1 CONTENTS Acknowledgments......................................................................................................................................... 5 Abbreviations ................................................................................................................................................ 6 Definitions of subregions .............................................................................................................................. 6 Executive summary ....................................................................................................................................... 7 Structure of the report.............................................................................................................................. 8 Key messages ............................................................................................................................................ 8 Systemic challenges and opportunities .................................................................................................. 14 Chapter 1 • A regional snapshot of renewable energy .............................................................................. 16 Factors slowing renewables’ development ............................................................................................ 17 Chapter 2 • Renewable energy development: Barriers and opportunities ................................................ 29 Renewable energy framework ................................................................................................................ 30 Project development............................................................................................................................... 37 Contractual and financial issues.............................................................................................................. 47 Governance and social limitations .......................................................................................................... 51 Chapter 3 • Integrating solar and wind energy in regional power systems ............................................... 57 Technical challenges ............................................................................................................................... 57 Policy, market, and regulatory solutions ................................................................................................ 60 Beyond regulatory refinement: New markets and instruments............................................................. 63 References .................................................................................................................................................. 69 Annex 1 • Statistics on market sounding participants ................................................................................ 72 Annex 2 • Regional market sounding summaries and comparisons .......................................................... 73 Türkiye..................................................................................................................................................... 73 Caucasus.................................................................................................................................................. 74 Western Balkans ..................................................................................................................................... 75 Moldova ................................................................................................................................................ 766 EU countries ............................................................................................................................................ 77 Central Asia ............................................................................................................................................. 78 Annex 3 • Country profiles.......................................................................................................................... 79 Albania .................................................................................................................................................... 79 Armenia ................................................................................................................................................... 82 Azerbaijan ............................................................................................................................................... 84 Bosnia and Herzegovina .......................................................................................................................... 86 Bulgaria ................................................................................................................................................... 88 2 Croatia ..................................................................................................................................................... 91 Georgia .................................................................................................................................................... 93 Kazakhstan .............................................................................................................................................. 95 Kosovo ..................................................................................................................................................... 98 Kyrgyz Republic ..................................................................................................................................... 100 Moldova ................................................................................................................................................ 102 Montenegro .......................................................................................................................................... 104 North Macedonia .................................................................................................................................. 106 Poland ................................................................................................................................................... 109 Romania ................................................................................................................................................ 112 Serbia .................................................................................................................................................... 114 Tajikistan ............................................................................................................................................... 117 Türkiye................................................................................................................................................... 119 Turkmenistan ........................................................................................................................................ 121 Uzbekistan............................................................................................................................................. 123 List of boxes Box 1.1 • Role of spot power markets in renewables’ scale-up .................................................................................... 19 Box 1.2 • Energy transition in ECA coal regions .......................................................................................................... 23 Box 1.3 • World Bank RISE Framework ....................................................................................................................... 24 Box 2.1 • Key insights on deployment ambitions across ECA ...................................................................................... 30 Box 2.2 • A summary of investor perceptions ............................................................................................................... 31 Box 2.3 • Perceived barriers to private investment ....................................................................................................... 33 Box 2.4 • Key differences in regulatory frameworks across the region......................................................................... 35 Box 2.5 • RE auctions in Kazakhstan and Uzbekistan ................................................................................................. 36 Box 2.6 • Land-related obstacles to RE deployment .................................................................................................... 37 Box 2.7 • Regionwide delays in getting permits ........................................................................................................... 39 Box 2.8 • Key project risks ........................................................................................................................................... 41 Box 2.9 • Key obstacles to project development across subregions ............................................................................ 44 Box 2.10 • One-stop shops and detailed handbooks for investors ............................................................................... 46 Box 2.11 • Solar park schemes on public land under the SRMI initiative ..................................................................... 46 Box 2.12 • Key financial barriers .................................................................................................................................. 48 Box 2.13 • Financial risks ............................................................................................................................................. 50 Box 2.14 • Governance and social barriers .................................................................................................................. 52 Box 2.15 • Subregional differences in sectoral/social obstacles ................................................................................... 53 List of figures Figure 1.1 • Wind share of generation, 2010–20 .......................................................................................................... 17 Figure B1.1.1 • Overview of power market types ......................................................................................................... 19 Figure B1.2.1• Average age of coal-fired power fleet in ECA countries in 2022 ........................................................... 23 Figure 1.2 • RISE renewable energy scores across World Bank regions, 2010–21 ..................................................... 25 Figure 1.3 • RISE scores by indicator for ECA countries.............................................................................................. 25 Figure 1.4 • Clean energy finance in emerging markets, by type of source, 2022 ....................................................... 27 Figure 1.5 • Operational and development risks, associated mitigants, and the cost of capital ................................... 28 Figure 2.1 • Stakeholder groups ................................................................................................................................... 29 Figure 2.2 • Assessment of government ambition by stakeholder type ........................................................................ 31 Figure 2.3 • Perceived attractiveness of investments into RE projects ........................................................................ 32 3 Figure 2.4 • Barriers and risks for private ownership of RE plants ............................................................................... 34 Figure 2.5 • Barriers and risks for private ownership of RE plants, by subregion ......................................................... 34 Figure 2.6 • Common issues related to land access and use ....................................................................................... 38 Figure 2.7 • Land access and use issues by subregion ............................................................................................... 39 Figure 2.8 • Permitting obstacles ................................................................................................................................. 40 Figure 2.10 • Perceived development and operational risks of RE projects ................................................................. 43 Figure 2.11 • Perceived development and operational risks of RE projects by subregion ........................................... 43 Figure 2.12 • Critical barriers to grid access and connection ....................................................................................... 44 Figure 2.13 • Financing risks of RE projects ................................................................................................................ 49 Figure 2.14 • Financing risks of RE projects by subregion ........................................................................................... 49 Figure 2.15 • Mechanisms to mitigate financial risks .................................................................................................... 51 Figure 2.16 • Common governance and social limitations to RE uptake ...................................................................... 53 Figure 3.1 • Share of variable renewable energy in annual generation, select ECA countries ..................................... 58 Figure 3.2 • Projected share of variables in power generation under a net zero scenario, by subregion, percentage . 59 Figure 3.3 • Phases of VRE integration ........................................................................................................................ 60 Figure 3.4 • Sources of flexibility along the phases of VRE integration, including relevant regulatory and market conditions ..................................................................................................................................................................... 61 Figure 3.5 • Measures supporting the scale up of RE along the value chain ............................................................... 63 Figure 3.6 • ETS free allowance phaseout and CBAM phase-in ..................................................................................67 List of tables Table ES.1 • Summary of key legal and regulatory issues .............................................................................................9 Table ES.2 • Summary of key issues in project development ...................................................................................... 10 Table ES.3 • Summary of key contractual and financial issues .................................................................................... 12 Table ES.4 • Summary of key social and governance issues ...................................................................................... 13 Table 1.1 • Day-ahead, intraday, and futures markets of power exchanges, by country .............................................. 21 Table 2.1 • ECA subregions ......................................................................................................................................... 29 Table 2.2 • Contractual and financial aspects—summary of key issues ...................................................................... 55 Table 2.3 • Social issues—summary of key issues ...................................................................................................... 56 Table 3.1 • A snapshot of AIB member countries ......................................................................................................... 64 4 ACKNOWLEDGMENTS The World Bank ECA Energy Futures team worked under the leadership of Charles Joseph Cormier, Stephanie Gil, Sudeshna Ghosh Banerjee, and Ani Balabanyan. The World Bank core team included Task Team Leaders Szilvia Doczi and Zuzana Dobrotkova and co-authors Adam Brown, Astha Gupta, Jiyun Park, Nicholas David Elms, Peter Fraser, and Peter Toth. Unless otherwise noted, the market sounding results reported here are the results of an original analysis designed by the authors and implemented by consulting firm DNV GL; the historical data are drawn from the International Energy Agency’s Energy Balances and from a World Bank dataset. They are current as of June 2024. The report benefited from comments received from World Bank peer reviewers Claire Nicolas, Annabelle Libeau, Patrick Avato, and Daniel Kockisch; and from inputs and comments received from the following World Bank energy specialists: Silvia Martinez Romero, Manuel Berlengiero, Stephan Claude Frederic Garnier, Joern Huenteler, Katharina Gassner, Rhedon Begolli, Elena Merle-Beral, Luiz Simoes, Alan David Lee, Özgür Sarhan, Claudio Protano, Maksudjon Safarov, Irina Voitekhovitch, Almudena Mateos Merino, Chris Trimble, Yun Wu, Tamara Babayan, Mariano Gonzalez Serrano, Piotr Charewicz, Luiz Gabriel Sucrmont Rodrigues Simoes, Hazuki Terada, Celia Rui, Armin Mayer and Zarina Nurmukhambetova. The team thanks Demetrios Papathanasiou, Chandrasekar Govindarajalu, and Gabriela Elizondo Azuela for their managerial guidance and invaluable support. Steven B. Kennedy edited the report. Photo credits: Mariana Proença and Bruno Figueiredo on Unsplash Front cover: Adil Bekishev All images remain the sole property of their source and may not be used for any purpose without written permission. The report was supported by the Energy Sector Management Assistance Program (ESMAP). The Energy Sector Management Assistance Program (ESMAP) is a partnership between the World Bank and over 20 partners to help low- and middle-income countries reduce poverty and boost growth through sustainable energy solutions. ESMAP’s analytical and advisory services are fully integrated within the World Bank’s country financing and policy dialogue in the energy sector. Through the World Bank, ESMAP works to accelerate the energy transition required to achieve Sustainable Development Goal 7 (SDG7) to ensure access to affordable, reliable, sustainable, and modern energy for all. It helps to shape WB strategies and programs to achieve the WB Climate Change Action Plan targets. 5 ABBREVIATIONS AIB Association of Issuing Bodies BESS battery energy storage system CBAM Carbon Border Adjustment Mechanism CCS carbon capture and storage CfD contract for difference ECA Europe and Central Asia EU European Union EU4 European Union 4 (ECA subregion) IFI international financial institution PV photovoltaic RE renewable energy RISE Regulatory Indicators for Sustainable Energy VRE variable renewable energy WB6 Western Balkans 6 (ECA subregion) DEFINITIONS OF SUBREGIONS ECA subregions and countries covered in this report: Subregion Country or countries Central Asia Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, Uzbekistan Caucasus Armenia, Azerbaijan, Georgia EU4 Bulgaria, Croatia, Poland, Romania Türkiye Türkiye Moldova Moldova Western Balkans (WB6) Albania, Bosnia and Herzegovina, Kosovo, North Macedonia, Montenegro, Serbia 6 Executive summary Although not on track to meet climate targets, renewables for electricity production are rising globally, having reached nearly 30 percent of total electricity generation in 2022. The global share of solar and wind was 12 percent in 2022 (IEA 2024). Renewables can also contribute to sustainable energy supply for heating buildings and industry and for transport, although progress in these fields has so far been less rapid. Growth in renewables is not uniform worldwide, however. Growth has in fact been slower on average in the twenty-three countries of Europe and Central Asia (ECA), despite the region’s solar and wind leap- froggers, including Croatia, Poland (16 percent of annual generation in 2022), and Türkiye (15 percent). In 2020 coal still provided 40% of all power generation in ECA, and, while coal dependence has declined in the four EU member states—Bulgaria, Croatia, Poland, and Romania, coal dependence increased in some other ECA countries (in Bosnia Herzegovina, Tajikistan, Kyrgyz Republic, and Türkiye) between 2010 and2020. By 2030 renewable electricity needs to grow by a factor of 5 if Europe and Central Asia (ECA) is to follow a least-cost decarbonization pathway (World Bank 2024a). At COP 28 in November 2023, 18 of the 23 ECA countries committed to the Global Renewables and Energy Efficiency Pledge (COP 28 2023): To work together to triple the world’s installed renewable energy generation capacity to at least 11,000 GW by 2030, taking into consideration different starting points and national circumstances. Renewable energy–based electricity—including solar, wind, hydro, geothermal, and biomass—are mature, least-cost technologies in the decarbonization pathways, providing no-regret solutions to policy makers in the short to medium terms. Non-hydro renewables make up a mix of energy sources that rose more than seven-fold in a decade, increasing the percentage of generation over the last ten years. In addition to the European Union member countries, Croatia and Montenegro lead the region with shares of non-hydro renewables each hovering around twenty percent; bioenergy (biomass cofired with coal) makes up a small share of RE in Poland and Türkiye’s use of geothermal (a resource produced there almost exclusively) accounts for a small percentage of its generation. Solar and wind are new entrants in the low-cost renewables sphere, as the costs of generation from solar PV and wind have tumbled over the past ten years. Low-carbon electricity and electrification are least-cost drivers for the energy transition in ECA. Other leading drivers are energy efficiency, bioenergy, carbon removals, and hydrogen in subsectors that cannot be electrified (World Bank 2024a). In the ECA Net Zero 2060 scenario that underpins this report, the share of electricity in the energy mix almost triples by 2060 (from 16 percent in 2019 to 47 percent) as heating/cooling, transport, and certain industrial processes move toward electrification. By 2060 investments in ECA’s power sector will reach USD 953 billion. The findings of this report informed several World Bank operations in ECA including the Europe and Central Asia Renewable Energy Scale-up (World Bank ECARES 2024) multiphase programmatic approach (MPA) to enhance energy security and affordability. The program was launched in March 2024 with an initial World Bank lending envelope of US$2 bn, that will aim to mobilize and enable up to US$6 billion of private investment in clean energy. The report informed all of the three pillars of the program 7 including enabling policies and institutional frameworks, investments to develop flexible electricity networks, and financing and risk mitigation instruments for clean energy investments in ECA. This summary of key RE barriers and high-level mitigating measures reflects the opinions of private stakeholders (market players like developers and financiers) and public sector stakeholders (regulators and relevant ministries, for example). The exercise concentrated on barriers to RE development from different perspectives (technical, policy, legal, governance, economic, financial, regulatory, and market) with analysis that focused on the positioning of large-scale RE projects of all types. STRUCTURE OF THE REPORT This report begins by exploring why growth in renewables has been slower in ECA countries. It examines the legacy of energy-intensive economies in Europe and Central Asia and the extent to which aging infrastructure influences energy policies. It identifies political and economic issues that constrain progress toward sustainable (low carbon) energy systems; considers the extent to which the countries’ policies are conducive to renewable energy deployment (including the regulatory framework), renewable procurement mechanisms, and the state of national power markets and their integration into regional markets (chapter 1). Scarce state resources mean that the extensive deployment of renewable energy technologies can be achieved only when private capital is mobilized at scale to complement public sector investment. Results from a market sounding of ECA’s private and public stakeholders reflect the views of 70 stakeholders. The market sounding is not a 360-degree view on barriers to RE development (actual or perceived) along with mitigation measures (chapter 2).1 Having looked at where ECA countries are today (and why they are there), the report pivots to the future. It first shows the scale of the decarbonization challenge for the power sector, and then it describes complementary and systemic approaches—technical, policy, market, and regulatory—to obtain deeper RE penetration (chapter 3). KEY MESSAGES Most of the perceived barriers and risks to expansion of RE in ECA can be grouped into four major challenges: • First and foremost, investors in RE perceive that they face bankability challenges. Bankability is a precondition for highly capital-intensive projects. The key barriers in this respect are unclear legal and regulatory frameworks in addition to contractual and financial risks, including inadequate contractual clauses and questionable offtaker creditworthiness. • Stakeholders interviewed also stated their view that RE development is hindered by complex, nontransparent, or discriminatory processes and rules that govern a host of issues: land-use restrictions, permitting, or rules and procedures for zoning and grid access. In Türkiye and the Western Balkans, for example, fragmented land ownership is seen as an obstacle for large-scale RE projects in. These issues could be surmounted if processes, rules, and responsibilities were streamlined and responsible staff at public authorities were trained. 1Chapter 2 does not relate the views of the World Bank or the authors. It is designed to be a third-party input into a wider analysis. 8 • Similarly, limited local financing complicates funding for RE projects in many ECA countries and raises investment costs. While these issues usually correlate to the maturity of the local financial sector, there may be opportunities to mitigate them with cofinancing from an international financial institution (IFI) at the outset of the project or capacity building among local financiers. • A perceived opposition by state-owned companies and/or the mining sector (coal) presents another challenge for wider RE development. In Serbia, for example, the largest company in the country owns all of the country’s coal, most of its coal mines, and the large hydropower plants. Moreover, it is perceived to have resisted attempts to reform the energy industry. One strategy involves enabling and incentivizing companies to directly invest in renewable energy in addition to establishing dedicated training programs that would help transfer reskilled workers into roles aligned with the energy transition. In addition, poor access to the grid and insufficient grid capacity are perceived as common challenges for RE project development in most ECA countries. Yet the market-sounding exercise has not revealed the nature of the challenges. These constraints may stem from physical limitations that require investments in grids and flexibility or improvements in grid operations, as well as procedural issues, as highlighted below. With regards to the legal and regulatory framework, stakeholders have highlighted key issues, identified in table ES.1. Table ES.1 • Summary of key perceived legal and regulatory issues Issue Impact Mitigating measures Unstable and/or Legal and regulatory uncertainty Requires review, competition and/or incomplete legal undermines incentives for revision of general or RE-specific laws, framework investments into RE projects regulations, and agreements Disincentives especially for foreign Hybrid arbitration schemes, such as in Unclear and/or Kazakhstan investors, due to fear of discriminatory dispute discriminatory and/or opaque New regulation based on international best resolution mechanisms proceedings practices Restrictions on land Land lease agreements for public land, Fundamental barrier for private ownership by private potentially in combination with allocation of and/or foreign investors and/or foreign parties predeveloped sites Investors state that they still observe gaps, inconsistencies, or ambiguities in the region’s legal and regulatory frameworks for the development and operation of RE projects. Legal and regulatory certainty is a precondition for promoting investments into capital-intensive RE projects with a long lifetime. In Moldova and the Western Balkans, stakeholders regard uncertainty in the legal and regulatory environment as high risk for RE investment. Where necessary, ECA countries should thus strive to complete and/or improve primary and/or secondary legislation, subordinate rules and regulations, methodologies, and template agreements. The lack of clear, fair, and robust mechanisms for dispute resolution are seen as moderate barriers to RE investments, especially in the Western Balkans and Central Asia. Uncertainty generally deters investments, especially foreign investment. To reduce disincentives around investment, Kazakhstan, for one example, permits arbitration in line with international rules and standards, even though a local 9 chamber conducts the arbitration. Uzbekistan has also been successful in attracting private sector investors in renewable energy. In the Caucasus and Central Asia, stakeholders have expressed concerns that private or foreign parties are restricting land ownership. Both issues—dispute resolution and restrictions on land ownership— inhibit market entry and competition and are likely to affect foreign direct investments. In turn, these could increase costs of capital and delay RE scale-up. As an alternative to easing land-ownership restrictions, some Central Asian countries rely on land-lease agreements for public land. In some cases, this approach is combined with site-specific allocations of RE projects selected and developed beforehand by public institutions. In addition, stakeholders stressed their preference for a competitive allocation of large-scale projects, that is, auctions. This inclination supports a move away from project allocation by noncompetitive bidding. In a four-year period, Kazakhstan held 54 RE auctions and other countries— the Kyrgyz Republic, Moldova, and Tajikistan, to name only a few—have also implemented them. In this context, stakeholders further noted the need for stringent prequalification criteria to limit “non-serious” bids (that is, bids that are unreasonably low). Table ES.2 • Summary of key perceived issues in project development Issue Impact Mitigating measures Streamlining of land-purpose rules Significant barrier for Land-use restrictions Allocation of public land market entry Dual-use case Lengthy and nontransparent Streamlining and clarification of rules, processes Significant barrier for and responsibilities processes and responsibilities market entry, for zoning, land purpose, Capacity building (authorities) increasing costs and permitting and spatial Development of standard templates and delays planning handbooks Capacity building for network operators and Significant barrier for regular system level studies Grid access market entry Deadlines and collateral for grid access reservations Critical risk—that is, a potential deal-breaker Well-designed rules to limit and/or compensate Curtailment for the economics of RE curtailment projects Risk transfer to (public) offtaker a Imbalance risks Critical risk Limit imbalance charges Promote intraday markets Increasing costs and/or Locally available skilled delays of RE project Training programs (re-/upskilling) workers (private sector) development a. Imbalance risk is also referred to as scheduling risk or forecasting error risk. It highlights the financial and operational uncertainty faced by power producers or grid operators due to discrepancies between forecasted and actual energy supply or demand. Such differences are often driven by variability in renewables, grid instability, or financial and regulatory risks. 10 In project development (table ES.2), land-use restrictions can impede development of RE projects and market entry for new investors. Many stakeholders have therefore advocated that land-purpose rules be streamlined and relaxed. Other solutions include the allocation of public land, repurposing existing generation, industrial and/or mining sites, or permitting dual-use cases, such as agrivoltaics. The Sustainable Renewables Risk Mitigation Initiative (SRMI) proposes competitive bidding for solar park projects on public land. For this initiative, the government selects and prepares the site, then builds the necessary infrastructure. Once the government has done its bit, competitive bidding starts. The bid winner is responsible for financing, constructing, and operating the scheme. Lengthy and nontransparent processes or responsibilities for zoning, land purpose, permitting, and spatial planning represent critical obstacles to RE development. As with land-use restrictions, they not only create barriers for new entrants but also lead to higher costs and more delays in project development. Proposed mitigation measures include streamlining and clarifying rules, processes, and responsibilities. Another innovation is a one-stop shop, an administrative approach that consolidates all necessary processes in a single, dedicated agency. Additionally, stakeholders are encouraging capacity building for responsible authorities, including at local and regional levels, in addition to using templates to produce guidelines and handbooks for authorities and investors alike to use. Limited access to grids was identified as a major barrier to RE development throughout the Europe and Central Asia, as it inhibits market entry. In addition to asking for grid reinforcements, stakeholders called for capacity building among network operators in addition to regular, system-level studies to address risk aversion and nontransparency. Speculative connection requests could be addressed with strict deadlines and collateral to reserve grid capacity. Curtailment represents a critical economic risk and therefore becomes a deal-breaker for RE projects because it can bleed revenues. In line with international practice, stakeholders called for suitable rules and mechanisms to limit curtailment of RE and to compensate them in case of loss. Similar observations apply to so-called imbalance risks—also referred to as scheduling risks or forecasting error risks—which also represent critical risks to projects and can be deal-breakers for RE. In more advanced electricity markets, these risks may be mitigated by implementation of functioning intraday markets. Throughout ECA, however, suitable mechanisms are required for even partial transfers of imbalance risks to (public) offtakers or at least limiting imbalance charges to be paid to the transmission system operator (TSO). Many of those interviewed in ECA countries reported a lack of local skilled workers. These labor shortages might increase costs or produce delays for RE project development. To address this challenge, it has been proposed to train (upskill) technical workers or to transfer and reskill workers for other industries and sectors. 