 ...... 61 Figure 5.2.31 Electricity prices for households in wider region, total price in PPP and EUR/MWh, 2016 ...... 61 Figure 5.2.32 Strategic guidelines ...... 62 Figure 5.2.33 Illustrative presentation of Bosnia and Herzegovina within the energy trilemma nowadays ...... 62 Figure 5.2.34 Actual power plant generation price in Bosnia and Herzegovina in EUR/MWh, 2015 ...... 65 | 190 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Figure 5.2.35 Actual electric plant generation price in Bosnia and Herzegovina including CO2 cost in EUR/MWh, 2015 ...... 65 Figure 5.2.36 Assessment of electricity consumption movement in Bosnia and Herzegovina, with and without EE, ...... 66 Figure 5.2.37 Capacity development in the region and generation mix competitiveness in export ...... 66 Figure 5.2.38 Installed capacity by technology in MW, 2016 – 2035 (entity scenario) ...... 71 Figure 5.2.39 Electricity generation movement in variant without export limitation in TWh, 2016 - 2035 (entity scenario) ...... 71 Figure 5.2.40 Electricity generation movement in variant with export limitation in TWh, 2016 2035 (entity scenario) ...... 72 Figure 5.2.41 Installed capacity by technology in MW, 2016 – 2035 (IP scenario)...... 72 Figure 5.2.42 Electricity generation movement in TWh, 2016 2035 (IP scenario) ...... 73 Figure 5.2.43 Installed capacity by technology in MW, 2016 – 2035 (Cost optimised IP scenario) ...... 73 Figure 5.2.44 Electricity generation movement in TWh, 2016 2035 (Cost optimise IP scenario) ...... 74 Figure 5.2.45 Installed capacity by technology in MW, 2016 – 2035 (Moderate renewable scenario with EE) ...... 74 Figure 5.2.46 Electricity generation movement in TWh, 2016 2035 (Moderate renewable scenario with EE) ...... 75 Figure 5.2.47 Assessment of total CO2 and local emission for thermal sector by each scenario at the level of Bosnia and Herzegovina, cumulative, 2016 - 2035 ...... 77 Figure 5.3.1Illustrative view of key mines in Bosnia and Herzegovina ...... 90 Figure 5.3.2 Reserves structure of mines in Bosnia and Herzegovina, in billion tonnes, 2015 ...... 93 Figure 5.3.3 Balance reserves of key mines in Federation of Bosnia and Herzegovina, in thousand tonnes, 2015 ...... 93 Figure 5.3.4 Balance reserves of key mines in Republika Srpska, in thousand tonnes, 2015 ...... 94 Figure 5.3.5 Production dynamics for key mine in Federation of Bosnia and Herzegovina, in thousand tonnes, 2015 ...... 95 Figure 5.3.6 Production dynamics of key mines in Republika Srpska, in thousand tonnes, 2015 ...... 95 Figure 5.3.7 Dynamics of coal production and number of employees in key mines in Federation of Bosnia and Herzegovina, 2005 - 2015 ...... 96 Figure 5.3.8 Dynamics of coal production and number of employees in key mines in Republika Srpska, 2005 - 2015 ...... 96 Figure 5.3.9 Dynamics of mines labour productivity in Federation of Bosnia and Herzegovina vs. EU, produced tonnes per FTE ...... 97 Figure 5.3.10 Dynamics of mines labour productivity in Republika Srpska vs. EU, produced tonnes per FTE ...... 97 Figure 5.3.11 Comparison of mines labour productivity and efficiency in Federation of Bosnia and Herzegovina vs. EU, 2015 ...... 98 Figure 5.3.12 Comparison of mines labour productivity and efficiency in Republika Srpska vs. EU, 2015 ...... 98 Figure 5.3.13 Financial overview of mines in the Federation of Bosnia and Herzegovina, in million EUR, 2015 ...... 99 Figure 5.3.14 Scenarios of TPP generation and implications for coal production needs in Bosnia and Herzegovina, 2016 - 2035 ...... 101 Figure 5.3.15 Assessment of cumulative coal needs, depending on thermal sector development scenario in Bosnia and Herzegovina, in million tonnes, 2016 - 2035 ...... 102 Figure 5.4.1 Targets for RES share in EU, 2040 ...... 105 Figure 5.4.2 Sector contribution for RES share in final energy consumption in ktoe and %, 2020 ...... 106 Figure 5.4.3 Plan and realisation of RES utilisation in final consumption in ktoe, 2014 ...... 106 Figure 5.4.4 RES dynamics in final consumption in electricity sector and realisation in ktoe, 2010 - 2014 ...... 106 Figure 5.4.5 RES contribution in electricity sector – plan and realisation in % (GWh), 2015 ...... 107 Figure 5.4.6 RES contribution in electricity sector – plan in % (GWh), 2020 ...... 