Greetings, dear viewers. Welcome to the second
episode of New Magazine's podcast entitled
Coal phase out in the Western Balkan.
My name is Damir Dizdarevic and I will be your host in this
as well as in the forthcoming episodes of this podcast.
In the first episode, we touched upon urgency of coal phase out,
as well as high price we pay for still using it, primarily in
the health department and the protection of the environment.
I will host today Mr. Aleksandar Kovacevic, energy economist
and an expert in this field. We will discuss with him
whether coal phase out presents major economic risk and a road
towards economic demise, or it is development potential
of our region that we simply have to take advantage of.
We will talk of the investment needs in the new energy sources,
the potential of renewable energy sources in the region and
proper energy transition, implying that the transition is not only timely
but also fair for the most affected, such as miners and other workers
in those lines of industries.
Realization of this podcast has been supported by Open Society Foundation
for Western Balkans, and it is available on our You Tube Channel.
Moreover, we are availabe on other podcast platforms
such as Spotify and Deezer. Also, follow as on social networks
on Instagram and TikTok. I hope you'll enjoy today's episode.
Produced by New Magazine with the support of
Open Society Foundations for Western Balkans.
Good afternoon, Aleksandar, and welcome to our podcast.
Could you introduce yourself to me and to our audience?
Well, it's energy economy, that is my field of work for
the last 35-36 years, in this line of industry...
I was engaged in diverse major energy projects in various countries.
Here in Serbia, I worked for United Nations, in terms of reconstruction
of the energy system in the post-war period, after 1999...
I wrote several books in this field, one for the United Nations, dealing
with energy poverty, published in 2004 this book has become standard for
energy poverty analyses, it was used in many countries within EU,
in the World Bank, and so on. The other book was published
for International Energy Agency (IEA) and energy policy analysis in the
countries within the Balkan region, eight countries at that point of time.
I had several papers, written for the World Bank and Austrian Institute
for Energy Studies, so that's it... -Thank you, an impressive biography.
I am honored to have the opportunity to host you, so that you can share
with the audience your opinion on energy transition of coal phase out
in the Balkans. First of all, I would like to begin with
a statement but also with a question. Those who are critical of our coal
phase out say coal is responsible for our economic development,
that we have been using fossil fuels for decades,
and because of its accessibility and low price, it lifted many people out
of poverty and improved the work of industry.
Now it's time to fight against climate change and coal phase out,
while they often announce that this will bring economic demise.
According to your opinion, is this an attempt of some countries to
play a dirty game, with the attempt to economically devastate the region
of the Western Balkans, whether things will remain the same,
or is it a chance for economic growth?
There is a whole series of comments that can be made about it.
Among others, we can say that an original energy policy of Yugoslavia
after the Second World War, hadn't been familiar with coal.
In fact, coal production declined during the 1950s and 1960s.
We had a single increase immediately after the Second World War.
After that, when energy policy gained momentum, the production declined.
Energy policy at that time focused on hydropower, imported oil,
and on the possible construction of nuclear power plants.
The famous program containing 14 nuclear power plants on the territory
of former Yugoslavia. -Out of which, just one was there.
One nuclear power plant was built. Regardless, at that time the industry
was trained to participate in the construction of nuclear power plants.
Quite a large number of personnel has been trained, including engineers.
To the extent that the personnel industry infrastructure made
construction possible later on, when energy policy has changed,
and become coal oriented, but that happened in the early 1970s.
What caused this to happen? -Due to diverse foreign circumstances.
We should leave this aside, for now. Above all, the then Trade Agreement
with the Soviet Union presented a crucial momentum.
Energy policy has changed its course...
Followed by the industrial capacity, which was there.
The objects that were constructed were of unique high-quality,
so, when you compare similar buildings in the former Yugoslavia,
and its 50 year operation, up till today, you see that those results
are exceptional, compared to similar objects built in some other countries.
In the countries of former Soviet Union, Vietnam, India, in central
Europe, and in some other places.
So, a particularly high level of industrial ability was achieved.
This is just one dimension. There is another dimension.
We have gone through one period of energy transition.