11 Table ES.3 • Summary of key perceived contractual and financial issues Issue Impact Mitigating measures Sovereign guarantee Designation of asset-rich company (that is, TSO) Offtaker Critical issue (a potential deal- as offtaker creditworthiness breaker) Concessional financing from international financial institutions A power purchase agreement in local currency Currency and Major risk for economic viability and with partial or full indexation of domestic lending inflation risks bankability to transfer inflation risk to offtaker and/or end- user Complicates financing Capacity building for local financial institutions Availability of local financing Limited barrier provided that Co-financing from international financing international financing is available institutions Critical risk (a potential deal- Termination clauses Change of law breaker) Dispute resolution Stakeholders have identified several essential contractual and financial issues (table ES.3). Offtaker creditworthiness is an essential precondition for bankable RE projects. Although creditworthiness is not an issue in EU countries or Türkiye, public offtakers in several ECA countries are less affluent. Many countries are therefore providing sovereign guarantees or designating asset-rich companies as offtakers, conceding the burden posed by RE projects on public finances or on the balance sheets of public offtakers. Those interviewed also mentioned IFIs and the option of concessional financing. Currency and inflation risks pose dangers to investments in capital-intensive RE projects, especially where initial outlays are denominated in other currencies. The key mitigation measure proposed by interviewees (and applied in various countries) is a partial index of future payments under long-term contracts (power purchase agreements) for RE projects. A number of ECA countries have insufficient local financing, a common issue for RE projects. While this lack complicates financing, it does not necessarily bar development as long as international financing is available. Many countries improve their situation with capacity building among local financiers regarding the specific needs and characteristics of RE projects. Stakeholders also note the benefits of cofinancing by IFIs. Changes in the law present critical risks for investors and can become showstoppers when serious uncertainty arises. This issue is not confined to investments into RE. Nevertheless, investors may still find comfort through the inclusion of termination clauses and dispute resolution mechanisms. 12 Table ES.4 • Summary of key perceived social and governance issues Issue Impact Mitigating measures May trigger public opposition and/or Dedicated training for staff at public Perceived increase of authorities reluctance at public authorities electricity price/costs responsible for permitting and so on Transparency & public outreach May create serious barriers, especially Transparency & public outreach Opposition from state- in countries with substantial share of owned incumbents and/or Incentivize incumbent utilities to state-owned utilities and/or mining (coal) mining sector invest into RE projects companies lack of transparency and Much wider issue, cannot be Serious issue, but not limited to RE accountability addressed by RE framework alone Concerning political and social issues (table ES.4), stakeholders highlighted substantial challenges. Many interviewees expressed concerns that the costs of RE support schemes are at least perceived as leading to higher electricity prices for consumers. This issue was especially prevalent in in countries where electricity prices are subsidized, such as in the Western Balkans, the Caucasus or Central Asia. Such negative perceptions may undermine efforts to facilitate permitting procedures and so forth and/or lead to wider public opposition. As key mitigating measures, dedicated training for public staff and public communication campaigns on the economic benefits of RE projects were mentioned. In many ECA countries, perceived opposition from state-owned incumbents and/or (coal) mining sector was mentioned as a key challenge for wider RE development. Such opposition may represent a serious barrier, particularly in countries where these companies provide significant employment, such as in Poland, the Western Balkans or Central Asia. Besides transparency and public outreach campaigns, one of the most promising measures to resolve such obstacles could be the possibility and incentives for such companies to invest into RE projects themselves. Some stakeholders in Türkiye, the Western Balkans and Central Asia mentioned lack of accountability and transparency of decision-makers as an important issue that may discourage especially international investors. However, it as was also acknowledged that this is a wider political and economic issue, which can hardly be addressed and resolved by the RE framework alone. 13 Outlook on systemic challenges and opportunities The integration of a large share of solar and wind energy into traditional power systems is seen as one of the top five governance challenges by stakeholders. Integrating a significant share of solar and wind energy into power systems requires fundamental technical changes to electricity systems as well as major adjustments to policies, markets, and regulatory frameworks, with a foresight towards a longer- term outlook. In terms of the technical challenges, global leaders of solar and wind development—the United Kingdom, Germany, Spain, Portugal, and Denmark—have been dynamically addressing many of the system level issues ECA countries are expected to face in the coming years, and their experiences can offer solutions for the region. For example, United Kingdom and Germany have faced significant electricity network adequacy challenges as they scaled up renewable energy, primarily due to the geographic distribution of resources and the mismatch between generation and demand centers, a challenge relevant to most ECA countries. For instance, a large-scale power outage in the UK on August 9, 2019, was partly attributed to a lack of resilience of the networks to sudden changes and caused by simultaneous failures at an offshore wind farm, leading to disruption for over a million customers. Solutions included dynamic changes in network codes and in system operation practices. (Ofgem 2019). In Germany, renewable generation is concentrated in the northern regions, primarily from wind power, while the highest demand is in the industrial south. Transmission capacity limitations have hindered the efficient transfer of renewable energy, leading to redispatch measures to balance the grid staring from 2017, reaching total annual costs of €1.4bn in 2020, until solutions (including new transmission lines, digitalization, new capacity allocation methods) were implemented (Bundesnetzagentur 2021). Chapter 3 takes a wholistic look at lessons learnt from global leaders through the adoption of the IEA phase assessment framework to 20 ECA countries (Figure 3.3. and 3.4). The presented framework can be a tool for ECA policymakers to support the design of policies as part of an energy transition reform program, country by country. In this framework the share of solar and wind power in ECA countries’ power generation mix is a key indicator of the technical challenges the power system may encounter (IEA 2024a), but it is important to assess the whole power system and wider macroeconomic context. For example, as the share of solar and wind have just surpassed 15 percent in Poland, the technical challenges have become particularly pronounced. In this regional RE leader, high share of solar and wind is paired with a lower share of flexible hydro and gas generation, limited power trade, and relatively low cross-border transmission capacities. As a result, Poland faces critical technical RE integration challenges more acutely than other ECA countries with similar solar and wind shares, such as Croatia, Romania, and Türkiye. Most of the remaining ECA countries will face similar new technical challenges within the next decade as their share of solar and wind is expected to rise to more than 15-20 percent of annual generation. In the World Bank’s Net Zero 2060 pathway for ECA, the fastest gains in variable renewable energy (VRE) penetration are first seen in the EU countries (the subregions containing Poland, and Bulgaria, Croatia, and Romania) and in the Western Balkans. In the period 2030–35, similar gains are expected in the Caucasus, Central Asia, and Türkiye, as they scale beyond 15–20 percent of annual generation. Countries in ECA have been implementing systemic electricity market and regulatory reforms for several decades. Much remains to be done in every one of the 20 countries covered. The processes of unbundling electricity utilities and market opening (liberalization) are the most advanced in the four EU countries (Bulgaria, Croatia, Poland, and Romania). But even here, private sector players point out the perceived barriers and inefficiencies of state-owned entities and market distortions (including fossil fuel 14 subsidies) spanning the entire value chain, from fuel extraction and mining to generation, transmission, and distribution, through to industrial, commercial, and transport end users. The four EU countries also show that after the adoption of the EU framework, market reforms may continue for decades, for example, to improve liquidity and ensure the power exchange is fit for purpose. Renewables’ scale-up will require a fundamental technical change of the electricity sector (section 3.1), as well as dynamic adjustments of the policy, market, and regulatory frameworks in Europe and Central Asia (ECA) (World Bank 2024a, section 3.2). The technical change has already taken hold in those countries with the greatest shares of solar and wind globally, and their examples provide solutions for ECA countries. Systemic reforms also began in Central Asia, while more efficiencies are expected thanks to utility reform including unbundling, and as tariff reforms are completed. In Central Asia, most of the countries have yet to reduce fossil fuel subsidies, introduce independent electricity and gas regulatory bodies, while the rest of the ECA offers good examples of how regulators play an essential role in the scale-up of renewables (section 3.3). Despite the challenges, the energy transition is an opportunity to reposition and strengthen ongoing strategic reforms that address systemic issues underlying barriers presented in this report. These strategic and systemic reforms can drive the countries towards accessing renewables at lower-cost providing a no-regret opportunity with a significant potential upside, unlocking major benefits for each country. (World Bank 2024a) 15 Chapter 1 • A regional snapshot of renewable energy The energy transition relies on the implementation of pervasive changes throughout the energy sector. Energy efficiency measures will lessen demand, modal shifts will increase consumption for home heating and transportation, carbon removal technologies (including carbon capture and storage, CCS) will reduce emissions from carbon-intensive industries and generation from fossil fuels such as gas and coal from reaching the atmosphere, and low-carbon energy sources will be deployed. The energy transition relies heavily on the widespread deployment of renewable energy technologies. As well as helping reduce energy-related emissions of greenhouse gases, such technologies can improve energy security and bring a host of other economic and social benefits. Gas consumption may already have peaked (or is about to peak) in Europe and Central Asia (ECA), but gas will continue to be essential in the region for at least another two decades (according to analysis conducted under Net Zero Energy by 2060). The Net Zero 2060 scenario shows natural gas can fall to 16 percent in 2060 from the 2019 figure of over 40 percent of the primary energy supply. It is used with CCS for balancing purposes in power and as fuel and feedstock in industry through 2060 and beyond, even amid a transition to net zero emissions.2 Globally significant gains are seen for renewables in electricity production, reaching 29.9 percent of total electricity generation in 2022, up from 21.3 percent in 2012 (REN21 2023). The costs of generation from solar PV and wind plummeted over the past ten years, in many cases making electricity from these technologies below the cost of generation from gas and coal. Despite some progress, so far renewables have not been growing rapidly in ECA countries.3 This report looks at the current status of renewable power generation in the region, reviews policies that were imposed, identifies the principal barriers that are constraining progress, and recommends policy measures that could help speed up renewable generation deployment. Electricity generation in the region is still dominated by fossil fuels—especially coal and gas. The overall percentage of generation provided by renewables has risen from 20 to over 30% between 2010 and 2020, with non-hydro renewables rising from 0.1% to 10.5%. Coal provided 40 percent of all generation in 2020, despite intentions to phase it out of the generation mix, while gas was close to 27 percent. Hydro generation (around 20 percent) continues to be an important contribution to electricity generation although its contribution is being constrained by periodic water shortages. The role of other renewable sources (wind, solar PV, bioenergy, and geothermal) has been growing rapidly, with generation rising more than seven-fold between 2010 and 2020. In 2020 these renewables provided over 10 percent of total generation across the ECA region (2.4 percent in 2010). Generation is 2Sensitivity tests ruling out entire technologies (carbon capture and storage, carbon removal technologies such as direct air capture, green hydrogen, and biofuels) suggest that a Net Zero 2060 energy system in Europe and Central Asia is not feasible without carbon removal technologies. In the absence of such technologies, the power sector’s growth must be extremely ambitious (at historically unseen rates) or reliance on unsustainable levels of bioenergy (biomass and biofuels) must be unsustainably higher. 3World Bank client countries in the region covered in this report are Albania, Armenia, Azerbaijan, Bosnia and Herzegovina, Bulgaria, Croatia, Georgia, Kazakhstan, Kosovo, Kyrgyz Republic, Moldova, Montenegro, North Macedonia, Poland, Romania, Serbia, Tajikistan, Türkiye, Turkmenistan, and Uzbekistan. 16 concentrated in seven countries with more than 1 TWh in 2020—Türkiye and four EU countries, plus Kazakhstan and Serbia. Wind power is the leading source of non-hydro renewable generation across the region, producing nearly 6 percent of total generation in 2020, concentrated in Türkiye and the four EU countries (figure 1.1). In 2020 Montenegro had the largest share of wind in its generation mix—nearly 18 percent—followed by Croatia (13 percent). Figure 1.1 • Wind share of generation, 2010–20 20 % of wind in total generation, 2020 15 10 5 0 Source: IEA 2023. Solar PV generation has grown rapidly—and especially between 2015 and 2020 (by a factor of 5), since PV development started in Türkiye. It now provides around 2 percent of all generation across the region. Despite the very high solar potential in many ECA countries, developments up until 2020 were concentrated in Türkiye, Poland, Romania, Kazakhstan, and Bulgaria. Generation from bioenergy is concentrated in Poland, the other EU countries and Türkiye, and to a lesser extent in other countries where biomass is either cofired or used in cogeneration plants to produce electricity and heat for industry and for district heating schemes. Electricity from geothermal energy is produced almost exclusively in Türkiye, which has excellent resources, producing 3 percent of total generation in 2020. Croatia has been developing geothermal since 2018; by 2020 it accounted for 1 percent of total generation. It is clear from this analysis that the four EU countries under study (Bulgaria, Croatia, Poland, and Romania), along with Türkiye and Montenegro, have made the most progress in developing their non- hydro renewable resources. The following section looks at the policies in place in countries making progress. In addition, it compares these policies with international best practice and highlights any policy gaps elsewhere. FACTORS SLOWING RENEWABLES’ DEVELOPMENT The ECA countries considered in this study differ in size and energy resources, and in many other ways. However, nearly all have a highly coordinated industry system, and benefit from an integrated regional energy infrastructure system (IEA 2015). Most also inherited aging energy infrastructure along with energy-intensive industry and building stocks. 17 This section explores the extent to which this legacy still influences decisions about energy policy within the countries. It identifies a number of political and economic issues that constrain progress toward sustainable energy systems within the region. These issues include: • Regional integration and power market challenges • The important social and economic role of coal • The state of renewable energy policy • The dominant role of large power utilities • Barriers to financing. Each of these factors is considered further below. Regional integration and power market challenges A key element in facilitating the integration of electricity markets is the degree of interconnection. Increased interconnections can enhance the efficient operation of power systems, increase system security and reliability, and better integrate a growing share of variable renewable generation resources, namely wind and solar PV. However, physical interconnection alone is insufficient to reap the benefits of integrated power markets—operational and commercial frameworks must be put in place to allow electricity to be traded over the interconnections. Although there is significant trade in energy (and especially electricity) in the region, countries have also given priority to developing their own resources to ensure energy security. For example, the Central Asian Power Grid linked the electricity systems of the five republics Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan, and initially used barter and agreements to facilitate the sharing of hydro resources for power generation and irrigation (IEA 2015). Moving this to a more commercial footing proved difficult amid systematic underpayment for electricity, which led participants to focus on national electricity systems in order to ensure energy security. Energy security concerns, however, continue to spur talks on regional integration. Of the 20 countries under study, those toward the west are strongly linked to the European Union (EU). They are either EU members or aspiring members that belong to the European Energy Community. Armenia, Belarus, Kazakhstan and the Kyrgyz Republic are members of the Eurasian Economic Union. The countries that have become members (Bulgaria, Croatia, Poland, and Romania) are legally obliged to take on commitments in line with EU market liberalization, decarbonization, and renewables ambitions, even though they have managed to negotiate unambitious targets and seem to do the minimum to comply (Gallop and others 2021). The countries with ambitions to join the EU in the short or long term are signatories to the Energy Community Treaty. This involves Albania, Bosnia and Herzegovina, Georgia (joined 2017), Kosovo, North Macedonia, Moldova (joined 2010), Montenegro, Serbia, and Ukraine (joined 2011). Bulgaria, Romania, and Croatia were contracting parties4 until becoming full members of the EU. Armenia and Türkiye take part as observers. The contracting parties have made legally binding commitments to implement the EU initiatives on energy, environment, competition and renewables, based on proposals by the 4Contracting parties are those that have ratified to the Energy Community Treaty, while signatories refer to the countries that have signed the treaty but may not complete the ratification process. 18 Commission. The scope of the treaty has been extended on several occasions to incorporate new directives and regulations, currently covering electricity, gas, oil, infrastructure, renewable energy, energy efficiency, competition and state aid, the environment, statistics, the climate, and cybersecurity. The countries are developing and adopting plans for integrating their national energy and climate policies. They are also working on incorporating into their national legislation the EU Clean Energy Package, the EU Green Deal, and the REPowerEU initiative. In 2020, the leaders of the Western Balkans partnership committed to align with the EU climate law and help the continent achieve carbon neutrality by 2050. The next step is to introduce emissions trading systems and carbon pricing in order to trade energy and other commodities with the EU to avoid the provisions of the Carbon Border Adjustment Mechanism. The role of functioning internal power markets is crucial for remuneration of renewable projects (box 1.1) and for regional integration. While the EU countries—namely Bulgaria, Croatia, Poland, and Romania—are well integrated into the EU market, countries in Central Asia and Caucasus have not yet developed internal power markets. The most interesting developments are currently under way in the Western Balkans and are described below. Box 1.1 • Role of spot power markets in renewables’ scale-up Traditional power trading is based on baseload and peak load products. Because renewable energy, in particular that derived from solar PV and wind, is weather-dependent and therefore variable, it is difficult to ascertain production for a certain period. In other words, variable renewable energy (VRE) does not behave as a baseload or peak load product. Day-ahead and intraday markets are based on hourly products, which enables renewable energy producers to sell their production on these markets. Figure B1.1.1 • Overview of power market types Each market type serves the uptake of renewables in different ways: • Long-term financial markets support VRE producers seeking to hedge long-term price risk and ensure sufficient revenues to cover their costs and investments. Usually, it is possible to hedge up to three years in advance. This important instrument for project developers makes VRE projects bankable by securing a long- term offtake that is transparent. • The day-ahead market assures that the power demanded is produced at the lowest possible cost with due consideration to the interconnector transmission capacities between bidding zones. This market is based on hourly products, allowing flexibility for VRE producers. • The intraday market is also important for VRE producers, allowing them to optimize their schedules (reducing risks of imbalance or forecasting errors) just before the physical delivery of power. Price formation on the EU day-ahead spot power market is based on marginal cost, and the demand is met by the least expensive power plants first, progressing to more expensive plants until all demand is met. The last 19 plant activated sets the price. All producers are paid the same number of euros per megawatt-hour for the same product (market-clearing price). The lowest marginal production cost plants are usually renewables, while the most costly are gas and coal plants. In addition, the use of coal and gas generation in Europe needs to be covered by CO2 certificates (EUA), creating a direct connection between electricity pricing and CO2 pricing, as well as prices for coal and gas. Market coupling is a major achievement for European energy regulation. It aggregates domestic power markets and optimizes load in line with the available cross-border capacities, establishing a larger bidding zone for the pricing of traded electricity. Market coupling brings the following benefits, including for renewables: • Increased market efficiency: Market coupling improves market efficiency by integrating fragmented national markets into a single, larger market. By combining multiple market areas and increasing the number of market participants, market coupling facilitates more efficient price formation and optimization of generation and consumption. • Grid optimization and security of supply: Market coupling supports grid optimization by enabling more efficient utilization of available transmission capacity. It facilitates the flow of electricity from regions with surplus generation to regions with higher demand, thereby minimizing transmission bottlenecks and congestion. This contributes to improved grid stability, reduces the need for costly grid upgrades, and enhances overall security of supply. • Integration of renewable energy: Market coupling plays a vital role in the integration of renewable energy sources. By enabling cross-border trading of electricity, market coupling allows regions with abundant renewable energy resources to supply electricity to regions with higher demand or insufficient renewable capacity. Source: Original compilation. As the share of solar and wind increases, access to liquid short-term electricity markets will become increasingly vital for both the commercial viability of RE developers and the system-balancing activity of system operators in the region. Even though the region has many power exchanges, the liquidity of the markets is relatively low, with countries outside the region typically used for reference price setting. Thirteen spot power exchanges already facilitate day-ahead and intraday trading of electricity in the region, improving short-term security (table 1.1). Day-ahead markets manage trade via auctions; they typically offer products that are based on hours of the day. Tradable contracts correspond to the 24 delivery hours of the following day. Intraday power trading can be continuous or auction based; it allows for trading in quarter-hour or one-hour intervals, with the ability to trade up to 30 minutes before delivery. This flexibility in intraday trading intervals allows market participants to manage their power procurement and sale risks, thereby reducing system balancing needs. Ten futures power markets in ECA already help reduce commercial risks through futures and forward contracts. “Cash-settled” contracts make it possible to buy or sell a specific volume of gas or electricity at a predetermined price for settlement on a specific future date. Market participants (including generators, consumers, and retailers) use these markets to hedge against price risks. Trades can be executed on the exchange or over the counter. In the nine countries participating in the European Energy Community—the six Western Balkan countries,5 Georgia, Ukraine, and Moldova—efforts toward regional market integration are accelerating. Coordinated auction offices for capacity allocation and spot power exchanges (such as ALPEX for Albania and SEEPEX for Serbia) have been established. With the adoption of an ambitious legislative package in 5 The Western Balkans are Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia. 20 December 2022, European regional market integration became legally binding: Contracting parties must adopt the EU body of pertinent law permitting full integration of their electricity markets with the rest of Europe. Contracting parties were supposed to have transposed the EU package into national legislation by the end of 2023, but delays were expected. Technical and operational implementation of the package would create a pan-European integrated market, further enhancing electricity security in the region. Table 1.2 summarizes the status of power exchanges in ECA. Table 1.1 • Day-ahead, intraday, and futures markets of power exchanges, by country Electricity markets Country Power exchange Day-ahead Intraday Futures Albania ALPEX ✔ Armenia ✔ ✔ Azerbaijan Bosnia and Herzegovina Bulgaria IBEX ✔ ✔ EEX ✔ Croatia CROPEX ✔ ✔ EEX ✔ Georgia GEMEX Kazakhstan KOREM ✔ ✔ ✔ Kosovo ALPEX Kyrgyz Republic Moldova Montenegro MEPX ✔ North Macedonia MEMO ✔ Poland TGE ✔ ✔ ✔ EPEX Spot ✔ EEX ✔ Romania OPCOM ✔ ✔ ✔ EEX ✔ Serbia SEEPEX ✔ ✔ EEX ✔ Tajikistan Türkiye EPIAS ✔ ✔ ✔ Turkmenistan Ukraine UEEX ✔ ✔ ✔ Uzbekistan Source: Adapted from World Bank 2024a. The year 2023 was historical for power markets in the six countries of the Western Balkans subregion (WB6); as of then, all countries except Bosnia and Herzegovina have an operating power exchange. The Serbian SEEPEX is the frontrunner and attracts the highest liquidity, but the Montenegrin power exchange is also promising thanks to a very good interconnection with Italy. All other exchanges need to 21 attract more liquidity; their integration with neighboring markets could help them to reach the level required. In Central Asia and the South Caucasus, only Armenia and Kazakhstan have power exchanges (while Georgia has an exchange, it is only a registry for bilateral contracts as of 2024). Other countries are dominated by local incumbents and operate under a model in which the incumbent manages all power trading relations. The Central Asia Power System—in which Kazakhstan, the Kyrgyz Republic, and Uzbekistan operate in a synchronized mode—presents an opportunity for broader market integration through market coupling following the establishment of spot power exchanges. Coupling would permit the exploitation of local renewable generation assets at a regional level, providing a new way to manage outages. Historically, the region has seen shortages in the winter. In 2022, the entire Central Asian grid collapsed, leading to blackouts throughout Uzbekistan, Kazakhstan, and the Kyrgyz Republic. In January 2023, a week of near-freezing temperatures led to widespread outages in Uzbekistan. The important social and economic roles of coal Several countries in the region have significant coal and lignite reserves, and energy economies that rely heavily on coal. In Kosovo, 96 percent of power generated in 2020 was from coal; this share was over 60 percent in Bosnia and Herzegovina, Kazakhstan, Poland, and Serbia. There was no significant overall regional reduction in coal use between 2010 and 2020; reductions in Bulgaria, Poland, and Romania were offset by a doubling of coal generation in the Kyrgyz Republic and Türkiye, and significant increases in Bosnia and Herzegovina, Kosovo, and Montenegro. While clearly incompatible with a shift to a zero- emission economy, some countries still have plans to expand their coal-fired capacity. In 2018, five out of the six Western Balkan countries were still planning to build new coal power plants. Now such plans remain only in Serbia and Bosnia and Herzegovina (Gallop and others 2021). Coal and lignite mines in Bulgaria, the Kyrgyz Republic, Romania, Türkiye, and Poland, along with mines in several Balkan countries—notably Bosnia and Herzegovina, Serbia, and Kosovo—employ thousands of people. In the Western Balkans and Ukraine, 138,000 people rely directly on coal mines and thermal power plants for jobs (World Bank 2021). Another 131,500 work in businesses that support the sector. In many cases the mines are inefficient but produce low-price coal because its production is highly subsidized to preserve jobs. Reduction of mining activities can have dramatic impacts on employment, with severe social consequences. For example, in the Jiu Valley in Romania, following a restructuring of the coal sector, three-quarters of people ages 15–65 were without a job (EU 2022). For these reasons, countries with major coal industries are saddled with legacy policies and market distortions that support the coal value chain and complicate the transition away from coal. The result is a conflict with national and international commitments and intentions linked to decarbonization. Few of the coal/lignite-rich countries have coherent plans for the social consequences of the energy transition to help communities start new economic activities. Poland, Romania, and to a lesser extent Bulgaria are starting to address these issues with help from EU funds for this purpose, although implementing effective programs is a challenge. The European Commission and the Energy Community Secretariat along with the World Bank, the European Bank for Reconstruction and Development, the College of Europe, and the National Fund for Environmental Protection and Water Management have launched the Platform Initiative in Support of Coal Regions in Transition for the Western Balkans and Ukraine. This consortium aims to provide countries in the region decades of expertise and the tools and financing necessary to accelerate the 22 transition away from coal (World Bank 2021). The momentum to address the coal transition in the Western Balkans is picking up, with World Bank engagements advancing in Bosnia and Herzegovina, Serbia, and Kosovo. In addition to the countries mentioned above, the World Bank is in a nascent dialogue on the coal transition in Türkiye. The challenges of transitioning way from coal are summarized in box 1.2. Box 1.2 • Energy transition in ECA coal regions Coal production remains high throughout Europe and Central Asia. As of 2020, Russia, Kazakhstan, Poland, and Türkiye were among the top 15 coal producers globally, and with the exception of Kazakhstan, the above- mentioned countries were also among the top 15 consumers. Yet the region faces mounting pressure to transition away from coal. Three factors are at work: (i) the competitiveness of alternative sources of energy; (ii) shareholder pressures to divest from fossil fuel, coal in particular; and (iii) popular demand for clean air and a clean local environment. The pace of the transition away from coal is also influenced by regional policies and incentives, with the EU setting an ambitious agenda for its member states and similar incentives being discussed for accession and neighboring countries. Of the World Bank’s client countries in the region, only Romania has officially committed to phase out coal, with a date set for 2032. With no clear policy commitments for a phaseout in the region, coal power plants have become antiquated. Most have an average age of 35-plus years, with the notable exceptions of Croatia, Tajikistan, and Türkiye. The two options for these old plants are retirement or very high operation and maintenance costs (figures B1.2.1– B1.2.2). Plant retirement and mine closure are complicated, however, by the costs incurred—technology is costly, and so are the social costs of a coal transition. Additionally, time is needed to build up alternative energy sources. Figure B1.1.2• Average age of coal-fired power fleet in ECA countries in 2022 Source: Global Energy Monitor 2022. Power sectors in ECA countries have varying levels of dependence on coal. Kosovo has the largest shares of coal in power production in (95 percent), followed by Poland (72 percent), Bosnia and Herzegovina (70 percent), Serbia (70 percent), and Kazakhstan (68 percent) (IEA 2023). Such large shares mean not only a strong position for utilities that own them but also the inflexibility of power systems (and especially old coal power plants) that 23 pose an obstacle to grid integration of variable renewable energy sources—namely, wind and solar. As result even at low shares of solar and wind, the system may experience renewable energy curtailment. Additional inflexibility occurs through combined heat and power plants, which supply wintertime district heating for the region. In addition to technical arguments explaining the complexities of the coexistence of coal- and renewables-based generation, the phasing out of coal power plants is also being slowed by fear of social challenges. In many ECA countries with local coal mining and power production, the utilities are vertically integrated conglomerates operating both mines and power plants, making them sizeable state-owned companies. In some cases, as in Kosovo, they serve as the largest employer in the country. A coal phasedown will eventually lead to layoffs, affecting not only workers but also their families and communities. A coal phaseout therefore critically requires a viable and timely social plan for coal industry workers and associated communities. Renewable energy policy Lackluster renewable energy deployment across ECA countries arises largely from delays in implementing conducive policies, which also affects their generally mixed showing in the scoring system (box 1.3) used by the World Bank’s Regulatory Indicators for Sustainable Energy (RISE). Box 1.3 • World Bank RISE Framework The World Bank Regulatory Indicators for Sustainable Energy (RISE) framework is intended for use in comparing the policy and regulatory frameworks that countries have put in place to support the achievement of Sustainable Development Goal (SDG) 7 on universal access to clean and modern energy. The RISE indicators are scored on a 0–100 scale that uses a “traffic light” system—green for scores in the top third (67–100), signifying a relatively mature policy environment, albeit with room for improvement; yellow for the middle range (33–67), indicating that the country has begun serious efforts to develop a policy framework but still has room for improvement; and red for the lowest scores (0–33), indicating that policy adoption remains at an early stage. Regulatory and policy indicators for renewable energy fall into seven groups: • Legal framework for renewable energy, • Planning for renewable energy expansion, • Incentives and regulatory support for renewable energy, • Attributes of financial and regulatory incentives, • Network connection and use, • Counterparty risk, • Carbon pricing and monitoring. Details on the indicators can be found at RISE (rise.esmap.org). The RISE score for the ECA region rose from 17 in 2010 to 47 in 2021. But the ECA region is well below the global average, lagging the Middle East and North Africa and Latin America and the Caribbean regions. Figure 1.2 shows the relative progress in the renewables RISE scores across the World Bank regions between 2010 and 2021. 