After a severe drought caused hydropower generation to slump in the Western Balkans last year, the latest data from countries in the region show a sharp rebound in hydroelectricity production in the first half of 2018. 

Hydropower makes up an important part of the energy mix in countries in the region, especially Albania, which is almost entirely dependent on hydro, with any shortfall having to be supplemented by electricity imports. 

Serbia has the largest installed hydropower capacity in the region, 2,835 MW, which is mainly located on its border with Romania, making up 30% of its total generation capacity. Hydropower usually makes up 41% of Bosnia’s generation capacity and 31% of Montenegro’s, according to data from the International Hydropower Association, though the figure tends to fluctuate from year to year depending on weather conditions. 

Hydro generators in the region were hard hit by last summer’s drought, and temperatures soaring above 35°C for weeks on end during the heatwave dubbed Lucifer that affected most of southern Europe with a devastating effect on agriculture and created perfect conditions for deadly wildfires. At one point, Albania, the most hydro-dependent country in the region, was importing around 80% of the electricity consumed within the country. 

This year, however, it is northern Europe that has been scorching under an intense heatwave that has seen temperatures of over 30°C up to 300km inside the Arctic Circle, and severe droughts and forest fires in countries like Latvia. Southeast Europe, meanwhile, has been enjoying a rainy summer with temperatures somewhat below average in July and early August in several countries across the region. 

Improved results

This has already resulted in stronger results for hydropower producers in the region. Albania’s state-owned KESH, for example, posted a net profit of ALL6.2bn (€49mn) in the first half of 2018, according to the company’s preliminary data. By contrast, the company ended 2017 with a net loss of ALL52.7mn. 

KESH is the key power producer in Albania, producing electricity from its Fierze, Komani and Vau i Dejes hydropower plants on the Drin river, with a total installed capacity of 1,350 MW. With a capacity of 600 MW, HPP Komani is the largest of the three HPPs, providing some 65% of the country's electricity.

Meanwhile, Albanian state-run power distribution company OSHEE reported a slim net profit of only ALL1.8bn (€14.5mn) in 2017, just one-tenth of the profit a year earlier, mainly due to the prolonged drought last year. The company’s total revenues were up by 12% y/y to ALL60.3bn in 2017, but costs rose even more sharply, up by 24% y/y to ALL58.6bn, OSHEE data showed.

This is OSHEE's worst financial result in the past three years, after the power distributor turned profitable in 2015 as a result of a nationwide campaign to put an end to electricity thefts and collect hundreds of millions of euros in accumulated unpaid bills.

According to statistics institute data, Albanian net power generation plunged by 36.6% y/y to 4,525GWh in 2017, after rising by 21.7% a year earlier, reflecting the extremely poor conditions for hydro. Gross import of electricity jumped 86% y/y to 3,403 GWh in 2017, while gross exports plunged 74% y/y to 488 GWh.

In neighbouring Montenegro, the majority state-run energy firm EPCG said it achieved earnings before interest, taxes, depreciation and amortisation (Ebitda) of €49.3mn in the first half of 2018, which was 58% above plan, while its net profit amounted to €42.9mn. EPCG’s net profit increased more than six-fold due to higher electricity production, which the company said was thanks to the stable operation of its production facilities and favourable hydro-meteorological conditions. 

The statistics offices and main power companies in Bosnia and Serbia haven’t released H1 data yet. However, Macedonia, while its hydro capacity is fairly small, released power generation results broadly in line with the picture in Albania and Montenegro. Macedonia’s gross electricity generation fell by 8.1% and 9.6% y/y respectively in April and May, statistics office data indicated on July 25. Yet the overall fall in output was the cause of lower production at thermal power plants, which was partly compensated for by higher hydro-power plant power production. Production by Macedonian thermal power plants plummeted by 59.4% y/y to 111,837 MWh in May, while that of hydropower plants jumped 173% y/y to 205,971 MWh, the latest data shows. 

There’s a similar picture in the broader Southeast Europe region, with Hidroelectrica in Romania, which is also experiencing a cooler and also wetter than usual summer, reporting RON962mn (slightly over €200mn) profit in January-June, 34% up y/y. This was driven by the 20% y/y advance of electricity generation to 9.17TWh, which company manager Bogdan Badea attributed to “favourable natural circumstances”. 

Construction boom 

The Western Balkans have seen a boom in hydropower investment in recent years as developers finally wake up to the potential of the last unexploited rivers in Europe. On average countries in the region have more water per capita than the EU member states, and until now it has been relatively under-developed. 

Efforts to build dams and hydropower plants on some of Europe’s last wild stretches of river — including the Vjosa in Albania which is considered the continent’s last entirely wild river — have met with fierce resistance from environmental groups.

In December, the CEE Bankwatch Network accused international banks of “fuelling a hydropower tsunami” on Balkan rivers, as it released a report revealing that multilateral development banks had supported 82 hydropower projects across Southeast Europe. However, the watchdog announced more recently that the European Bank for Reconstruction and Development (EBRD) had agreed to coordinate a conference on Balkan rivers together with the European Investment Bank and financial intermediaries at the beginning of 2019.

Despite the ongoing debate, and on the ground protests against some of the new developments, new projects keep going ahead; most recently, Bosnian hydropower producer Hidroelektrane na Trebisnjici (HET) said it has called a tender for the construction and financing of the 160 MW Dabar hydropower plant, which will be located in Republika Srpska and is estimated to cost around €200mn.