In 1992, a transition took place in the area of residential heating,
where imported fuel was abandoned, high quality coal, heating oil, etc.
The population largely focused on firewood.
This was a major event.
We haven't got a clue what a major change this was.
As a result, the timber industry almost completely disappeared.
Very important and powerful industry, a large exporter with more than
two hundred thousand workers has practically vanished.
Those people lost their jobs, and nobody had warned them
some 10 or 15 years in advance that something like this would happen.
So, the entire cities, such as Vranje, or Zavidovici in Bosnia, were left
without their industrial basis, making all the people jobless.
Are we threatened with the same scenario with this energy transition?
No, I don't think so. This is not even close.
First, number of people employed in coal mines is incomparably smaller.
Second, those two industries cannot be compared at all.
Namely, wood industry was then, and what is left of it today,
it was completely competitive on the international level.
I mean when it comes to productivity, efficiency, innovation,
sales on various international markets, it was an industry that
exported furniture, exported wooden houses in the USA and Baltic states,
Norway, Sweden, countries of former Soviet Union, of course, Central
European countries, practically throughout Europe...
It exported wood, both processed and unprocessed wood, etc.
The industry was in the zone of international competitiveness.
Unfortunately, the coal industry in former Yugoslavia never reached
that level, so one thing is the power plants that have been built on high
level, and another thing is very, very poor coal resource.
It was of a low quality, with a high sulfur content,
plenty of moisture...
Quite irregular in the geographical sense, of irregular shape,
it was quite difficult to hire large machinery for this purpose.
So, we talk about two utterly different worlds.
We are now talking about the need to replace an industry that does not
have a basis for high productivity with something else that might have
an assumption of being highly productive and efficient.
So, as you just mention in the final part of your expostulation...
What might be that alternative and how would we achieve that
assumption of high productivity, given that in the coal department,
it is quite low, especially compared to the European Union?
Well, that's right.
You see, European Union, in general, had and still has to a larger extent,
quite a big coal industry, although it never reached the level of
productivity that was seen in the USA, or Australia,
South African Republic, countries that are large coal exporters.
In Great Britain, for instance, coal phase out was implemented.
It happened back in the 1980s, with the presumption that this
industry was no longer internationally competitive.
Beware, the best coal industry in Europe back then was phased out,
because it is not competitive enough in international relations.
We are not even close.
We are lagging behind in productivity compared to the Central European
countries, such as Germany and so on...
It goes without saying that compared to world prices and productivity,
we are far behind them. That cannot be changed.
The resource is just like that.
So, what might be an alternative?
Probably, a lot of things.
One dimension is energy efficiency.
The second dimension is actually biomass.
The third dimension is, of course, geothermal energy.
This is an area with abundant geothermal energy compared
to the rest of Europe, competitive with some international resources.
Solar energy and wind are available thanks to geographical circumstances.
There is also hydropower, which is convincingly above average
when we have in mind European circumstances.
So, we have plenty of resources on our disposal, and I had
directed attention many times to the fact that the transition to renewable
energy is actually a transition, that is, an increase in productivity
and an opportunity for economic growth.
When you mentioned biomass and geothermal energy, it is being rarely
mentioned in this concept of energy transition and coal phase out.
The focus is on photovoltaic systems such as solar panels or wind farms.
What is the reason for that? Why this is so neglected?
Listen, the use of geothermal energy, biomass and hydroenergy calls for
major infrustructural interventions. It requires a serious energy policy,
it requires spatial planning, series of serious moves in management,
organizational planning, etc. This isn't a simple procedure.
Installing a small solar panel is much much simpler,
building a wind farm is much simpler as it seemingly requires less
intervention, so there's a difference as to what is simple and what isn't.
Of course, one can always give up development...
This is by far the simplest solution.
In the sense of infrastructure, progress is quite demanding.
The work has to be done, changes must take place,
it requires organizational skills, investing takes quite a long time.
It simply calls for a serious capital investment.
So, if you have a problem with political risk, if you have problem
with insecurity of ownership, with contract uncertainty,
then access to larger amounts of capital is not easy.
