BMI View: News that US renewable energy company Continental Wind Partners is seeking out opportunities in the Balkan states - primarily Croatia and Serbia - is indicative of a wider trend at play within the region. Not only does the Balkan region have positive natural geographic conditions that are cond ucive for wind power generation; but the uncertain subsidy programmes for renewables and sluggish economies prevailing elsewhere in Europe have led some developers to examine the potential in the Balkan states' wind markets (Croatia, Serbia, Montenegro, Macedonia, Bosnia, Albania, Kosovo).
We believe Serbia and Croatia present the most promising opportunities for investment for the following reasons:
We have long-highlighted our constructive outlook for Serbia's power sector and we believe investment will continue to be channelled into it (see our online service, October 10 2012, 'Italy's Growing Interest Supports Constructive View'). Serbia's power industry is the largest in the Balkans (in terms of total generation); however the country's electricity mix is overly reliant on hydropower and thermal sources, chiefly lignite. Not only does this expose the country to energy security risks, but also contributes to Serbia's high carbon intensity.
|In Need Of Diversification|
|Total Electricity Generation (TWh), By Balkan Country*, 2010|
With EU accession on the cards (Serbia was granted EU candidacy status on March 1 2012), the country will need to diversify its power mix if it is to successfully meet the stringent renewables and carbon emission guidelines outlined by the EU. Serbia has adopted an attractive feed-in-tariff programme for renewables and this has seemingly encouraged investors; as according to the European Wind Energy Association (EWEA) the wind project pipeline reached 2.6GW in 2011. That said, there are currently no operational wind farms within the country and the first is expected to go online in 2014/2015. Continental Wind Partners has stated that it plans to invest US591mn over the next four years into two wind developments in the country, with a combined total capacity of 300MW.
Croatia is the only county in the region that has developed a domes tic wind sector. A ccording to the EWEA , Croatia installed 48MW of capacity in 2012, taking its total wind installed capacity to 180MW by end-2012. The majority of the wind capacity is located along the Adriatic coast, where wind speeds are particularly high.
Croatia, which is set to become an EU member state in July 2013, has ambitious renewable energy intentions. The government has introduced a target of achieving a 35% renewable energy share to total electricity consumption by 2020, and according to the EWEA has a 4.7GW project pipeline for wind power projects. We believe Croatia's imminent EU credentials and the subsidy schem e (feed-in-tariff programme) implemented by the government in 2007 will help drive the industry's growth and encourage investment. Continental Wind Partners state that it is currently developing a 100MW wind project in the Lika region of the country.
But Risks Aplenty
Despite these positive developments, there are still a number of risks that are likely to arise and hi nder the industry's development. For instance, red tape and delays with the bureaucratic process of developing projects feature among the most prominent risks . The lengthy procedure of obtaining permits (usually three to four years) in Croatia has delayed projects significantly and we expect developers to face similar difficulties in other countries in the region .
Many of the Balkan states (including Croatia, Serbia, Bosnia, Macedonia and Albania) do offer subsidy programmes for renewable energy developers . However, it remains to be seen whether the respective governments will be able to create stable regulatory frameworks that will be sustainable over time, whilst avoiding dramatic increases in power bills. In order to achieve steady growth, the se countries will have to avoid similar mistakes made by other European peers, notably Czech Republic, Romania , Germany ) who set subsidies unfeasibly high, which were then impossible to sustain, particularly in the sluggish economic climate.