107 Figure 5.4.7 Vision for contribution of RES in electricity sector as scenario average in % (GWh), 2035 ...... 107 Figure 5.4.8 Installed RES capacity in Bosnia and Herzegovina in the existing and new capacities within the incentive system in MW, 2015 - 2035 ...... 108 Figure 5.4.9 Generation by each RES in Bosnia and Herzegovina in existing and new capacities within incentive system in GWh, 2015 - 2035 ...... 109 Figure 5.4.10 Assessment of growth of planned costs of RES subsidies in million EUR, 2017 - 2035 ...... 109 Figure 5.4.11 Impact of planned RES subsidies on the final electricity price in EUR/kWh, 2017 - 2035...... 110 Figure 5.4.12 Incentive model sin the European countries ...... 111 Figure 5.4.13 RES dynamics in final consumption in heating and cooling sector and realisation in ktoe, 2010 - 2020 ...... 113 Figure 5.4.14 RES contribution in heating and cooling sector – plan and realisation in % (GWh), 2014 ...... 114 Figure 5.4.15 RES contribution in heating and cooling sector – plan in % (GWh), 2020 ...... 114 Figure 5.4.16 Vision for contribution of RES in heating and cooling sector – moderate renewable scenario in %, 2035 ...... 114 Figure 5.4.17 Vision for contribution of RES in heating and cooling sector – cogeneration renewable scenario in %, 2035 ...... 114 Figure 5.4.18 RES dynamics in final consumption in transport sector and realisation in ktoe, 2010 - 2020 ...... 114 Figure 5.4.19 RES contribution in transport sector – plan and realisation, 2015 ...... 115 Figure 5.4.20 RES contribution in transport sector – plan, 2020 ...... 115 Figure 5.4.21 Vision for contribution of RES in transport sector – baseline scenario, 2035 ...... 115 Figure 5.4.22 Vision for contribution of RES in transport sector –scenario that promotes stronger usage of electric vehicles, 2035 .... 115 Figure 5.5.1 Oil market structure in Bosnia and Herzegovina, 2015 (estimate) ...... 121 Figure 5.5.2 The areas of hydrocarbon exploration in Bosnia and Herzegovina ...... 122 Figure 5.5.3 Final consumption of petroleum derivatives per sector, kt, 2014 and 2015 ...... 124 Figure 5.5.4 Final consumption of petroleum derivatives per derivative, kt, 2014 and 2015 ...... 124 Figure 5.5.5 Total consumption of petroleum derivatives per sector and derivative in Bosnia and Herzegovina, kt, 2015 ...... 125 Figure 5.5.6 Annual demand for petroleum products in Bosnia and Herzegovina in kt/yr., 2000 – 2015 ...... 125 Figure 5.5.7 Import and export of oil derivatives in Bosnia and Herzegovina in kt/year, 2012-2015 ...... 126 Figure 5.5.8 The crude oil processing capacity of refineries in the region in millions of tonnes/yr...... 127 Figure 5.5.9 Analysis of derivatives production in refineries according to the latest production data ...... 127 Figure 5.5.10 Production of derivatives in the Brod refinery in thousands t/yr., 2011 – 2015 ...... 128 Figure 5.5.11 Production of derivatives in the Brod refinery, 2015 ...... 128 Figure 5.5.12 Storage capacities for crude oil and derivatives in Bosnia and Herzegovina, in m³ ...... 129 Figure 5.5.13 Basic assumptions for the establishment of emergency oil stocks programs ...... 130 Figure 5.5.14 Number of petrol stations in Bosnia and Herzegovina, estimate for 2016 ...... 131 Figure 5.5.15 Market shares of the main retail companies in Bosnia and Herzegovina in %, 2011 – 2015 (estimate) ...... 132 Figure 5.5.16 Comparison of the retail market structures in the region in %, 2015 ...... 132 Figure 5.5.17 Legal framework for exploitation and exploration of hydrocarbons in Bosnia and Herzegovina...... 133 Figure 5.5.18 Maximum rates of mineral rents or equivalent fees in % for the Federation of Bosnia and Herzegovina ...... 134 Figure 5.5.19 Maximum rates of mineral rents or equivalent fees in % for the Republika Srpska ...... 136 Figure 5.6.1 Share of gas in gross domestic consumption of energy sources in mtoe, 20151 ...... 139 Figure 5.6.2 Share of gas installed capacity in generation mix in GW, 20151 ...... 139 Figure 5.6.3 Gas supply in the expanded market, by country and source in billions of m³ (bcm), 2017...... 140 Figure 5.6.4 Development of gas supply in the expanded market, by source in billions of m³ (bcm), 2017 – 2035 ...... 140 | 191 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT Figure 5.6.5 ENTSO-G gas demand scenarios in Bosnia and Herzegovina, in billion m3 (bcm), 2017 - 2035 ...... 