Central and Eastern European Hydro Power Outlook

136 Pages·2010·7.03 MB·English

ENERGY AND NATURAL RESOURCES
Central and
Eastern European
Hydro Power Outlook
kpmg.com
KPMG in Central and Eastern Europe’s
Energy & Utilities Advisory Practice
© 2010 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member fi rm of the KPMG network of independent
member fi rms affi liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Central and Eastern European Hydro Power Outlook | 3
Dear Reader,
It is my pleasure to introduce the Central and Eastern European Hydro Power
Outlook, which has been prepared by the KPMG in Central and Eastern
Europe’s Energy & Utilities Advisory Practice located in Budapest, Hungary.
Based on the interest for our previous publications covering electricity, natural
gas, renewable and nuclear energy, as well as the district heating sector we
have assembled this report with the ultimate aim of highlighting the most
important opportunities in the region’s hydro power sector.
On the following pages, it was our aim to turn market data into meaningful
analysis, thus offering KPMG’s insight on available opportunities for business
organizations and institutions interested in the Central and Eastern European
hydro power sector.
Péter Kiss
Partner, KPMG Global Head of I trust that this report will prove to be useful to you and I wish you all the best
Power & Utilities on your participation in, the development of the CEE hydro power sector,
whether you are an investor, supplier or any other stakeholder on the market.
Sincerely,
© 2010 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member fi rm of the KPMG network of independent
member fi rms affi liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
© 2010 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member fi rm of the KPMG network of independent
member fi rms affi liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Central and Eastern European Hydro Power Outlook | 5
Table of Contents
Executive Summary 7 6.8. Kosovo 72
6.9. Latvia 74
1. Defi ning CEE Energy Markets 11
6.10. Lithuania 77
2. Introduction of the Technology 15
6.11. Macedonia 80
2.1. Hydroelectricity 15
6.12. Montenegro 83
2.2. Types of Hydroelectric Power Plants 16
6.13. Poland 86
2.3. Major Turbine Types and their Application 19
6.14. Romania 89
2.4. System Balancing Capabilities of Storage 20
6.15. Serbia 93
and Pumped Storage HPPs
6.16. Slovak Republic 96
2.5. Possible other Roles of HPPs, their 22
6.17. Slovenia 99
Dams and Reservoirs
7. A Leading Example – Austria 102
2.6. Environmental Impacts 23
8. Public Acceptance of Hydro Power 105
3. Regulations 29
8.1. Gabčíkovo-Nagymaros Hydro 105
3.1. Are All Hydro Plants Renewable? 29
Power Project
3.2. EU Regulations for Water Policy and 30
8.2. Mardøla and Alta Hydro Power Projects 106
Renewable Energy
8.3. Hainburg Hydro Power Project 106
3.3. Greenhouse Gas Emission Measures 33
8.4. Freudenau Hydro Power Project 106
4. Electricity Demand Trends in the CEE Region 37
8.5. Conclusions 107
4.1. History 37
9. Economics of a Hydro Investment 109
4.2. Future Outlook 38
9.1. Investment/Operation Cost Ratio 110
4.3. Special Demand for Renewable Energy 39
Sources Including Hydro Power 9.2. A Comparison with Other 116
Power Plant Types
5. Importance of Hydro Power in the CEE Region 41
9.3. Cooperation and Cost Sharing 121
6. Country Profi les 47
10. Investment Potentials 123
6.1. Albania 49
Acronyms 126
6.2. Bosnia and Herzegovina 52
6.3. Bulgaria 56
What can KPMG Firms Offer to the Hydro 129
6.4. Croatia 60
Power Sector?
6.5. Czech Republic 64
6.6. Estonia 67
6.7. Hungary 69
© 2010 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member fi rm of the KPMG network of independent
member fi rms affi liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
6 | Section or Brochure name
© 2010 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member fi rm of the KPMG network of independent
member fi rms affi liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Central and Eastern European Hydro Power Outlook | 7
Executive Summary
Hydroelectric generation is not new to Central and Eastern Europe (CEE).
Hydro power’s key advantage – the absence of fuel costs – has historically
underpinned signifi cant development, meaning that many of the obvious plant
locations have been exploited, especially under the socialist regimes after
World War Two.
Hence hydro facilities account for almost 29,000 MW, or 23% of the total
127,000 MW generating capacity in CEE, and every country, from Estonia to
Bulgaria, has some hydro installations. In Albania and other countries in the
Balkan Peninsula, hydro dominates the generation mix.
After 1990, in the fi rst years of transition to a market economy, the closure
of heavy industry (and subsequent reduced electricity demand) coupled with
political uncertainties, meant a reduced pipeline for new power projects in
many CEE countries.
However, political stabilization and economic progress in the past decade have
led to an upturn in electricity demand – albeit somewhat interrupted by the
recent global economic crisis.
This turnaround, coupled with the need to replace ageing and often ineffi cient,
polluting plants, has focused minds once more on the need for new investment
in generation capacity.
Furthermore, the growing emphasis on clean energy, as mandated by the
European Union, plus concerns regarding security of fuel supplies, makes
investment in hydro power all the more attractive.
