Energy supply

   The energy supply analysis under the Macedonian Green Growth study aims to assess opportunities available for Macedonia’s energy production to shift towards a greener energy supply.  An energy supply optimization model, MARKAL, was used to determine the optimal mix of various energy resources to meet projected energy demand consistent with resource, technological and other constraints for the 2010-2050 period. The study first developed an optimal energy supply plan (the least cost plan to meet projected demand) for the reference case over the next 40 years, 2010-2050. Then, the study modeled various clean energy supply measures to calculate: (i) the reduction of greenhouse gas (GHG) emissions, and (ii) changes in energy supply costs compared to the reference scenario.

   With no changes in policy, total primary energy consumption is likely to rise by 34 percent by 2030 and 117 percent by 2050.  Energy use is projected to rise from the 2009 level of 2.7 million tons of oil equivalent (mtoe), to 3.6 mtoe in 2030 and almost 6 mtoe by 2050 (See Figure 1a). Electricity supply capacity would almost double by 2030 to 2,618 megawatts (MW) from the 2009 level of 1,476 MW.  It would further increase to 3,463 MW by 2050. Similarly, electricity supply would increase from 7.6 Terawatt Hours (TWh) in 2009 to 11.5 TWh in 2030 (51 percent above the 2009 level) and to more than 186 TWh in 2050 (145 percent above the 2009 level).

Picture 1: TE-TO AD Power and Heat Plant
Source: TE-TO AD Skopje, http://www.te-to.com.mk

   The energy supply mix in Macedonia will undergo substantial changes in the next four decades. Currently, coal is the major energy carrier, accounting for almost half of total primary energy supply, whereas natural gas accounts for only 2 percent. By 2050, natural gas, which is imported, would account for 20 percent of total primary energy supply while coal’s contribution drops to around 30 percent. Large-scale fuel switching would occur in power generation as well. While the share of gas in total electricity supply would increase from insignificant levels in 2009 to 17 percent in 2050, the share of lignite would drop from 62 percent in 2009 to 45 percent in 2050.

   Macedonia will need a total estimated investment of €5,303 million (or €135 million per year) over the next 40 years in the power sector.  This investment will add more than 3000 MW in new capacity for electricity generation under the reference scenario. Additional investment in a new gas pipeline of €176 million is also needed.

Figure 1: Projections of primary energy and electricity generation mix

(a) Primary energy (‘000 tons of oil equivalent)	(b) Electricity generation (Gigawatt Hours)

   Several cleaner technologies for electricity generation were considered under the green growth scenarios. These green scenarios included: (i) refurbishment of existing thermal power plants to improve their efficiency by 2 percent, (ii) 463 MW of new hydropower plants in addition to the 813 MW added in the reference scenario over the next 40 years, (iii) 360 MW of wind power plants in addition to the 670 MW added in the reference case, (iv) 60 MW of solar photovoltaic power plants, (v) 1260 MW of new gas fired power plants in addition to the 1,129 MW added in the reference case, and (vi) 1000MW of nuclear power plants. The first three measures constitute the ‘green’ scenario, and the remaining three measures constitute the ‘super-green’ scenario for the energy sector. These alternative generation technologies mainly replace lignite fired power plants that would have been built in the reference scenario.

   The reference scenario projects the impact of implementing the government’s existing energy strategy which is already significantly green; thus, the incremental costs to add additional green measures under the green and super-green scenarios are relatively small. In fact, the measures under the ‘green’ scenario (i.e., improving thermal efficiency of existing power plants and adding more hydro and wind power) would have lower net costs than the plan under the reference case. Under the green scenario, Macedonia would save around € 2.2 million in power supply costs each year while reducing 133 thousand tons of CO2 emissions each year over the next 40 years. The super-green scenario would cost an additional € 9 million annually but would avoid 412 thousand tons of CO2 emissions each year over the next 40 years. 

   For the energy supply sector, Macedonia could gain net economic benefits under the ‘green’ scenario and would incur a small incremental cost under the super-green scenarios.  These favorable net costs would be reduced much further if the environmental benefits of reduced GHG emissions and local air pollution were considered.

Energy demand and energy efficiency

   Greening the Macedonian economy on the energy demand side means a transition to more efficient energy utilization in all sectors consuming energy. To understand the level of effort required for this type of transition, this analysis under the Green Growth Program examines Macedonia’s energy consuming activities and the ownership and use of energy-consuming devices in the household, non-residential and industrial sectors, and considers efficiency scenarios for energy usage for the next four decades.

   The Energy Forecasting Framework and Emissions Consensus Tool (EFFECT)¹ was used to develop scenarios through 2050 for energy consumption in Macedonia.  The scenarios provide the backbone of analysis of GHG mitigation options and serve as input for energy supply forecasting, discussed above. As in the other sectors, forecasts have been developed for a baseline scenario, a green scenario and a super-green scenario over the period of 2010 to 2050. The baseline approximates continuation of business as usual (BAU), while the two green scenarios illustrate lower carbon futures that can be attained by increasingly aggressive interventions to modify energy demands.