The development as category faces with a bunch of problems.
On the other hand, the decline is much more interesting.
When you find yourself in the state administration in a city, municipality,
whatever, and if the deterioration proceeds unhindered...
You keep your job and... -Not just that, there's a lot of
interesting things. There is no water, and something caught fire,
the bridge collapsed, there was a flood, etc.
You always have a problem that needs to be solved,
so the citizens see that you are doing your job.
That is completely fine. From the point of view of the management,
decay is an incomparably more interesting process than progress.
This is quite simple.
You've been busy, so to say. -Along with a much nicer result.
We could say than if we continue to use coal, it will inevitably come
not necessarily to collapse, but to hindering
and slowing down of economic development.
You wrote something along these lines in your article published by
Connecting the Region, where some ten days to big collapse that took place
on June 21, if I remember right, you warned that this might happen.
And it really happened. Can it happen again and can it even deteriorate?
Yes, I wrote that the breakdown of the energy system will happen
and that it will happen again. Of course, it will reoccur.
At this point, there's no reason for something similar not to happen,
possibly with different geographical coverage.
At this moment, the energy system in the region no longer guarantees
a secure supply of energy. This is very vital signal.
Pay attention to what directions and turns that signal takes...
First of all, this signal caused in 2022, right after that big trouble in
Serbia with shortage of electricity, that occured on December 12, 2021,
we had a drastic increase in the price of firewood.
So, the population reacted to the fact that the safe supply of
electricity was not complete, regardless of the fact that
electricity company did an outstanding job at that moment.
So, we experienced a loss of six large blocks at the same time,
there was no collapse of the energy system,
nothing happened that left anyone without electricity.
On the contrary, all departments reacted as expected, and so on.
Nevertheless, the economic signal that security of the energy system
is no longer guaranteed reached the market,
and caused an increase in the price of firewood there.
Most interesting of all, the price of firewood has not decreased
up to the present day. -It remained the same.
In the second half of summer season, we still have high prices of firewood.
So, the signal is still there.
In an article that was published yesterday, it says that with this
heat wave that demands high power consumption for cooling can also
lead to problems in the supply of electricity.
It is also possible. There are several reasons.
All in all, we no longer have a guarantee of secure energy supply.
That signal goes in the direction of potential industry investors.
Experience of previous years says, and that's not small, 20-30 years,
in a situation when there is no gas, when there is no electricity,
the first disconnection is within the industry.
A modern industrial system requires a high degree of responsibility and
reliability, security of deliveries, respecting deadlines and so on.
It is difficult for the industry to do that.
We have a signal in existing power plants.
Not a small number of industries in the region
are looking to somehow solve their energy issue
by applying their own solutions. With solar panels or smaller
cogeneration plants, or the use of wind, and so on...
Anyway, we see that industry is trying to solve its problems,
that might not be the most efficient way to deal with this.
Exactly. So, practically, coal usage will cause new system breakdowns,
which will cause an increase in the price of energy resources,
which is the most common objection to the energy transition.
When you mentioned the solution for the entire industry,
how can sufficient capital be secured to provide for the system,
where will the investments come from?
Is Serbia or the region itself attractive for the investors?
No, here we have the average cost of capital for the Western Balkans,
which is almost twice the European average.
So, interest and capital investment is more expensive than elsewhere
in Europe, regardless of the reasons for that.
And that leads to some consequences... -It means that it is harder to invest.
It somehow favors investments that are cheaper,
that have a lower level of capital involvement,
while these capital-intensive investments face with a problem.
That is evident in all aspects, it is obvious in common households,
which buy the cheapest heating device,
knowing that the efficiency of that device is not the best.
However, the basic investment is lower.
Second, if you put the household in a situation where security of supply
is not ideal, then it will have in the same time firewood stove,
electric stove, TA furnace, heater, and so on...
A single household will have a whole series of different heating devices,
and then they will also buy an air conditioner,
to use it for heating and cooling.
When you have such a situation, then it is very hard to say:
All right, now I have a house, I'm going to introduce serious
air-condition system, let's say with a serious heat pump, and
solve the problem with one major investment, efficiently and neatly.
