We challenged Mr. Julian Popov to comment the current situation for the coal-based power generation sectors in Romania and Bulgaria; what we got was a spectacular overview of the energy landscape in the region, and in Europe. Mr. Popov displayed a complex, but clean-cut description, where renewables are ready to jump in to save the coal regions from nothingness, natural gas has a good future, but a rather short one, large national projects should be replaced by market integration, and all strategies ought to begin from energy efficiency for reduced energy poverty, improved air quality and increased energy security.
Coal suddenly started getting expensive. Governments and companies didn’t expect such a swift change, but it was clear for a long time that the change was coming. There are at least two factors that are driving and will be driving the cost of coal up: the Emission Trading System (ETS) which started in 2005 and the Large Combustion Plant (LCP) BREF, the negotiations for which started in 2011. So, the coal cost raise should not have been a surprise. I would call this a market adjustment process simply because it is a result of us starting to pay the real price of coal. Paying for the coal generation externalities however disrupts a centuries old tradition of using natural resources without paying for the wider environmental impact. This disruption brought coal to the top of the 2018 energy debate. At the same time we should recognize that coal regions, especially open cast lignite, have some strong competitive advantages that need to be captured on time. Most of them offer huge area of state owned land, excellent power grid infrastructure, concentrated engineering skills, often good transport infrastructure. This makes lignite mines attractive sites for development of industrial zones and large scale renewables generation. The window of opportunity for such developments will not stay open for very long. We need vision and political will to grab this opportunity now.
Indeed. Around 40% of the power generation in Bulgaria and more than 20% in Romania depend on coal. We have to face the growing cost of coal and understand and use the energy transformation. If we do that, we will not only succeed in reducing any negative effects from energy mix transformation, but turn the transition into an advantage for our countries. We need to run ahead of the energy economics curve. We should start developing national strategies for exploiting our cost competitive clean energy resources and start introducing technologies for managing the energy supply and demand.
ETS is constantly developing, but I don’t think there is a chance for coal to be awarded a balancing role. Some countries with high share of coal in the energy mix are looking for ways to prevent shock to the energy system and mainly to avoid politically difficult clash with coal regions and trade unions, but that will not happen through bending the logic of the ETS. The economically feasible way is to analyze where the lowest cost low carbon potential is and to start positioning our countries to better use the low carbon power generation. It is also very important for Bulgaria and Romania to work together on the energy transition because the transition is intrinsically linked to the electricity market integration. We have to plan together new power capacity, market rules and infrastructure. We also have to work jointly on demand forecasts. If we build excessive inadequate and expensive power capacity, we will face serious problems in the future. Our nuclear plans need to be re-evaluated in this context. We also have to move away from reliance on subsidies and contracts with fixed guaranteed long term prices towards more flexible market mechanisms based on auctions, demand management and encouragement of innovation.
We should start the capacity conversations with the question “What consumption can we avoid?”. Both Bulgaria and Romania have huge potential in improving the energy efficiency of their economies. Efficiency is not only helping to reduce consumption, but it also helps to reduce energy poverty, improve air quality, increase energy security; it is also a way to increase the choice of energy technologies. A low efficiency building requires energy intensive heating, while a well-insulated building has much wider choice of cost competitive heating technologies. Once we examine the energy efficiency options we can move towards generation options. Gas can certainly play a role, but the idea for gas as a transitional fuel is exaggerated and misunderstood. Gas could play a role in the transition mainly if it replaces coal rapidly and works in conjunction with renewables, storage and demand management. South East Europe has huge cost competitive renewables potential that is cheaper than anything else, except energy efficiency gains. We also have a significant hydro energy potential which offers excellent balancing and storage opportunity for the regional energy system.
There are many cases of regions moving away from coal driven by different factors – new fuels, air quality or climate related policies. In the 1960s, when gas from the North Sea became available the Netherlands and England started their transitions in two very different ways. England’s story is much more confrontational, the Dutch one is much more amicable, consultational and consensual. Both countries moved away from coal and soon they will stop using coal completely.
The German Ruhr valley is also an interesting example of moving away from coal and developing advanced technology industries. The transition of the Northern France region of Loos-en-Gohelle which became a UNESCO heritage site is an interesting case. There are stories in Poland and Hungary and many examples in the US. In the ‘60s, Hungary was employing 125,000 miners, it employs 2,000 now. All these cases are specific and different, but the general lesson from all of them is that technology change is an opportunity which needs to be understood, supported and managed wisely in favor of new development, cleaner solutions, higher efficiency and modernization of the energy sector and the industry as a whole. Opposing this trend and opportunity can send us at the bottom of the industrial development, while embracing it could catapult us near the top.