SEA Montenegro Energy Strategy

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DRAFT STRATEGIC ENVIRONMENTAL ASSESSMENT REPORT SEA OF THE MONTENEGRO DRAFT ENERGY STRATEGYPrepared for UNDP Montenegro And the Government of Montenegro by Land Use Consultants August 200714 Great George Street Bristol BS1 15RH Tel: 01179 291 997 Fax: 01179 291 998 [email protected] of the Montenegro draft National Energy Development StrategyiSEA of the Montenegro draft National Energy Development StrategyCONTENTSAcknowledgements.........................................

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DRAFT STRATEGIC ENVIRONMENTAL ASSESSMENT REPORT SEA OF THE MONTENEGRO DRAFT ENERGY STRATEGY

Prepared for UNDP Montenegro And the Government of Montenegro by Land Use Consultants August 2007

14 Great George Street Bristol BS1 15RH Tel: 01179 291 997 Fax: 01179 291 998 [email protected]

SEA of the Montenegro draft National Energy Development Strategy

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SEA of the Montenegro draft National Energy Development Strategy

CONTENTS
Acknowledgements................................................................................................................................... vii SEA Project team ...................................................................................................................................... vii

1. Non technical summary...................................................................... 9 Part One - Context ................................................................................. 11 2. Introduction ....................................................................................... 13
Terms of reference...................................................................................................................................14 Specific objectives of the engagement ..................................................................................................14 Approach.....................................................................................................................................................15 Montenegro law on sea ...........................................................................................................................15

3. Methodology ...................................................................................... 17
Introduction................................................................................................................................................17 Stages in the Pilot SEA .............................................................................................................................18 Stage 1 Scoping Stage ................................................................................................................................................ 18 Stage 2 Analysis and Assessment............................................................................................................................ 18 Content of the SEA Report ....................................................................................................................19 Assessment of Impacts.............................................................................................................................19 Sustainability Criteria ...............................................................................................................................20 Environmental and Socio-Economic Criteria......................................................................................23

4. Context to the strategy .................................................................... 27
Introduction................................................................................................................................................27 Geographical and Environmental Baseline...........................................................................................27 Setting ..........................................................................................................................................................27 Land Cover.................................................................................................................................................28 Hydrology ...................................................................................................................................................29 Flooding and water resources................................................................................................................30 Geo-seismic conditions............................................................................................................................31 Transport ....................................................................................................................................................31 Protected Areas ........................................................................................................................................31 Biodiversity .................................................................................................................................................34 Environmental Institutions ......................................................................................................................35 Areas of specific environmental pressure............................................................................................36 Climate change.............................................................................................................................................................. 39 Energy supply and demand......................................................................................................................39 Production ....................................................................................................................................................................... 39 Hydroelectric power..................................................................................................................................................... 40 Thermal power.............................................................................................................................................................. 41 Biomass ........................................................................................................................................................................... 41 Solar.................................................................................................................................................................................. 42 Wind................................................................................................................................................................................. 43 Other renewables ......................................................................................................................................................... 44 Transmission and distribution ................................................................................................................................... 44

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SEA of the Montenegro draft National Energy Development Strategy Energy efficiency ........................................................................................................................................................... 45 Oil Derivatives................................................................................................................................................................ 45 Trade in energy products ........................................................................................................................................... 45 Consumption .................................................................................................................................................................. 46 Energy pricing ................................................................................................................................................................ 47 Economic Considerations .......................................................................................................................48 Employment ................................................................................................................................................................... 49 Industry............................................................................................................................................................................ 50 Privatisation of energy intensive industry ............................................................................................53 Social considerations ................................................................................................................................54 Regional context........................................................................................................................................55 Clean Development Mechanism (CDM)..............................................................................................58 Energy Efficiency ........................................................................................................................................58 Moving to a Single Market.......................................................................................................................58 Regional Infrastructure Development ..................................................................................................59 Oil and Gas.................................................................................................................................................59 Other Renewables ....................................................................................................................................60

5. The Draft Energy Development Strategy ...................................... 61
Introduction................................................................................................................................................61 Development of the Strategy .................................................................................................................61 Introductory Sections ..............................................................................................................................61 Recent Trends in the Energy Sector.....................................................................................................62 Underlying Assumptions for the Strategy............................................................................................62 Energy Development Strategy................................................................................................................62 Hydro-Potential.............................................................................................................................................................. 62 Coal Resources .............................................................................................................................................................. 63 Liquefied Petroleum Gas (LPG)................................................................................................................................. 63 Other Renewables ........................................................................................................................................................ 63 Development of Energy Sources ...........................................................................................................63 Electrical Power ............................................................................................................................................................. 63 LPG, Natural Gas and Oil Supplies ......................................................................................................................... 64 Central Heating Schemes .......................................................................................................................................... 64 Other Renewables ........................................................................................................................................................ 64 Alternative Nuclear Option........................................................................................................................................ 65 Import /Export of Electrical Energy......................................................................................................................... 65 Development of Power Transmission System ...................................................................................................... 65 Development of Power Distribution System ......................................................................................................... 65 Total Energy Balances ..............................................................................................................................65 Environmental Protection .......................................................................................................................65 Energy Infrastructure and Spatial Planning ..........................................................................................65 Investment Promotion Costs and Financing .......................................................................................66 Other Strategy Elements .........................................................................................................................66 Electricity Prices and Poverty Reduction................................................................................................................. 66 Price Policy ...................................................................................................................................................................... 66 Key Industrial Consumers .......................................................................................................................................... 67 Local and Regional Energy Market ......................................................................................................................... 67 Accession to EU............................................................................................................................................................. 67

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SEA of the Montenegro draft National Energy Development Strategy Development, Research and Education................................................................................................................. 67 Public Awareness and Communication .................................................................................................................. 67 Implementation..........................................................................................................................................67 Recommendations and Conclusions from the draft Energy Development Strategy .................68

6. Relevant Plans and Programmes..................................................... 69 7. Commentary on Energy Technologies ........................................... 71
Introduction................................................................................................................................................71 Coal Thermal Energy................................................................................................................................71 Electricity generation from coal................................................................................................................................ 71 Economic Issues ............................................................................................................................................................ 72 Environmental impacts ............................................................................................................................................... 72 Cofiring of biomass with coal .................................................................................................................................... 73 Clean Coal Technology (CCT)................................................................................................................................... 73 Mining of coal deposits ............................................................................................................................................... 74 Hydroelectric Power................................................................................................................................75 Economic......................................................................................................................................................................... 75 Environmental................................................................................................................................................................ 76 Social ................................................................................................................................................................................ 78 Energy from Waste...................................................................................................................................78 Economic......................................................................................................................................................................... 78 Environmental................................................................................................................................................................ 79 Liquefied Petroleum Gas .........................................................................................................................80 Wind Power ...............................................................................................................................................81 Economic......................................................................................................................................................................... 81 Environmental................................................................................................................................................................ 82 Social ................................................................................................................................................................................ 83 Bioenergy ....................................................................................................................................................84 Economic......................................................................................................................................................................... 85 Environmental................................................................................................................................................................ 86 Social ................................................................................................................................................................................ 87 Solar Energy................................................................................................................................................87 Economic......................................................................................................................................................................... 88 Environmental................................................................................................................................................................ 90 Social ................................................................................................................................................................................ 90 Other Renewables ....................................................................................................................................90 Ground Source Heat Pumps ..................................................................................................................91 Air Source Heat Pumps ...........................................................................................................................91

Part two - assessment............................................................................. 93 8. Strategy Evaluation ........................................................................... 95
Introduction................................................................................................................................................95 Objectives of the Strategy.......................................................................................................................95 Components of the Strategy ..................................................................................................................95 Preliminary Notes (1.)..............................................................................................................................96

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SEA of the Montenegro draft National Energy Development Strategy Introduction (2.) ........................................................................................................................................96 Main Strategic Commitments (3.) .........................................................................................................96 Strategy Development Background (4.)............................................................................................ 100 Energy Sector 1990-2004 (5.) ............................................................................................................. 100 Key Assumptions for the Strategy (13.)............................................................................................ 102 Energy Development Strategy (7.) ..................................................................................................... 104 Environmental Protection (8.)............................................................................................................. 104 Investment, Promotion, Costs and Financing (9.)........................................................................... 105 Other Strategy Elements ...................................................................................................................... 105 Strategy Implementation....................................................................................................................... 106 Conclusions of the Green Paper ........................................................................................................ 107

9. ‘Do-nothing’ Option ........................................................................ 109
Introduction............................................................................................................................................. 109 Description of Possible Trends........................................................................................................... 109 Balance of Supply and Demand ........................................................................................................... 110 Energy Efficiency and Conservation ................................................................................................... 111 Constraints on Development.............................................................................................................. 112 Economic Effects .................................................................................................................................... 112 Social Effects............................................................................................................................................ 112 Environmental Effects............................................................................................................................ 113 Review ...................................................................................................................................................... 113

10. Moderate construction scenario .................................................... 115
Introduction............................................................................................................................................. 115 Components of the Moderate construction scenario................................................................... 116 Assessment.............................................................................................................................................. 117 Thermal Electricity................................................................................................................................. 118 The Moraca System...................................................................................................................................................119 Safeguarding the Tara River ...................................................................................................................................125 Komarnica Hydro Power Plant ...............................................................................................................................127 Oil and Oil Derivatives ......................................................................................................................... 127 Small Hydro............................................................................................................................................. 130 Communal Heating Systems and Cogeneration.............................................................................. 131 Other Renewables ................................................................................................................................. 131 concluding remarks................................................................................................................................ 132

11. Other Construction Options.......................................................... 133
Introduction............................................................................................................................................. 133 Part one – Limited construction Scenario........................................................................................ 133 Assessment of the Electrical Component of the Strategy ............................................................ 134 Security of Supply .......................................................................................................................................................135 Economic growth rates and final energy consumption ...................................................................................135 Energy Savings and Energy Efficiency ..................................................................................................................136 Environmental Benefits .............................................................................................................................................136 Additional Sources to augment the N-1 Construction Scenario ...................................................................136 Part Two Expanding Limited Construction Scenario Options A and B............................. 137

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SEA of the Montenegro draft National Energy Development Strategy Option A .................................................................................................................................................. 137 Option A + B .......................................................................................................................................... 139 Part Three Enhancing the Limited Construction Scenario Option C............................... 141 Wind Energy............................................................................................................................................ 141 Biomass..................................................................................................................................................... 142 Energy from Waste................................................................................................................................ 145 Solar .......................................................................................................................................................... 145 Summary of Contribution from Other Renewables ...................................................................... 148

12. Approach to Mitigation................................................................... 151
Introduction............................................................................................................................................. 151

13. SumMary of Findings....................................................................... 153
Conclusions ............................................................................................................................................. 153 Support for the Energy Development Strategy............................................................................... 153 SEA Findings do not support aspects of suggested Draft National Energy Development Strategy..................................................................................................................................................... 153 Reducing Energy Losses and increasing Energy Efficiency............................................................. 153 Balancing Supply and Demand for Energy ........................................................................................ 155 Making better use of existing facilities.................................................................................................................155 Use of Renewable Sources: .....................................................................................................................................156 Developing New Energy Sources ....................................................................................................... 157 Developing Alternative Approaches to Energy Supply.................................................................. 159 Unproven Technology................................................................................................................................................160 Cautious Investors ......................................................................................................................................................160 Timescales ....................................................................................................................................................................160 Strength of the Economy..........................................................................................................................................162 Recommendations ................................................................................................................................. 163

14. The decision-making process ......................................................... 165
Introduction............................................................................................................................................. 165 review of basic assumptions ................................................................................................................ 165 nature of the strategic decisions......................................................................................................... 167

BIBLIOGRAPHY ................................................................................... 171 GLOSSARY............................................................................................ 178 Appendices............................................................................................. 181
Appendix 1: SEA Methodology .............................................................................................. 183 Introduction............................................................................................................................................. 191 Initial Response to the Key Issues (19 July 2007) ........................................................................... 192

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SEA of the Montenegro draft National Energy Development Strategy

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SEA of the Montenegro draft National Energy Development Strategy

ACKNOWLEDGEMENTS
This SEA Environmental Report has been written by the project team led by Land Use Consultants and its findings and recommendations are the product of an independent assessment. As such, the responsibility for all factual errors and the nature of its conclusions rests entirely with the authors. Nevertheless, the SEA could not have been undertaken without the help of a large number of individuals in Montenegro who have provided information and references, and who have discussed the underlying issues with the project team. Their help and advice is greatly appreciated. The decision to commission the SEA was taken by the Government of Montenegro and UNDP Montenegro and demonstrates a very positive and open approach towards the adoption of the Energy Development Strategy and the encouragement of public discussion and debate about the issues involved which are sometimes controversial. This approach is strongly commended

SEA PROJECT TEAM
Peter Nelson MA, MSc, DipTRP, MRTPI Principal: Land Use Consultants; Environmental Resource Planner – Project Director Sarah Young BA, MSc Associate: Land Use Consultants; EIA Planner and Energy Specialist Ian Byrnes MA, MEI Deputy Director: UK National Energy Foundation; Chartered Accountant and Energy Efficiency Expert Matthew Ryder HNC(Eng), BA, MSc, Consultant: Land Use Consultants; Engineer and Environmental Economist Jorg Frehhof PhD Scientist: Institute of Freshwater Ecology and Inland Fisheries, Berlin; Biologist and Fisheries Expert

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SEA of the Montenegro draft National Energy Development Strategy

1.
1.1.

NON TECHNICAL SUMMARY

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SEA of the Montenegro draft National Energy Development Strategy

PART ONE - CONTEXT

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SEA of the Montenegro draft National Energy Development Strategy

2.
2.1.

INTRODUCTION
This document is the Strategic Environmental Assessment (SEA) relating to the Montenegro Draft Energy Strategy. The report has been prepared in accordance with international good practice, including the requirements of the EU SEA Directive (2001/42/EC), and also takes account of the Montenegro Law on Strategic Environmental Assessment which is due to take effect on 1 January 2008. The title, role and content of the ‘Environmental Report’ are defined by the EU Directive, and its scope is wider than purely the consideration of environmental issues. An SEA is required to consider the significant environmental effects of a plan or programme (including strategies) within their wider social and economic context; in the light of other relevant policies, plans and programmes and against the background of reasonable alternatives. Thel Report is divided into three parts: Part One sets out the methodology of the SEA, the environmental, social and economic context to which the draft Energy Strategy relates and a summary description of the strategy. It also discusses the characteristics of each of the main energy technologies that are under consideration and the policy context within which the Energy Strategy is set. Part Two contains the assessment. It begins with a review of the principle commitments and objectives of the Strategy and then considers what the situation might be like if nothing were done to manage and develop the energy resources of Montenegro. This is referred to as the ‘do-nothing’ option and provides the benchmark against which the effects (both positive and negative) of other scenarios can be evaluated. A description of the scenario based on ‘moderate’ construction of new facilities follows. This is based on medium growth projections for energy demand and moderate development of gas markets1 . Important components of this scenario are plans for new thermal and large hydro power plants. The next chapter considers what is described as a ‘limited construction scenario’ involving principally thermal power expansion and no new large hydro power schemes. This scenario aims to satisfy a lower energy demand growth rate2. Later parts of the chapter explore what additional facilities could be introduced to augment this option. The Report includes a chapter on the approach to avoiding or mitigating adverse impacts and enhancing beneficial effects of different scenarios, followed by a summary of findings and recommendations. Part Three discusses the next steps in decision–making and public consultation and introduces some thoughts on requirements for future monitoring of the strategy’s implementation programme.

2.2.

2.3.

1

The combination of moderate construction, medium growth in demand and moderate development of gas markets is referred to as Scenario S2 2 The limited construction programme, low growth in demand and moderate development of gas markets is referred to as Scenario S1

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SEA of the Montenegro draft National Energy Development Strategy

TERMS OF REFERENCE
2.4. The terms of reference for the SEA were set by UNDP Montenegro in discussion with the World Bank. The basic objective of the assignment has been to prepare a pilot Strategic Environmental Assessment (SEA) for the Draft Energy Strategy of the Republic of Montenegro, henceforth referred to as ‘the Strategy’. The specific requirements were outlined as follows: “The Pilot SEA is expected to provide an assessment of environmental implications of the solutions (development actions) proposed in the Strategy, which will contribute to the public discussion and decision-making processes. The pilot SEA process will also include measures to avoid, reduce or mitigate any potential negative environmental (and associated socioeconomic) impacts of the Strategy, suggestions for alternative energy solutions and making concrete recommendations regarding the preferred course of action. It should identify institutional responsibilities and provide an estimated cost for implementing the proposed measures, and should include monitoring measures to track implementation and impacts of the measures”.

Specific objectives of the engagement
2.5. The SEA has been designed to undertake the following tasks: • • • Make an assessment of the energy needs of Montenegro, especially in the light of privatisation of large industry. Produce an SEA report which provides relevant information to support decision making in finalising the Strategy and the Action Plan; Indicate how potential negative impacts of proposed solutions (taking into consideration external costs and relevant EU Directives) within the Strategy should be avoided, reduced or mitigated; Based on the SEA findings, provide suggestions for alternative energy solutions in the Energy Strategy which would result in reduced environmental impact with special emphasis on cost of savings versus cost of new production. Raise awareness and appreciation within Montenegro regarding the purpose and practice of SEA.





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SEA of the Montenegro draft National Energy Development Strategy

Approach
2.6. The detailed brief for the SEA specified that: • The consultant team will be responsible for designing and carrying out a pilot SEA on the Draft Energy Strategy, consistent with the Montenegrin SEA Law and in line with international good practice. The SEA preparation will be aligned with the development of the Strategy as much as possible, both in terms of timing and process. The SEA work will be based on the available draft of the Strategy. The SEA will focus on certain aspects of the Strategy, which are expected to have the most significant environmental implications. The SEA will review the proposed solutions in these areas, assess their environmental (and where relevant social and economic) impacts and propose appropriate courses of action to avoid, reduce and/or mitigate negative impacts and enhance positive ones. The SEA will also assess and compare the likely impacts of the alternative proposals, identify (with estimated costs) the mitigating measures that would be needed for each alternative, and make concrete recommendations regarding the preferred course of action, from an environmental and sustainability perspective. The SEA will thus provide information and insight to help inform the public discussion of these alternatives and facilitate/enable decision-making leading to the final Energy Strategy document. The consultant team (or selected members) will work closely with UNDP to present findings of the SEA to the public. The purpose is to ensure that the information, findings and recommendations of the draft SEA become an important input into the public discussion of the Strategy.









MONTENEGRO LAW ON SEA
2.7. Montenegro’s SEA legislation was approved by parliament in August 2005 and will come into effect from January 2008. Although the SEA is not formally required under existing legislation, the Government of Montenegro agreed with UNDP that it would be instructive to undertake a Pilot SEA of the Draft Energy Strategy, and the approach has reflected the requirements of the new Law on Strategic Environmental Assessment (SEA). The following description is only a summary of key points and the full text of the law should be consulted where necessary. Article 1: sets out the aim of the Law which is to introduce the regulations governing conditions, methods and procedures for undertaking SEA of plans and programmes that have significant impact on the environment. Article 2: describes the objectives of SEA as follows: 1) Providing for environmental issues, including human health, to be fully taken into consideration in the development of plans and programmes;

2.8.

2.9.

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SEA of the Montenegro draft National Energy Development Strategy 2) 3) 4) 5) Setting of clear, transparent and efficient procedures for strategic assessment; Providing for public participation; Providing for sustainable development; Improvement of the level of protection of human health and the environment.

2.10. Article 3: lays down five principles of strategic assessment as follows: 1) 2) Principle of Sustainable Development, which includes environmental protection and the rational use of natural resources; Principle of Integration, which includes environmental protection conditions within appropriate sectoral and inter-sectoral programmes or plans; Precautionary principle: to prevent or reduce negative impacts of plans and programmes on the environment before their adoption, providing for rational use of natural resources and minimising the risk to human health, the environment and material resources. Principle of hierarchy and co-ordination: emphasises the importance of assessment at different hierarchy levels, and the engagement of relevant authorities and organisations in approving the SEA and consultation. Principle of public character of work: ensuring the openness of the process of preparing, enacting and adopting plans and programmes and giving the public access to information.

3)

4)

5)

2.11. Articles 4, 5 6 and 7: explain the role of the competent authority in implementing SEA procedures, and the types of plan and programme covered by the legislation and the meaning of terms. 2.12. Article 8: sets out three stages to SEA; the initial identification of need for SEA, the Scoping Stage and the decision on granting approval for the SEA Report. 2.13. Articles 9-28 set out detailed provisions for the conduct of, and decision on, the SEA, while Article 29 confirms the coming into force of the regulations. 2.14. Although this SEA is being undertaken under terms of reference set by UNDP Montenegro, the basic principles, specific criteria and basic contents of the SEA are designed to conform with Articles 2, 3, 8, 9, and 15.

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SEA of the Montenegro draft National Energy Development Strategy

3.

METHODOLOGY
INTRODUCTION

3.1.

The Role of SEA is to make an objective and impartial examination of the facts relating to the subject matter and to assess the social, economic and environmental issues that are raised. As the name of the process implies, SEA seeks to highlight environmental concerns since these are often omitted from other evaluation techniques. However, in the increasing complexity of the modern world such environmental concerns can only be understood if they are placed in the wider context of the macro-economic and political circumstances in which strategic decisions need to be taken. An important element of the SEA is to ensure that the environmental implications of particular development options and actions contained within the Strategy are assessed and presented in such a way that they can contribute to public discussion and debate and the eventual decision-making process. The Pilot SEA is modelled on international best practice and includes measures for avoiding, reducing or mitigating any potential adverse effects of the Strategy. In addition to reviewing the specific proposals contained in the Strategy, the pilot SEA develops suggestions for alternative energy solutions and makes concrete recommendations for appropriate action. The responsibilities of different institutions for delivering an effective energy development strategy are identified together with estimated costs for implementing the proposed measures. An outline monitoring programme has also been prepared to track the implementation of the strategy and the effectiveness of the Pilot SEA recommendations. For the purposes of this assignment the approach to sectoral SEAs outlined in OECD-DAC’s recently published guidelines on SEA has been adopted. A full description of the methodology is included in Appendix 1. The following summary outlines the stages to be followed for the Pilot SEA of the Strategy • • • • • • • • Determine the scope of the SEA Establish participatory approaches to bring in relevant stakeholders including the weak and most vulnerable Collect baseline information Analyse the potential effects of the proposals and any alternatives Identify measures to enhance opportunities and mitigate adverse impacts Draft report on the findings of the SEA Public engagement on the draft SEA report Prepare final SEA report.

3.2.

3.3.

3.4.

3.5.

Individual sections and chapters of the SEA report cover • the key impacts for each alternative;

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SEA of the Montenegro draft National Energy Development Strategy • stakeholder concerns including areas of agreement and disagreement, and recommendations for keeping stakeholders informed about implementation of recommendations; the enhancement and mitigation measures proposed; the rationale for suggesting any preferred option and accepting any significant trade-offs; the proposed plan for implementation (including monitoring); the benefits that are anticipated and any outstanding issues that need to be resolved; guidance to focus and streamline any required subsequent SEA or EIA process for subsidiary, more specific undertakings such as local plans, more specific programmes and particular projects.

• • • • •

3.6.

The SEA has been based entirely on existing data and has not involved undertaking new surveys. In addition to considering available information on the Draft Energy Strategy, the SEA has taken account of the relevant influences of European policy (and developments within the South-East European market) on the energy sector in Montenegro. While the basic methodology has been that produced by OECD-DAC, the final SEA Report is written in accordance with EU requirements for the ‘Environmental Report’ specified in Annex 1 of the EU SEA Directive3.

Stages in the Pilot SEA
Stage 1 Scoping Stage 3.7. An initial scoping exercise was undertaken which involved: • • • • Reading and analysing the content of the Strategy (Shortened English Version), Collecting relevant baseline information and other reports on energy demand and supply published in English, Undertaking site visits to existing and proposed energy installations to provide the context for the SEA Highlighting those priority sections of the Strategy requiring immediate attention through the SEA process and presenting these in summary form with recommendations for analysis and assessment, in a short Scoping and Key Issues Report. Agreeing the content of the Pilot SEA with UNDP and the Government of Montenegro.



Stage 2 Analysis and Assessment 3.8. The second part of the SEA has consisted of analysis and assessment. Each component of the Strategy identified in Stage 1 as needing attention has been reviewed to identify:

3

Directive 2001/42/EC on the Assessment of Certain Plans and Programmes on the Environment

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SEA of the Montenegro draft National Energy Development Strategy • • • Primary environmental and socio-economic impacts of the proposed policy /strategy options, Potential avoidance, mitigation and enhancement measures, Scope for integrating ‘win-win’ energy solutions within the Strategy including assessment of short, medium and longer term options.

Stage 3 Reporting and Consultation 3.9. The findings of the SEA have been written up in this draft report and will be presented to a public meeting in September 2007. Comments from this meeting will be carefully considered and modifications will be made to the final report where these are appropriate. The Final Report will include a Non Technical Summary.

Content of the SEA Report
3.10. The final report of the SEA of the Draft Energy Strategy will cover the following topics (which are required under both the Montenegro Law and the European Directive). Description of Plans and Programmes: A short outline of the Draft Energy Strategy and its relationship to other relevant plans and programmes; including the draft National Spatial Plan and National Sustainable Development Strategy. Identification of areas: likely to be affected by significant risks and characteristics of the environment in such areas. Existing problems: with respect to the environment in connection with the subject matter of the Draft Energy Strategy. Environmental protection objectives: set at either a national or international level which are relevant to the Draft Energy Strategy. Potential significant impacts on the environment: as defined in the next section. Measures to prevent, reduce or mitigate significant negative effects. Reasons used to select alternatives: including difficulties in formulating the required data. Potential significant trans-boundary effects: on the environment. Proposals for environmental monitoring. Summary of conclusions: to assist public understanding.

ASSESSMENT OF IMPACTS
3.11. The OECD-DAC Guidance ‘Applying Strategic Environmental Assessment in Development Co-operation’ uses the term ‘SEA’ to “describe analytical and participatory approaches that aim to integrate environmental considerations into policies, plans and programmes and evaluate the inter linkages with economic and social considerations.” The Guide discusses

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SEA of the Montenegro draft National Energy Development Strategy the different range of tools available and notes that SEA can focus on environmental impacts or integrate all three dimensions of sustainability: environment, social and economic. 3.12. Given the clear emphasis in Montenegro on the principles of sustainable development as set out in the Constitution, and the aims and principles of SEA in Articles 2 and 3 of the Law, this SEA places equal weight on the three pillars of sustainability, environmental protection, stable economic growth and improvement of social situation.

Sustainability Criteria
3.13. For each of these areas of sustainability a number of sustainability criteria have been defined. These have been drawn from the Montenegro SEA Law, the National Sustainable Development Strategy, and the SEA on the Draft National Spatial Plan and are listed below The Natural Environment of Montenegro is protected. • • • • • The international reputation and status of Montenegro as an ecological state is respected. Technologies are introduced that do not threaten the environment Production of greenhouse gases is reduced where possible to minimise climate change. Natural resources are developed in a sustainable manner. Synergies are achieved between economic development and environmental protection. The transition towards a market economy is pursued with the specific goals of: • Stimulating innovation and productivity. Strengthening entrepreneurial activity. . Stopping the outflow of skilled and experienced personnel. Promoting local employment.

Economic growth is accelerated. •

An indigenous supply of energy and energy services is provided

Social objectives are achieved in terms of reducing poverty, protecting the most vulnerable sectors of the population and ensuring a fairer distribution of incomes amongst all sectors of society. • Ethical Goals are achieved by building capacity amongst all stakeholders (central authority, local authorities, private sector and citizens) for democratic decisionmaking (by transferring from the centralised way of reaching agreement), Human rights are respected together with the aim of reaffirming all citizens’ rights to development in healthy and equitable conditions.



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STRATEGY OBJECTIVE ENVIRONMENT

Protect Environment

Respect international reputation

Introduce non-threatening technologies

Table 1: Sustainability Criteria Checklist

SEA of the Montenegro draft National Energy Development Strategy

3.14. These sustainability criteria have been amalgamated into a single checklist, against which it is possible to judge the performance of the various objectives set out in the Strategy (See Table 1).

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Reduce GHG causing Climate Change

Environmental and economic synergies

Sustainable development

NATURAL RESOURCES ECONOMY

Accelerate Growth

Stimulate innovation and productivity

Cultural goals are achieved in preserving the distinctiveness of local cultures, and the cohesion of Montenegrin society is strengthened.

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Strengthen entrepreneurial activity

Stem outflow of skilled personnel

Promote local employment

Development of marginal regions

Indigenous supply of energy/ services

SOCIAL HUMAN RIGHTS CULTURAL

Reduce Poverty and protect vulnerable

Ensure fairer income distribution

Healthy and equitable development

Preserve local distinctiveness

Strengthen society

ETHICAL

Democratic decision-making

SEA of the Montenegro draft National Energy Development Strategy 1 2 3 4 5

3.15.

Performance of Energy Strategy objectives is measured on a seven point scale (See Table 1A). Expert judgement is used to allocate the scale rating and the process is therefore subjective, but the basis of the scaling is transparent and is open to challenge and revision.

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SEA of the Montenegro draft National Energy Development Strategy Table 1A: Scale for assessing performance of strategy objectives against sustainability criteria
Not Applicable Highly Unsustainable Very weak Weak Neutral Strong Very Strong Highly Sustainable

NA

-3

-2

-1

0

1

2

3

Environmental and Socio-Economic Criteria
3.16. The sustainability criteria are appropriate for reviewing broad strategic objectives like promoting thermal or hydro power plants as alternative or complementary energy sources, but they are not suitable for judging the likely significance of individual facilities or infrastructure works. For this a more detailed checklist is used which has been developed on the basis of the EU SEA Directive and Montenegro SEA Law. Specific attention is given to factors such as, population, human health, fauna, flora, land, water, air, climatic aspects, material resources, cultural heritage, including architectural and archaeological heritage, landscape and relations between these factors (See Table 2). 3.17. In order to assess the potential effects of different components of the Strategy on the environment and on local social and economic conditions it is necessary to examine the particular characteristics of each impact. These include: Location: Is the effect likely to occur within sensitive or non-sensitive environmental areas (e.g. National Parks, Emerald sites, historic or cultural sites etc.)? Scale: In terms of the extent of its effects, is the impact likely to be experienced only at the local or at municipal, regional (Northern/ Central/ Southern), national or international (trans-boundary) level. How many people are likely to be affected by the impact? Magnitude / Intensity: Is the impact likely to bring about small, modest, or large changes within the affected area. (See Table 1B) Table 1B
Just detectable Very small small modest large Very large Exceptionally large

1

2

3

4

5

6

7

Probability: How likely is it that the impact prediction given under scale and intensity will occur in practice, using a seven point scale (See Table 1C).

Table 1C
Highly unlikely Very unlikely Unlikely Odds are even Likely Very Likely Almost Certain

<10%

10-30%

30-49%

50/50

51-70%

71-90

>90%

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SEA of the Montenegro draft National Energy Development Strategy Frequency: Does the impact occur in a single, isolated event or is it a succession of events? Reversibility: If the impact occurs is it likely to be reversible or irreversible? Duration/ Permanence: If reversible, is the anticipated impact likely to have an immediate, short term (1-5 year), medium term (5-10 year) or longer term (>10year) effect? Cumulative and synergistic effects: Is the impact likely to trigger other changes and effects or combine with impacts relating to other development proposals to create cumulative effects? Adverse, Beneficial or both: Are the effects of a specific impact likely to be adverse or beneficial in terms of the overall sustainability objectives? 3.18. The assessment criteria outlined above will be applied to areas of potential environmental impact listed in paragraph 3.16 above (which include some socioeconomic elements (e.g. Health and Population). In addition, the impacts of the Strategy will be reviewed against: • • Number of existing jobs affected, and the potential creation of new direct employment in energy related industry.

Table 2: Environmental and Socio-economic Criteria Description of Strategy Element:

DURATION/PERMAN ENCE

POPULATION HEALTH EMPLOYMENT INFRASTRUCTURE

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ADVERSE /BENEFICIAL OR MIXED

REVERSIBILITY

CUMULATIVE/ SYNERGISTIC

PROBABILITY

MAGNITUDE/ INTENSITY

FREQUENCY

LOCATION

SCALE

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DURATION/PERMAN ENCE

FLORA / FAUNA LAND USE GEOLOGY/ SOILS WATER / DRAINAGE AIR MATERIAL ASSETS CULTURAL HERITAGE LANDSCAPE INTERACTIONS

KEY
LOCATION SCALE MAGNITUDE/ INTENSITY PROBABILITY FREQUENCY REVERSIBILITY DURATION/PERMANENCE CUMULATIVE/ SYNERGISTIC EFFECTS ADVERSE /BENEFICIAL OR MIXED NA Ad I
Low Sensitivity L Local L Municipal M Moderate Sensitivity M Regional R National N
Modest

High Sensitivity H International I
Large

Just detectable

1

Very Small

2

Small

3

4

5

Very Large

6

Exceptional

Highly Unlikely

1

Very Unlikely

Unlikely

2

3

Odds even

Likely

4

5 2

Very Likely

6

One Off Event

1

Repetitive Event Irreversible Effects

Reversible Effects

1

2

Immediate No cumulative effects Adverse

Short Term ST

Medium Long term M LT Cumulative Effects likely

C
Beneficial

Be

Mixed

M

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ADVERSE /BENEFICIAL OR MIXED 7
Almost Certain

REVERSIBILITY

CUMULATIVE/ SYNERGISTIC

PROBABILITY

MAGNITUDE/ INTENSITY

FREQUENCY

LOCATION

SCALE

7

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4.

CONTEXT TO THE STRATEGY
INTRODUCTION

4.1.

The purpose of this chapter is to set the context and baseline within which the SEA of the Energy Development Strategy is conducted. The subject matter is divided into a number of sub-sections covering the geographical and environmental baseline, the basic characteristics of existing supply and demand for energy, social and economic conditions and the regional context.

GEOGRAPHICAL AND ENVIRONMENTAL BASELINE
Setting
4.2. Montenegro is located in South East Europe with a coast on the Adriatic Sea to the south, and bordering Croatia to the West, Bosnia-Herzegovina to the North West, Serbia to the North East, and Albania to the East. The country is roughly 13,812 km2 in area4 and according to the 2003 Census has a population of slightly more than 620,000 people5, making it one of the smallest European nations. Despite its small size Montenegro has an extremely varied topography and geomorphology ranging from high rugged limestone mountains and plateaus to its narrow coastal plain. The climate is Mediterranean, with high seasonal temperature variation characterised by hot dry summers and autumns and cold winters with high snowfall inland. Independent since 2006, Montenegro was formerly linked with Serbia firstly as the Federal Republic of Yugoslavia, then as a looser State Union of Serbia and Montenegro. The Parliament of Montenegro formally declared independence on June 3, 2006, confirming the result of a referendum which took place in the previous month. The country has also been strongly influenced by other Mediterranean and Adriatic countries partly as a result of its maritime history through use of its historic ports at Bar and Kotor. This position on the frontier between the Mediterranean and the Balkans is also reflected in Montenegro’s distinct cultural heritage and traditions where Greek, Roman, Ottoman, Italian-Venetian, Austro-Hungarian and Yugoslav cultures have mixed with existing native Illyrian, Celtic, South Slavic and Albanian cultures. Podgorica is Montenegro’s capital and largest city with approximately 136,500 inhabitants. Nikšic with a population of 58,212 is the country’s second largest city followed by Pljevlja (21,377), Herceg Novi (16,493), Bijelo Polje (15,883), Cetinje (15,168) and Berane (11,776)6. Montenegro, as with other countries in the region has a relatively diverse ethnic composition, made up largely by Montenegrins (43%) and Serbs (32%) but also with significant populations of Bosniaks (8%), Albanians (5%) and other minority groups (12%)7. The country is divided into 21 administrative

4.3.

4.4.

4 5

Monstat (2007) http://www.monstat.cg.yu/EngsrCGuBrojkama.htm Estimates vary but more recent approximations suggest that the population in 2007 is above 630,000 people (The Draft Energy Development Strategy). 6 The Draft Spatial Plan of the Republic of Montenegro (2007) 7 Ibid.

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SEA of the Montenegro draft National Energy Development Strategy municipalities shown in Figure 1 below, and can be separated into the three distinct Southern, Central and Northern Regions.

Land Cover
4.5. 4.6. The principal types of land cover in Montenegro are forests, agricultural land, and non-productive land, much of which is rocky and inaccessible. The area under forest is around 6,220 km2 or 44% of the total territory and a further 1,150 km2or 8% is made up of non forested land in forest areas8. This forest cover can be divided into three basic altitudinal zones, namely a low or coastal (Mediterranean) zone with evergreen vegetation; a highland, heterogeneous deciduous zone, dominated by oak and hornbeam forest, and a mountainous zone of beech and coniferous trees. Within Europe, only Slovenia, Finland and Sweden have a higher forest density than Montenegro9. Figure 1: Municipalities of Montenegro

4.7.

Agricultural land covers around 5,144 km² or 36% of the total territory. However, in 2003 the cultivable area only accounted for an estimated 1,891 km² of which 462 km² is arable land and gardens, 112 km² orchards, 40 km² vineyards and 1,277 km² of transitional meadows. The remaining 3,253 km² is used for (predominantly extensive) grazing. High quality agricultural land only represents 741 km², or 14% of the total agricultural area, the majority of which (more than 75%) occurs in Podgorica municipality and to a lesser extent around Pljevlja, Bijelo Polje, Berane, Bar and Nikšic.10

8 9

The Draft Spatial Plan of the Republic of Montenegro (2007) Ibid. 10 Monstat (2006) Statistical Yearbook

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SEA of the Montenegro draft National Energy Development Strategy 4.8. The remaining 2,662 km2 is made up from settlements, roads, waters, rock and other land cover types which together represent around 19% of the total land area.11

Hydrology
4.9. The hydrology of Montenegro is an extremely significant aspect of its geography and natural resources. The main watershed areas of Piva, Tara, Ćehotina, Lim and Ibar are major tributaries to the Danube system eventually leading to the Black Sea and those of the Moraca and Zeta provide water to Skadar Lake. There are 33 glacial lakes in Montenegro as well as the two depression lakes of Šasko and Zoganjsko and seven artificial lakes.12

4.10. The main rivers of Montenegro are the Bijela, Bistrica, Bukovica, Bojana, Cijevna, Ćehotina, Grnčar, Ibar, Ospanica, Lim, Lješnica, Ljuboviđa, Ljuča, Morača, Piva, Ribnica, Sitnica, Šavnik, Tara, Trebišnjica, Veruša, Vrmoša, and Zeta. The most significant of which are discussed in more detail below. 4.11. The Bojane River is a 41 km long waterway in Albania and Montenegro which flows into the Adriatic Sea and forms an outflow from Skadar Lake. The Morača - Lake Skadar- Bojana system is 183 km long and on its 24 km border section meanders widely, flowing around Lakes Šas and Zogajsko Blato.13 The area surrounding the river in this section is low and marshy and forms the eastern border to the Field of Ulcinj and of the 12 km beach at Ulcinj (Velika Plaža). 4.12. The Ćehotina River originates in Montenegro and is approximately 77 km in length and flows through the Pljevlja coal basin and the city of Pljevlja into Bosnia and Herzegovina.14 4.13. The Ibar River, originates in the Hajla mountain in eastern Montenegro flowing generally north-east, through Ibarac, Rožaje, Radetina and Bać, after which it enters Serbia. 4.14. The River Lim originates in the East of Montenegro, very close to the Albanian border. The river flows out of Lake Plav 197 km into Serbia.15 4.15. The Morača River originates in northern Montenegro, flowing generally southwards for around 104 km16. After merging with its largest tributary, the River Zeta, it passes through Podgorica where it meets the Ribnica River and flows out through the Zeta plain, finally draining into Skadar Lake. The fast flowing northern section of the river has formed a large and spectacular canyon which also forms a main road corridor from the coast and Podgorica to the North and Serbia. The water flow in the Morača is extremely varied with the maximum monthly flow as measured in 2005

11 12

The Draft Spatial Plan of the Republic of Montenegro (2007) Ibid. 13 Marković (1990) Enciklopedijski geografski leksikon Jugoslavije 14 Bošković and Bajković (2006) Waters of Montenegro 15 Ibid. 16 Bošković and Bajković (2006) Waters of Montenegro

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SEA of the Montenegro draft National Energy Development Strategy occurring in December with 1,805 m3/sec and the minimum in August with 14.7 m3/sec and an average of 211 m3/sec17. 4.16. The Piva River belongs to the Black Sea drainage basin and when taken to include the Tušina-Bukovica-Bijela-Komarnica River system is around 120km long. The Tušina originates in the Uskoci region of central Montenegro, where it flows to the west, and joins the Bukovica continuing under that name until it becomes the Komarnica in the region of Drobnjaci. The Komarnica enters the high Piva Plateau and then the Piva Canyon which is 33 km long and up to 1,200 m deep.18 The Piva canyon is dammed at Velika Peć for the generation of hydroelectric power forming the reservoir of Lake Piva which encompasses almost the entire course of the Komarnica River. After the Piva Dam, the river continues to the north where it meets the Tara on the border with Bosnia and eventually flows into the Drina. 4.17. The Tara River emerges from the confluence of the Ospanica and Veruša Rivers in the Dinaric Alps of Montenegro, flows 140.5km northward and converges with the Piva River near the Bosnian border to form the Drina River. The Tara River has created the 78km Tara Gorge, which at its most extreme is the deepest canyon in Europe (1,300 metres deep). The canyon is protected as a UNESCO Man and Biosphere Reserve and is part of Durmitor national park which is a UNESCO World Heritage Site. There have been longstanding plans to develop hydropower potential on the Tara River system, however, these have been recently ruled out principally as a result of environmental concerns.19 4.18. The Zeta River is around 85km long and originates near Nikšic flowing eastwards through the Bjelopavlići Valley to its confluence with the River Morača north of Podgorica for which it is the largest tributary. The Perucica Hydroelectric Power Plant and accumulation is located on the Zeta near Nikšic.20

Flooding and water resources
4.19. Water supply infrastructure in most urban areas is inadequate. Although the quality of potable water is mostly satisfactory there are problems associated with waste water discharged from industrial plants as these are mostly located in urban areas. 4.20. In rural areas in the north, water is available from springs and streams that are fed continuously by high quality groundwater seeping through porous rock strata. However, in the South East and some other parts of the country the Karst limestone is so porous that there is very little surface water. Here water must be pumped up from boreholes. In the coastal region, salt water intrusion makes some aquifers unsuitable for water supply and the large influx of tourists in the summer more than doubles the resident population, creating water shortages. 4.21. In terms of water resources roughly 65-70% of the population are provided with water through water supply systems of municipal centres and significant local centres,

17 18

Monstat (2006) Statistical Yearbook (table 2-15, p28) Marković (1990) Enciklopedijski geografski leksikon Jugoslavije 19 UNESCO http://whc.unesco.org/en/list/100/documents/ 20 Bošković and Bajković (2006) Waters of Montenegro

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SEA of the Montenegro draft National Energy Development Strategy while around 30% in villages use alternative sources. Previously developed irrigation infrastructure covers only around 20km2 and is mostly unused or degraded.21 4.22. Water consumption is twice that of Western Europe as a result of climate conditions, unallocated use of water and high losses in water supply systems and there is insufficient provision for drinking water in the coastal region during the peak tourist season22. The largest industrial users are metallurgic producers such as KAP and thermo-energy facilities. 4.23. Flooding occurs around the main river systems including the Morača, Lim, Tara, Cehotina, Ibar and Bojana, and fields (Barsko, Cetinjsko, Matica Valley) and there are seasonal floods around Skadar Lake. Regulation of watercourses and protection against floods has been generally small scale.

