The proposed New Kosovo Power Plant
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Key Findings
The proposed debt burden of €945 million for a single coal-fired plant in a country the size of Kosovo would put enormous pressure on the domestic banking system and likely crowd out new investment across the economy.
IEEFA finds that the New Kosovo Power Plant would create an undue burden for ratepayers and would damage Kosovo’s frail economy.
While Kosovo’s minister of economic development stated in November 2015 that the construction cost of the plant would total 1 billion euro, IEEFA’s expectation—based on past experience with similar coal plant construction projects—is that construction costs alone would total €1.35 billion, and the true cost of the plant, when financing and subsidies are included, would come to at least €4.169 billion.
Executive Summary
The proposed coal-fired New Kosovo Power Plant would cause the price of electricity in Kosovo to rise to unreasonable levels and place a needless long-term burden on Kosovo’s economy.
IEEFA concludes that the World Bank, which has announced its support for a substantial financial subsidy for construction of the coal-fired plant, should invest instead in the development of renewable energy and energy efficiency in Kosovo. IEEFA concludes also that the U.S. government, which has endorsed the project, should cease its support for the misguided introduction of a costly and outdated form of electricity generation.
This paper explores how the people of Kosovo would have to drastically reallocate their household budgets to pay for the New Kosovo Power Plant if it is built. This impact has not been addressed previously by any other technical, environmental, economic or energy finance study of the proposed plant.
IEEFA’s research shows also that the cost to produce power from the New Kosovo Power Plant would be four times the current cost of electricity production in Kosovo. And because the NKPP would be a disproportionately large addition to a relatively small electricity system, it would drive up the price of electricity for Kosovo households. IEEFA research suggests that the New Kosovo Power Plant would increase the overall price of electricity in Kosovo by at least 33.8 percent and by as much as 50 percent.
Kosovo’s electric rates are already too high, particularly for residents who live below the poverty line. Most households in Europe pay less than 6 percent of annual income for electricity; in Kosovo that percentage is significantly higher.
The New Kosovo Power Plant would worsen Kosovo household finances across the board:
If the plant is built:
- The average household would pay 12.9 percent of its annual income for electricity.
- A low- to middle-income household would pay 18 percent of its annual income for electricity.
- A very low-income household, living below the poverty line and using less electricity than other families, would pay 39.7 percent more for electricity.
The proposed plant carries a number of broad financial risks for Kosovo. Under the current proposed financing model, the Kosovo government would borrow €945 million to cover 70 percent of the cost of the project. A private developer, New York-based ContourGlobal, which is the sole bidder on the project, would provide equity financing for the additional 30 percent of project costs under a scheme that would reap a return in excess of 20 percent.
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Press release: Report Questions World Bank and U.S. Involvement in East Europe Coal-Fired Electricity Project