140 Figure 5.6.6 Sources of gas in the expanded market (% of total import, estimates), 2014 ...... 141 Figure 5.6.7 Results of the European stress test for gas supply and key activities on the EU supply security ...... 142 Figure 5.6.8 Gas market structure in Bosnia and Herzegovina, 2014 and 2015 ...... 143 Figure 5.6.9 Total gas consumption in Bosnia and Herzegovina, by categories in billion m3 (bcm), 2010 – 2015 ...... 143 Figure 5.6.10 Gas consumption in Federation of Bosnia and Herzegovina in millions of m3(mcm), 2010 – 2016 ...... 144 Figure 5.6.11 Gas consumption in Republika Srpska in millions of m³ (mcm), 2010 – 2016 ...... 144 Figure 5.6.12 Gas supply in Bosnia and Herzegovina in billion m3 (bcm), 2010 - 2015 ...... 144 Figure 5.6.13 Gas prices for industry in Bosnia and Herzegovina and extended region, excluding VAT, taxes and levies in EUR/MWh, 2010 – 2016 ...... 145 Figure 5.6.14 Gas prices for industry in Bosnia and Herzegovina and extended region, excluding VAT, taxes and levies in PPP/MWh, 2010 – 2016 ...... 145 Figure 5.6.15 Gas prices for industry in Bosnia and Herzegovina and extended region, excluding VAT, taxes and levies in EUR/MWh, 2016 ...... 146 Figure 5.6.16 Gas prices for industry in Bosnia and Herzegovina and extended region, excluding VAT, taxes and levies in PPP/MWh, 2016 ...... 146 Figure 5.6.17 Gas price for households in Bosnia and Herzegovina and extended region, including VAT and other levies in EUR/MWh, 2010 – 2016 ...... 146 Figure 5.6.18 Gas price for households in Bosnia and Herzegovina and extended region, including VAT and other levies in PPP/MWh, 2010 – 2016 ...... 146 Figure 5.6.19 Gas price for households in Bosnia and Herzegovina and extended region, including VAT and other levies in EUR/MWh, 2016 ...... 147 Figure 5.6.20 Gas price for households in Bosnia and Herzegovina and extended region, including VAT and other levies in PPP/MWh, 2016 ...... 147 Figure 5.6.21 Potential cross-border gas supply routes for portfolio diversification ...... 147 Figure 5.6.22 Gas pipelines in Bosnia and Herzegovina (current state and plan) ...... 148 Figure 5.7.1 Location of district heating systems in Bosnia and Herzegovina ...... 155 Figure 5.7.2 Final heat consumption trend in Bosnia and Herzegovina, TJ, 2011 - 2015 ...... 156 Figure 5.7.3 Trend of the structure of total consumption of heat in Bosnia and Herzegovina, TJ, 2011 - 2015 ...... 156 Figure 5.7.4 Production of heat in Bosnia and Herzegovina, TJ, 2011-2015 ...... 156 Figure 5.7.5 Production of heat by energy source in Bosnia and Herzegovina, %, 2015 ...... 156 Figure 5.7.6 The average monthly heating price for households in EUR/m2, 2016 ...... 157 Figure 5.7.7 Prerequisites for development of district heating scenarios ...... 158 Figure 5.7.8 Sarajevo – utilisation of waste heat per blocks in accordance with the scenarios for electrical energy ...... 158 Figure 5.7.9 Tuzla – utilisation of waste heat per blocks in accordance with the scenarios for electrical energy ...... 159 Figure 5.7.10 Zenica – utilisation of waste heat per blocks in accordance with the scenarios for electrical energy ...... 160 Figure 5.7.11 Kakanj – utilizing waste heat per block in accordance with the scenarios for electrical energy ...... 160 Figure 5.7.12 Banja Luka – utilizing waste heat per block in accordance with the scenarios for electrical energy...... 161 Figure 5.7.13 Bijeljina – utilizing waste heat per block in accordance with the scenarios for electrical energy ...... 162 Figure 5.8.1 Directives related to energy efficiency ...... 165 Figure 5.8.2 Timeline for three key Articles of Directive 2012/27/EU ...... 166 Figure 5.8.3 Timeline for other selected Articles of Directive 2012/27/EU ...... 166 Figure 5.8.4 Key elements of long-term energy efficiency strategy...... 167 Figure 5.8.5 Sectoral targets and savings in PJs, 2015 i 2016 ...... 168 Figure 5.8.6 Planned savings in final consumption for Bosnia and Herzegovina in PJ by 2035 ...... 169 Figure 5.8.7 Electricity distribution losses, 2010 - 2015 ...... 171 Figure 5.9.1 Steps in creating a Strategic Environmental Assessment ...... 180 Figure 5.9.2 Indicatively defined scope of the Strategic Environmental Assessment report ...... 