24 Figure 1.2 • RISE renewable energy scores across World Bank regions, 2010–21 Total RISE Renewable Energy Score 100 90 80 Europe and Central Asia RISE Score (0-100) 70 Sub-Saharan Africa 60 50 East Asia and Pacific 40 Latin America and Caribbean 30 Middle East and North Africa 20 10 South Asia 0 Global 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: ESMAP 2022. An analysis of the deployment patterns in the ECA countries shows major differences among the subregions. The region’s EU members, plus Montenegro and Türkiye, are making more progress in renewables deployment beyond the existing hydro generation. Countries in the Energy Community have also made headway in developing their resources. The countries in the Caspian region are yet to take major steps toward stimulating the deployment of renewables. Even in countries making progress, renewable energy development is sporadic, with few signs of steady year-on-year progress. Figure 1.3 shows the scores for each ECA country under study, for each of the main indicators. Figure 1.3 • RISE scores by indicator for ECA countries North Macedonia Kyrgyz Republic Turkmenistan Montenegro Herzegovina Kazakhstan Bosnia and Azerbaijan Uzbekistan Tajikistan Moldova Romania Armenia Bulgaria Georgia Türkiye Albania Croatia Kosovo Poland Serbia Total RISE Renewable Energy Score 51 62 25 54 80 66 28 56 43 34 64 46 44 54 75 57 26 78 10 35 Indicator 1. Legal Framework for 80 80 80 80 100 100 80 60 80 40 60 100 80 100 100 80 40 100 20 100 Renewable Energy Indicator 2. Planning for Renewable 46 67 58 71 79 79 46 33 75 4 67 79 63 71 96 92 25 96 0 38 Energy Expansion Indicator 3. Incentives and Regulatory 53 65 0 54 89 47 15 29 50 21 35 31 23 42 60 70 13 54 0 8 Support for Renewable Energy Indicator 4. Attributes of Financial and 37 80 8 33 25 43 8 37 25 37 100 33 27 0 17 50 0 90 10 0 Regulatory Inceitives Indicator 5. Network Connection and Use 59 30 6 31 88 70 17 64 32 47 60 39 24 23 93 52 29 82 27 26 Indicator 6. Counterparty Risk 35 63 25 58 78 75 31 66 42 40 25 42 42 40 58 53 23 74 17 21 Indicator 7. Carbon Pricing and Monitoring 50 50 0 50 100 50 0 100 0 50 100 0 50 100 100 0 50 50 0 50 Note: RISE data for Belarus, Russia, and Ukraine are not covered in this report. The high marks for Bulgaria, Romania, and Türkiye boost the overall scores for Europe and Central Asia, while Azerbaijan, Georgia, Tajikistan, and Turkmenistan have yet to roll out comprehensive policy portfolios. While most countries now show a high score on legal frameworks for renewables, progress is hampered by poor scores on Indicator 3 (incentives and policy support for renewables) and Indicator 4 (attributes of financial and regulatory incentives, including design of auctions and fixed tariffs for small producers). 25 Many countries have yet to impose measures affecting Indicators 5–7 (network connection and use, counterparty risk, and carbon pricing and monitoring). As shown in figure 1.11, indicators for incentives and policy support for renewables and attributes of financial and regulatory incentives are relatively low for most ECA countries, reflecting the region’s relatively delayed shift from policy support based on feed-in-tariffs and feed-in-premiums for all installations to different forms of competitive procurement for utility-scale installations (tenders or auctions for power purchase agreements, or contracts for difference) as compared with other World Bank regions. Albania, Serbia, and Uzbekistan have organized tenders and auctions. A first solar tender is also under way in Kosovo. See annex 1 for a summary of these procurement processes. These results echo issues raised in the stakeholder survey carried out for this project. Investors felt financial risk and bankability issues continue to affect renewable energy projects along with inadequate network capacity, grid access, and forecasting. Building on these findings, a market sounding could delve more deeply into renewable policies and determine their effectiveness against barriers to scale-up.6 The dominant role of large incumbent power utilities Several countries carry a legacy of centrally governed energy systems operations that were restructured and split in two (or more). One part became the decision-making body: the energy ministry. The other part formed the basis for the commercial operator, initially set up as a nationally owned, vertically integrated energy company. Some utilities are still vertically integrated (for example, in Azerbaijan, Belarus, Tajikistan, and Turkmenistan). Others were subsequently restructured and commercialized and, in some cases, privatized. For example, generation and distribution companies in Armenia, Georgia, Kazakhstan, Kyrgyz Republic, and Moldova were sold to national and international investors while transmission remained in the hands of state-owned commercial operators (IEA 2015). Irrespective of their commercial status, the large power utilities in the region have a major influence on their countries’ energy sectors. They are perceived to be closely linked to government—influencing, and being influenced by, national policy. They tend to be perceived as conservative, keen to protect their influential status and their coal, nuclear, and hydro asset bases and resistant to more sustainable and distributed electricity generation models due to lack of interest (incentives, regulatory requirements), lack of resources (including funds) or lack of know-how, despite international experience showing how others have dealt with similar challenges (discussed in Chapter 3). For example, Bulgarian Energy Holding owns Bulgaria’s nuclear power plant, the Maritza Iztok 2 coal plant, the Maritza mines, and Bulgaria’s large hydropower plants, as well as its gas supplier and electricity and gas transmission operators. In Serbia, Elektroprivreda Srbije owns all the country’s coal and large hydropower plants, and most of its coal mines. Both these utilities are perceived by stakeholders interviewed for this report, to have resisted attempts to reform the industry and have strong influence when it comes to obtaining permits and environmental approval for projects. In Poland and Romania, the incumbent utilities such as Oltenia Energy Complex are also perceived to be resistant to change. Many regional utilities suffer from aging infrastructure that is often poorly maintained and increasingly unreliable. At the same time, investment is limited as the utilities struggle with deficits due to prices 6 Although the RISE framework identifies policy trends by region and country, it does not judge the effectiveness of policies. 26 (and tariffs) that are in some cases below cost-recovery levels. In some countries, and despite subsidies, there is a high degree of nonpayment among consumers (e.g., state-owned enterprises). Movement toward a more sustainable energy system often starts by bringing in private companies to invest in wind and solar projects. Meanwhile, the large utilities have also become important players, as circumstances required. In Croatia and Montenegro, the development of wind power was started by private companies, but the state-owned utilities also became investors. In Poland and North Macedonia, incumbents and, or the state-owned utility undertook the country’s first wind projects. Barriers to financing Currently most of the electricity networks in the region—and most of its fossil fuel generation capacity— are state owned. This is true of 100 percent of the region’s transmission system operators and 65 percent of its distribution companies. As for fossil fuel–based generation in 15 of the 23 ECA countries, over 70 percent is state owned, with the average state ownership (in MW) being 80 percent. This implies that most of the assets stranded in the energy transition will be state assets, creating complications for the phase-out and exacerbating financial challenges for state-owned offtakers and generation companies seeking to participate in the energy transition (World Bank 2024b; Global Energy Monitor 2024). The private sector already plays an important role in ECA’s solar and wind sectors, as only 20 percent of solar and 27 percent of wind assets in the region are state owned (Global Energy Monitor 2024). On a global scale, ECA’s share of private clean energy financing was however still relatively low, at less than 50 percent in 2022, lower than in Latin America and India (figure 1.4) (SRMI 2023). Figure 1.4 • Clean energy finance in emerging markets, by type of source, 2022 Source: SRMI 2023 The slow uptake of renewables along with the high cost of capital for solar and wind projects in ECA reflect systemic challenges, policy and regulatory environments, market dynamics, offtaker risks, and the maturity of financial markets (chapter 2). In many developing countries, including several ECA countries, government-owned utilities are under financial stress. The weighted average cost of capital (WACC) is two to three times higher than in mature renewable energy markets, reducing project 27 bankability. Every percentage point drop in the weighted average cost of capital lowers wind and solar PV generation costs by at least 8 percent (IEA 2024a), making wind and solar more competitive. The high cost of capital in ECA makes solar and wind relatively less attractive compared with high- emission alternatives, because (1) clean technologies require greater capital cost investment and (2) new technologies have higher risk premiums. For renewable energy projects in 2020–21, the cost of capital ranged from 1 percent (onshore wind in Germany) to 10 percent (solar PV in Ukraine). Since the recent energy crises, the cost of capital in ECA has gone up; for instance, in Poland, it was around 9–12 percent for solar PV in 2023 (IRE 2023). In mature markets, the cost of capital is lower than in emerging markets. And, overall, financing costs tend to fall as technologies mature. The various project risks (including the barriers discussed in chapter 2) increase the cost of capital, while risk mitigation measures and solutions lead to a lower cost. This equation has meant that solar and wind are relatively more attractive in ECA; thus, their scale-up has been faster than that of other technologies. The cost of capital reflects the risks perceived by independent power producers once mitigants (such as targeted public support or risk mitigation instruments) are accounted for (figure 1.5) (SRMI 2023). The mitigants are covered in chapters 2 and 3. Figure 1.5 • Operational and development risks, associated mitigants, and the cost of capital Source: SRMI 2023. 28 Chapter 2 • Renewable energy development: Barriers and opportunities The World Bank conducted a market sounding exercise that gathered first-hand information regarding renewable energy (RE) policy and markets in twenty countries of Europe and Central Asia (ECA).7 The exercise identified perceived barriers to RE development from several perspectives—technical, policy, legal, governance, economic, financial, regulatory, and market. The analysis focused on the deployment of large-scale RE projects, including solar photovoltaic (PV), onshore and offshore wind, hydropower, geothermal, and bioenergy. But it also analyzed distributed RE (typically PV). The survey results bring greater clarity to perceived barriers in ECA countries, and help ascertain best practices and the most propitious measures for RE uptake. In addition, interviews were conducted with public institutions (for example, regulators and relevant ministries) and private market players (that is, developers and financiers). Note that the sample may not include all possible perspectives, nor have the reported views been validated. A total of 126 people were contacted via structured interviews that produced 70 responses from 53 experts; 17 experts were reached through questionnaires. The stakeholders fall into five categories (Figure 2.1). The heterogeneous group of interviewees was drawn from public and private institutions, ensuring a range of perspectives (annex 1). Furthermore, ECA was subdivided into several subregions (Table 2.1). Figure 2.1 • Stakeholder groups Table 2.1 • ECA subregions Source: Original compilation. The results are presented for four areas: • Overall framework, focusing on RE development relative to government ambitions, investor perceptions, barriers to project ownership, and so on; • RE project development and operational risks and barriers, including land access issues, permitting processes, grid access, and so on; • Contractual and financial issues affecting private sector decisions to invest in RE generation; and • Socio-political aspects that slow RE deployment. Seventy-nine questions were posed to stakeholders. Response distributions of the highest-rated barriers, risks, ambitions, and other issues are presented in a comparable manner across respondents, countries, and regions on a scale of 1 to 5, where 1 indicates very low, 2 low, 3 moderate, 4 high, and 5 7Albania, Armenia, Azerbaijan, Bosnia and Herzegovina, Bulgaria, Croatia, Georgia, Kazakhstan, Kosovo, Kyrgyz Republic, Moldova, Montenegro, North Macedonia, Poland, Romania, Serbia, Tajikistan, Türkiye, Turkmenistan, and Uzbekistan. 29 very high levels of the issue in question. Critical risks, barriers, and issues are defined as deal-breakers having the potential to prevent private investors from entering a given market, region, or country. RENEWABLE ENERGY FRAMEWORK Deployment ambitions In all subregions, 74 percent of public stakeholders perceive very high ambitions for RE deployment, while the ambitions seen by private stakeholders are seen to be lower, mostly moderate to high, with a much smaller share of very high (29 percent) (figure 2.2). Public stakeholders justify their assessment with reference to recently established or proposed RE targets. By way of contrast, private stakeholders consider not only formal targets but also past performance on RE deployment when evaluating ambition levels.8 Box 2.1 • Key insights on deployment ambitions across ECA Public and private stakeholders have differing perceptions regarding the level of governmental ambitions for RE deployment. In many subregions, there is a perception that implementation of RE regulatory frameworks is taking too long. Key insights: • Generally, stakeholders appreciate a high level of government ambition for RE development. Yet private stakeholders are less optimistic than their public counterparts, partly because they regard previous regulatory measures as having fallen short of expectations. • In some countries, delays in establishing necessary bylaws, the absence of binding long-term RE development targets, and lack of a strategic vision for the energy transition are impeding the uptake of RE. • Practical implementation of the legal and regulatory framework for RE deployment is often perceived to be delayed by bureaucratic processes, inefficient coordination, and limited availability and knowledge of local workers at public institutions. 8For example, two private players in Moldova and Bulgaria perceive governmental ambitions as low or even very low based on the perceived lack of an ambitious strategy in Bulgaria and limited RE deployment to date in Moldova. 30 Figure 2.2 • Assessment of government ambition by stakeholder type Source: Based on original research completed for this report. Stakeholder perceptions Stakeholders say private players find a level playing field in many ECA countries, characterized by good RE frameworks and established rules and procedures. Nevertheless, in some countries RE uptake is getting delayed by the overly lengthy rollout of bylaws and the absence not only of binding long-term RE development targets but also of necessary strategy for the energy transition.9 Stakeholders also noted that, in the Western Balkans or Central Asia, constantly changing legislation does not provide the needed certainty for private investments. In general, interviewees in all subregions observed that legal and regulatory frameworks—their detailed rules and processes—take too long to implement. Bureaucracy, coordination inefficiencies, and too few local skilled workers were all cited as issues by technical professionals and administrative staff. Box 2.2 • A summary of investor perceptions Throughout the ECA region, solar PV and onshore wind are seen as attractive investments. The appeal of other RE technologies depends on local conditions and remaining unexploited resources. Key insights: • The appeal of investments in RE projects varies by technology and subregion. Solar PV (utility- scale and distributed) and onshore wind are perceived as attractive by most stakeholders throughout the region. • The variance in views on other RE technologies can often be explained by local resource availability. In addition, factors such as limited grid capacity or shortages of qualified staff were mentioned as barriers to the deployment of certain RE technologies, such as offshore wind, in several countries. 9In Poland, stakeholders have highlighted an ambitious plan for nuclear energy to counter the planned coal phaseout. But the nuclear framework and its deployment targets are not clear, creating uncertainty among stakeholders. This also affects RE deployment. 31 • Battery energy storage systems are seen as desirable in more developed electricity markets, provided a legal and regulatory framework generates enough revenue to justify the investment. Investment in solar PV and onshore wind is seen as attractive throughout the region (box 2.2 and figure 2.3). Many stakeholders see appeal in distributed solar PV (41 percent, the highest share of very high attractiveness ratings across all renewable technologies), because it has fewer implementation hurdles than large-scale RE. But distributed solar PV depends on incentives such as net metering or net billing. Stakeholders have varying views on investments in other RE technologies, views that appear to hinge on natural resource availability. For instance, while some countries retain great potential for hydropower10 and/or offshore wind,11 these resources are limited or inexistent in others. Similarly, natural conditions for bioenergy and geothermal are location-specific, and most countries have only limited economic potential. In practice, stakeholders consider bioenergy attractive in EU countries and Türkiye, whereas geothermal energy is regarded relevant in Türkiye, some EU countries, and the Caucasus. Nevertheless, private stakeholders cite other factors that promote or hinder the deployment of such RE technologies. For instance, Armenia and the Kyrgyz Republic have supported the deployment of small hydropower projects, whereas Albania and Tajikistan have focused on large-scale hydro. In Poland, delayed upgrades or outright absence of infrastructure investments (for example, in the transmission network and ports) are seen as barriers to meeting targets for offshore wind development. Several stakeholders pointed to an initial shortage of qualified personnel as an additional barrier. Investments in battery energy storage systems (BESSs) are considered attractive in the more developed electricity markets in EU countries, Türkiye, and the Western Balkans, but not in the Caucasus subregion, Central Asian countries, or Moldova. Stakeholders highlighted the need for a legal and regulatory framework that allows for the implementation of appropriate business models as a precondition for BESS deployment. Figure 2.3 • Perceived attractiveness of investments into RE projects 10For instance, Georgia still has unexploited river runoff resources, as probably do several Central Asian countries. Several stakeholders from EU countries and the Western Balkans mentioned that developing new or upgrading existing pump storage plants would become interesting alongside with a growing need for power system flexibility. 11 Stakeholders identified good economic offshore wind potential in Azerbaijan, Poland, and Türkiye. 32 Source: Based on original research completed for this report. Perceived barriers to private participation in RE projects Dispute resolution procedures are perceived as a moderate barrier to the private ownership of RE plants in Central Asia and the Western Balkans (figures 2.4 and 2.5). In these subregions, legal systems are not mature enough to deal with contractual disputes, thus offering insufficient comfort to investors/developers. Similarly, stakeholders in North Macedonia and Serbia noted a lack of antitrust rules as a moderate barrier in the Western Balkans. Box 2.3 • Perceived barriers to private investment Concerns about private sector participation arise from mechanisms for dispute resolution and barriers to foreign ownership in three subregions, namely the Caucasus, Central Asia, and the Western Balkans. Key insights: • Lack of clear, fair, and robust mechanisms for dispute resolution are viewed as a moderate barrier to the private ownership of RE plants in Central Asia and the Western Balkans. • Ownership limitations on foreign parties are an issue in the Caucasus and Central Asia, where ownership is typically limited to local companies. • Restrictions on land ownership by private parties is perceived as a moderate barrier in Central Asia. In the Caucasus and Central Asia, land ownership is generally reserved for local companies. A common development approach is for foreign parties to build a joint venture with a local player. International project developers bring technical experience, while local players bring apposite administrative expertise. In Central Asia, restrictions on land ownership by private parties is perceived as a moderate barrier. In this subregion, most land is publicly owned and long-term agreements with public offtakers include land leases. 33 Figure 2.4 • Perceived barriers and risks for private ownership of RE plants Source: Based on original research completed for this report. Figure 2.5 • Perceived barriers and risks for private ownership of RE plants, by subregion Legend: 1=very low, 2=low, 3=moderate, 4=high, 5=very high Source: Based on original research completed for this report. Subregional differences in regulatory frameworks While EU countries benefit from a stable and well-defined regulatory framework and political support for RE deployment, elsewhere in ECA (particularly Central Asia) these frameworks (and the corresponding political support) are still taking shape. Some countries are struggling with policy disputes 34 that affect large-scale RE project implementation. Only the EU countries have legally binding targets in place. Box 2.4 • Key differences in regulatory frameworks across the region Available and sufficient interconnection capacity, and its efficient use, is vital for the integration of RE. It helps to secure supply across ECA. The market sounding exercise identified several subregional differences in regulatory frameworks: • EU countries have a stable regulatory framework, but RE deployment in other countries is hindered by weak legal frameworks and policies that discourage implementation of large- scale RE projects. • Competitive auctions for allocating cost-effective RE capacity for large-scale projects are prevalent in the ECA region. In some countries, however, project allocation is still accomplished on a noncompetitive basis. • Technical challenges to the integration of variable RE into the power system are present across all subregions. ECA allocates RE capacity, cost-effectively, with competitive auctions for large-scale projects. Some ECA countries (for example, Kyrgyz Republic, Moldova, and Tajikistan) are now implementing RE auctions, moving on from projects allocated through noncompetitive bidding. International private developers have touted the value of competitive bidding because of its allocative transparency. They have also called for stringent prequalification criteria to limit “nonserious” bids—that is, unreasonably low prices.12 Some international developers have nevertheless expressed concerns about countries (for example, Türkiye and Uzbekistan) partly returning to allocations on a first-come, first-served basis and bilateral negotiations. These international players see noncompetitive processes as a barrier to RE deployment. Stakeholders acknowledge that efficient use of interconnection capacity fosters the integration of RE. They also see disorganized markets and weak energy exchanges among the Western Balkans’ small countries, and they see regional neighbors thwarting RE integration. Interviewees in Kosovo or Moldova said that neighbors with flexible generation are vital to system stability and supply security. Similarly, stakeholders in the Caucasus and Central Asia consider limited regional exchanges an issue, citing interconnector incapacity and political and regulatory obstacles (for example, deficient trade rules). Stakeholders across ECA’s subregions have highlighted the technical challenges of integrating variable renewable energy (VRE) into the power system. These difficulties are perceived as critical in the Caucasus and Moldova. Two issues identified across the ECA region are, first, limited grid connection capacity, especially in rural areas with high RE potential and, second, other balancing reserves to ensure system stability. In response, many countries are looking to promote energy storage solutions to facilitate the system integration of VRE.13 12 Because of this, Uzbekistan, and not Kazakhstan, has attracted more international interest in the auction. 13Examples include encouraging standalone energy storage projects or hybrid projects that combine wind or solar PV with battery storage. 35 Potential measures to improve RE frameworks During the market sounding exercise, stakeholders suggested the following measures to address the issues identified above: • A long-term strategic view regarding the role of RE in the energy mix or the presence of binding targets. • A transparent legal and regulatory framework as a precondition for promoting investments into RE deployment. The framework includes secondary legislation, subordinate rules and regulations, as well as standard agreements such as power purchase agreements (PPAs) and contracts for differences. • Many stakeholders noted the value of competitive allocation mechanisms designed and implemented just for large-scale projects, along with support mechanisms for distributed generation. Private players also stressed the need for transparent project allocation and fair competition. The examples from Kazakhstan and Uzbekistan show that competitive schemes can work in less-developed power markets or, as with Uzbekistan, countries without third-party network access and open wholesale markets (box 2.1). Still, international experience suggests that special care should be taken not to pre-empt future market opening but instead to design the RE framework so that market opening would be possible with reforms of the electricity market. • Stakeholders emphasized that functioning wholesale electricity markets and cross-border trade facilitate the deployment and integration of RE. These views are supported by experience in the EU where many countries have reached a level of RE penetration, something that would have been difficult on a standalone basis. These findings are particularly relevant for smaller countries, such as those in the Caucasus or the Western Balkans. Yet experiences from Central Asia highlight that neither market opening nor regional integration is an absolute requirement in the initial phases of VRE deployment when overall penetration of VRE remains limited. Box 2.5 • RE auctions in Kazakhstan and Uzbekistan Between 2018 and 2022, Kazakhstan held a total of 54 RE auctions for a total installed capacity of 2,395 MW, out of which 1,746 MW were allocated. Besides some 1,125 MW of wind power, auctions were used to allocate nearly 500 MW of PV, some 125 MW of hydropower, and several small biomass plants. Between 2019 and 2022, Uzbekistan allocated more than 1.5 GW of solar and wind capacity through four separate auctions, in several cases for extremely competitive prices. Successful bidders were granted a long- term power purchase agreement with state-owned National Electric Grid of Uzbekistan (NEGU) as offtaker. Uzbekistan gathered more attention of international renewable energy developers than Kazakhstan because of the way the auction process strengthened transparency and implemented pre-qualification criteria to limit excessively low prices. In Kazakhstan, land plots and grid connection points are reserved for auctions and the main criterion for the selection of auction winners is the lowest price. In addition, the following supportive or corrective measures may be considered, based on international best practice and authors’ insights: • Where necessary, countries should strive to complete legal, regulatory, and contractual frameworks. Their process should involve proper consultations with relevant stakeholders and the elaboration of necessary supporting documentation and explanatory material. Ideally, RE 36 deployment should be coordinated with and integrated into the overall arrangements for the electricity market. • For best-practice definitions of a strategic view of the role of RE and binding targets, stakeholders need look no further than the EU countries. The EU’s long-term net zero emission objectives are used to define ambitious targets, while RE legislation and procurement schemes are oriented toward realizing these objectives. Investor confidence may also be strengthened through the development and publication of nonbinding long-term strategies, plans, and forecasts, provided these are credibly coordinated with and considered by policy, legal, and regulatory actions for RE deployment. • In terms of dispute resolution mechanisms, Kazakhstan or (outside ECA) the Republic of Egypt provide interesting examples of long-term agreements subject to arbitration in line with international rules and standards. These agreements need to be executed, and accepted, by a local chamber of arbitration. PROJECT DEVELOPMENT Perceived land use issues Processes for zoning and changing the purpose of land are considered a key barrier in Western Balkans EU countries and Türkiye (figures 2.6 and 2.7). Among other issues, stakeholders cited unpredictable changes in zones/maps, inadequate legal regulations, and dependence on municipal approval. In Poland the so-called 10-H rule for onshore wind14 and mandatory future zoning requirements for all plants above 1 MW15 constitute land-use restrictions that curtail RE deployment. Restrictions on land use are considered a moderate obstacle in most countries working on RE development in areas of economic and social importance, such as land used for agriculture or forestry, or endowed with cultural heritage or sensitive ecosystems. Box 2.6 • Perceived land-related obstacles to RE deployment Common land issues arise from zoning processes that change the purpose of land, restrict land use, fragment land ownership, and alter spatial planning procedures. The relevance of each obstacle varies by subregion. Key insights: • Land-use restrictions for RE project implementation are a moderate obstacle in most subregions. • Processes for zoning and changing the purpose of land are key barriers in the Western Balkans and EU countries. • Fragmented land ownership is an obstacle for large-scale RE projects in the Western Balkans and Türkiye, causing higher operating costs and more project implementation delays. 14This implies that the minimum required distance between wind turbines and households is at least 10 times greater than the height of the turbine. This requirement was recently reduced to 700 meters. 15 Although approved, this requirement has not yet been imposed. 