It doesn't happen often.
The same goes for the industry, it is the same in other aspects,
finally, also on the level of energy system.
In the major energy industry, you have important questions,
such as economy of scale, economy of standardization.
Solutions for both aspects require large amounts of capital.
How can we attract those large amounts of capital?
You said that it is a negative trend, but how to reduce the cost of capital?
I'm going to reiterate again what might seem a heresy.
Former Yugoslavia and the history of development on this terrain,
show that we always needed certain systemic endeavors,
solutions where such a step forward was made in international relations,
which then enabled the engagement of a large mass of capital.
In 1947, one of the first projects of Marshal's plan for Europe was
hydropower in Yugoslavia.
A large financial framework that, in turn, made it possible
to build large hydropower plants.
Without that, it wouldn't be possible.
So, state measures are necessary... -Not only state measures.
International arrangement.
International arrangement took place back in 1971 and 1976,
which allowed investment in the major mines,
and large coal-fired power plants.
There was one international arrangement that provided for
the investment into the field of industry.
A large international arrangement was our reconstruction of energy
system, from 1999 to 2004. It was an international arrangement.
A framework that secured several billions of dollars of investment to
make the whole system operational. -So, that's what we need.
How many investments should come from the private sector, Aleksandar?
Is it a large majority, can this be pushed through the public sector?
I reiterate, we need a neat, major financial framework.
What it should include? It could be composed of private investments,
it may include the engagement of domestic capital...
There's one interesting question which exists here all the time...
We talk in length about energy efficiency, we just mentioned
the problem of energy efficiency of a single household,
we talk much about the renewable energy sources, but on the other hand,
12 billion euros is in savings of the population, with low interest.
There's a logical question: why don't we use part of that funds to invest
into energy efficiency, improving home efficiency,
improving efficiency of the buildings and apartments,
providing a solar panel, or a heat pump, or something like that.
We didn't. So, it is obvious that it's some systemic reason...
So, it's not a matter of mentality but a systemic reason for that?
Absolutely, that's right. And that systemic reason is not specific
only in Serbia, it appeared everywhere, throughout the region.
It exists in Montenegro, in Kosovo, it exists in Bosnia-Herzegovina...
Including North Macedonia, so it's present everywhere.
So, the problem really exists.
You don't have serious projects like green bonds, project bonds and so on,
where domestic savings could be engaged.
Whether international capital market of green bonds and green loans in
banks, which are now a new trend in the financial sector,
where it is often said that they, in a certain sense are pushing energy
transition on a global level, is this perhaps an opportunity for
domestic companies and domestic investments from private sector,
or do you think it is still far away?
It probably is, but only in the context of financial framework.
What comes up, and that's what I wrote about,
when you see what happens in the Central Europe,
you realize that over there the use of financial framework
from the context of EU market of carbon loans, or EU ETS,
EU Emissions Trading System, this financial framework is dominant.
At this point of time this is so, with some tens of billions of euros,
the countries of Central Europe actually use this financial framework
for the investments into renewable energy, etc.
Thank you, Aleksandar. You can briefly touch upon the carbon loans.
Well, first of all, EU ETS market is quite extensive,
in tens or hundreds of billions of euros...
If you get a chance that EU Commission provides you with
free allocation of carbon loan, you can sell it on that market,
you can sell it instantly, you can sell it in advance,
as soon as the price is determined by the market
you got a collateral that could be used for the investments.
This is a big step, or could be a big step for this region.
So, essentially... Sorry for interrupting you...
Essentially, carbon loan is granted for one ton of emissions and
based on its offer, market price is regulated.
Free allocation is to be granted loan without buying it on the market or on
auctions, and if certain company, let's say, electric power industry,
saves some of it, or does not emit this ton...
If it decreases or disrupts the emission, then it can sell what
it managed to save. This is a big step...
But you must understand that this is a kind of state assistance,
and it is essential that it has several important features:
that it has a purpose, that it can be used properly,
to have a greater ambition, in terms of reducing CO2,
than it is presented in official documents at this point in time.
