High energy prices for more than a year have not been leading to an increase in investments in energy efficiency or energy production. This is a paradox that indicates that the price of supply is not elastic enough.

Aleksandar Kovačević

Countries of the Western Balkans are facing a crisis of security of energy supply. In some countries, power cuts are already underway. The region’s import dependence has increased dramatically and is not likely to decrease anytime soon. The fiscal capacity of the states, which enables the subsidization of energy imports, will be used up very quickly.

Reducing energy consumption and preserving basic life, social and commercial functions; employment, transport, communal and public services – this is now a public policy of the highest priority. Most of the activities that reduce energy consumption or increase energy efficiency are of a commercial nature. The knowledge and abilities to do this are not in the public domain. Therefore, it is necessary to focus public policy on three priorities, namely: (1) removal of obstacles for commercial investments in energy efficiency, (2) direct intervention aimed at eliminating energy poverty and (3) urgent intervention to prevent cardinal effects of energy shortages on the integrity of the energy system.

High energy prices for more than a year have not been leading to an increase in investments in energy efficiency or energy production. This is a paradox that indicates that the price of supply is not elastic enough.

In Serbia citizens’ savings in banks amount to over 12 billion Euros with an interest rate below the average inflation rate. It would be expected that a large part of these savings would be used for investments in energy efficiency or renewable energy, where returns on investments are higher and investment security is better. That doesn’t happen.

It is easy to conclude that public policy in some way represents a barrier for investments even at household level. There are no project bonds or financial instruments of energy companies on the financial market. Security of ownership of land and houses is not adequate. Security of contracts is not guaranteed. Professional organizations, if there are any, do not guarantee professional liability of their members. In some cases, professional associations have been replaced by government agencies that administer nominal licenses to practice.

Consequently, barriers to investments in energy efficiency require a complex change in public policies.

More than a third of households live exposed to energy poverty. Those households are unable to heat more than 10 square meters of living space per household member. They are exposed to air pollution to the level that their health is at risk. The prices of firewood and solid fuels have increased due to the risk to the security of supply. A large number of poor households are unable to obtain the minimum required amount of firewood. During cold periods, these households have no choice but to use electricity for heating in the cheapest direct way. Experience has shown that this type consumption increases the load on the electrical network to the extent that losses on the network increase; for each unit of delivered energy it is necessary to produce or import 1.3 to 1.5 times more energy. This effect can be so strong that it leads to a breakdown of the power system.

Eliminating energy poverty is a critical public policy in the area of ​​security of supply.

Next winter, it will be necessary to make serious compromises. It will be necessary for some large consumers to be disconnected from the electricity grid. The compromise between fiscal stability, employment, monetary stability and maintaining the exchange rate on one side and ensuring the minimum amount of energy for the population and priority institution on the other imposes itself as very necessary and very delicate public policy.

 

Aleksandar Kovačević, energy expert