37 Fragmented land ownership is seen as an obstacle for large-scale RE projects in Türkiye and the Western Balkans. There are more complex negotiation and acquisition processes when pooling many small plots of land. And complexity brings greater development costs and delays. In most ECA subregions, complex procedures for spatial planning are seen as a moderate to low barrier; they pose a significant barrier in the Western Balkans. Other issues, such as administration of land tenure, processes for transfer of land ownership, and restrictions on land acquisition, are perceived as less critical in most subregions. Figure 2.6 • Perceived common issues related to land access and use Source: Based on original research completed for this report. 38 Figure 2.7 • Perceived land access and use issues by subregion Legend: 1=very low, 2=low, 3=moderate, 4=high, 5=very high Source: Based on original research completed for this report. Permitting Inefficient permitting procedures have two outcomes: slow implementation for RE projects and more costly processes. Stakeholders highlighted in permitting delays as a major obstacle in all subregions (except Central Asia). The main reasons, they explained, were slow processing times, varying interpretations of the legislative framework by authorities, and the lack of competent local administrative staff. These problems are especially acute in rural areas across the subregions, where one finds the most RE potential. Even in countries with defined deadlines, these are rarely respected, and no penalties are imposed. These delays cause project losses and affect investor confidence. Central Asia (figures 2.8 and 2.9) appears to be an exception. Stakeholders in Western Balkans noted that applications are not always handled in a transparent fashion. Although the permitting process is formalized, permits are sometimes allocated in a nontransparent way, partly owing to lax legislation and regulation enforcement. Box 2.7 • Regionwide delays in getting permits In most subregions, stakeholders mention the lengthy processing times for obtaining permits for RE installations—environmental and building permits, usually. In some regions, RE project applications are not always addressed or decided in a transparent manner. Key insights: • In all subregions, with the exception of Central Asia, stakeholders cited the lengthy processing times for obtaining permits for RE installations—typically environmental and building permits. 39 • Applicants lack clear guidance on permitting procedures and identifying the responsible authorities, claiming the issue is prevalent in the Western Balkans, EU countries, Türkiye, and Moldova. • Stakeholders in the Western Balkans noted that applications are not always addressed or decided in a transparent manner. Stakeholders in EU countries and the Western Balkans, along with Moldova and Türkiye, noted non- transparent permitting procedures and responsible authorities. This perceived lack of transparency tended to produce delays and confusion among market players, as applicants do not know whom to contact or what procedural steps to follow. It is important to note that, with regard to permitting RE installations across subregions, stakeholders do not view absent or incomplete legal and regulatory frameworks as obstacles. Figure 2.8 • Perceived permitting obstacles 40 Figure 2.9 • Perceived permitting obstacles by subregion Legend: 1=very low, 2=low, 3=moderate, 4=high, 5=very high Source: Based on original research completed for this report. Development and operational risks In all subregions, stakeholders pointed to grid access as a serious project development risk, especially in the Caucasus, Central Asia, EU countries, and Western Balkans (figures 2.10 and 2.11). Several stakeholders expect most countries to wrestle with integrating the planned VRE volumes, especially if they don’t make major investments in distribution and transmission grids. They emphasized the evident lack of grid capacity in remote and underpopulated areas with high RE potential. RE projects far from existing grid infrastructure may thus face higher grid connection costs and be exposed to higher curtailment risks. In response, some countries are obliging developers to invest in grid reinforcements or install energy storage next to the VRE plant, which raises the costs of RE projects. Box 2.8 • Key project risks Across the subregions, uncertainties surrounding grid connection and access pose major risks for RE project development. Also important are the immaturity of the financial sector and challenges posed by an unstable legal and regulatory environment. Key insights: • Stakeholders in all subregions—particularly the Caucasus, Central Asia, EU countries, and the Western Balkans—view grid access as a major risk to the development of RE projects. • Immature financial sectors in many countries affect finance for RE project development; without international lending, they are often inadequate partners. • Stakeholders in Caucasus and Moldova observed that an uncertain legal and regulatory environment posed a high risk for RE investments. 41 Local financial institutions are able to finance RE projects on the strength of macroeconomic indicators (including inflation and refinancing rates, in addition to country risk), taxation, and so on. The lower maturity of the financial sector for RE project finance and limited lending experience for RE are perceived as posing a high risk in the Caucasus, Central Asia, and Moldova. In these areas, the local banking sector is not yet primed for RE development. Stakeholders cited limited knowledge about project financing, the functioning of the electricity market, and characteristics of RE assets. Thus, in these areas, local financing is available for small and medium RE projects only (typical below 10 MW for a short lending period of up to five years). While Türkiye has financed a vast number of RE projects in the past, its macroeconomic situation and constrained local currency financing have led stakeholders to score the financial sector as high risk. A stable legal and regulatory environment is key for mitigating investment risks. Stakeholders in Moldova and the Western Balkans regard uncertainty in the legal and regulatory environment as posing a high risk for RE investment. Political instability (that is, changes in government) was also viewed as a barrier to legislative development and implementation. In this situation, governments can take on additional risks and use sovereign guarantees (which tend to be performance based) to make RE projects bankable.16 Stakeholders see political risk insurance and government letters of support17 as important risk mitigation instruments. The risk of expropriation of privately owned RE plants owing to a change in the political and economic climate of a country is perceived as low in all subregions. The bankability of offtaker agreements is perceived as a serious issue in the Caucasus and Western Balkans. In partially vertically integrated systems, the offtaker is usually a utility or a single buyer. When the offtaker has a weak financial position (imposed by subsidized electricity tariffs), RE developers need to mitigate the risk of payment delays and contract termination, for example, via sovereign guarantees. On top of official support schemes in EU countries, Türkiye, and the Western Balkans, it is possible to sell electricity to a private offtaker via a corporate PPA. The corporate PPA fixes the electricity price (ensuring the pricing in cash-flow projections) and mitigates the merchant risk.18 Each corporate PPA is bilaterally negotiated and requires (among other things) an offtaker risk assessment. Given the macroeconomic uncertainties and offtaker risk, long-term corporate PPAs are not signed in Türkiye. Other risks for RE project development and operation are forecasting and balancing responsibility, level of remuneration, dispatch, and curtailment and procurement (lack of transparency). 16 Offering risk mitigation coverage in unstable host countries or against less creditworthy counterparties. 17Which define government binding support in case of changes in law that would detract from the project’s operation and profitability. 18Unlike a regular PPA, a corporate PPA has limitations on mitigating the entirety of investor risks and includes factors such as currency fluctuations, unstable network interconnection, and the uncertainties around priority dispatch. 42 Figure 2.10 • Perceived development and operational risks of RE projects Source: Based on original research completed for this report. Figure 2.11 • Perceived development and operational risks of RE projects by subregion Legend: 1=very low, 2=low, 3=moderate, 4=high, 5=very high Source: Based on original research completed for this report. In most ECA countries (except Türkiye), RE project development is hindered by difficulties in obtaining access to the grid and insufficient grid capacity. Based on the market sounding, these challenges appear to be caused by a combination of physical constraints (that is, lack of network capacity) and procedural 43 issues (including unclear connection conditions and the connection process), as illustrated in Figure . Grid-related challenges are particularly acute in EU countries. Stakeholders in the Caucasus, EU countries, and Western Balkans have also identified procedural issues as barriers to RE deployment. Figure 2.12 • Perceived critical barriers to grid access and connection Source: Based on original research completed for this report. Subregional differences in project development and operation Stakeholders said that public administrations (especially local authorities) are understaffed and underqualified in all subregions to manage the procedures, documentation, and deadlines as defined by laws and bylaws. They also emphasized the need for a more skilled labor force for the planned RE installations to limit delays in project implementation.19 Stakeholders cited the lack of education programs and, in Türkiye or the Western Balkans, the emigration of trained workers to EU countries. Box 2.9 • Perceived key obstacles to project development across subregions The following challenges to RE deployment were identified during the market sounding exercise: • Public administrations, particularly at the local level, are often understaffed and lack qualified personnel for managing procedures defined in laws and bylaws. • The limited availability of local skilled workers with experience in developing and constructing RE projects often leads to delays in deployment. • Stakeholders in Central Asia, the EU countries, and Moldova anticipate that curtailment could become a significant issue in the context of widespread RE deployment. 19In the Western Balkans, these difficulties are mitigated in part by the subregion’s greater ability to mobilize and exchange skilled workers among countries owing to a shared history in the former Yugoslavia. 44 EU stakeholders noted a need for clarity about curtailment rules and expressed concerns that curtailment can jeopardize revenues of VRE projects. These risks are particularly pronounced for merchant projects, which may not benefit from take-or-pay conditions (or similar schemes) under long- term agreements with public offtakers. While RE curtailment does not at present seem to be a major issue in most subregions, private stakeholders had reservations that risks of curtailment might intensify as the share of variable RE in the energy mix grows. In this context, interviewees stated that the pace of reinforcing and expanding grid infrastructure will increasingly become insufficient to successfully integrate the planned growth of RE projects. Potential measures to accelerate project development In sum, the following perceived challenges—alongside supportive or corrective measures to address them—were highlighted during the market sounding: • Land-use restrictions for RE development, such as restrictive zoning or minimum distance rules, can hinder market entry, escalate costs, and delay in project development. Some stakeholders suggest that the designated purpose of land should be reevaluated following a comprehensive assessment of the land’s most efficient use. Moreover, collaboration between governmental institutions and local authorities is essential to simplify administrative processes. • Likewise, the scarcity and fragmentation of private land is a key issue in some subregions. In this regard, some stakeholders suggested using tenders for public land allocation as an alternative to private land use. In this sense, it was mentioned that the allocation process should be transparent and efficient. • In all subregions, issues related to lengthy and nontransparent processes and responsibilities for zoning, land purpose, permitting, and spatial planning are seen as critical obstacles. Stakeholders suggested the following solutions: o Streamlining of rules and procedures or implementing a one-stop shop (Error! Reference s ource not found..8) that imposes deadlines and maintains accountability for permitting delays to address many of the issues and shorten response times. o Likewise, structured application and authorization procedures using templates to smoothen the corresponding processes. o Several stakeholders recommended capacity building and training for public sector staff handling RE project applications. Such support should be provided to responsible institutions at all levels—that is, at the national level to local communities. Knowledge sharing and training programs will improve expertise. • Stakeholders also suggested training programs for reskilling workers transitioning from other sectors and upskilling private sector workers. In this manner, projects can retain and attract qualified workers for project implementation. • A possible measure to facilitate permitting, auctioning, and PPA settlement processes includes the development of clear handbooks or manuals that describe requirements, processes, or selection criteria, such as those developed in Bosnia Herzegovina or Kazakhstan (Box 2.10Error! Reference s ource not found.). Such documents would guide market players, avoid inefficiencies, reassure developers, and allay concerns about untoward preferential treatment in some locales. 45 Box 2.10 • One-stop shops and detailed handbooks for investors One-stop shop for wind projects Detailed handbooks for investors Several Northern European countries have introduced In Kazakhstan, investors are given a detailed investor’s a one-stop shop administrative approach for wind (and guide published by KOREM (USAID 2021). The guide other RE) projects. In these countries, the permitting describes the RE auctions, the PPA, permitting, grid process is consolidated within an agency designated as connection procedures, and so on. the single point of contact for developers, streamlining Similarly, the framework for RE auctions in Bosnia and the process and aligning with local authority Herzegovina includes separate methodologies and regulations. handbooks, including detailed provisions on, for instance, setting auction volumes, price caps, calculation of feed-in premiums, and various other matters. In addition to the above measures, the following supportive or corrective measures may be considered, based on international best practices and the authors’ insights: • To address land-use restrictions, some countries are combining agricultural land with industrial uses. This approach can also be taken for RE project deployment: o In the Austrian province of Styria, the spatial planning act expressly defines agrivoltaics (a combined use of agricultural land for solar PV and agriculture) as a possible land use. Agrivoltaics of up to 0.5 ha are expressly permitted in grassland without the need for a special land designation. In addition, agrivoltaics is exempted from the general statutory ban on PV installations in so-called exclusion zones. o For instance, in North Macedonia, there are plans for repurposing of conventional power plants or coal mines into RE projects. Both concepts may also be combined (Enkhardt 2024). • As mentioned above, land ownership restrictions for foreign and private players may limit RE projects. One way of addressing this issue is to use land-lease agreements, or the prior identification (and possible predevelopment) of potential sites by public authorities, which are then made available to RE developers, such as in solar parks in India and Morocco (Box 2.11), offshore wind farms in Denmark, or RE projects in Egypt. Box 2.11 • Solar park schemes on public land under the SRMI initiative Among others, the Sustainable Renewables Risk Mitigation Initiative (SRMI) (World Bank 2022) proposes competitive RE bidding processed for solar park schemes on public land. Governments are responsible for selecting the sites, clearing the land, and building the necessary park infrastructure, which encompasses everything from evacuation lines to essential facilities like fencing, roads, and street lighting. Once these steps are completed, the competitive bidding procedure begins. The winning bidder is responsible for financing, constructing, and operating the project. This approach has distinct advantages: it considerably lowers development risks and compresses the timeline for project development. • To address barriers related to grid connection, several measures may be considered: o In some countries, bottlenecks are the results of speculative grid connection applications, which block grid capacity. One solution can be observed in Spain, which 46 introduced a requirement for bank guarantees and deadlines for utilization of reserved grid capacity. In other words, a grid connection permit is obtained only after a financial guarantee is issued and the guarantee is lost if the project is not realized in a defined timeframe. o In many cases, connection applications are handled carefully by network operators owing to concerns about congestion and grid reliability. Here, capacity building among network operators in addition to visits to (and exchanges with) network operators from other countries with much higher shares of VRE may help to overcome such issues. Similarly, transparency improves when network operators are obligated to regularly prepare and publish system-level studies and network development plans (subject to regulatory review and approval). In addition, specific regulatory incentives for network operators also improves transparency to stakeholders by obliging network operators to undertake robust analysis. • Given that high levels of curtailment represent a critical risk for RE projects (identified as a deal- breaker that would stop the private sector from entering a given market or country), care should be taken to design and implement clear rules and limits on the frequency and/or volume of curtailment to be borne by RE operators, coupled with protection from, or financial compensation, in the event of curtailment in excess of such limits. Such rules are especially important if electricity needs to be sold in a liberalized wholesale market, but they are also relevant under long-term PPAs. When designing such rules, it is important to consider that this measure results in a transfer of risks from RE operators to the offtaker or network operator. These risks are ultimately borne by consumers. But offtakers and grid operators are best positioned to comprehend and manage curtailment risks, and transferring these risks to such parties should help to lower overall costs. • RE operators generally require some form of protection against imbalance risks (also known as scheduling risks or forecasting error risks), in particular in less-developed markets. In many cases, this is achieved by transferring such risks to the offtaker. In Europe, imbalance risks are increasingly being shifted to operators of RE plants—but only with the establishment of well-functioning and reasonably competitive, liquid intraday markets, which do not exist in most countries assessed in this study. CONTRACTUAL AND FINANCIAL ISSUES Perceived financing risks In the Western Balkans, Türkiye, Central Asia and Moldova, investors face problems with regards to the availability of local financing (figures 2.13 and 2.14). These issues can be partially explained by the limited knowledge of the local banking sector of project financing and performance of RE assets. In some countries with less developed financial sector and/or relatively small banks, the situation is further complicated by the large volumes of debt financing required for major RE projects. 47 Box 2.12 • Key perceived financial barriers The most critical financial barriers are related to interest rates, inflation risks, and lack of financing in local currencies. In addition, legal and regulatory uncertainty was highlighted as a key contractual risk. Key insights: • Large-scale RE projects require substantial capital investment. In subregions with high interest rates and inflation, the economic viability of these projects is greatly impacted. • In many countries, financing of RE assets is complicated by limited availability of local financing. Reasons include the local banking sector’s limited knowledge of the financing and performance of RE projects, the need for high volumes of debt financing for large-scale projects, or macroeconomic difficulties. • Stakeholders in EU countries, the Western Balkans, Türkiye, and Moldova expressed concerns over legal and regulatory uncertainty, which can adversely affect the financial viability of capital investments. In all subregions (except EU countries), stakeholders noted interest rate risks and inflation as key barriers to investing in RE projects. The high capital intensity of RE projects increases project costs and also the costs of electricity.20 In recent years, these issues have been further aggravated by the fact that long-term debt has generally become more expensive due to increasing interest rates. Difficulty raising sufficient funds and high interest rates seriously constrain the ability of local markets to support RE investments on their own locally and force investors to look for large financing by international financial institutions (IFIs) or international development banks. These barriers generally apply to all RE technologies but are particularly critical for immature technologies (such as marine energy) or projects with very high investment costs (such as offshore wind). In countries with limited experience in RE deployment and high capital costs, some developers have furthermore started to raise short-term debt and increase the share of their own capital (equity financing). In the EU countries, Western Balkans, Türkiye, and Moldova, stakeholders are concerned about legal and regulatory uncertainty. Some countries introduced caps on electricity prices in response to the energy crisis and to protect the economy. The sudden introduction of price caps or other unforeseen changes, however, impair the revenue streams of existing RE plants and can negatively affect the financial viability of RE projects. Furthermore, instability elevates perceptions of regulatory risk, which in turn increases the cost of capital for new projects. Currency risk is a relevant financing issue, especially for foreign investors. A high currency risk is currently unfolding in Türkiye. Combined with high interest rates and inflation, this additional risk explains the loss of interest from foreign investors. In Central Asia, stakeholders noted that currency risk depends on the contractual framework. For instance, in Uzbekistan payments are denominated in foreign currency and convertibility is possible, which results in a low currency risk. In Kazakhstan, by way 20This effect is more pronounced for RE projects than for fossil fuel-based plants with lower up-front expenditures (and higher running costs). 48 of contrast, contracts are only partially indexed to a foreign reference currency (such as the euro or the US dollar), whereas the remainder is denominated in local currency. Figure 2.13 • Perceived financing risks of RE projects Source: Based on original research completed for this report. Figure 2.14 •Perceived financing risks of RE projects by subregion Legend: 1=very low, 2=low, 3=moderate, 4=high, 5=very high Source: Based on original research completed for this report. 49 Subregional differences in contractual and financial issues Interviewees have observed that the cost of capital in many ECA countries, such as the Caucasus, the Western Balkans and Central Asia, are considerably higher than for instance in the EU. Apart from general macroeconomic differences, this observation is also attributed to the maturity of the financial sector with regards to financing of RE projects. Financial players and RE developers mentioned that as more investors and developers undertake projects in a subregion, the perceived risk for banks and new entrants decreases, which subsequently helps to reduce the cost of capital. Uzbekistan is cited as a notable example of this trend. However, as the example of Türkiye shows, an uncertain economic situation may call for further risk mitigation instruments. Box 2.13 • Financial risks The following regional characteristics were identified during the market sounding exercise: • Throughout most of the ECA region, the cost of capital for RE projects is relatively high, due to the financing risks mentioned above and limited experience with RE projects. This necessitates public support and the involvement of major international financial institutions. • Project finance has emerged as the leading approach for funding utility-scale projects in mature financial markets. In contrast, in other regions, financing is generally achieved through limited recourse financing or corporate funding. Respondents highlighted that project finance has emerged as the preferred option for financing utility- RE scale projects in mature financial markets, as in the EU. In other countries, however, the financing system cannot provide full non-recourse project financing owing to the unpredictability of the market and financing risks (for example, Türkiye). Thus, most RE projects need to be financed based on limited recourse or corporate funding, leading to higher costs. EU stakeholders pointed out, however, that borrowing costs in the EU increased as well and that banks in some EU countries have started to ask for recourse as well, for instance, due to currency risks (for example, in Poland). Given the high cost of capital, RE projects typically require secure long-term revenue streams to become bankable. Traditionally, and throughout most of the region, this requirement rests on some form of public financial support—for instance, sovereign guarantees or long-term PPAs/contracts for difference (CfD) with public offtakers. In the EU, projects typically rely on privately negotiated, bilateral long-term agreements, or corporate power purchase agreements, which are rare in the non-EU countries of ECA. While corporate PPAs exist in Türkiye, macroeconomic uncertainties generally limit PPAs to short-term agreements. Potential measures to mitigate contractual and financial risks To address the perceived issues identified above, the following supportive or corrective measures were highlighted during the market sounding: • Stakeholders in all subregions see the indexation of PPA revenues as an appropriate risk-mitigation instrument—for instance, feed-in tariffs indexed to foreign exchange rates and the Consumer Price Index. 50 • Interviewees also highlighted the value of take-or-pay clauses. These mitigate curtailment risks or termination clauses in case the offtaker (often a government entity) fails to fulfill its obligations. • Similarly, loan guarantees and the issuance of local bonds were said to be useful for securing adequate financing in local currency. • Interviewees highlighted the role of multilateral development banks in facilitating the deployment of initial RE projects—for instance, through the provision of concessional capital. • With regards to the corporate PPA market, stakeholders indicated a need for standardized contracts and clearer regulatory frameworks as well as best-practice knowledge sharing. • Finally, respondents stated that public sector derisking mechanisms are needed to lower the cost of capital and attract private capital. Examples included (public-private) cost-sharing mechanisms to cover the costs during the early stages of the RE project development21 or grants to support investments in new segments, such as offshore wind, battery storage, or green hydrogen projects. Figure 2.15 • Mechanisms to mitigate financial risks Source: Based on original research completed for this report. GOVERNANCE AND SOCIAL LIMITATIONS Perceived governance and social barriers to RE deployment Of the 14 topics covered in this section of the questionnaire, stakeholders saw only 5 as particularly important: (1) impact on energy prices, (2) technical difficulties of VRE integration, (3) impact on state- owned enterprises, (4) opposition of fossil fuel industry, and 5) lack of accountability and transparency (figure 2.16). The remaining topics were seen as less important, with 56–86 percent of stakeholders rating them low or very low). Those topics are political instability, lack of political will, fossil fuel lock-in, opinions of citizens and stakeholders, perceived lack of economic and social benefits, lack of pollution control rules, and excessive local content requirements. Many stakeholders consider the impact of RE deployment on electricity prices to be a key barrier to RE uptake (figures 2.16 and 2.17). Since most RE projects still rely on some type of support, the associated 21 For example, exploration and technological progress in geothermal energy or hydrogen projects. 51 costs are typically recovered via electricity tariffs or state budgets. This issue is of particular concern in the Caucasus, Central Asia, and the Western Balkans. Box 2.14 • Perceived governance and social barriers The most critical sectoral and social obstacles for RE deployment identified by stakeholders include concerns about the effect of RE support on electricity prices, state-owned utilities and/or fuel suppliers, as well as governance and lack of accountability seen among decision-makers. Key insights: • In the Caucasus, Central Asia, and Western Balkans, where electricity prices are subsidized in one fashion or another, stakeholders had reservations about the costs of RE support and their effect on electricity prices. • In most countries, stakeholders believed the financial impact of RE deployment on state- owned enterprises, utilities, and/or fuel suppliers to be a paramount concern for decision- makers, especially in parts of Central Asia, where the fossil-fuel industry is state-owned. • A few stakeholders in Central Asia, Türkiye, and the Western Balkans raised concerns regarding governance and a perceived lack of accountability among decision-makers, especially in local communities. Concerns about financial impacts on state-owned companies are perceived as a moderate barrier in all subregions except Türkiye, where it is seen as a low barrier. Stakeholders recognized that widespread use of RE technologies might decrease revenues of mostly state-owned fossil fuel-based energy producers and large utilities. In some subregions, such as in Poland and the Western Balkans, the coal sector is (partially) state-owned and provides significant employment. RE’s displacement of coal-fired generation is expected to cause more public and political opposition. Private stakeholders in particular anticipate opposition to RE deployment from the fossil fuel industry, state-owned companies, and similar stakeholders. In fact, this constitutes a major barrier to RE uptake and is particularly significant in Central Asia. But in Poland, opposition to RE is perceived to be centered in trade unions representing the lignite and hard coal miners. In some regions, decision-makers believe domestic coal has a strategic relevance in the generation mix. A few stakeholders in Central Asia, Türkiye, and the Western Balkans express reservations about governance and lack of accountability among decision-makers. These uncertainties are discouraging for international investors and, as such, pose key obstacles to the adoption of RE, particularly for projects in smaller local communities. Other sectoral and social causes perceived as less critical are lack of political will, lock-in to fossil fuels, and objections of citizens and stakeholders. 