Geo-seismic conditions
4.24. Montenegro lies in a relatively active seismic area, with the highest levels of vulnerability and risk being in the southeast coastal zone. Earthquake activity can generate other disasters including fire and flooding in addition to the destruction of buildings and structures that are not strong enough to resist tremors. The Coastal area, Zeta-Skadar depression and the Berane basin should be accentuated as a significant seismically active area of Montenegro.23

Transport
4.25. Montenegro has one of the least well developed road infrastructures in Europe. The condition of the road infrastructure is poor partly as a result of topographical constraints and around 25 percent of the network is over 1000m above sea level and suffers from high volumes of traffic. In 2005, there were approximately 7,350 km of roads in Montenegro, only around 4,270 km of which were paved. The existing railway network in Montenegro consists of around 250 km single track of which 169 km is electrified.24 The condition of the railway network in Montenegro is unsatisfactory in terms of density and network quality and the system is vulnerable to failure. Montenegro has a significant amount of marine transport infrastructure for cargo and passengers and considerable scope for expansion depending on environmental constraints. There are two main international airports at Podgorica and Tivat. A new runaway has been proposed at Tivat airport, with the existing runaway to be used as a taxiway.

Protected Areas
4.26. In Article 1 of its Constitution, the Republic of Montenegro has declared itself an “Ecological State”, to give high priority to its natural assets. Based on this premise, a protected area system was established with four existing National Parks, namely, Durmitor, Biogradska Gora, Lovcen and Skadar Lake and two planned in the draft National Spatial Plan (Prokletije and Orjen) as well as six planned Regional Parks (a)

21 22

Draft Spatial Plan of the Republic of Montenegro (2007) Ibid. 23 Draft Spatial Plan of the Republic of Montenegro (2007) 24 Ibid.

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SEA of the Montenegro draft National Energy Development Strategy Rumija, (b) Maglic, Bloc I Volujak, c) Ljubišnja, d) Sinjajevina with Šaranci, e) Komovi, f) Turjak with Hajlom). Currently protected areas of nature conservation represent around 7.7% of the country’s total land area25. However the Government has proposed a doubling of the area under protected area status.26 4.27. There are also three internationally recognised sites two of which are UNESCO World Heritage sites (Durmitor National park with Tara River Basin Man and Biosphere Reserve, and Kotor-Risan Bay) and one designated as a Ramsar site (Skadar Lake). These nationally and internationally designated areas are represented in Figure 2 and summarised in the paragraphs below. 4.28. The Tara River Basin (1,829km2) in the South Eastern Dinaric Alps was designated as a UNESCO Man and Biosphere Reserve in 1977. The Reserve is made up from carbonate plateaus, canyons and the deepest gorges in Europe and harbours a rich habitat and species diversity and contains important cultural assets. Habitats include alpine forests, alpine rivers and lakes, alpine and sub-alpine heath, transition mires, bogs and screes. There are two UNESCO World Heritage sites within the Tara Biosphere reserve and one Ramsar site. About 24,000 people live within the biosphere most of whom are engaged in farming. Kotor-Risan Bay was also designated as a UNESCO World Heritage Site as a result of its outstanding universal value in the quality of its architecture and its unique and its exceptional historic role in spreading Mediterranean culture across the Balkans.27

4.29. The Durmitor National Park (390 km²), located in the northeast of the country, approximately 30km to the south west of Pljevlja and 30km north of Nikšic was created in 1952 and since 1980 has been designated a Natural World Heritage site. The National Park includes the Durmitor mountain massif, including Bobotov Kuk which is the highest point in the Republic of Montenegro at 2,525 m above sea level and 18 glacial lakes the most prominent of which is Crno Lake. The Tara River Gorge also passes through Durmitor. Durmitor National Park is also the centre of Montenegro’s mountain and ecological tourism concentrated around the town of Žabljak and activities include winter sports, mountaineering and other recreational activity.28 4.30. Lovćen (62 km²) was proclaimed a National Park in 1952 and encompasses the central and the highest part of the Lovćen mountain massif. Lovćen is remarkable for its natural beauty and rich historical, cultural and architectural heritage. Mount Lovćen rises from the Adriatic basin and bays of Boka Kotorska and forms the setting to the UNESCO World Heritage site of Kotor and historic capital Cetinje. The mountain is made up of rocky slopes, with numerous fissures, pits and deep depressions and is dominated by two peaks at Štirovnik (1,749 m) and Jezerski vrh (1,657 m).29 Lovćen is influenced by both coastal and mountain climate and
NSSD, 2007 Report on the Progress in Implementation of the Millennium Development Goals in Montenegro, Podgorica, 2005 27 UNESCO Biosphere Reserve Information: Tara River Basin http://www.unesco.org/mabdb/br/brdir/directory/biores.asp?mode=all&code=yug+01 28 Official website of Durmitor National Park, http://www.nparkovi.cg.yu/eng/durmitor/index.htm 29 Official website of Lovcen National Park http://www.nparkovi.cg.yu/eng/lovcen/index.htm
26 25

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SEA of the Montenegro draft National Energy Development Strategy ecosystems and contains more than a thousand plant species many of which are endemic. 4.31. Biogradska Gora (56.5 km²) located in the Kolašin municipality was designated a National Park in 195230. Biogradska Gora is a mainly forested area between the rivers Tara and Lim around the Bjelasica Mountains. The Park has peaks of more than 2,000 m and contains Biogradsko Lake (228,500 m²) altitude of 1,094 m and nine other glacier lakes.31 Although it is the smallest National Park it is extremely rich in biodiversity and appealing landscape and geomorphology. Figure 2: National Parks and Emerald Sites

4.32.

Skadar Lake (400 km² av.) is the largest trans-boundary water body in South East Europe. Approximately 40% of the Lakes area lies within Montenegro and the remaining 60% is in Albania. The Montenegrin side of the Lake and its surrounding area were declared a National Park in 1983 and has been loosely managed as a crossborder protection area since 199132. A Memorandum of Understanding has been signed by the Governments of Montenegro and Albania to look at the future of the

Official website of Biogradska Gora National Park http://www.nparkovi.cg.yu/eng/biogora/index.htm Montenegro Tourism Office Website, http://www.visit-montenegro.org/english/priroda/biogradsko.htm 32 Association for Protection of Aquatic Wildlife of Albania (APAWA) and the Centre for Ecotoxicological Research of Montenegro (CETI) (2005) The Strategic Action Plan (SAP) for Skader/Shkodra Lake Albania and Montenegro
31

30

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SEA of the Montenegro draft National Energy Development Strategy lake as a potential Wortld Heritage Site. Skadar Lake is famous for its diverse fauna for which it is one of the most important sites in Europe. It is one of the largest bird reserves in Europe, having 270 bird species33. In 1996, it was included in the Ramsar34 list of wetlands of international importance. 4.33. The Skadar Lake Ramsar areas are made up of seasonal/intermittent freshwater marshes and pools, and include sloughs, potholes, seasonally flooded meadows, sedge marshes, and permanent freshwater lakes including large oxbow lakes. The Lake supports rare and endangered species of invertebrates, amphibians, fish, birds and mammals and is particularly important as a migratory staging, wintering, and dry season breeding area for waterbirds, and is important for the reproduction of fish. Skadar Lake and its surroundings also support rare and endangered floral species35 4.34. Large areas of the lake are relatively shallow fluctuating between roughly 5 to 9 m, although at its deepest level the lake is over 60m deep and its surface, 6 m above sea level, can vary between 370 and 530km2. The Moraca River, with its two tributaries, Zeta and Cijevna/Cemi, contribute almost two thirds of the lake’s water, and slightly less than a third comes from underground springs. The lake drains into the Adriatic Sea largely via the Bojana/Buna and Drini rivers at an extremely high rate and the lake’s water is said to change completely 2 to 2.5 times per year.36 4.35. As in other protected areas in Montenegro, there are conflicts between the conservation interests of Skadar Lake as a National Park / Ramsar site and demands for the use of its resources. 4.36. Montenegro also contains six planned Regional Parks and 32 candidate Emerald Sites, as per draft National Spatial Plan. The Emerald Network is the equivalent of Natura 2000 in Non-EU European countries and although based on the Habitats Directive is not legally binding. 4.37. Many of Montenegro’s protected areas lack management bodies entirely as well as management plans37. Where Management plans exist they are considered inadequate to protect biodiversity and implementation is poor, largely as a result of financing problems.

Biodiversity
4.38. Montenegro has a large diversity of ecosystems and is one of the most significant biodiversity centres in Europe. Almost all European continental biomes are represented within Montenegro, as well as various phyto-geographic regions. Approximately 20% of the total flora is represented by endemic and sub-endemic

33 UNESCO (2005) http://portal.unesco.org/es/ev.phpURL_ID=24168&URL_DO=DO_PRINTPAGE&URL_SECTION=201.html 34 Convention on Wetlands, Ramsar, Iran, 1972 35 Wetlands International (2007) 36 Association for Protection of Aquatic Wildlife of Albania (APAWA) and the Centre for Ecotoxicological Research of Montenegro (CETI) (2005) The Strategic Action Plan (SAP) for Skader/Shkodra Lake Albania and Montenegro 37 National Report for SAP BIO (2004)

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SEA of the Montenegro draft National Energy Development Strategy plants and a number of relict species and eco-systems of international importance are also present. 4.39. Due to Montenegro’s location along a number of important migratory routes, a great number of faunal species are also present within Montenegro for large parts of the year. Data on biodiversity is extremely limited and in 2006, only around 38% of mammals, 81% of birds and 2.3% of fish species were recorded. However, indications suggest that biodiversity is declining in Montenegro and the Emerald Network Report (2005) identifies 154 endangered species requiring specific conservation measures. Conservation International also includes Montenegro as one of its eight Global Biodiversity Hotspots within which 90% of all biodiversity is located. The US Biodiversity Report (2005) identifies the following impacts as the principal causes of this decline: • • • • • • Degradation of mountain forest habitat as a result of illegal logging and unsustainable forestry practices, tourism and infrastructure development. Loss of coastal habitat and species due to rapid tourism and infrastructure development. Over fishing and illegal fishery practices, and unregulated or illegal poaching, fishing and hunting Gravel mining in the Moraca River Severe and widespread pollution of rivers and coastal waters from industry, with eutrophication on Boka Kotorska Bay, Bojana River and Skadar Lake. Overgrazing, particularly in mountain areas

Environmental Institutions
4.40. Until November 2006, the Ministry of Environmental Protection and Physical Planning (MEPPP) had main responsibility for environmental issues, principally the development of national policy, legislation and environmental standards. From November 2006 a newly established Ministry of Tourism and Environment (MTE) became responsible for environmental issues. The Ministry is divided into four departments responsible for the following areas: • • • • 4.41. air and radiation; control of industrial pollution, waste and wastewater management; nature protection, EIA, SEA and IPPC; integration of strategic processes on environment

Responsibility for forest policy rests with the Ministry of Agriculture, Forestry and Water Management, which also shares responsibility for protected areas included within the forest management. Under the continuing process of privatisation, the public enterprise ‘Crna Gora Sume’ has been restructured into a Directorate and 14 subsidiary forest firms. The Directorate is responsible for managing and protecting forests and controlling silvicultural practice. It will also award contracts for forest utilisation.

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SEA of the Montenegro draft National Energy Development Strategy 4.42. The environmental administration system in Montenegro is extremely under resourced considering the extent of new environmental legislation. In relation to the implementation of the Law on EIA for example, the USAID Biodiversity Assessment (2005) states that: “The consensus is that EIA laws are not effectively carried out in Montenegro. This is due to a lack of human and financial resources at the inspectorates as well as just a general lack of implementation and enforcement capability and commitment. Development and construction interests are strong in Montenegro with strong financial and investment implications that are likely over-powering environmental concerns, procedures and measures that may be seen as obstacles as opposed to being part of sustainable development process”. 4.43. A new Environmental Protection Agency (EPA) is due to be established with the support of the European Agency for Reconstruction (EAR). The EPA is likely to improve environmental capacity significantly by taking over legal implementation and enforcement of environmental legislation.

Areas of specific environmental pressure
4.44. Although data on pollution and environmental pressure is largely incomplete a number of specific environmental issues have been identified and are discussed below: 4.45. Mean annual concentrations of atmospheric pollutants in the majority of urban settlements in Montenegro are within acceptable limits. However, Podgorica, Nikšic and Pljevlja have poor air quality as a result of anthropogenic activities including transport, industry, agriculture, power generation and communal waste disposal. Air pollution is exaggerated in the karst valleys around Cetinjsko and Niksicko Polje and mountain valleys of Pljevaljska, Beranska and Bjelopoljska kotlina where thermal inversions prevents ventilation and elimination of pollutants. 4.46. High levels of pollution have been recorded at a number of prominent waterbodies in Montenegro including within the Ćehotina, Ibar, Lim and Morača Rivers downstream from settlements; Skadar and Plav lakes; and several coastal areas principally as a result of inadequate discharge of waste waters from households and industry. Sand and gravel extraction from river beds has also had ecological impacts at several locations. 4.47. Land contamination is also a significant issue in Montenegro, largely as a result of the metallurgic, mining and energy industries around Podgorica, Kolašin, Pljevlja, Nikšic and Mojkovac and insufficient control of the use of agro chemicals around the Zeta and Bjelopavlice Plains. 4.48. The Nikšic steel plant has significant environmental issues related to contaminated land and release of inadequate discharging of industrial waste water to the Zeta and Moraca Rivers and generation of dust containing heavy metals such as cadmium, lead, chromium, nickel, copper, zinc, molybdenum and organic toxins such as PCB, PCHC and dioxins.

4.49. The Kombinat Aluminium Plant (KAP) 10km outside Podgorica in the Zeta Valley has been associated with a complex set of issues related to land, air and water pollution.

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SEA of the Montenegro draft National Energy Development Strategy Pollution impacts include the emission of gases and particles from boilers, calcinations furnaces and bauxite dryers containing Fluorides and Oxides of Sulphur (SOx), and spillages of transforming oils. 4.50. In addition, a storage facility containing in excess of seven million tonnes of bauxite residues, known as ‘red mud’, is also located at the KAP. Contamination of groundwater with acidic leechate containing significant amounts of fluorine, phenolics, arsenic, cyanides; and PCBs has occurred and residues have been detected in Skadar Lake. 4.51. Red bauxite, the main raw material for aluminium production, is mined at the northern edge of the Nikšic plane. Environmental effects associated with mining activities in this area are largely related to the rehabilitation of mined areas and the disposal of tailings.

4.52. Within the town of Mojkovac the facility storing material from the closed Brskovo lead zinc mine has had negative effects on the Drina River catchment including microbiological pollution, eutrophication and loss of biodiversity in the Tara Gorge. Also, several million tonnes of toxic tailings are deposited adjacent to the River Cehotina from the closed Supla Stijena lead zinc mine. Significant resources are left in the deposit and the possibility remains that the mine will be reopened. 4.53. The operation of the Pljevlja Thermal Plant, three kilometres outside Pljevlja, and its associated mines have, in combination with household coal usage, caused a significant legacy of environmental pollution. This plant burns lignite, which has a high sulphur (0.8–1.6 per cent) and ash (29–35 per cent) content and a low calorific value (8,000– 12,000 kJ/kg)38. The power plant is equipped with electrostatic precipitators but no facility for the removal of sulphur dioxide from flue emissions. As a result significant air pollution from emissions such as Carbon Monoxide (CO), Sulphur Oxides (SOx) and ash have been recorded in the Pljevlja basin. In addition to negative effects on air quality and respiratory disease, ash deposition has had adverse impacts on nearby waterways, soil and groundwater. 4.54. Lignite mining has caused a high level of pollution around the Pljevlja coal mining area, encompassing several sites. The Borovica coal mine is degraded and requires rehabilitation and revegetation and the Potrlica lignite cast near Cehotina River, which reportedly has reserves for another 50 years, has a significantly degraded environment. In addition, the thermal power plant ash dump at Maljevac has led to alkali pollution and dust impacts, and is a structural risk. 4.55. A legacy of contaminated land and water pollution also exists at a number of nonactive mining sites including lignite mines at Maoce, Mataruge and Otilovici; brown coal collieries at Berane/Polici; and lead-zinc mines in Pljevlja (Suplja stijena, Gradac) and Mojkovac (Brskovo, Bjelojevici, Razvrsje and Zuta prla). 4.56. Disposal of Municipal Solid Waste is a key issue in Montenegro and until 2004 there were no sanitary landfills, only town and illegal dumpsites. Estimated municipal waste arisings for 2004 are shown in Table 3 below. Inadequate disposal of communal

38

UNECE (2007)

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SEA of the Montenegro draft National Energy Development Strategy waste is greatest in seven municipalities (Podgorica, Herceg Novi, Ulcinj, Bar, Pljevlja, Plužine). In the absence of proper management or disposal control these sites have caused significant negative effects on air, soil and groundwater quality with associated impacts on human health. Table 3: Municipal Solid Waste Arisings by Municipality (2004)
Municipality where MSW disposed Bar Berane Budva Herceg Novi Mojkovac Nikšic Pljevlja Podgorica Total Municipality where MSW collected Total MSW arisings 2004 (Tonnes/annum) 11,400 8,350 13,800 8,000 7,000 18,200 7,100 76,700 150,550

Bar, Ulcinj Berane, Plav, Andrijevica, Rožaje Budva, Kotor, Tivat Herceg Novi Mojkovac, Bijelo Polje, Kolašin Nikšic, Plužine, Šavnik Pljevlja, Žabljak Podgorica, Cetinje, Danilovgrad

4.57. Fuel combustion in households is also a major contributor to air pollution, although there is no data available on household emissions. The widespread use of fuel wood and lignite for heating in households equipped with poor combustion technology, particularly in the mountainous areas, leads to emissions of particulate matter. 4.58. The treatment and disposal of waste water in Montenegro is very inadequate with only approximately 37% of the population discharging waste water into the public sewerage network and treatment only taking place in Virpazar and partially in Podgorica39. Waste water in coastal areas is discharged directly into the sea without prior treatment affecting marine water quality especially around Boka Kotorska and port of Bar. Furthermore, refinement of industrial waste water only takes place at a small number of industrial plants.

4.59. The following environmental impacts have been identified at Skadar Lake • • Disturbance: Impacts from extraction of rock, gravel, sand, water diversion and extraction, and peat extraction, Social impacts: loss of protected species by poaching with implications for tourism and recreation, and the illegal development of hotels, private houses and roads. Pollution: eutrophication, domestic sewage pollution, industrial waste pollution, unspecified agricultural runoff, lead poisoning, and impacts associated with the development of/tourist facilities



4.60. Threats posed to forest ecosystems as a result of multiple pressures, primarily through uncontrolled, unplanned activities and excessive exploitation of natural
39

The Draft Spatial Plan of the Republic of Montenegro (2007)

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SEA of the Montenegro draft National Energy Development Strategy resources are of particular concern in Montenegro. In particular, prolonged deforestation has occurred in the Nikšic plain and Karst areas of the country. The existence of the National Parks has played an important role in protecting forest ecosystems; however illegal logging has occurred in these protected areas. Climate change 4.61. Carbon Dioxide CO2 emissions, mainly produced from the combustion of fossil fuels such as coal and oil, is a major contributor to global climate change. Estimates suggest that CO2 emissions in Montenegro amounted to around four tons per capita in 2003, which is less than half the EU Average of nine tonnes. Total GHG emissions in Montenegro are likely to be significantly higher, given the emissions of fluorinated gasses from the Kombinat Aluminium Plant (UNECE, 2007).

ENERGY SUPPLY AND DEMAND
Production 4.62. The main energy sources in Montenegro are hydro-power and coal (lignite) for the production of electricity, oil derivatives such as petrol, diesel and kerosene for transport and LPG, heavy oil, and fuelwood and industrial wood waste for thermal energy for heating and industry. The overall energy balance for the years 2003 and 2004 is shown in Table 4 and is discussed in more detail below. Table 4: Energy balance (PJ)
2003 Primary Production Lignite Hydro energy Wood and Biomass Industrial waste (wood) Total primary energy production Primary Energy Imports Oil Electricity Total Primary Energy Exports Other Electricity Total 14.90 17.60 1.98 0.07 34.55 12.73 8.07 20.8 0.69 3.35 4.04 % 43.1 50.9 5.7 0.2 100 61.2 38.7 100 17.1 82.9 100 2004 13.95 27.03 2.07 0.13 43.34 8.22 11.51 19.73 0.53 4.87 5.48 % 32.2 62.2 4.8 0.3 100 41.6 58.3 100 21.2 88.8 100

4.63.

Electricity makes up a large proportion of energy production. Montenegro has two large hydroelectric plants on the Rivers Perucica and Piva producing peak electricity and a coal fired thermal power plant at Pljevlja which is responsible for producing baseload electrical power. In addition, there are seven small-hydroelectric facilities which together produce less than one percent of total primary production. Table 5 below provides as summary of the installed capacity and annual generation capacity of these facilities. Production and imports of electricity can vary significantly as a result of the impact on hydro-electricity production of annual variations in hydrological conditions.

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SEA of the Montenegro draft National Energy Development Strategy Table 5: Main electrical generation facilities output in 2004 Facility TPP Pljevlja (lignite) Hydro HE Perucica HE Piva 7 Small HPP plants Total Imports Transfer/distribution losses Available for consumption Installed Capacity (MW) 210 658 307 342 9 868 3,973 2,915 3,670 Operation hours 2,644 GWh 1,068 2,231 1,210 997 24 3,299 1,207 694 3,812

Hydroelectric power 4.64. Montenegro contains two large hydroelectric facilities (above 10MW) the Perucica, on the River Zeta and the Piva. The dams are the principal domestic source of electrical energy producing peak power normally amounting to approximately two thirds of total production. However, production is dependent on hydrological conditions. The Perucica facility was brought on-line in1960 and contains seven Pelton turbines with a total installed capacity of 307 MW (5 x 40 MVA and 2 x 65 MVA) producing an annual production of around 930 GWh40. The hydroelectric facility on the Piva was constructed in 1974 and consists of a 220 metre arch concrete dam with a nominal head of around160 metres. The dam has an installed discharge of 240 cubic metres per second and a reservoir capacity of 880 Million cubic metres. The facility contains three Francis turbines (114 MW) giving an installed capacity of 342MW and a mean average annual production (following recent valorisation work) of 1050 GWh. Piva hydropower plant is understood to be operated by the Serbian Electric Power Utility (EPS) under a longterm contract between the energy utilities of Montenegro and Serbia and peak electrical energy from Piva is traded with Serbia in exchange for baseload electricity41. 4.65. The theoretical potential of hydroelectric resources of Montenegro’s main watercourses has been estimated to be in the region of 9,846 GWh/year, while the total technically available potential, including existing facilities, is between 5,219 and 6,202 GWh.42 The actual realisable resources that can be feasibly developed are much lower than this as a result of environmental, economic and social considerations which is in accordance with international good practice as exercised,
40 Markovic, M. (2005) Hydropower in Montenegro: A National Economic Asset, Presentation to the Montenegro Forum, Vienna 41 Ibid. 42 Draft Spatial Plan of the Republic of Montenegro (2007)

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SEA of the Montenegro draft National Energy Development Strategy for example, in Austria. However, the practical and economic potential of hydropower development in Montenegro remains uncertain. 4.66. At present EPCG operates seven small power plants, namely Glava Zete, Slap Zete, Rijeka Mušovića, Šavnik, Lijeva Rijeka, Rijeka Crnojevića, and Podgor. These facilities together have a total installed capacity of 9 MW, producing 21 GWh annually (i.e. two percent of technically available capacity). 43 The small hydro facilities are generally old, with most units operating for more than 20 years, and more than half older than 40 years old, only two units are below 20 years old and no renovations have been implemented in the last decade. 44 The technically usable energy potential for small hydro facilities is estimated to be more than 950 GWh/year and 70 sites have been identified for small hydro production with a total capacity of 232 MW or 644 GWh per year. However, it is unrealistic to expect all of these facilities to be developed due to economic, social, political, environmental and engineering constraints.45 Thermal power 4.67. At present the only large thermal power facility in Montenegro is the Pljevlja coal fired power plant constructed in 1982. This plant consumes around 1.35 million tonnes of lignite from the nearby Borovica and Potrlica mines in the Pljevlja Basin which reportedly have reserves for another 50 years. The facility has an installed capacity of 210 MW which gives it an average annual production of 914 GWh. Biomass 4.68. Montenegro has a large forested area, of predominantly beech, covering in excess of 6,200 km2 which represents a vast amount of biomass potential from forestry. At present the forest resource is underutilised and generally managed in unsustainable manner, and yields are between two and three times lower than the typical values in Central Europe. Data on use of biomass for energy is extremely limited, however, it is estimated that approximately 150,000-200,000 m3 of fuel wood is used for heating each year and waste wood from the timber industry is collected and utilised mainly as an energy fuel for its own needs46. 4.69. Agricultural production of biomass energy crops is very limited in Montenegro and the level of transport biofuel usage is uncertain but it is assumed that the market and production capacity are relatively undeveloped at present. There is significant potential with regard to their production in terms of raising low average production yields through agricultural intensification and improvements in technology. This would offer considerable opportunities for rural development and meeting EU transport biofuel commitments.47

Small Hydropower Plant Development Strategy for Montenegro (2006) Draft Spatial Plan of the Republic of Montenegro (2007) 45 Small Hydropower Plant Development Strategy for Montenegro (2006) 46 Draft Spatial Plan of the Republic of Montenegro (2007) 47 Council Directive 2003/30/EC of the European Parliament and of the Council of 8 May 2003 on the promotion of the use of biofuels or other renewable fuels for transport. Requires 10% of transport fuels to be from biofuel (bioethanol and biodiesel)
44

43

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SEA of the Montenegro draft National Energy Development Strategy 4.70. An outline scheme has been prepared for a Biomass power plant in Berane Municipality with an installed capacity of 2 or 4MW producing 14 or 28 GWh of electricity from biomass collected from Berane, Rožaje and Andrijevica (max. distance - 35 km).48 4.71. Figure 3 shows the proportion of land cover dedicated to forestry and agriculture as Montenegro’s two principal land uses. Figure 3: Forests Vs Croplands landuse

Source: Italian Ministry for the Environment, Land and Sea (2007) Solar 4.72. Montenegro is exposed to direct solar radiation for roughly between 1,500 to 2,000 hours per year giving an estimated average annual radiation per square meter of between 3.5 and 4.45 kWh per day rising to 8 kWh / m2 per day in summer (see Figure 4).49 According to Renewable Energy Resource Assessment carried out by the Italian Ministry for the Environment, Land and Sea, this amount of solar radiation in Montenegro, specifically in the coastal and central regions, is comparable to that of Greece and Southern Italy, while Podgorica has a higher level of annual amount of solar energy (1,600 kWh/m2/annum) than any other city in South East Europe.

48 Ministry of Economy (2006) Potentials of Renewable Energy Resources in Montenegro, Presentation Cavtat, November 15-16 49 No reliable ground data sets are currently available in Montenegro and the generation of solar maps was based only on satellite data.

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SEA of the Montenegro draft National Energy Development Strategy 4.73. Solar photovoltaics are not well established in Montenegro and use of solar energy is concentrated on thermal water heating, ambient heating and cooling for households and tourism accommodation, largely at the coast. Data on national uptake of solar thermal technology is not available, although its use is not considered to be widespread. While this technology is supported as a way of reducing household energy consumption by the Montenegrin Government in theory, however incentives and practical measures to support implementation are still yet not in place. Figure 4: Solar Energy Potential, May

Wind 4.74. Existing wind power generation facilities consist of a single turbine constructed as a Pilot Project at Ilino Brdo, with 500kW installed capacity generating in the region of 1.25 – 1.8 GWh/year.50 This project, supported by the Dutch Government, is ongoing, although at the time of writing the turbine was not operational. 4.75. Estimations of theoretical average wind speed and potential in Montenegro at a reference height of 50 meters above ground level were provided within the Renewable Energy Resource Assessment carried out by the Italian Ministry for the Environment, Land and Sea. These estimates suggest that there is good potential for wind energy systems in specific areas considering technical, economic and ecological constraints. The most attractive areas for windfarm development were identified as (1) The Coastal Region where average wind speed is over 6 m/s, particularly the Rumlja range and in the hills behind Petrovac and behind Herceg Novi and Orahovac; (2) The Hills around Nikšic where there is existing road and electrical network

50

UNECE (2007)

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SEA of the Montenegro draft National Energy Development Strategy infrastructure and wind speed is in the range 5.5-6.5 m/s. Areas of inland are restricted by high altitude, inaccessibility and distance from the network. Other renewables 4.76. At present tidal and wave energy is not utilised within Montenegro and no conventional geothermal energy potential has been identified. Transmission and distribution 4.77. Despite topographical constraints Montenegro has a relatively well-developed transmission and distribution network. The high-voltage transmission system consists of 400, 220 and 110 kV lines and is integrated with the transmission networks of Albania, Bosnia and Herzegovina and Serbia (See Figure 5). The corresponding distribution network consists of: • • • • • 35 kV delivery lines, 1,150 km in total length 10 kV delivery lines, 4,230 km in total length 0.4 kV delivery lines, 14,000 km in total length TS 35/X kV, 108 facilities TS 10/0.4 kV, approximately 3,000 facilities

4.78. The Power Distribution Company of Montenegro is in charge of distribution of electricity and maintenance, development and management of the network. The distributional network covers a high proportion of households, although some of the most inaccessible settlements in the Central and Northern Region are excluded. Further development of the transfer and distribution network is necessary as many settlements do not have an adequate quality supply of electric energy. Figure 5: Montenegro Transmission System

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SEA of the Montenegro draft National Energy Development Strategy (Ministry for Economic Development, 2007) Energy efficiency 4.79. Energy efficiency in Montenegro is low by international standards. According to the draft Energy Development Strategy, in 2003 the energy intensity of gross electricity consumption amounted to 2,955kWh/103 per US$2,000, which is 8.5 times higher than the EU15 average, and higher than almost all other countries in the region. Similarly, the Strategy states that total energy intensity at 1.908 Koe/US$2,00051 is 5.6 times that of the EU15 average. High energy consumption per unit GDP is largely related to the Aluminium industry. However, low energy production efficiency of the Pljevlja thermal power plant, obsolete technologies in industry, poor energy consideration in the design of buildings, and the widespread use of electricity for heating and cooling purposes are also factors. High power transmission and distribution losses are also significant and in 2004 these losses amounted to nearly 12 per cent of total electricity consumption52. Although the rate of electricity losses decreased in 2006, losses in the energy transmission and distribution network remain high. 4.80. An Energy Efficiency Strategy was approved in 2005, and some small steps have been taken towards improving energy efficiency. However, there is still significant potential for further energy savings particularly in relation to energy-intensive industries, notably the large aluminium plant, Kombinat Aluminium Podgorica (KAP), and in other parts of the economy, including the private household sector. Oil Derivatives 4.81. Oil and gas extraction does not take place at present within Montenegro and the country is currently totally dependent on imports. According to the draft Energy Development Strategy Montenegro imported 13.3-15 PJ or 315,000-355,000 tonnes of oil derivatives per annum between 2000 and 2005. However, recent explorations also indicate that there is potential for the exploitation of undersea oil and gas on Adriatic seabed. Total oil core potential has been determined in two separate submarine zones amounting to 12.5 billion tonnes while gas reserves are estimated to be 425 billion m3.53 4.82. Liquefied Petroleum Gas (LPG) is imported through the storage terminal and port at Bar. LPG is sold in small metal containers for the service sector and households and in larger containers for industrial and commercial use, and as a transport fuel. 4.83. Heavy oil is used in significant quantities within the Aluminium smelting process, both in the production of cathodes and casting of aluminium. Trade in energy products 4.84. Montenegro has a high overall trade deficit with the value of exports representing roughly 65% of imports. This deficit is largely a product of increasing domestic

51 52

Kilograms of Oil Equivalents The Energy Efficiency Strategy, 2005 53 The Draft Energy Strategy; Green Paper, 2007

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SEA of the Montenegro draft National Energy Development Strategy demand, low competitiveness of manufacturing production, and a significant grey economy. Montenegro imports oil derivatives (55-60%), electricity (35-40%), and a very small amount of lignite (<1%). Energy exports of 5.48 PJ in 2004 are almost fivefold lower than imports and includes electricity (4.87 PJ / 88.8%) and coal (0.61PJ / 11.1%). 4.85. The structure of international trade in the Montenegrin economy is characterised by low diversification in exports and high level of imports of raw materials and produced goods. In terms of export, aluminium alone accounts for 41% of the total export value, while other industrial and manufactured products account for approximately 27%. 4.86. The amount of energy imported and exported varies from year to year as shown in Table 6 and Figure 6 thus Montenegro’s dependence on imports of electricity has thus remained quite high over the past decades. A large share of the electricity supply (about 26.5 per cent in 2006) is provided by the Serbian Electric Power Utility (EPS) under a long-term contract. Typically the balance of energy imported ranges from 55-60% oil derivatives and 35-40% electricity with very small amounts of lignite. There is no natural gas infrastructure in place at the present time. Table 6 and Figure 6: Primary energy production against imports (shortfall)
PJ Primary production Shortfall Total consumption Share of primary energy (%) 1990 24.03 21.70 45.72 52.55 1997 27.85 15.30 43.15 64.55 1998 36.61 16.25 52.87 69.26 1999 33.86 16.47 50.34 67.28 2000 34.31 19.48 53.79 63.78 2001 34.51 20.01 54.51 63.30 2002 30.78 20.74 51.52 59.74 2003 34.55 20.80 55.35 62.29 2004 43.34 19.73 63.07 68.55

Primary production 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1990.

Shortfall

1997.

1998.

1999.

2000.

2001.

2002.

2003.

2004.

Consumption 4.87. In 2004, industrial production was the largest consumer of energy in Montenegro accounting for approximately 44.1% of final energy consumption (see Table 7), and around 60.7% of final electricity consumption (see Table 8). General domestic production was the second largest energy consumer using around 32% of total consumption. Lignite is the main hydrocarbon consumed, the vast majority of which is utilised for electricity production, while coke is used in the steel industry (See Table 7). A significant proportion of final energy consumption was used in

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SEA of the Montenegro draft National Energy Development Strategy transportation (24.9%), of which petroleum derivatives were the most important energy source. Table 7: Final Energy Consumption (PJ)
Final Consumption Industry Transport Domestic Consumption of petroleum derivatives Other consumption 2003 29.9 13 6.9 10 10.9 5.54 % 100 43.5 23.1 33.4 36.5 18.5 2004 30.58 13.5 7.3 9.78 % 100 44.1 24.9 32 -

Table 8: Electricity consumption (GWh) Electricity Consumption 2003 % Industry total 2,292 60.7 Electric railways 21 0.6 Public water supply system 98 2.6 Public lighting 24 0.6 Households 1,079 28.6 Business 194 5.1 Other customers 36 1.0 Agriculture 31 0.8 Total 3,775 100 Source: Statistical Yearbook of the RoM (2005) 4.88. 2004 2,377 22 96 24 1,043 188 34 31 3,815 % 62.3 0.6 2.5 0.6 27.3 4.9 0.9 0.8 100

The second largest electricity consumer is the household/public sector. Consumption doubled during the 1990s and has a per capita level of 1,500–2,000 kWh/annum (UNECE, 2007). This increase has largely been a result of higher demand for air conditioning and heating. There is no district heating or natural gas network in Montenegro and given that oil boilers are not common, about half of the population use electricity for domestic heating. Table 9: Consumption of carbon based energy sources used in industry and electricity generation (2005)
Coke Dark coal Industry Supply to electricity Total 64,816 64,816 2,048 2,048 Lignite 32,941 1,382,824 1,233,283 Liquid fuel 14,016 14016 LPG 822 822

(Source: Monstat, 2006) Energy pricing 4.89. Steps towards the liberalisation of the energy market have taken place in Montenegro through the functional unbundling of the grid operation and national electricity company Elektroprivreda Crne Gore (EPCG) and ongoing privatisation of the Pljevlja thermal power plant. There has also been progress in creating the legal basis for

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SEA of the Montenegro draft National Energy Development Strategy further reform of the energy sector and the Energy Regulatory Agency became operational in 2004. 4.90. There are currently three different tariff categories for low voltage electricity for household consumption of between 0.044 €/kWh and 0.022 €/kWh in 2006 (see Table 10). The price for other consumption categories consisting of mainly commercial customers ranges from 0.115 €/kWh to 0.126 €/kWh. 4.91. A considerably lower tariff schedule applies to large industrial consumers, namely the steel plant at Nikšic and the Kombinat Aluminium Plant, Podgorica. These consumers connect directly to the transmission grid (saving up to 90 per cent of network costs); have a steady bulk demand for electricity, easing planning of electricity production; and are considered to be reliable customers. Table 10: Electricity Prices (2006)
Tariff for low voltage consumers 0.4kV Households For dual tariff Single Tariff Other consumption I level – customer with metered electricity II level – no metered electricity Tariff rate Higher Lower Higher Higher Lower Higher Lower Euro cents per KWh 4.43 2.21 3.54 11.50 5.75 12.56 6.28

Source: EPCG Sept, 2006 (in UNECE, 2007)

ECONOMIC CONSIDERATIONS
4.92. Since 1997 Montenegro’s economic reform programme has been based around macroeconomic stabilisation and market-oriented structural reforms. The adoption of the Euro as a unit of currency was crucial for economic stabilisation while fiscal reforms for improved revenue collection helped to cut the budget deficit. Liberalisation has led to the privatisation of a large share of the country’s main industrial sectors and significant increases in Foreign Direct Investment (FDI) and international competition in domestic markets. However, there is also a significant black/grey economy present in the country and corruption is high with privatisation, concessions, construction and spatial planning and public procurement cited as examples within the EU Progress Report (2006)54. 4.93. The total value of products and services in Montenegro in 2005 was more than €1.785 billion or €2,864 per capita. This represents a significant increase of more than 70 percent from that recorded in 2000 and corresponds to an average growth rate of approximately 2.5 percent per annum. The Institute for Strategic Studies and Prognoses, Podgorica, forecasts GDP of €6,117 per capita by 2020, compared with the €8,000 predicted by the Spatial Plan of the Republic of Montenegro (2007).

54

Commission of the European Communities: Working Document (2006) Montenegro 2006 Progress Report

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SEA of the Montenegro draft National Energy Development Strategy Table 11 Gross Domestic Product, Montenegro (2000-05)
GDP current prices (million €) GDP per capita (€) GDP growth rate (%) 2000 1,022.2 1,679 3.1 2001 1,244.8 2,031 -0.2 2002 1,301.5 2,113 1.7 2003 2004 1,392 1,651.1* 2,252 2,654* 2.4 4.2 2005 1,785.3 2,864 4

Source Monstat (2007) 4.94. The Montenegrin economy is oriented towards services, including tourism, and specialises in the manufacture of a few products, notably aluminium. Power generation, mining and metal processing account for around 70 per cent of industrial output. Other industries include forestry, textiles, food processing and manufacturing. The agricultural sector’s share of GDP is insignificant but plays an important part in maintaining the landscape and rural economy. Employment 4.95. In 2006, there were 150,800 people employed in Montenegro, 3.7% of whom worked in the production and supply of electricity, gas and water, and a further 2.8% working in the related mining and quarrying sector (see Table 12). The largest employment sectors as a proportion of the workforce are trade, vehicle repair and goods (19.6%) and manufacturing (17.28%), the latter being significantly related to energy cost margins. The state sectors of health and education and public administration representing a combined 23% of the workforce are also important alongside transport, storage and communications (8%), and hotels and restaurants 7.9%. Agriculture, forestry and water-power and fishing represent only 1.81% the total workforce. 4.96. The average wage in Montenegro in 2006 was €377.36, while average wage after taxes and contributions was €245.95 representing an increase of 12% from the previous year. Table 12: Employment by Sector (2006)
Employees Wholesale and retail trade, repair of vehicles, personal and household goods Manufacturing Education Transport, storage and communication Health and social work Hotels and restaurants Public administration and compulsory social security Other community, social and personal service activities Construction Real estate, renting and business activities Production and supply of electricity, gas and water Mining and quarrying Financial intermediation Agriculture, forestry and water-power 29,602 26,065 12,846 12,133 12,012 10,928 10,345 8,489 6,853 5,905 5,627 4,159 3,114 2,607

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SEA of the Montenegro draft National Energy Development Strategy
Employees Fishing Total 115 150,800

Source: Monstat Industry 4.97. Prior to 1991, as a centrally planned economy, Montenegro generally saw large investment in heavy industry as an essential part of economic development. However, these industries are now characterised by outdated and inefficient technologies and are responsible for a significant environmental degradation. Major investment is required in order to improve efficiency and environmental performance, as well as clean up the legacy of contamination in a number of areas. 4.98. Production of steel and aluminium represented by far the largest manufacturing sectors within the Montenegrin economy (43.5%), followed by production of electric energy (21.6%), production of food and beverages (8.2%), production of salt (7.4%), extraction of salt and stone (7.2%) and production of tobacco products (6.4%) 4.99. Within industry, by far the greatest consumer of energy is the Kombinat Aluminijuma Podgorica (KAP). Built in 1971, the KAP is Montenegro’s largest employer and accounts for nearly half of the country’s industrial production. The plant produces around 280,000 tonnes of alumina and 103,000 tonnes of aluminium a year and uses roughly 70% of total industrial energy, as the largest customer of EPCG, Belgrade Railways and Jugopetrol. The Steel producing plant in Nikšic is the next largest individual consumer of energy within Montenegro although this is far below that of the KAP. Other significant consumers include construction, transportation, agriculture, timber processing, tourism and other manufacturing. 4.100. The Montenegrin mining industry is also a major sector of the economy. Coal resources in Montenegro include reserves of lignite mined in the Pljevlja basin, and brown coal within the Berane municipality. Lignite is exploited by surface exploitation, while brown coal reserves would require sub-surface extraction. While information on coal reserves is generally inadequate, total exploitable reserves are estimated to be in excess of 200.5 million tonnes, over 110 million tonnes of which is within the Berane basin. Red bauxite is the most significant metallic mineral ore mined in Montenegro, supplying the principal raw material for the aluminium plant at Podgorica. There are total reserves of around 34 million tonnes located in over 90 deposits and mining takes place at Zagrad, Đurakov, Biočki stan, Štitovo II, Borovnik and Borova brda, located in the region of Nikšićka Župa. Other significant minerals resources in Montenegro include, sand and aggregates and architectural stone, copper, zinc and lead. 4.101. Montenegrin industry benefits from a lack of ‘hard budget constraints’, most notably artificially low energy prices. This is particularly advantageous for energy intensive industries such as metallurgy and cement manufacturing. However, such subsidies come at a high cost to the consumer. Taking the Kombinat Aluminium plant as an example, as stated above, KAP consumes an enormous share of total primary energy

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SEA of the Montenegro draft National Energy Development Strategy production. As a result, a large amount of electricity must be imported in order to make up for a lack of domestic productive capacity. 4.102. Under the terms of the privatisation agreement between the Government of Montenegro and the KAP, EPCG must supply electricity at a price well below the market rate, whilst simultaneously importing electricity at a higher rate than that produced domestically. Furthermore, KAP is the head of a production chain of benefits from subsidies paid to downstream industries such as petrochemicals, railways, ports and mining. Table 13: Production of main industrial products
2004 Mining and Quarrying (tonnes) Lignite 1,514,264 Red bauxite 610,000 Sea salt 20,000 Manufacture of basic metals (tonnes) Steel Aluminium oxide Aluminium 272,398 245,005 117,387 1,288,016 672,345 15,000 200,950 235,196 121,565 2005

4.103. Wages in energy production compare favourably to other sectors within the Montenegrin economy with the average monthly salary of €633 being well above the €377 national average (2006). Heavy industry and manufacturing are highly sensitive to changes in energy production and increases in the cost of energy could have significant implications for employment. The Kombinat Aluminium Plant employs around 1,500 workers directly at the plant, but many more are dependent on the plant as it is at the head of a large production chain. The mining sector is the most important link in this chain in terms of employment with more than 4,000 employees in 2006. Although jobs in these sectors are generally physically hard, wages are also well above the national average, with a miner typically earning €590 per month last year. Together, mining and quarrying, energy and water, and manufacturing had more than 36,000 employees in 2006 which represents almost a quarter of the total employed population (150,800)55. 4.104. Tourism has been based since 1990 largely on the domestic market and holiday makers from adjacent countries. Under state control, accommodation took the form of apartment blocks on the coast, representing 44% of all bed spaces. Hotels accounted for only 10% of the total. The standard of much of the tourism accommodation and infrastructure, including sewerage and water supply, deteriorated during the 1990’s due to lack of maintenance and investment. Significant progress has been made in recent years to improve accommodation standards but there is a lot more that needs to be done. 4.105. The coastal zone has benefited mainly from tourism in terms of economic activity although the Northern Region has great potential in terms of its outstanding conditions for conventional winter and mountain tourism and recreational tourism.
55

Monstat, 2007

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SEA of the Montenegro draft National Energy Development Strategy 4.106. Tourism is not sufficiently diversified, the majority of accommodation facilities are inadequate and most areas lack sufficient infrastructure, including transport and water supply, sewerage systems and waste. Tourism is lagging behind in the northern region, despite strong potential for alternative types of tourism, (e.g. winter and ecotourism) are not sufficiently developed. Significantly, the existing accommodation capacity and planned expansion (to around 40%) is against strategic objectives of tourism development of Montenegro. 4.107. Agriculture: Agricultural land is severely limited in Montenegro, owing to the rocky and mountainous terrain that covers most of the country. Agricultural land accounts for around 518,067 ha or 37.5% of the total land area. However, land which can be ploughed accounts for less than half the total (189,745 ha). Most agricultural activity takes place on the plains, although these only encompass around 5% of the total area. Of this area, only around 150 km² is available for intensive agricultural use without restrictions, while the remaining 550 km² lacks reliable water sources, is exposed to flooding or is too dry. The main agricultural commodities produced are livestock, fruits (especially grapes, olives, and citrus), and to a lesser extent cereals. According to the baseline study, agriculture and fisheries contributed around 15% to GDP in 2004 although this proportion is greater when related processing industries are taken into consideration. However, there is a considerable trade deficit in relation to food, amounting to around €150m in 2003. As a result of these factors, high quality agricultural land is at a premium, and the Draft Spatial Plan (2007) argues that this should be protected against development as far as possible. 4.108. Forestry is of great social, economic and environmental importance. The Draft Spatial Plan56 suggests that the forest resource is under-utilised in the areas of Durmitor, Cehotina River Valley, Gornja Tara and Ibar and poorly managed around Polimlje. Excessive deforestation or insufficient control of timber exploitation has also occurred in the High Karst areas and the hills within the central region. • Over the last fifteen years forestry has been in decline in Montenegro, with only 66% of planned wood production realised, and very little regeneration and new planting. The quality of timber, in relation to natural conditions (climate, land, etc), is much worse than could be reasonably expected, especially in the north-east of the country, due to lack of forest management. Of the total wooded area around 47% is covered by woodland that is either of excessively poor quality or inaccessible for harvesting. 75.3% of Montenegro’s forests are in public ownership. Overall funding and investment in technological development in forestry and related industry has been minimal. There has been little progress in privatisation within the sector. The number, length and quality of existing forest access roads is far below that needed for effective forest management which reduces production capacity.