As this report highlights, the good news is that there remains huge potential for
hydro development within CEE, where the total technical hydro capacity could
generate an estimated 176,300 GWh per year.
In reality, current output stands at 62,700 GWh, meaning the regional utilization
rate is a mere 30%.
This potential includes even those countries which already boast signifi cant
levels of hydro investment.
In Albania, for example, hydro facilities account for 87% of total generation
capacity and an astonishing 97% of electricity generated. Yet an analysis by the
World Energy Council reveals Albania is exploiting only one-quarter of its total
water-sourced potential.
© 2010 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member fi rm of the KPMG network of independent
member fi rms affi liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
8 | Central and Eastern European Hydro Power Outlook
Similarly in Bosnia-Hercegovina, the utilization rate of the technical hydro
potential is a mere 19%, meaning the country could, under ideal conditions,
generate an annual 24,000 GWh – fi ve times its current annual output.
Lithuania, for example, currently utilizes less than one-third of its technical
hydro potential, which amounts to an annual 3,000 GWh. Poland is even more
wasteful; the 2,700 GWh it sources from hydro generation being a mere fi fth of
its technical potential.
But the most profl igate country in the region regarding water resources is
Hungary, where hydro facilities amount to just 46 MW (0.6% of the total) and
generate a paltry 200 GWh annually (again, 0.6% of the total).
This is just 3% of Hungary’s technical potential, where hydro capacity could
generate 8,000 GWh annually, or about 20% of net production.
Hungary’s failure to harness its water resources to provide more electricity
provides a series of case studies illustrating the pros and cons of hydro power –
both real and perceived.
Hungary, together with the then Czechoslovakia, sought to tap into its potential
hydro power when in 1977 the two countries announced plans for a system of
dams and hydro-power stations on the Danube, which formed the common
border between the two countries for some distance.
Known as the Gabickovo-Nagymaros Hydro Power Project, the scheme was
intended to prevent fl ooding, improve navigability and provide generation
capacity of 880 MW (to be shared between the two countries) at full capacity.
However, in Hungary the project was soon criticized by environmentalist
groups, and it became a safe channel for protest by the growing anti-
communist opposition during the 1980s. Shortly after the fi rst democratic
elections in 1990 Hungary unilaterally abandoned the scheme, although
Slovakia completed a simplifi ed version of the project on its territory.
As this report notes, there are certainly many environmental (and often political
and social) factors that require careful evaluation when planning any hydro
project, most particularly large schemes that involve damming rivers to hold
back large volumes of water.
However, the creation of such dams often yields a number of secondary
outcomes, which can further enhance the value of such schemes. These
include the use of the reservoir for water sports and leisure activities (as has
occurred in Slovakia in the modifi ed Danube scheme) and in some locations the
dams themselves form useful communication links between riverbanks.
Indeed, with careful planning and consultation between all parties involved,
hydro schemes can garner the support of the general public and, at best,
become the ideal ‘win-win’ development.
© 2010 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member fi rm of the KPMG network of independent
member fi rms affi liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Central and Eastern European Hydro Power Outlook | 9
This report emphasizes the experience of Austria, where a combination of 154 large
and 2,400 hydro generators, built within the framework of clearly-defi ned regulatory
support system, now provides 60% of the country’s electricity needs.
However, even in Austria, projects have foundered, most notably the Hainburg
hydro scheme of the 1980s, where environmentalists, ignored by the authorities,
fomented protests and eventually forced the abandonment of the project.
Austria learned its lessons, and just a few years later created intense public
involvement for its proposed Freudenau hydro scheme in Vienna. The result
was a 70% yes vote for the scheme in 1991, and seven years later the project
was completed, providing over 1,000 GWh annually to the grid since 1998.
As our study stresses, Austria’s ability to so successfully exploit hydro power
offers many lessons for other countries in the region. The Austrian banking
sector, state and regional authorities function effectively, hence they have the
means to provide systematic planning and support to hydro projects.
Many of the states in the region lack Austria’s administrative skills, nor do they
possess the fi nancial means to fully fund even small hydro schemes (which are
more expensive than large projects per kW installed).
Furthermore, much of the region’s potential hydro power will require some
form of guaranteed electricity pricing to create a sound business case and
attract external fi nance. Under these conditions, the most crucial role of the
CEE states is to each create a sound regulatory and legal environment to
assure potential investors (both domestic and international) that their money is
safe and that it will earn a steady, if unspectacular, return.
From this study it is clear that much potential exists across CEE to develop
hydro power, particularly (but not only) in mountainous countries such as
Albania, Romania, Bulgaria and former Yugoslavia.
This potential includes hydro generation in all its forms, including renewal
of older, ineffi cient facilities, new projects involving both large and small
generators, and pumped-storage schemes that help system balancing and
utilize low-cost electricity at times of low demand.
In addition, environmental concerns and public sentiment generally support the use
of clean energy. But to exploit these potentials in practice will require governments
and utility companies to employ a wide-ranging skill-set from careful, in-depth
technical and fi nancial planning to innovative public relations techniques.
© 2010 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member fi rm of the KPMG network of independent
member fi rms affi liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
© 2010 KPMG Tanácsadó Kft., a Hungarian limited liability company and a member fi rm of the KPMG network of independent
member fi rms affi liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.