52 Figure 2.16 • Common perceived governance and social limitations to RE uptake Subregional differences in perceived governance/social limitations Stakeholders perceive the socioeconomic benefits of RE—jobs, clean air, and so on—differently across subregions. The differences, they say, arise in part because of the dearth of comprehensive socioeconomic assessments of RE deployment. This issue was highlighted by stakeholders in Central Asia and the Western Balkans, where socioeconomic studies tend to be done on a project-by-project basis, often sponsored by development institutions. They claim that people in Central Asia and the Western Balkans perceive RE projects as generating fewer jobs and economic benefits than the fossil fuel industry. Across all subregions, stakeholders perceive local “not in my backyard” resistance. This opposition is evident in response to hydropower projects, but resistance from various NGOs against wind power plants was also reported. Specifically in the Western Balkans, stakeholders stated that social and environmental opposition to hydropower plants arise from a lack of water management plans for rivers and creeks. Box 2.15 • Subregional differences in perceived sectoral/social obstacles The market sounding exercise revealed the following subregional differences: • The perceived socioeconomic benefits of RE (for example, jobs, clean air, and so on) differ across subregions. In Central Asia and the Western Balkans, citizens perceive that RE projects generate fewer jobs and economic benefits compared to the fossil fuel industry. • Local content rules apply in some countries and only for specific RE technologies. In Türkiye, local content rules support the local onshore wind industry and associated employment. Stakeholders confirmed that local content rules apply in some countries, though for specific RE technologies only. For example, Poland applies local content rules for evaluating offshore wind applications. Specifically, investors are assessed based on their engagement with local companies (during the preconstruction, installation, and operation phases) and local communities. The objective is to promote the economic participation of local stakeholders in the projects. But they also perceive that the government prefers to allocate projects to state-owned companies to maintain partial control over this strategic sector. In Central Asia, Kazakhstan requires local content for its RE projects, though it is reported not to be consistently implemented. Similarly, Türkiye imposes local content rules for onshore wind auctions to encourage domestic production of equipment, although local content requirements 53 have relaxed in recent years. Local stakeholders noted that such rules serve dual purposes. On one hand, they support local industry and employment, fostering economic growth in the subregion. On the other, local content incentives, such as tax benefits, can improve the cashflow of RE projects. During the interviews, some stakeholders said that such requirements, in their view, may conflict with free trade regulations and limit IFI financing. Potential measures to reduce perceived social/sectoral limitations Supportive and corrective measures were highlighted during the market sounding. They address the issues identified above: • In many countries, electricity generated from RE is still perceived as expensive and a prelude for higher electricity costs. During the interviews, it was suggested that public communication campaigns promote the affordability of RE projects and improve the public’s perception of RE technologies. • Engaging with local communities eases reception of large RE projects. Stakeholders noted that communication in the early stages of project development, coupled with proper environmental and social governance, facilitates social acceptance and project implementation. • Moreover, stakeholders recommend training programs for local workers so they have the skills needed for RE jobs. For instance, training in solar panel installation will ease workers’ transition from jobs in coal mining to newer solar energy jobs. • Stakeholders identified a lack of comprehensive countrywide studies. Such studies might help decision-makers plan and communicate the importance of widespread deployment of RE. Furthermore, interviewees stressed the value of investing in social awareness and advertisement campaigns. In their view, public education campaigns are instrumental in raising awareness about the benefits of RE by fostering an informed and supportive environment for implementation. • Nevertheless, technological progress and the resulting price reductions have made RE less dependent on financial support and more cost-competitive with fossil fuel–based power in many subregions. In this context, public communication campaigns may help to change perceptions. In addition to the above measures, stakeholders may want to consider the following supportive or corrective measures, which are based on international best practices and the authors’ insights (see table 2.2): • An economic analysis of renewables makes it possible to assess whether new renewable projects bring a net financial benefit or cost to the system. The actual system impact of new renewable capacity can be estimated through a displacement cost exercise. This evaluation helps determine whether various renewable technologies have achieved grid parity. The calculation must include the real costs of electricity generation, excluding subsidies. The high fossil-fuel subsides in many ECA countries continue to undermine some investments in renewables (World Bank 2024a). • To mitigate opposition from state-owned incumbent generators or the fossil fuel sector, these companies might be invited or incentivized to invest in RE projects themselves. But care should be taken, as this approach might conflict with efforts to establish a level playing field for RE deployment. Incumbent companies often have material advantages, and their involvement in RE projects could inadvertently reinforce these disparities. Still, such measures may help to address and resolve opposition. 54 • Within many ECA countries, limited local financing represents a common issue for RE projects. While it complicates financing, it does not necessarily represent a fundamental barrier as long as international financing is available. In many countries, the situation may be improved by capacity building for local financiers on accommodating the specific needs and characteristics of RE projects. In addition, stakeholders pointed to the benefits of co-financing by IFIs. • Change of law is a fundamental issue and a critical risk that creates serious uncertainty for investors. This risk extends to more than RE investments. Nevertheless, RE investors may find comfort in including appropriate termination clauses and effective dispute resolution mechanisms. Table 2.2 • Contractual and financial aspects—summary of key perceived issues Issue Impact Mitigating measures Provision of sovereign guarantee Offtaker Designate asset-rich company (that is, Critical risk (possible deal-breaker) creditworthiness TSO) as offtaker Concessional financing (IFI) Currency and inflation Major risk for economic viability and Indexation (partial or total) risks bankability Complicates financing Capacity building for local financial Availability of local institutions financing Limited barrier provided that international financing is available Co-financing by IFI Termination clauses Change of law Critical issue (possible deal-breaker) Dispute resolution Concerning sectoral and social issues, stakeholders highlighted the following key perceived challenges (see table 2.3): • Many interviewees perceive that RE support schemes are linked to higher electricity prices for consumers, especially in subregions where electricity prices are subsidized—the Caucasus, Central Asia, and the Western Balkans. These views undercut efforts to ease permitting procedures and might foment wider public opposition. Two remedies exist: First, more training for public staff, and second, public communication campaigns extolling RE projects and their benefits. • In many ECA countries, opposition from state-owned incumbents and the (coal) mining sector was seen as a key challenge for wider RE development. It represents a serious barrier in areas where these companies employ a great many workers, which is to say, in Central Asia, Poland, and the Western Balkans. More transparency and public outreach campaigns are two responses. Another is for such companies to invest in RE projects themselves. • Some stakeholders in Central Asia, Türkiye, and the Western Balkans mentioned governance and a lack of accountability among decision-makers discouraging international investors in particular. But they acknowledged this is a wider political and economic issue that cannot be addressed (or resolved) by the RE framework alone. 55 Table 2.3 • Social issues—summary of key perceived issues Issue Impact Mitigating measures Perceived increase of May trigger public opposition and/or Dedicated training to staff at public electricity price / reluctance by public authorities responsible authorities costs for permitting and so on Transparency & public outreach Opposition from state- Transparency & public outreach May create serious barriers, especially in owned incumbents countries with substantial share of state- Incentivize incumbent utilities to invest in and/or (coal) mining owned utilities and/or mining companies RE projects sector Governance and lack Much wider issue, cannot be addressed by Serious issue, but not limited to RE of accountability RE framework alone From a broader perspective, many of the perceived barriers and risks discussed above can be grouped into four major challenges for the adoption of RE in the ECA region: • First and foremost, investors in many ECA countries are contending with the limited bankability of RE projects—bankability is a precondition for highly capital-intensive projects. The perceived barriers in this respect are unclear legal and regulatory frameworks, contractual and financial risks, including inadequate contractual clauses, and lack of offtaker creditworthiness. • Though it is not a critical issue, RE development is often undermined, or at least delayed, by a perception of complex, nontransparent and/or discriminatory processes and rules—for instance, land-use restrictions, permitting, or procedures for zoning and grid access. All these issues could be addressed with some streamlining. The responsible staff at public authorities could also benefit from better training. • Similarly, RE projects in many ECA countries are delayed because of limited local financing, which also increases investment costs. A more mature local financial sector could mitigate financing issues with some simple, initial IFI cofinancing; capacity building among local financiers would also help. • Perceived opposition by state-owned companies and/or the (coal) mining sector represents another key challenge for wider RE development. One possible solution could be to enable and incentivize companies to directly invest in renewable energy while implementing dedicated training programs to facilitate the transfer of workers into roles that align with the energy transition. In addition, inadequate access to the grid and insufficient grid capacity are common perceived challenges for RE project development in most ECA countries. Yet market sounding exercises have not yet determined what causes these problems. Physical constraints can be addressed by investments into grids, flexibility, or more efficient operations. Procedural challenges, as highlighted above, also need to be addressed. 56 Chapter 3 • Integrating solar and wind energy in regional power systems This chapter puts the findings of chapters 1 and 2 into a wider systemic and long-term development context, with a focus on key topics highlighted by interviewed stakeholders through the lens of Net Zero 2060. The energy transition is an opportunity to reposition and strengthen ongoing strategic and systemic reforms that address systemic issues underlying barriers presented in chapters 1 and 2. Countries in Central Asia and the European Union (EU) have been implementing systemic electricity market and regulatory reforms for several decades. Much remains to be done in every one of the 20 countries covered. The processes of unbundling electricity utilities and market opening (liberalization) are the most advanced in four EU countries (Bulgaria, Croatia, Poland, and Romania). But even here, private sector players point out the barriers and inefficiencies of state-owned entities and market distortions (including fossil fuel subsidies) spanning the entire value chain, from fuel extraction and mining to generation, transmission, and distribution, through to industrial, commercial, and transport end users. The four EU countries also show that after the adoption of the EU framework, market reforms continue for decades, for example, to improve liquidity and ensure the power exchange is fit for purpose. Renewables’ scale-up will require a fundamental technical change of the electricity sector (section 3.1), as well as dynamic adjustments of the policy, market, and regulatory frameworks in Europe and Central Asia (ECA) (World Bank 2024a, section 3.2). The technical change has already taken hold in those countries with the greatest shares of solar and wind, and their examples provide solutions for ECA countries. Systemic reforms also began in Central Asia, while more efficiencies are expected thanks to unbundling, and as tariff reforms are completed. In Central Asia, most of the countries have yet to reduce fossil fuel subsidies, introduce independent electricity and gas regulatory bodies, while the rest of the ECA offers good examples of how regulators play an essential role in the scale-up of renewables (section 3.3). TECHNICAL CHALLENGES The integration of a large share of solar and wind energy into traditional power systems is seen as one of the top five governance challenges by stakeholders. Denmark, Germany, Portugal, Spain, and the United Kingdom—global leaders in solar and wind deployment—have faced such challenges before (figure 3.1) and continue facing them today, and they provide valuable insight for ECA countries. For example, in the United Kingdom, the geographical separation between offshore wind generation in the North Sea and demand centers inland led to significant transmission constraints, affecting network adequacy. The UK's 2019 large-scale blackout, which impacted over a million customers, underscored the need for enhanced grid resilience to cope with sudden changes in supply. Solutions such as dynamic updates to network codes and operational practices helped mitigate these challenges (Ofgem 2019). Similarly, Germany has faced and is still facing grid congestion due to the concentration of wind generation in the northern regions while demand being concentrated in the industrial south. Starting in 2017, the country relied heavily on redispatch measures to balance the grid, leading to annual costs of €1.4 billion by 2020. To address these issues, Germany implemented several measures, including new 57 transmission lines, digitalization initiatives, and updated capacity allocation methods (Bundesnetzagentur 2021). The share of variable renewable energy (solar and wind) in annual power generation (figure 3.1) is a good indicator of the technical challenges ECA countries already face today. Beyond network adequacy challenges (having sufficient capacity to meet demand at all times) highlighted above through the examples of UK and Germany, other technical challenges include ensuring resource adequacy (having sufficient capacity to meet demand at all times), frequency stability (as solar and wind are nonsynchronous sources and do not naturally contribute to grid inertia), and voltage stability (due to variable output affecting voltage quality across the network). In ECA network, adequacy challenges have materialized in Poland (one of the regional leaders in renewables), where solar and wind already account for more than 15 percent of the energy mix, yet are paired with a lower share of flexible generation, limited power trade, and relatively low cross-border trade. Poland faces these challenges more acutely than other countries with similarly high variable renewable shares, such as Croatia, Romania, and Türkiye. The share of solar and wind however remains significantly lower in the other ECA countries (Figure 3.1). Figure 3.1 • Share of variable renewable energy in annual power generation in 2022, select ECA countries, percentage 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Solar Wind Source: World Bank analysis based on IEA Energy Balances (2024). Note: The figure includes several countries of the 20 under study, as well as others in the region. Notable are global leaders in VRE integration—Denmark, Germany, Portugal, Spain, and the United Kingdom. Going forward, within the next decade, all ECA countries are expected to face new technical challenges as their share of solar and wind is expected to rise to more than 15 to 20 percent of annual generation, according to the World Bank’s Net Zero Energy by 2060 report (Figure 3.2) that envisions a possible Paris- aligned pathway. The TIMES based energy system model developed for ECA has a subregional resolution and has yielded subregional results, for 2020–60, showing a possible trajectory of variable renewables (solar and wind) in power generation, as depicted in figure 3.2. Relevant Country Climate and Development Reports (CCDRs) and country power sector analyses were also considered. The fastest gains in variable renewable energy (VRE) penetration are first seen in the EU countries (the subregions containing Poland, and Bulgaria, Croatia, and Romania) and in the Western Balkans. In the period 2030– 58 35, similar gains are expected in the Caucasus, Central Asia, and Türkiye, as they scale beyond 15–20 percent of annual generation. Figure 3.2 • Projected share of variable renewables in power generation under the World Bank’s Net Zero 2060 scenario, by subregion, percentage Source: World Bank (2024) As the share of solar and wind increases, the ECA countries are expected to progress through different phases of renewable energy integration, as outlined by the VRE assessment framework developed by the International Energy Agency (IEA) and adapted by the World Bank (figure 3.3). This framework links the level of VRE penetration with evolving challenges as countries advance. For example, a higher share of renewables typically moves a country from Phase 1 to subsequent phases, necessitating new operational approaches, technical solutions, and investments. The framework aims to help policymakers prioritize challenges and solution, such as policies, establish necessary requirements, and determine investments needed for a power system to progress through the different stages of renewables integration. As of 2023, most ECA countries remained in Phase 1, where the impact of VRE on the power system is minimal. Only Poland and Türkiye have reached Phase 2, characterized by moderate effects on the system (IEA 2024a). As the share of solar and wind continues to grow, countries enter Phase 3, where VRE begins to significantly influence and determine power system operations, presenting new challenges related to system stability and grid management. Global leaders in renewable energy integration have already passed Phase 3. They reached Phase 5 (Denmark) and Phase 4 (Germany, Portugal, Spain, and the United Kingdom), where renewables heavily influence power system flexibility, stability, and operation. These advanced phases require more sophisticated solutions, including enhanced interconnections, dynamically evolving market mechanisms, and advanced grid management technologies to maintain reliability and efficiency. 59 Figure 3.3 • Phases of VRE integration - based on lessons learnt from RE global leaders Source: World Bank 2020. based on IEA 2020. The transition from Phase 2 to Phase 3 often requires new cross-border interconnections with neighboring networks and effective short-term markets (figure 3.3), particularly for inflexible systems like those in Poland and several Western Balkan countries, which still rely heavily on coal. The aging transmission and distribution infrastructure in Central Asia also contributes to the vulnerability of power systems. Consequently, network development remains critical for most ECA countries. Curtailment risk may increase as VRE penetration grows unless policy, market, and regulatory frameworks are adjusted to address these changes. Curtailment, especially uncompensated curtailment, can hinder new investments in solar and wind generation, as perceived by interviewed stakeholders. Global leaders have demonstrated that while curtailment is often necessary to balance power systems, it can be managed effectively. For example, China reduced curtailment rates from 7–20 percent between 2011 and 2017 to just 4 percent by 2019, primarily through investments in new interprovincial transmission capacity, different dispatch rules, and improved market operations. Similarly, in Germany, Italy, and the United States, wind and solar curtailment rates remained stable at 1 to 3 percent between 2017 and 2020, even as overall VRE capacity increased. POLICY, MARKET, AND REGULATORY SOLUTIONS The experiences of global leaders provide valuable lessons (summarized in Figure 3.4) for ECA countries as they navigate the integration of renewable energy. Sources of power system flexibility beyond those provided by the traditional power generators and grids, include demand-side response and various forms of energy storage, are showcased in figure 3.4. These are crucial but often overlooked resources to build out for the countries trying to expand their sources of grid flexibility to accommodate the variability of solar and wind resources. 60 Figure 3.4 • Sources of flexibility along the phases of VRE integration, including relevant regulatory and market conditions - based on lessons learnt from RE global leaders Source: World Bank 2020. based on IEA 2020. The mix of sources of flexibility available to be developed in each grid is country-dependent; no one size fits all. However, a portfolio of resources is always needed, tapping into flexible generators (hydro, gas), building out interconnections to neighboring grids (and their flexible generators), and effectively using sources of demand response and energy storage. Finally, regulations and electricity markets have to go through a dynamic evolution as ECA countries move from one phase to another. In Phase 1, many ECA power systems have yet to move to economic dispatch (for example, in Central Asia), and most ECA countries need to improve VRE forecasting on the sides of both the system operator and the solar and wind generators. Short-term wholesale electricity markets (including power exchanges) are critical to help both system operators and solar and wind generators balance their short-term positions subject to weather uncertainties. Many countries in ECA have yet to develop cross-border capacity markets, which provide the foundations to effective interconnector use in Phase 1. They also need to develop new electricity system services (balancing markets) for the optimal allocation of flexible technologies from Phase 3. Balancing markets is a service that removes residual system imbalances (also known as scheduling risks or forecasting error risks) in a least-cost manner. In the normal market segment, market actors have clear balance responsibilities. The balancing market can tap into many flexibility options (including demand response, storage, aggregation, VRE flexibility) to minimize societal costs (IEA 2020). A transparent regulatory framework is a precondition for promoting investments into RE deployment. The establishment of an independent regulator has long been seen as a standard feature for economies moving from a monopoly to the competitive electricity market in order to promote a more attractive investment climate; investors prefer to invest in jurisdictions where oversight of the electricity sector is separated from the short-term concerns of governments. An open and transparent regulator aims to 61 ensure efficient operations and investments, thus protecting consumers. In market systems, regulators also have a role to protect customers against market manipulation. An independent energy regulator is now seen as indispensable. Such an institution would oversee the large investments in the electricity system required in the transition away from fossil fuels. An attractive investment climate becomes an even greater priority when an economy is seeking to attract capital to finance its energy transition investments. Furthermore, a move to renewables requires more investments in transmission and distribution networks that regulators oversee, while investments by smaller consumers to operate their own solar PV generation also requires a stable framework that regulators can provide. There are many examples of independent electricity regulators supporting energy transition investments through their decision-making. A recent study prepared for the Regulatory Energy Transition Accelerator (RAP 2024) interviewed regulators from 25 jurisdictions on how these regulators were supporting decarbonization in their decision-making even where there was no direct mandate to do so. Governments are now turning to electricity regulators to aid the implementation of their decarbonization plans. Several examples from ECA show how effective regulators can be in assisting the energy transition: • Ensuring sustained investment in networks to support renewable energy targets (Poland). Poland has fast-growing renewable energy development. The Polish regulator (URE) has recognized that the transmission and distribution grids need to be expanded and modernized to accommodate this increase. The URE worked with the five largest electricity distributors to develop the Charter for the Efficient Transformation of Poland’s Power Distribution Networks, to provide for grid expansion and modernization to help Poland achieve its 50 percent renewable target by 2030. • Establishing rules for smaller customers to install solar PV systems and be compensated for the energy they supply to the grid (Georgia). The Georgian National Energy and Water Supply Regulatory Commission (GNERC) has been active in ensuring that smaller customers can invest and install solar PV systems and be compensated for the energy they supply to the grid. Since implementing net metering in 2016, GNERC has integrated more than 1,000 micro power plants into the grid, enhancing renewable energy use and promoting energy independence among consumers. In 2022, GNERC established guidelines for connecting small power plants to the distribution network, to support decentralized renewable energy production. • Establishing rules to enable greater private investment in the electricity sector (Azerbaijan). Increased renewable investment requires an attractive investment climate. In Azerbaijan, the independent energy regulator (AERA) is acquiring new responsibilities as part of the phased transition to electricity markets. It has the responsibility to establish the rules for the new market, in addition to overseeing networks, which will continue to be regulated. • Taking a larger role in transmission planning and approvals (Germany). Germany’s policy to invest in renewables and phase out nuclear power necessitated large investments in three new “electricity highways” to convey power from wind generation to customers. To speed up the process, the energy regulator (BNetzA) was given increased authority in the planning and approval of these lines and other transmission investments. The BNetzA is now responsible for approving the plans, the precise routes that the lines will take, and of course will need to approve the costs of the projects to be included in the electricity charges for customers. Despite this expanded mandate, 14,000 permits needed to be issued by various local governments, which has meant that construction of these major lines is still underway. 62 • Expanding regulatory authority to oversee energy networks (United Kingdom). Ofgem, the energy regulator for Great Britain, has seen its role evolve considerably since it was created in the late 1980s. The UK parliament recently approved legislation that will expand the role of Ofgem in supporting the transition by requiring Ofgem to consider the government’s emissions targets in its decisions. Ofgem is now responsible for regulating heat networks (such as district heating systems) and also carbon dioxide storage and transportation networks (yet to be created). More generally, effective energy regulators increase the chances of electricity reforms’ success. The regulator’s main task is to oversee and control the costs of a monopoly utility. By doing that well, openly and transparently, consumers will have greater confidence that their interests are being protected after the reforms are enacted. A successful regulator, such as Ofgem (UK), in turn becomes an important aid to the government to successfully manage implementation of more ambitious reforms. BEYOND REGULATORY REFINEMENT: NEW MARKETS AND INSTRUMENTS Decision-makers in ECA also face demand for new markets and new instruments that cover the unique features of renewables in new and different ways. These instruments co-exist across the electricity system value chain and are often complementary, offsetting inherent disadvantages renewables face in the evolving market structures. These include guarantees of origin, carbon markets, the EU’s Carbon Border Adjustment Mechanism (CBAM), and energy efficiency certificates (which are most relevant if the distributed renewables are deployed in hybrid systems behind the meter). This subsection takes a deeper look at some of these issues, summarized in figure 3.5. Figure 3.5 • Measures supporting the scale up of RE along the value chain Source: authors elaboration The European Commission recently adopted several new instruments and mechanisms to advance the roadmap for a climate-neutral European Union (EU) by 2050. These measures include guarantees of origin, the EU emissions trading system, and CBAM. They are of direct interest to EU members within the ECA and to ECA countries that are markets or trade partners of EU Energy Community members. They are of indirect interest to the entire region as international examples of policy instruments. 63 Guarantees of origin The reform of EU electricity market rules in 2023 was introduced to facilitate PPAs for renewable electricity. The purpose of the reform is to guarantee the long-term stability of a project’s revenues, independent of short-term prices on the day-ahead market (EC 2023). A significant part of the overall PPA market is composed of corporate PPA offtakers; buyers tend to be medium to large companies with ambitious climate targets. In 2015, when the Paris Agreement was adopted, only six of the world’s largest publicly traded companies had net zero targets, but by 2023 there were 1,003 companies with such targets, more than half of the 2,000 largest companies listed globally (Euronews Green and Reuters 2023). Stakeholders highlighted that guarantees of origin are essential for the success of corporate PPAs in the EU. Guarantees of origin provide a revenue source for renewable energy, including solar and wind. This makes them more competitive in several ways. First, the guarantees allow producers to access “green premiums”—additional revenue streams above the market price for electricity. Buyers are often willing to pay a premium for electricity certified as renewable through GOs, which in turn enhances the financial viability of solar and wind projects. Second, guarantees of origin are critical in the international trade of renewable energy within the EU and allow renewables to access a wider range of buyers on the energy market. Third, guarantees are useful for third countries under CBAM, which imposes conditions on nations seeking to export carbon-intensive products (including electricity) to the EU. The CBAM regulatory scope extends to electricity, posing challenges for WB6 countries, already exporting to the EU. Under the CBAM regulation, countries must align with EU standards by 2030 or demonstrate that exported goods are free from embedded CO2; otherwise, EU importing countries will levy a carbon tax on the goods. Several ECA countries could improve the business case for private sector RE developers by introducing guarantees of origin and/or joining the Association of Issuing Bodies (AIB), ensuring international tradability of these guarantees within the Energy Community. The Renewable Energy directive 2018/2001(EU) lays down the rules for guarantees of origin (GOs). These guarantees certify sources of energy that are renewable and cover electricity, gas (including hydrogen and biogas), and heating/cooling. Member states are responsible for issuing GOs and making sure they can be used across borders. The CEN EN16325 standard ensures consistency in how GOs are created and used, which is crucial for trusting imported renewable energy. This standard helps to establish trust and transparency by providing a common framework that all participating countries can adhere to when issuing and managing GOs. The EU’s Association of Issuing Bodies (AIB22) oversees the issuance and tracking of GOs for renewable energy across Europe. It ensures that the GOs meet certain standards and can be traded reliably among different countries. The AIB promotes transparency and trust in renewable energy markets by establishing common procedures and standards among its members, which include various national issuing bodies. A summary of individual country status in AIB is presented in table 3.1 and figure 3.6. Table 3.1 • A snapshot of RE certificates and AIB member countries Country RE certificates EU AIB status Albania Trading of guarantees of origin (GOs) in line with EU standards. Full member Energy regulator is managing registry. 22 The AIB was established in 2001, following the adoption of the EU Renewable Energy Directive 2001/77/EC. 64 Armenia No information on GOs. No link Azerbaijan No information on GOs. No link Bosnia and RES Operator OIEIEK acts as the future registry for the country. Observer Herzegovina Two of the three federations have already started the procurement for the EU standard registry software from Grexel. No information on go-live date. Bulgaria Proof of eligibility for receiving FIT from grid operator in RES support system. Full member since GOs not tradable and not used for disclosure. 31 May 2024 Not implemented according to EECS by AIB, Croatia GOs apply to RE electricity for now, with plans to extend to all electricity Full member AIB’s generation, Electricity Scheme GOs are proof to final consumers that a given share or quantity of energy is Group produced from RE, The support system is not based on GOs; the feed-in system is considered as a reliable tracking system since the origin and destination of electricity are predetermined, Georgia GO registry has been set up by JSC Georgian State Electrosystem, with no further Observer information on issuance of GOs, Kazakhstan International REC Standard: I-REC for electricity issuer in Kazakhstan is No link Association of Regional Environmental Initiatives (ECOJER). Consumers of electricity can use GOs to meet the requirements of the standards, and to meet goals in the field of corporate social responsibility. Kosovo Kosovo joined energy community initiative to establish a regional GO system. The Observer new system will be effective as soon as energy regulator signs an agreement with the service provider. Kyrgyz Republic No information found. No link Moldova Moldova joined energy community initiative to establish regional GO system. Observer National electronic GO registry has been created and can be used as soon as Energocom signs an agreement with the service provider. Montenegro Regional project for setting up GO registry and framework initiated by energy Applicant for community. membership A national electronic registry for GOs has been created and can be used as soon as the market operator signs an agreement with the service provider. North Regional project for setting up GO registry and framework initiated by energy Observer Macedonia community. Poland Certificates of origin/green certificates in existence since 2005. Observer Quota obligations for electricity companies. Certificates can be traded on Polish stock exchange. Risk of double counting (GOs issued for electricity, which receives certificates of origin). Romania Green certificates (GCs) introduced in 2008 with mandatory annual quotas. Observer Selected electricity suppliers and producers are bound to fulfill their yearly E-RES quota by presenting appropriate amount of GCs by ANRE by April 15 of each year. Numbers of GCs allocated per unit of E-RES differ depending on plant technology and capacity. Certificates are tradable and managed by electricity market operator. 