• • • • •

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SEA of the Montenegro draft National Energy Development Strategy • The degree of openness and transparency within the forestry sector is well below that which is desirable.

4.109. A UNESCO/FAO Report57 notes that records of timber felling are poor and that no form of environmental impact assessment is carried out in harvest areas prior to felling. Government control over the price of forestry products is exercised through a stumpage charge which has been set at a level prohibiting investment in replanting. 4.110. Information on wood processing is combined for the two countries which makes it difficult to be specific about conditions in Montenegro. However, in both countries wood processing includes sawnwood production, window and door construction and production of packaging and veneers. Montenegro has a particle board mill with a throughput capacity of 30,000 tonnes per annum. Small saw mills are a common feature of rural settlements and timber production plays a significant part in the local economies of these communities. Increases in electricity prices particularly in 2002 led to a marked increase in demand for firewood (principally beech). Felled timber prices were in the region of €17-22 /m3 in 2002 with a consumer price in towns of between €35 and €40/ m3. 4.111. Fishing: Freshwater fisheries are restricted to 1,752 km of running water and 2,062 ha of natural lakes and reservoirs. In general these areas are less productive than they could be. Pollution has adversely affected some areas. Around 250-1,045 tonnes of fish are reported to be caught annually in Skadar and Šasko Lakes58. 4.112. Marine fisheries consist primarily of ‘blue’ fish and yield around 477 tonnes per annum which is said to be well below the potential sustainable catch, although both assumptions are open to challenge based on information contained in the National Report on the Status, problems and Conservation of Coastal and Marine Biodiversity in Montenegro59 and the National Integrated Coastal Management Strategy Diagnosis60. The National Report draws attention to the unreliability of baseline data and quotes two sources that gave very different estimates for marine fish catches in 1998 ranging from 2,800 tonnes61 to 416.6 tonnes62. The Law of Marine Fisheries introduced in 2003 aims to achieve better recording of fish catch

Privatisation of energy intensive industry
4.113. The privatisation of electric power companies is an extremely sensitive issue in Montenegro. There is a need for significant investment to modernise the facilities proposed for privatisation. However, environmental requirements have not been given adequate weight in previous prominent privatisation contracts. For example,
Forest and Forest Products Country profile: Serbia and Montenegro; Geneva Timber and Forest Discussion Paper 40, United Nations, Geneva, 2005. 58 Vasilije Buskovic et al. National Report on the Status, problems and Conservation of Coastal and Marine Biodiversity in Montenegro, February 2004 59 Ibid. 60 GTZ (2006) the National Integrated Coastal Management Strategy Diagnosis 61 Regner, S., A. Joksimović, Fishing-Biological Potentials Aquatory of Montenegrin Coast: A study as a data for an Environmental Plan Sea Property, Republic of Montenegro, Kotor, 2000. 62 Federal Statistics Office quoted in Vasilije Buskovic et al. National Report on the Status, problems and Conservation of Coastal and Marine Biodiversity in Montenegro, February 2004
57

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SEA of the Montenegro draft National Energy Development Strategy KAP was purchased by a private foreign company, Rusal, in 2005. The investor agreed to spend €20 million on a five-year programme for remediation and environmental investments and for the replacement of obsolete equipment. However, the extent to which these obligations have been fulfilled is not generally available and therefore uncertain.63 4.114. The privatisation of the Pljevlja coal-fired power plant and the nearby lignite open mine pit has been planned since early 2006, but at the time of writing no decision has been made. Further investment plans foresee the establishment of a second power block of 225 MW involving a total expenditure of €170 million. As a result, the profitability of the plant is expected to improve and the cost of electricity production to fall.64 4.115. A strategy for restructuring and privatisation of the state power utility (EPCG) was also developed in 2005.65

SOCIAL CONSIDERATIONS
4.116. Montenegro is characterised by a number of key demographic issues. Firstly, there has been a significant trend of population migration from North to South, especially to the Central and Coastal Regions. This has altered the demographic structure of the Republic considerably. Whereas, in 1961, the Northern Region, with 46% of the country’s population, was the largest region by 2003 this share had declined to 33% (See Table 14). This had led to increased demographic pressure in major towns, leading to infrastructure and social problems. Furthermore, migration from many rural areas to larger settlements has increasingly occurred with young people the key migrant groups. This has lead to rural depopulation and an ageing population structure in many rural areas with negative implications for the local economy and community. Table 14: Regional Population Structure between 1961 and 2003 (%)
1961 Northern Region Central Region Southern Region 46.19 36.13 17.68 1971 43.44 38.28 18.28 1981 39.19 41.0 19.81 1991 37.17 42.56 20.27 2003 33.01 43.3 23.69

Source: Monstat, 2007 4.117. In terms of health, increasing mortality rates and reduced life expectancy levels have been observed in recent times and there is a significant imbalance in the spatial distribution of health facilities in favour of the main urban areas. 4.118. The poverty rate in Montenegro defined as those earning less than $5 per day is estimated to be as high as 12 percent of the total population. Poverty is especially
MANS Free Access to Privatisation Information in Montenegro: Behind the Closed Doors Case Study Aluminium Plant Podgorica – Introduction, Calovic V, Deletic M, 2006 64 UNECE, 2007 65 Development and Privatisation Strategy for EPCG and Coal Mine Pljevlja, IPA Energy Consulting, IDOM, Carl Bro, Planet Ernst and Young
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SEA of the Montenegro draft National Energy Development Strategy concentrated amongst the Roma minority and Internally Displaced Persons (IDPs). In addition, around 30 percent of the population is classed as economically vulnerable. Poverty levels are highest in the Northern Region, which contains 45 percent of households classified as poor and the poverty rate in this region is almost double the national average66. 4.119. Wealth has increasingly become concentrated within a small elite section of society while the number of people classed as vulnerable has also increased considerably over the previous decade. Montenegro has a Gini Coefficient67 of 0.29 making it one of the most unequal of countries in the West Balkans, and there are indications that the gap between rich and poor is widening68. 4.120. Approximately 30.3 percent of the labour force was registered as unemployed in Montenegro in 2005. High unemployment is structural and long-term, with the overall employment rate falling well behind the EU15 average. However, the national Employment Agency has estimated that as much as 30 percent of those registered as unemployed hold jobs in the informal economy. Seasonal employment is centred on the tourism, construction and agriculture sectors and where precarious forms of employment contract are common69 . 4.121. Energy poverty is becoming an increasingly significant issue in Montenegro. Under the Socialist Government energy was provided to the population at artificially low rates. Tariffs were increased substantially in 2003 and have remained unchanged since that time. However, the current price of between 0.044 €/kWh and 0.022 €/kWh in 2006 is much lower than the estimated regional price for South East Europe of 0.06 €/kWh suggesting that household electricity prices are still significantly below full cost recovery levels70. The price of electricity to the household consumer is therefore expected to increase significantly in upcoming years with the rationalisation and liberalisation of the energy sector. The Energy Efficiency Strategy estimates that electricity tariffs for domestic consumers should rise by 200% between 2004 and 2009 to conform to the Energy Law and entry into regional markets.71 While price rises may stimulate some favourable changes in consumption, the relative inelasticity of energy use for basic needs coupled within increasing incidence of poverty means that these changes are likely to lead to increased energy poverty in the Republic.

REGIONAL CONTEXT
4.122. The current state of Montenegro’s energy sector has been heavily influenced by the role it played in the former Yugoslav Republic in supporting heavy industry and by the effects of civil strife within the region. Much of the country’s electricity infrastructure was developed between 1960 and 1980, including its two main HPPs
UNECE, 2007 The Gini coefficient is a measure of inequality of a distribution of income. It is defined as a ratio with values between 0 and 1 68 UNDP Country Programme Republic of Montenegro (2007-2011), November, 2006 69 Commission of the European Communities: Working Document (2006) Montenegro 2006 Progress Report 70 UNECE, 2007 71 Draft Energy Efficiency Strategy Initial Report, IPA Consulting, IDOM, Carl Bro, Planet Ernst & Young, 2004, page 4
67 66

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SEA of the Montenegro draft National Energy Development Strategy and the Pljevlja thermal plant and the country’s internal distribution network was fully integrated with that of Serbia. 4.123. Due to conflicts in the region and the imposition of sanctions very little investment has taken place in Montenegro between 1990 and the present day, and much of the country’s industry was either shut down or underutilised. These conditions were also experienced in most of the rest of the Balkan region, although in other parts the basic infrastructure was also heavily damaged by hostilities. 4.124. In the period of conflict reconstruction, the international community has offered substantial aid for development in the power and transport sectors on condition that all countries work together in rebuilding the regional infrastructure. In Montenegro’s case this has also involved transposing EU Directives and regulations into national legislation as part of the process of EU accession. 4.125. One of the most important regional initiatives is the Energy Community Treaty. Non EU Countries, including Albania, Bosnia and Herzegovina, Croatia, Macedonia and Serbia and Montenegro signed the Treaty establishing the Energy Community in October 2005 and the Montenegrin parliament subsequently ratified the Treaty as an independent state in 2006. The Treaty places obligations on its members in terms of energy, environment, competition and renewables, and these are due to be implemented in accordance with the Aquis Communautaire. 4.126. The Acquis Communautaire on energy is represented by Directives 2003/54/EC and 2003/55/EC meaning that legal unbundling requirements should be met by the signatory countries for both Transmission Service Operators (TSO) and Distribution Service Operators (DSO). The basic principle of unbundling is “to ensure that effective competition flourishes within domestic markets. It is vital that all market players can access the transmission and distribution networks on equal terms with no preferential treatment given to a single market participant.”72 The Treaty requires that all non-household users are eligible to freely choose their electricity supplier from 1 January 2008 with all customers having this right by 2015. 4.127. The goals that now driving energy policy across the region include: • • • Achieving a single European Energy market, Privatisation and unbundling of state-owned energy assets, Increasing efficiency and energy conservation,

4.128. A number of international studies have been undertaken to assess the likely effectiveness of the South East European regional energy market.73 74 These studies use the Generalised Equilibrium Trade Models (GETMs) to analyse the operation of
72 73

Central and Eastern European Electricity Outlook 2007, KPMG, Budapest, Hungary 2007 Modeling the Regional Electricity Network in Southeast Europe, Vladimir S Kortiarov and Thomas D. Veselka, Argonne National Laboratory, Illinois, 2006 74 Regional Balkans Infrastructure Study, Final Report, Executive Summary, PriceWaterhouseCoopers, EU CARDS programme. December 2004,

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SEA of the Montenegro draft National Energy Development Strategy individual state utility systems and then test the likely effects of regional transfers. Argonne Laboratories working for USAID concluded that lower energy costs would result, with some of the utility systems that currently suffer from intermittent shortages being assured of more reliable access to power in future. 4.129. PwC et al. forecast South East European energy demands to 2020 based on an analysis of key macro-level economic drivers. The model took account of the following assumptions: • • Linear relationship between growth of new electricity demand and economic growth, A more complex relationship between existing electricity demand and economic growth (i.e. electricity intensity). The electricity intensities in some Eastern European countries have fallen sharply as their economies have diversified away from energy intensive industries or invested in equipment or processes to improve electricity intensity and this trend is expected to occur in SE Europe over the period to 2020, Economic growth above the 2-3% likely in EU countries, in the range 3-5%, If, due to specific social or economic conditions, electricity intensities remain high in some jurisdictions, these economies will become less competitive and growth of both economies and new electricity demand will be constrained.

• •

4.130. Three scenarios for future growth and energy demand were modelled for each country. The model forecast hourly electricity demand for specific weeks and took account of seasonal variations. Possible growth in demand in summer from increased air conditioning demand and decreased demand in winter due to more efficient heating systems in homes and businesses were also factored into the predictions. 4.131. Future energy sources were assessed for the countries involved, based on meetings and discussions with utilities and government agencies. These included nuclear energy from Bulgaria, Romania, Croatia and Slovenia; thermal power based on lignite mining, combined heat and power, and hydro and other renewables. A major part of the study focussed on the need for upgrading the regional transmission network, especially in the Serbia and Montenegro area. 4.132. The study concluded that there are significant benefits in considering investments on a regional basis in South East Europe. Economic modelling suggested that the most attractive new plant from a regional perspective would comprise the Belene and Cernavoda nuclear units in Bulgaria, several 300-500 MW lignite TPPs, a 300-500MW gas fired combined cycle plant and 500MW super-critical imported coal plant. Sensitivity analysis showed that investment costs for hydro were high but operational costs were low. The study noted that the potential benefit offered by hydro plant is that of fuel diversity, protection against high gas prices and long term low production costs. The PwC study placed little emphasis on the role of renewables but KPMG 75
Central and Eastern European Electricity Outlook 2007, KPMG, Budapest, Hungary 2007; and Regional Balkans Infrastructure Study, Final Report, Executive Summary, PriceWaterhouseCoopers, EU CARDS programme, December 2004
75

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SEA of the Montenegro draft National Energy Development Strategy suggest that renewable generation is expected to greatly increase its share of the overall generation mix due to EU incentives and regulations and growing concerns regarding the environment and reliance upon foreign, mostly Russian, primary energy sources. 4.133. Targets for renewable energy development exclude large hydro schemes, and recognise that appropriate state support is necessary to meet EU targets. Those countries that have rich hydro potential have been set higher targets than the rest76. 4.134. The KPMG review covers expansion programmes for nuclear power in Bulgaria, Romania, Slovakia and Slovenia/Croatia, and thermal power from coal and lignite in Serbia. 4.135. Dependency on natural gas is low in the region but growing. The main constraints are the absence of local reserves and concerns over security of supply since imports come largely from Ukraine. There are, however, longer term plans to route natural gas from Iran through Turkey to the region.77 Gas fired power stations do have major advantages, however, they have high efficiency which can reach almost 58% and high generation flexibility, being capable of being switched from peak load to 30% in a short time. In addition, the required capital expenditure is relatively low and emission levels for new Combined Cycle Gas Turbine (CCGT) plants are the lowest for TPP technology. 4.136. Albania is planning two developments to deal with its power shortages; a 100MW thermal plant on the coast at Vlore which consists of a 70 MW gas turbine and 30MW steam turbine (due to start commercial production in 2009). The plant will operate initially on distilled oil but convert eventually to natural gas. A larger 1200 MW CCGT Plant with LNG terminal is planned by ASG Power at Fieri.

Clean Development Mechanism (CDM)
4.137. Montenegro, Serbia, Bosnia and Herzegovina, Albania and Macedonia all qualify under the Kyoto CDM for support from industrialised countries which invest in emissionreducing projects in developing countries. By making such investments promoters from industrialised countries can achieve the same amount of greenhouse gas emission reductions as without the CDM.

Energy Efficiency
4.138. In October 2006, the European Commission adopted the Energy Efficiency Action Plan with the aim of reducing the global primary energy use by member states by 13% saving €100billion and around 780 million tonnes of CO2 each year.

Moving to a Single Market
4.139. At present individual energy markets are dominated by long term Power Purchase Agreements (PPA) which result in widely varying electricity prices. Under these conditions some “liberalised market traders and consumers are fighting for capacities,
76
77

See http://europa.eu/scadplus/leg/en/etc Institute of Energy for South East Europe (IENE) 2007

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SEA of the Montenegro draft National Energy Development Strategy since significant unused capacities are locked in PPAs while in other countries, the government or incumbent electricity player still directly controls or heavily influences electricity prices. Long term international contracts are also blocking access to cross-border capacities. Therefore the auctioned capacities that are accessible for the liberalised market are low. On the other hand, the emission costs, low efficiency levels and decommissioning of outdated power plants are expected to increase generation prices.” (KPMG 2007) 4.140. At a recent energy conference in Thessalonica (IENE 2007), constraints in development of the SEE Energy Market were discussed. The main factors were recorded as:
• • •

An increasing dependency in Europe on imported energy from 50% in 2007 to 70% in 2030, Growing concern about climate change and CO2 emissions forcing greater attention on renewable energy sources, including nuclear power, Strategic political and economic uncertainties over the future of long term gasproducing and gas transporting agreements between suppliers (Russia, Iran, Azerbaijan) intermediaries and consumers, Despite impressive regional integration of ideas the actual process of liberalisation is very slow. Although all provisions are in place, the crucial market opening and cross border trading parameters are still at a very early stage of development. No provision has been made for cross border trading in the gas market (except for Bulgaria and Romania).





Regional Infrastructure Development
4.141. One of the most significant developments affecting Montenegro is the progress in building the Trans-Adriatic (TAP) gas pipeline which is intended to pump 10 Billion Cubic metres a year to CCGT generation units in Italy. The project is grant aided by the EU. This pipeline will join the Turkish-Greek pipeline at Thessalonica then cross Greek and Albanian territory as far as the port city of Vlore before crossing the Otranto Straits to Brindisi. The projected Ionian-Adriatic Pipeline (IAP) would link with TAP at Vlore then continue through Montenegro to Bosnia and Herzegovina. This project has been endorsed by the World Bank

Oil and Gas
4.142. The long term prospects for commercial oil discoveries of the coast of Montenegro are being investigated by Hellenic Petroleum (HELPE) managed by the Greek Government (although it holds only 35.5% of the shares). HELPE is reported to be drafting an exploration and production programme for submission to the Montenegro authorities for two concession areas, with negotiations in progress for a third block.78

78

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Other Renewables
4.143. Within South East Europe, Rumania, Bulgaria and Greece lead the development of wind and solar power. One company, Terna Energeiaki has installed a total of 266 MW of capacity (119 wind and 147 solar thermal) in Greece and is currently constructing an additional 526 MW (114 wind, 12 hydro and 400 thermal). Statesubsidies have played a prominent role in the company’s forward planning and covered 30% of the total investment costs for wind, 35% for small-hydro and 30% for large hydro projects under construction.

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5.

THE DRAFT ENERGY DEVELOPMENT STRATEGY
INTRODUCTION

5.1.

The purpose of the Draft Energy Development Strategy (EDS) is to set out the Government’s objectives for steering the future direction of energy supply and demand over the period from 2005 to 2025. The Government’s role in this process is described in the Green Paper Abstract which provides a clear statement of the international and European context within which Montenegro’s energy strategy is being developed. It contains valuable sections on legislation, the strategy for efficient use of energy, investment opportunities, pricing policy, education and public awareness-raising. The proposals for meeting future demand take up only a quarter of the Green Paper Abstract but they are the main focus of interest of this SEA. However, the need for, and justification of, the preferred solutions to Montenegro’s future energy demand need to be assessed in the wider national and regional context and in the light of all other proposals for upgrading the infrastructure and performance of the energy sector. This chapter of the SEA outlines the main content of the Energy Strategy while Chapter 8 provides an evaluation of relevant issues from the standpoint of the SEA.

DEVELOPMENT OF THE STRATEGY
5.2. The Strategy has been developed over the last two years, commencing with a series of technical studies which resulted in the preparation of five reports: • • • • • Book A: Historic Energy Balances (July 2006) Book B: Forecasts of Final Energy Demand (July 2006) Book C: Development of Coal ,Oil and Gas Systems in Montenegro Book D: Development Plan for electric power systems in Montenegro, and, Book E: Long-term plan of Energy Supply – Energy Balances up to 2005.

A summary of these books was prepared in August 2006.

Introductory Sections
5.3. Preliminary notes (Section 1) and the Introduction (Section 2) provide the context to the Strategy. They stress the role of energy as a mainstay of the economy and describe the principle objectives of the Strategy. Section 3 provides a list of 23 Main Strategic Commitments of the Strategy (See Appendix 1). Section 4 discusses the institutional environment and legal framework within which the Energy Strategy sits. An important dimension is the relationship between Montenegro and its neighbours within South East Europe and its engagement in regional and European initiatives of which the most important is the Energy Community Treaty (2005) ratified by the Montenegrin Parliament in October 2006.

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Recent Trends in the Energy Sector
5.4. Section 5 provides extensive information about the position of energy within the national economy. The country has a high foreign trade deficit of 7.3 % although this is lower than the regional average of 9.3% of GDP. This section also discusses energy efficiency and notes the very high losses that occur principally through electricity distribution. The closing sub-sections discuss the potential for additional energy supplies from hydro, wind, solar, biomass and energy from waste. Also covered in this section are issues relating to transmission and distribution of electricity, liquid fuel supply, heat production, environmental and social aspects, the need for better information systems and links with other plans and strategies.

Underlying Assumptions for the Strategy
5.5. Section 13 sets out what are described as key assumptions which underpin the strategy. These are reviewed in Chapter 8 of the SEA and so are not repeated here.

Energy Development Strategy
5.6. Section 7 (pages 22-35) is the most important part of the Green Paper in terms of setting out the intended direction of future development and the programme and timescales for particular energy sources. The Strategy focuses heavily on two main options, expansion of thermal and hydro power. The opening subsections set out the main assumptions in terms of growth in GDP and the links between energy demand in different economic sectors and the forecasts for final energy consumption at five year intervals to 2025. A brief description is given of the strategy for efficient use of energy which includes plans for a special Law on Energy Efficiency. Hydro-Potential 5.8. Proposals are advanced for developing the hydro potential of the Moraca River and Komarnica HPP in section 7.3. This subsection highlights the need for Montenegro to reach agreement with interested neighbouring countries (Serbia, B&H and Croatia) on the use of hydro potential based on mutual strategic interests and the need to respect the interests of downstream countries in accordance with the provision of international law. It also refers to requirements for environmental impact assessment (EIA) studies and recommends that a strategic evaluation of defined development alternatives is undertaken using SEA. Based on consideration of the technical and economic opportunities, and the need to avoid development within the Tara River Basin a scenario of “moderate construction”– N2 is adopted as the most optimal. The power stations on the Moraca would have an installed capacity of 238.4 MW and generate 693.7 GWh, while the Komarnica HPP would be 168 MW and generate 231.8 GWh annually.79

5.7.

5.9.

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The Draft Energy Development Strategy; Green Paper (2007)

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SEA of the Montenegro draft National Energy Development Strategy Coal Resources 5.10. The Strategy proposes use of coal from the Pljevlja area to fuel both the existing Pljevlja thermal power station and a new power station on the same site (which was anticipated in the initial design and would share some of the basic infrastructure). Annual coal consumption would be between 2.5 and 2.8 million tonnes and the combined capacity of the two thermal power plants would be 450MW.80 Other coal resources exist in the Berane basin but these are not formally included within the strategy although it is noted that these could be developed by the private sector if further exploration and mine development confirms the feasibility of constructing a thermal power plant in this location. 5.11. In addition to use in thermal plants, coal is burnt extensively to provide heating in Pljevlja using more than 40 individual boilers. The current system of heating is inefficient and environmentally damaging. A central heating system is planned which will reduce coal consumption, improve efficiency and reduce greenhouse gas emissions. Liquefied Petroleum Gas (LPG) 5.12. The third main source of energy is oil and its derivatives which are not currently produced within Montenegro. It is anticipated that growth in use of these products will rise by 40-60% over the plan period to 2025. Two growth rates are projected for consumption of LPG: a High scenario where 60% of potential consumers enter the market by 2025 and a Medium scenario where market penetration is restricted to 30% of consumers. In order to sustain a new gas market and continue to support existing oil users Montenegro has committed itself to providing 90 days of storage capacity in accordance with Directive 98/93/EC. Other Renewables 5.13. A fourth group of energy sources comprises renewables other than large scale hydro. Allowance has been made in the strategy for provision of up to 30 MW of small scale hydro from HPPs with less than 10 MW capacity; 20 MW installed capacity of wind energy; and 10 MW of capacity from an Energy from Waste Plant. Scope for using solar and biomass is also noted but no specific provisions are made to include energy from these sources in the Strategy. 5.14. The Strategy notes that research should continue in all areas of energy potential during the period to 2025.

Development of Energy Sources
Electrical Power 5.15. The main focus of the Green Paper Abstract and the EDS is on the upgrading of existing plant and development of new generating capacity to make up the existing shortfall in electrical energy and meet the anticipated growth in demand between 2005 and 2025.
80

Ibid.

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SEA of the Montenegro draft National Energy Development Strategy 5.16. Two basic construction options have been examined in the EDS; both require upgrading of the existing Pljevlja TPP and two main HPPs (Perucica and Piva) which provide respectively almost one third and two thirds of the existing primary supply dependent on production conditions. 5.17. The first option N-1, (described as a scenario of limited construction), is based on building the additional Pljevlja 2 TPP (225 MW) and adding 60 MW of capacity from small hydro, wind and waste. 5.18. The second option, N-2, (described as a scenario of moderate construction) involves building the same elements as N-1, but adding a further 406MW of capacity in the form of four HPPs on the Moraca River (combined capacity 238MW) and the Komarnica HPP (168MW). The total capacity of N-2 is 691 MW. LPG, Natural Gas and Oil Supplies 5.19. The construction options (N-1 and N-2) and the options for developing LPG markets (Medium and High) are components within Scenarios S1, S2 and S3. These are setout as follows: • • • Scenario 1 (S1): ‘Limited Construction’ Scenario (N-1) in conjunction with ‘Medium development’ of the LPG market Scenario 2 (S2): ‘Moderate Construction’ Scenario (N-2) in conjunction with ‘Medium development’ of the LPG market Scenario 3 (S3): ‘Moderate Construction’ Scenario (N-2) in conjunction with ‘High development’ of the LPG market

5.20. The Strategy does not anticipate use of LPG or natural gas in large thermal power plants, but considers its main use would be for industrial cogeneration schemes and small generators in the service sector and in households. Markets for LPG would be developed as a precursor for natural gas. 5.21. Total demand for petroleum derivatives will continue to be met through imports, accounting for 40% of total energy requirements. Small quantities of biodiesel and hydrogen would be imported during the last five years of the Strategy. Central Heating Schemes 5.22. The S2 and S3 Scenarios envisage that cogeneration and central heating would be introduced to major cities, principally Pljevlja to increase energy efficiency and reduce the current adverse environmental impacts from air pollution. Other Renewables 5.23. Opportunities for introducing additional wind, small hydro, biomass and energy from waste schemes are acknowledged (section 7.13 of the Green Paper) but these are not expected to add significantly to the total energy supply.

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SEA of the Montenegro draft National Energy Development Strategy Alternative Nuclear Option 5.24. Reference is made in a later section (10.9) to nuclear power as an alternative source although this is discounted for reasons that are reviewed in more detail in Chapter 11 of this SEA. Import /Export of Electrical Energy 5.25. Under the limited construction scenario N-1 and medium development of the LPG market (S1), between 100 and 600 GWh of electricity would need to be imported annually, whereas with N-2 and medium or high development of the LPG market (S2) Montenegro would become a net exporter of electrical energy between 2013 to 2023 with a maximum of 600 GWh in 2015. Development of Power Transmission System 5.26. A programme is set out for upgrading the existing transmission network over the short, medium and long-term. This focuses on increasing the flexibility of exchanges with neighbouring countries, improving supplies within some areas of Montenegro, reducing losses and enabling the connection of new energy sources. Development of Power Distribution System 5.27. The primary objectives behind improvement to the distribution system are to reduce losses to 10% which is described in the Green Paper as ‘very ambitious’, to increase the capacity for efficient metering of supplies and to develop the network of substations.

Total Energy Balances
5.28. All scenarios envisage growth of the share of petroleum derivatives to approximately 40% of the total energy consumption, an increase in the share of net energy to approximately 12% and reduction in the share of electrical energy to 40%. A slight increase in the contribution from renewables is anticipated but there is forecast to be a reduction in the share of heating wood and biomass.

Environmental Protection
5.29. Implementation of the Strategy is stated to be ‘essentially linked with processes of environmental protection, with active participation of stakeholders’. The adverse effects of thermal power generation on air quality and the global climate are noted, as is the need to carry out Environmental Impact Assessments (EIA) of potential hydro power schemes.

Energy Infrastructure and Spatial Planning
5.30. It is noted that Montenegro is most likely to become part of the future strategic network of Trans-European energy networks as defined in EU Commission 1254/96/EC. In order to meet EU community goals for interconnection capacities of a minimum of 10% of national capacity, improvements will be required to the existing systems which achieve around 7% at present.

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Investment Promotion Costs and Financing
5.31. The Strategy emphasises the opportunities for foreign investment in the construction of new energy sources in the period up to 2009 when full liberalisation of the energy market of Europe is envisaged. Privatisation of the state controlled EPCG JSC Nikšic is expected to expedite this process of new investment. 5.32. Characteristics that single Montenegro out as a good location for investment are highlighted, including the facts that Montenegro offers a low risk financial environment, has very favourable taxation and fiscal incentives, low operating costs and well educated workforce with specialist skills. The increase in inflow of direct investments (both foreign and domestic) is stressed as one of the main goals of the strategy. Table 15 below summarises the information provided on funds needed to realise the three scenarios for final energy consumption. Table 15
Element of the Strategy New Thermal and Hydro HPPs Small Hydro, Wind and Waste Rehabilitation of existing PPs Investment in Network Gas. Liquid Fuels and Reserves Total Investment Scenario S1 234 97 166 682 66.3 1245.3 Scenario S2 799 97 166 690 66.3 1818.3 Scenario S3 799 97 166 690 71.3 1823.3

5.33. The anticipated sources of financing are set out in section 9.5.

Other Strategy Elements
Electricity Prices and Poverty Reduction 5.34. The strategy acknowledges that as energy prices rise there will be an increasing need for Government to provide support through subsidies to those sectors of the population that are impoverished and particularly vulnerable. Price Policy 5.35. Energy pricing will be the responsibility of the Regulatory Agency for Energy. In the event of inadequate and untimely interest from investors in the construction of new energy sources/facilities the Government will retain the power to issue public tenders for new facilities and meet obligations relating to the security and regularity of supplies of energy to customers. The strategy recommends that price rises are carried out gradually and are supported by special social protection programmes by Government.

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SEA of the Montenegro draft National Energy Development Strategy Key Industrial Consumers 5.36. The strategy notes that the privatisation process for KAP Aluminium and the Steel Plant in Nikšic has been designed to bring these major energy users into competitive market conditions while retaining their status as stable and balanced consumers who dominate the overall consumption of electricity. Both these consumers and EPCG have incentives to improve energy efficiency and environmental operating standards. Local and Regional Energy Market 5.37. The longer term needs for Montenegro to operate in markets for LPG, natural gas, gasoline, hydrogen and infrastructure are noted as very important in terms of the economic development and social stability of the state. Accession to EU 5.38. In order to conform with EU accession and regional trends, the Strategy notes a number of objectives and conditions including opening up competition in energy supply. By the end of 2011 the goal is to ensure that the price of electricity covers all expenses of energy utilities and any state interference in the determination of price for large consumers has been eliminated. Development, Research and Education 5.39. Strong emphasis is placed on the need for improved education facilities in the energy sector including school and professional training and encouragement of research. An emphasis is placed on meeting the Bologna Convention for promoting energy efficiency. Public Awareness and Communication 5.40. A programme of public awareness raising and development of a communication strategy is recommended.

Implementation
5.41. The strategy sets out goals and implementation mechanism to cover: 1) Reliability and quality of energy supply, 2) Competition in energy supply, 3) Protection of the environment, 4) A range of other initiatives. These measures are to be included in an Action Plan which will be drawn up by the ministry responsible for energy, and reviewed annually. 5.42. The Strategy itself will be subject to periodic updating (not exceeding two years).

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Recommendations and Conclusions from the draft Energy Development Strategy
5.43. Specific recommendations are set out in the final section (13) covering all areas of the Strategy. The concluding section stresses that the Strategy seeks to achieve ‘better and more efficient utilisation of its own resources’, since Montenegro has an interest primarily in taking advantage of favourable domestic sources and thus reduce the import of energy and meet its clear intention to become an electricity exporter in future which will directly influence the accelerated development of the economic system of the state and achieve higher living standards for its citizens’.

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6.
6.1. 6.2.

RELEVANT PLANS AND PROGRAMMES
This section provides a brief outline of the international, European and national legislative and policy context for the Draft Energy Development Strategy. Montenegro is a signatory to a large number of international agreements which form the foundation to long term sustainable development. Three significant agreements to this effect are as follows:
• • •

The World Summit on Sustainable Development, Johannesburg (2002). Commitments arising from the Johannesburg Summit. United Nations Millennium Declaration (2000) Mediterranean Sustainable Development Strategy (MSDS) (2002)

6.3.

Other important international agreements endorsed by Montenegro relate to environmental protection:
• • • •

Kyoto Protocol to the UN Framework Convention on Climate Change (1992) The UN Convention on Biological Diversity (1992) and the European Biodiversity Strategy (1998) Convention Concerning the Protection of World Cultural and Natural Heritage (1972) Ramsar Convention on Wetlands of international importance, especially waterfowl habitat (1971)

6.4.

Accession to the EU is a long-term goal within Montenegro’s overall development strategy. Harmonisation with EU Directives, particular those relating to environmental protection, is therefore of central importance in relation to the Energy Strategy. Amongst others, several key Directives that are relevant Energy Development Strategy are listed below:
• • • • • • •

Conservation of Natural Habitats and Wild Fauna and Flora (Directive 92/43/EC) (The Habitats Directive) Directive on Conservation of Wild Birds (1979) Waste Framework Directive (1975, amended 1991) Hazardous Waste Directive (1991) Air Quality Framework Directive (96/62/EC) Water Framework Directive (2000/60/EC) Directive to Promote Electricity from Renewable Energy (2001/77/EC)

6.5.

A key objective of the European Union is the establishment of a European Energy Network part of which requires the development of a South East European regional energy market. The main vehicle through which this objective is to be achieved is the Energy Community Treaty which came into force in Montenegro in 2006.

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SEA of the Montenegro draft National Energy Development Strategy 6.6. Since 2002, Montenegro has made significant progress in developing national strategic documents and plans, most of them linked with the EU accession and other international obligations. The Energy Strategy is closely related to two such plans, which form the basis for sustainable physical development in the country.
• •

The Spatial Plan of the Republic of Montenegro (SPRM) (2007) The National Strategy for Sustainable Development (2006)

6.7.

In harmony with European Union legislation, the main policy objectives related to energy development in Montenegro and the instruments for achieving them are laid down in the following documents:
• • • • •

The Energy Law (2003) Energy Policy of the Republic of Montenegro (2005) The Assessment of Renewable Energy Sources Potential in Montenegro (2007) Draft Energy Efficiency Strategy (2004) Small Hydro Power Plant Development Strategy for Montenegro (2006)

6.8.

The main legislative basis for environmental protection in Montenegro relevant to the Energy Development Strategy is set out in the
• • • •

The Law on Environment (1996) The Law on Environmental Impact Assessment (2005) The Law on Strategic Environmental Assessment (2005) The Law on Integrated Pollution Prevention and Control (2005)

6.9.

The following documents are relevant to the Energy Development Strategy social and economic reform is an integral part of the overall development needs of Montenegro:
• •

Economic Reform Agenda for Montenegro 2002 – 2007 (2005) The Poverty Reduction Strategy Paper (PRSP) (2003)

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7.

COMMENTARY ON ENERGY TECHNOLOGIES
INTRODUCTION

7.1.

Energy generation is a form of development with potentially one of the most significant impacts on the environment, and yet it is essential for human welfare. However, each type of energy source raises a different range of environmental issues and through conservation, and wise use of resources it is possible to greatly reduce adverse effects. The following paragraphs consider the basic characteristics of different energy sources.

COAL THERMAL ENERGY
7.2. The two main types of coal mined and used in Montenegro are Lignite and Subbituminous coal. Lignite mined around Pljevlja would be the main fuel source for the planned second Thermal Electric Block (Pljevlja II). Electricity generation from coal 7.3. Thermal Power from coal produces approximately 40% of total world electricity production. The total known deposits recoverable by current technologies, including highly polluting, low energy content types of coal (i.e. lignite, bituminous), might be sufficient for several hundred years use at current consumption levels, although maximal production levels could be reached within decades. Most coal power plants today use pulverised coal technology, in which the coal is finely ground, mixed with air, and blown into a boiler for efficient combustion. The furnace heat converts boiler water to steam, which powers turbines to generate electricity. Heavier ash particles fall to the bottom of the furnace and are extracted. The majority of particles however are carried along with the flue gas out of the furnace. Electrostatic precipitators are used to remove over 99% (by weight) of these ash particles and the remainder, together with gaseous by products, are then passed to the atmosphere via a tall flue. Currently, the majority of boilers are subcritical, where the pressure and temperature are below the critical point of water. The thermodynamic efficiency of this process is roughly 35% for the entire process within modern power plants, which means 65% of the coal energy is rejected as ‘waste heat’. Higher efficiencies can be achieved by increasing steam temperature and pressure to supercritical conditions, and waste heat can be utilised for industrial uses or for district heating within a Combined Heat and Power (CHP) plant. Historically coal power plants provide base load power. More recently, in liberalised power generation markets many plants generate energy in a flexible manner often operating a combination of base load and two-shifting. The steady power generation of coal power plants makes it compatible with intermittent forms of generation such as wind and hydro power.

7.4.

7.5.

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SEA of the Montenegro draft National Energy Development Strategy Economic Issues 7.6. Coal power plants require substantial capital investment and associated revenue risks on loan repayments. However, the rate of construction of coal power plants is rapidly expanding. The typical cost of a new 100MW capacity coal power station is in the region of €100 to 200 million.81 In recent times, a considerable amount of international legislation has been is in place in relation to the sustainable operation of coal power. Ensuring that plants meet environmental requirements is therefore a key consideration requiring significant investment. Incorporating Clean Coal Technologies (see Paragraph 7.16) into new thermal power plants, retrofitting them to existing ones, or cleaning up prior contamination can be a major additional capital constraint. However, the wider costs of not doing so (including impacts on health, local economies and environment) may be even greater. Coal plants are a reliable and well established technology although considerable advances in technology have occurred in recent times in terms of reduced environmental impact and improved efficiency. Furthermore, coal power plants can also be expanded incrementally which means that they sometimes have a role in developing short term energy supplies, (this advantage also applies to gas-fired power stations and wind and solar energy plants). Generating electricity from coal is also associated with considerable operation and maintenance costs, mainly as plants and associated mining operations are relatively employment intensive. Increased employment can also lead to significant benefits for the national and local economy. However, in Montenegro, a major advantage of coal as a fuel source is that it is readily available and can be sourced domestically and stockpiled easily. As coal is the most abundant fossil fuel, excluding external costs, it can be very cost effective compared to most other fuel sources and is therefore considered by many to have a low fuel volatility risk. However, the cost-effectiveness of electricity produced from coal is largely dependent on the fuel’s unpredictable market price and that of competing fuels such as natural gas and oil.

7.7.

7.8.

7.9.

7.10. Coal power plants are highly durable and with adequate maintenance can run efficiently and reliably for in excess of 30 years. However, considerable decommissioning costs must be factored into any economic assessment Environmental impacts 7.11. Air pollution is the main environmental impact associated with thermal power production using coal. Coal combustion releases considerably more carbon into the atmosphere per unit of energy than either oil or natural gas alongside other ‘greenhouse’ gases such as methane making it one of the leading contributors to climate change. Nitrogen oxides (NOX) and varying amounts of sulphur dioxide (SO2) are also released into the atmosphere from the combustion of oil and coal. SO2 reacts with oxygen to form sulphur trioxide (SO3). NOX and SO3 react with water to form

7.12.