Baseline Scenario

   The household sector accounted for nearly half of electric energy demand in 2010, followed by industry which used almost 30 percent. Transport, agriculture and other demand (including non-residential buildings) account for the rest.²  Expected growth in real household income of 4.2 percent per year over the next 25 years, plus expanded international trade and tourism development, will increase the overall demand for electricity at a rate of 1.6 percent per year for households and 1.7 percent for non-residential buildings, leading to 48 and 51 percent increases respectively by 2050.

   Households will demand ever more electricity into the future but also offer the most significant opportunities for energy saving.  Lighting, refrigeration, water and space heating account for more than 83 percent of household electricity use. For lighting, the substitution of CFL (compact fluorescent lighting) and LEDs (light-emitting diodes) for incandescent bulbs offers significant savings at reasonable cost. Refrigeration units tend to turn over slowly, but new units can offer much greater efficiency. Water heater efficiency improvements can offer modest savings as units are changed out. Such savings may be assured by establishment of minimum efficiency standards for new units. Space heating improvements may include improvements in the thermal integrity of housing through insulation or window replacements. Air conditioning is likely to expand significantly, creating opportunities to encourage the choice of higher efficiency options. 

   Non-residential buildings will contribute to growing demand for electricity at a slightly faster rate than households and face opportunities for saving. Electricity demand growth in the range of 1.7 to 2.0 percent per annum is projected for hospitals, hotels and restaurants. Offices and other buildings have electric demands growing slightly above 1.0 percent per year, which may be conservative depending on future patterns of employment and output.  Retail growth is by far the fastest, based on real income growth that exceeds 4.2 percent per year. Substantial savings exist in new building construction and retrofit programs. Lighting will again constitute low-hanging fruit in the search for cost-effective savings. Space heating demands can be substantially reduced through retrofit insulation programs and by establishment of efficiency standards for new construction.

   Iron and steel industries are the dominant industrial users of electricity, with more than half of total industrial demand. Export dependence and the uncertain economic conditions in Europe over the medium term are limiting factors in growth prospects for this industry. Output is not expected to exceed recent levels until after 2020. Total electric demands by 2035 are expected to reach levels that are about 1.6 times higher than 2010. Energy management initiatives (process changes, intensified maintenance efforts and limited change-outs of system components) and technology improvements as new capacities are added, can provide savings.

   Non-electric energy demands for households are primarily for space heating and cooking. Total demand for these end-uses will grow slowly since very limited growth in the total number of households is anticipated. Non-residential use is mostly for space heating which is expected to expand nearly in proportion to growth in commercial floor space. The industrial sector accounts for the strongest growth rate in non-electric energy (Figure 1).

Figure 1 : Macedonia Baseline Electric and Non-electric Energy Demand Forecast 2010 – 2035
(1 GWh=85.984TOE)

Energy Efficiency: Green and Super-Green Scenarios

   Savings of annual electricity consumption are projected to be 15 percent in 2035 under a green scenario and 22 percent under a super-green scenario. The industrial sector offers the largest savings potential because of its relatively rapid growth and because of its ongoing motivation to reduce costs. It accounts for more than 40 percent of potential savings. The household sector is currently the greatest consumer and can contribute another 40 percent of total savings, while non-residential buildings may account for about 20 percent.

   For non-electric energy, 2035 annual energy savings may reach 22 and 33 percent for the green and the super-green scenarios respectively. The industrial sector accounts for more than 60 percent of energy savings potential. This is because this sector is the dominant user of non-electric energy and because growth in industrial output is much greater than in space heating of households or commercial space. Percentage reductions for households are limited as there is little growth in total residential space heating demands. Greater percentage reductions are anticipated for non-residential users since far more new construction is anticipated and new construction standards provide much greater savings than retrofits.

   The total cumulative energy savings by 2035 expressed in percent of baseline consumption are projected as follows:

   There are many opportunities for savings across all sectors, but the industrial sector will provide most of the quick wins, particularly as new capacities are added. The role of government is limited here, but it can provide an enabling environment by setting energy prices right (including environmental externalities), facilitating competition by opening up the economy to trade and investment, and providing incentives for technological innovation. The government can also make an important contribution by supporting energy audits, in the industrial sector among others.

   In the non-residential (commercial) and household sectors, government programs should target energy saving opportunities available in building modernization and in promoting a greener mix of appliances used by consumers. In particular, the government has an important role to play in the regulation of building construction and in introducing new energy efficiency standards for appliances.

   Strengthening the institutional capacity to design and implement energy efficiency programs is a key element of a successful energy efficiency strategy for Macedonia. This requires a lead agency or ministry department to have sufficient budget to attract high quality professional expertise. Capacity to build and maintain energy consumption data is also crucial.

   Finally, making low-cost capital available for certain demand-side energy efficiency investments is essential for investments in capital intensive, long-payback energy saving measures such as building retrofits.

¹EFFECT is a bottom-up engineering style model that develops energy consumption and GHG emission scenarios for a country over long-term forecast horizons. 

²Macedonia Energy Statistics 2000-2010