Italy-Balkans Interconnection To Prove Mutually Beneficial

BMI View: Large-scale Italian investment in the Balkan s' power infrastructure, particularly in Montenegro, m ay soon start to pay off now the EBRD is advancing the establishment of the necessary submarine cables needed to transport electricity to Italy. Such investment supports our positive outlook on the Balkan power sector and will help Montenegro bring online the power needed to support economic growth . Italy will benefit from import ing cheap , green energy produced from some of the Balkan' s many renewable energy source s - help ing it meet its 2020 emissions goals.

The development of a power transmission corridor between Italy and Montenegro is advancing after the European Bank f or Reconstruction and Development (EBRD) agreed to provide a EUR60mn loan for a power transmission line project in the small Balkan state. The project , which will put in place the infrastructure to support a wider scheme to establish a 415km transmission line to connect the Jaz peninsula in Montenegro with Villano va in Italy , is indicative of a broader trend of cooperation between Balkan states and Western Europe in the power sector.

T his latest development in Italian-Montenegrin energy relations supports our long-held view that there is a great deal of potential for joint development in power infrastructure - to support electricity trade between the Western Balkan region and some of Europe's more mature power markets. We believe there are numerous factors driving this cooperation; not least Italy's efforts to source cheap electricity and meet its 2020 European emissions targets by importing electricity produced from renewable sources in the Balkans.

To this end, s ome of Italy's biggest utilities , including grid operator Terna (which owns 22% of Montenegro's state controlled transmission company CGES ), have moved into the Balkan markets in recent years, motivated by opportunities to produce electricity at a lower cost (because production costs are not as high) and then export it to back to Italy via undersea cables, where it can be sold to consumers at higher price s .

Furthermore, Italy desire to tap electricity produced from many of the new renewable energy projects stems from its admission that it is one of five EU countries that cannot meet its 20-20-20 goals without buying renewable energy from a third-party country . As such, it has said it would invest in the necessary infrastruct ure abroad and import the electricity from the likes of Montenegro and its Balkan neighbours , which are keen to reap the rewards of such investment and diversify their energy mixes. In Montenegro, dams on the Morava river and the electricity produced from them, have garnered significant Italian interest , and are a key source of renewable energy generation.

Hydropower Proliferates
Montenegro - Generation Capacity Mix, 2010

Thus far, Montenegro has certainly profited from such cooperation . Montenegro has enjoyed the benefits of significant Italian investment in its transmission and distribution (T&D) infrastructure, which is helping the country meet growing demand and diversify its energy mix. Montenegro's electricity mix is currently overly-reliant on hydropower (accounting for around 70% of the country's installed capacity) and thermal sources, mainly lignite. Consequently, capacity expansion and diversification will be needed to meet growing demand (driven by robust GDP forecasts), and Italy is well placed to help the Montenegro achieve this goal. Furthermore, investment is being channelled into renewables (such as hydropower, although BMI does not categorise hydropower as a renewable energy source) which will help the country meets its own emissions targets and gain accession to the EU (Montenegro has EU candidate status).

However, while such cooperation can be seen as mutually beneficial, there are certainly some risks that stem from accepting such large-scale investment from Italy. Some of these concerns have alread y started to materialise, with many Montenegrins fearing that Italy has achieved monopoly status over the country's domestic power sector, thus gaining political leverage. Furthermore, fears have been raised about the environmental damage that has been caused by investing in controversial hydropower projects.

This article is tagged to:
Sector: Infrastructure, Power
Geography: Italy, Montenegro, Italy, Montenegro, Montenegro

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