181 | 192 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT List of Tables Table 3.1.1 General information ...... 12 Table 3.1.2 Review of the current situation and guidelines for reducing barriers for investments ...... 16 Table 4.2.1 Business models of oil companies ...... 37 Table 4.2.2 Examples of the model changes...... 37 Table 5.1.1 Directives and regulations binding to Bosnia and Herzegovina ...... 39 Table 5.2.1 An overview of the existing production facilities per subject without small and other industrial power plants in Bosnia and Herzegovina, 2016 ...... 50 Table 5.2.2 Planned transmission network interconnections in Bosnia and Herzegovina ...... 54 Table 5.2.3 Status of separation of the power distribution activities in Bosnia and Herzegovina ...... 56 Table 5.2.4 Indicative comparison of the key regulatory models characteristics ...... 57 Table 5.2.5 Illustrative vision of strategic goals in Bosnia and Herzegovina ...... 63 Table 5.2.6 Bosnia and Herzegovina's goals in respect to EU goals until 2020 and 2030 ...... 64 Table 5.2.7 Decommissioning of existing thermal power plants ...... 68 Table 5.2.8 Commissioning of new thermal power plants ...... 69 Table 5.2.9 Criteria and qualitative summary of scenarios of generation mix development ...... 70 Table 5.2.10 Key effects of the generation mix development, 2016 – 2035 ...... 76 Table 5.2.11 List of potential new larger projects in the Federation of Bosnia and Herzegovina ...... 78 Table 5.2.12 List of potential new larger projects in the Republika Srpska ...... 79 Table 5.2.13 Required amount of fuel needed for optimal TPP-heat plant portfolio (indicative) ...... 80 Table 5.2.14: Expected electricity and heat generation (indicative) ...... 81 Table 5.2.15 Strategic guidelines for market development ...... 88 Table 5.3.1 Basic information on key mines in Bosnia and Herzegovina, 2015 ...... 91 Table 5.3.2 Historical breakdown of coal reserves in Bosnia and Herzegovina, 2009 / 2010 ...... 92 Table 5.3.3 Correlation between coal mines and thermal power plants, 2015 ...... 96 Table 5.3.4 Summary of strategic guidelines for coal sector ...... 104 Table 5.4.1 Regulatory framework for stimulation of RES in Federation of Bosnia and Herzegovina ...... 110 Table 5.4.2 Regulatory framework for stimulation of RES in Republika Srpska ...... 111 Table 5.4.3 Timeline of sale of electricity from RES in selected countries ...... 113 Table 5.4.4 Strategic guidelines ...... 120 Table 5.5.1 Hydrocarbon production and legal models in the region ...... 122 Table 5.5.2 Potential reserves of crude oil and gas on the area of North Bosnia ...... 123 Table 5.5.3 Conducted activities on the potential of the designated area ...... 123 Table 5.5.4 Storage capacities for petroleum products in Bosnia and Herzegovina ...... 130 Table 5.5.5 The main retail companies in Bosnia and Herzegovina ...... 131 Table 5.5.6 Strategic guidelines of the strategy for the sector of oil and petroleum derivatives in Bosnia and Herzegovina ...... 138 Table 5.6.1 The dynamics and focus of gas pipeline projections in Bosnia and Herzegovina ...... 149 Table 5.6.2 Summary of strategic guidelines in gas sector for entities and Bosnia and Herzegovina ...... 153 Table 5.7.1 An overview of main district heating companies in Bosnia and Herzegovina ...... 157 Table 5.7.2 Selected overview of small independent heating systems ...... 162 Table 5.7.3 Strategic guidelines for the district heating sector ...... 164 Table 5.8.1 Proposed programmes for achieving saving in final consumption ...... 169 Table 5.8.2 Planned savings in transformation until 2035 ...... 170 Table 5.8.3 Planned savings in distribution ...... 171 Table 5.8.4 Instruments of achieving goals in the distribution network ...... 172 Table 5.8.5 Guidelines for amending legal framework in the Federation of Bosnia and Herzegovina ...... 174 Table 5.8.6 Guidelines for amending legal framework in Republika Srpska ...... 174 Table 5.8.7 Guidelines for education and communication improvement ...... 175 Table 5.8.8 Guidelines for financial framework development ...... 175 Table 5.8.9 Strategic guidelines ...... 178 Table 6.2.1 Indicative roadmap of strategic guidelines ...... 183 | 193 | Framework Energy Strategy of Bosnia and Herzegovina until 2035 – FINAL DRAFT End of document | 194