81

Based on review of recent published articles
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SEA of the Montenegro draft National Energy Development Strategy Sulphuric and Nitric acid which falls as ‘acid rain’. Acid rain has been shown to have adverse impacts on forests, biodiversity, particularly in relation to insects and aquatic life, and soils, as well as causing damage to buildings and possibly affecting human health. Damage to forests also has significant socio-economic and ecological impacts. 7.13. In addition to the effects of gaseous emissions, coal and coal waste products including fly ash, bottom ash, boiler-slag, and fines, can contribute to respiratory diseases such as asthma through the dispersal of fine particulate matter. It is assumed that pollutants and hazards will be considered in the Strategy as defined in Article 20 of the law on Spatial Planning (subject to power generating plants over 10 MW longdistance power lines and power substations with the power of 110 kV and over). It is also assumed by the SEA that any new fossil fuel powered energy facilities will be designed to conform to the UNECE Convention on Long-Range Transboundary Air Pollution (CLRTAP). 7.14. Coal fired power stations give rise to a clear and inescapable impact on global environmental sustainability by increasing levels of greenhouse gases in the atmosphere and they can also be a significant source of air and water pollution. It is also important to note that infrastructure, associated with coal fuelled thermal power stations can cause significant landscape impacts. Cofiring of biomass with coal 7.15. The addition of biomass as a partial substitute fuel in high-efficiency coal boilers is an efficient and clean way of converting biomass to electricity. This is an established technology in coal thermal power plants and has a minimal impact on total boiler efficiency with the biomass element capable of achieving 30% to 37% efficient conversion to electricity when cofired with coal. Biomass can provide up to 20% of the total energy input with feed intake system and burner modifications, however, a more realistic fuel mix would be around 10% biomass. Cofiring biomass with coal offers several environmental benefits which include reducing emissions of carbon dioxide (CO2) and oxides of nitrogen and sulphur (NOx and SOx). However, this process would require incentivisation in order to make it attractive and has negative drawbacks associated with the ability to supply large amounts of required biomass sustainably and economically to plants in some locations82. Clean Coal Technology (CCT) 7.16. Clean Coal Technology (CCT) is a term used to describe a range of various techniques for reducing the environmental impacts of burning coal in energy production and industry meet including meeting various regulations in relation to emissions, effluents, and residues83. Basic approaches to achieving these aims are to remove or prevent the formation of pollutants such as Oxides of Nitrogen and Sulphur (NOx and SOx), particulates, heavy metals and other harmful compounds by treating the coal (e.g. washing) prior to combustion, using low-sulphur coal or cleaning the flue gases afterwards. The effective treatment or disposal of effluent and residues is also a critical environmental consideration in developing clean coal

82 83

BWEA and FoE, 2003 The European Union (EU) Large Combustion Plants Directive (LCPD) (2008 and 2015)
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SEA of the Montenegro draft National Energy Development Strategy systems. A parallel approach is to develop more thermally efficient systems, including using a higher grade of coal, to reduce the amount of coal used. 7.17. New technology offers the potential to recover carbon which can then be sequestered within deep geological formations including former oil reservoirs. While carbon capture and sequestration (CCS) is feasible it is still a relatively untried technology and problems include leakage, significant increased energy requirements and costs84. Techniques are still untried as, to date, there are no commercial CCS facilities in operation. Gasification of coal using Integrated Gasification Combine Cycle (IGCC) offers potentially greater efficiency and lower emissions and produces concentrated carbon dioxide as a by-product, which could therefore make CCS more economical. 7.18. Campaigners for reduction of GHG claim that ‘clean coal’ is essentially a flawed concept for a number of principle reasons. Firstly, CCT is aimed at reducing pollution and mitigating other effects, rather than eliminating them and no coal power plant can be considered to be truly ‘clean’. Also, generally, emissions and wastes are not avoided, but are transferred from one waste stream to another and pollutants such as Mercury are extremely difficult to manage. Furthermore, CCT is highly expensive, significantly increasing capital and operational costs of coal thermal power facilities. In reality, commercial coal power facilities are only likely to implement the minimum measures in order to satisfy their statutory requirements. Finally, the environmental implications of coal extraction remain, to all intents and purposes, unaffected by implementation of CCT upstream. Mining of coal deposits 7.19. Coal mining can be considered to have positive economic effects associated with the provision of raw materials to power stations and major industry, export earnings, foreign direct investment, greater employment opportunities and downstream multiplier effects in associated industries. However, economic benefits must be balanced against potential significant environmental impacts associated with mining activity. Such impacts include hydrological pollution, intrusion on landscape and negative effects on amenity, erosion, sterilisation of resources and various hazards. 7.20. A common problem arising from abandoned mines is Acid Mine Drainage (AMD), where water is discharged without controls, and Acid Rock Drainage (ARD) which occurs from coal stocks, coal handling facilities, coal washeries, and coal waste tips. Both types of leachate can give rise to poor water quality in local streams and rivers. Such pollution can be highly visible through discolouration of water courses and the heavy metal content can have significant effects on aquatic biodiversity and may have implications for human health if it contaminates potable water supplies 7.21. Mining activity is associated with considerable landscape impacts from both the actual site and the supporting infrastructure. Open cast mining is likely to be the most significant in terms of visual intrusion impact of surface mining on the topography,
Azar, C., Lindgren K., Larson, E. and Möllersten, K., Carbon Capture and Storage From Fossil Fuels and Biomass - Costs and Potential Role in Stabilizing the Atmosphere, Climatic Change, 74, 1-3: 47 – 79, 2006
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SEA of the Montenegro draft National Energy Development Strategy vegetation, and water resources. However, sub-surface mining is also associated with visual impacts caused by infrastructure, waste storage, the construction of lift shafts, processing facilities and conveyor systems. In either method, reclamation of the landscape and appropriate after-use should be a major consideration in planning and further mining operations. Mining activity can also have other direct negative effects on the health and amenity of adjacent communities from increased noise, dust, and vibration, visual intrusion and effects associated with large volumes of heavy road traffic. 7.22. Coal mining can also have an impact on seismic activity, with extraction leading to increased faulting and seismicity85.

HYDROELECTRIC POWER
7.23. Hydroelectric power comes from exploiting the kinetic energy of water, as it falls under the force of gravity, in order to drive a turbine and generator. Most hydroelectric power comes from the potential energy of water stored in artificial accumulations which hold water from rivers and then release it periodically. The amount of energy produced is proportional to the volume of water and the difference in height between the water source and its outflow known as the ‘head’. Hydroelectric power is a renewable resource as the fuel source is utilised but not used up during the production process. 7.24. Although large hydroelectric installations generate most of the world's hydroelectricity, small hydro schemes are also possible. Small hydro is defined in the Montenegrin Law as hydroelectric facilities with an upper limit of 10MW of installed capacity. 7.25. Multiple hydro facilities may be constructed on a single river system in order to maximise the utilisation of potential energy within it. This can be associated with a number of cumulative impacts, particularly in relation to river flow and ecology. Additional strategic issues are raised when water is diverted from one river system to another, using hydro-power schemes or other major engineering projects.

7.26. Carefully planned hydro power development can make a significant contribution to improving electrical system reliability and stability. As such it can have an important role in the improvement of living standards in developing countries especially as its use avoids greenhouse gas emissions. However, hydropower development is usually associated with significant and irreversible environmental impacts which must be thoroughly analysed. 7.27. The refurbishment or upgrading of existing hydro facilities offers the possibility of increased capacity at lower cost and with fewer environmental impacts than new development on unused sections of river. Economic 7.28. Hydro-electric power generation is a well-established technology and has certain advantages as it has low labour costs and is immune to fluctuations in the price of oil.
85

Cypser and Davis, Induced Seizmicity and the potential for liability under US law, Techtonophysics, 289, 1996
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SEA of the Montenegro draft National Energy Development Strategy Hydroelectric plants can also be used to provide low value electricity generation during off peak times through use of pumped storage schemes. In addition, hydroelectric plants tend to outlive other forms of energy facilities such as coal powered energy plants, as the expected lifetime of replaceable equipment and machinery range form10-30 years, while the external structures may last for around a hundred years. However, it is difficult to generalise meaningfully about the costs of hydroelectric facilities due to the great variation in initial capital costs related to any particular site. Capital cost plays a big part in determining total cost per unit output, but the equation is also influenced by volume and reliability of water, storage capacity and the size of the power units. 7.29. Large hydro schemes are characterised by high ‘front end loading’ of costs, as civil engineering and construction, environmental and other initial site work accounting for approximately 90% of the total development cost, while generator and control systems accounting for the remaining 10%. There are no fuel costs and operation and maintenance costs are so low that in assessing the total development cost, their net present value typically adds less than 1-2% to the initial capital costs86. 7.30. Using historic cost data, the cost of each unit of output produced several decades ago is likely to be extremely low, which means that such plants can be a very profitable investment over the long-term. However, hydro facilities have a long payback time (i.e. time it takes to recover the initial investment) and future costs and earnings are subject to discounting. Therefore, alternative forms of generation with more uniform cost distribution are often preferred by investors. Put another way, from the perspective of investors, the fact that a hydro-facility may be producing electricity in several decades time, when capital costs have been paid off, is often of little interest. “It is paradoxical that investment in hydro schemes looks extremely favourable in retrospect…but extremely uncertain in prospect”87 7.31. A full Net Present Value appraisal is required when considering whether to invest in large scale hydro facilities. 7.32. In most contexts, electricity from small-hydro facilities is more costly than from thermal or large hydro sources. However, local small scale plants can reduce the need for long-distance transmission, reducing energy losses and costs. Thus, in appropriate locations and considering technological improvements small-hydro can be competitive with conventional systems. Small scale hydro facilities are generally instream /run-of-river systems or incorporate relatively small accumulations. In either case this leads to a less reliable supply than large scale hydro. Environmental 7.33. Hydro energy plants produce electricity with minimal direct emissions of greenhouse gasses (outside tropical regions), and no emissions of Oxides of Sulphur and Nitrogen (NOx and SOx) or particulates. However, hydro-electric generation is also not free
86 87

Boyle et al. Energy Systems and Sustainability, Oxford University Press, Oxford, 2003 Munasinghe, Power for Development: Electricity in the Third World, IEE Review, March 1989
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SEA of the Montenegro draft National Energy Development Strategy of environmental constraints particularly in conditions like those found in many of Montenegro’s deeply incised river valleys. 7.34. Hydro schemes result in the flooding of long sections of river to create reservoirs with a sufficient depth of water to drive the power station turbines. Once hydro schemes have been developed they bring about permanent changes in the environment which are invariably detrimental. 7.35. In areas with rapid erosion like northern Montenegro, fast flowing rivers carry large quantities of solid material and suspended sediment. When a dam is built this material is deposited on the bed of the accumulation. High siltation rates can reduce the effective storage capacity in a few decades unless the material is flushed away by periodic releases from scouring valves set in the base of the dam. This, in turn can have severe environmental effects downstream as monitored on dams in the Caspian region88 . 7.36. Sediment accumulation can also give rise to the build up of mercury (a particular problem in mineralised areas in cold climates) which is toxic in fish and humans, and methane (although the latter is only a significant problem where a lot of organic material is present). 7.37. Flooding of river valleys and the creation of lakes can also impact heavily on biodiversity by and altering the dissolved oxygen content and temperature of the water and forming a physical barrier which prevents the migration of fish. At the same time terrestrial habitats may be flooded or dislocated by the resulting impoundment. 7.38. Reservoir impoundments can also affect the downstream river environment, through increased scouring of the river channel due to the low level of suspended sediment. 7.39. Reservoirs may displace existing land uses (principally farming, fishing and mineral extraction) and submerge areas of ecological, historic or archaeological importance. These changes may have negative effects on cultural and social welfare in local communities. 7.40. Damming and flooding of river valleys is likely to have a significant visual impact on the landscape setting of the river corridor. 7.41. A similar set of environmental issues are associated with small hydro facilities as with the larger systems summarised above, as while specific technologies may vary, the principles upon which they are based are the same. Accordingly, there is a general consensus that localised environmental impacts of small hydro are likely to also be lower. However, the efficiencies and load factors tend to be lower and in some cases the reservoir area per unit output may be higher in small hydro systems. Therefore, cumulative impacts associated with numerous facilities may add up to significant negative environmental effects spread over a wide area. These factors vary greatly from site to site, and generalisation is difficult.

88

Jorg Freyhof: pers com.
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SEA of the Montenegro draft National Energy Development Strategy Social 7.42. Reservoirs may interfere with recreation (rafting), nature study and enjoyment of the natural environment although they may also have benefits in limited circumstances by providing leisure facilities and attracting birdlife although this can also be a problem if the accumulation is close to an airport due to the risk of accidents from bird strikes. It should be noted that recreational uses are seldom possible in the case of deep and narrow accumulations as a result of large variations in water level. 7.43. Hydropower schemes may also have benefits for downstream flood control. However, there are also risks of a dam failure (caused potentially by seismic activity), which could cause failure of any dam systems further downstream. While this risk is admittedly low, the severity could be extremely high if upstream of urban areas. Other additional benefits include the development of irrigation and potable water delivery facilities, with positive socio-economic benefits. 7.44. Impounding water on river systems which cross international borders can have significant political ramifications, and international river systems are often protected by international agreement.

ENERGY FROM WASTE
7.45. Energy from waste (EfW) in its strictest sense refers to any waste treatment that creates energy in the form of electricity or heat from a waste source. Municipal solid waste and industrial residues are indirectly part of the biomass resource base. Industrialised countries generate 0.9–1.9 kg per capita of municipal solid waste every day and energy contents range from 4 to 13 Mega joules per kg89. EfW technologies include incineration of Municipal Solid Waste or Refuse Derived Fuel, methane collection and biogas production from anaerobic digestion. Because landfill disposal of municipal solid waste in densely populated areas is increasingly constrained and associated with rising land filling costs, such energy conversion can be profitable. Johansson and others 90 project that in industrialised countries energy production from urban refuse will reach about 3 Exajoules a year by 202591. Economic 7.46. The costs of production of energy from the collection and combustion of landfill gas are very low. The principal costs are the capital costs of a collection system, engine and generator and connection to the grid, whereas operation and maintenance costs are low.92 However, the amount of biological waste going to landfill is likely to decline in future in accordance with national waste disposal policies.93 7.47. Incineration within a specially designed plant is also generally a cost effective way of dealing with, and producing electricity from, municipal waste, and is also a proven technology making it easier to develop and finance. Although initial capital and
89 90

IPPC, 1996 Johansson et al. 1993 91 World Energy Assessment, UNDP, 2004 92 Boyle, G. Renewable Energy: Power for a Sustainable Future, Oxford University Press, Oxford, 2004 93 The Draft Spatial Plan of the Republic of Montenegro
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SEA of the Montenegro draft National Energy Development Strategy operating and maintenance costs are relatively high this will be offset in part by the gate fees charged for accepting waste. The use of waste heat from the plant would be likely to further offset costs. The construction and operation of an incinerator may also have positive effects on the local economy through increased employment at the site. The costs for anaerobic digestion and gasification technologies are likely to be higher, but may still prove worthwhile under the right economic conditions.94 Environmental 7.48. Municipal waste incineration plants generally produce flue-gas volumes (at 11% oxygen) of between 4,500 and 6,000 m³ per tonne of waste. Plants using pyrolysis, gasification or oxygen enriched air supply result in lower flue-gas volumes per tonne of waste incinerated. The incineration of waste may potentially have a negative impact on local and regional air quality, through emissions including Hydrogen Chloride (HCl), Hydrogen Fluoride (HF), Sulphur Dioxide (SO2), Nitrogen Oxide (NOx), and heavy metals.95 96 The levels of such materials are strictly controlled under EU legislation and therefore should only constitute a low level impact; however this is largely dependent on the structure of the waste, the flue-gas cleaning quality and effective management. Volatile Organic Compound (VOC) emissions are determined primarily by furnace technical parameters and the degree of waste heterogeneity when it reaches the combustion stage. Dioxin emissions to air depend on waste structure, furnace (temperature and residence times) and plant operating conditions (reformation and de-novo synthesis are possible under certain conditions) and flue-gas cleaning performance.97 98 Advanced pollution abatement equipment essentially eliminates harmful pollutant emissions. 7.49. Solid emissions include furnace bottom ash, boiler ash and flue ash and will require several thousand tonnes of hazardous waste disposal to landfill per annum. However, the incineration of waste will stabilise biodegradable waste thereby reducing leachate pollution produced at landfill. 7.50. The burning of municipal waste releases a number of Green House Gasses (GHG) most significantly Carbon Dioxide (CO2) and Nitrous Oxide (N2O) into the atmosphere, thereby contributing to climate change. However, combusted waste can replace the burning of fossil fuels by producing electricity or displacing the use of fossil fuels in nearby industries and would significantly reduce the release of Methane from landfill. Methane is roughly 21 times more potent as a Green House Gas (GHG) than CO2. 7.51. Careful consideration should be given to the siting of waste from energy thermal plants in relation to traffic, landscape, and local distinctiveness. A wide variety of locations should be considered and co-location of waste facilities should be considered. Such facilities should be integrated within their environment through
Boyle, G. Renewable Energy: Power for a Sustainable Future, Oxford University Press, Oxford, 2004 Evaluation of Emissions from the Burning of Household Waste in Barrels, US EPA November 1997 96 Knox, Andrew, An Overview of Incineration and EFW Technology as Applied to the Management of Municipal Solid Waste (MSW), University of Western Ontario, Canada, February 2005 97 ‘Dioxins’ is the name given to a group of 210 similar chlorinated organic chemicals. 98 EC 2006, Integrated Pollution Prevention and Control Reference Document on the Best Available Techniques for Waste Incineration
95 94

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SEA of the Montenegro draft National Energy Development Strategy sensitive design and should not be constructed adjacent to settlements. Correct sizing of the plant will minimise crowding out of recycling and composting. Best available technology should be used to minimise air pollution99. The efficiency of the incineration of waste can be increased through the combination of electrical energy production with the use of heat in a Combined Heat and Power (CHP) plant. 7.52. There is also some potential to utilise the biogas (methane) produced when biological waste degrades within municipal landfill sites. Producing energy from captured landfill gas is not mentioned within the Strategy, although it is acknowledged that the potential energy production capacity would be low (1- 5MW). Capturing landfill gas and anaerobic digestion are desirable in order to reduce emissions of climate change gasses. Furthermore, localised EfW generation should be encouraged through invessel composting or anaerobic digestion of waste. Significant potential exists in this regard from hotels and factories as considerable growth in the food and tourism industries is predicted. Anaerobic digestion can also be used to produce energy from the treatment of sewage and agricultural waste products.

LIQUEFIED PETROLEUM GAS
7.53. Liquefied Petroleum Gas (LPG) is a mixture of hydrocarbon gases either primarily propane, or more commonly propane and butane. LPG is manufactured during the refining of crude oil, or extracted from oil during refining or as a by product of natural gas collection. LPG is gaseous under normal conditions, but is maintained in a liquid state by an increase of pressure or lowering of temperature. Therefore, once extracted it is transported by refrigerated or pressurised vessels to storage terminals in consumer zones. 7.54. LPG has numerous industrial and domestic uses associated with heating or cooling. For example, LPG can be burned in industrial boilers or cofired with other fuels such as heavy oil, and used as a fuel for cooking, space heating and cooling, water heating and electricity generation. LPG is also used as a transport fuel commonly referred to as ‘autogas’ and can be mixed with air to produce Synthetic Natural Gas (SNG). SNG installations can be used during initial gas system introductions, when the distribution infrastructure is in place but before gas supplies are connected, in order to build up customer bases prior to expanding existing natural gas systems. 7.55. Making LPG widely available requires considerable infrastructure for distribution, and finding ways to make LPG affordable to the poorest households is a major challenge. The up-front investment for pressurised canisters can represent a barrier for the lowest income households and swings in commodity prices for LPG (as an oil derivative) can increase the economic burden. 7.56. Combustion of LPG is much cleaner and more efficient than wood, coal or gasoline, though not as clean or efficient as natural gas. LPG produces very low emissions of pollutant such as Oxides of Nitrogen and Sulphur (NOx and SOx), Volatile Organic Compounds and particulates. However, LPG is non-renewable and its combustion contributes to GHG emissions, although, it produces around half the amount of CO2 as oil and slightly less than diesel.
99

Ibid.
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WIND POWER
7.57. The principle of harnessing wind energy is well established with windmills having been used for thousands of years for pumping water, milling grain and other mechanical power applications. In recent years however, the technology has diversified and today modern wind turbines are used to generate electricity by using the natural power of the wind to drive generators. 7.58. Modern turbines typically have three blades, which rotate around a horizontal hub at the top of a steel tower. Most wind turbines start generating electricity at wind speeds of around 3-4 metres per second (m/s), (8 miles per hour); generate maximum ‘rated’ power at around 15 m/s (30mph); and shut down to prevent storm damage at 25 m/s or above (50mph). The power available from the wind is a function of the cube of the wind speed. Therefore if the wind blows at twice the speed, its energy content will increase eight-fold. 7.59. A modern wind turbine typically produces electricity 70-85% of the time, but it generates different outputs depending on wind speed. Over the course of a year, it will generate about 20-30% of the theoretical maximum output. This is known as its load factor. The load factor of conventional power stations is on average 50%. 7.60. Wind turbines are defined by the size (diameter) of the rotor and rated power or capacity in kilowatts (kW) or megawatts (MW). The rated capacity of a wind turbine is a measure of the maximum output of the electricity generator. Wind turbines are available in a wide range of sizes, from small 20kW battery charging units to very large 3MW wind turbines e.g. with a height to blade tip of 125m. Due to technological advances wind turbines have increased in size and capacity over the past 20 years and are anticipated to do so in the foreseeable future. 7.61. The technical feasibility of wind power is now well proven and wind turbines are making a significant contribution to electricity supply systems in Europe. The market for European wind power capacity broke new records in 2006: 7,588 MW of wind power capacity – worth around 9 billion euros – were installed in the EU, an increase of 23% compared to 2005. The total wind power capacity operating in the EU increased by 19% and exceeded 48,000 MW, producing approximately 100 TWh of electricity in an average wind year, or 3% of total EU electricity consumption100. Economic 7.62. The cost of producing electricity from wind energy varies according to three main factors: • • • technical factors (such as wind speed, turbine siting and the turbine type); capital costs (the cost of turbines, infrastructure and connecting it to the grid); the cost of financing (how quickly investors want their loans repaid and what rate of returns they require).

100

The European Wind Energy Association (2006) Powering Change: EWEA Annual Report 2006.
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SEA of the Montenegro draft National Energy Development Strategy 7.63. With wind energy, as with other forms of renewables, the fuel is free. Therefore once the project has been paid for, the only costs are operation and maintenance and fixed costs, such as land rental. The capital costs (i.e. for the wind turbines, civil works, electrical infrastructure etc) are however high, between 75% and 90% of the total for onshore wind energy projects. Thus wind energy is a capital-intensive technology compared with conventional fossil fuel fired technologies. Operation and maintenance costs are however low and typically comprise around 2.5% of the total project costs. 7.64. The cost of the wind turbines (which typically make up around 60-70% of the total capital costs of a project), has steadily fallen since the 1980s. As a result, wind energy is one of the cheapest forms of renewable energy technology. The technology is also continually being developed to make it cheaper and more reliable so it is expected that wind energy will become even more economically competitive over the next decade. 7.65. In calculating the cost per generated unit of power, wind speed and the production of power are the most important factors. Turbines sited at good wind locations are likely to be profitable while those at poor locations may not. According to the European Wind Energy Association101, the average costs in Europe range from 6-8c euro/kWh at sites with low average wind speeds to approximately 4-5 c euro/kWh at good coastal positions. These costs are highly dependant on the capital costs and interest rates which can vary considerably between countries. Wind turbines are however very quick to install, so they can begin generating before they incur significant levels of interest on the capital extended during construction. This is in contrast to many highly capital–intensive electricity generating plant such as large scale hydro. 7.66. The global wind energy market is expanding rapidly, creating opportunities for employment through the export of wind energy goods and services. The global wind industry has an estimated annual turnover of £5.5 billion, 84% of which is based in Europe. Furthermore, the impact of renewables developments on employment is, according to some studies, about five times higher than the employment impacts of further development of fossil fuels. For example, a study by the American Wind Energy Association based on a comprehensive survey of wind plant operators in California showed a figure of 460 jobs per TWh per year for operation, support and maintenance, with another 88 to 146 jobs created in manufacture. Coal fired plants only generate 116 jobs per terawatt hour (including mining).102 Environmental 7.67. Wind turbines cause no emissions during their operation and very little during their manufacture, installation, maintenance and removal. It takes a typical Vesta 2MW wind turbine seven months to produce the amount of energy that goes into its manufacture, installation, operation, maintenance and decommissioning after its 25year lifetime. In other words, a 2MW wind turbine produces 41 times more energy

101

102

European Wind Energy Association (2004) Wind Energy – The Facts Volume 2: Costs and Prices.

Quoted in Friends of the Earth (1995) Working Future? Jobs and the Environment, London: Friends of the Earth.

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SEA of the Montenegro draft National Energy Development Strategy than it consumes over its lifetime. However, wind energy schemes can cause other environmental impacts if they are inappropriately located and designed. 7.68. In designing a windfarm, care must be taken to ensure that impacts relating to noise, visual impacts, ecology, birds, transport, aviation and electromagnetic interference are avoided or minimised. In relation to noise, the dominant issue is the aerodynamic noise generated from the turbines (i.e. the swishing sound of the blades). Mechanical noise is no longer a problem as modern turbines are designed to be much quieter than their predecesors and can rarely be heard at distances further away than 300m. Most noise issues can be resolved through careful site and design of the turbine layout. 7.69. Large wind turbines are substantial vertical structures which can often be highly visible in the landscape. Ancillary development such as access tracks, anemometers, sub-stations, construction compounds, quarries and connections to the grid can also lead to landscape and visual impacts. However the extent of any impact is dependent upon the nature of the landscape in which the proposal lies and the design, size and scale of the scheme. It is also dependent on peoples’ perception which is influenced by experience and expectations. Generally, the construction of large wind farms in landscapes of national importance, i.e. National Parks should be avoided. In areas outside of designated landscapes, detailed landscape and visual impact assessments should be undertaken to ensure that the windfarm is sited to minimise the visual impact of the scheme. 7.70. Impacts on ecology can often be avoided though careful design of the windfarm layout. There is a small direct loss of land where the turbines and associated infrastructure is placed but in most cases the existing land uses e.g. pasture, or agricultural activities can continue unaffected. The impact on birds is very site specific and tends to involve collision or migration interference, rather than habitat or ecosystem impacts and disturbance. The incidence of bird fatalities from collision if generally low with most sites having no impacts. Careful windfarm siting and turbine placement is however required to prevent any impacts occurring. 7.71. Electromagnetic interference: The moving blades can affect radio waves and microwaves used for communication purposes, although this has proven to be less of an issue in recent years as these impacts can be mitigated through the installation of relay transmitters or by the resiting of the turbines. Wind turbines can also interfere with aviation radar if they are sited close to airports etc. Consultation with the relevant airport authority must be undertaken. 7.72. The development of a site for larger wind farms (e.g. with five or more turbines) should be subject to public consultation and an Environmental Impact Assessment (EIA). However it is important to note that unlike conventional power generation or hydro power, wind turbines can be decommissioned with few (if any) long lasting environmental effects. Social 7.73. Wind energy developments can generate a number of social benefits, including:

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SEA of the Montenegro draft National Energy Development Strategy • • sites can be used as a visitor attraction and/ or for educational purposes; with rising fuel prices, they can provide a relatively cheap source of electricity for isolated communities or farms/ estates with no grid connection or grid connection difficulties; they can help to upgrade local infrastructure (e.g. access roads associated with large wind farms).



BIOENERGY
7.74. Bioenergy is the inclusive term for all forms of biomass and biofuels. Biomass refers to the biodegradable fraction of products, waste and residues from agriculture, forestry and related industries (e.g. miscanthus, straw, timber, chicken litter and other waste material), used as a source of renewable heat or electricity. Biofuels are renewable transport fuels and include bioethanol (the ethanol produced from biomass and/or the biodegradable fraction of waste), biodiesel (a methyl-ether produced from vegetable or animal oil, of diesel quality) and biogas (a gas produced by the anaerobic decomposition of organic matte.).

7.75. Bioenergy (in the form of biomass or biofuels) can be generated from four principal sources: • • • • Wood based fuels, e.g. multiannual short rotation coppice (SRC), short rotation forestry, forest residues, and low grade timber. Perennial grass crops, e.g. multiannual miscanthus, canary reed grass and switchgrass. Conventional crops, e.g. annual crops - sugar beet, cereal crops, sorghum, oil seed rape, linseed and sunflowers. Waste, e.g. cow and pig slurry, poultry litter and wood waste.

7.76. The use of biomass is generally classed as a ‘carbon-neutral’ process because the carbon dioxide released during the generation of energy is balanced by that absorbed by plants during their growth. 7.77. In the biomass sector, direct combustion in burner systems, varying from small stoves to multi-megawatt combined heat and power (CHP) systems, is the most established technology used. Significant advances in biomass conversion technologies have however taken place in recent years including the development of advanced technologies such as gasification and pyrolysis. It is expected that in the medium to long term this will make the sector more carbon efficient and even more economically competitive with non-renewable sources.

7.78. There is also interest in the further processing of biomass i.e. pellets, to increase its density and reduce water content and create a more consistent material more suited for mechanical handling in boilers. Although this extra processing adds cost and reduces carbon efficiency at this stage in the supply chain, this can be offset by the improved conversion efficiency to heat and energy and lower transport costs.

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SEA of the Montenegro draft National Energy Development Strategy 7.79. In the biofuel sector, bioethanol and biodiesel are currently referred to as ‘first generation’ biofuels since they are created by conventional ‘tried and tested’ fermentation technologies. Again a series of ‘second generation’ technologies are being developed which will offer major benefits in the longer term, by delivering greater carbon savings and greater compatibility with petrochemicals. These technologies include bio-butanol, Ligno-cellulosic ethanol and the Fischer-Tropsch process. These later two techniques offer a real potential to increase the efficiency of energy conversion, as well as opening up the potential for any material to be used to produce biofuels. i.e. including woody matter. Economic 7.80. The cost of producing electricity from biomass varies according to three main factors. • • • the cost of the biomass material; transportation costs; operational and production costs (including capital costs for the production equipment).

7.81. One basic difference between bioenergy and other renewable forms of energy (hydro, wind, solar) is that in the first case, the primary resource must be produced and/or collected, with its corresponding cost, while for the other systems, the "fuel" (water, wind, solar radiation) is available for free. 7.82. According to a recent European Commission Report103 it is estimated that the cost of electricity generation from biomass is between 25 €/MWh to 85€/MWh. Taking the average of these two figures, biomass is one of the cheapest forms of renewable energy for electricity. Furthermore, it is acknowledged that biomass is the sector that still has a great potential for expansion for electricity production. The combined production of heat and electricity has the potential to utilize primary energy resources with even greater overall efficiency. The most optimal situation economically for CHP deployment is where there is a significant heat demand that remains fairly steady over the year. 7.83. The economic benefits of biomass use are not always evident when competing with sources of coal, gas and oil which remain relatively cheap. Where waste disposal costs can be avoided by using a biomass resource, a bioenergy project is often viable e.g. the use of waste wood. For newer developments such as energy crops, transport biofuels, gasification some form of government incentive or subsidy is usually necessary to encourage implementation of such bioenergy projects. The economic benefits of bioenergy are potentially very significant. Bioenergy is a decentralised energy option whose implementation has the potential to have a significant positive impact on rural development by creating business and employment opportunities. Jobs are created all along the bioenergy chain, from biomass production or procurement, to its transport, conversion, distribution and marketing.

7.84.

103

An Energy Policy for Europe (SEC(2007) 12) 10.01.2007 COM 2007 1 Final

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SEA of the Montenegro draft National Energy Development Strategy Bioenergy has the potential to create the most jobs compared to other forms of renewables. The jobs created range from manual ones to specialised engineering and administration positions. Through liquid biofuels, bioenergy can also offer agriculture an opportunity to diversify its market outcomes. 7.85. An ALTENER study carried out in 1998-99104 evaluated and quantified the employment and economic benefits of renewable energy in the EU. The study was initiated by the European Forum for Renewable Energy Sources (EUFORES). The study concluded that the use of renewable energy technologies will more than double by 2020 and will lead to the creation of about 900,000 jobs by 2020. More than 90% of these jobs (approximately 840,000) will be in the bioenergy sector although this will in part depend on prices across the global market for biomass fuel feedstocks.5 7.86. Land requirements for future energy crop and forest plantations have the potential to compete with land used for the traditional production of food and fibre products. The land area used will ultimately depend on biomass crop yields as achieved on a sustainable basis, water availability, and the conversion plant efficiency. For example, for 20% efficiency, steam turbine plant fuelled by a forest energy crop yielding 15 oven dry tonnes per hectare per year (odt/ha/y), 360ha of energy plantation would be needed per MWe of installed capacity when running the plant for 6000 hours per year. If a 40% efficiency gasification plant was built instead and yields were 20odt/ha/y, then only 135ha would be needed per MWe. Environmental 7.87. One of the key drivers behind the use of bioenergy is its positive environmental benefit, in relation to reducing carbon dioxide emissions. There are, however, other positive environmental benefits that can accrue from bioenergy production. The use of forest residues can help to stimulate the management of the existing woodland resource and create new woodlands. The use of sustainable woodland creation and management techniques is however critical to ensure that potential benefits are realised. Woodland Management Plans, are needed which take account of potential environmental impacts including conservation of archaeology and specific species. 7.88. In relation to bioenergy crops, there are concerns that the increased use of land for such crops will transform rural landscapes and threaten the conservation of species and habitats. The extent of these pressures will however depend on what type of crops are grown, how the crops are managed and the type of land use that is replaced. Concerns have been raised that crops such as short rotation coppice (SRC) could have negative impacts on biodiversity, the landscape, and archaeology and water resources. However with careful siting and the application of sustainable farming techniques many of these crops can actually delivery positive benefits for biodiversity. Bioenergy crops should not however be located in environmentally sensitive areas. They should also seek to increase habitat and landscape diversity through the use of different varieties and age stands of crops to avoid extensive monocultures that are both highly visible in the landscape and of lower biodiversity value;

104

Source: IEA, 2003 (from the ECOTEC study “The impact of renewables on employment and economic growth. Directorate General for Energy, European Commission, 1999.)

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SEA of the Montenegro draft National Energy Development Strategy 7.89. Research undertaken to date has indicated that crops such as SRC and miscanthus can actually have had a positive impact on biodiversity by increasing the abundance and diversity of ground flora, woodland bird species and invertebrates compared with grassland and arable crops – particularly in the early stages of crop growth. In addition whilst crops such as SRC do have high water requirements they are effective at absorbing nitrogen and can be used to improve water quality, buffer vulnerable habitats and treat wastewater and landfill leachate. The life cycle fertiliser demand of crops such as SRC and miscanthus is also much lower than that of cereal food crops. Social 7.90. Biomass energy developments can offer a number of wider social benefits many of which are particularly relevant in the context of rural development. The social benefits from modern biomass use relate to improved quality of life, lower emissions of human health harming substances compared with fossil fuel use, local employment opportunities, and other benefits of sustainability resulting from land use change. For many rural populations in Montenegro, biomass has been traditionally used for cooking and heating. Since these communities are familiar with procuring biomass supplies, the uptake of improved and more efficient modern biomass conversion technologies, including domestic wood stoves and small power generating systems, should therefore be relatively easy to implement. 7.91. For many communities dependent on imported diesel to run generating sets, and for many others with no access to electricity at all, being able to use local biomass in future to provide not only electricity but heating, cooling and even transport fuels will instill a sense of independence and pride and improve overall quality of life. The use of biofuels can also reduce exhaust emissions in terms of carbon, NOx and particulates leading to reduced respiratory complaints for city dwellers. However, with certain biofuels additional emissions can result, such as aldehydes from bioethanol use.

SOLAR ENERGY
7.92. Solar energy can be captured by solar panels. There are two main types of solar panels which use complete different technologies to make use of the energy from the sun: • Solar thermal collectors: These panels absorb the energy from the sun and transfer it to heat water. This can be used for domestic hot water and space heating, heating swimming pools, cooling systems and industrial process heat. Photovoltaic or solar electric panels: These panels transform the solar radiation directly into electricity.



7.93. For maximum efficiency, solar panels should be mounted on a south facing roof at a 30° angle with the horizontal and away from any shadows from trees, surrounding buildings or chimneys. 7.94. Solar water heating systems are the most popular form of solar energy used in the world. The system is connected to the hot water system. There are two types of solar water heating collector: flat plate and evacuated tubes. Flat Plate Collectors are
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SEA of the Montenegro draft National Energy Development Strategy solar water heating panels in their simplest form and are made from a sheet of metal painted black which absorbs the suns energy. Water is fed through the panel in pipes attached to the metal sheet and picks up the heat in the metal. The pipes are often made of copper for better conduction. The metal sheet is embedded in an insulated box and covered with glass or clear plastic on the front. The evacuated tube system is a series of glass heat tubes grouped together. The tubes are highly insulated, due to a vacuum inside the glass. 7.95. Solar photovoltaics are used in a variety of applications ranging from calculators and watches to larger applications where panels integrated into buildings are used to generate electricity. A PV cell consists of two or more thin layers of semi-conducting material, most commonly silicon. When the silicon is exposed to light, electrical charges are generated and this can be conducted away by metal contacts as direct current (DC). The electrical output from a single cell is small, so multiple cells are connected together and encapsulated (usually behind glass) to form a module (sometimes referred to as a "panel"). The PV module is the principle building block of a PV system and any number of modules can be connected together to give the desired electrical output. The greater the intensity of the light, the greater the generation of electricity. 7.96. The are two main types of PV systems –stand-alone and grid connected systems: For standalone systems -PV is used to provide power for communications systems, domestic dwellings and monitoring systems either in remote areas or locations where connection to the grid is expensive or otherwise problematic In gridconnected schemes surplus electricity not being consumed within the building can be exported to the local distribution network with the agreement of the network operator and an electricity supplier. 7.97. The use of passive solar design is also possibly the simplest way in which solar energy can be used. Many buildings today are designed to utilise the energy of the sun as efficiently as possible. The location and orientation of the building are all key factors in optimising passive solar design. Passive solar design can be best applied in new buildings, where the orientation of the building, the size and position of the glazed areas, the density of buildings within an area, and materials used for the remainder of the structure are designed to maximise free solar gains. Economic 7.98. Solar thermal makes up more than 90% of the solar energy capacity installed worldwide. It is one of the most cost effective forms of solar energy and is reported to have an immense potential for growth, within Europe and beyond. The European solar thermal market is booming with a growth rate of well over 30% in 2006. Around 2 million European families already directly benefit from solar thermal energy, as do other frequent users such as hotels, sport centres, office buildings etc. The installation cost of a typical solar thermal panel in Europe is around €360 per square metre (flat plate; up to 50% more for evacuated tubes). Typical prices for domestic system of 4m2 vary from country to country, but are in the range from €2,500 to €5,000 installed, inclusive of VAT but excluding any grants or incentives105.
105

European Solar Trade Industry Forum (2003) Sun in Action II – A Solar Thermal Strategy for Europe.
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SEA of the Montenegro draft National Energy Development Strategy Typical outputs for a system of this cost are of the order of 1,500 to 2,000 kWh in Southern Europe but the contribution (in terms of gas saving) can be much greater when taking into account the relative inefficiencies of heating systems. 7.99. Practical experience shows that most of the barriers to growth for solar thermal are linked to the lack of critical market mass. Where solar thermal has reached a sufficient level of market penetration, these barriers vanish. 7.100. Solar PV panels are relatively expensive for the amount of power they produce, and so cost is a major barrier. Prices for PV systems vary, depending on the size of the system to be installed, type of PV cell used and the nature of the actual building on which the PV is mounted. The size of the system is dictated by the amount of electricity required. For the average domestic system, costs in Europe can be around €6,000-€13,000 per kWp installed, with most domestic systems usually between 1.5 and 2 kWp. Payback periods are quite long. Yet as these systems are increasing in popularity the cost of manufacturing has been falling steadily. As a result, the price of PV systems has fallen by an average of 5% per annum over the last 20 years. It is expected that this rate of price decrease can be maintained in the future when the shortage of silicon is over. 7.101. In remote locations, solar PV can be a cheaper alternative to diesel power generation, especially to power small electrical loads for domestic and or small industrial units. The economics are driven by a balance between the high initial cost of a solar PV system and very low subsequent running costs compared to the low initial cost of a diesel generator but very high on-going fuel and maintenance costs. The latter are especially high if site access is difficult (e.g. in mountainous areas). 7.102. Off-grid homes have an economic reference point in the cost of installing a grid connection to the location. As a guideline, if a house is further than 1km from the nearest grid line then it is likely to be cheaper to install a PV system. The difficulty comes with the high up-front cost of solar which can make it unaffordable without the provision of funding from development aid or micro-finance to provide credit. 7.103. In terms of maintenance costs, grid connected systems require very little maintenance, and are generally limited to ensuring that the panels are kept relatively clean and that shade from trees has not become a problem. The wiring and components of the system should however be checked regularly by a qualified technician. Stand-alone systems, i.e. those not connected to the grid, need maintenance on other system components, such as batteries although the costs of this are relatively minimal 7.104. In 2005 the total installed capacity of solar PV systems around the world passed the landmark figure of 5000MW (= 10 average size coal power plants). Global shipments of PV cells and modules have been growing at an average annual rate of more than 40% for the past few years. Such has been the growth in the solar electricity industry that business of only the European PV industry was worth more than € 5 billion in 2005; on a global scale the industry’s turnover was approximately €10 billion in the same year.

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SEA of the Montenegro draft National Energy Development Strategy 7.105. Photovoltaics (PV) can create a large number of jobs with more jobs typically created in the installation and servicing of PV systems than in their manufacture. The European Photovoltaic Industry Association suggests that employment in the European solar electricity industry could achieve a level of 100,000 jobs by 2010. Environmental 7.106. The environmental impact of solar systems is generally lower than that of any other renewable or non-renewable generating systems. In normal operation, both solar thermal and PV systems emit not gaseous or liquid pollutants and no radioactive substances. They also have no moving parts and emit no noise. Large solar arrays of course have some visual impact and roof top arrays will normally be visible to neighboring areas and may or may be regarded as attractive, according to aesthetic tastes. Particular care therefore has been taken to avoid any negative impact on buildings of historic importance. 7.107. The manufacture of solar thermal or PV cells is also unlikely to lead to any environmental impacts. Small amounts of toxic chemicals are used in the manufacture of some PV modules i.e. cadmium although new processes are now available for this to be eliminated. As in any chemical process, careful attention must be paid to plant design and operation to ensure the containment of any harmful chemical. Most importantly, in terms of the global environment, there are no emissions of carbon dioxide - during the operation of a solar system. Although indirect emissions can occur at other stages of the life-cycle, these are significantly lower than the avoided emissions. According to some studies, for example, solar water heaters increase the amount of hot water generated per unit of fossil energy invested by at least a factor of two compared to natural gas water heating and by at least a factor of eight compared to electric water heating. Social 7.108. Although the principle benefits of solar power are environmental, it can also deliver a number of social benefits such as • • • • • • reducing demand for utility electricity subject to fluctuating prices; providing power for isolated communities where there is no connection to the grid; creating new industries (especially local), products, and markets and local employment for installation and servicing; lowering externalities (decreases environmental impact, social dislocation, infrastructure requirements); reducing fuel transport costs and pollution from fossil fuel use in rural areas; creating a symbol of sustainable development.