65 GOs issued for net production; issuance is voluntary and made upon written request by producer. Not linked with EECS of AIB Serbia Lifetime of GO is 12 months, regulation aligned with EECS of AIB. Full member AIB’s Only GOs can be used for tracking of electricity, so only grid users that consume Electricity Scheme renewable electricity with GOs can use green labeling. Group Tajikistan No information found. No link Turkmenistan No information found. No link Türkiye Renewable energy guarantees of origin (YEK-G). No link System introduced in organized YEK-G Market and launched in 2021. RE certificates will be proof to origin of power from renewable energy to consumers, valid for 12-month period and traded on the market. Uzbekistan No certification; proposal yet to be finalized. No link While many ECA countries have introduced guarantees of origin, far fewer have internationally tradable versions. AIB membership supports cross-border tradability for Croatia and Bulgaria, while Romania and Poland have observer status only, which largely restricts tradability of guarantees of origin. The disadvantages of restricted tradability are clear from the comments of stakeholders. For example, the market for PPAs in Romania is seen by some private sector stakeholders as insufficiently liquid, largely because the country is not a member of the AIB. As the guarantees of origins are not tradeable, they cannot fulfil the need to support environmental, social, and governance targets of multinational corporations and the requirements of commercial and industrial supply chains (for example, automotive chains). With the planned introduction of contracts for difference in Romania, these and guarantees of origin can complement each other (as in many other EU countries) by providing financial stability and renewable energy verification, respectively; their effective combination can enhance the overall support framework for renewable energy projects. To enhance the competitiveness and marketability of renewable energy, ECA countries can consider introducing guarantees of origin and pursue AIB membership, ensuring the international tradability of these guarantees within the Energy Community. This can support financial stability and renewable energy verification, benefiting both producers and buyers in the renewable energy market, according to stakeholders. The EU’s Carbon Border Adjustment Mechanism The European Commission has defined the roadmap for a climate-neutral European Union (EU) by 2050. This evolution began decades ago with the world’s first international Emission Trading System, the EU ETS. In 2023, in announcing its commitment to climate neutrality (and to further its goal of maintaining competitive economies), the EC extended regulation to goods imported into the EU. The main goal of the Cross-Border Adjustment Mechanism, or CBAM (introduced in the previous section), was to set boundaries for imported commodities with a large CO2 footprint and lessen the inequality for producers not within the scope of ETS by ensuring equivalent carbon pricing for imports and domestic products. CBAM also serves to create a level playing field for renewables and other low-carbon energy sources by addressing the disparity in carbon cost between EU and non-EU competitors. For countries exporting or planning to export electricity to the EU market, the introduction of CBAM is an additional incentive to decarbonize their energy mix by increasing the share of renewables in their power systems. CBAM’s 66 introduction is expected to be highly relevant for the WB6 and Caucasus countries, in particular if they expand their electricity trade. The ETS sets the total number of allowances issued, capping greenhouse gas emissions from activities within its scope and permitting the trading of these allowances (using a cap-and-trade system). Conversely, to avoid disrupting trade flows, CBAM does not establish quantitative limits on imports. To prevent carbon leakage, CBAM must closely reflect the ETS price. In the ETS market, the price of allowances is determined through auctions. Therefore, the price of CBAM certificates should reasonably align with these auction prices, using averages calculated on a weekly basis. CBAM will be applied to electricity generated in and imported to the EU from countries outside the European Economic Area and Switzerland. The commercial entity importing the electricity will be responsible for purchasing CBAM certificates (to trade at EU ETS prices) to pay for the emissions associated with the imported electricity. Based on the current roadmap, the following milestones were accepted for the implementation of CBAM regulation: • Transitional period (October 2023–December 2025): only reporting obligation for the importers; • Fully operational period (begins January 2026): CBAM certificates for offsetting embedded emission in the imported product. As figure 3.7 shows, the free allocation of ETS quotas will plunge after 2028, at which time the CBAM will phase in. Considering the current EU ETS prices (88.99 EUR/EUA, whereby one EUA allows the holder to emit one ton of CO2e), it seems prices will rise when the free allocation phases out. In parallel, rising CBAM certificate prices, linked to the EUA prices, will become a major cost item for the exporters to the EU. Figure 3.6 • ETS free allowance phaseout and CBAM phase-in Source: EU 2023. 67 For electricity, CBAM pricing will have a default value linked to EUA prices determined weekly. However, third-country electricity producers can request that their contributions be based on actual emissions if they can demonstrate the use of renewable sources (see the section on guarantees of origin) or less carbon-intensive sources—and if they have nominated transmission capacity. This provision incentivizes investments in renewable energy to lower carbon emissions and to reduce compliance costs associated with CBAM. 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UPBEAT: Utility Performance and Behavior Today https://utilityperformance.energydata.info/. World Bank ECARES. 2024. World Bank Group Launches Renewable Energy Initiative to Enhance Energy Security and Affordability in Europe and Central Asia. Washington, DC: World Bank. https://www.worldbank.org/en/news/press-release/2024/03/28/world-bank-group-launches- renewable-energy-initiative-to-enhance-energy-security-and-affordability-in-europe-and- central#:~:text=The%20MPA%20Program%20will%20be,instruments%20for%20clean%20energy %20investments. 71 ANNEX 1 • MARKET SOUNDING PARTICIPANTS INTERVIEWED FOR THIS REPORT Country Share of private sector Share of public sector respondents (%) respondents (%) Albania 50 50 Armenia 0 100 Azerbaijan 0 100 Bosnia and Herzegovina 33 67 Bulgaria 50 50 Croatia 50 50 Georgia 100 0 Kazakhstan 100 0 Kosovo 0 100 Kyrgyz Republic 67 33 Moldova 75 25 Montenegro 0 100 North Macedonia 33 67 Poland 80 20 Romania 100 0 Serbia 67 33 Tajikistan 80 20 Türkiye 83 17 Turkmenistan 0 0 Uzbekistan 75 25 Source: own elaboration 72 ANNEX 2 • REGIONAL MARKET SOUNDING SUMMARIES AND COMPARISONS TÜRKIYE Since the 2010s, Türkiye has been increasingly embracing renewable energy (RE). The share of RE in Türkiye’s renewable power plants grew from about 35 percent in 2010 to about 55 percent by the end of 2022. The country has set ambitious RE targets for 2035, besides establishing a feed-in tariff (FiT) system, which offers stable revenue streams for renewables-based projects. Türkiye recently began incentivizing hybrid solar/wind projects with battery storage on a first-come-first-served basis. The implementation of net metering regulations and a simplified bureaucratic process have notably spurred distributed solar energy generation. However, this growth in distributed solar facilities raises challenges in system balancing and necessitates improved real-time data sharing for generating forecasts. A recently published draft communiqué, “Aggregation Activity in Electricity Market,” sets the intention to provide services for demand- and supply-side management to contribute to system balancing. Stakeholders have identified several key perceived challenges in RE development in Türkiye: • Financing RE projects remains challenging due to high interest rates and inflation. Although the FiT scheme switched from US dollars (US$) to Turkish liras (TRY) in 2020, the high currency risk led to the introduction of partial indexation to US dollars. Moreover, floor and cap prices for FiT and monthly escalation methods are introduced to mitigate currency risk. • Local content requirements in onshore wind auctions, designed to bolster domestic manufacturing and employment, are perceived as restrictive by international financial institutions (that is, contrary to free trade regulation), thus limiting financing options. • Land acquisition for large RE projects is a lengthy process due to fragmented land ownership and changing land use purposes. The Ministry of Energy and Natural Resources is developing a streamlined, one-stop application system. • The current power system is not adequately prepared to integrate the planned renewable capacity. This highlights the need for investments in the network and implementation of smart grids. Political and regulatory risks, as perceived by stakeholders, include a lack of transparency in the allocation of hybrid projects (that is, solar/wind combined with battery storage), which raises concerns about favoritism. Further, Türkiye’s economic situation has deterred international investment. Technical challenges in integrating variable renewables and opposition from the fossil fuel industry further complicate the landscape. Proposed mitigation measures include streamlining the permitting process (for example, via one-stop application to reduce lead times and minimize the hurdles faced by developers), standardizing interconnection rules, adopting flexible grid management, and providing financial incentives to network operators to modernize grids and integrate RE. Additionally, stakeholders advocate for more public- private collaboration, public awareness campaigns, and technical training to support the continued uptake of renewable energy in Türkiye. 73 CAUCASUS The RE landscapes in the Caucasus region, encompassing Armenia, Georgia, and Azerbaijan, showcase distinct strategies and perceived challenges associated with each country’s unique context. RE growth in the Caucasus is perceived to require improving policy and power infrastructure. Armenia is committed to increasing renewables-based generation over the next decades. This growth will be supported by Armenia’s clear regulatory frameworks and ambitious targets. Key targets include 1,000 megawatts (MW) of solar-based generation and 500 MW of wind-based generation by 2040, besides a more immediate goal of achieving at least 15 percent solar energy contribution by 2030. Armenia supports distributed solar photovoltaic (PV) through a net metering scheme and has a history of success with small hydropower projects. However, opportunities for new hydropower are limited. According to interviewed stakeholders, the key perceived challenges for RE development in Armenia are lengthy permitting processes, foreign land ownership restrictions (though land rental is possible), and grid capacity limitations. Financial incentives include low-interest loans from the Renewable Resources and Energy Efficiency Fund and government investment subsidies. Georgia plans a 27.4 percent RE share by 2030 and is undergoing market reforms to achieve this. To achieve the target, Georgia plans to capitalize on its hydro potential and untapped solar and wind resources. Support mechanisms include market-based contracts for difference (CfD) and a net metering scheme for smaller projects. Perceived challenges include land tenure administration, foreign ownership restrictions, community project approvals (that is, municipal and nongovernmental organizations), and issues related to forecasting and system balancing, and grid capacity. Mitigation measures include grid infrastructure development and adherence to environmental and social governance standards. Cross- border electricity trade is considered a strategic initiative for regional energy integration (due to Georgia’s strategic geographical location) and for the export of excess RE from large-scale projects. The Georgia–Romania Black Sea submarine cable project aims to connect the South Caucasus to Eastern Europe. Azerbaijan aims to boost the RE share to 30 percent by 2030; this includes 25 gigawatts (GW) of renewable capacity, much of it solar and wind. Azerbaijan has a legal framework for RE, including auctions for power purchase agreements (PPAs), and seeks to use its favorable geographical location for energy exports. Major perceived hurdles include lengthy permitting processes, land-use conflicts, environmental challenges, reliance on oil and gas, and technical challenges in integrating RE into the existing power system. Standardized environmental impact assessments and realistic project timelines are necessary for effective RE adoption. In summary, while Armenia, Georgia, and Azerbaijan are making strides toward RE deployment, they will also need to make equally determined steps in addressing perceived policy, infrastructure, and other challenges to ensure success. 74 WESTERN BALKANS The Western Balkans (or the WB6)—comprising Albania, Bosnia and Herzegovina, Kosovo, North Macedonia, Montenegro, and Serbia—are navigating several perceived challenges as they work toward their RE goals. The countries face common perceived obstacles; these hurdles, which hinder the development of supportive and stable legislative frameworks for RE, modern grid infrastructure, and streamlined permitting processes, include regulatory instability, grid capacity limitations, political uncertainty, and social and political barriers. A perceived lack of transparency is frequently cited as an obstacle requiring attention. Cross-border trade and regional market integration are seen as vital for balancing and optimizing RE resources (RES). Albania demonstrates high RE potential on the one hand, but on the other grapples with legislative instability and insufficient grid infrastructure. Although RE support mechanisms are in place, the inconsistent pricing of the various RE technologies remains a concern. Grid and land access issues are perceived challenges to constructing solar PV installations, and environmental concerns continue to vex hydropower projects. Additionally, ALPEX (the Albanian power exchange market), although established, is still not consolidated and liquid. Bosnia and Herzegovina has set ambitious RE goals in line with European Union (EU) directives, yet legislative progress is slow because of overlapping authority levels. Despite high natural potential, especially for solar and wind energy in Herzegovina, projects are delayed by the permitting process and grid connection bottlenecks. There is also a perceived concern about the impact of renewable projects on mining sector jobs. Kosovo aims to add 1,200 MW of RE capacity by 2031, primarily through hydro, wind, and solar PV via a CfD scheme, although this expansion will require support via grid improvements, reserve balancing, and a consolidated day-ahead market. Challenges are compounded by perceived political instability and low electricity prices compared with regional neighbors. North Macedonia has ambitious RE targets for 2030 but struggles with weak distribution networks and lengthy permitting procedures. The country advocates for a streamlined project development process and is aligning its strategy with European standards. Amending laws to support RE deployment on agricultural land is considered crucial for North Macedonia’s progress toward its RE targets. Montenegro has met its last RE target and is developing new goals and support measures; solar PV and onshore wind are the primary focuses. The country’s prosumer framework, based on net metering, is effective, but investment in the distribution system is needed to connect more RE facilities. Environmental constraints particularly are perceived to affect hydropower deployment in Montenegro. Serbia has initiated solar and wind tenders, marking a shift toward proactive RE development. Although recent developments significantly strengthened the legal and regulatory framework in the RE sector, it is still perceived to contend with slow permitting procedures, grid connection challenges, and a lack of a skilled workforce. Stakeholders express concerns about the integration of large variable RES and suggest investing in grid infrastructure and improving coordination between the transmission system operator and distribution system operator to address these issues. Overall, renewable adoption in the Western Balkans is marked by country-specific challenges, requiring tailored solutions and regional cooperation. 75 MOLDOVA Moldova has set ambitious RE targets for 2030 and 2050; it strives for net zero emissions and a significant increase in RE within its energy mix. Stakeholders commented that even though the targets appear ambitious, Moldova is perceived to have made little progress. The government plans to integrate 400 MW of renewables-based electricity, primarily from wind and solar PV; 210 MW is already operational. Emphasis is on developing centralized as well as distributed solar energy, expanding onshore wind capacity, and exploring opportunities in battery storage, given the limited potential for additional hydropower. Under the new Renewable Energy Law, Moldova aims to transition from FiTs to CfD and to introduce auction systems for large-scale renewable projects. Additionally, the law proposes shifting from net metering to net billing. However, local financing for RE projects remains a challenge. Local banks typically offer short-term loans with high interest rates, unsuitable for long-term energy project financing. RE project financing thus often requires relying on international development banks or private investors. Key perceived risks include the bankability of offtake agreements, limited land availability due to the predominance of agriculture, and lengthy permitting processes. Concerns also arise regarding the country’s lack of capacity for system balancing and its limited interconnections for exporting excess installed RE capacity to the EU market, potentially leading to RE curtailment. Additionally, Moldova’s outdated infrastructure and low electricity consumption is perceived to pose challenges to the installation of large-scale wind and solar projects. The recent investments in fossil fuels and the lack of trained workers in both the private and public sectors are seen to further complicate the transition to RE. Moldova’s success in meeting its RE targets will largely depend on overcoming these obstacles through innovative policy making, efficient financial mechanisms, and international support. 76 EU COUNTRIES The EU region, including Bulgaria, Croatia, Poland, and Romania, is collectively transitioning to RE, utilizing PPAs and auction systems for large-scale projects. However, each country faces distinct challenges within this framework. The regulatory landscapes for RE vary significantly across these countries. While solar PV is considered an attractive alternative in general among all the countries, their focus on wind energy and battery storage differs. Common perceived challenges include limited grid capacity, lengthy permitting processes, and regulatory instability (that is, political instability is a barrier to legislation development and implementation). RE development is also hindered by social and political factors, such as a perceived opposition from the fossil fuel industry and concerns about job losses during the RE transition. Stakeholders recognize effective collaboration, regulatory clarity, and innovative financing as vital in overcoming these obstacles to achieve RE goals. Bulgaria’s RE ambition is moderate, constrained by political instability and a perceived unsupportive regulatory framework. Solar PV and onshore wind are popular technologies, but grid capacity and regulatory stability have to be improved urgently. Perceived challenges include the bankability of offtake agreements, land and grid access issues, and workforce shortages. Additionally, the most relevant sociopolitical barriers are concerns about job losses due to the RE transition, the impact of RE on electricity prices, and resistance from the fossil fuel sector. Croatia has modest RE targets, with more ambitious plans under development. The regulatory framework for RE favors specific technologies in the form of technology-specific premiums and simplifies procedures for smaller projects. However lengthy procedures to obtain building and connection permits, unclear environmental requirements, and project implementation are perceived as key challenges. Poland’s RE ambition is moderate, with a focus on solar PV and wind energy, but grid access and power dispatch face significant hurdles. Perceived risks include frequent changes in legal and regulatory frameworks, prolonged permitting processes, and grid connection challenges. Sociopolitical concerns also arise regarding the impact of RE on state-owned enterprises and the complexities of integrating renewables into the existing power system. Romania has a high ambition for RE. It aims to increase its RE targets for 2030, and emphasizes both centralized and distributed solar PV, with a growing interest in battery storage. Advantages include a relatively efficient permitting process and the allocation of EU funds for renewables’ deployment. Nonetheless, challenges persist, such as grid capacity limitations and the bankability of offtake agreements. 77 CENTRAL ASIA The Central Asia region, encompassing Uzbekistan, Kazakhstan, Tajikistan, and the Kyrgyz Republic, exhibits diversity of ambitions, technological preferences, and policy frameworks in the RE sector. These are influenced by each government’s commitments and technological capabilities. For instance, Tajikistan and the Kyrgyz Republic predominantly focus on hydropower due to their geographical advantages. Uzbekistan, leading in RE adoption in the region, has several RE projects under construction and is attracting growing interest from international independent power producers. Common regional perceived risks include land ownership restrictions for private entities, weak antitrust and dispute resolution mechanisms, and political instability, especially as perceived in the Kyrgyz Republic. Financing in local currency poses a significant challenge across these countries. International finance institutions play a crucial role in supporting policy development, infrastructure, and investment in renewable technologies. Stakeholders have expressed concerns about the impact of RE deployment on electricity prices, supply security, and the technical challenges involved in integrating variable RE into the power system. Uzbekistan demonstrates a high level of ambition for RE deployment. The advantage here is a clear legal framework supporting RE. Uzbekistan has primarily focused on large-scale solar and wind projects, boasting a successful track record in public-private partnerships with international developers, however challenges in land acquisition, permitting, and grid access persist. Stakeholders have noted the weak financial position of electricity offtakers and the impact of subsidized electricity tariffs on making the market less attractive. Further, stakeholders noted a recent perceived decline in government transparency in project allocation, primarily due to bilateral negotiations. Kazakhstan, aiming for ambitious RE targets, is seeking to attract international stakeholders. However, recent auctions have predominantly been won by local investors, due to perceived nonbankable PPAs and low tariff caps. Concerns about perceived government transparency and weak institutional capacity have been raised, complicating Kazakhstan’s efforts to attract international investments. Tajikistan’s RE policy is centered on hydroelectric power, but it has long-term goals for solar energy development. Despite limited expansion in solar PV so far, efforts are being made to improve the legal framework. Opportunities for public-private partnerships in Tajikistan will require substantial strengthening of the financial sector. Key perceived barriers identified include restrictions on land acquisition, lack of transparency and clarity in the application process, low end-user tariffs, and limited government capacity to advance RE projects. The Kyrgyz Republic, like Tajikistan, is in the early stages of RE development, focusing primarily on hydro projects, with currently limited progress in other RE technologies. The RE sector in the Kyrgyz Republic is impacted by perceived political instability and regulatory challenges. Challenges perceived involve land tenure administration, lengthy permitting processes, low (subsidized) electricity tariffs and an underdeveloped financial sector. 78 ANNEX 3 • COUNTRY PROFILES ALBANIA Electricity trends and market Albania’s primary energy production is dominated by fossil fuels, mainly crude oil. Hydropower is the second-largest contributor. There is a need to diversify the electricity sector to reduce the country’s dependence on hydropower and minimize its vulnerability to extreme climate events. Evolution of power generation mix, 2000–21 Share of RE in installed power capacity, 2022 Source: IEA Energy Statistics. Source: IRENA Renewable Energy Capacity Statistics. Share of RE in total final consumption by sector, Energy self-sufficiency, 2021 2000–20 Imports Exports (TJ) (TJ) Electricity 8,107 -10,080 Net exporter Natural gas 0 0 Coal 3,958 0 Net importer Oil 0 -22,935 Net exporter Oil products 48,791 -4,925 Net importer Source: IEA Energy Balances. Note: TJ = terajoule. Source: IEA and UNSD. Electricity market structure and participants • The Energy Regulatory Authority (ERE) has the responsibility of defining the rights and obligations of market participants in the Albanian power market and ensuring regulatory control. • The transmission system operator (TSO) is responsible for establishing/appointing the entity that will operate the power exchange and act as the balancing market operator. Albania’s power Provides all necessary interactions for the operation of the day-ahead market exchange (including intraday market). 79 A trader who engages in trading in Albania or supplies cross-border energy must fulfill the role of a balancing responsible party. This includes the responsibility of predicting generation and consumption. Bilateral contracts Trading of physical bilateral contracts is allowed only if it aligns with the and cross-border purchased and nominated capacities determined at the open auction held by the agreements Coordinated Auction Office in South East Europe (SEE CAO). All over-the-counter (OTC) markets function through financial contracts, with the physical energy being traded by the power exchange. The sale-purchase contracts for cross-border agreements/electricity interconnections are coordinated by the SEE CAO and are not subject to regulation. Electricity trade in the region Interconnections with Albania Country Capacity (GW) Imports Exports Interconnection lines Greece 0.25 388 488 400 kV North Macedonia 0.5 Montenegro 0.35 1,627 2,068 220 kV and 400 kV Serbia 0.65 Kosovo 0.1 237 244 220 kV and 400 kV Note: GW = gigawatt; kV = kilovolt. Strategy and policies in support of RE electricity Nationally Determined Contribution (NDC) target and renewable energy (RE) strategy Renewable energy The National Renewable Energy Action Plan (NREAP) aims to achieve a 38 target percent share of renewables in total final energy consumption by 2020. Additionally, a National Energy and Climate Plan is being developed to establish targets for 2030. Renewables capacity The NREAP outlines specific deployment targets for different technologies: target 7 megawatts (MW) for hydropower, 490 MW for solar photovoltaic (PV), 50 MW for wind, and 41 MW for waste-to-power by 2020. Emission reduction As part of the revised NDC, Albania has committed to reducing emissions target by 20.9 percent by 2030 compared to the business-as-usual scenario. Financial and regulatory support for electricity Feed-in tariff (FiT) To promote renewable electricity production, the country offers long-term power purchase agreements (PPAs) through FiTs to large-scale producers with plants up to 2-kilowatt (kW). Net metering Small to medium enterprises/family consumers can install solar/wind systems up to 500 kW. Billing is done on a monthly basis at a price determined by the ERE. Feed-in premium (FiP) The level of support provided for installed RE capacity above 2 MW will be determined by the FiP. 80 Contract for difference The country offers CfD support with a maximum duration of 15 years to (CfD) high-priority electricity producers (in case of hydro for plants up to 15 MW capacity) in the form of a variable premium granted through competitive bidding. The CfD is managed by the Renewable Energy Operator. Renewable energy certificates mechanism Guarantees of origin Issued by the ERE upon the request of RE producers for each megawatt- (GOs) introduced in hour (MWh) of electricity generated from sources such as hydro, biomass, 2017 solar, and wind. These certificates must be used within 12 months of production. The ERE issues, transfers, monitors, and maintains an electronic registry of the GOs. GOs issued by other European Union (EU) member states are recognized by Albania. Agreements have been signed by issuing bodies in Albania to establish electronic registries for GOs for electricity. Policies in support of RE heat Target for the heating There are no targets set for renewables in the sector. and cooling sector Financial and There are no policies related to renewable energy heat. regulatory support for heating and cooling 81 ARMENIA Electricity trends and market In Armenia, the main sources of power are hydroelectricity, natural gas, and nuclear energy. The country’s reliance on oil is relatively low as the transport sector depends primarily on natural gas imported from the Russian Federation. Current energy policies focus mainly on modernizing the existing nuclear plant and constructing a new plant that utilizes SMR (small modular reactor) technology. Additionally, there is a growing emphasis on developing indigenous renewable energy sources (RES). Evolution of power generation mix, 2000–21 Share of RE in installed power capacity, 2022 Source: IEA Energy Statistics. Source: IRENA Renewable Energy Capacity Statistics. Note: GWh = gigawatt-hour. Share of RE in total final consumption by sector, Energy self-sufficiency, 2021 2000–20 Imports Exports (TJ) (TJ) Electricity 1,327 -3,582 Net exporter Natural gas 107,486 0 Net importer Coal 3,958 0 Net importer Oil 0 0 Oil products 28,039 -18 Net importer Source: IEA Energy Balances. Note: TJ = terajoule. Source: IEA and UNSD. Electricity market structure and participants • The Closed Joint Stock Company (CJSC) Settlement Center handles commercial settlements between generators and ENA (Electricity Networks of Armenia), as well as electricity imports and exports. • The Center has been granted a license by the Public Services Regulatory Commission to serve as the market operator in the future liberalized power market. Bilateral contracts Form 80 percent of the market share. The primary sales of RES power plants occur through long-term contracts with the universal supplier (currently ENA) in the regulated prices component of the bilateral contracts market. 82 Electricity trade in the region Interconnections with Armenia Country Capacity (GW) Interconnection lines Georgia 220 kV and 110 kV built, 400 kV under construction Iran 220 kV built and 400 kV to be operational by 2023 • By 2025, new transmission line of 500 kV from Azerbaijan-Georgia-Türkiye capacity expansion (Georgia: 1.4 GW and Türkiye 1.05 GW). Note: GW = gigawatt; kV = kilovolt. Strategy and policies in support of RE electricity NDC target and RE strategy Renewable energy The government has set targets to increase the share of solar power in target total generation to at least 15 percent by 2030, and to raise the share of renewables in the power generation mix to 66 percent by 2036. This includes small hydro, wind, and solar PV, but excludes biofuels. Renewables capacity To achieve the RE target for 2030, the construction of solar PV plants with target a total installed capacity of 1,000 MW is planned. There is also an expected increase in wind capacity. Meeting the 2036 target requires the installation of 2,185 MW of new RE capacity in Armenia. Emission reduction The NDC announced in 2021 includes an economywide target of reducing target greenhouse gas (GHG) emissions by 40 percent by 2030, compared to the base year of 1990. Additionally, the ambitious 2050 targets aim to reduce emissions to almost 2.07 tons of carbon dioxide equivalent per capita. Financial and regulatory support for electricity Feed-in tariff FiTs are available for small hydropower plants (SHPPs) with a capacity of up to 30 MW and solar PV plants up to 5 MW. The FiT duration for SHPPs is set at 15 years, and for other RES at 20 years. Net metering Autonomous producers have the option to set up 150 kW solar PV plants and will be reimbursed at the end of the year based on the difference between their production and consumption at regulated prices set by the Public Services Regulatory Commission. The new regulations also permit virtual and group net metering. Tenders This is currently only applicable for solar PV plants, and is not yet available for wind and hydropower. Other support For newly established plants, the government is transitioning to CfDs. Other forms of support include assistance in obtaining land use permits, nondiscriminatory access and connection conditions, investment aids and loans, as well as tax and duty exemptions for imported equipment. Renewable energy certificates mechanism System not yet established. 