Western Balkans 6 Ministerial meeting on Energy: Connecting Systems, Connecting Markets

Johannes Hahn

VIENNA, 02.07.2015 – Speech by Commissioner Hahn at the meeting with Western Balkans 6 Ministers of Energy

Ministers,

Allow me to start by thanking the Energy Community Secretariat, and its Director Janez Kopač for hosting today’s ministerial meeting. The Energy Community has been vital in helping your countries to prepare for your European perspective in the energy sector.

I am delighted that this meeting takes place in my home city, since Vienna is going to play an essential role in your regional co-operation activities over the coming months.

Much of the Western Balkans 6 work on connectivity has focused on transport. Today we are opening a new file on energy connectivity. This not only covers the physical connectivity between energy systems, but also the connectivity between energy markets.

This region is lacking in physical interconnections. This is an issue of security of supply. Last year, we carried out an exercise to see how the EU and the Energy Community countries could cope with a severe disruption in gas supplies. These stress tests highlighted that some of you are vulnerable due to your dependence on one supplier.

The cancellation of the South Stream project reinforces the need to develop sources and supplies of gas. The EU can help for particular sections of the gas network, such as cross-border links. We want to bring such projects to maturity and to support their construction. The most immediate priority is the interconnection between Serbia and Bulgaria.

Other projects (to bringing gas from Croatia into the region) are being discussed in the Central and South-Eastern Europe Gas Connectivity (CESEC) context. Many of you will be signing a Memorandum of Understanding on this in Dubrovnik next week.

In the Western Balkans, the dependency on imported energy is approximately 30%. For some this is a political and economic risk, particularly given the dependency on certain suppliers.

The best way to improve energy security, to reduce energy dependency and external vulnerability is to make better use of existing energy potential.

One way to reduce import dependency is to increase production of renewable energies. Your region has great potential for renewables, particularly hydropower. Investments in renewables are not taking off because of insufficient incentive schemes or power-purchasing agreements, as well as complicated licensing and permitting procedures.

Renewable power is not only about large hydropower plants or wind farms. This production can be decentralised and small or medium scale. Just outside Vienna, is a waste incineration plant that demonstrates the potential of waste-to-power and offers an alternative to dumping waste in landfill sites. I would like to examine whether such a demonstration project would be feasible in your region.

On top of using indigenous energy sources, there is a vital need to improve the interconnection between energy systems.

To decide which projects to support, we are using the Energy Community’s Projects of Energy Community Interest, which have already been assessed in terms of their regional value and economic viability. At the summit in Vienna, we hope to announce a shortlist of the most vital projects that the EU will co-finance this year, through the Western Balkans Investment Framework.

There will be several electricity projects in this list. They will develop the region’s capacity to exchange power over longer distances and will allow you to develop synergies between generation capacity and demand. Developing these physical interconnections will help integrate the renewable energy capacities that you are committed to develop. If, say, Albania is to meet its own target that 38% of the energy it consumes should be from renewable sources by 2020 or Bosnia and Herzegovina with 40%, they need to look for buyers of surpluses outside their borders.

Up to 130million euro in IPA II funds will be available from the 2015 multi-country programme as grant co-financing to move these investments project forward. We are working with the international financial institutions to bring in additional sources and to create the right blending between grants and loans to fund a particular project.

You can count on our support to build well-justified projects. But public funds, including ours, are scarce. To deliver on the most important investments sooner rather than later, you must set priorities and explore all possible sources of funding including private capital.

For this, your National Investment Committees will be crucial. They will establish single project pipelines with the most relevant investment projects to be financed in the country over the medium term.

I often point to the good work that Serbia has done in establishing such a National Investment Committee, but I am pleased to see that most of you are now doing this as well.

Whilst the physical connections between energy systems are important, you need to add value to investments. We can think about connectivity in terms of “hardware” such as power transmission lines or gas pipes. But, like a computer, the hardware needs software to operate effectively.

The better the accompanying measures the easier it is for the hardware to maximise its potential, as well as using the investments that we support in the best possible way. In the energy sector, this means operating under EU-compatible rules with independent and strong regulatory authorities. For example, the EU could not support a gas pipeline if you do not allow third party access.

Through the Energy Community, you have legally committed to apply EU rules. I propose that we identify the elements of those rules where we need to make a particular effort.

I know that some of these measures, such as market opening and third party access to infrastructures are sensitive. We have that experience in the EU and you can count on our support, as well as the invaluable help of our hosts.

But I would like to go further than this to develop a regional power market initiative.

We have a unique opportunity to focus investment on priority projects, and we all have a duty to ensure that these are operated in the best way possible. This means planning energy systems in a regional, rather than national fashion. It will reduce your dependency on external energy suppliers. It is also a way of splitting the risks of an investment.

In a few minutes, the Energy Community Secretariat will explain this initiative in more detail. We will be asking the Secretariat to help with the initiative’s implementation, but we are also prepared to provide financial assistance to get this off the ground.

These measures will help integrate renewable energy generation capacity into the system. They will also help remove unjustified state aids.

Energy was at the birth of the EU, which developed rules to pool coal, steel and nuclear power. This was a powerful tool for reconciliation for Europe. Working together on energy systems can play a similar role in South-Eastern Europe as an example of regional co-operation and reconciliation at work.

In August, at the Vienna Summit we will present a list of investment priorities on energy and on the regional transport core network. The list will comprise mature projects already included in the framework of the Western Balkans Investment Framework and which will contribute to the connectivity agenda.

The list of energy projects is not a surprise for you, as they are already Projects of Energy Community Interest.

As I have already mentioned, we are willing to invest around 130 million per year to help implement these projects. We will also be working with you to bring new projects to maturity in the next exercises.

I am fully committed to this process. I know that you are committed too and I ask you to focus on the core investment priorities and establish a credible planning and funding mechanism. This will also means nsuring that you have room in your budget to take up the necessary loan financing to implement all the projects on time.

And I will work with you on implementing EU-compatible reforms in order to ensure the best regulatory environment to operate these projects. This will demonstrate your domestic political maturity ahead of the Berlin summit.

But I also want you to commit to the measures necessary to create a regional power market. This will provide real added value to all the investments in the energy sector and attract the private sector to invest.

Ministers,

I have underlined the challenges for the region linked to energy connectivity, and my commitment and the support of the European Commission to help tackle them. You also have a great friend in the Energy Community. I would be grateful for your views on these challenges and for suggestions on ways we can help you address them.

Thank you.