OTHER RENEWABLES
7.109. Other renewables which should also be considered in the Energy Strategy for Montenegro are:
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SEA of the Montenegro draft National Energy Development Strategy • • ground source heat/cooling pumps; air source heat pumps.

Ground Source Heat Pumps
7.110. Ground source heat pump technology makes use of the energy stored in the ground surrounding (or even underneath) buildings. This comes mainly from solar radiation around the year. Essentially, heat pumps take heat out of the ground at a certain temperature and pass it through a heat exchanger to release it into a building at a higher temperature. This is achieved by means of ground collectors (typically coils known as slinkies laid in trenches in the ground or boreholes), in which a heat exchange fluid circulates and transfers heat to the heat pump. 7.111. Diverse applications include space heating, water heating, heat recovery, space cooling and dehumidification in both the residential and commercial building sectors. As they operate most effectively when raising water to a temperature no more than about 40°C, GSHPs are best used with underfloor heating systems, and are not usually considered suitable for retrofitting into existing systems. Underfloor low temperature systems are particularly appropriate to large rooms, such as school classrooms and halls. 7.112. As a variant on ground source, heat can also be extracted from large bodies of water or rivers (with a reasonably high flow volume). As with GSHPs, despite the relatively low temperatures of the input water, heat can be extracted from it in a heat exchanger to feed a low-temperature central heating system. Although all the heat delivered by GSHPs comes from renewable energy (stored solar energy), considerable electricity is required to pump the system. However, a typical good quality installation will produce at least three times as much useful heat energy as it uses electrical energy to operate (it is said to have a coefficient of performance in excess of 3.0). 7.113. A typical 8kW system costs £6,400-£9,600 plus the price of connection to the distribution system. This can vary with property and location. Combining the installation with other building works can reduce costs. GSHPs are very easy to operate and require little or no user intervention. They have very low maintenance costs and can be expected to provide reliable heating/cooling for in excess of 20 years.

Air Source Heat Pumps
7.114. An air source heat pump uses the air as a heat source for heating or cooling a building. These heat pumps tend to be much easier and cheaper to install than ground source heat pumps (as they lack any need for external heat collector loops), but are also usually less efficient. They can either be mounted directly on an external wall (sometimes under a window) where they look like (and are in effect) airconditioning units running in reverse, or they can feed a centralised ducted warm air central heating or air conditioning system. Air source heat pumps are generally quoted as having lower running costs than electric storage heaters.

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PART TWO - ASSESSMENT

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8.

STRATEGY EVALUATION
INTRODUCTION

8.1.

The purpose of this chapter is to assess the overall goals and objectives of the draft National Energy Development Strategy (NEDS) and to form a view on how well it conforms with other areas of Montenegro’s national policies and plans and those of the international conventions that are discussed in Chapter 6.

OBJECTIVES OF THE STRATEGY
8.2. The draft NEDS sets out to deliver a wide range of objectives. These include: • • • • • • • Securing high quality, reliable and diversified power supplies, Maintenance, rehabilitation and modernisation of existing, and construction of new infrastructure, Reduction of import dependence, Design of relevant legislative, institutional, financial and regulatory framework to encourage private sector involvement and investments, Creating conditions for higher utilization of renewable energy resources, combined power and heat and clean fossil fuel, Establishment of a competitive energy market, Provision of institutional and financial incentives to improve energy efficiency and reduce energy intensity in all sectors, from generation to consumption of energy, Sustainable energy production in relation to environmental protection and international cooperation especially with respect to reducing GHG emissions, Supporting research, development and promotion of new clean and efficient energy technologies and implementation of energy policy.

• •

COMPONENTS OF THE STRATEGY
8.3. Each component of the energy strategy needs to be assessed through the process of SEA but the components vary significantly from each other in terms of focus and content. It has therefore been necessary to approach the assessment at two levels. The first level has involved a review of the overall strategy performance against broad sustainability objectives (see Appendix 2) which have been derived from the Energy Policy goals, the National Strategy of Sustainable Development for Montenegro and the Draft National Spatial Plan. The second level of assessment has involved more detailed examination of individual proposals within the energy supply scenarios. This chapter is solely concerned with the overall performance of the draft Energy Development Strategy against the sustainability objectives, while subsequent chapters explore the individual scenarios.

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SEA of the Montenegro draft National Energy Development Strategy 8.4. The strategy review is based on key policy or strategic objectives that have been identified within the text of the Green Paper Abstract on a chapter-by-chapter basis. However, some chapters are largely descriptive and where this is the case no assessment has been required.

Preliminary Notes (1.)
8.5. Content: This section is helpful in explaining that the draft Energy Development Strategy should be seen as a clear and adjustable framework. It provides an overview of the draft Energy Development Strategy and lists sources of earlier work. SEA Commentary: This section does not require formal assessment because it does not contain statements of policy. It does, however, make very relevant points about the role of the EDS in changing traditional attitudes and providing specific objectives and mechanisms ‘for shifting from a classical understanding of supplying consumers with energy to a safe, competitive and environmentally acceptable energy services’. This is one of the tests that needs to be applied through the SEA process to those parts of the EDS which do have the potential to have direct social, economic and environmental impacts.

8.6.

Introduction (2.)
8.7. 8.8. Content: A brief statement of the EDS aims. SEA Commentary: The key message from the preliminary notes is repeated: ‘the key objective of this document (EDS) is to define the strategic mechanism that will enable the fulfilment of all key objectives of a sustainable energy development and provide a clear basis for their implementation’.

Main Strategic Commitments (3.)
8.9. Content: A list of 23 commitments is set out in section 3 of the Green Paper. 8.10. SEA Commentary: This list is a useful reference for checking the extent to which the EDS actually offers the mechanisms for delivering each of the commitments in later sections of the document. The individual commitments have also been appraised against the sustainability criteria described in Chapter 3 and the conclusions are summarised below. In some cases, groups of similar objectives are covered in a single commentary. MSO 1 MSO2 The Strategy is based on Montenegro’s Energy Policy (2005), its current international obligations, and the ED Energy Policy Guidelines; Montenegro accepts obligations set out in the Energy Community Treaty as the key document for implementations of energy reforms – prescribing directions, rules, and measures for the (re)organization of the electro-energy sector and the gas sector in future, as well as the regional market development of these energy sources; Montenegro will strive to fulfil all the required measures for a successful implementation of the Acquis Communautaire regarding energy, environment,
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SEA of the Montenegro draft National Energy Development Strategy competition, and renewable energy sources in line with requests and dynamics set out in the Energy Community Treaty; 8.11. Through the inclusion of the term ‘current international obligations’ in MSO1 and the broad range of commitments relating to the Energy Community Treaty, all three of these commitments should make a strong contribution towards delivering sustainable development objectives. However, it is important to note that individual policy commitments and objectives are not always pursuing the same goal. As a result it would be possible for the EDS to meet the broad principles of MSO 1-3 and still contain environmentally damaging or socially challenging initiatives. MSO4 Identify energy as the mainstay of the overall, sustainable, and long-term stable growth of Montenegro with positive macroeconomic effects;

8.12. This commitment is not aligned with most of the sustainability objectives because taken at face value MSO4 could result in major energy development which would conflict with environmental, natural resource and social objectives. Energy is, without doubt, one of the key requirements for a sustainable economy but it is not the only driver and it should always play a supportive and integrated role with other principal sectors, including domestic, services, transport, industry and tourism. Conservation of energy, and energy efficiency are of equal importance in ensuring that any economy is sustainable in the longer term and delivers quality of life as well as positive macro-economic effects. MSO5 MSO6 Improvement of energy efficiency in production and consumption to the level of moderately developed EU countries; Undertake concrete measures to achieve 20% share of renewable energy sources in total consumption of primary energy in line with a objective set by the European Commission;

8.13.

Both MSO 5 and 6 perform very well across all 19 sustainability objectives MSO7 Rational and wise use of hydro-energy potentials at the river basins of Moraca, Komarnica, Lim, Piva, Tara, Zeta, Ibar and Cehotina with full adherence to the applicable UNESCO declarations, decisions of the Montenegrin Parliament, and principles of sustainable development;

8.14.

The underlying aim of this commitment which is to promote, as far as possible, the hydro-energy potential of Montenegro’s main river systems, is potentially in conflict with the majority of the environmental and natural resource objectives adopted by the Government. It does however offer strong support for the reduction of GHG emissions. The added qualifications on what constitutes rational and wise use should help to ensure that environmentally damaging development will be avoided in future. In practice, however, the statements in the EDS advocating continued research on exploitation of the country’s hydro potential suggest that future conflict is unlikely to be avoided.

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SEA of the Montenegro draft National Energy Development Strategy MSO8 Rely on the exploitation of domestic coal reserves as the second important energy resource of Montenegro besides hydro-energy; the construction of thermal power plant Pljevlja and the heating system in town Pljevlja;

8.15. As might be anticipated, this strategic commitment performs poorly against environmental objectives, since it will contribute significantly to increased GHG emissions. At the same time measures to provide a district heating scheme in Pljevlja will mitigate some of the existing environmental problems in the sub-region. The emphasis on thermal power production using lignite also provides an important source of local employment and benefits the northern region. Overall the benefits are seen to outweigh the adverse environmental effects. MSO9 MSO10 Revitalization and technical modernization of the existing electricity production, transmission, and distribution system; Improve business efficiency and reduce the impact of coal exploitation and thermal power plants on environment;

8.16. Both MSO 9 and 10 are strongly supportive of the overall sustainability objectives, although there are likely to be short-term disbenefits to some households and businesses who currently receive heavily subsidised power. MSO11 Reduce energy dependency (reduction of energy imports) and improve the safety of energy supply in Montenegro;

8.17. The broad goal of increasing Montenegro’s self –sufficiency in energy and reducing fluctuations in supply are supported by the sustainability evaluation but it is noted that both environmental standards and economic performance could be compromised if some of the supply solutions are adopted. MSO12 Support development and accelerate the introduction of renewable energy sources, replace industrial and small boiler rooms with cogenerations using liquefied petroleum gas (LPG), introduce other local energy systems in the country’s energy system;

8.18.

This strategic commitment is strongly supported by the sustainability analysis. MSO13 MSO14 Develop the system of liquefied petroleum gas (LPG) as a strategic precedent to natural gas; Implement the strategic 90-day reserves of oil derivates in accordance with the EU directive;

8.19.

MSO 13 and 14 will help to diversify the energy market and improve security of supply in line with EU policy guidance and the Energy Community Treaty. MSO15 Implement a program of regulatory, legislative, and operations inclusion in the process of EU accession with regard to energy and ecology;

8.20.

Enhanced regulation and control will benefit all sectors of the economy including private households in the long term, but initially they may aggravate local social and
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SEA of the Montenegro draft National Energy Development Strategy economic conditions for the poorer communities, especially in the north of the country. MSO16 Continue with oil ad gas exploration at the Montenegrin coast, coal exploration in Pljevlja and Berane basins, and carry on the study work on the exploration of the remaining hydro potential;

8.21.

This commitment will help to support greater self-sufficiency in energy if commercial deposits of oil are found. Exploration for both oil and gas and evaluation of remaining hydro-potential needs to be undertaken within strict environmental and social guidelines if major impacts are to be avoided. MSO17 Improve the regulatory process and professional independence of the regulatory agency exclusively in line with Montenegro’s energy policy and government instructions;

8.22.

As in the case of MSO 15, more efficient regulation may have temporary adverse impacts on local communities especially in the northern region. MSO18 Reach agreements with neighbouring countries (Bosnia and Herzegovina, Croatia, Serbia, and Albania) on the optimal utilization of the joint hydro potential and the general water use and management;

8.23.

This is a key commitment which, if implemented effectively, may have mixed effects in Montenegro by restricting some forms of development that might have otherwise gone ahead. However, there is also the potential for agreements to be reached between neighbouring countries for economic gain which could have adverse environmental or social effects in one or other, or all the countries involved. MSO19 Active inclusion of Montenegrin institutions in international cooperation in energy research and development, and the introduction of energy in the educational program at all educational levels;

8.24.

This is a welcome commitment but it also needs to include the development of new technologies and research into new methods of energy generation, rather than focusing only on those traditional areas of activities for the energy and power industries of Montenegro. MSDO20 Continue with energy sector reforms, in line with adopted Montenegro’s Energy Policy and energy sector development concepts of the European Union, with a view to creating conditions for a safe, secure, reliable, and quality supply of consumers with energy at competitive prices, simultaneously respecting the principle of sustainable development and market operations;

8.25.

To a large extent this commitment appears to duplicate MSO 11 and others relating to regulation. It is largely supported by sustainability considerations. MSO21 Continue with the restructuring of the Montenegrin Electric Power Company AD Nikšic, pass a Development Strategy and a Strategy of privatization of this company;

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SEA of the Montenegro draft National Energy Development Strategy 8.26. The overall approach is supported by sustainability principles but the extent to which environmental and social safeguards are incorporated in the privatisation contract will be very important. MSO22 With a view to creating conditions for following an active energy policy, establish the system for tracking data on energy output, consumption, and losses in accordance with the EUROSTAT system of national energy accounts;

8.27.

In itself, this commitment will have only a limited immediate impact on the achievement of sustainability objectives but in the longer term the facility to monitor performance across a wide range of energy issues will have major benefits in terms of the country’s overall sustainability. MSO23 Based on ratification of the Kyoto Protocol in March 2007, as a country outside the annex for developed countries at least by 2012. Provide opportunities and support to foreign investors for the implementation of the so-called Clear Development Mechanism projects (CDM).

8.28. This commitment is principally of benefit to those foreign investors who can offset their own emission targets in their home countries but the process will indirectly benefit Montenegro by encouraging greater inward investment.

Strategy Development Background (4.)
8.29. Content: The roles of the Government of Montenegro in developing and promoting the EDS are defined, together with the role and function of the regulatory agency. The domestic and International/European legislative and regulatory framework is described, together with Montenegro’s commitments to these policies and conventions. 8.30. SEA Commentary: Although Montenegro’s commitment to a large number of regulations and protocols is clearly set out, one notable omission is the Directive on Strategic Environmental Assessment of plans and programmes (SEA). It is recommended that this directive should be added to the list in section 4.4. 8.31. Montenegro ratified the Kyoto Protocol, but as a Non-Annex I country it does not have targets to reduce the greenhouse gases. 8.32. The Government’s agreeing to the proposal of the European Commission (January 2007) on energy conservation and sustainability goals by 2020, shows commitment to the accession process; however, the EC legal framework is not obligatory for the country until its membership in the EU. 8.33. It is recommended that the points raised in paragraphs 8.14 and 8.15 above are clarified in the final EDS.

Energy Sector 1990-2004 (5.)
8.34. Content: This section of the GP/EDS provides information on: • • Energy sector in the economy, Energy production and consumption,
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SEA of the Montenegro draft National Energy Development Strategy • • • • • • • • • • • • Total energy balance, Energy efficiency and losses, Hydro electric potential, Potential of other renewables, Production, transmission and distribution of electricity, Liquid fuel supply, Heat production, Environmental Aspects Social aspects and price of energy products, Information System, Existing scenarios, plans and strategies for development, and Other areas – water industry aspects

8.35. SEA Commentary: This is a very important section of the overall strategy. Although it is primarily aimed at presenting information on the trends that have occurred between 1990 and 2004 it also makes reference to potential development in the energy sector. Only those subsections that raise specific issues for evaluation are covered in the following commentary. 8.36. Energy Efficiency and Electricity Losses: The high energy intensity of Montenegro compared with the EU and other developed countries is emphasised with gross consumption of electricity being 8.5 times higher than the EU-15 value, and total energy consumption being 5.6 times higher than the EU-15 average. The Green Paper concludes that ‘all of this implies that there is considerable need for energy rationalisation. More detailed analysis in supporting documents January 2007 draft mentioned on page 4 of the Green Paper Abstract106) suggested that the potential savings in generation, transmission and use could be at least 20% while energy savings which do not require significant investment are estimated at 13% or 4.4 Peta Joules. One of the most critical questions raised by the SEA is the uncertainty about whether these savings have been factored into the subsequent projections of energy demand and consumption.

8.37. This is particularly relevant when the figures given for energy losses related to transmission and distribution are studied. It is noted that around 2.7% of electrical energy is lost in the transmission network, amounting to 156.6 GWh. In addition losses through distribution amount to 693.3 GWh or 29.1% of the supply to consumers at the distribution level, which is extremely high. The combined losses of 850 GWh could be substantially reduced, but the EDS is not specific in setting targets for reduction and does not make it clear whether such improvements have been factored into the modelling of future patterns of supply and demand. What is stated is that ‘the development of the distribution network until 2025 is planned in such a way as to increase the security of supply…and reduce losses of electrical energy to the level of 10%, which is considered to be needed but a very optimistic goal of the Strategy’ (7.12). 8.38. Hydro-Energy Potential: The section on hydro-potential appears somewhat out of place in that it examines future prospects for hydropower development rather than
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SEA of the Montenegro draft National Energy Development Strategy dealing with the situation between 1990 and 2004. Nevertheless it contains the important observation that potential to exploit the water resources of the Tara river basin is restricted by its status as a UNESCO Man and Biosphere Reserve, with the lower part also lying within a World Heritage Site Durmitor National Park. At the same time the section notes that the technically usable energy potential from Montenegro’s rivers could be increased from 6.3 to 6.9 TWh if part of the flow from the upper Tara (22m3/s) was redirected to the Moraca River. Any proposal to divert water from the Tara system to the Moraca Basin would have very severe environmental consequences which are discussed in Chapter 10 of the SEA. 8.39. The section (5.7) contains other information relating to small hydropower potential and to hydro-potential outside Montenegro’s borders which would be dependent on the water reserves created within Montenegro. This raises the interesting question as to whether or not such potential has been discussed with neighbouring countries in accordance with the main strategic commitments of the Strategy (No 18 – To reach agreements with neighbouring countries (Bosnia and Herzegovina, Croatia, Serbia and Albania) on the optimal utilization of the joint hydro potential and the general water use and management) 8.40. Potential of Other Renewable energy Sources: Small hydro power plants of under 10 MW capacity offer additional generating capacity with a ‘realistically usable potential of up to 400MW being available without affecting the Tara River basin. Information is also provided on the potential for wind, solar and biomass energy production and for energy from communal waste. Although this is an important section of the overall strategy, the level of emphasis does not really support key strategy commitments (3), (6) and (12). 8.41. Coal Reserves: Coal reserves in the Pljevlja area and Maoce basin exceed 184 million tonnes and are capable of supporting both the existing Pljevlja thermal power plant and a proposed second power plant for more than thirty years. These resources play an important role in the proposed strategy for energy development. There are also substantial reserves in the Berane area although these have not been explored as thoroughly. Negotiations are currently in progress with a Greek registered company for the sale of the Berane coal mine which has been in receivership since the former owners became bankrupt in 2004. The role of future coal mining in Berane is not discussed in any detail in the EDS Green Paper.

8.42. Liquid Fuel Supply: All oil and oil derivatives are imported into Montenegro. Liquid petroleum gas (LPG) is supplied in small and containers to households and larger vessels for businesses. Oil and its derivatives represents an important share (up to 40%) of all energy requirements

Key Assumptions for the Strategy (13.)
8.43. Content: The full list of assumptions in section 13 is reproduced in the box below. Those assumptions that are strongly supported by the SEA are given a double tick, those supported are given one tick, those on which the SEA is neutral receive a zero and those regarded as negative are given a cross

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STRATEGY ASSUMPTIONS Acknowledging the risk that generation and transmission of the energy may become the critical issue in the region, the government of the RoM is undertaking firm measures in order to reduce that risk, on the local as well as on the regional and international level; Strategy represents a complex management mechanism with main goal defined in the adopted Energy Policy of the RoM; It is expected that the implementation of the Strategy will provide for increased interest of investors and the growth of the volume of foreign direct investments in the energy sector in the RoM; Energy development is the driving agent for overall ecological-sustainable development of the state of Montenegro; Existence of the experts (energy companies, University, Academy of Science) that have required knowledge to implement the Strategy; Transparent adoption and update of the Strategy as well as transport monitoring of it’s realization; Significant participation of the non-governmental sector in adoption of strategic decisions related to the energy development; Safe, secure, reliable and quality energy supply of consumers at realistic prices; Eliminate the dependency of Montenegro from the import of electrical energy by rational use of available hydro and thermo potentials; Reach agreement with neighbouring countries on issues related to the use of hydro potential: Water use and management, • • • Water transferring, Division of shared hydro potential, Division of energy effects created as a result of accumulations in Montenegro for downstream users X X 0 SEA Response

Energy infrastructure built in accordance with sustainable development and environmental protection requirements; Created conditions for better use of renewable energy source, cogeneration, replacement of some energy sources, reduction of energy losses and improvement of energy efficiency; Energy companies and consumers operate on the open, competitive, local and regional market; Legislation of the RoM and it’s harmonization with the EU regulations.

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SEA of the Montenegro draft National Energy Development Strategy 8.44. SEA Commentary: The majority of these assumptions are supported by the SEA, but two raise a negative or partially negative response. The first of these is the statement that ‘Energy Development is the driving agent for overall ecologicalsustainable development of the state of Montenegro’. Grounds for this assumption are not stated in the Strategy, but it is an interpretation which can be challenged. Provision of appropriate energy resources is an important component of any national economy but energy development needs to take place in the context of what is ecologically sustainable and it cannot be seen as the driver. The second assumption, which is challenged, is the observation that the dependency of Montenegro on the import of electrical energy should be eliminated by rational use of available hydro and thermo potentials. This is supported by the SEA as far as it goes but the assumption should be broadened to include energy efficiency and other sources of power contained within the Strategy including LPG and other renewables.

Energy Development Strategy (7.)
8.45. Content: The Strategy defines the requirements for energy in terms of final consumption in 2025 and then sets out the means of supplying these needs from large Hydro, coal, LPG and other renewable sources. 8.46. SEA Commentary: The choice of future power sources lies at the heart of the Strategy and each of these sources is examined in detail under separate chapters (10, 11 and 12).

Environmental Protection (8.)
8.47. Content: Section 8 notes the main environmental impacts associated with the use of thermal power. A brief reference is made to the need for studies of environmental impacts in association with hydro-electric power schemes but there is no reference to environmental effects associated with other types of energy solution. 8.48. SEA Commentary: Environmental issues are commented on in depth in chapters 10-12. However, there is a general observation in the Strategy (s 5.13) with which the SEA authors do not agree. This states ‘ Montenegro already feels the effects of global warming, reflected in increased drought periods and drying of water streams of smaller and larger rivers, which has serious consequences for biota of river and stream flows. There is a need for specially constructed accumulations that could adequately prevent unwanted effects of global warming. Positive effects of the construction of accumulation hydroelectric plants should be considered in this respect’. 8.49. From the standpoint of the SEA the design of water storage facilities to manage river flows for ecological purposes has a completely different set of objectives to those which are required for power generation. It is possible to combine the two where the interruption of natural flows is minimal as in the case of ‘in-river small hydro schemes’ but large hydro dams do not come into this category and are invariably highly damaging to the environment.

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Investment, Promotion, Costs and Financing (9.)
8.50. Content: Section 9 outlines the investment climate which Montenegro hopes to create and indicates where funds are needed to realise the three scenarios for development of the energy sector. 8.51. SEA Commentary: The main conclusion from examining table 5 in the Green paper is that with the obvious exception of the investment needed to create new large scale hydro facilities there is very little difference in the investment levels proposed for the three scenarios. If the €565 million needed for large hydro schemes is discounted, the costs of S1 and S2 varies by 8 million or 0.64%, while the cost of S1 and S3 varies by 13 million or 1.04%.

Other Strategy Elements
8.52. Content: A key part of this section deals with pricing policy and poverty reduction with additional observations on key industrial consumers and the regional energy market. 8.53. SEA Commentary: The social issues relating to energy policy are very significant both in terms of the real hardship that can be experienced amongst vulnerable sectors of society when price rises occur (for whatever reason) and the political sensitivity of such issues. A very detailed study has been undertaken by the European Bank (2003) into the affordability of electricity throughout SE Europe and although the report is now almost four years old it still contains highly relevant information on domestic expenditure on a country-by-country basis through the region. The report notes that the majority of households have a metered supply and average monthly consumption in 2001 was 367kWh per household. This average masked a substantial variation between the average monthly consumption in Podgorica of 407kWh and Bijelo Polje with a figure of only 231kWh. In 2003 12,2 %107 of the population of Montenegro were estimated to live below the absolute poverty line of 116,2 € per consumer unit . More then one third of Montenegro population (34,4%) is classed as economically vulnerable, spending spending 50% above the poverty line (174,3 Euros) High proportions in both categories live in the relatively underdeveloped north. The ISSP Household Survey (Jan 2003) provided the following breakdown of heating fuels used in households. Table 16: Percentage of Households using different heating fuels Heating Method Electricity Gas Coal Brown Coal Wood Percentage 48.1 0 5.3 1.3 42.4

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SEA of the Montenegro draft National Energy Development Strategy Significant variations in heating methods exist throughout the country. 36.4% of households who use electricity for heating live in the south, 56.1% in the central region and only 7.5% in the north. This is accounted for by the relatively warm winters in the south and abundance of wood in the North. Use of electricity for heating also correlates closely with income. The higher the household income the more likely it is that electricity is used for heating.

Strategy Implementation
8.54. Content: Implementation of the strategy will require the development of an Action Plan that is constantly updated with clear targets and deliverable outputs 8.55. SEA Commentary: The summary of recommendations for further development of the strategy highlights a number of specific initiatives that are seen as of special importance by the SEA. These include: • • • • • • • • • • • • • • Adoption of a special law on Energy Efficiency Thorough analysis of overall losses incurred in the energy sector, Imposition of urgent regulatory requirements on large industrial consumers for mandatory annual energy balances, Action plan for reduction of losses to technically achievable level of 10% Subsidised energy plans for municipalities, energy rating analysis of buildings and feasibility studies for investment in efficient energy consumption, Co-financing of projects relating to co-generation and heating system for Pljevlja, Rehabilitation of existing power plants by 2010, including environmental stabilisation, increased generation efficiency and improved performance, Possible increase of power of Piva generators, Finalisation of studies for installing 8th generator in Hydropower plant Perucica (increasing the overall capacity of this HPP by 95.5 MW, Develop an econometric model of Montenegrin economy to evaluate macroeconomic effects, Prepare study of wind plant development, Introduce LPG as an energy substitute and predecessor to natural gas, Develop district heating schemes in Pljevlja and Nikšic, then Bijelo Polje, Cetinje and Berane, Explore use of residual heat from waste to energy plant in Podgorica for district heating

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SEA of the Montenegro draft National Energy Development Strategy • • • • • Stimulate use of renewable sources of energy by subsidising investments, Prepare additional studies for possible use of wind energy,, Remove legal and other barriers to faster investment in wind plant, Intensify investigation for possible use of waste energy in Montenegro including production of heating and electrical energy, Assess availability of resources for introducing industrial and small cogeneration plants

Conclusions of the Green Paper
8.56. Content: The development of the energy sector in Montenegro aims to utilise indigenous resources and decrease the import of energy with the clear intention to become an electricity exporter in future. 8.57. SEA Commentary: The initial SEA Key Issues report was criticised for giving a misleading impression about the aims of the EDS. Further review of the Green Paper Abstract has confirmed that the original wording of the Key Issues Paper was correct and the above statement reaffirms the position of the EDS authors (page 51, second paragraph of EDS).

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9.

‘DO-NOTHING’ OPTION
INTRODUCTION

9.1.

A review of the ‘do-nothing’ option is a routine part of both Strategic Environmental Assessment (SEA) and Environmental Impact Assessment (EIA). It is undertaken in order to provide a benchmark against which changes that are proposed as part of a strategy, plan or programme can be measured. There is no suggestion that the donothing option should be regarded as a serious contender for future planning purposes.

DESCRIPTION OF POSSIBLE TRENDS
9.2. The same assumptions are adopted for the ‘Do-Nothing’ option as for all other scenarios in terms of the likely rise in energy demand. Table 17 and Figure 7 presents the anticipated growth in energy consumption at five year intervals based on the medium growth in energy demand adopted by the EDS. Table 17 Energy sources meeting forecast final energy consumption (PJ)
Sources Petrol Derivatives Heat Electricity Renewables Totals 2003 10.9 2.84 13.46 1.98 29.18 2010 13.75 3.29 15.36 2.44 34.84 2015 16.36 3.88 16.65 2.94 39.83 2020 18.81 4.81 18.55 3.26 45.43 2025 20.38 6.06 20.58 3.62 50.64

Figure 7 – Growth in Energy Consumption (Demand to 2025 based on the medium growth forecast of 6% per year.
Growth in Final Energy Consumption 2003-2025
60 50 40 PJ 30 20 10 0 2003

Renewables Electricity Heat Petrol Derivatives

2010

2015

2020

2025

9.3.

Figure 7 shows the contribution that would be provided from different energy sources in the event that no development were to take place in terms of thermal or hydro electric energy and no government interventions are made in the markets,

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SEA of the Montenegro draft National Energy Development Strategy although it is assumed that the supply of oil and gas and heat energy would continue to expand to meet demand. 9.4. The net consequence of doing nothing to support Montenegro’s rising demand for energy would be a deficit increasing from its current level of 5.4 PJ (1500 GWh electricity) to around 10PJ equivalent by 2025. The increased deficit of 4.6 PJ (1288 GWh) would cost the national economy 56 million Euros108 per year (i.e. 3.7% of GDP) at 2005 prices. Figure 8: Shortfall in Energy Supply projected in the DoNothing Option
Contributions to final energy consumptions from different supply sources in a Do-Nothing Option
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50 Wood/Biomass 40 PJ Large Hydro Thermal 30 Electricity Import/other Heat 20 Oil Total Consumption 10

0 2003

2010

2015

2020

2025

Balance of Supply and Demand
9.5. In the event that a strategy for energy was not adopted and ad-hoc policies were imposed instead it is likely that oil imports would play an increasingly important role in energy supply to make up for any shortfall in electricity supply (although there is a limit to the extent to which this substitution can be made and additional electricity would have to be imported, at increased cost). In these circumstances, energy prices would be strongly influenced by prevailing world costs for oil. The absence of a strategy would also make it less likely that coordinated programmes would be developed for urban transmission networks for LPG. However, the main impact of having no energy strategy would be felt in the electricity sector, especially if measures to upgrade the transmission grid and links with neighbouring countries were not promoted.

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Using a current nominal price of 4.4 Euro Cents per kW, GDP of 1,516 million €
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SEA of the Montenegro draft National Energy Development Strategy 9.6. It is important to stress at the outset that some elements of the EDS will have a more or less constant range of economic, social or environmental effects within the overall range of final energy consumption scenarios that are being projected over the period from 2005-2025. This includes the oil and oil derivatives section which operates as an independent market and will expand or contract according to market forces, including Government fiscal and economic policies. These products are used principally in the transport sector, for fuelling industrial processes and in the case of domestic consumers for heating and cooking. Demand for oil derivatives cannot be satisfied from local sources in the foreseeable future (i.e. the next 10-15 years) although in the longer term there is the possibility of extracting oil and gas from Montenegrin waters if the presence of hydrocarbons which has already been confirmed leads to the discovery of commercially exploitable reserves. Montenegro therefore has no choice but to continue importing oil derivatives. Under existing conditions, Montenegro has a deficit of around 1516 GWh109 a year in electricity which represents 31.8% of electrical energy consumption. The deficit in electricity occurs notwithstanding the fact that Montenegro exports peak load electricity to Serbia and receives double the quantity of baseload electricity in return. This arrangement is due to continue until 2025. As Montenegro’s economy continues to grow, the demand for energy will also increase, even though energy efficiency and conservation measures are brought into effect. This reflects the fact that the country’s economy was badly affected by the war and subsequent sanctions and is still in recovery phase. All models of economic growth show that the current phase of rapid expansion (at around 6% per annum) will slacken off and growth towards the end of the planed period is projected at around 4%.

9.7.

9.8.

9.9.

9.10. If the forecast growth rates for energy demand (used in developing the Moderate Construction Scenario are considered, demand for electrical energy is expected to increase from 4765 GWH in 2005 to 5791GWh in 2025, an increase of 1026 GWh representing 21.5%. In theory, this would give rise to a total annual deficit of around 2542 GWh by 2025.

Energy Efficiency and Conservation
9.11. In the absence of any increase in electricity supply within Montenegro the country would have to rely increasingly on the import of electricity (or alternatively import larger quantities of lignite or oil derivatives from which to produce electricity). The region does not have surpluses of electricity generating capacity at the present time and it is therefore likely that increased shortages of electrical power would result initially. This would be likely to increase the costs in both the domestic and industrial market sectors. In practice, pressures for price increases are already built into the opening up of the regional energy market by 2008 for industrial users and 2015 for all consumers, but the rate of increase would be accelerated in circumstances where Montenegro was not increasing its own supply capacity.
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In 2005 deficit was 1800 GWh (GEF 2006)
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SEA of the Montenegro draft National Energy Development Strategy 9.12. Increasing electricity prices would have a range of negative effects that are discussed below but increasing cost would also have positive benefits in terms of encouraging some fundamental changes in attitudes to energy use since most consumers have become accustomed to buying electricity at heavily subsidised prices, and are only just beginning to adjust to increased costs. Greater concern and care over the use of electricity would result in reductions in power consumption which would slow down or even reverse the pressures leading to rising demand. Household consumers would be likely to reduce their dependence on electricity for space and water heating, turning back to wood fuel as a primary source. Higher costs would also make alternative heating solutions including use of solar energy much more attractive and in the process help stimulate new and innovative technologies.

Constraints on Development
9.13. A shortage in electrical energy would also force industrial concerns to take the issue of energy efficiency more seriously, but such changes would take time to work through the system and shortage of supply at affordable prices could put a significant break on the economy in the short term. Major users, like KAP, which already buys one third of its energy requirements through competitive tendering processes, could find it difficult to source energy at a competitive price. In these circumstances the owners’ first choice might be to reduce production rather than import more expensive electricity. In the final analysis, if prices rose too steeply the costs of producing aluminium could become prohibitive, resulting in temporary or even permanent closure of the plant. It is impossible, however, to predict the future with any degree of certainty because world energy prices and both ferrous and nonferrous metal prices are becoming more volatile with rising demand especially from growth of the Asian economies. As a consequence the price of aluminium has been rising on world markets after a prolonged period of relatively static prices. 9.14. Fluctuating power supplies and increased overloading of the existing distribution system could lead to more frequent failures in power supplies and higher electricity costs would also affect all other sectors of the economy, including tourism which is one of the primary growth areas. Operators of larger tourism complexes could buffer their operations against power shortages by installing their own generators but most small businesses would be unable to adjust.

Economic Effects
9.15. The economic consequences of increasing reliance on imported power could be severe and would be both direct and indirect. In terms of direct effects, higher costs reduced profit margins, increased redundancies and more business closures could be anticipated. Indirect effects would include a loss of business and investor confidence and a fall in rate of growth in GDP.

Social Effects
9.16. More rapid increases in domestic electricity prices could have a disproportionate effect on more vulnerable sectors of society, who would have little or no scope for switching energy sources, although it needs to be said that the transition to a free market cost for energy is already underway. As a result most of the economic and
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SEA of the Montenegro draft National Energy Development Strategy social impact on the domestic economy will have been felt over the next five years – before the main part of the preferred electricity construction programme is complete and new power sources are linked up to the distribution network. 9.17. Any downturn in industrial activity could exacerbate the already high level of unemployment in Montenegro, which exceeds 21%110 in some areas. The most critically affected areas would be the main industrial towns in the central region which currently provide more than 50% of overall employment.

Environmental Effects
9.18. While the absence of an energy supply construction programme would avoid direct environmental impacts there would undoubtedly be a range of indirect effects. Demand for fuel wood to meet short term domestic needs could put pressure on forest resources by stimulating illegal logging or excessive felling rates in sensitive areas. Temporary or even permanent closure of heavy industry and mining sites could result in environmental pollution and land degradation.

Review
9.19. The scenario outlined above is deliberately chosen as a ‘worst case’ and outlines the adverse social, economic and environmental consequences that would stem from doing nothing to meet future energy needs. It also highlights the importance of adopting an energy strategy that reduces the need for energy imports and seeks to balance supply and demand within the country. However, the review also identifies the fact that speed of transition is a key factor in determining how successfully Montenegro handles its changing economic circumstances. There is evidence presented through public debate on the Draft National Spatial Plan that rapid growth, especially in the coastal region is putting a strain on infrastructure and the environment and increasing energy demand in the process. There is also well documented evidence that current energy usage is both wasteful and inefficient, and that large quantities of electricity are ‘lost’ in the system. What is clearly important is to avoid ‘shocks’ to the economy that would result from sudden disruption to power supplies, (or conversely increased availability of cheap electricity from unsustainable sources). 9.20. Any energy strategy that accepted the status quo and made no attempt to reduce the energy deficit would be economically and politically untenable, but at the same time a strategy that imposed a degree of constraint on cheap energy supply and challenged consumers to save energy is more likely to encourage the sort of changes in lifestyle and attitudes that are clearly stated in the Green Paper as part of the overall target of the Government of Montenegro.

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Average for period 20 August 2006-20 August 2007; Employment Bureau Database; www.zzzcg.org

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10. MODERATE CONSTRUCTION SCENARIO
INTRODUCTION
10.1. In order to increase local production of energy in Montenegro and minimise the need for imports a ‘moderate’ construction scenario N-2 has been proposed as the preferred option in the EDS. This is linked with moderate provisions of LPG and assumes the medium growth in final energy consumption shown in Figure 9 below. Figure 9: Projected Growth in Energy Consumption 2003-2025
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Changing Structure of Final Energy Consumption 2003-2025
PJ 60 Solar Energy from waste 50 Wind Wood/Biomass 40 Small Hydro New Large Hydro 30 20 Large Hydro New Thermal Thermal Electricity Import/other 10 Heat Oil 0 2003 2010 2015 2020 2025 Total

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SEA of the Montenegro draft National Energy Development Strategy 10.3. This figure shows the projected growth in energy consumption of all energy sources, together with the relative contributions being made by existing thermal and hydro HPPs and new thermal and hydro HPPs. It should be noted that imports of oil and oil derivatives and energy (other than electricity) used for heat makes up more than 50% of the total consumption.

COMPONENTS OF THE MODERATE CONSTRUCTION SCENARIO
10.4. The preferred strategy contains a number of different energy sources including wind energy, solar, biomass and use of LPG, but proposals for construction of new facilities are directed largely towards the electricity sector and two primary sources: hydro power and thermal electricity. As shown in Table 18. Table 18: Construction of Electrical Energy Facilities in N-2 Scenario Year Facility MW 5 10 225 127 37 37 168 37 20 10 5 5 5 691 GWh 11 30 1, 073 318.6 151 106.9 231.8 117.2 78 40 11 11 11 2190.5 Euros Million 5 15 135 194.9 84.7 73.5 134.1 77 30 32 5 5 5 796E N2 – 691MW 2010 Wind Small Hydro 2011 TPP Pljevlja 2 2013 HPP Andrijevo HPP Zlatica 2014 HPP Raslovici 2015 HPP Komarnica HPP Milunovici Small Hydro EfW Wind 2020 Wind 2025 Wind 10.5.

Apart from the development of an estimated 5 MW of power from renewable resources of wind and 10 MW from small hydro power schemes in the period 20072010, no major change is anticipated in terms of increased power production until 2011. This represents the earliest date by which a second power plant could be commissioned at Pljevlja. Construction of the second Pljevlja plant would add 225 MW, with an annual output of 1073 GWh, to the supply system. The next major change that is anticipated is the construction of a series of dams and impoundments on the Moraca River, commencing with Andrijevo (127 MW) the largest of the potential HPPs on this system and Zlatica (37MW) which is located just north of Podgorica. These two plants which would be commissioned by 2013 would have a combined capacity of 164 MW and would generate an estimated 469.6 GWh annually.

10.6.

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SEA of the Montenegro draft National Energy Development Strategy 10.7. In the following year, Raslovici HPP would be brought into operation, followed by HPP Milunovici in 2015. Both of these plants would have a capacity of 37MW each (74MW in total) and would generate a combined total of 224.1 GWh. 10.8. The Strategy also proposes the construction of a second dam on the Piva River at Komarnica by the time that the Moraca valley’s capacity to accommodate new dams and accumulations has been fully utilised. This HPP would commence production in 2014 with an output of 231.8 GWh from an installed capacity of 168 MW. 10.9. Beyond 2014 the strategy envisages further development of wind energy, small scale hydro and a single energy from waste thermal power station. This would add 60 MW capacity and yield in the region of 192 GWh.

ASSESSMENT
10.10. The moderate construction scenario focuses on reducing the need for imported electricity, given the anticipated rise in final electricity energy consumption from 4,765 GWh in 2003 to 5791 GWh in 2025. Imports of electricity (over and above that supplied by the Piva agreement between RoM and Serbia) will continue to be required until 2011, when the Pljevlja 2 TPP is due to start producing electricity. Thereafter Montenegro would become a temporary net exporter of electricity (page 51) The Green Paper notes that the maximum rate of export would be achieved in 2015 at 600 GWh annually111 which would equate to 24 million Euros (assuming a price of 4.4 cents per kW). Figure 11
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10.11. The different components of the N-2 + S-2 scenario are examined below under the headings of thermal electricity, large hydro electricity, LPG, small hydro and other renewables.
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Green Paper (English Edition P.35)
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Thermal Electricity
10.12. At present the only large thermal power facility in Montenegro is the Pljevlja coal fired power plant constructed in 1982. This plant consumes around 1.35 million tonnes of lignite and brown coal every year mostly from the nearby Pljevlja Basin. The facility has an installed capacity of 210 MW which gives it an average annual production of 914 GWh. The thermal power plant is expected to be improved however, with the capacity upgraded to 225 MW and the plant is projected to produce around 1150 GWh/year. A second thermal power plant block is planned at Pljevlja with an installed capacity of 225 MW. This facility is expected to be operational in 2011. 10.13. From 2009 and until 2025 opencast mining of coal will take place at the Potrlica and Cementara sites, although exploitation of coal resources from Berane is not envisioned in the Strategy. The Strategy estimates that coal production from the Pljevlja basin will adequately supply both TPP Pljevlja block one and two, with the 2.5 – 2.8 million tonnes of coal required for their combined operation for the entire life of both facilities (roughly 40 years). However, the supply of coal from the Pljevlja mines to this facility has in the past been unreliable at times and this has affected the plant’s output. 10.14. The operation of the Pljevlja Thermal Plant and associated mines has, in combination with household coal usage, caused a significant legacy of environmental pollution (air, water, contaminated land). Upgrading of the facility is planned in order to bring it within EU legislative parameters in terms of pollution, for example through flue gas technology, however, significant investment will be required in order to fulfil these obligations. 10.15. Many complex factors are likely to affect future electricity generation through thermal power plants including: • • • • geological conditions, the progress of privatisation, the structure of contracts negotiated between private and state-owned entities, production of energy in adjacent counties, environmental constraints and EU standards.