Of course, you must have the appropriate economy and profitability
so that it could make sense altogether...
This is the general direction...
Then again, a large infrastructural undertaking requires a certain degree
of energy policy that enables it. Certain degree of coordination,
spatial plans, property rights, energy policy, and so on...
Simply, neat and organized system with an international framework...
I wouldn't go so far, you know... Economics doesn't recognize
ideally arranged systems. -Of course, nothing is perfect.
But it knows the will to develop. This is of utmost importance.
And it requires one step forward. The prize for doing that is amazing.
You see... If you are in a position at this point in time... Let's see...
All sources of renewable energy, new ones, such as wind, sun,
they make up a small part of the energy balance.
Below 2 percent.
Firewood accounts for 16 percent of the energy balance,
the same goes for other Western Balkan coutries.
Hydropower is beyond that.
This 16 percent of biomass was used with extremely low efficiency,
Equivalent efficiency is negligibly low, below 10 percent...
Compared to what can be done. You can automatically dramatically
increase productivity and efficiency of this resource.
Some cities present good example. Let's say... whatever city you want.
I have done research on several cities in the region.
So, the city has some district heating, part of the city is covered
with it, another part of the city is heated with firewood.
You see how much firewood that is, and you realize that with that mass
the whole city could be heated, and create surplus of electric energy.
This is such a huge step.
You don't spend more than you have so far,
but you're getting many times greater result.
Energy efficiency is one of the most important steps...
Exactly, but this is systemic energy efficiency, which is not connected
to a single object, it is happening at the level of the energy system.
I would like, Aleksandar, to talk about businesses.
When we talk about phase out or energy transition, this is always
one of the major issues, apart from the high cost, how many jobs are
are threatened in the Western Balkans by this energy transition
and with the coal phase-out, directly or indirectly?
I look at this from a different perspective.
If you have a mine, it doesn't matter which one,
the situation is similar.
And you set as target that the mine has productivity similar to
the mine in Central Europe.
On an international scale, it is not spectacular...
I will replace mining technology, I will lead mine in good direction,
and I will try to make as cheap a product as possible.
90 percent of employees ends up jobless.
A high productivity mine, this quantity of tailings and coal
can dig by using 10 percent of manpower compared to that moment.
This was done, we had similar situations throughout the region.
Without major problems, number of employees was drastically reduced.
It was increased again later, but that is not the point now.
This is one situation.
Another situation: what happens when those people start another job?
If they take up the business involving biomass, geothermal energy,
hydroenergy and so on...
The same thing happens. 10 percent of manpower
remains in the mine, there's work to be done regarding
reorganization of that area, but another 90 percent can
get a qualified good job. -Do they need to do something?
Do they need additional qualification, retraining, is it possible to do that?
This is intensive, to certain extent, but we should perceive it differently.
As we've seen in some of the countries of Central Europe,
very often so-called 'just transition' performed by European Commission,
means that people lose jobs, looking for other solutions for them
in the form of small and medium-sized companies,
re-training programs, etc.
Watch out, a disciplined large industrial organization is being lost.
We cannot afford such luxury.
The organization that is existent, large companies with thousands
of employees, there's lots of work in infrastructural equipment of biomass,
in infrastructural equipment of biothermal energy, hydroenergy...
This calls for serious organization, so we should not easily allow
a disciplined, industrial organization to fall apart like that.
It can be improved, it can reach a higher level of productivity and
efficiency, and it can surely be an engine of development for
the countries in the Balkans. -This is rather interesting.
So, in general, along with big infrastructural projects and
investments, and with retraining of manpower, we have a chance
to re-employ them, and to achieve economic development at that level
and simply to replace coal with some other energy sources.
I would say this: let's employ those people purposefully,
taking a modern approach to the territory.
This is very demanding, in terms of technical and technological
and organizational perspective.
Starting from computer models, drones, land analysis,
use of territories, in one way or another,
along with design, planning, construction of infrastructure,
those are works that are technologically demanding,
the same or more, let's say, than lignite mining now.
There's a good term in English: upskilling, improvement of skills,
but also improving the skills of industrial organization.
