Die approbierte Originalversion dieser Diplom-/Masterarbeit ist an der Hauptbibliothek der Technischen Universität Wien aufgestellt (http://www.ub.tuwien.ac.at). The approved original version of thisMSc diploma Program or master thesis is available at the main library of the Vienna University of Technology (http://www.ub.tuwien.ac.at/englweb/Renewable). Energy in Central & Eastern Europe Which countries in Central and South Eastern Europe are attractive for Investment in Small Hydro Power Plants? Detailed comparison of the Markets in Bosnia and Herzegovina, Bulgaria and the Czech Republic and a general analysis of the markets in Croatia, Serbia, Slovakia, Turkey with a comparing view on Montenegro, Romania and Slovenia A Master Thesis submitted for the degree of “Master of Science” supervised by Univ.Prof. Dipl.-Ing. Dr.techn. Günter BLÖSCHL Mag. Christian KOPECEK Student ID: 7851489 Vienna, November 2009 Affidavit I, Mag. Christian Kopecek, hereby declare 1. that I am the sole author of the present Master Thesis, "Which countries in Central and South Eastern Europe are attractive for Investment in Small Hydro Power Plants?", 259 pages, bound, and that I have not used any source or tool other than those referenced or any other illicit aid or tool, and 2. that I have not prior to this date submitted this Master Thesis as an examination paper in any form in Austria or abroad. Vienna, November 6th 2009 Date Signature i Abstract The work tries to find attractive markets with future growth for the Small Hydro Power Industry within the CEE/SEE region. The method chosen was to identify countries to be analysed, assume criteria for investment decisions in the Small Hydro Business, collect data, condens and evaluate it. The results show, that mainly because of their well-balanced attractiveness countries like Czech Republic, Slovakia and Slovenia might show a strong growth in this industry in the near future. Markets like Bulgaria, Romania and Turkey could see some substantial growth either because of vast potential or because of investor-friendly environment. The other countries also have their chances but those might go with considerable project risk thus preventing the investors to enter into long term capital-intensive projects. The conclusion is to go into more detail at site, apply own weightings in the evaluation and consider a well-balanced portfolio of high-low risk markets. ii Executive Summary The market for Small Hydro Power Plants in Austria does not offer much growth for the near future and for expansion. New attractive sales regions have to be developed. The Master Thesis tries to identify attractive countries in CEE/SEE for Small Hydro Power Projects for a Company engaged in this industry. The method of approach was to collect, verify and document information available in literature, internet, with government authorities, market players, experts, etc. and to condense and visualize it. The assumption is that markets will develop when certain criteria for investors are fulfilled. Those criteria needed to be identified and compared with the condensed data of each country. A simple rating model was developed and the compliance with the assumed investment criteria was marked with grades for each country. Challenge Indicator Grades on Attractiveness for SHP-Projects Low Mark=more attractive High Mark=less attractive 5,0 4,1 3,8 4,0 3,5 2,5 3,2 3,0 2,5 2,3 1,8 1,8 1,9 2,0 1,0 0,0 BIH BG CR HR SRB SK TR MNE RO SLO Figure 1: Challenge Indicator- Evaluation of Attractiveness for Small Hydro Power Projects Source: Kopecek, C. 2009 The result of the analysis shows that within the intensively analysed “Focus 1” countries the Czech Republic seems to be the most attractive market regarding construction and refurbishment of Small Hydro Power Plants. The reasons are the favourable promotion system, the overall fine investment conditions in the country and - for revamping - the outstanding high number of aged plants. Bulgaria comes second in this group, also because of its attractive promotion system and because of a good balance in all other assumed investment decision criteria. Bosnia and Herzegovina has good Small Hydro site potentials and abundant water availability; iii but this Balkan country is still struggling with post-war recovery and has severe structural and organisational deficiencies sometimes discouraging the investor’s community. “Focus 2” countries are led by Slovakia with a new advantageous Renewable Energy Law, well performing economy and the risk-free EURO as recently introduced currency. Turkey offers an extraordinary high potential for Small Hydro Projects with a very liberal attitude towards hydropower plants. The country has an unusually dynamic economy but needs urgent reforms. Croatia and Serbia are again former Yugoslavian countries struggling with restructuring and are both not easy to deal with for investors. Croatia is an EU-accession candidate with good incentives. Serbia has large hydropower potential but is missing a clear promotion system. Slovenia is the favourite of the “Focus 3” countries with rewarding incentives, outstanding water availability and perfect economic performance within the EURO Zone. Romania has large potential and pro-active approach for new plants with a good promotion system but drifts into unsafe political and economical future. Finally, Montenegro stands out with enormous water availability but presently low developed structures and framework for Renewable Energy Investors. In the end, engagement in Small Hydro Projects will be a question of risk appetite, view on the future chances, ability to finance and already existing portfolio of investors. A good mix of high-low challenge countries seems advisable for further market development of the Company. In order to assist the Company to start a subsequent verification process of the underlying data for the rating, which in some countries are extremely contradictory, relating information is given in the work. This refers to existing plants, pending single and multiple “cascade” projects, license holders, developers as well as tender and privatisation lists. The information contained in this work should also give some basis to set first steps for entering the new markets. Further research will be necessary on the reliability and actuality of the data in the concerned countries. The assumption on investment criteria and its weighting need to be tested and adjusted during further research. Permanent monitoring of the markets is required as some important criteria are subject to change. The availability of funding of capital- intensive projects with long payback periods in high-risk countries needs to be assessed as the bankability is a central precondition for projects to materialize. iv Table of Content Affidavit ................................................................................................................... i Abstract .................................................................................................................. ii Executive Summary .............................................................................................. iii Table of Content .................................................................................................... v List of tables ......................................................................................................... ix List of figures ....................................................................................................... xii Glossary .............................................................................................................. xvi 1 Introduction ..................................................................................................... 1 2 Bosnia and Herzegovina ................................................................................ 6 2.1 General Country Information ................................................................................ 7 2.1.1 Political and Economic Situation........................................................................... 8 2.1.2 Political and Economic Outlook ............................................................................ 9 2.1.3 Work Force .........................................................................................................10 2.2 Energy ...................................................................................................................10 2.2.1 Overview Electricity Market .................................................................................12 2.2.2 Electricity Balance ...............................................................................................14 2.2.3 Electricity Demand and Production Outlook .........................................................17 2.3 Renewable Energy ................................................................................................19 2.4 Small Hydro Power ...............................................................................................21 2.4.1 SHP Inventory.....................................................................................................22 2.5 Participants on the SHP-Market ...........................................................................27 2.5.1 Institutions and Authorities ..................................................................................27 2.5.2 Market Players ....................................................................................................28 2.6 Legal Framework