10.16. The Pljevlja Thermal Plant and associated Pljevlja mines have recently been the subject of a tendering process leading to privatisation. The process proved to be controversial and the Government decided not to proceed with negotiations with a single bidder. At the time of preparing this report, the outcome of the privatisation programme remains uncertain. The future of the existing plant and proposals for constructing a second block will clearly be influenced by ownership and management structures that are still to be decided upon and this could have an effect on the timescale for achieving the Energy Strategy. 10.17. Any upgrading of existing plant or development of new thermal plant will be undertaken in accordance with the relevant EU Directives including 2001/80/EEC on control of emissions from large combustion plants. The Green Paper Abstract notes that construction of the second block would increase CO2 emissions to around 3
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SEA of the Montenegro draft National Energy Development Strategy million tonnes per annum, while SO2 emissions would reach 11,400 tonnes in 2011 (although this would follow marked reductions from the existing plant when desulphurisation plant is installed). NOx emissions would also be increased by around 4000 tonnes annually following completion of the second power block. 10.18. No details on the scale of the construction project have been accessed as part of the SEA but reference to other coal-fired power stations of equivalent size including a 200 MW plant in Illinois and two plants in the Czech Republic suggests that between 500 and 750 workers could be employed in total over a 3-4 year construction programme. This would have significant social and economic benefits for the Northern region and the town of Pljevlja in particular. Large Hydro Electric Schemes 10.19. As shown in Figure 10, currently hydroelectric power make up 62.2% (section 5.2. page 11 of Green Paper Abstract) of primary power production in Montenegro and the existing Piva and Perucica HPPs will continue to make an enhanced contribution throughout the lifetime of the strategy. Having examined a wide range of alternative hydropower solutions the main proposal of the EDS is to bring forward a plan of placing a series of dams across the Moraca River and generate electricity by exploiting the head of water created at each site. Up to 238 MW (693.7 GWh) of electricity would be generated annually from this complex. In addition the strategy proposes the construction of the Komarnica HPP which would add a further 168 MW (231.8 GWh). The Moraca System 10.20. The greatest hydro potential exists at Andrijevo where the river canyon is at its deepest, and a dam 130 metres high could be built. Other dams would be positioned downstream to maximise the power potential, although due to the narrow width of the canyon and shallower gradients the capacity of the resulting reservoirs would be more limited. 10.21. In considering the likely effect of damming the Moraca river there are a wide range of technical factors to be considered and it is not possible to judge from the way that information is presented in the Green Paper whether these issues have been fully accounted for, although clearly a great deal of engineering expertise has been employed throughout the studies. Engineering safety: 10.22. A fundamental requirement with any water storage project involving a cascade series of dams is to assess the risk of a catastrophic event if one of the upper dams were to fail and a surge of floodwater was then discharged which would overtop the lower dams and cause progressive failures. The circumstances that can lead to such an event include major landslides or rock falls into the accumulation, as well as failure of the dam itself. This type of assessment is especially important in a country like Montenegro where the risk of tectonic activity (earthquakes) is above average. Research in Southern Croatia and Western Herzegovina confirmed that significant changes of 60-180 cms in water level of the Karst rivers in this region resulted from an earthquake of 5.5 on the Richter scale in May 2004 (O. Bonacci 2004). In these circumstances the SEA would expect to see a full hazard and risk assessment with
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SEA of the Montenegro draft National Energy Development Strategy particular attention being given to conditions around Podgorica and in the lower reaches of the Moraca valley and flood plain which is intensively developed. Hydrological efficiency: 10.23. The Moraca catchment is characteristic of Karst rivers in the region in that the flow regime varies greatly through the year. Figures for the fluctuation of average monthly flow are published112 (which show peak runoff after snow melt in April-May of up to 236 m3/s falling to 27 m3/s, as gauged at Podgorica. By comparison in the headwaters at Pernica flows are at their highest in May at 58 m3/s and drop to 7 m3/s in August. (See Figure 11 below) Figure 11: Fluctuation of Average Monthly Flow within the year

10.24. The highly seasonal nature of river flow would have a significant effect on the way in which the hydro-potential of the catchment is used. Availability of water is critical to the efficient operation of individual power plants. Evidence from existing hydro power plants in Montenegro is that variations in weather conditions have a major effect on efficiency. In some years hydro power production is halved by drought as shown in Figure 12 for the Piva and Perucica HPPs. 10.25. The regional forecasts relating to the potential impacts of climate change suggest that rainfall levels could drop by 10- 20% over the next 40 years. If this were to be the case the economic case for building hydro power plants would need to be subjected to rigorous cost-benefit analysis to confirm that an adequate return can still be made on the initial investment.

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Prohaska and Ristic, 2004
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SEA of the Montenegro draft National Energy Development Strategy Figure 12: Fluctuations in Hydro-power Production due to weather conditions
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Landscape and Recreational Use: 10.26. The hydrological characteristics of the catchment have important ramifications in terms of the use to which accumulations can be put. A high level of drawdown must be anticipated as water is released from winter storage. Marked fluctuations in water level within the accumulation, together with low water temperatures would place severe limitations on any form of economic use of the water surface. 10.27. In order to undertake a full assessment of these conditions it will be necessary to obtain the operating rules governing power generation and water discharge for the system. There is a complex balance between the head of water available, the efficiency with which turbines can be run, and the price that can be commanded for each GWh of electricity produced. These parameters are translated into operating rules and will govern how often, and for what length of time, each turbine is run to generate electricity. 10.28. Since one of the main advantages of hydro power is the flexibility which it creates for generating peak electricity, this can have a significant effect on down stream flows. In the case of the Moraca, water released from the three upper dams is likely to be fed straight into the accumulation formed by the next dam on the system. This is because the dams will be built to maximise use of the canyon storage and there will either be no natural river channel remaining or only very short lengths between the structures. However the Zlatica dam will discharge direct to the Moraca River above Podgorica and the way in which its outflow is managed will be critical to the ecology and future use of the remaining natural river channel downstream. Ecological Impacts within the zone of accumulations 10.29. The upper Moraca is a typical torrent tract stage of a fast flowing river, with alternating pools, cascades and scoured basins where the rock is worn smooth by the sheer force and erosive power of the river through to shallow reaches where bed
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SEA of the Montenegro draft National Energy Development Strategy load accumulates to form gravel bars. All aquatic life in such rivers is adapted to the extremes of flood and drought which are normal occurrences. As a result, individual species become adapted to local conditions and Moraca has one of highest levels of endemism. Although there have been recent scientific expeditions to the Moraca, much of its biology remains unknown and it represents a rare opportunity to study a major European river which remains in relatively pristine condition upstream of Podgorica. 10.30. The River Moraca forms a critical element within the life history of most migratory species including Alburnus Alburnus Alborella, Chondrostoma ohridanum and Salmo species which forage in Skadar Lake and spawn in the river. The colder part of the river in and above the canyon is the habitat and spawning place for the populations of native Salmo species such as Salmo Trutta, Salmo Marmoratus, Salmothymus Obtusirostris Zetensis. Other biotas have not been studied in such detail. There are however many endemic taxa in small crustaceans, especially in amphipods. 10.31. Inevitably, any section of the Moraca which is dammed will change beyond recognition in terms of the organisms that are present since instead of a fast flowing river, the lake areas will become relatively static. Some fish species will survive but others that are migratory will not. Ecological Impacts below the area of accumulations113 10.32. The Moraca is the most significant river flowing into Skadar Lake. Together with its tributaries, the Zeta and Cijevna Rivers it drains an area of 3200sq kms and makes up 60% of the total catchment of Skadar (5320 sq kms). In terms of discharge, the Moraca contributes over 65% of the total inflows to Skadar Lake (Prohaska & Ristic, 2004). 10.33. Skadar is the largest freshwater lake in the Balkans with a surface varying from 370 to 530 Km2 depending on water level fluctuations. It supports a lush wetland vegetation of floating plants containing more than 25 rare and endemic species. The vegetation and high water quality support in turn a rich array of invertebrates, 48 species of fish within the catchment and over 280 bird species. 10.34. The fish fauna of River Moraca and Lake Skadar basin include over 50 species of native lampreys and fishes, most of them endemic to Lake Skadar – Drin-Ohrid drainage114 As a result, Lake Skadar drainage is one of the most important sites for freshwater fish conservation in Europe and lies at the centre of the Mediterranean biodiversity “hotspot”. There are very few places in the Western Palaearctic, where so many local endemic species occur in such a restricted area as the Lake Skadar drainage basin. While Lake Ohrid is famous for its endemic and unique fauna, several of these species are shared with Lake Skadar. In fact, both lakes and their tributaries not only share endemic species, but also have their own endemic taxa found only within a certain part of the Skadar-Drin-Ohrid drainage.
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This section primarily focuses on environmental impact on fish fauna, lampreys and interrelation between Moraca and Skadar Lake. However, there are serious environmental impacts of energy solutions proposed in N-2/S-2 scenario especially on canyon flora, herpeto-fauna as well as other biodiversity. 114 Lake Skadar is hydrologically connected with Lake Ohrid by Drin river and just its junction Drimac near Skadar town in Albania.
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SEA of the Montenegro draft National Energy Development Strategy 10.35. There are 10 known fish taxa that are endemic only to River Moraca and Lake Skadar drainage and the Skadar drainage is the major habitat for 8 additional endemics of the Skadar-Drin-Ohrid drainage. In addition, Lake Skadar and River Moraca host major parts of the global population of three species which are not endemic, but occur also in some rivers in Albania. However, the fish fauna of this region are still incompletely studied and some taxa now shared between Lakes Skadar and Ohrid may turn out to consist of two distinct species. It is also a fact that the distribution of endemic species is only partly known. This is especially true for rheophilic species such as the Moraca endemics Gobio skadarensis, Telestes montenigrinus and Barbatula zetensis. Their distribution in tributaries other than the Moraca (including Zeta) is unknown, as these tributaries (especially in Albania) have never been studied in detail. For these reasons the value of River Moraca and Lake Skadar basin within the framework of the conservation of European freshwater biota cannot be underestimated. 10.36. The fish fauna of Lake Skadar basin can be differentiated into lacustrine species and rheophilic species which mostly live in River Moraca or enter the river for spawning. The lower part of River Moraca below the canyon is populated by a rich community of warm water adapted species including the Skadar basin endemics Gobio skadarensis, Telestes montenigrinus and Barbatula zetensis. For these species the lower River Moraca accounts for the major part of their global distribution. 10.37. There is a high level of international interest and concern in the future of Skadar Lake which is a RAMSAR site and a National Park within that part lying within Montenegro. A recent study (Royal Haskoning) has highlighted potential threats to the lake. ‘These include the presence of unacceptable levels of some pollutants including at the mouth of the Moraca River which collects groundwater from the Podgorica Aluminium Plant. Economic development proposals in both Albania and Montenegro which involve alternative uses of the water resources of the lake basin present potential major threats to the Lake ecosystem. These include hydropower development in Montenegro and the dredging of the Buna Bojana River to increase its navigability. Such developments could seriously affect the Lake level and hydrology including its characteristic rapid flushing and undermine its ecological integrity and functionality. 10.38. The reasons why alterations in river flow in the Moraca could be so damaging is due to the imbalances that are likely to exist between the time during which power is required and the natural variation of flows in the river. High runoff in December and late spring with very low flows during the summer months is a natural phenomenon and the resulting fluctuations in lake level create conditions that aquatic plants, fish and migratory birds have adapted to over millennia. Sudden increases in water level, at other times of the year when the lake level normally drops by four metres could cause major ecological damage to spawning fish or nesting birds. 10.39. The disturbance of bed sediments in the lower Moraca through the scouring effect of sudden ‘freshets’ of water released from upstream dams could also exacerbate these problems.

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SEA of the Montenegro draft National Energy Development Strategy 10.40. All of the issues outlined above can only be cited on the basis of evidence from other large scale hydro dam projects but in order to make a thorough study of the Moraca, much more detailed information would be required on the nature of the planned engineering works and their intended operation. 10.41. It has been argued in Green Paper (Chapter 8 ‘Environmental protection’) that the implementation of the Strategy ‘is essentially linked with the processes of environmental protection. Substantially, environmental protection is the process of management of natural and human created resources, which is exactly identical with the development of the energy sector. Therefore it is entirely clear that the Strategy is based on requirements of the ecologically sustainable development and to a great extent it carries the concept of the Ecological State of Montenegro, while respecting necessary economic and other development aspects’. 10.42. In the context of plans for the Moraca and its potential adverse effects on Skadar Lake a statement like this is completely at variance with the vast body of scientific evidence. As a result it undermines the credibility of other sections of the Strategy which do set out more objective analysis of the issues. In Section 8.1 of the Green Paper it is noted that: “In the case of construction of new HPPs and related accumulation lakes, it is necessary to develop detailed studies of the impact of hydro energy on environmental, space and natural resources in terms of environmental impact. Particular researches is required for multipurpose possibilities to use hydro-potential in order to provide supply of drinking water, development of tourism and pisciculture, irrigation of agricultural land etc having in mind the UNESCO declaration on the protection of the Tara River and other domestic and international guidelines” 10.43. The SEA, of which Key Issues Paper is a part, will satisfy the legal requirements for an assessment of the strategic environmental issues relevant to the draft Energy Development Strategy. However, for development on the scale proposed for the Moraca River it would have been prudent to have carried out detailed environmental and local socio-economic studies of the proposals as part of the preparatory work on the Energy Development Strategy itself. It has been confirmed that Environmental Impact Assessments (EIAs) will be carried out on individual HPP projects before these are constructed but this will be too late to affect the outcome of the overall decision and will only allow certain level of environmental mitigation. 10.44. It is clearly important that if major engineering works are undertaken, the opportunities for multi-purpose use are explored, but for the reasons already given such opportunities are likely to be non-existent within the river channel and accumulations. Diversion of water for other uses, including agriculture, would need to be subject to individual and cumulative environmental impact assessment studies since they could exacerbate the adverse effects of the initial impoundment. Socio-Economic Impacts 10.45. No data has been provided in the EDS on the scale of employment that is projected to be created by the proposed Moraca hydro power plants, However drawing on
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SEA of the Montenegro draft National Energy Development Strategy North American and Turkish references it is estimated, as a very first approximation, that one temporary job will be created per €0.4 million construction cost. This suggests that the four Moraca dams and associated works, costing €430 million in total would require a construction labour force of around 1100 people. Numbers would fluctuate over the assumed construction period from 2010-2015. The bulk of this labour would consist of heavy manual work using semi-skilled and highly skilled personnel and would be largely male. During the operational life of the scheme, far fewer personnel would be required and the permanent staff would probably fall within the range of 50-75. 10.46. As with any large civil engineering contracts, the purchase of raw materials; steel, cement, mechanical plant, and bulk material handling using large tractors, excavators and road vehicles, would provide a major injection of finance into the regional economy over a 3-5 year period which would boost the performance of local towns in the northern and central areas around Nikšic, Podgorica, Bijelo Polje and Berane. Once the scheme was operational there would be no significant socio-economic impact in terms of local employment and income compared with any equivalent energy generating scheme. 10.47. Temporary gains in local employment need to be balanced against the risk of losses in both temporary and permanent employment which is displaced within the river system (recovery of sand and gravel aggregates, recreational and commercial fisheries and tourism activities) and possible wider effects on fisheries and tourism on Skadar lake which can only be assessed when details of the engineering works have been provided. Safeguarding the Tara River 10.48. The Green Paper notes that in accordance with the law on national parks in Montenegro ‘it is forbidden to construct new structures on the territory of National Parks, except when there are special decisions.’ It also notes (section 5.7) ‘that it should be considered that the limiting factor for exploitation of water resources is the fact that part of the Tara flow is located in the National Park Durmitor, which is on the list of the UNESCO World natural heritage and the basin of the Tara is included in the biosphere reserves of UNESCO programs. However, it should be noted that these statements do not explicitly rule out proposals for the development of small scale Hydro power plants in the Tara catchment or longer term proposals to divert part of the Tara flow to the Moraca River. 10.49. Section 7.9 (Research in the Energy Sector) specifically argues that ‘Researches of remaining technically feasible hydro potential for use in large and small HPP should continue in the period until 2025, in order to plan their construction with accelerated dynamics after 2025’. 10.50. Specific reference is made in the main strategic commitments (3.7) to: “rational and wise use of hydro-energy potentials at the river basins of Moraca, Komarnica, Lim, Piva, Tara, Zeta, Ibar and Cehotina within international and national legislation, guidelines and the principles of sustainable development”.

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SEA of the Montenegro draft National Energy Development Strategy 10.51. The same section of the Green Paper states in relation to overall surface water potential in Montenegro that while the total theoretical hydro energy potential of the nine main rivers is 9.85 TWh, “the estimate of technically useable potential ranges from 5.4 to 6.3 TWh, while if the approach is to redirect part of the waters from the River Tara to the River Moraca (22.2 m3/s) the technically useable potential would amount from 6.3 to 6.9 TWh” (section 5.7, page 14). 10.52. This statement highlights a critical feature of the Moraca hydropower scheme which is the scope to greatly increase the quantity and profitability of electricity generation of the Moraca HPPs by diverting 22m3/s of water from the Tara in the vicinity of Kolašin (Zuti Krs) through a tunnel to discharge into the Andrijevo accumulation. 10.53. In the discussion which follows opportunities for linking the Tara to the Moraca are described, because they have already been widely discussed in connection with the draft National Spatial Plan. However, this discussion should not be taken as any form of support or endorsement from the standpoint of the SEA, since the potential adverse environmental impacts would be even more severe than those of the Moraca scheme in isolation. 10.54. The National Draft Spatial Plan includes reserved sites for two hydropower plants on the Upper Tara and for the construction of the Koštanica HPP and accumulation, which would be built on the line of the tunnel transferring water from the Upper Tara to the Moraca. 10.55. If in the long term it was confirmed that building dams on the Upper Tara was inappropriate because of the areas’ status as UNESCO Man and Biosphere Reserve, the option of transferring water could still be pursued without a dam, by building a diversion sluice within the existing river channel. 10.56. A decision to transfer water from the Tara would potentially support one of the most profitable Hydro Power Plants in the country at Koštanica. This scheme was described at a conference in Vienna115. 10.57. The construction of a power plant and accumulation at Koštanica would offer the potential to generate in excess of 1300 GWh a year from an installed capacity of 552 MW yielding an investment ratio of 28 cents per kWh. 10.58. Augmentation of the natural flow in the Moraca by the introduction of water from Tara would allow the Moraca HPPs to run for longer periods due to the scope for recharging the accumulations when water levels start to fall in early summer. However, the amount of water available in the Upper Tara would also be affected by summer drought and the transfer of water would not be possible throughout the year. 10.59. Detailed studies have been undertaken to assess what the increased power capacity of the Moraca HPPs would be if the installed river flow was increased from120 to180 m3/s. through a 22m3/s transfer, and larger or additional turbines were installed. The studies show that the combined capacity of the four Moraca HPPs could be increased

115

M. Markovic, 2005
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SEA of the Montenegro draft National Energy Development Strategy from 238.4 MW to 357.6 MW, while annual generation of electricity could be raised from 693.7 GWh to 1053.9 GWh. 10.60. This substantial increase in power generation could be achieved with an increase in construction cost of only 28 million Euros (from 430 to 458 Million Euros) while the investment ratio for the power produced would fall from 62 cents per kWh to 43.5 cents per kWh. 10.61. Once a decision has been taken to develop the Moraca for hydro power this will greatly increase the economic and political pressure for introducing a future water transfer scheme from the Tara as economic gains (annual generation of electricity could be raised from 6,937 GWh to 1052, 9 GWh) greatly outweigh additional construction costs (an increase of only 6.5% of overall construction costs). This issue should be clearly recognised and fully discussed in the public debate on the current energy strategy. This is all the more important because, with the exception of Pljevlja 2 TPP, the Moraca scheme is the only significant component of electricity supply of Montenegro’s Draft Energy Strategy. Komarnica Hydro Power Plant 10.62. Very little information is provided on the planned development of a second major HPP on the Piva River, but the Komarnica dam would be built around 45 kms upstream of the Piva Dam and the resulting accumulation would extend back as far as Šavnik. In theory, a larger dam could be built but this would flood the town. The site of the Komarnica dam is in the Komarnica canyon which has been described as one of the most exciting locations for extreme sports in the world. A 176 metre high dam would hold back a reservoir of 160 cubic hectometres, and would have an installed capacity of 168 MW providing annual power generation of 231.8 GWh with an investment ratio of around 58 cents per kWh. 10.63. Commissioning of the Komarnica HPP is scheduled for 2015 which implies that construction work would begin in around 2010-2011. The 3-4 year construction programme would employ a substantial temporary work force, which based on the estimates in paragraph 10.42 would be around 30-400 personnel. Ten to fifteen permanent jobs might be created. 10.64. The environmental, social and local economic effects of building this second dam in the Piva basin would be very significant. The environmental consequences have not yet been assessed but given the current economic difficulties faced in Šavnik, as revealed through the Draft National Spatial Plan, it seems likely that the town’s future could be adversely affected by the loss of what limited valley bottom land currently exists.

Oil and Oil Derivatives
10.65. A 40-60% increase in the volume of petroleum products is anticipated in the period leading up to 2025, as shown in Figure 10. This equals the total amount of power to be derived in the form of electricity. Three possibilities exist for the future import of oil and gas: • Direct import by sea to the Port of Bar,
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SEA of the Montenegro draft National Energy Development Strategy • • Construction of new pipeline (s) from neighbouring countries, Potential exploitation of marine reserves.

Imports by sea to Bar 10.66. The strategy assumes that the main route for importing oil and gas will be through the port of Bar where handling facilities have already been built in the form of jetties, and storage tanks. The original terminal could handle small tankers with 5000 tonnes deadweight capacity but a new petroleum jetty has been constructed to accommodate vessels of up to 80,000 tonnes deadweight on continuous 24 hour basis. 10.67. All imports to Bar will be distributed to the rest of the country by road or rail tanker. 10.68. As noted in the SEA of the Draft National Spatial Plan, development of an oil and gas terminal at Bar is potentially in conflict with other aspirations for the development of the coast for tourism, but the choice of Bar as the main commercial port for Montenegro was effectively taken many years ago and it remains the most appropriate centre for landing and distributing bulk products. From an environmental, social and economic perspective it is important that as much bulk transport as possible is handled by rail, and this should be an important factor in planning the location of major energy installations or industrial processes utilising liquid fuels. Construction of new pipelines 10.69. A number of possibilities exist for linking Montenegro to the emerging regional gas network; these include: • • • a route from Serbia, following the planned new Belgrade-Podgorica motorway with a spur to Nikšic, A coastal pipeline from Albania, with connections to the Greece-Italy or TAP pipeline currently under construction and due for completion in 2010, A pipeline from the new network planned in Croatia.

Whichever of these options (or combination) is chosen it is anticipated that a pipeline will be laid between Podgorica and Nikšic as a first stage, because 75% of the predicted use of gas is expected to occur in this sub-region. 10.70. New pipelines in Montenegro are expected to follow the main road network, utilising motorway corridors where possible. Gas and oil pipeline technology is well advanced and tested. Although there is the potential for major environmental damage where pipelines are routed through sensitive areas (in habitats like the Skadar Lake wetlands or in drainage basins used for water supply, for example) these difficulties can usually be minimised by careful routing studies and strict controls over construction and rehabilitation of the pipeline corridor. In total, a primary

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SEA of the Montenegro draft National Energy Development Strategy distribution network of 120 kilometres of large pipeline is planned with a further 710 kms of street gas distribution in the major towns throughout Montenegro. Marine oil and gas reserves 10.71. If further exploration confirms the existence of commercially exploitable gas and oil in Montenegrin waters, there would need to be a detailed study of the facilities required for recovering, transporting and refining the products, and their related environmental, social and economic impacts. In economic terms the preferred option would probably be to transfer the crude product from submarine well heads by pipeline to an onshore refinery. Alternatively, oil or gas could be transferred from well heads to tankers and then transported by sea to an existing refinery. 10.72. The EDS anticipates the need for underground storage of natural gas in Montenegro, although with the development of the regional gas network, storage facilities could also be shared with neighbouring countries including Serbia and Croatia which have surplus capacity Liquid Petroleum Gas 10.73. The EDS presents three scenarios SI, S2 and S3 .However, page 30 of the draft NEDS discounts option N1 as one which is not viable, thereby also dismissing Scenario S1. This leaves just 2 scenarios within the Strategy, both of which are based on option N2. The only discernable difference between these two scenarios is the level of LPG development (medium S1 30% of customers connected, high 60%). The draft NEDS then chooses the medium LPG option without discussing the benefits of the high scenario (i.e. increased diversity, competition and flexibility (natural gas can be used as a substitute for electricity if there is low rainfall reducing hydro power potential or coal supplies for thermal plants are not forthcoming). 10.74. In reality the LPG options are disconnected from other scenarios of energy development within the Strategy and convey the impression that there is a degree of choice between alternatives, which is not, in fact, the case. The LPG options should be presented and assessed as standalone options, rather than being incorporated within the preferred option. 10.75. Montenegro is signatory of the Energy Community Treaty (2006). The Treaty aims to create a stable regulatory and market framework which will be able to attract investments into the natural gas and electricity sectors and ensure reliable power sources. 10.76. Although the strategic direction of oil and gas development within the region is well advanced the practical delivery of the necessary infrastructure is some years away. Major pipeline options are not likely to be available until the later stages of the EDS. For this reason the strategy proposes the development of the local distribution networks within selected towns and the use of LPG in the short term. This will allow the market for gas to be developed in advance of a switch to natural gas. 10.77. Current uncertainties over the timetabling and funding of these developments have resulted in the development of the two scenarios for LPG markets by 2025: a medium (30%) and high (60%) level of market penetration. The medium scenario
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SEA of the Montenegro draft National Energy Development Strategy envisages a demand for 63000 tonnes of LPG in 2025, increasing to 125,000 tonnes in the high scenario.

Small Hydro
10.78. The gross potential of small hydroelectric projects has been estimated in previous plans at around 800-1000 GWh, of which the EDS suggests that around 400GWh represents the ‘realistically useable potential’. This equates to around 143 MW installed capacity on the basis that hydrological studies suggest these plants would operate about 32% of the time.116 10.79. The Moderate Construction Scenario discusses the prospect of building 30 MW capacity in small HPPs between 2007 and 2025 and notes that additional research will be required to produce a realistic evaluation of sites for small HPPs which meet technical and economic constraints on viability and are environmentally acceptable. 10.80. The strategy sets out other requirements for the development of small hydro schemes under 10 MW capacity which include: • • • • Development of administrative and operational procedures for the purchase of electricity form small HPPs and its delivery to the Montenegrin grid, The design of simplified and streamlined procedures for tendering and authorization procedures for construction of small HPPs, Harmonisation of the system of fees and charges for small hydroelectricity producers, and, A government investment support scheme for small hydropower development projects.

10.81. All of these measures recognise the fact that small scale hydro does not compete commercially with electricity provided from large plants (either thermal or hydro) and that the pay-back period on capital investment exceeds ten years in most cases, which makes this option less attractive to commercial investors in the absence of subsidies. Even where financial support is provided by government as is the case in Austria, small operators can have difficulty in maintaining commercial viability in poor operating conditions (i.e. during droughts)117. 10.82. A total of 69 sites were identified initially as having technical potential for development of small HPPs. These were grouped principally on the Lim and its tributaries (34), the Piva tributaries (6) the Komarnica and its tributaries (17), Moraca (9) and Zeta (3). 10.83. Two types of small HPP can be identified; the first operate using run-of-river flows, while the second require construction of a small dam and accumulation. Run of river HPPs may be built within the river channel or on bypass canals and in general have fewer and less severe environmental impacts than those which require a dam. By
116 Measurements of the hydrological regime suggest on average that 70 sites for small hydropower plants would be operating 31.7% of time; Draft Power Sector Policy Reform Project document GEF, 2006. 117

Austria small Hydro Association

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SEA of the Montenegro draft National Energy Development Strategy their nature small plants tend to be built in upper tributaries of rivers and in Montenegro these will usually be remoter rural areas of very high scenic quality. The range of environmental impacts that need to be considered include effects on flora and fauna, existing land use, recreation and tourism and cultural heritage. Construction represents the most critical phase of development, but once the plant is installed only a low level of supervision and maintenance is required.

Communal Heating Systems and Cogeneration
10.84. A communal central heating system is planned for the city of Pljevlja. It is hoped that the installation of this system will significantly improve the air quality in the region, which is currently extremely polluted by reducing the use of unregulated coal boilers and coal fires. The strategy states that this is envisioned in the period until 2025, although no specific year is provided. 10.85. Remote heating systems are also envisioned in Nikšic, followed by Bijelo Polje, Cetinje and Berane. In smaller communities in the Municipalities of Kolašin, Zabljak and Plužine heating systems are planned using waste, biomass or industrial waste heat. 10.86. Industrial cogenerations are planned using LPG and liquid fuels. Biomass may also be used in industrial thermal cogeneration, including at the Pljevlja Thermal Power Plants and would have benefits in terms of reducing emissions of climate change gases, resource use and other socio-economic benefits. However, this option is not pursued within the draft NEDS.

Other Renewables
10.87. The Moderate Construction scenario sets out proposals for the construction of four wind energy farms of 5 MW capacity each to be developed at five year intervals through the lifetime of the strategy, together with a 10 MW energy from waste plant in Podgorica. 10.88. The potential of other renewables is acknowledged, including solar power for heating, biomass and biogas. The low level of other renewables anticipated under N2 would result in minimal levels of environmental or socio-economic impact and for this reason the effects are not considered here. The same mix of renewable resources is, however, also a feature of the Limited Construction Scenario and the effects are covered in the next Chapter. Biodiesel and bioethanol 10.89. The Strategy acknowledges the commitments made in the EU Biofuels Directive, which require member states to source 2% of transport fuel from bioethanol or biodiesel at present, rising to 5.75% by 2010. The current level of biofuel usage or production in Montenegro to serve the transport sector is uncertain (and no assessment is made within the Strategy), but it is assumed that the market and production capacity are relatively undeveloped at present. The Strategy did not outline the way in which the EU transport biofuel targets would be met, whether this means increasing domestic production or imports. However, it should be noted that

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SEA of the Montenegro draft National Energy Development Strategy the Montenegro submitted a Plan for Implementation of the Acquis on Renewables of the Energy Community Treaty (ECT) to the ECT Secretariat in May, 2007.118 10.90. This option should therefore go someway towards the National Sustainability Objectives 1 ‘to accelerate economic growth and development, and reduce regional development disparities’ and 2 ‘Reduce poverty; ensure equitable access to services and resources’. However, potential environmental impacts associated with the increased use of agricultural chemicals (especially increased leaching of nitrogen, phosphorous and pesticides into the aquatic environment) and the production of monocultures (negative implications for biodiversity and landscape) could be expected if increased domestic production is realised. Sustainable production techniques, appropriate mitigation and regulation, should be implemented in order to reduce adverse impacts to ‘as low as reasonably practicable’. Furthermore, in order to provide benefits in terms of lowering emissions of greenhouse gasses, Life Cycle Assessment would also be required in order to identify where benefits may be outweighed by inefficient production or excessive transported distances. 10.91. Introduction of biofuels is envisaged after 2010, with its contribution to the transport sector being estimated at 0.68 PJ by 2025.

CONCLUDING REMARKS
10.92. The moderate construction scenario shares many of the same components and characteristics (46 out of the 51 PJ of Final Energy Consumption) as the more limited construction scenario discussed in the next chapter. These similarities include the development of oil and gas (50% of total consumption), heating, thermal electric power, existing electricity from large hydro, small hydro and other renewables. The fundamental difference lies in the inclusion of the four HPPs planned on the Moraca River and the construction of the Komarnica HPP. 10.93. These large hydro facilities appear to offer a relatively small increase in supply to support overall energy consumption (406 MW, 694 GWh, 3.3 PJ) or 16% contribution in total final energy consumption when compared to the investment costs (€565million) or 31% of the total strategy investment cost of €1.8 billion. In the longer term, the unit cost of producing electricity from the proposed large hydro schemes is likely to be lower than the equivalent costs of oil and gas imports and this is the primary reason given in the EDS for supporting these local sources of supply. 10.94. However, the long term economic advantage of hydropower depends upon the reliability of supply which could be affected by climatic change and any cost-benefit assessment would have to include the substantial economic losses which could result from adverse effects of the Moraca scheme on fisheries in Skadar Lake, and the intangible costs of adverse impacts on the river and lake ecology.

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Energy Community Secretariat site; http://www.energy-community.org/pls/portal/docs/85830.PDF

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11. OTHER CONSTRUCTION OPTIONS
INTRODUCTION
11.1. The Green Paper Abstract describes a less ambitious ‘limited construction scenario for energy development which is essentially119 the same as the moderate construction scenario, but excludes the large hydro projects on the Moraca and Komarnica. Part One of this chapter summarises the environmental, social and economic characteristics of the limited construction scenario. Part Two refers to other options that are described in the supporting books A-D but have not been included in the EDS and could potentially be added to increase the contribution to primary production under an ‘enhanced’ version of the limited construction scenario. Part Three then examines what further development opportunities could be provided during the first half of the EDS up to 2015

PART ONE – LIMITED CONSTRUCTION SCENARIO
11.2. Figure 13 shows the final energy consumption model as it would appear if the N-1 construction Scenario was adopted rather than N-2, allowing for all other elements of the Energy strategy to remain unchanged. Figure 13

PJ 60 50 40 30 20 10 0 2003

Changing Structure of Final Energy Consumption 203-2025 N-1 Scenario
Solar Energy from w aste Wind Wood/Biomass Small Hydro Large Hydro New Thermal Thermal Electricity Import/other Heat Oil Total Consumption 2010 2015 2020 2025

11.3.

The Energy Green Paper states: ‘Scenario N-1 is not recommended because it cannot be considered as an “alternative option” of possible development in accordance with the goals of the Energy Policy of Montenegro which envisages reduction of electricity imports and an increase of energy independency of the country” (page 30).

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Nevertheless, the document does set out in section 7.13 (p.33) three Scenarios to meet energy balances until 2025, one of which, ‘Scenario S1’ is based on the low growth model (N-1) together with the medium scenario of development for final energy consumption and medium development of the LPG market. It is clear from the analysis that follows in the Green Paper that this scenario has been given serious consideration by the authors and it would be beneficial not to reject this option without subjecting it to the same level of assessment as the alternatives. 11.4. In the first eight years of the strategy (to 2015) this scenario achieves very similar results to those of the moderate construction scenario. This is because there is limited scope in either case to make any significant contribution to electrical energy supplies until the Pljevlja Block 2 TPP is opened in 2011. However, electrical energy deficits start to increase again from around 2018 and by the end of the strategy period the overall supply of energy from all sources shows a deficit of around 680GWh (4 PJ). At 2005 prices the loss to the economy would be of the order of € 30 million a year.

Assessment of the Electrical Component of the Strategy
11.5. The individual components of the N-1 Limited Construction scenario for development of electrical energy are shown in Table 19. Table 19: Construction of Electrical Energy Facilities in N-1 Scenario Year Facility MW 5 10 225 20 10 5 5 5 285 GWh 11 1, 073 78 40 11 11 11 1235 Euros Million 5 15 135 30 32 5 5 5 232 N2 – 691MW 2010 Wind Small Hydro 2011 TPP Pljevlja 2 2015 Small Hydro EfW Wind 2020 Wind 2025 Wind

11.6. The contribution which these additional sources would provide towards meeting the forecast increase in electricity demand (using the medium growth projection) is shown in Figure 14 over the timescale of the strategy. 11.7. The common construction facilities, which are listed in table 18, would have identical environmental, social and local economic impacts, regardless of which Scenario they are considered in. 11.8. In discussing the consequences of adopting the limited construction scenario there are a number of important considerations: • • The impact on security of supply, Growth of the economy and effects on final energy consumption,
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• • •

Prospects for energy savings and increased energy efficiency, Environmental benefits, and, Additional alternative sources of supply.

Figure 14: Contribution towards Final Electrical Energy Consumption from Limited Construction Scenario
7000 6000 5000 4000 3000 2000 1000 0 Energy from Waste (10MW) Wind (5MW) 9 small Hydro Pljevlja 2 Pljevlja 1 Perucica Piva RoM-Serbia Import GWh Consumption Small Hydro (10MW )

20 07 20 09

20 11 20 13

20 17 20 19

20 21 20 23

Security of Supply 11.9. It is clear that security of supply from local sources would progressively decrease beyond 2015 but by this stage there is a requirement for an open market in energy to be established throughout the region, and all consumers will be free to purchase electricity from the cheapest sources. Analysis of the construction programmes being planned throughout the region suggests that there will be greater flexibility of choice by that stage, and it has been suggested that there could even be overcapacity by that time as major new power sources come on stream. Economic growth rates and final energy consumption 11.10. The second issue to be considered in examining this scenario is the fact that it incorporates the lower rate of growth of 4.6%. This results in a final energy consumption figure of 44.82 PJ in 2025 which would be comfortably achieved in terms of final energy consumption (compare Figures 13 and 15) Figure 15: Contribution to Final Energy Consumption made by the Limited construction Scenario when compared with the low growth demand projection of 4.6% per year.

20 05

20 15

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20 25

N1 Limited Construction with Low Growth Final Consumption
PJ 60 Solar 50 Energy from w aste Wind Wood/Biomass Small Hydro Large Hydro New Thermal Thermal Electricity Import/other Heat 10 Oil Low Consumption 0 2003 2010 2015 2020 2025

40

30

20

Energy Savings and Energy Efficiency 11.11. The third consideration relates to the excellent prospects for achieving energy savings and improved efficiencies across the whole spectrum of the energy demand and supply sectors. At this stage, a response is awaited to a number of key questions that have been raised about the extent to which energy savings are factored into the demand models used in the EDS and without necessary clarifications, we are hesitant to say more on this issue. Environmental Benefits 11.12. For the reasons that are discussed in Chapter 10, the promotion of the N-1 construction scenario would avoid the most controversial and potentially damaging environmental impacts associated with the particular choice of HPPs in the moderate construction scenario N-2. The Limited Construction Scenario N-1 would still generate significant adverse effects on air quality and would cause further landscape despoliation in the local areas of Pljevlja, but it is suggested that the magnitude and extent of these impacts would have lesser long term consequences than those associated with building new large dams on the Moraca and Komarnica Rivers. Additional Sources to augment the N-1 Construction Scenario 11.13. The fifth set of issues relating to the adoption of N-1 as a limited construction scenario is the opportunity it provides to augment the basic proposals with additional projects that have already been identified in the EDS as potentially viable schemes. These are discussed in Part Two of this chapter.

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PART TWO

EXPANDING LIMITED CONSTRUCTION SCENARIO OPTIONS A AND B

11.14. Part Two explores the opportunities for meeting future energy needs by expanding the basic construction scenario over time, rather than adopting the moderate construction scenario from the outset. In order to distinguish various proposals, the expansion or ‘enhancement of the Limited Construction Scenario is referred to as Options A, B and C.

Option A
11.15. There are number of significant enhancements which are described in the Green Paper and EDS which do not appear to have been factored into the supply and demand balance sheets used for creating the two construction scenarios. These include: • • • an upgrade of Perucica by 2008 from its current 285 to 307 MW (raising average annual power output from 899 to 979 GWh average output by 2008; the upgrade of Piva from its average generation of 740 GWh to 860 GWh by 2010, and, the upgrade of Pljevlja 1 by 2008.