So, I would mind if industrial organization is being destroyed,
leading to the production of smaller organizations, that's not the way.
Big corporation has its advantages, and you cannot make it easily.
You cannot destroy one organization in order to make similar smaller ones.
So, just transition in the region is possible, but not in a way it is
done in the EU, but in some other ways.
That's right, European Union has many differencies, first of all,
such high concentration of hydropower doesn't exist anywhere in Europe.
It also goes for hydro-thermal resources.
There is no combination of those circumstances anywhere,
nor such a high level of yield in biomass production,
and of course, cross-connections between all those sectors.
The Balkan region is a reservoir of biodiversity,
on a European scale, that should not be forgotten.
In other words, the regulation of the territory requires serious
interventions, compared to the level of biodiversity, and productivity that
this territory offers, we have unusually few protected areas.
Finally, the question of hydroenergy...
We are talking about the construction of hydropower plants in Serbia and
Bosnia-Herzegovina, in Montenegro, new hydropower plants are mentioned.
It is always about large objects, and it is always about the fact that
they, first with their size, and then with their economic capabilities,
surpass the size of the countries where they are located.
It means that again we are talking about some kind of framework
involving European Union, so we need an agreement
on how we will trade electricity with the European Union.
As we are nearing the end of this episode, maybe we could
just touch upon the issue of digging lithium in the Republic
of Serbia. So, do you think that it is possible to perform energy
transition without this resource, and whether we have energy
enough to open up this mine?
Listen, Balkan is rich in diverse mineral resources
such as copper, aluminum, lithium, among others,
chrome, ferronickel, and other ones...
All of these resources call for major quantity of electricity,
in order to be processed, followed by lots of energy
for some purposeful use. If you are going to produce
something, such as batteries, cars, no matter what.
We witness that the production of aluminum has practically died.
There is no electriticy for this kind of purpose.
We have witnessed that copper production is maintained with
a lot of effort and it's not able to pay commercial price of electricity.
In whatever direction one thinks, it again requires a macro solution.
Both spatially and traffic-wise, and in terms of energy efficiency,
cost productivity and so on. You can always give it a try
to outsource the problem of energy security,
to contract it with someone else. You say that you have some great
friends that will deliver to us it doesn't matter what exactly.
Coal, oil, gas, it doesn't matter. That won't happen.
Energy security must be ensured first of all with domestic resources,
then energy trade should help to use that resource more efficiently.
You cannot give up the use of domestic resources
and hope for economic growth in the same time.
As we are going to wrap up this episode, I wonder if you have
something to share with our audience, summarizing all
that we've discussed today, with the focus on the last sentence,
do we have enough natural resources and renewable ones, renewable
sources of energy in order to replace coal, ensuring economic development?
Well, yes, of course, entire region has above-average quality resources
compared to the rest of Europe. So, yes, by all means...
A new development context can be provided quite efficiently here,
which would then enable everything else, in terms of energy use,
whether in the mineral industries, whether in the wood industry,
whether in the production of any other industrial product,
or in something that today is very energy demanding.
So, if you want an IT industry, which cannot be imagined without
large computer centers, which are today large energy consumers...
So, we have all preconditions, I have even mentioned on several
occasions that this is an area which has a high competitive advantage
for computer center compared to the rest of Europe, for various reasons.
We can say that coal phase out in this region can lead to economic progress.
Coal has already been practically abandoned by natural circumstances,
the facilities are old, almost obsolete,
a good part of the mine is practically outdated.
There are certain combined facilities, meaning pretty good mine, accompanied
by a really bad facilities, or a bad mine, with a relatively good facility,
but you don't have good mine and good electric power plant.
We don't have that in the region.
So, we can say that we are in the natural process and that
it is a necessity... -Yes, but that results in
a huge problem of energy security.
We have to face a very big problem of energy security.
Thank you, Aleksandar, we finish today's episode.
I am glad that I hosted you in this episode.
I'm looking forward to seeing you on some forthcoming occasion.
Produced by New Magazine
Supported by Open Society Foundation for Western Balkans