83 Policies in support of RE heat Target for the heating There are no specific targets set for renewables in the sector. and cooling sector Financial and Although there are policies in place to promote the adoption of renewable regulatory support for energy heating and cooling technologies, residential heating in Armenia is heating and cooling mostly reliant on small, individual gas boilers. Therefore, it is crucial for the Armenian government to enhance regulatory support to fully tap into the potential of RES for heat supply, including the use of solar PV, solid waste, biomass, geothermal energy, and heat pumps. AZERBAIJAN Electricity trends and market Azerbaijan’s energy system depends on oil and gas, and thus its economy is primarily driven by these sectors. These account for about 90 percent of the country’s exports and 30–50 percent of its gross domestic product based on oil prices. While there is strong potential for renewable energy development, its practical deployment has been limited. Evolution of power generation mix, 2000–21 Share of RE in installed power capacity, 2022 Source: IEA Energy Statistics. Note: GWh = gigawatt-hour. Source: IRENA Renewable Energy Capacity Statistics. Share of RE in total final consumption by sector, Energy self-sufficiency, 2021 2000–20 Imports Exports (TJ) (TJ) Electricity 546 -6,024 Net exporter Natural gas 0 -739,988 Net exporter Coal 0 0 Oil 0 -1,240,269 Net exporter Oil products 12,072 -70,566 Net exporter Source: IEA Energy Balances. Note: TJ = terajoule. Source: IEA and UNSD. 84 Electricity market structure and participants • Azerenergy owns and operates most generation assets including gas-fired, oil-fired, and hydro plants, and is the transmission system operator (TSO). • Azerishiq OJSC is the 100 percent state-owned enterprise responsible for electricity distribution, supply, and other customer services except in the Nakhchivan Autonomous Republic. Wholesale market Yet to be established. Electricity trade in the region Interconnections with Azerbaijan Country Capacity (GW) Interconnection lines Georgia 0.65 500 kV and 330 kV Iran 0.6 330 kV, 230 kV, 110 kV, and two 132 kV Türkiye 0.65 Two 154 kV and 34.5 kV Russian Federation 0.35 • By 2025, new transmission line of 500 kV from Azerbaijan-Georgia-Türkiye capacity expansion (Georgia: 1.4 GW and Türkiye 1.05 GW). Source: Capacity and lines data from International Energy Agency (IEA). Note: GW = gigawatt; kV = kilovolt. On December 17, 2022, the Agreement on Strategic Partnership in the Development and Transmission of Green Energy between the governments of the Republic of Azerbaijan, Georgia, Romania, and Hungary was signed in Bucharest. Strategy and policies in support of RE electricity NDC target and RE strategy Renewable energy The government has been considering a longer-term target to increase the target share of renewables in power generation up to 30 percent by 2030. Renewables capacity The government aims to install 1,500 MW of renewable energy capacity by target 2030. Emission reduction The country committed to reducing its emissions by 35 percent by 2030 target from the 1990 base year set in its NDC. Financial and regulatory support for electricity A draft law on using renewable energy sources for electricity production that is under development is expected to introduce auctions and tenders as support schemes. Rules on net metering/billing mechanism have also been drafted. Feed-in tariffs FiTs are set for wind, mini hydro, and other renewable energy technologies. Renewable energy certificates mechanism System not yet established. 85 Policies in support of RE heat Target for the heating The strategic roadmap for development of heating was approved in 2016. and cooling sector But there is no specific target set. The country’s energy planning should have a more detailed and deeper focus on nonpower sectors, such as the heating and cooling sector. Financial and There are no policies related to renewable energy heat. regulatory support for heating and cooling BOSNIA AND HERZEGOVINA Electricity trends and market Bosnia and Herzegovina’s (BiH’s) electricity generation capacity is dependent on hydropower and coal. Currently, the county is over-reliant on hydropower, but it has started developing solar and wind. There are plans to develop new coal plants unlike other countries. There is now nationally owned natural gas extraction and gas imported from Russia and other neighboring countries. Also, crude oil is imported via the Adriatic oil pipeline JANAF. Evolution of power generation mix, 2000–21 Share of RE in installed power capacity, 2022 Source: IEA Energy Statistics. Source: IRENA Renewable Energy Capacity Statistics. Note: GWh = gigawatt-hour. Share of RE in total final consumption by sector, 2000–20 Energy self-sufficiency, 2021 Imports Exports (TJ) (TJ) Electricity 11,732 -28,850 Net exporter Natural gas 9,206 0 Net importer Coal 43,951 -14,253 Net importer Oil 563 0 Net importer Oil products 68,847 -209 Net importer Source: IEA Energy Balances. Note: TJ = terajoule. Source: IEA and UNSD. 86 Electricity market structure and participants An independent system operator in BiH (NOS BiH) is responsible for the dispatching, balancing, and operation of the system as well as cross-border capacity allocation. Elektroprenos BiH owns electricity transmission assets and has an obligation to prepare a long-term transmission network development plan, also covering new cross-border lines to be developed every year for a 10-year period. Third-party access to the transmission network is regulated on a state level by the State Electricity Regulatory Commission (DERK). It also issues licenses for cross-border trade of electricity. Bilateral contracts The wholesale market is dominated by the three state-owned incumbent suppliers, trading through bilateral contracts. The state-owned integrated power company (ERS) also trades directly in foreign spot markets, whereas the public electric utilities EPBiH and EPHZHB employ an agent to trade on their behalf. Spot markets No organized electricity trading market and lack of competitive balancing or spot trading options. Electricity trade in the region Interconnections with Bosnia and Herzegovina Country Capacity (GW) Imports Exports Interconnection lines Montenegro 0.5 and 0.3 599 2,786 (2025) Serbia 0.6 and 0.5 879 814 (2025) Kosovo 0.534 Croatia 1,781 4,414 Note: GW = gigawatt. Strategy and policies in support of RE electricity NDC target and RE strategy Renewable energy The government sets out these targets for 2030: 43.62 percent of RES in target final consumption, 68.6 percent of RES in electricity, and 8.9 percent of RES in transport. Renewables capacity BiH expects to reach 5,123 MW by 2030. Currently, installed renewable target capacity installed is at 2,074 MW, mainly due to hydropower. Emission reduction The country aims to reduce GHG emissions by 33.2 percent by 2030, target compared with 12.8 percent in 1990. Financial and regulatory support for electricity Feed-in tariff Financial support from the state through FiTs or guaranteed purchase prices will be received by: A) Small plants (hydroelectric, wind, and solar power plants on land) with an installed capacity of 150 kW or less. B) Rooftop solar power plants, biomass and biogas power plants, plants for landfill gas and for gas for municipal wastewater treatment with an installed capacity of 500 kW or less. 87 Auctions Large power plants will be subsidized at a premium reached through a public bidding procedure. The auctions for large plants will be conducted every two years by the incentive operator. Renewable energy certificates mechanism Entities in Bosnia and Herzegovina joined the Energy Community initiative to establish a regional system for GOs. Electronic registries for GOs in Bosnia and Herzegovina have been created and in June 2023 Republika Srpska signed direct agreements with the service provider Grexel, on the launch of electronic registries for GOs for electricity. Policies in support of RE heat Target for the heating The government set out the target to reach 58.57 percent of RES in heating and cooling sector and cooling by 2030. Financial and There are specific regulatory measures designed to encourage the use of regulatory support for renewables in the heating and cooling sector. The government is heating and cooling considering issuing of GOs for heat energy generated using RES. BULGARIA Electricity trends and market Bulgaria’s power system is diversified and well developed. Its coal power capacity has been slowly decreasing, being replaced by renewable power capacity. During the transition, the government plans to rely on nuclear power to fulfil the electricity demand. Evolution of power generation mix, 2000–21 Share of RE in installed power capacity, 2022 Source: IEA Energy Statistics. Source: IRENA Renewable Energy Capacity Statistics. Note: GWh = gigawatt-hour. 88 Share of RE in total final consumption by sector, Energy self-sufficiency, 2021 2000–20 Imports Exports (TJ) (TJ) Electricity 6,685 -38,287 Net exporter Natural gas 127,190 0 Net importer Coal 23,778 -148 Net importer Oil 181,136 0 Net importer Oil products 92,096 -84,696 Net importer Source: IEA Energy Balances. Source: IEA and UNSD. Note: TJ = terajoule. Electricity market structure and participants • ESO EAD, is the TSO, responsible for operational planning and control of the Bulgarian electrical power system. It also oversees the operation, maintenance, and reliable functioning of the transmission network. • ESO EAD issues and manages the list with Bulgaria’s Energy Identification Coding for trading in the Europe-wide electricity exchange. • The Independent Bulgarian Energy Exchange is responsible for centralized trading. Electricity trade in the region Interconnections with Bulgaria Country Capacity (GW) Interconnection lines Greece 0.6 and 0.75 (2025) One 400 kV line North Macedonia 0.4 and 0.1 (2025) One 400 kV line Romania 0.3 and 0.8 (2025) Two 400 kV lines Serbia 0.5 Türkiye 0.7 and 0.5 (2025) Two 400 kV lines • New 400 kV line with Greece to be operational by 2023. • New double 400 kV line with Serbia to be operational by 2034. Note: GW = gigawatt; kV = kilovolt. Strategy and policies in support of RE electricity NDC target and RE strategy Renewable energy The government sets these targets by 2030: 27.09 percent of RES in the target final consumption, 30.33 percent of RES in electricity, 14.2 percent of RES in transport, and 42.6 percent of RES in heating and cooling. Renewables capacity The government targets 2,465 MW of electricity generation, installed target capacity from RES, including 2,174 MW solar plants, 249 MW of wind, and 222 MW of biomass-powered plants. Emission reduction Bulgaria plans to reduce GHG emissions by 11.5 percent by 2030, relative target to 2005, according to the National Climate Change Action Plan 2013–20. 89 Financial and regulatory support for electricity Feed-in tariff End providers buy out the electric energy from renewable sources, produced from energy facilities with a total installed capacity of less than 4 MW, under the preferential price determined by the Energy and Water Regulatory Commission. Contract for Difference All power plants using renewable energy and combined heat and power (CfD) with an installed capacity of 4 MW and higher should sign contracts with the Electricity System Security Fund on the granting of a premium to offset the difference between the stock price and the price in the long-term contracts that RES-E (electricity from renewable energy sources) producers have with the National Electricity Company (NEK). Renewable energy certificates mechanism • Guarantees of origin (GOs): Proof of eligibility for receiving FiTs from the grid operator in the RES support system. • GOs are non-tradable and not used for disclosure. • Not implemented according to the European Energy Certificate System (EECS) by the Association of Issuing Bodies (AIB). Policies in support of RE heat Target for the heating The country expects to achieve its 2030 national RES share target of 42.6 and cooling sector percent in the heating and cooling sector. Progress was especially rapid between 2005 and 2019. Financial and The European Bank for Reconstruction and Development’s Residential regulatory support for Energy Efficiency Credit Line provides assistance with the support of the heating and cooling KIDS Fund to households and building owner associations to reduce heating costs by implementing energy efficiency and RE measures. 90 CROATIA Electricity trends and market Croatia’s power generation sector is dominated by hydro power and natural gas. The country has great potential to decrease its energy imports by expanding the use of renewable sources. Though there has been some progress in wind, the capacity level for solar energy is low compared to its potential. Evolution of power generation mix, 2000–21 Share of RE in installed power capacity, 2022 Source: IEA Energy Statistics. Source: IRENA Renewable Energy Capacity Statistics. Note: GWh = gigawatt-hour. Share of RE in total final consumption by sector, Energy self-sufficiency, 2021 2000–20 Imports (TJ) Exports (TJ) Electricity 41,417 -27,162 Net importer Natural gas 89,343 -4147 Net importer Coal 17,867 0 Net importer Oil 98,206 -20,176 Net importer Oil products 94,242 -71,318 Net importer Source: IEA Energy Balances. Source: IEA and UNSD. Note: TJ = terajoule. Electricity market structure and participants • The Croatian Electricity Market Operator (HROTE) is responsible for the organization of the electricity market. • Transmission activities including maintenance, development, construction, and operation of the transmission system are the responsibility of the TSO, Hrvatski Operator Prijenosnog Sustava (HOPS). Bilateral contracts Wholesale power trading is exclusively based on bilateral contracts. Cross-border Regulation of the cross-border transfer of electricity in Croatia is driven by the trade TSO through auctions. 91 Electricity trade in the region Interconnections with Croatia Country Capacity (GW) Interconnection lines Bosnia and Herzegovina 0.7 and 0.55 (2025) Two 400 kV Hungary 2 Two 2X400 kV Italy 0 Serbia 0.6 400 kV Slovenia 1.5 and 0.5 (2025) 2X400 kV and 400 kV Note: GW = gigawatt; kV = kilovolt. Strategy and policies in support of RE electricity NDC target and RE strategy Renewable energy The national target is set as 36.4 percent of RES in the final consumption target (and 65.6 percent in 2050), 63.8 percent of RES in electricity, and 13.2 percent of RES in transport by 2030. Renewables capacity The government aims to increase RES connection by at least 800 MW by target 2026 and 2,500 MW by 2030. Emission reduction The government aims to reduce its GHG emissions by 45 percent by 2030 target and to abandon coal by 2033. Financial and regulatory support for electricity Auctions and market The incentive system for RES and high-efficiency cogeneration features a premium market premium and a guaranteed purchase price for RES facilities. The premium will be set through a competitive bidding process (auction). Contract for Difference Double-sided sliding FiP in place, going along with components of a CfD (CfD) mechanism. Premium to be paid for a period of 12 years. Renewable energy certificates mechanism • Guarantees of origin (GOs) apply to RE electricity for now but there are plans for them to extend to all electricity generation. • GOs are proof to final consumers that a given share or quantity of energy is produced from RES. • AIB applied regulation. Policies in support of RE heat Target for the heating The government has set a target of 36.6 percent of RES in total heating and and cooling sector cooling energy consumption by 2030, compared to 33.3 percent in 2020. Financial and The Thermal Energy Market Act governs regulatory measures for the safe regulatory support for and reliable supply of thermal energy for heating and cooling purposes. heating and cooling These measures stimulate the production of energy from RES for heating and cooling. 92 GEORGIA Electricity trends and market Hydropower and fuelwood are the primary sources of domestic energy. Georgia depends on imports for all its natural gas and oil products. The government has focused on securing private investment to build new renewable generation, increase thermal generation efficiency, and diversify fossil fuel supply sources. Evolution of power generation mix, 2000–21 Share of RE in installed power capacity, 2022 Source: IEA Energy Statistics. Source: IRENA Renewable Energy Capacity Statistics. Note: GWh = gigawatt-hour. Share of RE in total final consumption by sector, 2000– Energy self-sufficiency, 2021 20 Imports Exports (TJ) (TJ) Electricity 11,484 -5,669 Net importer Natural gas 101,507 0 Net importer Coal 6,822 -24 Net importer Oil 0 0 Oil products 61,398 -1,051 Net importer Source: IEA Energy Balances. Note: TJ = terajoule. Source: IEA and UNSD. Electricity market structure and participants • The Electricity System Commercial Operator (ESCO) is responsible for balancing and settlement according to market rules, as well as exporting surplus power. • The transmission operator, Georgian State Electrosystem (GSE), operates the entire transmission grid including the 500‑kV lines and interconnectors. Bilateral contracts 75.9 percent of all electricity generated is sold through bilateral contracts and the rest through the ESCO. Georgian Energy Plans exist to introduce day-ahead and intraday markets as well as markets for Exchange bilateral contracts, but their opening is delayed due to a lack of market readiness. The exchange acts as a registry of bilateral contracts as of 2024. 93 Electricity trade in the region Interconnections with Georgia Country Capacity (GW) Interconnection lines Russian Federation 0.044 Türkiye 0.124 500 kV and 400 kV Azerbaijan 0.63 500 kV and 330 kV Armenia 0.15 220 kV and 400 kV The GSE’s 10- year network development plan outlines the following future interconnection lines: • Russia: 500‑kV, 220‑kV, and 110‑kV lines (totaling 1.6 GW) by 2030 • Azerbaijan: 500‑kV and 330‑kV lines; 1.4 GW • Armenia: 220‑kV and 400-kV lines; 0.7 GW • Türkiye: 400‑kV, 220‑kV, and 154-kV lines; 1.4 GW Note: GW = gigawatt; kV = kilovolt. Strategy and policies in support of RE electricity NDC target and RE strategy Renewable energy The target is set for RES to supply 27.4 percent of total energy demand by target 2030, according to the 2022–30 national plans. Renewables capacity Georgia’s electricity TSO estimated that the country’s power system could target accommodate 333 MW of wind and 130 MW of solar capacity in 2020–22. But adding more reservoir hydropower plants (HPPs) to the system enables the integration of 1,332 MW of wind and 520 MW of solar. Emission reduction Georgia aims to unconditionally reduce national GHG emissions to 35 target percent below the 1990 level by 2030; to 50 percent below the 1990 level by 2030 if the world commits to limit average global temperature increase to 2°C; and to 57 percent below the 1990 level by 2030 if the world commits to limit average global temperature increase to 1.5°C. Financial and regulatory support for electricity Feed-in tariff This scheme also covers (but is not limited to) investment aid, the relief from or decrease in a tax, tax rebates, support schemes for obligations related to renewable energy, including schemes which use green certificates, and direct price support schemes which include a special green tariff and a premium tariff. Net metering For small-scale power plants (that is, installed capacity of less than 500 kW) owned by retail consumers, excess electricity will be supplied to distribution companies at the weighted average purchase price. Auctions For 15 years, the CfDs would be applicable at the winning price in the auction. Feed-in premium For payment of a market premium to renewable energy plants (hydro, wind, and solar) with an installed capacity of more than 5 MW. 94 Renewable energy certificates mechanism • Certificate of origin of electric power received from renewable sources will be standard and will be issued for the generation of electric power of 1 MW/hour. • Certificate of origin should be used within 12 months from the generation of the relevant energy. Policies in support of RE heat Target for the heating There are no targets set for renewables in the sector. and cooling sector Financial and There are no policies related to renewable energy heat. Measures for regulatory support for developing renewable energy are currently included in the National Energy heating and cooling and Climate Plan to be approved in 2023. KAZAKHSTAN Electricity trends and market Coal fuel accounted for the largest share of electricity generation, followed by natural gas. Kazakhstan is a major energy exporter, particularly for coal, oil products, and natural gas. Meanwhile, the penetration of solar PV and wind power has been slower. Most renewable-based electricity is generated from hydropower. Evolution of power generation mix, 2000–21 Share of RE in installed power capacity, 2022 Source: IEA Energy Statistics. Source: IRENA Renewable Energy Capacity Statistics. Note: GWh = gigawatt-hour. 95 Share of RE in total final consumption by sector, Energy self-sufficiency, 2021 2000–20 Imports Exports (TJ) (TJ) Electricity N/A N/A Natural gas 315,861 -656,941 Net exporter Coal 11,250 -479,904 Net exporter Oil N/A N/A Oil products 42,235 -195,497 Net exporter Source: IEA Energy Balances. Note: TJ = terajoule. Source: IEA and UNSD. Electricity market structure and participants The Kazakhstan Electricity Grid Operating Company, as the system operator of the Unified Power System (UPS) of the Republic of Kazakhstan, is responsible for interaction with power systems of neighboring countries in terms of management and stability of safe parallel operation. Decentralized Bilateral contracts of electricity purchase and sale. market Centralized Is based on purchase and sale of electricity for short-term (spot-trade), midterm market (week, month), and long-term (quarter, year) periods. Real-time Operates for physical and subsequent financial settlement of hourly imbalances. balancing market Ancillary service The system operator renders the system services and acquires the ancillary market services from the Kazakhstan electric power market entities to ensure compliance with the state standards established for reliable operation of the Kazakhstan UPS and electric power quality. Electricity trade in the region Interconnections with Kazakhstan Country Capacity (GW) Imports Exports Interconnection lines Kyrgyz Republic 305 687 Two 500 kV and four 220 kV Uzbekistan 638 One 500 kV and two 220 kV Russian Federation 1,788 1,327 Nine 500 kV and ten 220 kV Note: GW = gigawatt; kV = kilovolt. Strategy and policies in support of RE electricity NDC target and RE strategy Renewable energy target The government has set a 6 percent RE share of power generation by 2025, 23 percent by 2035, and 50 percent by 2050. 96 Renewables capacity target The government has set 4.6 GW of wind power capacity and 0.5 GW of solar power capacity by 2030. Emission reduction target Kazakhstan submitted its Intended Nationally Determined Contribution (INDC) with a pledge to reduce GHG emissions by 15–25 percent by 2030 from its 1990 level. Financial and regulatory support for electricity Feed-in tariff FiTs for solar, wind, small hydro, and biogas plants have been announced and are eligible for guaranteed power prices for a 15-year period. Auction Auctioning mechanism introduced with the Republic of Kazakhstan approves the schedule of auctions annually as well as the marginal auction prices. Renewable energy certificates mechanism • International Renewable Energy Certificate (I-REC) Standard: The Association of Regional Environmental Initiatives (ECOJER) is the issuer of I-REC for electricity in Kazakhstan. • Consumers of electricity can use these certificates to meet standards requirements and fulfill their corporate social responsibility objectives. Policies in support of RE heat Target for the heating There are no targets set for renewables in the sector. and cooling sector Financial and There are no policies related to renewable energy heat. regulatory support for heating and cooling 97 KOSOVO Electricity trends and market Progress in the development of renewable energy was delayed for many years because of plans for a new 500 MW lignite power plant, which limited efforts to develop a clean power system. Kosovo ranks fifth-largest in the world in terms of coal resources. Because of its heavy reliance on coal, it needs better interconnections with neighboring countries. Evolution of power generation mix, 2000–21 Share of RE in installed power capacity, 2022 Source: IEA Energy Statistics. Source: IRENA Renewable Energy Capacity Statistics. Note: GWh = gigawatt-hour. Share of RE in total final consumption by sector, 2000– Energy self-sufficiency, 2021 20 Imports Exports (TJ) (TJ) Electricity 4,721 -3,005 Net importer Natural gas 0 0 Coal 712 -2,067 Net exporter Oil 0 0 Oil products 32,956 0 Net importer Source: IEA Energy Balances. Note: TJ = terajoule. Source: IEA and UNSD. Electricity market structure and participants • KOSTT is the sole operator of the power transmission system and market and is owned 100 percent by the Assembly of Kosovo. It operates with two separate licenses—one for operation of the transmission system and the other for market operation. • The Albanian Power Exchange (ALPEX), under a license already granted by the Energy Regulatory Office (ERO), will operate the day-ahead market in Kosovo* based on the service agreement with KOSTT. Intraday market Intraday capacity is allocated bilaterally. 98 Cross-border KOSTT allocates cross-border capacities through SEE CAO. trade The cross-border balancing cooperation with Albania follows the agreement on the establishment of the Albania-Kosovo* (AK) control block. Electricity trade in the region Interconnections with Kosovo Country Capacity Imports Exports Interconnection (GW) lines North Macedonia 0.158 354.3 728 400 kV Serbia 0.531 1,602 333.9 Two 110 kV, one 400 kV and 220 kV Albania 0.710 895.7 764.3 400 kV and 220 kV Montenegro 0.400 484 823.1 400 kV Note: GW = gigawatt; kV = kilovolt. Strategy and policies in support of RE electricity NDC target and RE strategy Renewable energy Kosovo’s energy strategy sets a renewable target for 35 percent of total target electric energy consumption by 2031, and further integration in regional energy markets. Renewables capacity Kosovo’s energy strategy aims to construct 390 MWh of battery storage target capacity to facilitate renewables and improve power stability. Emission reduction Kosovo targets to reduce GHG emissions by 16.3 percent by 2030, target compared with 2016 levels. Financial and regulatory support for electricity Feed-in tariff FiTs for RE sources such as wind, solar PV, HPP, and biomass. Quotas for solar are 30 MW and wind 150 MW Auctions Auctions were introduced in 2021, as FiTs for large installations proved expensive. Renewable energy certificates mechanism Kosovo joined the Energy Community initiative to establish a regional system for GOs. The national electronic registry for GOs in Kosovo* was created and can be utilized as soon as the energy regulator, as the designated issuing body, signs a direct agreement with the service provider. Policies in support of RE heat Target for the heating The recent energy strategy 2022–31 aims to promote the use of and cooling sector renewables in heating: minimum 65 megawatt-thermal (MWth) vs the baseline of 15 MWth. The detailed target for year 2031 needs to be determined. The Millennium Challenge Corporation and several donors are implementing programs for energy expansion in district heating. 99 Financial and Kosovo’s RE action plan supports measures to format clusters of increased regulatory support for use of biomass and solar, to promote use of RES for heating/cooling, and heating and cooling to introduce a FiT bonus for the use of heat from renewable combined heat and power. Kosovo needs to enforce measures banning coal for heating and introduce subsidies and investment for other RE forms. KYRGYZ REPUBLIC Electricity trends and market Power generation in the Kyrgyz Republic is mostly based on hydro; the country has one of the largest shares of renewable electricity in the world. Since domestic production covers only about half of annual consumption, imports are required to meet demand. The Kyrgyz Republic produces some coal and natural gas. Russia and Kazakhstan are the most important trading partners for oil and gas. Evolution of power generation mix, 2000–20 Share of RE in installed power capacity, 2022 Source: IEA Energy Statistics. Source: IRENA Renewable Energy Capacity Statistics. Note: GWh = gigawatt-hour. Share of RE in total final consumption by sector, 2000–20 Energy self-sufficiency, 2021 Imports (TJ) Exports (TJ) Electricity N/A N/A Natural gas 12,409 0 Net importer Coal 19,059 -17,657 Net importer Oil N/A N/A Oil products N/A N/A Source: IEA Energy Balances. Note: TJ = terajoule. Source: IEA and UNSD. Electricity market structure and participants • JSC NESK is the state-owned TSO that also operates the national dispatch service. • The Kyrgyz Republic is a member of the Eurasian Economic Union (EAEU), which plans to create common EAEU gas and electricity markets by 2025. 100 Electricity trade in the region Interconnections with the Kyrgyz Republic Country Capacity Imports Exports Interconnection (GW) lines Kazakhstan 681 300 Uzbekistan 504.4 246.2 Turkmenistan 498.2 • CASA 1000 projects expect the interconnection between the Kyrgyz Republic and Tajikistan via a 500-kV line and further to South Asia. Note: GW = gigawatt; kV = kilovolt. Strategy and policies in support of RE electricity NDC target and RE strategy Renewable energy No national RE targets were identified. The targets have been ineffective target as they are not enforced by law or backed by specific policies. Renewables capacity The National Strategy for Fuel and Energy Sector Development for 2010– target 25 supports the construction of around 100 small hydroelectric plants with a total capacity of 180 MW. Emission reduction The government has set a goal to reduce GHG emissions by 44 percent by target 2030 and to achieve carbon neutrality by 2050. Financial and regulatory support for electricity Feed-in tariff Renewable electricity will be compensated at 1.3 times the highest consumer tariff. Quotas for RE capacities were introduced for each region. The preferential tariff could be availed by those who were registered under these quotas. The new law abolishes the quotas and allows the sale of electricity to consumers at unregulated prices. The FiT term is up to 15 years. It includes statutes governing thermal energy and gas fuel, along with renewable electricity production. Renewable energy certificates mechanism System not yet established. Policies in support of RE heat Target for the heating There are no targets set for renewables in the sector. and cooling sector Financial and There are no policies related to renewable energy heat. regulatory support for heating and cooling 101 MOLDOVA Electricity trends and market Moldova has a low level of energy self-sufficiency; only 20 percent of its energy demand is covered by domestic production. Natural gas demand in particular is met through imports from Russia. However, there are plans to reduce this dependency by constructing a gas interconnector to Romania. The government plans to diversify the power mix with more renewables. Evolution of power generation mix, 2000-21 Share of RE in installed power capacity, 2022 Source: IEA Energy Statistics. Source: IRENA Renewable Energy Capacity Statistics. Note: GWh = gigawatt-hour. Share of RE in total final consumption by sector, 2000– Energy self-sufficiency, 2021 20 Imports Exports (TJ) (TJ) Electricity 12,352 0 Net importer Natural gas 110,619 0 Net importer Coal 3,133 0 Net importer Oil 0 -197 Net exporter Oil products 44,489 -100 Net importer Source: IEA Energy Balances. Source: IEA and UNSD. Note: TJ = terajoule. Electricity market structure and participants Moldelectrica is the state-owned TSO and central dispatcher for the whole country, including the Transnistria region. Bilateral contracts The wholesale electricity market is based on bilateral contracts. Cross-border The electricity market rules establish a balancing mechanism that sets a level trade playing field for all market players and facilitates the utilization of the interconnection with Ukraine. 102 Moldelectrica and Ukrenergo agreed on an emergency electricity supply contract, which strengthens further cooperation and provides for security of supply in Moldova. Electricity trade in the region Interconnections with Moldova Country Capacity (GW) Interconnection lines Ukraine Eleven 110 kV and seven 330 kV Romania Connected but does not operate in parallel Note: GW = gigawatt; kV = kilovolt. Strategy and policies in support of RE electricity NDC target and RE strategy Renewable energy The government aims to achieve 27 percent of gross final energy target consumption from renewable sources by 2030. This is under discussion and pending agreement with ECS. Renewables capacity In the national energy strategy, the country aims to achieve 200 MW of target utility-scale power by 2025 and additional RE capacity of 400 MW by 2030. Emission reduction Moldova has set a target to reduce GHG emissions by 70 percent below target the 1990 level by 2030, instead of 64–67 percent as committed in the previous NDC. Financial and regulatory support for electricity Feed-in tariff FiTs for small-scale projects between 10 kW and 1 MW (up to 4 MW for wind). Energocom has an obligation to purchase all eligible renewable-generated electricity for 15 years at the guaranteed tariff. Net metering Small-scale installations with capacity up to 200 kW. Auction Auctioned tariffs for larger projects. Renewable energy certificates mechanism Moldova joined the Energy Community initiative to establish a regional system for GOs. The national electronic registry for GOs in Moldova has been created and can be utilized as soon as Energocom, as the designated issuing body, signs a direct agreement with the service provider. Policies in support of RE heat Target for the heating The Energy Strategy of Moldova 2030 includes the target of 27 percent RE and cooling sector share in heat consumption. Financial and Moldova has several regulations on renewable heating. The Law on Heat regulatory support for Supply introduces obligatory purchase and priority dispatch of heat heating and cooling produced from RES. Regulation on the qualification and registration of 103 installers of solar heating and PV systems sets up rules on the procedures for certifying installers of these equipment. MONTENEGRO Electricity trends and market Montenegro’s electricity generation is mainly driven by coal and hydropower plants run by the state- owned utility. While Montenegro has a few wind farms, it has made little use of its solar potential. The country needs to develop additional electricity capacity from solar PV and wind so that the existing coal plants can be phased out. Evolution of power generation mix, 2000–20 Share of RE in installed power capacity, 2022 Source: IEA Energy Statistics. Source: IRENA Renewable Energy Capacity Statistics. Note: GWh = gigawatt-hour. Share of RE in total final consumption by sector, Energy self-sufficiency, 2021 2000–20 Imports Exports (TJ) (TJ) Electricity N/A N/A Natural gas 0 0 Coal 57 -1,344 Net exporter Oil N/A N/A Oil products N/A N/A Source: IEA Energy Balances. Note: TJ = terajoule. Source: IEA and UNSD. Electricity market structure and participants The Montenegrin Power Exchange (MEPX) serves only as an auction platform for procurement of electricity for covering losses by the two network operators. Bilateral contracts The wholesale bilateral market is small and highly concentrated with one dominant producer and trader. Day-ahead market Launched in April 2023, it enables more liquidity and integration of renewables. 