11.16. Another component of the construction scenarios that does not appear to have been built into the tables of power capacity presented in the Green Paper is the opportunity to introduce co-generation, using liquid petroleum gas and liquid fuels to replace part of the dependence on coal for urban and industrial heating systems. 11.17. Section 7.5 of the Green Paper indicates that this replacement would be based on 60% substitution of LPG for the High Scenario (S3), 40% substitution for the Medium Scenario (S2) and 10% for the Low Scenario. 11.18. In terms of electrical generation from industrial co generators, the strategy gives the following outputs by 2025 (see Table 20). Table 20: Heat and power potential of industrial cogenerators Scenario N-2 +S3 N-2 +S2 N-1 +S1 Heat Energy (PJ) 4.18 2.25 0.44 Electrical Energy (GWh) 446.07 240.54 46.53

11.19. Development of co-generation is largely independent of other elements of the energy strategy and there appears to be no reason why the Lower Energy Growth Model could not be supported by a higher rate of replacement of conventional coal fired boilers and generators with LPG. It is therefore suggested that development of facilities in the Limited Construction Scenario N1 could be augmented by including
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these options which would add 400 GWh potential to the supply system. This is particularly relevant since section 7.7 of the Green Paper notes that introducing a system of LPG heating to the coastal towns will definitely have an impact on the extension of the tourism season in Montenegro. 11.20. The Green Paper lack details on what the ‘medium’ development of the LPG Market entails other than the fact that it will meet the potential consumers’ connection level of 30%. However it is stated that the total potential consumption of LPG for heat energy needs in industry, heating and cooling in the service sector and households will grow from 99.8 thousand tons (2003) to a possible 227.6 thousand tons (2005). This would imply supply of 227,600x30% = 68,280 tons. 11.21. These additions to the lower energy growth model can be made without questioning any of the underlying assumptions of the Green Paper and simply using the data it provides. The net result is that the viability of the lower energy growth model could be substantially increased, even without considering further large HPP potential. Table 21 shows the change in performance created by adding the basic upgrades and electrical component of co-generation to the Limited Construction Scenario and Table 21: Option A - Limited Construction Scenario enhanced with upgrades to existing TPP and HPPs and addition of Co-generation Year Facility MW 15 47 22 5 10 225 20 10 5 100 5 5 469 GWh 70 120 80 11 1, 073 78 40 11 400 11 11 1905 Euros Million 43 ? 35 5 15 135 30 32 5 ? 5 5 310 + N2 – 691MW 2007- Pljevlja 1 2010 Piva Perucica 2010 Wind Small Hydro 2011 2015 20152020 2020 2025
Notes:
1. 2. 3. 4. Costs are not available for the Piva upgrade or cogeneration schemes. The increased installed capacity of Piva is an estimate based on the figure given for enhanced output in GWh Outputs in GWh for the energy from waste plant is an estimate Installed capacity for Co-generation is an estimate based on output in GWh

TPP Pljevlja 2 Small Hydro EfW Wind Co-generation Wind Wind

11.22. With a construction scenario (N-1+) providing around 469 MW of installed capacity and 1905 GWh output, the performance of this model when compared to the
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medium growth in final energy consumption (as used in the Moderate Construction Scenario N-2) achieves the same basic objectives (see Figure 16). Figure 16: Performance of the Enhanced Option A -Limited Construction Scenario against the Medium Growth in Forecast Final Energy Consumption
Changing Structure of Final Energy Consumption - Enhanced Limited Construction Scenario
PJ 60 50 40 30 20 10 0 2003 2010 2015 2020 2025 Solar Energy from waste Wind Wood/Biomass Upgrades Small Hydro Large Hydro New Thermal Thermal Electricity Import/other Heat Oil Total Consumption

Option A + B
11.23. Although the purpose of exploring the scope for enhancing the limited construction scenario is to test the alternative to developing more large hydro capacity it is important to recognise that a number of different HPP options have been explored in the background studies for the EDS. These include development in the Lim Basin and the further upgrading of the Perucica HPP. This SEA does not consider alternative sites for large HPPs which are excluded from the EDS, other than to note that they exist, but it does raise the question of the status of the eight generator at Perucica which is included in section 12 of the Green Paper under the heading of major strategy recommendations, as follows: “The Strategy also recommends the intensification and finalisation of examination of possibilities for the incorporation of the 8th generator in the Hydropower Plant Perucica (66/68MW), which would increase the overall capacity of the existing plant by 95.5 MW”. 11.24. From the standpoint of the SEA there is a fundamental difference in terms of potential environmental, social and economic impact between completing the planned programme of development of an existing power plant and developing a new Hydropower plant on a river system which has no existing hydro development. From first principles the development should be less environmentally damaging. This is not to say that the Perucica enhancement would be free of significant adverse effects. The existing power station will have affected the hydrology and ecology of the Zeta River and it may be that the current level of development is already imposing stresses on the capacity of the drainage basin to support increased power production. Critical issues that will need to be addressed include the availability of water and the adequacy of existing reservoir storage capacity to sustain an eighth generator. Nevertheless, by comparison with the scale of impacts that may be

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envisaged on the Moraca, this is a scheme which should be given a much higher profile within the draftEnergy Development Strategy. 11.25. Table 22 shows the effect of adding the eight generator at Perucica to the construction scenario already described in Option A. For the purposes of this analysis it has been assumed that the additional power plant could be introduced in the same timescale as the first of the Moraca Dams (i.e. by 2013). Table 22: Enhanced Limited Construction Scenario -Option A+B Year Facility MW 15 47 22 5 10 225 66 20 10 5 100 5 5 535 GWh 70 120 80 11 1, 073 240 78 40 11 400 11 11 2145 Euros Million 43 ? 35 5 15 135 ? 30 32 5 ? 5 5 310 + N2 – 691MW 2007- Pljevlja 1 2010 Piva Perucica 2010 Wind Small Hydro 2011 2013 2015 20152020 2020 2025 TPP Pljevlja 2 Perucica 8th generator Small Hydro EfW Wind Co-generation Wind Wind

11.26. Figure 17 presents the performance of the Limited Construction Scenario with Options A+B against the Medium Growth in Final Energy Consumption. The output of this option matches the annual electrical generating capacity of the Medium Construction Scenario. Figure 17
Solar Changing Structure of Final Energy Consum ption Lim ited Construction Scenario A+B PJ 60 50 40 30 20 10 0 2003 Energy from w aste Wind Wood/Biomass Upgrades Small Hydro Perucica 8 Large Hydro New Thermal Thermal Electricity Import/other Heat 2010 2015 2020 2025 Oil Total Consumption

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PART THREE

ENHANCING THE LIMITED CONSTRUCTION SCENARIO OPTION C

11.27. Part Three takes the same approach towards enhancing energy development options by exploring the scope which is already identified within the EDS for promoting other forms of renewable energy more strongly. A substantial amount of experience was formerly developed within Montenegro in the use of solar power for heating, although this was largely neglected for obvious reasons during the period of economic sanctions. Had this not been the case, Montenegro might by now have followed a very similar path to Austria, Italy and Greece in expanding its solar capacity for heating and in diversifying into related renewable technologies including wind, biomass and waste from energy. 11.28. Experience in other countries throughout Europe has shown that it requires a major commitment from Government to lead the development of renewable energy until a critical threshold is reached from which point the markets can develop under their own momentum. The existing EDS takes a very cautious view of the potential for other renewables, which does not reflect recent developments in this field. It is suggested in this section of the SEA that substantially more electrical and heat energy could be generated at a lower overall investment cost than is envisaged by the focus on large hydro in the moderate construction scenario

Wind Energy
11.29. The Green Paper states that the technical potential for wind energy is 100 MW which compares with the estimate provided in the Italian study of 100-400 MW, and the theoretic potential of 1000-1500 MW provided by Mikicic, D et al. (2006). In practice, the Strategy has determined that there should be 20MW of installed capacity in both construction scenarios 11.30. The SEA considers that this approach underestimates the potential for wind energy within Montenegro. The renewable energy resource assessment undertaken by the Italian Government (2007), states that Montenegro has good potential for wind energy in some areas of the Country. The Energy Strategy concurs with this by stating that there is good potential for using wind”…along the Adriatic coast, in the area of the Rumija Mountain, between Bar and Shkoder… [as well as] the hills behind Petrovac and the mountains between Herceg Novi and Orahovac… and near Nikšic”. The coastal areas and the area around Nikšic are particularly attractive development options as they are close to sources of high electricity demand, and the transmission lines and road infrastructure in these areas are relatively well established – making the financial viability of wind energy projects more promising. 11.31. Given the technical potential identified in the Italian study, the rapid expansion of the wind energy market throughout Europe, and the falling cost of wind turbines, the figure stated in the preferred scenario of 20MW capacity within 18 years would appear to be a major under-estimate. At present the Strategy states that four windfarms of 5MW in size would be constructed in 2010, 2015, 2020 and 2025. In reality, as highlighted in the Italian study “big wind farms, consisting of ten or more mills, would be more suitable than singe stand alone machines, due to faster amortization of fixed

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costs for the required infrastructures (nearly independent by the number of installed wind turbines).” 11.32. With the average size of single modern commercial wind turbines being installed in Europe currently being 1.5-2MW (and rising up to 3MW), if four sites of at least 10 turbines were developed up to 2025, wind energy could contribute between 6080MW to the energy balance of Montenegro. That equates to 157-210120 GWh/yearum. This is considered to be a more realistic scenario as in practice, commercial wind energy developers will seek to maximise the potential number of turbines on any site in order to increase their overall return on capital investment. They will also seek to maximise the size and capacity of the turbines, as taller wind turbines are able to capture higher wind speeds and can therefore produce more electricity at lower prices. 11.33. A criticism often levied against wind power is that its supply of electricity is intermittent – i.e. electricity is only produced when the wind blows. Most electricity systems, as in Montenegro, are designed and operated in such a way as to cope with large and small fluctuations in supply and demand. No power station is totally reliable and demand is also uncertain. Therefore, the system operator establishes reserves that provide a capability to achieve balance given the statistics of variations expected over different timescales. The variability of wind generation is but one component of the generation and demand variations that are considered when setting reserve levels. It is estimated that in most countries, a penetration of 20% of power from wind is feasible without posing any serious technical or practical problems. Initial discussions with experts in Montenegro also confirm that this is unlikely to be an issue of concern in the country. 11.34. It is also recognised that although wind power is one of the most cost effective forms of renewables – at present it is only on sites with very high wind speeds that can it compete economically with conventional power production. Energy subsidies, taxes or Government intervention in creating market demand would be needed in Montenegro to enable wind to compete with other conventional sources of power and to attract investors to the county. However it is important to note that a totally free market - where all methods of making electricity compete on the same level without support- does not exist anywhere in Europe. 11.35. Finally, it is suggested that in addition to the consideration of commercial scale windfarms, the Energy Strategy should also review the opportunity to use small scale wind turbines in the more remote locations that aren’t connected to the grid (offgrid), where conventional methods of energy supply are expensive or impractical.

Biomass
11.36. The EDS notes that biomass offers the technical potential for at least 3-5 small power plants with a capacity between 5 and 10 MW, but does not include these within the planned construction programme.
Assuming total predicted electricity production from windfarm (GWh) = Windfarm output (GW) x 0.3 x 8,760 (operating hours). Where 0.3 is a constant, the capacity factor, which takes into account the intermittent nature of the wind.
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11.37. The EE Strategy states that there is a great potential for biomass energy production. However, the SEA considers that again the potential for biomass to contribute to the energy balance in Montenegro has been significantly underestimated and that there is inadequate analysis of the biomass sector included within the Energy Strategy. Montenegro contains a large forestry resource which if managed sustainably could provide a significant contribution to Montenegro’s energy supply. Woodfuel is beneficial because it is a relatively carbon neutral fuel source, and as such woodfuel energy systems are being promoted in Western Europe as a way of combating climate change. 11.38. The Strategy concentrates on waste wood usage and only deals with household woodfuel consumption in so much as to state that its use will decline. However, the argument can be advanced that this fuel source should be sustained and extended as far as possible alongside the use of biomass for CHP generation, cofiring industrial boilers and thermal power plants and district heating. This would have the added benefits of supporting the rural development and forestry industry in Montenegro’s more marginal areas. The sustainability of current woodfuel production is questionable however and this would therefore have to be implemented in line with sustainable forestry principles. 11.39. One of the best examples of energy generation from biofuels is provided by Austria which now operates over 1600 local and district biofuel energy schemes together with wood chip and pelleted heating systems for the majority of households. This example is presented in more detail as a case-study in Chapter 13. 11.40. According to the Energy Strategy, the annual estimated yield of wood from forestry is between 850,000 m3/y and 1,060,000 m3/y. This correlates to an estimate in the Italian study of 1,050,000 m3/y121 (including an average fraction of 30% for residues from the wood industry). Although it is acknowledged that further research is required to obtain more reliable data, if the estimate provided in the Italian study of 1,050,000 m3/y was used for the production of electricity only122, then this resource could provide around 700GW/he per year. If it was used for combined heat and power123 then the resource could generate around 1,900GWhe&h. This compares with an existing energy deficit in Montenegro of around 1516 GWh124 a year in electricity. It is therefore apparent that biomass obtained from forestry resources alone has the potential to make a major contribution to the energy needs of Montenegro. 11.41. There is also potential within Montenegro for the production of electricity and heat from energy crops such as short rotation coppice. In 2005, Montenegro had 51,7097 ha of agricultural land and 189,126 ha of arable land. If it assumed that just 10% of the arable land (i.e. 18,913 ha) is planted with short rotation coppice and miscanthus by 2025125, these energy crops could provide around 28GW/he per year if
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It is not specified in the Italian study or the Energy Strategy if the figures relate to wet or dry wood, a worse case assessment has therefore been assumed that the wood is wet. 122 Assuming a 30% conversion factor. 123 Assuming an 85% conversion factor. 124 In 2005 deficit was 1800 GWh (GEF 2006). 125 Assuming that each hectare can produce 10 oven dry tonnes of biomass matter per year.
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it was used for the production of electricity only126. If it was used for combined heat and power127 the resource could generate around 80GWhe&h. Whilst this resource is significantly less than what is available in the forestry sector, it can still make a valid contribution to meeting energy demand, particularly if it is used in combined heat and power plants. 11.42. The primary concern with the development of the biomass however is that stand alone dedicated biomass power plants can be more expensive than other forms of renewables. Biomass (either from Forestry or energy crops) can however be used in industrial thermal cogeneration, and with appropriate plant adjustments could be cofired with coal at the Pljevlja Thermal Power Plants. This would have benefits in terms of reducing emissions of climate change gases, limiting the requirements for coal extraction and delivering other associated environmental and socio-economic benefits. It is therefore recommended that this option should be pursued within the Strategy. 11.43. However, perhaps the greatest potential for biomass use within Montenegro is not in large centralised biomass plants, but in the uptake of improved and more efficient modern biomass conversion technologies, including domestic wood stoves and small power generating systems, in people’s homes and local communities (see Chapter 13). For many rural populations in Montenegro, biomass has traditionally been used for cooking and heating for hundreds of years. Since these communities are familiar with procuring biomass supplies, the uptake of improved technologies should be relatively easy to implement, subject to the securing the necessary finance. 11.44. One of the key benefits of pursuing biomass energy production is that it requires significantly more input in terms of employment (in both generation and downstream fuel production – agriculture or forestry) than other renewable energy sources such as hydro or wind or other conventional energy sources. Jobs are created all along the biomass chain, from biomass production or procurement, to its transport, conversion, distribution and marketing. As outlined in Chapter 6, a study funded by the European Union indicates 840,000 new European jobs from bioenergy production by 2020. This is an opportunity which Montenegro cannot afford to miss out on. 11.45. Montenegro will have two options for biofuels if it is to meet the EU target of 10%. One is simply the default option to import fuels, as it does with existing petroleum derivatives, relying on Eko (Hellenic Petroleum, the owner of the Kotor refinery) to ensure that the deliveries comply with the directive, and imposing a similar requirement on independent importers. 11.46. The second approach will be to proactively encourage the development of a biofuels industry. Of the top ten primary crops grown in Serbia and Montenegro (FAO data for 1999-2001 quoted in the 2002 Black & Veatch/NV Consultants report) several have biofuel potential. The top crop with over 20% of the gross tonnage is maize, which can be used for bioethanol; in 5th place (with around 10% of gross tonnage) is sugar beet, another potential bioethanol feedstock (and being tested as a source of
126 127

Assuming a 30% conversion factor. Assuming an 85% conversion factor.
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biobutanol by DuPont and BP in the UK). There is clearly also a large acreage given over to sunflowers, as this is 9th on the list, and has been considered as a source of biodiesel in some Southern European countries128

Energy from Waste
11.47. Montenegro has a major waste disposal problem and this is particularly pronounced in the main centres of population along the coast, in Podgorica and Nikšic and in larger northern towns. The strategy refers to the potential for 4-5 plants, each of 10MW capacity but the strategy assumes that only one plant is built in the plan period in Podgorica. At least one additional plant should be considered to meet the growing demand for waste disposal along the coast, with the potential for another to serve Pljevlja. This would add 10-20 MW to the construction target.

Solar
Thermal Energy 11.48. Montenegro has great potential to use solar power – particularly solar thermal in both the domestic and non-domestic sectors, principally tourism and food processing. The Italian study states that the number of sunshine hours in Montenegro is more than 2,000 for most parts of the country and over 2,500 hours along the coast. The study goes on to stated that ”…..This level of solar radiation in the coastal and central areas is comparable to that of Greece and Southern Italy,” and that “Podgorica has an annual amount of solar energy (1600 k Wh/m2/y)…… higher than in other cities in South Eastern Europe (e.g. Rome and Athens)”. In Greece, the output of operational solar thermal panels in 2006 reached over 2,000,000 kWth and in Italy nearly 600,000 kWth. 11.49. Meteorological data for Podgorica showed an average of 2,499 hours of sunshine over the two years 1999-2000, well above the average for Europe. Data for more mountainous locations would be lower; no other Montenegrin cities are available, but the average for Niš in Serbia over the same two years was 2,155 hours. Sunshine will typically be concentrated into the summer months, making solar thermal applications ideal for use in the tourism sector, as well as for the provision of domestic hot water.

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Assumption that includes Greece
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11.50. The European Solar Trade Industry Federation (ESTIF) has produced a schematic diagram, based on a central European location, of how available solar energy can be used for solar hot water and heating systems, as well as for solar thermal cooling applications. This shows how adequately-sized solar collectors can meet the majority of hot water demand year round, as well as providing capacity for solar cooling (through absorption cooling heat exchangers). Solar thermal energy can substitute for electrical energy or the direct use of fossil fuels (including oil or LPG used in domestic systems). Meteorological data for Podgorica showed an average of 2,499 hours of sunshine over the two years 19992000, well above the average for Europe. Data for more mountainous locations would be lower; no other Montenegrin cities are available, but the average for Niš in Serbia over the same two years was 2,155 hours. Sunshine will typically be concentrated into the summer months, making solar thermal applications ideal for use in the tourism sector, as well as for the provision of domestic hot water. 11.51. The level of solar installations varies greatly across Europe. The market is currently led by Cyprus, Greece and Austria, each of which has in excess of 190kWth per 1,000 inhabitants installed. (This roughly equates to 0.25m2 per inhabitant). By European standards the existing use of solar thermal in Montenegro lags a long behind and is limited to mainly hot water production in a small number of hotels on the coast. Data is not readily available for Montenegro, but there are thought to be no more than about 3,000 installations (based on 28,000 for Serbia/Montenegro in 1998), with a likely installed capacity of no more than 8MWth. The EDS sets out a very limited vision for the use of solar energy in Montenegro. Only a brief reference is made to the potential to generate heat and hot water from solar energy in the service sector including tourism and households. 11.52. In Cyprus, which has only a marginally increased amount of amount of solar radiation compared to Montenegro129, solar energy covers about 4.5% of the total primary energy requirements. It is estimated that the number of solar water heaters installed exceeds 190,000 units. This means one solar water heater for every 3.7 persons. In the tourist industry, it is estimated that: 44% of the existing hotels; and 80% of the existing hotel apartments are equipped with solar-assisted water heating systems. In addition the use of solar energy for water heating is being advertised as On average, the amount of global solar radiation falling on a horizontal surface in Cyprus is 1727 kWh/m2 per year. Of this amount 69.4% is direct radiation (1199 kWh/2 m).
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environmentally friendly features of hotels and the term “Green Hotel” is being used to attract “green tourists” i.e. groups of people sensitive to energy conservation and environmental issues. 11.53. ESTIF's Solar Thermal Action Plan for Europe recommends a minimum target of 199kWth installed capacity per 1,000 inhabitants (the current level in Austria) by 2020. This target would not be unrealistic for Montenegro to adopt by 2025, given its current low installation base. As Montenegro has fewer large apartment blocks than many other countries in East and SE Europe, the Austrian level is quite practicable; Montenegro could also aspire to the current Cypriot level of 479kWth per 1,000 inhabitants. Annual energy savings by 2025 should total around 8,500toe (0.36PJ). This would equate to around 3.5% additional savings from domestic and public sector on the S2 medium growth scenario (or 2.8% of non-industrial, non-transport energy).

11.54. Due to the simplicity of the technology, solar thermal panels are relatively cheap to install and could help to significantly reduce the demand for electricity (by displacing the electric heaters typically used in Montenegro). Solar thermal installations could also be used in hospitals and schools, for space heating and cooling, and process heat in industry. However to achieve a step change in the uptake of solar thermal within Montenegro, action will be required from the Government in the form of a new renewable energy support programme. 11.55. Solar Energy in the non-domestic sector: The most cost-effective applications for solar thermal in the non-domestic sector are in tourism. Most full service hotels have a high demand for hot water, both in the kitchens and in guest bathrooms. As tourism develops from the major European countries, such as Germany, guests will expect plentiful supplies of hot water for regular showers. As indicated in the schematic figure, almost all the hot water demand in the main tourism seasons can be met from solar thermal. As in the domestic sector, consideration should be given to making solar thermal obligatory on all newly built hotels. These could be sized to meet not less than a fixed percentage of the estimated hot water demand, based on bed numbers. 11.56. Solar thermal can also be used in food processing and brewing to pre-heat water, and – at a less developed stage – for solar cooling. Indeed any industrial process with a need for water for washing (or steam) could benefit from solar thermal, and a target of potentially meeting up to 1% of small-scale industrial energy from solar thermal applications could be introduced.
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Electrical Energy 11.57. The generation of electricity using photovoltaic systems powered by solar power is also largely dismissed as a potential energy source in the Strategy on grounds of the high costs of installation and low efficiency in the rate of conversion. Whilst at present solar PV cannot compete economically with other forms of renewables or conventional fossil fuels, the cost of manufacturing PV units has been falling steadily. As stated in Chapter 6, the price of PV systems has fallen by an average of 5% per annum over the last 20 years and it is expected that this rate of price decrease will be maintained in the future. With the Energy Strategy covering the period up to 2025, it suggested that within this longer time frame, PV may well become a viable source of electricity and as such should be considered further in the Strategy. 11.58. In remote locations, solar PV may well become a cost effective option in the short to medium term, especially in areas where there is no grid connection and access is difficult (ie making deliveries of diesel etc. costly). PV can also be matched to air conditioning as it produces power at much the same time as the peak demand for cooling. For this reason, the Strategy should probably consider PV as being a small contributor from 2015, with installed capacity of up to 10MWp by 2025. Given the high number of sunshine hours, especially in the coastal ranges, annual output is likely to exceed 850kWh/yr per kWp capacity installed; and again outputs are increasing as the technology matures.

Summary of Contribution from Other Renewables
11.59. The quantities of additional electrical power generated through the addition of other renewables using the conservative estimates outlined above amount to around 2.8 PJ (789 GWh) which is significantly in excess of the power potential from the four Moraca HPPs. If this additional power is added to the Limited Construction Scenario (together with options A and B) the total production in 2025 would amount to 53.56 PJ. The growth rates anticipated would maintain a surplus of electrical generation over the last ten years of the EDS ranging from 1400-800 GWh as shown in Table and Figure 18 Table 23
Energy Sources Oil Heat Electricity Import/other Thermal New Thermal Large Hydro Perucica 8 Small Hydro Upgrades Wood/Biomass Wind Energy from waste Solar Total Consumption 2003 10.9 2.84 2.02 3.9 0 8.1 0 0.08 0.97 1.98 0 0 0 30.79 2010 14 3 1.9 3.9 0 8.1 0 0.2 0.97 2.2 0.14 0 0.1 34.51 2015 16.5 4 1.8 3.9 4 8.1 0.9 0.4 2.4 2.6 0.28 0.1 0.2 45.18 2020 18.5 5 1.7 3.9 4 8.1 0.9 0.6 2.4 3.2 0.42 0.1 0.3 49.12 2025 20.38 6.06 1.61 3.9 4 8.1 0.9 0.88 2.4 4.25 0.57 0.1 0.41 53.56

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Figure 18
Changing Structure of Final Energy Consumption Construction Scenario A+B+C
PJ 60 Solar Energy from w aste 50 Wind Wood/Biomass 40 Upgrades Small Hydro 30 Perucica 8 Large Hydro 20 New Thermal Thermal 10 Electricity Import/other Heat 0 2003 Oil 2010 2015 2020 2025 Total Consumption

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12. APPROACH TO MITIGATION
INTRODUCTION
12.1. The Strategic Environmental Assessment (SEA) has identified a number of significant negative effects in the chapters relating to elements within the Strategy. An important objective of the SEA is the provision of appropriate mitigation measures which can potentially contribute to the amelioration of such significant impacts. Measures can take the form of specific technical requirements based on detailed information, and those seeking to address impacts at the strategic level. It is considered that provision of specific mitigation measures for particular schemes would be inappropriate given the limited level of information available. Therefore this section of the SEA recommends a number strategic mitigation measures commensurate with the scope of the Strategy. 12.2. At the project level, an Environmental Statement (ES) should be prepared which, where appropriate, describes the likely significant effects of individual elements within the Strategy on the environment and proposes measures to mitigate these impacts. It is likely that most proposals within the preferred N-2 construction scenario will be subject to Environmental Impact Assessment (EIA) before they are granted development consent in accordance with the Montenegrin Law on EIA. However, while the production of EIAs is absolutely critical, there are a number of important issues which are of concern: • Environmental assessment is only applied at the project level. However, projects are somewhat path dependent, in that, once a decision to pursue a particular preferred scenario has been made then subsequent changes are made within the limits of that scenario. In other words, impacts are only considered once the broad direction of development has been identified and therefore, only relatively minor changes to technical plans are likely at this stage in the process. Environmental assessment should be built into strategic considerations from the outset. Proposals within the Strategy should be based on detailed and reliable environmental baseline information. Within Montenegro, the level of information available on environmental conditions needs to be improved in order to make sound judgements on the sustainability of multiple projects. Therefore, decisions on strategic energy development directions have been taken with little knowledge of the extent of potential environmental effects. Detailed baseline information should be collected and analysed before strategic decisions are finalised. The Strategy has considered a limited range of alternatives (and a preferred development scenario S2 is presented). However, there is little discussion of alternatives should any elements of the Strategy fail to materialise. Should this be the case, it is unclear as to the order of preference for which alternative scenarios would be sought especially in relation to sustainability. Furthermore, by not providing viable alternatives it is clear that the Strategy does not envision





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any significant changes to the preferred scenario as a result of the EIA process. It is important to consider reasonable alternatives within the Strategy. • While impacts from an individual development may be considered to be acceptable in isolation they may prove excessive or unacceptable when cumulative impacts are considered. Cumulative impacts may result from a number of situations associated with the interaction of multiple developments, and the accumulation of different impacts in a particular area. Project level EIA in isolation will not be sufficient to address the wide ranging cumulative impacts on the physical environment from existing pressures and multiple new energy developments. Detailed and integrated Cumulative Impact Assessment should be carried out in relation to natural systems and the multiple developments. The environmental administration system in Montenegro is extremely under resourced EIA laws are not effectively carried out, and there is a general lack of implementation and enforcement capability. The new Environmental Protection Agency (EPA) is likely to improve environmental capacity significantly. However, the Strategy under the preferred scenario S1 requires ambitious levels of development and it is uncertain whether the EPA would be sufficiently resourced or experienced to conduct detailed baseline surveys, comprehensive environmental assessment and monitoring. Therefore environmental institutional capacity should be strengthened in order to carry out the considerable environmental requirements necessary for sustainable development of energy infrastructure to take place.



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13. SUMMARY OF FINDINGS
CONCLUSIONS
13.1. The Energy Development Strategy of Montenegro represents an important step towards the achievement of an effective programme for energy management over the period to 2025. It sets out to deliver 23 strategic commitments which have been scrutinised using the principles of Strategic Environmental Assessment (SEA). All but two of these commitments are supported by the findings of the SEA.

Support for the Energy Development Strategy
13.2. The SEA concludes that adherence to the majority of the strategic commitments in the EDS will result in substantial benefits to Montenegro by: • Reducing needless losses of energy, • Increasing energy conservation and energy efficiency • Reducing dependency on imported sources of energy where this is socially, environmentally and economically feasible, • Minimising emissions of Greenhouse gases, • Advocating increased use of renewable energy sources. SEA Findings do not support aspects of suggested Draft National Energy Development Strategy 13.3. The two important exceptions where the SEA disagrees with the EDS commitments relate firstly to the statement that ‘energy is the mainstay of the overall, sustainable and long term stable growth of Montenegro with positive macro economic effects’ (MS04). The SEA authors agree that energy is a key requirement for a sustainable economy but consider, in line with the Draft National Spatial Plan, that the main drivers of the economy are the service sector and tourism industry, both of which depend on maintenance of a high quality environment for their success. To conclude that energy is the mainstay of the economy creates the impression that energy needs should be driving the economy when it should be seen, as it is described elsewhere in the EDS, as a service provider. Secondly, the emphasis in the EDS on developing large scale hydro potential (MSO7) is regarded as being in conflict with other sustainability objectives both within the EDS, in other Montenegro plans and programmes and in international guidance and conventions.

Reducing Energy Losses and increasing Energy Efficiency
13.4. The SEA supports the EDS analysis which points to energy saving and efficiency measures as the most effective way of reducing the overall cost of energy and avoiding the need to spend large sums on new power sources. Taking the figures set out in various sections of the EDS it is clear that a remarkable reduction in current levels of consumption could be achieved, using currently available technology, increased public awareness, some positive incentives including a government-led energy campaign, and tighter regulation and control. Although the EDS acknowledges all of these opportunities it does not have concrete targets and

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commitment to them. Instead, it is necessary to turn to other documents for this information. For example the Energy Efficiency Strategy notes that: “Based on the analysis of EPCG’s costs and current tariff structure, we estimate that domestic electricity tariffs should be at least doubled from the current rate of .049 €/kWh. Such a move would incite energy saving behaviour, particularly regarding low cost investment areas, such as lighting and insulation. Indeed, based on household surveys, it is estimated that the price elasticity for electricity in Serbia & Montenegro to be of the order of 0.25 which indicates that for each 10 % rise, consumption would decrease accordingly by 2.5%” (EE Strategy). 13.5. In addition, the proposed EU Directive on Energy End Use Efficiency and Energy Services recommends a target value of 1% normal savings (excluding heavy industry) and 1.5 % for public facilities for member states. The first, national EE goal for Montenegro within the EE Strategy is to achieve annual 1% cumulative savings in domestic energy consumption per year over the five year period 2005 – 2009. It should be noted that this goal does not include individual energy savings to be achieved by KAP (or the steelworks), which given their large relative weight in economy would have a disproportional impact on national energy consumption. Although the proposed target for Montenegro is conservative, the potential for savings is potentially much greater than in EU member states. 13.6. The emphasis on energy savings and increased energy efficiency is one of the most crucial elements of the EDS, but the Green Paper and EDS itself do not explain how, or even whether, the various targets for energy reduction have been factored into the projections for final energy consumption over the 18 year lifetime of the strategy. This has prompted a series of questions to be asked by the SEA which are discussed in Appendix 3. At the time of writing (21 August 2007) no answers have been forthcoming to these questions. 13.7. Although the EDS places strong emphasis on the importance of energy saving, most of its proposals and recommendations envisage the need for detailed studies and long term change. There are few suggestions for practical solutions that could be introduced immediately to improve the present situation. The SEA has made its own recommendations in this area.

13.8. Given that Montenegro is starting from a low base on household and public sector and service energy efficiency, the opportunity exists to manage demand at a lower level than in similar countries and without prejudicing growth of the economy, although it will require a bold and ambitious approach by Government in creating the right financial climate for both public and private investment. In part this may be achievable by moving straight to more efficient technologies, and not using older, less efficient equipment first. Much of this would require Government intervention, but the upfront costs would tend to be borne by consumers, who would then recoup any additional outlay over the life of the equipment being used. Examples of the interventions that are implemented in some EU member states and that could be used in Montenegro are: • banning of the sale of traditional incandescent light bulbs, with a requirement to use CFLs;

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• • • •

imposing minimum standards on refrigerators and freezers of "C" on the EU energy label, possibly extending this to other white goods such as washing machines; requiring all oil or LPG heating boilers to be condensing models, with similar efficiency standards for standalone water heaters (that are not connected to solar thermal units); a presumption towards Ground Source Heat Pumps when installing electrically powered heating/cooling systems in commercial properties or single family dwellings; imposing a low maximum standby loss on brown goods (such as TVs, personal computers, satellite set-top boxes and other entertainment equipment).

13.9. These could be allied to exemplary standards for insulation and ventilation in the built environment, initially relating just to new buildings constructed, but – subject to technical limitations – subsequently being extended to all buildings. These could be contained in the Law on Construction for new properties, and tie in with procedures under the EU Energy Performance of Buildings Directive for existing ones. 13.10. The effect of measures such as these could be considerable, even allowing for the much greater penetration of energy consuming equipment expected in households and the two sectors as the Montenegrin economy develops. Compared to a “Business As Usual” case, lighting savings may exceed 60%; white good savings in excess of 20%; boiler and heater savings typically 15%; and standby savings of up to 90%, albeit of much lower energy consumption. New building savings could achieve up to 50% in heating (or cooling) requirements, with smaller savings through good passive solar design standards. Even in existing properties, a requirement to add insulation at the same time as an upgraded or extended heating system could lead to typical savings of 30% more.

Balancing Supply and Demand for Energy
13.11. Although energy saving will go a long way to improving Montenegro’s self sufficiency, experience throughout the world shows that the country’s energy demand will increase as the economy grows. It is therefore inevitable that new supplies of energy will need to be developed. The SEA agrees with the strategic commitments set out in the EDS that this needs to be done in ways which are sustainable. Sustainability is measured in terms of social, economic and environmental objectives. Strong sustainability is achieved when all three objectives are satisfied. If only two objectives are supported the measure of sustainability is much weaker and if only one objective is satisfied the result cannot be regarded as truly sustainable. 13.12. There are two types of solution for energy generation within the EDS that are strongly sustainable: these are to make better use of existing power sources and facilities and to promote use of renewable resources. Making better use of existing facilities 13.13. The first solution is to upgrade existing plant and facilities that are operating below their designed capacity due to old age, lack of maintenance and investment. Up to 84MW (270 GWh) representing 6.3% of the electricity requirement in 2010 can be

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achieved through rehabilitating existing power plants). This saving relates only to the three main powerplants, Pljevlja TPP and Perucica and Piva HPPs. There are, in addition, major opportunities throughout the private sector to upgrade energy using plant and to introduce cogeneration, which according to the EDS could provide a minimum of 3.74 PJ Heat and 400GWh of electricity savings. In the case of the largest industrial users which consume 70% of electrical energy used in Montenegro, savings of up to 20% are stated to be technically and economically achievable. This would equate to 700 GWh a year. Perhaps the greatest opportunity for making an impact within less than five years lies in minimising losses in transmission and distribution of electricity. The EDS confirms that it should be practical to reduce losses through distribution to around 10% (from the present unacceptably high rate of 29.1%. This would represent a saving of 450GWh based on 2006 figures. The cumulative total for savings outlined in this paragraph amounts to 1820GWh or 40% of the primary electricity used in Montenegro. Use of Renewable Sources: 13.14. The second solution in seeking to balance energy supply and demand is to develop energy from sources that do not contribute greenhouse gases to the atmosphere which could exacerbate global warming. These options include proposals to establish wind farms, small scale hydro power plants and energy from waste plants. 13.15. The Montenegro Plan for Implementation of the Acquis on Renewables, (16 May 2007) sets out proposals for implementing Directive 2001/77/EC on promotion of electricity produced from renewable energy sources in the internal electricity market, by stating that targets will be established for future consumption of electricity from renewables by 1 July 2008. The plan notes that ‘these targets will promote increased use of renewable energy sources and alternative sources in the internal market and manage funds contributed for the purpose of Energy Conservation and Energy Efficiency’ and advises that ‘work is in progress to establish conditions for favourable development of small hydro’. The plan goes on to state: ‘Taking into account development of the entire energy sector according to the long term National Energy Strategy it is assessed that the share of all renewables (without big HPPs) in 2010-2015 can be achieved in the range of 3-5% of total energy needs. Small HPP generation can reach 2.5% of the share of national electric power balance by 2015’. 13.16. These proposals are more specific than those set out in the EDS. If the share of all renewables in the EDS was to reach 3-5% of total energy needs by 2015 this would equate to 2PJ, whereas the projects listed in the Moderate Construction Scenario amount to 50 MW (170 GWh) or 0.6 PJ by 2015 which represents only 1.5% of total energy needs. Similarly, in order to achieve 2.5% of the national electric power balance of 4625 GWh from small HPPs by 2015, this would represent around 115 GWh and would require installed capacity of about 38 MW rather than the 30MW included in the two construction scenarios.

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Developing New Energy Sources
Thermal Power 13.17. The first option for generating substantial amounts of new power is the construction of a new thermal power station at Pljevlja to share the infrastructure of the existing coal-fired plant. From an environmental perspective this option has major drawbacks in that it increases the total load of greenhouse gases emitted and increases the physical disturbance caused by opencast coal mining. At the same time, however, the proposal will sustain over 1700 permanent jobs for the next thirty years and provides much needed investment in the northern region. By itself, it would be hard for the SEA to support this proposal as anything other than weakly sustainable, but the strategy includes other very positive measures for reducing the high base load of air pollutants created by individual boilers and domestic fires in the region, including the development of a new district heating scheme. These measures in combination will result in significant improvements to existing environmental and social conditions. Providing that the existing thermal power plant is upgraded and the new block is constructed to the highest standards in accordance with EU regulations, as proposed by the EDS, the SEA concludes that this new source of electrical energy should be supported. Large Scale Hydro Power Development 13.18. Taking all of the elements of the moderate construction scenario outlined in chapter 10, up to 58% of the demand for electrical energy in 2025 could be met in ways that are supported by the SEA. However, the proposals for meeting the remaining shortfall of 406MW (925GWh) by constructing hydro-power dams on the Moraca River (and the Komarnica) are not supported by the SEA for reasons that are outlined below. 13.19. From first principles, the development of large scale hydropower is attractive, because water as the source of power is constantly replenished and its use in driving turbines does not result in the release of greenhouse gases. The capital cost of building the dams and facilities is often higher than other sources, but operating costs are lower. These factors can provide an attractive economic case if a long term horizon is taken for paying back the initial investment. The EDS adds the potential benefits of water storage and river regulation as a way of combating climate change and suggests that the reservoirs could provide other benefits in the form of public water supply, irrigation and recreation (These benefits are questioned by the SEA). 13.20. Unfortunately, most of the evidence from construction of large hydro schemes world-wide is that they are often destructive to the environment, they provide short term employment benefits during construction, and they can severely restrict social and local economic opportunities in the long term. Only limited information is available about the characteristics of the proposed Moraca cascade of dams and their operating conditions, but there are enough reasons to suspect that the environmental implications could be very severe including:

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• • • •

Permanently damaging the ecology of the Moraca which is one of the most important rivers in the Balkan region in terms of endemic (rare) aquatic species, Damaging the setting of important cultural sites and scenic areas, Altering the flow regime and discharge of water to Skadar Lake which is an international RAMSAR site and National Park, with potentially serious consequences for fish stocks, invertebrates and migratory birds. Impacting on existing recreational and economic use of the river corridor for purposes other than hydro-power generation.

13.21. Other factors that suggest the SEA precautionary principle should be employed in judging the sustainability of these proposals include the undefined nature of the risk of earthquakes, rates of sedimentation and accumulation of debris, heavy metals and mercury in the reservoirs and the uncertain patterns of rainfall that cause outputs from existing hydropower stations to fluctuate widely, which could be exacerbated by climate change. 13.22. All of the cautionary factors outlined above would need to be examined through detailed EIAs of the individual dam proposals, but since the viability of each dam is heavily influenced by the decision on whether or not to build the others, it is clear that a strategic decision has to be taken at the outset on the overall principle of developing the hydro potential of this river basin. 13.23. In accordance with the EDS Main Strategic Commitment 18, the Government of Montenegro will need to discuss the Moraca hydro power proposals with the Government of Albania and the international community because of the scheme’s potential to have significant trans-boundary environmental, social and economic impacts. 13.24. In examining the strengths and weaknesses of the Moraca hydro scheme, the SEA notes that 238MW (926GWh) of electricity would be generated by the four dams representing 16% of the total electricity demand forecast to be required by 2025, but only 6.6% of the additional power required to satisfy total energy consumption by this date. This amount of power, which is less than that to be provided by the proposed second block at Pljevlja TPP, would require 430 million Euros (three times the cost of the Pljevlja block 2 investment), or a quarter of the overall investment programme for the EDS. 13.25. The SEA concludes, on the basis of the evidence available at this stage, that the Moraca hydro scheme cannot be regarded as a sustainable option and would seriously compromise Montenegro’s growing status as an Ecological State, in addition to running counter to the principles of many of the international conventions to which Montenegro is a signatory. 13.26. In making these criticisms of the Moraca River Hydropower proposals, the SEA does not take a view on other large hydropower options which have been described in documents supporting the EDS. It does, however, advocate maximising the potential of existing schemes before embarking on new projects. For this reason it strongly supports the strategy recommendation for bringing forward the feasibility study for

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building the eighth generator unit at the Perucica HPP. This could potentially increase the installed capacity of the plant by 95.5 MW

Developing Alternative Approaches to Energy Supply
13.27. Part of the remit of this Energy SEA has been to consider reasonable and viable alternatives to the scenarios presented in the EDS. In practice, the strategy itself already lays the foundation for a more promising way forward with its emphasis on the role of energy efficiency and use of renewable energy but to succeed this needs to be: • • • given stronger emphasis and recognition in the EDS, given direct recognition and support by Government and the international donor community, accepted and implemented by the population of Montenegro.

13.28. Montenegro is the first country in the region to define itself as an Ecological State within its constitution and the Government has recently established close links with Austria, Greece and Italy, with the aim of sharing technology, know-how and economic opportunities in a number of fields including energy development. Austria is recognised as one of the European and even world leaders in renewable energy, while Greece is leading Mediterranean countries in the development of solar power and Montenegro has the natural resources and assets to emulate this lead amongst countries with economies in transition. 13.29. The analysis undertaken as part of this SEA (see Chapters 10 and 11) suggests that practical and economically realistic options exist for reducing energy demand, promoting energy savings and enhancing performance from existing power plants. All of these measures could make the lower energy demand forecast of 4.6% an achievable target without threatening growth of the economy. If this forecast is accepted as a target for increased energy efficiency and lower energy intensity, the limited construction scenario (N-1), combined with S1 growth and high penetration of the LPG market, together with a range of measures for improving performance of existing supply sources, would comfortably meet requirements in accordance with the adopted Energy Policy of Montenegro, which envisages reduction in electricity imports and an increase in energy dependency in the country. 13.30. The SEA recognises that although the lower target of 4.6% growth should be the goal, it is possible that energy demands will exceed this and a flexible approach is therefore required in which the country’s performance in terms of energy efficiency, supply and demand is monitored annually. The analysis set out in Chapter 11 makes it clear that, even without significant savings in existing energy consumption, it is possible to add new power sources incrementally to the Limited Construction Scenario in a realistic programme that would achieve a positive balance in overall supply and demand for energy by 2025, based on medium growth of 6%. 13.31. This outcome would be achieved through a combination of reducing losses to the system, enhancing existing power plant performance and expanding the proposed programme of renewable energy sources.

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13.32. In putting forward options for expanding renewable energy sources it can be anticipated that there may scepticism on the grounds that: • • • • the technology is unproven for use in the particular climatic conditions that prevail in Montenegro, investors will be cautious given the higher production costs of most renewable sources, timescales will be too long to achieve any significant increase in power to meet immediate needs, Montenegro’s economy is not strong enough to support innovative investment programmes.

Each of these concerns has been considered and the following responses are offered. Unproven Technology 13.33. The level of development suggested over the 18 year period of the strategy for each of the options considered (wind, biomass, energy from waste and solar) has been based on conservative estimates by comparison with the progress made in other Mediterranean countries like Italy, Greece, Spain and Cyprus, and by Western European nations like Austria, Sweden, Denmark, Germany and the UK. There are well established programmes and evidence of past trends that show what can be achieved using existing technology (which is now being substantially enhanced with falling installation costs and rising efficiencies on a year by year basis). Cautious Investors 13.34. As noted very clearly in the EDS, any energy strategy involving capital-intensive investment needs to be supported by a proactive programme of government support and marketing and the creation of the right climate for investment which includes financial security, low taxation and incentives. 13.35. Evidence from all of the counties cited above confirms that private investors will move rapidly into the renewable energy field if appropriate commitments are offered by Government. This message has been articulated most clearly by the Austrian Government and Austrian Energy Authority (See Box 1). Timescales 13.36. The EDS highlights the fact that under the two construction scenarios considered the earliest significant change in existing energy supply will not be achieved until 2011, (and this is dependent upon development of the second Pljevlja power station). The second major increase would not be achieved until 2013 when the first of the proposed large HPPs is completed. Within this six year period, experience shows that it is entirely feasible to develop alternative energy solutions based on renewable sources of the type discussed in Chapter 11.

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Box 1 THE AUSTRIAN SUCCESS STORY The promotion of renewable energy has been a central feature of Austrian Energy policy for a number of years. As a result, Austria now ranks among the leading countries in the EU for its renewable energy generation. In 2004, renewables accounted for approximately 22% of primary energy supply (including imports) and 71.8% of domestic energy production. It is anticipated that this figure will rise even higher to 78.1% by 2010. As a result of its successful long term renewables policy – the country now has a diverse array of renewable energy technologies contributing to its energy needs. Biomass: Total consumption of biomass in Austria amounts of approx 157PJ or 12.2% of primary energy demand. Approximately two-thirds of this is used by small consumers burning wood, chips and pellets in individual heaters and in district heating plants. During the period 1997-2001 approximately 10,500 wood chip installations and some 12,300 pellet fired plants were installed (with capacities in the range of up to 100kW). By the end of 2005, there were also 1002 operational district heating networks with a total generating capacity of 1,132MW. Biofuel: In 1991, one of the first industrial biodiesel production plants came operational in Austria. Many more industrial plants have since become established leading to a production capacity of approx 133,000 tonnes of biodiesel in 2003. Hydro: Hydropower accounts for approximately three quarters of electricity generation in Austria and 12% of total energy input. Some 5.3GW is in the form of run of river power stations and 6.4 GW in storage power stations. Solar: Austria ranks only second behind Greece in the EU for the utilisation of solar thermal energy with just over 200,000MWth per million inhabitants. In 2002, there were approximately 12,800 solar hot water heating devices in Austria. In addition to the use of solar thermal, a significant number of solar photovoltaic panels are also used. By the end of 2001, PV contributed approx 4.14 GWh to electricity generation in Austria. Wind: In June 2006, Austria had 965MW of installed capacity in 607 turbines producing 1.9% of electricity consumption in Austria. It is anticipated that this trend of exploiting wind power will continue to develop rapidly in the future. Austria prides itself on developing wind capacity in cold mountainous terrain. Geothermal: In 2003, there were twelve geothermal plants with a thermal capacity of approx 41.5MW operating. In order to promote the development of renewables, the Austrian Government has introduced numerous promotional instruments such as tax incentives, housing construction subsides, agro-economical aid, and most notably the Eco-Power Act (2002) – a federally uniform purchasing and payment obligation for ‘eco-electricity’ (ie renewable energy) plants. This high level of Government support has facilitated the rapid uptake of renewables, which now form an integral part of the Austrian climate change and sustainability strategies.

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Strength of the Economy 13.37. Montenegro’s rapid economic growth is being driven by major inward investment opportunities, especially within the tourism and construction sectors. There is an excellent opportunity to link this expansion with the renewables energy sector in terms of solar and wind energy in the coastal region, and in the vicinity of Nikšic and Podgorica. 13.38. Much of the investment comes from the private sector, but the stimulus also owes much to the role of the international donor community which is united in its efforts to assist Montenegro in the transformation of its economy and its aspirations to become a full member of the European Community. The recent accords on bilateral trade agreed by the Government of Montenegro with Italy, Greece and Austria are examples of the interest which is being shown in the transfer of technological skills, and direct investment with renewable energy being a prime candidate. 13.39. The Government of Montenegro has adopted a high profile programme for encouraging investment in small scale Hydro power which is a promising way forward, but each of countries cited above (and others) have equal if not higher levels of interest in promoting other renewable programmes. The approach advocated by the SEA is, in fact, already anticipated in the Country Report130 where it is stated: ‘Renewables have a relatively high potential and there is a need to create a strong and favourable environment for their use and development. Particularly strong development opportunities exist in the field of solar energy, small and large hydro, wind and biomass.’ 13.40. One means of stimulating international interest in promotion of renewables in Montenegro is already offered through a draft law which exists to promote an Environmental Protection Fund. It is intended that the Fund should finance the following activities: • • • Conservation, protection and improvement of air water and land quality, Stimulation of renewable energy use, with financial aid being provided by international donors and others.

13.41. These comments have emphasised the importance of Government creating the right climate to stimulate investment in energy saving and renewables but there is also a major role for NGOs and the people of Montenegro as clearly identified in the EDS. Public Awareness Campaigns and Energy Advice 13.42. As well as legislation and standards, there are soft measures that can encourage a greater awareness of the need for, and benefits of, energy efficiency and smaller scale renewables. These can range from national campaigns on radio or television through to the establishment of local Energy Agencies or Energy Efficiency Advice Centres (EEACs), providing practical advice in communities. Research on the UK network of EEACs suggested that those receiving advice have saved, on average, up to 10% from
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Montenegro Country Report 2006, Energy Community, June 12 2006

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their energy bills. These savings were achieved through a combination of installing measures, and through behavioural changes such as switching lights off, not leaving appliances on standby or taking advantage of modern detergents to wash clothes at a lower temperature. Unfortunately, there is a tendency for consumers to forget such advice, so there is a need for an ongoing programme to underline the issues. Nonetheless, savings of up to 5% can be attributed to permanent or recurrent behaviour changes, especially if they are supported by strong price signals as Montenegrin energy costs approach world rates.

RECOMMENDATIONS
13.43. This SEA has highlighted the strengths and weaknesses of the Draft EDS and recommends that an incremental approach is taken to energy supply by focusing first on maximising potential from existing sources, then developing thermal and renewable options other than large hydro schemes. This approach affects only a small part of the overall EDS which is in general adopting a strongly sustainable approach to future energy needs within Montenegro. 13.44. The approach advocated by the SEA would require a radical reassessment of the planned focus on hydro electric power development, but as pointed out in Chapters 10 and 11 the proportion of total energy proposed from this source is relatively small and can be provided from alternative sources in ways that will provide greater stimulus to Montenegro’s local economy, especially in the northern region. 13.45. Given the change of focus that is proposed it is recommended that proposals set out in the SEA should be carefully considered by the appropriate energy authorities and experts in Montenegro and debated in public. The overall findings should then be weighed by Government before the EDS is revised and formally adopted.

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14. THE DECISION-MAKING PROCESS
INTRODUCTION
14.1. The Draft Energy Strategy has been prepared by IREET Consultants on behalf of the Ministry of Economic Planning for the Government of Montenegro, and the Green Paper Abstract was published on 21 June 2007 for a period of public consultation lasting thirty days. This period was subsequently extended to the end of August. 14.2. In the light of the comments received, the Ministry will revise the strategy and it will be formally adopted by the Government. It is understood that there is no formal requirement for a strategy to be submitted to Parliament, but this would be highly desirable, given the wide ranging content and potential influence of the document.

14.3. A strategy does not have the same status as a law or Government policy but it clearly points out the direction in which government expects decisions to be taken and, as stated in the Green Paper, it gives guidance to local authorities, investors and developers about the level of support that can be expected in authorising individual projects and encouraging new research and development. 14.4. In its present form, and despite the references that are made to use of other renewables, the EDS adopts a traditional approach towards the projection of increasing energy demands and the need to supply these demands from conventional sources including large hydro projects. The SEA concludes that this element of the strategy is potentially damaging to the environment of Montenegro and could be avoided if equal weight were given to exploring the option of energy saving and promotion of other renewable sources.

REVIEW OF BASIC ASSUMPTIONS
14.5. Part of the role of SEA is to explore issues and to challenge preconceived ideas in ways that will help to make the nature of the decisions that have to be taken clearer for all concerned. In itself, an SEA does not take any decision – it simply points out the options that exist and the strengths and weaknesses of the different choices that have to be made. 14.6. At the outset of the SEA a number of basic assumptions were presented as facts. These included: • • • A growing gap in energy supplies, caused by lack of action over the last 30 years to build more power stations, A dependency on building either thermal coal-fired or large hydro plants to create adequate supplies for the future, The necessity of maintaining adequate electricity supplies to the aluminium and steel industries which play a major role in the national economy and are a principal source of jobs

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• • • • • •

High level of wastage and loss in existing transmission and distribution of electrical energy, Scope for substantial savings in energy consumption, Inevitability that energy demands will grow in future, Threat to the economy if decisions are not taken immediately to commission new power sources. Inability of renewable energy sources, other than hydro, to meet the growing demands for energy. The overriding necessity of balancing energy supply and demand in order to reduce imports and avoid over dependency on external sources.

14.7. One of the roles of the SEA has been to test these assumptions. The findings of the SEA suggest that circumstances may be rather different than is generally perceived. Its conclusions in relation to the assumptions are as follows: • The gap between energy supply and demand varies annually with climatic conditions (a consequence of partial reliance on large hydro) but should be reduced in the short term through better control of distribution and minimisation of losses. Other central and southern European countries have successfully demonstrated that significant quantities of power can be produced from renewable sources, given the right climate of investment, Support for the existing heavy industries in Montenegro is important from the standpoint of maintaining a stable economy, but commercial decisions on sourcing of power belong to the operating companies who will be free to purchase power throughout the regional market. Their requirements should not dictate policy on future energy supply. The current losses and inefficient use of energy in Montenegro are largely responsible for the existing deficit in supply over demand. Addressing this issue would allow more time to test and develop an effective energy strategy based on maximising use of renewables. The SEA sets out a number of recommendations to support those already contained in the EDS for reducing energy consumption. Growth in energy consumption is a feature of all expanding economies but it is not an acceptable model for the future. The rate of growth will need to be reduced progressively in all developed economies if climate change is to be brought under control. The bulk of Montenegro’s energy requirements are imported at present and this will continue to be the case throughout the life of the EDS. The additional quantity of electricity which is imported adds to the balance of







• •



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payments deficit, but the increases anticipated over the next 5-10 years, (when offset by savings that can be made) does not establish any overriding demand for new sources of supply until the options have been properly assessed. • International experience, and specifically the model presented by Austria, shows that with positive encouragement and commitment, renewables can make a substantial contribution to overall energy needs and Montenegro has the necessary natural resources to make this a viable proposition. Security of supply and a capacity to be self-sufficient in energy resources are both goals that are to be encouraged, but this should be within the overall environmental capacity of the country concerned. In the case of Montenegro, protection of the environment is critical not only to quality of life but to the maintenance of its economy.



NATURE OF THE STRATEGIC DECISIONS
14.8. From the perspective of the SEA the greater part of the EDS is based on sound sustainable objectives and there is an urgent need to progress with implementation, especially in the areas of: • • • • • 14.9. privatisation of the industry, reforming legislation, adjusting, then stabilising, electricity prices, encouraging increased energy efficiency, and, building public awareness.

The one key area in which the SEA exposes the unsustainable nature of the EDS relates to its emphasis on building large hydro power plants to increase electrical supply. The SEA recognises that hydroelectric power has major advantages over energy derived from fossil fuels in greatly reducing, if not avoiding, release of greenhouse gases and directly impacting on climate change. However, it points to the likelihood of significant adverse environmental impacts if four large HPPs are built in the Moraca river canyon upstream of Podgorica. In terms of two of Montenegro’s most valuable natural resources: the free-flowing Moraca River, and Skadar Lake.

14.10. The most important choice facing the Government of Montenegro is whether to commit itself, at this point in time, to: Option 1: damming the Moraca (and building the Komarnica HPP) which will provide the equivalent amount of electricity to one large thermal power station like Pljevlja TPP, or, Option 2: deferring a decision on the Moraca power system and concentrating on reducing loss and wastage (which currently amounts to twice the amount of

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electricity generated from Pljevlja TPP) while also accelerating its planned programme of renewable energy development. 14.11. In making this decision the following factors are likely to be important: Option 1 Large Hydro Arguments in Favour • • • • Engineering options well developed Established technology Low operating costs Convenient variable power output Option 2 Savings and Renewables Arguments in Favour • • • • • Low capital investment Minimal environmental impacts Decentralised development Flexibility in range of solutions Highly supportive of local industry and development

Arguments Against • High capital cost • High risk of significant adverse environmental impacts

Arguments Against • Absence of local prototypes, • No ‘culture’ of use

14.12. In weighing the merits of these arguments it may also be helpful to include some thoughts about the longer term perspective for energy requirements and environmental protection in Montenegro than is even possible within the 18 years represented by the EDS. These are set out below: Future Energy Demand There is a compelling economic case at present for sustaining Montenegro’s heavy industry (aluminium and steel) while adequate reserves of raw materials (bauxite and iron and steel scrap) remain and energy costs are low enough to make the operations profitable. But resources of bauxite are finite, and although the currently known reserves equate to 30-40 years of aluminium production, the point will be reached where these cease to be economically exploitable. Processing of steel using the electric arc furnace is also likely to be affected by international competition. Taking a long term view, heavy industry may well cease to exist in Montenegro at some point in the next 20-40 years. This is likely to occur progressively and, as it does, the high intensity of energy use in the country will reduce. More than 2000 GWh of electricity will become available for alternative use in less energy intensive industries. These changes could easily take place within the timescale of the current EDS. When Montenegro transforms to a mixed rather than ‘industrial’ economy within the next 20-50 years, as all European countries with a history of heavy industry have done, its energy requirements will be greatly reduced. Although its existing population (630,000) will grow it is likely to remain not much larger than that of a single large city. Its future therefore will depend upon the entrepreneurial skills of its

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population and its capacity to market its advantages as an exceptionally beautiful and ecologically sound country. Future Energy Supply: Taking Option 1 as the model for future development based and assuming the same timescales that are discussed above, most of the lignite resources of the Pljevlja region will have been exhausted and there will be a need to consider whether or not to exploit the Berane coalfield to provide replacement thermal power. The existing Hydro Power Dams at Piva and Perucica will be increasing in age, and at some point will require to be decommissioned and either rebuilt or replaced by alternative power sources. The new Moraca and Komarica hydropower plants will be providing around 5% of the country’s overall energy needs and Montenegro will continue to face the choice of providing its future energy from large thermal or hydro power plants or of developing other options which could include gas-fired power stations (especially if oil and gas is discovered in commercial quantities in Montenegro). Energy growth will have been slowed but if the existing assumptions continue to be applied there will still be a growing demand for new energy supplies. Taking Option 2 as the alternative, Montenegro will be in the vanguard of South East European countries that have made the transition to a truly sustainable economy. By 2025, all new public and commercial buildings will be carbon-neutral and the majority will self sufficient in terms of heating, air conditioning and hot water supply from solar thermal sources. All hotels and the majority of private homes in the coastal and central region will draw at last half of their heating and hot water requirements from solar and wind energy. In the northern region, renewable energy in the form of wood pellet and biomass heating, cogeneration of electricity, and to a less extent solar and wind energy will be contributing significantly to the more isolated communities. The same issues will remain as for Option 1, in terms of the future for thermal power production and the upgrading and replacement of existing large Hydro power plants, but the urgency to dam the Moraca River will have ceased to exist and the river will run free to Skadar Lake and the sea. 14.13. The issues that have been set out in the preceding paragraphs are inevitably a gross simplification of the complex balance which has to be struck in arriving at a sustainable energy development strategy and this is, perhaps, one of the most crucial findings of the SEA. At present, Montenegro’s economy, energy demands and whole way of life are in a state of flux and there is great uncertainty about how quickly things will change. There is an urgent need to establish the basic facts about energy losses and efficiency of use and to understand the full environmental and local socioeconomic consequences of the proposed new large hydro power developments to better inform the decision. 14.14. What can be said with confidence is that there is a real choice in terms of the direction in which the energy strategy is taken and since there is no prospect of altering the balance of energy supply and demand in less than five years there is every reason for reflecting on the choice for a short time before committing the country to an irrevocable course of action by adopting a strategy for further large scale hydropower development.

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GLOSSARY
Primary Energy Production: is the total amount of energy produced from all energy sources within Montenegro before losses through conversion processes and transmission. In Montenegro this includes energy from hydro, lignite, brown coal, firewood, industrial waste wood. Domestic primary energy production accounted for 69% of total primary energy consumption. Final Energy Production: refers to primary energy production minus losses in the energy system (through production efficiency and transmission). Much of the Green Paper focuses on energy provided by electricity which may be generated in a number of ways (Hydro, thermal, geothermal) but energy can also be created directly as heat or power through boilers and combustion engines to power machinery and different forms of transport. The fuels used for this purpose include oil derivatives (gasoline and diesel). The mix of energy and fuel types can have important implications for development of an energy strategy. Primary Energy Consumption: refers to the direct use at the source, or supply to users without transformation, of crude energy, that is, energy that has not been subjected to any conversion or transformation process. Final Energy Consumption: is the total energy received by final consumers within Montenegro. This is disaggregated to cover industry, transport, agriculture, construction, the public sector and households. The relative contribution of a specific sector is measured by the ratio between the final energy consumption from that specific sector and the total final energy consumption calculated for a calendar year. Energy Imports and Exports: Montenegro imports oil derivatives, electricity and a very small amount of lignite. Energy exports include electricity lignite and brown coal. The scale of imports is five times higher than exports. Total Energy Balance: refers to the contributors to Montenegro’s overall energy supply. These are principally hydro-energy, oil derivatives, coal, wood and wood wastes, and imported electricity. Energy Efficiency: refers to the practicable means to reduce energy consumption and generate and supply energy more efficiently. Within the Strategy, this is principally concerned with the upgrading of existing power generation facilities, industrial production processes and cogeneration, improving domestic heating and providing Combined Heat and Power (CHP) as well as positive price and policy interventions. Energy efficiency measures are related to the Strategy of Energy Efficiency and Strategy of Energy Development by 2025. The Strategy aims to increase energy efficiency and reduce energy consumption by at least 20%. Energy Intensity: is a measure of the energy efficiency of Montenegro’s economy, calculated as units of energy per unit of GDP. High energy intensity in Montenegro is indicative of the relatively high cost of converting energy into GDP. This measure is

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used in projections of future energy consumption in Montenegro based on moderate (low), strong (medium) and very strong (high) GDP growth scenarios.

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APPENDICES

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APPENDIX 1

APPENDIX 1:

SEA METHODOLOGY

(From OECD-DAC SEA Guidelines prepared with inputs from international development partners including UNDP.

Stage 2: Implementing the SEA
Determine the scope of the SEA A scoping process should establish the content of the SEA, the relevant criteria for assessment (eg goals set out in the National Sustainability Development Strategy), and set these out in a “scoping report”. A pragmatic view needs to be taken on how much can be achieved given the time-scale, available resources, and existing level of knowledge about key issues. An open and systematic process should be followed. The SEA should actively engage key stakeholders to identify significant issues associated with the proposal and the main alternatives. Based on these issues and the objectives of the SEA, decision criteria and suitable ‘indicators’ of desired outcomes should be identified. Scoping may also recommend alternatives to be considered, suitable methods for analyses of key issues and sources of relevant data. Scoping procedures and methods, such as matrices, overlays, and case comparisons, can be used to establish cause–effect links of concrete plans or programmes or to identify the environmental implications of more general policies or strategies. A detailed review of available options (“options appraisal”) may be undertaken as part of the scoping process to clarify the environmental advantages and disadvantages of different potential courses of action. Scoping meetings with stakeholders should result in a revision of the scope or focus of the SEA and improvements (if needed) to the draft engagement plan developed during screening. Establish participatory approaches to bring in relevant stakeholders including the weak and most vulnerable Effective and sustained public engagement is vital for effective SEA. By their very nature, PPP decisions are embedded in the political domain and involve political dynamics – including the engagement of the stakeholders who are likely to be most affected or who are most vulnerable. Depending on the nature of the country’s political institutions and processes, there will be a need to integrate any SEA process with the public engagement process as a whole, or to adopt additional approaches where needed. Environmental pressures tend to affect the poor and vulnerable sections of the population more seriously. So, public engagement needs to be built into the SEA process so that the most weak and vulnerable groups can gain access to the formulation process and their viewpoints can be given equal weight. Also, public engagement needs to be sustained, structured and coordinated with the phases of formulating and implementing PPPs – emphasising equally the positive contributions and harmful effects.

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Collect baseline information

SEA needs to be based on a thorough understanding of the potentially affected environment and social system. This must involve more than preparing a mere inventory, e.g. listing flora, fauna, landscape and urban environments. Particular attention should be paid to important ecological systems and services, their resilience and vulnerability, and their significance for human well-being. Existing environmental protection measures and/or objectives set out in international, national or regional legislative instruments should also be reviewed. The baseline data should reflect the chosen objectives and indicators identified in the ‘scoping report’. For spatial plans, the baseline can usefully include the stock of natural assets, including sensitive areas, critical habitats and valued ecosystem components. For sector plans, the baseline will depend on the main type of environmental impacts anticipated, and appropriate indicators can be selected (e.g. emissions-based air quality indicators for energy and transport strategies). In all cases, the counterfactual (or no-change scenario) should be specified in terms of the chosen indicators. ► Analyse the potential effects of the proposals and any alternatives

Identifying the potential direct and indirect or unintended effects of policy formulation and decisionmaking, and options for, and alternatives to, PPPs, is naturally harder than in the case of specific projects. The range of options or variables under consideration are often harder to define with certainty because the transmission channels through which effects may be experienced may be harder to predict and analyse. This makes the indirect effects of paramount importance in the assessment. Examples of policy reforms with clear environmental implications are privatisation, energy policy, land reform, trade incentives, water supply and pricing. Certain measures can help to frame this issue, for example, the use of best versus worse case scenarios. There is no single best method for impact analysis. Approaches should be selected that are appropriate to the issues at stake. Cumulative effects present particular challenges and may require expert consideration. The identification and evaluation of suitable options may be assisted by future “scenario building” and “back-casting methodologies”. Table 4.1 demonstrates how particular central policy area reforms can have both positive and negative environmental consequences, and provides examples of the measures that can be taken to enhance or mitigate these, respectively.

Table 4.1: Examples of policy reforms and potential environment linkages POLICY AREA
Energy

REFORM
Fuel price reform, removal of subsidies Land reform

POTENTIAL ENVIRONMENTAL BENEFITS
Reduced emissions through increased production- and consumption efficiency Property rights generally improves management of natural resources Increased competition and use of price signals generally improve resource use efficiency.

POLICY AREA
Removal of subsidies could lead to increased demand for fuel wood. Shrinking common property resources are overused by the landless Weak legal environmental framework and unclear liabilities can

REFORM
Property right reforms might be used to mitigate against deforestation in search for fuel wood Ensure that the interest of the landless are considered. Ensure adequate legal framework, monitoring and enforcement.

Agriculture

Private sector developme nt

Business climate issues, taxation and

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POLICY AREA

REFORM
protection of property rights, privatization

POTENTIAL ENVIRONMENTAL BENEFITS

POLICY AREA
lead to overexploitation of natural resources and high levels of pollution. See benefits.

REFORM

Tax reform

Tax incidence (income, assets, corporation, consumption ); tax rates; exemptions; deductions and the complexity of Decentraliza tion of power to regional or local level of administratio n. Reforms aim at increasing the efficiency of service delivery, accountabilit y, . Trade reform

Decentrali zation

Changes in relative prices due to tax reform can have powerful effects on household and corporate behavior. The effects on natural resource can be positive or negative depending on the kind of tax reform used. The removal of subsidies generally have positive effects on natural resource use. Accountable and representative local institutions can improve the management of natural resources.

Environmental fiscal reforms where taxes on polluting inputs such as energy and resource royalties are used can lead to internalised environmental costs, increased resource efficiency and tax incomes.

Inadequate capacity to properly deal with environment and natural resources related issues. Risk that local elites gets the power to exploit local natural resources without state vigilance.

Capacity building to strengthen local and regional administration

Trade

Increased competition may lead to improved resource use efficiency. Benchmarking of environmental performance standards by in-migrating industry.

Expansion of monocultures. Increased use of fertilizers and pesticide. Pressure on natural resources

Improve environmental legislation to avoid becoming a “pollution haven”. Provide training on fertilizer and pesticide use.

For further reading: see OECD (2005), and WRI/UNDP/UNEP/World Bank (2005).

Establishing the linkages with key economic and social policy goals requires a wide analytical framework, elements of which may already exist. For example, there may already have been a rigorous examination of the key environmental problems and risks within a country or region, including an assessment of the underlying causes of environmental stresses. If not, it will be necessary to undertake a partial analysis relevant to the scale or scope of the policy in question in order to assess the potential linkages between the environmental effects of the policy being assessed and key

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policy goals. For example, in many poor countries, policies indirectly leading to rural environmental stress can impact very negatively on poverty levels. Assessment of the priority of such linkages and issues will reflect the perceived value of the environmental issues to the country. Such assessment can draw on a number of tools or processes, For example, comparative risk assessment, economic assessment of environmental damages, and survey-based and participatory assessments can all be used to find objective measures of how important an environmental issue is, and thus how it should be factored into the policy formulation process alongside other issues. Identify measures to enhance opportunities and mitigate adverse impacts It is as important to focus on realising the positive opportunities of the planned activities as on minimising any negative risks. Opportunities will generally serve to enhance achievement of the Millennium Development Goals and other challenges of development. The overriding aim is to develop ‘win-win’ situations where multiple, mutually reinforcing gains can strengthen the economic base, provide equitable conditions for all, and protect and enhance the environment. Where this is not possible, the relevant trade-offs must be clearly documented to help guide decision-makers. A mitigation hierarchy should be followed for identified negative impacts: first avoid; second reduce; and third offset adverse impacts - using appropriate measures. Precaution should be exercised if the analysis indicates a potential for major, irreversible, negative impacts on the environment. Often this may suggest selecting less risky alternatives. For less-threatening situations, standard mitigation measures can be used to minimize an adverse impact to ‘as low as reasonably practicable’ (ALARP level). Once mitigation has been taken into account, the significance of residual adverse impacts can be evaluated. This is an important measure of the environmental acceptability of the proposal; it is usually carried out against selected environmental objectives and criteria. Draft report on the findings of the SEA After the technical analysis of the issues and options is completed, the results and rationale for conclusions need to be reported. While a technical report may be necessary, it must also be presented in an understandable format and appropriate language(s). This will often require short summaries and graphic presentations rather than a long report. A well-written, non-technical summary should be included. This will be of particular use in explaining the findings to civil society. They need to be well informed in order to submit their comments. Financial support, transport, food may need to be provided so the most marginalized can participate. Public engagement on the draft SEA report While public engagement should have been included at all appropriate stages, the draft SEA report is a key stage and should be publicly available for a period of time agreed during the scoping stage. If meetings are held for public comment, smaller, focused meetings may be preferable to ensure adequate time for comment, rather than larger meetings where few people have the opportunity to speak. There is a variety of ways to gather opinion from the more vulnerable groups and ensure that they can meaningfully participate, e.g. surveys, interviews and meetings. An understanding of the political economy of the decision-making process, and the various responses from the stakeholder analysis, should suggest how to ensure effective consultation and influence on decisions Prepare final SEA report Typically, this would include sections/chapters on: The key impacts for each alternative; • stakeholder concerns including areas of agreement and disagreement, and recommendations for keeping stakeholders informed about implementation of recommendations;

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• • • • •

the enhancement and mitigation measures proposed; the rationale for suggesting any preferred option and accepting any significant trade-offs; the proposed plan for implementation (including monitoring); the benefits that are anticipated and any outstanding issues that need to be resolved; guidance to focus and streamline any required subsequent SEA or EIA process for subsidiary, more specific undertakings such as local plans, more specific programmes and particular projects.

Stage 3: Informing and influencing decision-making
Making recommendations to decision-makers
Presentation of the draft and final reports are important points to influence key decisions. A clear, understandable and concise Briefing Note or an Issues Paper can help to ensure that decision-makers are fully aware of key environmental issues linked to the PPP. However, from the outset, through steering committees, other structures and public engagement mechanisms, decision-makers and stakeholders have opportunities to shape the outcome of the SEA, e.g. identification of issues, choice of indicators, scope of work, and selection and evaluation of proposed development options and alternatives. It is often a learning process for authorities and civil society to work together on a PPP. Decisionmakers need to know what options are open to them, what the likely effects of particular choices are, and what the consequences would be if they fail to reach a decision. This information should be clearly set out in the advice given by the SEA team.

Stage 4: Monitoring and evaluation
Provide an independent evaluation/review (quality control check) on the SEA
Designing an SEA to include the steps and practices outlined in Stages 1 – 3 will provide a basic level of process quality. However, specific measures of quality control assurance might be warranted. These will depend on the nature, context, needs and timeframe of the specific strategic initiative. Options that have proven their value in this regard include: independent review of SEA by experts or academics; internal audits by the Ministry of the Environment; ‘sounding boards’ or steering committees consisting of representatives of key stakeholders; an independent expert Commission Monitoring decisions taken on the PPP and the results of their implementation It is important to monitor the extent to which environmental objectives or recommendations made in the SEA report are being met. Information tracking systems can be used to monitor particular issues and check progress of the PPP. Monitoring of cumulative effects may be appropriate for initiatives that will initiate regional-scale change in critical natural assets. Methods and indicators for this purpose need to be developed on a case-by-case basis.

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APPENDIX 2 Performance of the Strategy Commitments against Sustainability Objectives

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APPENDIX 3 Questions on Future Energy Demand

INTRODUCTION
1. This appendix sets out the questions raised in the Scoping and Key Issues Report presented in Podgorica on 19 July 2007. Responses to the questions have been sought from the relevant authorities. The answers will, in due course, help to inform the debate on the priorities within the Energy Development Strategy. The Green Paper states that the Strategy is justified by the Government’s energy policy which is to increase Montenegro’s energy independence. However, this aspect of Government Policy needs to be balanced against other equally important objectives which include maintaining the environment and quality of life of all citizens. The evidence examined so far in relation to the details of the preferred energy strategy suggests that the proposed growth in energy production will only be achieved at a very heavy cost to the environment of Montenegro. If this cost is to be borne serious questions need to be addressed in terms of what benefits will accrue as a result of pursuing a growth-oriented strategy to offset the losses. These questions are set out below: 1) Where are the balance sheets which demonstrate how the forecasts for final energy consumption in 2025 take account of energy saving, energy efficiency improvements, reductions in demand caused by rising price, and overall changes that are predicted for the economy as a whole? 2) If the predicted savings in energy in the energy intensive industries of aluminium and steel are achieved (up to 20%), have these been factored into future demand calculations as expressed in the S1, S2 and S3 scenarios for growth in final energy consumption?, 3) To what extent does the preferred strategy actually reduce the demand for imports of power compared to other scenarios? 4) If large imports of power remain as a key feature of Montenegro’s energy balance sheet and these are set at market rates, consumers will need to pay these costs and these costs will be factored into output prices. However, the same price will have to be paid by consumers if energy is produced with Montenegro, so how does local production bring particular benefits to consumers? 5) What level of employment will be provided, specifically in the energy supply industries as a result of building any of the construction scenarios (S1, S2 and S3)? 6) What proportion of employment will be provided by each of the energy supply options (hydro, thermal, wind, biomass etc.)?

2.

3.

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7) What losses in business activity and employment could result from development of each of the construction scenarios (S1, S2 and S3)? 8) Where will the necessary investment come from to build the proposed power facilities? 9) The Green Paper puts strong emphasis on attracting international investors. If investment is obtained from international sources what measures will be put in place (which meet international obligations for free trade and transparency) to ensure that an adequate financial return accrues to the Government of the RoM from increased power generation and how will such transactions be made?

INITIAL RESPONSE TO THE KEY ISSUES (19 JULY 2007)
4. In the two weeks available following publication of the Green Paper it has only been possible to give a brief consideration to each of the issues raised. This assessment has been hampered by partial coverage of the subject matter in the published Green Paper and lack of access to some of the source material which is not available in English. However, in order to clarify the position as far as possible some initial statements and assumptions have been made. These are open to revision and correction as new information comes to light during the SEA process. Question 1 – Status of the Energy Balance Sheets Where are the balance sheets which demonstrate how the forecasts for final energy consumption in 2025 take account of energy saving, energy efficiency improvements, reductions in demand caused by rising price, and overall changes that are predicted for the economy as a whole? Question 2 - Energy Savings If the predicted savings in energy in the energy intensive industries of aluminium and steel are achieved (up to 20%), have these been factored into future demand calculations as expressed in the S1, S2 and S3 scenarios for growth in final energy consumption?, 5. These two questions are interrelated and are discussed together. There is much discussion in the Green Paper on opportunities for reducing energy demand, and improving energy efficiency in line with EU and other international obligations but the balance sheets presented in the document do not indicate whether the projections of final energy demand already include allowances for these savings – or whether the savings would apply on top of the final projections. Logic suggests that the authors of the Draft Energy Strategy will have built some savings in energy into their predictions but if this is the case it is essential that the actual values used for each sector of the economy are clearly stated in the Final Energy Strategy. In the absence of such information the results will lack transparency and credibility. In the Draft Energy Strategy a decision has been taken to adopt the Medium Growth Scenario for changes in the National Economy. The reasons for taking this decision are not given.

6.

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7.

It is understood that the projected growth in final energy consumption within the Strategy is based on current energy intensity (2,955 KWh/103 US$ 2000 GDP in 2003) multiplied by the median economic growth scenario over the life of the Strategy. However, as reported in the Green Paper (s.5.1), energy intensity of gross consumption in Montenegro was roughly 8.5 times higher than the EU15 average and higher than almost all countries in the region in 2003. A critical question which therefore has to be addressed is whether the Strategy has allowed for the predicted decline in energy intensive industries (S.7.1.2 b) or has assumed that the current structure of high energy intensity will be maintained despite the predicted decline in energy intensive industries. If either of these conditions applies then the projected final energy consumption levels may be significantly overestimated. The preferred strategy is based on the assumption that growth in energy demand will rise at 2.5% per annum in parallel with growth in GDP at 6% to reach 8400 € per capita in 2025. A lower forecast is also included which assumes growth in energy demand will rise at 1.9% with growth in GDP at 4.6% resulting in GDP per capita of 5700€ by 2025. There is no sensitivity analysis in the Green Book which would confirm that the projected consistent rate of increase in energy demand is tied directly to growth in GDP, but the data that is provided on individual sectors of the economy clearly indicates that there are marked variations in energy demand by sector. Industry is projected to grow in the range 1.3-2% per annum, traffic by 2.4-3.3%, public sector and households by 2.5-2.8% and construction by 4.5-6%. While short term forecasts can be made with some confidence the longer term projections are open to a wide range of uncertainties and it is unlikely that these growth rates can be sustained throughout the entire plan period. Indeed, the analysis of GDP growth does imply a rise over the next five years as Montenegro’s economy benefits from inward investment and internal recovery from the debilitating effects of 15 years of isolation followed by a subsequent fall in GDP growth rates over the last decade of the Strategy. Figure 4 illustrates the composition of the economy which is projected under the different growth rates by 2025, without differentiating the growth rates within the industrial sector. What is shown, very clearly in this figure is the importance of the services sector which includes tourism, in contributing 63% of overall GDP (€4.6 Billion per annum) (See also Table 9).

8.

9. 10.

11.

12.

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Figure4
Thousands 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 Low 2023 Medium 2025 High Other

Figure 5
Thousands 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 Low 2003 Medium 2025 High

Other Construction Services Agriculture Transport Low energy industries Base industries Metalurgy

Construction Services Agriculture Transport Industry

13.

Figure 5 presents the same information as Figure 4 but incorporates the changes in the structure of industry as identified in the Green Paper (7.1.2b.). This highlights the fact that while there would be a slight absolute growth in heavy industry (ferrous metallurgy and non-ferrous metallurgy), the main growth in this sector will be in base industries (like food and textiles) and in the share of less energy-intensive industries (production of machines and appliances, electrical and optical appliances, transportation means etc.) Table 9: Contribution of Economic Sectors to GDP (%)
Sector Industry Transport Agriculture Construction Services-tourism 2003 12 10 12 4 62 2025 15 11 7 4 63

14.

The share of ferrous and non-ferrous metallurgy is expected to drop from 43% of the total in 2003 to only 16-20% in 2025 while the share of less energy intensive manufacturing will rise from 12% to 31-35%, while other basic industries like foods and textiles retain roughly their existing share. These changes are shown in Figure 6 By 2025 with the change in emphasis in the industrial sector the contribution made by metallurgical processes is expected to fall to around 3.2% of GDP, while the low energy using industrial and manufacturing sector will have expanded to provide 5.6% of GDP and food and textiles will contribute around 7.2 %. Given the projected growth patterns in each of the sectors of the economy, the declining importance of heavy metal processing industries and increased value of lower energy using industries there appears to be a major inconsistency between the projections for energy demand which are quoted in the Energy Green Paper and energy consumption in different economic sectors.

15.

16.

194

Figure 6
Million Euros 1200.0 1000.0 800.0 600.0 400.0 200.0 0.0 Low 2003 Medium 2025 High Low energy industries Base industries Metalurgy

17.

Unfortunately, the Green Paper does not explain how these adjustments in the economy have been factored into the energy demand scenarios. If they are included, then the conclusion that consumption by the industrial sector will increase from 14 PJ in 2003 to 21.59 PJ seems excessively over optimistic. Alternatively, if the decline of heavy metallurgical industry and projected savings of 20% in current consumption are not included then the overall energy demand balance sheet needs to be revised accordingly. Without knowing the answer to these questions it is possible to look at the hypothetical position in which energy demand in the heavy industry sector were to continue to grow, to remain static, or to decline by up to 20 % as a result of savings. These scenarios are modelled in Figures 7 to 10. The result of applying different growth (or contraction) rates to energy demand in heavy industry results in a range of future energy demands from 7.9 to 15.1PJ in 2025. If this range is applied to the projected final energy consumption used in the Preferred Strategy (S2 and S3) it gives an overall outturn of between 44 PJ and 51PJ It may be entirely coincidental but the lower figure of 44 PJ final energy consumption (arrived at through factoring in a 20% saving of energy in the heavy industry sector in Figure 10) corresponds closely with the figure of 44.84 PJ given for the Low Scenario (S1), although it should be stressed that in the above calculations, growth rates in all other sectors of the economy have been held at their medium levels. If these were reduced to the Low Scenario this would result in final energy consumption of around 40PJ per annum in 2025. Figure 7: Heavy Industry grows by 1.96% p.a. in common with other industrial sectors (including 20 % energy saving) Figure 8: Heavy Industry grows by 1% p.a. (including 20 % saving of energy).

18.

19,

195

60.00

60.00

50.00

50.00

40.00

Heavy Industry Light Industry Traffic (Transport)

40.00

Heavy Industry Light Industry Traffic (Transport)

PJ

30.00

PJ

Households Service Sector Agriculture Construction

30.00

Households Service Sector Agriculture Construction

20.00

Total

20.00

Total

10.00

10.00

0.00
20 03 20 06 20 09 20 12 20 15 20 18 20 21 20 24

0.00
20 03 20 06 20 09 20 12 20 15 20 18 20 21 20 24

Figure 9: Heavy industry grows by 20 % but also achieves energy saving of 20% (resulting in 0% overall growth).
60.00

Figure 10: Heavy Industry sees no overall growth but achieves 20% energy saving.
60.00

50.00

50.00

40.00

Heavy Industry Light Industry Traffic (Transport)

40.00

Heavy Industry Light Industry Traffic (Transport)

30.00

PJ

PJ

Households Service Sector Agriculture Construction

30.00

Households Service Sector Agriculture Construction

20.00

Total

20.00

Total

10.00

10.00

0.00
20 03 20 06 20 09 20 12 20 15 20 18 20 21 20 24

0.00
20 03 20 06 20 09 20 12 20 15 20 18 20 21 20 24

(Source: Information in s.7.1.3 Green Paper) Question 3 - Effects of Power Imports To what extent does the preferred strategy actually reduce the demand for imports of power? 20. 21. It is important to note that with all the scenarios considered in the Green Paper, the import of power remains a critical component of any strategy. Import of petroleum derivatives is expected to meet 40% of overall energy consumption in 2025. Table 3 (s.7.13) reproduced below as Table 10 shows that there is virtually no difference in the overall balance of imports for the three scenarios.

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Table 10: (Table 3) Balance of import and export in the RoM system by scenario (PJ) Year/Scenario 2010 2015 2020 2025 22. S1 23.57 23.51 28.92 34.68 S2 23.57 22.65 27.59 32.61 S3 23.64 23.40 28.51 33.16

Given the close similarity in import/export balances, any suggestion that one scenario offers marked benefits over the others in terms of guaranteeing Montenegro’s independency in energy seems somewhat questionable. Question 4 Benefits to local consumers

If large imports of power remain as a key feature of Montenegro’s energy balance sheet and these are set at market rates, consumers will need to pay these costs and these costs will be factored into output prices. However, the same price will have to be paid by consumers if energy is produced with Montenegro, so how does local production bring particular benefits to consumers? 23. Under a free market in energy from 2008, all energy prices will be stabilised in the region at market prices, subject to any conditions imposed by the Montenegro regulation agency (which will operate according to international standards), and subject to any forms of subsidy or assistance to vulnerable groups in society provided by Government (which will again be subject to international rules and scrutiny). Under these circumstances, it would seem that the source of power will be irrelevant to individual consumers, unless they benefit from agreements that are in force before the free market is introduced and are not subject to revision under rules of fair competition. It is, of course, open to individual consumers to generate their own power subject to Government approval, and this is a route which is being pursued by many large companies in Europe who are building their own renewable energy plants (principally wind turbines and solar heating) to meet their own needs. However, as is clearly recognised through the current political debate in Montenegro, it is also possible for questions of national economic security to be raised by the development of energy plant linked to specific industrial processes. This situation has already arisen over the future of the Pljevlja Thermal Power Plant privatisation scheme and the possibility that the power station could be acquired by the same group of commercial interests that now runs the KAP aluminium plant. The same questions will no doubt arise over the sources of finance and the ownership of those companies that will tender in future to develop new hydro, thermal and other plants in accordance with the Strategy. It is however, particularly

24.

25.

26.

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relevant in relation to hydro power which provides high price peak electricity. It is easy to see how the existence of close financial links between HPP operators and industries with heavy energy demands could result in conflicts of interest in terms of maintaining environmental safeguards. 27. Of course, local power generation does have benefits to all sectors of local communities in the affected areas but this is the subject of the next question. Question 5 Local Employment

What level of employment will be provided, specifically in the energy supply industries as a result of building any of the construction scenarios (S1, S2 and S3)?

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Question 6

Employment by Energy Supply Type

What proportion of employment will be provided by each of the energy supply options (hydro, thermal, wind, biomass etc.)? 28. Questions 5 and 6 are interrelated. A clear distinction needs to be made between employment created during the construction phase and later operation and maintenance. The construction of any major power plant generates a large number of temporary jobs, in addition to stimulating other sectors of the economy that are supplying raw materials, goods and services. However, these benefits have a finite life of 3-5 years. Thereafter, the full time levels of employment will be significantly reduced. In order to assess the local economic benefits of all proposed energy generation facilities it will be important to establish both direct and indirect employment at individual plants. This information should form part of a cost/benefit analysis for any major infrastructure project. Question 7 What losses in business activity and employment could result from development of each of the construction scenarios (S1, S2 and S3)? The Green Paper suggests that ‘development of energy facilities will enable better development of local communities around hydropower plants, better protection of the environment and better regional development, because energy facilities are always followed by parallel construction of infrastructure’. 30. The experience of the community of Plužine following damming of the Piva River provides reasons for questioning the accuracy of this statement, but there is no evidence in the Green Paper to support these assertions. In contrast, the National Draft Spatial Plan makes it clear that plans to build the new Podgorica-Belgrade motorway have been designed specifically to avoid the Moraca valley because of the potential conflict with hydro power development. Question 8 Where will the necessary investment come from to build the proposed power facilities? 31. Section 9 of the Green Paper highlights expectations that both foreign and domestic investment will provide the necessary resources to achieve the Strategy’s objectives. It is also anticipated that privatisation of the company EPCG JSC Nikšic will expedite the investment process and thereby enable faster recovery of the system and rehabilitation of the energy sector of the RoM. A range of investment techniques are envisaged including Public-Private Partnerships (PPP), private financiers, Third Party Financing, Independent power producer concessions, access to capital from the financial potential of existing plant , direct state investment and the issue of state bonds (see s9.5). The range of investments required is surprisingly narrow, since the costs for all three scenarios are identical, with the exception that S2 And S3 include additional

29.

32.

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Hydropower schemes (565 million €), increased transmission costs of 8 million €, and a small increase of 8million € for LPG. In all other respects the three Scenarios have the same funding requirements, as shown in table 5 of the Green Paper (reproduced below as Table 11). Table 11: Funding requirements for the three construction scenarios Name Scenario/Mill Euros Electrical Energy Sector S1 S2 S3 Coal Mine Pljevlja 79 79 79 Central Heating in Pljevlja 20 20 20 New TPP Pljevlja 2 135 135 135 Investments in new HPPs 0 565 565 Investment in Renewable Sources Investment in small HPPs 45 45 45 Investment in wind PPs 20 20 20 Investments in waste fired TPP 32 32 32 Rehabilitation of existing power plants Rehabilitation of TPP Pljevlja 1 43 43 43 Rehabilitation of HPP Piva 70 70 70 Rehabilitation of HPP Perucica 49 49 49 Rehabilitation of small HPP 4 4 4 Investment in electrical energy network Investment in transmission network 191 199 199 Investment in distribution network 491 491 491 Gas and Liquid Fuels Sector Liquid Petroleum Gas (LPG) 47 47 52 Investment in existing storage capacities 1 1 1 Storage of mandatory reserves of petroleum 18.3 18.3 18.3 Total Investment 1,245.3 1,818.3 1,823.3 Question 9 The Green Paper puts strong emphasis on attracting international investors. If investment is obtained from international sources what measures will be put in place (which meet international obligations for free trade and transparency) to ensure that an adequate financial return accrues to the Government of the RoM from increased power generation and how will such transactions be made? 33. The information necessary to answer this question has not yet be

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