104 Cross-border Cross-border capacities are allocated in a coordinated manner through SEE CAO trade for all interconnections, except with Serbia where bilateral auctions still apply. Balancing market The price of the balancing reserve is regulated pursuant to the methodology adopted by the regulator. Electricity trade in the region Interconnections with Montenegro Country Capacity (GW) Imports Exports Interconnection lines Kosovo 0.113 823.1 484 Albania 0.35 1,203 434.3 400 kV Serbia 0.5 and 0.2 315.1 618.1 (2025) Bosnia and 0.4 and 0.35 2,787.3 599.4 Herzegovina (2025) Italy 0.60 189.5 3,353.2 Note: GW = gigawatt; kV = kilovolt. Strategy and policies in support of RE electricity NDC target and RE strategy Renewable energy Montenegro achieved all its renewable targets set for 2020 (43.77 percent target of renewables in the share of energy), except for the renewables share in fuels used in the transport sector. Renewables capacity The Energy Development Strategy by 2030 sets 436.3 gigawatt-hour target (GWh)/year for electricity production from wind power plants and 52 GWh/year from solar power plants. Emission reduction Montenegro has set an economywide GHG emission reduction target of 35 target percent by 2030 compared with base year (1990) emissions, excluding land use, land-use change, and forestry. Financial and regulatory support for electricity Feed-in tariff Applicable for renewable technologies (solar energy, wind energy, biogas, hydropower, and biomass) projects up to 1 MW. Eligible power plants that have acquired the status of “privileged producer” can sign a contract with the Montenegrin Energy Market Operator (COTEE). Competitive bidding Applicable for larger projects, although the process is yet to be established. Renewable energy certificates mechanism Montenegro joined the Energy Community initiative to establish a regional system for GOs. The national electronic registry for GOs in Montenegro was created and can be utilized as soon as the market operator, as the designated issuing body, signs a direct agreement with the service provider. 105 Policies in support of RE heat Target for the heating Montenegro outperformed its renewable target for 2020 (38.2 percent of and cooling sector renewables for heating and cooling) by achieving a 64.8 percent renewables share in the sector. Financial and The interest-free credit line supports the installation of renewables in the regulatory support for heating and cooling sectors: (1) the MONTESOL Project managed by the heating and cooling Ministry of Economy in cooperation with the United Nations Environment Programme and the Italian Ministry for the Environment, Land and Sea; and (2) the ENERGY WOOD project managed by the Ministry of Economy in cooperation with the Luxembourg Agency for Development Cooperation. NORTH MACEDONIA Electricity trends and market North Macedonia relies heavily on coal, natural gas, and hydropower for electricity generation. Natural gas is mainly imported from Russia through a single-entry point at the Bulgarian border. The country is also dependent on electricity imports. Meanwhile, North Macedonia has plans for large hydropower plants, and has also pursued new investments in wind and solar PV plants. Recently, the government has considered the phaseout of coal plants to ensure a moderate transition to clean energy. Evolution of power generation mix, 2000–21 Share of RE in installed power capacity, 2022 Source: IEA Energy Statistics. Source: IRENA Renewable Energy Capacity Statistics. Note: GWh = gigawatt-hour. 106 Share of RE in total final consumption by sector, Energy self-sufficiency, 2021 2000–20 Imports Exports (TJ) (TJ) Electricity 10,213 -1,293 Net importer Natural gas 16,347 0 Net importer Coal 4,945 -23 Net importer Oil 0 0 Oil products N/A N/A Source: IEA Energy Balances. Note: TJ = terajoule. Source: IEA and UNSD. Electricity market structure and participants • The Electricity Market Operator, MEMO, is a well-established legal entity appointed to establish the day-ahead electricity market in the bidding zone of North Macedonia and to conduct market coupling. Day-ahead market MEMO is currently in the process of establishing a day-ahead trading, clearing, and settlement platform. Balancing market This market is functional, and the balancing reserve and balancing energy are procured on a competitive platform managed by the North Macedonian Electricity Transmission System Operator (MEPSO). Cross-border Interconnection capacities with Greece and Kosovo* are allocated by the trading common coordination platform SEE CAO. On the Bulgarian border, annual allocation is performed by MEPSO and daily allocation by the Bulgarian TSO (ESO). Electricity trade in the region Interconnections with North Macedonia Country Capacity Imports Exports Interconnection (GW) lines Kosovo 0.15 566.6 1,015 400 kV Albania 0.5 400 kV Serbia 0.75 2,823.9 1,740.8 400 kV Greece 1,104.3 1,944.3 Two 400 kV Bulgaria 2,912.4 229.6 400 kV Note: GW = gigawatt; kV = kilovolt. Strategy and policies in support of RE electricity NDC target and RE strategy Renewable energy The National Energy Development Strategy until 2040 aims to achieve 23 target percent of renewables in total energy consumption by 2020 (not achieved), 38 percent by 2030, and 45 percent by 2040. 107 Renewables capacity The National Energy Development Strategy until 2040 plans to reach 35– target 45 percent of renewables share in total final energy consumption with an installed capacity of 1.4 GW of solar PV and 750 MW of wind power by 2040. Emission reduction North Macedonia’s Intended Nationally Determined Contribution aims to target reduce carbon dioxide emissions from fossil fuel combustion by 30 percent by 2030, through mitigation measures in energy supply, buildings, and transport. Financial and regulatory support for electricity Feed-in tariff FiTs are granted for wind projects with an installed capacity of up to 50 MW and for hydropower plants up to 10 MW based on available quotas. FiTs for granted for hydropower (no caps/quotes) and biogas and biomass. Producers under the FiT scheme are exempt from balancing responsibility. Feed-in premium with Fixed FiP granted on a competitive basis for solar and wind introduced in auctions 2020. Producers with support granted via tenders bear balancing responsibility. Renewable energy certificates mechanism North Macedonia joined the Energy Community initiative to establish a regional system for GOs. The national electronic registry for GOs in North Macedonia has been created and can be utilized as soon as the designated issuing body signs a direct agreement with the service provider. Policies in support of RE heat Target for the heating The country’s Energy Development Strategy until 2040 aims to achieve 45 and cooling sector percent of renewables in heating and cooling by 2030. Financial and There are no policies related to renewable energy heat. The Energy regulatory support for Development Strategy in North Macedonia until 2030 does not envision heating and cooling district heating and cooling infrastructure development that will utilize RES. 108 POLAND Electricity trends and market Poland’s power system is still heavily reliant on fossil fuels, specifically coal, oil, and natural gas. However, coal production has begun to decrease. Despite the predominance of coal, Poland has made some progress in transitioning to RES, particularly with its increasing capacity for solar and wind power. Evolution of power generation mix, 2000–21 Share of RE in installed power capacity. 2022 Source: IEA Energy Statistics. Source: IRENA Renewable Energy Capacity Statistics. Note: GWh = gigawatt-hour. Share of RE in total final consumption by sector, Energy self-sufficiency, 2021 2000–20 Imports (TJ) Exports (TJ) Electricity 54,359 -51,163 Net importer Natural 713,103 -4,385 Net gas importer Coal 325,738 - Net exporter 394,479 Oil 1,037,699 -7,433 Net importer Oil N/A N/A products Source: IEA Energy Balances. Note: TJ = terajoule. Source: IEA and UNSD. Electricity market structure and participants • The Energy Regulatory Office (ERO) is responsible for monitoring market operations and ensuring compliance with market rules. • Launch of a single intraday coupling mechanism (November 2019), implementation of multi-NEMO (nominated electricity market operators) arrangements for day-ahead market coupling (January 2021), and the launch of an interim day-ahead market coupling mechanism (June 2021). • In 2020, around 63 percent of Poland’s wholesale electricity supply was delivered though wholesale market trading, while 37 percent was delivered through bilateral contracts. Capacity In addition to energy markets, this was introduced in 2018, to address resource market adequacy concerns by encouraging the deployment of new generation, electricity 109 storage and demand-side response, and retention of existing generation. It provides payments outside the energy market, based on guaranteed availability of capacity. Projects are selected through competitive auctions designed to anticipate the capacity required to cover peak demand. Electricity trade in the region Interconnections with Poland Country Capacity (GW) Interconnection lines Lithuania 0.5 and 0.5 (2025) Sweden 0.99 and 0.3 (2025) Switzerland 3 Denmark 0 Slovak Republic 0.99 Note: GW = gigawatt; kV = kilovolt. Strategy and policies in support of RE electricity NDC target and RE strategy Renewable energy The government set a target of 23 percent of RES in final consumption, target 31.8 percent of RES in electricity, and 14 percent of RES in transport by 2030. Renewables capacity The government plans to achieve 9.6 GW of onshore wind capacity by target 2030, 5.9 GW of offshore wind power installed by 2030, and 7.2 GW of solar PV installed by 2030. Emission reduction The government aims to reduce GHG emissions by 7 percent by 2030 target compared to the 2005 level. Poland is included in EU-wide targets; but has not committed to reaching individual climate neutrality targets. Financial and regulatory support for electricity Poland supports power generation from hydropower, biogas, and biomass through a FiT and FiP. Feed-in tariff The FiT is available for projects with a capacity of less than 500 kW for 15–17 years. These projects sell electricity generation to an obliged supplier at 95 percent of a reference price, which is set annually by the government. Feed-in The FiP is available for projects with capacities between 500 kW and 1 MW, which premium are compensated for the difference between the market price and 90 percent of the reference price for a period of 15 years. Net metering In April 2022, the net metering scheme was replaced with a net billing scheme under which surplus generation was remunerated at the average monthly wholesale market price. Prosumers who connected their renewable system to the grid before April 2022 will continue to use the net metering scheme. In October 2021, the government introduced definitions for collective and virtual prosumers with support-based net billing. Auctions Projects with a capacity below 500 kW selected in the auction are guaranteed a purchase of their generated power. However, projects with capacity above 500 kW must find buyers for their generated power. The ERO runs the auctions and selects projects based on the lowest price. 110 Contract for Projects selected in auctions receive a guaranteed price for electricity generated for Difference 15 years through a CfD. For offshore wind: The aid will be granted in the form of a (CfD) two-way CfD premium lasting 25 years or until the project reaches 100,000 full load hours per megawatt of installed capacity. The premium is calculated as the difference between a reference price and the market price for electricity. Renewable energy certificates mechanism • Certificates of origin/green certificates have been in existence since 2005. These are issued for a period of 15 years starting from a project’s commissioning. • Poland’s energy sector regulator, the ERO, is responsible for issuing green certificates to renewable projects for each megawatt-hour of generation. • The required share of certificates is determined annually; in 2022, it was 18.5 percent. Industrial companies with an annual electricity demand exceeding 100 GWh are also obligated to obtain a volume of certificates (measured in MWh) equal to the same share set for electricity suppliers. • Certificates can be traded on the Polish stock exchange. • There are chances of double counting, as GOs are issued for electricity that already has certificates of origin. Policies in support of RE heat Target for the heating The government set a target of 28.4 percent of RES in the final and cooling sector consumption by 2030. Financial and There are two subsidy schemes for heat from RES. They support regulatory support for refurbishment works that, among others, may include the installation of heating and cooling RES technologies for heat generation. Also, there are specific regulatory measures to encourage the use of renewables in the sector. 111 ROMANIA Electricity trends and market Romania’s power generation mix is balanced with coal, hydropower, gas, nuclear, and wind. Particularly, wind-based electricity generation has grown rapidly, due to high wind potential and supportive policy mechanisms for renewables production. Romania has become a net importer of energy due to its natural gas and oil reserves. Evolution of power generation mix, 2000–21 Share of RE in installed power capacity, 2022 Source: IEA Energy Statistics. Source: IRENA Renewable Energy Capacity Statistics. Note: GWh = gigawatt-hour. Share of RE in total final consumption by sector, Energy self-sufficiency, 2021 2000–20 Imports Exports (TJ) (TJ) Electricity 31,310 -23,395 Net importer Natural 137,703 -28,199 Net importer gas Coal 40,410 0 Net importer Oil 333,777 -1,410 Net importer Oil 133,551 -158,083 Net exporter products Source: IEA Energy Balances. Note: TJ = terajoule. Source: IEA and UNSD. Note: RE = renewable energy. Electricity market structure and participants The company Transelectrica SA (as the transmission system operator and the Romanian Electricity and Gas Market Operator [OPCOM]) manages the electricity transmission system, interconnections with neighboring countries, and market operation. Bilateral contracts Electricity must be traded in a public and transparent manner, through a tender on an OPCOM-operated public trading platform. Agreements are of two types: open and closed PPAs. 112 Day-ahead Operated by OPCOM and participation is voluntary. markets and intraday markets Balancing market The TSO purchases electricity from market participants and sells them electricity with dispatchable units/consumption points. Electricity trade in the region Interconnections with Romania Country Capacity (GW) Interconnection lines Bulgaria 0.3 and 0.8 (2025) Hungary 1.1 and 0.3 (2025) 400 kV Serbia 1 and 0.3 (2025) • A new 500 kV interconnection line of 1 GW capacity planned with Georgia and another 400 kV line with Moldova (in addition to two existing 400 kV lines) Note: GW = gigawatt; kV = kilovolt. Strategy and policies in support of RE electricity NDC target and RE strategy Renewable energy The revised version of the Integrated National Energy and Climate Change target Plan includes a higher ambition for the RE share,, from an initially proposed 27.9 percent to a revised 30.7 percent by 2030. Renewables capacity Romania plans to add about 7 GW of new capacity (about 3.7 GW of which target is solar projects) by 2030. Emission reduction Romania expects to achieve 2 percent GHG emission reduction by 2030 target from 2005 for sectors not covered by the EU Emissions Trading System (non-ETS) and 43.9 percent by 2030 from 1990 for sectors covered by the ETS. Financial and regulatory support for electricity Rebate granted US$794,000/MW installed to PV projects with 200 kW to 1 MW of power and US$450,000/MW installed to solar arrays over 1 MW. Contracts for difference In 2020, the government approved a scheme based on paid-capacity (CfD) tenders through CfD and provisional annual budgets for the auctions, which are technology specific. Renewable energy certificates mechanism • Green Certificates (GCs) were introduced in 2008 with the setting of mandatory annual quotas. • Selected electricity suppliers and producers are bound to fulfil their yearly E-RES (electricity generated from RES) quotas by presenting an appropriate amount of GCs to the Romanian Energy Regulatory Authority (ANRE) by April 15 of each year. • The number of GCs allocated to one unit of E-RES differs based on the plant’s technology and capacity. • Certificates are tradable and managed by the electricity market operator. • GOs are issued for net production. Issuance is voluntary and made on the producer’s written request. 113 • Not linked with the European Energy Certificate System (EECS) of the Association of Issuing Bodies (AIB). Policies in support of RE heat Target for the heating Romania targets 33 percent renewable energy in the final energy and cooling sector consumption for heating and cooling by 2030. Financial and There exist specific regulatory and financial support measures to regulatory support for encourage technologies and the use of renewables in heating and cooling. heating and cooling Examples include the Environment Fund and the district heating national program. SERBIA Electricity trends and market Serbia’s power generation relies on low-quality lignite coal and hydropower. Wind-based generation grew significantly in recent years but represents only 2.7 percent of the country’s electricity generation. The deployment of other renewables, such as solar PV, remains stagnant. Serbia relies heavily on Russia for natural oil and gas. Evolution of power generation mix, 2000–21 Share of RE in installed power capacity, 2022 Source: IEA Energy Statistics. Source: IRENA Renewable Energy Capacity Statistics. Note: GWh = gigawatt-hour. 114 Share of RE in total final consumption by sector, 2000– Energy self-sufficiency, 2021 20 Imports Exports (TJ) (TJ) Electricity 25,142 -22,799 Net importer Natural gas 87,606 0 Net importer Coal 29,649 -309 Net importer Oil 122,385 -365 Net importer Oil products 42,515 -39,851 Net importer Source: IEA Energy Balances. Note: TJ = terajoule. Source: IEA and UNSD. Note: RE = renewable energy. Electricity market structure and participants Elektromreža Srbije (EMS), the Serbian Transmission System and Market Operator, is responsible for the operation of the transmission system and the electricity wholesale market. Energy markets Consist of bilateral markets as well as market operator–organized electricity markets and balanced markets. Balancing Market participants are required to regulate their balancing responsibility by entering into an agreement with the TSO. Electricity trade in the region Interconnections with Serbia Country Capacity (GW) Imports Exports Interconnection lines Kosovo 0.754 North Macedonia 0.75 287 532.5 Montenegro 0.6 and 0.1 617.8 315.2 (2025) Albania 0.5 Bosnia and 0.6 and 0.6 812.4 879.2 Herzegovina (2025) Bulgaria 2,710.4 39.4 Croatia 275.7 1,273.5 Hungary 563 1,094.6 Romania 1,382.9 534.3 • 400 kV interconnection lines with Bulgaria and Hungary to be operational by 2028. Note: GW = gigawatt; kV = kilovolt. Strategy and policies in support of RE electricity NDC target and RE strategy Renewable energy Serbia aims to achieve 27 percent renewables in the total final energy target consumption by 2020, with an aim for 40 percent renewables by 2040. It targets 36.6 percent renewables in electricity generation by 2020. For 115 transport, it targets 10 percent renewables by 2020. But all targets for 2020 have not been achieved. Renewables capacity The government plans to increase new hydropower capacity and other target renewables capacity in the coming years. Emission reduction Serbia committed to an unconditional emission reduction target of 13.2 target percent from 2010, or 33.3 percent from 1990, by 2030. Financial and regulatory support for electricity Feed-in tariff A 500 MW cap was set for wind projects to receive incentives until 2020, and a 10 MW cap was set for solar PV projects. FiTs for hydropower are up to 500kW. No such caps for geothermal, biomass, and biogas. Auctions Hydropower of up to 30 MW can participate in auctions. Renewable energy certificates mechanism Guarantees The of origin lifetime of (GOs) GOs is 12 months; regulation aligned with the EECS of the AIB. Renewable electricity with GOs can use green labeling, thanks to the GO. Policies in support of RE heat Target for the heating Serbia targeted 30 percent renewables in heating and cooling by 2020, and cooling sector reaching 35.7 percent. Financial and The government established economical, commercial, and financial regulatory support for conditions for renewables-based energy production and combined heating and cooling electricity and heat production. 116 TAJIKISTAN Electricity trends and market Tajikistan mainly relies on its abundant hydro resources and coal for electricity supply. The rest is attributed to natural gas. While Tajikistan is a net importer of natural gas and oil, it is considered a net exporter of electricity, although supply experiences seasonal shortfalls. Renewables—mostly hydro— had a large share in energy consumed by the electricity sector. Evolution of power generation mix, 2000–20 Share of RE in installed power capacity, 2022 Source: IEA Energy Statistics. Source: IRENA Renewable Energy Capacity Statistics. Note: GWh = gigawatt-hour. Share of RE in total final consumption by sector, 2000– Energy self-sufficiency, 2021 20 Imports Exports (TJ) (TJ) Electricity N/A N/A Natural gas 9,000 0 Net importer Coal 985 -87 Net importer Oil N/A N/A Oil products N/A N/A Source: IEA Energy Balances. Note: TJ = terajoule. Source: IEA and UNSD. Note: RE = renewable energy. Electricity market structure and participants • The Open Joint Stock Company (OJSC) Shabakahoi Intiqoli Barq was incorporated as an entity responsible for operating the transmission network. • Power grid operators and wholesale consumers are required to purchase renewables-based energy based on an agreement and maintain the established balance of production and quality of renewables-based energy. 117 Electricity trade in the region Interconnections with Tajikistan Country Capacity (GW) Exports (TWh) Interconnection lines Uzbekistan 1.14 Afghanistan 1.27 220kV • Through CASA-1000, exports to Pakistan are projected to reach a minimum of 3 terawatt-hours (TWh). • A 500 kV line to be established with the Kyrgyz Republic. • Exports to Afghanistan will increase through the construction of the new Rogun–Kabul 500 kV line. Note: GW = gigawatt; kV = kilovolt. Strategy and policies in support of RE electricity NDC target and RE strategy Renewable energy Tajikistan’s National Development Strategy to 2030 (2016) aims at 10 target percent renewables in electricity generation by 2030. Renewables capacity The government aims to construct 3,500 MW of hydropower plants by target 2032. Emission reduction The Nationally Determined Contribution (NDC) includes a conditional target emission reduction target of 40–50 percent by 2030 from 1990 and an unconditional target of 30–40 percent reduction by 2030 from 1990. Financial and regulatory support for electricity Feed-in tariff FiTs to promote energy production based on wind, solar, geothermal, biomass, and small hydropower (up to 30 MW); the FiTs are based on individual project costs and guaranteed for 15 years. Energy producers utilizing renewables for production are connected to energy networks on a preferential basis in accordance with the legislation of the Republic of Tajikistan. Renewable energy certificates mechanism System not yet established. Policies in support of RE heat Target for the heating There are no targets for renewables in the sector. and cooling sector Financial and There are no policies related to RE-based heat. regulatory support for heating and cooling 118 TÜRKIYE Electricity trends and market Renewable electricity generation grew rapidly in Türkiye, which aims to continue promoting the expansion of RES. However, power generation continues to be fossil fuel based. Türkiye mostly relies on energy imports for its supply. The use of solar and geothermal energy for heating has grown, but growth has stalled since 2015. Evolution of power generation mix, 2000–21 Share of RE in installed power capacity, 2022 Source: IEA Energy Statistics. Note: GWh = gigawatt-hour. Source: IRENA Renewable Energy Capacity Statistics. Share of RE in total final consumption by sector, Energy self-sufficiency, 2021 2000–20 Imports Exports (TJ) (TJ) Electricity 8,384 -15,074 Net exporter Natural gas 2,248,526 -14,655 Net importer Coal 979,851 -7,343 Net importer Oil 1,361,060 -24,958 Net importer Oil products N/A N/A Source: IEA Energy Balances. Note: TJ = terajoule. Source: IEA and UNSD. Note: RE = renewable energy. Electricity market structure and participants • EPIAS, the market operator, operates day-ahead, intraday, and settlements in the market. • TEIAS, the transmission operator, is responsible for balancing of the market and the ancillary service market. • Balancing of the power market is done in real-time; imbalances are settled hourly. • With the day-ahead market, collateral mechanisms and RES mechanisms started to be implemented. 119 Electricity trade in the region Interconnections with Türkiye Country Capacity (GW) Interconnection lines Bulgaria 0.3 and 0.2 (2025) 400 kV Greece 0.58 400 kV Georgia 0.700 400 kV Note: GW = gigawatt; kV = kilovolt. Strategy and policies in support of RE electricity NDC target and RE strategy Renewable energy Türkiye has already exceeded its target of 38.8 percent renewables-based target power generation as set out under the Eleventh Development Plan (2019– 23). Renewables capacity According to the Ministry of Energy and Natural Resources’ National target Energy Plan (2022), by 2025, 2030, and 2035, installed wind power capacity will reach 13.1 GW, 18.1 GW, and 29.6 GW, whereas installed solar power capacity will reach 17.9 GW, 32.9 GW, and 52.9 GW, respectively; installed geothermal and biomass power capacity will reach 5.1 GW by 2035. Emission reduction Türkiye aims to achieve net zero emissions by 2053. target Financial and regulatory support for electricity Feed-in tariff • New 10- to 15-year FiTs and 5- to 10-year domestic production incentives for renewable power projects (including geothermal for 15 years) commissioned between July 1, 2021, and December 31, 2030, under the new RE support mechanism (YEKDEM). • FiT prices are determined in Turkish liras, with quarterly basket-based adjustments (Producer Price Index, Consumer Price Index, US dollars, and euros with a balanced breakdown), subject to floors and caps in US dollars. Auctions Renewable Energy Resource Areas (Yenilenebilir Enerji Kaynak Alanı [YEKA] and mini YEKA) auctions were introduced since 2017 for onshore wind and solar PV plants. Renewable energy certificates mechanism • A guarantees of origin system was introduced into the YEK-G market in 2021. • RE certificates, valid for 12 months and traded on the market, confirms that the power supplied to consumers originated from renewables. Policies in support of RE heat Target for the heating There are currently no plans or specific targets to promote renewables- and cooling sector based heating. The government considers district heating plans using 120 geothermal energy and increased use of geothermal heat pumps as important tools for climate adaptation. Financial and There are no policies related to RE-based heat. regulatory support for heating and cooling TURKMENISTAN Electricity trends and market Despite its vast oil and natural gas resource base, Turkmenistan is not a major player in energy markets due to its lack of infrastructure. The government is continuously investing in oil and gas to expand its electricity and heating sectors. Turkmenistan has very little policy around renewable energy. Evolution of power generation mix, 2000–20 Share of RE in installed power capacity, 2022 Source: IEA Energy Statistics. Source: IRENA Renewable Energy Capacity Statistics. Note: GWh = gigawatt-hour. Share of RE in total final consumption by sector, Energy self-sufficiency, 2021 2000–20 Imports Exports (TJ) (TJ) Electricity N/A N/A Natural gas 0 -2,446,644 Net exporter Coal 0 0 Oil N/A N/A Oil products N/A N/A Source: IEA Energy Balances. Note: TJ = terajoule. Source: IEA and UNSD. Note: RE = renewable energy. Electricity market structure and participants The electricity market in Turkmenistan is represented by a vertically integrated monopoly, Turkmenenergo State Corporation. 121 Electricity trade in the region Interconnections with Turkmenistan Country Capacity (GW) Exports (TWh) Interconnection lines Afghanistan/Pakistan 4 GW 500 kV yet to be operational Kyrgyz Republic 1.7 Uzbekistan 4 Note: GW = gigawatt; kV = kilovolt. Strategy and policies in support of RE electricity NDC target and RE strategy Renewable energy Turkmenistan does not have any RE targets. target Renewables capacity Turkmenistan does not have any RE targets. target Emission reduction Turkmenistan submitted an Intended Nationally Determined Contribution target in October 2016. It does not include quantifiable targets. Recently, the government set a target to reduce GHG emissions by 20 percent in 2030 from 2010 in the business-as-usual scenario. Financial and regulatory support for electricity Public-private In 2021, the Ministry of Energy of Turkmenistan launched the first partnership with power international tender for the construction of a 10 MW capacity hybrid utility renewable power plant (solar and wind), and now an agreement for 100 MW of solar PV is signed with the power utility Turkmenenergo. Support for research and development and testing of renewable and alternative energy technologies. In the short term, introduction of small- and medium-sized RE installations in remote and sparsely populated areas. In the medium and long terms, introduction of domestic renewables-based production capacities. Renewable energy certificates mechanism Not yet established. Policies in support of RE heat Target for the heating There are no targets set for renewables in the sector. and cooling sector Financial and There are no policies related to RE-based heat. regulatory support for heating and cooling 122 UZBEKISTAN Electricity trends and market Uzbekistan relies on natural gas for electricity generation since its natural gas production is significant. However, with no new discoveries, domestic gas production already peaked in 2023. Renewables provide an opportunity for Uzbekistan to improve energy security going forward (and in response to recent seasonal winter gas shortages). Generation from HPPs is considered electricity produced from RES. Since Uzbekistan recently unveiled plans to reach carbon neutrality by 2050, this can lead to the decarbonization of power generation capacity becoming a priority. Evolution of power generation mix, 2000–20 Share of RE in installed power capacity, 2022 Source: IEA Energy Statistics. Source: IRENA Renewable Energy Capacity Statistics. Note: GWh = gigawatt-hour. Share of RE in total final consumption by sector, 2000– Energy self-sufficiency, 2021 20 Imports Exports (TJ) (TJ) Electricity N/A N/A Natural gas 0 -76,649 Net exporter Coal 11,712 0 Net importer Oil N/A N/A Oil products N/A N/A Source: IEA Energy Balances. Note: TJ = terajoule. Source: IEA and UNSD. Note: RE = renewable energy. Electricity market structure and participants The system operator National Electricity Grid of Uzbekistan Joint Stock Company (JSC) owns the transmission network and provides centralized operational dispatch for all power plants. The new electricity market reforms would lead to a competitive market structure: • Market rules to be approved, market operator to be established, and an independent market regulator will be established. 123 • The market regulator will regulate the tariffs for the electricity sold to consumers. The JSC acts as a single buyer. Regional grid development can enable regional trade to grow. • All generators sell electricity only via an online platform based on existing monthly contracts. Electricity trade in the region Interconnections with Uzbekistan Country Interconnection lines Kazakhstan 500 kV and 220 kV Kyrgyz Republic 500 kV, 220 kV, and 110 kV Tajikistan 500 kV and 220 kV Russian Federation Note: GW = gigawatt; kV = kilovolt. Strategy and policies in support of RE electricity NDC target and RE strategy Renewable energy Uzbekistan’s strategy for the transition to a green economy sets a target of target 25 percent renewables in electricity generation by 2030. Renewables capacity The concept note for ensuring electricity supply for 2020–30 envisions 3.8 target GW of hydropower, 5 GW of solar PV, and 3 GW of wind power capacity by 2030, representing 10 GW of new capacity. The country is considering increasing these targets to 7 GW of solar PV and 5 GW of wind power. Emission reduction Uzbekistan set a new target of reducing specific GHG emissions per unit of target gross domestic product by 35 percent by 2030 from a 2010 baseline, up from its previous goal of 10 percent in its first NDC, which was submitted in 2017. Financial and regulatory support for electricity Feed-in tariff No FiTs Auctions Tariffs for renewables-based electricity are determined based on competitive bidding. Compensations Individuals are compensated for 30 percent of the cost of acquiring solar PV installations, and individuals and legal entities are compensated for covering interest expenses on commercial bank loans for purchasing RE- generating units. Other tax exemptions RE producers are exempt from property tax for RE installations (above 100 kW) and land tax in the areas used by these installations for 10 years after commissioning. Right is granted to create local distribution networks and conclude agreements with legal entities and individuals for the sale of energy (electricity, biogas). 124 Renewable energy certificates mechanism • Green energy certificates confirm electricity production based on RES and can be issued from July 1, 2023, from the “Uzbekhydroenergy” system. • From October 1, similar certificates will also be issued for electricity generated from solar, wind, and hydro power stations, and using other RES. • The Ministry of Economy and Finance is to manage the “green energy” certificate system, including registration, issuance, and monitoring. • Income generated from the sale of “green energy” certificates by generation facilities is exempt from profit tax. Policies in support of RE heat Target for the heating There are no targets for renewables in the sector. and cooling sector Financial and Several legal acts, for example, tax exemption, were adopted to regulate regulatory support for the renewables sector and stimulate foreign direct investment that helps heating and cooling the deployment of heating and cooling technologies utilizing renewable energy. 125