The green transition happens with technologies, not with cutting down on capacity

April 21, 2022

The projects for the future transformation of the Maritza East complex are numerous, and not limited to those that will be supported by the various European plans and funds. Some can happen under completely market conditions, but the economic logic of each possibility has yet to be analyzed. Investors and energy producers need an objective viewpoint – one of a government expert group so that plans do not remain on paper, and the transition to take place with minimal costs for society. This is what Ivan Tzankov, Managing Director of AES Bulgaria, operating the most modern and eco-compliant coal-fired power plant in Bulgaria, and St. Nikola Wind Farm near Kavarna, said in an interview for Mediapool.

According to him, there is no collision between coal and RES, everything is a matter of proper energy mix and balancing of the system, which can’t happen only with a battery park for energy storage, but we need modern and environmentally friendly base energy capacities.

 

Mr. Tzankov, are the 40 percent reduction in carbon emissions by the end of 2025 envisaged in the NRRP, which are expected to come mainly from the coal-fired power plants, achievable?

Technically, yes, because it means a gradual reduction in the production of the individual TPPs. They are even listed in the annex to the plan. But much more important is the financial aspect, especially in the context of Bulgaria’s energy mix and the geopolitical situation.

Coal is a Bulgarian resource and is part of our energy independence. The thermal power plants, in addition to guaranteeing the security of supply, provide also important system maintenance services for the stability of the entire energy network in the country. And any restriction on these services or on production could jeopardize the security of supply. From a practical and economic point of view, this is therefore unfounded.

However, this is a commitment in the plan which must be fulfilled. What will be the economic impact on the TPPs themselves, for their workers, for the whole region, as well as on electricity prices? Has such an analysis been carried out?

I hope that such an analysis has been made by the people who wrote the Recovery Plan and made the commitments in it.

There are options not to restrict the production of coal-fired power plants. Analyses have yet to be carried out, for example, on the incineration of coal in combination with biomass or waste. This would lead, to some extent, to preserving the amount of electricity produced, but with reduced carbon emissions. Another option is to invest in the existing capacities to increase their efficiency and produce the same amounts of electricity with less coal. This is a question of analyzing technologies and combinations.

However, we have only just seen the plan in its final form, and it is yet to be analyzed what to do. But directly limiting the production of the TPPs will not be good for the energy system.

How long will these analyses take? 2026 is only four years away, and you need time to run the investments.

This shouldn’t take long. In a few months, I think, each of the producers should have an idea of what they are going to do for their assets.

Especially in our case, we have considered theoretically the possibility of replacing part of the fuel base with gas, biomass, or processed waste (SRF). However, in-depth analyses are forthcoming to really see what investments are involved and whether they will be justified in view of the development of the electricity market, on the one hand, and of quotas, on the other hand.

You also mentioned waste incineration. Are you not afraid of protests by environmentalists, as happened with the intentions of TPP Bobov Dol and Brikel to burn coal and waste, or are you planning to invest in environmental protection?

The analysis of waste incineration is also forthcoming and part of it will be the environmental impact of alternative fuels. It should be clear, if we burn 5 or 10 percent waste in a lignite mix, how it will affect all the environmental parameters of our TPP. Whether, If we start burning waste to reduce carbon dioxide, we may risk exceeding the limits, for example, for nitrogen, dust, and other controlled emissions.

Maybe it should be clear and where the waste will come from!? Does Deputy Prime Minister Assen Vassilev's idea of moving the RDF fuel plant from Sofia’s waste to the Maritza East complex remain as an option for the ‘green transformation’ of the complex?

I don't know how far the state’s analysis of this idea has gone. For the AES’ TPP in Galabovo, this is not just about waste or RDF fuel, but about further processed waste that has been purified and made into granules that are then ground in our mills. Technologically, we can’t just burn any waste. Coal powder is put into our boiler and must be mixed with the fuel of the same consistency. We can’t just throw in a bale and burn it. It needs to be processed into SRF (Solid Recovered Fuel), i.e., highly calorific processed waste. There is no such processing plant in Bulgaria, but there is one in western countries such as the UK, the Netherlands, and Italy. If there is an interest in such a capacity, it should be in the general context of a strategy for waste treatment and processing in the country.

At the moment, are there not too many ideas and projects for coal transformation? The impression stays that many companies want to take advantage of the ‘green’ money from the European funds and are active in proposing decarbonization projects. How do you navigate so many plans? Is it so that the money goes mostly to consultants?

Our approach is that every investment has a business logic, verified in a financial model, in which all input data and expectations that we have for the future are taken into account. It may even turn out that there are investments that do not need any support. It is not necessarily to be realized only investments that will be supported by certain funds. The Recovery and Resilience Plan is just one of the tools that can be used. Many other projects can happen if investors find economic sense in them.

Unfortunately, the Recovery Plan overtook our energy strategy, and the logic is reversed, I think. I am deeply convinced that everything should start from Bulgaria’s long-term vision for the development of its energy sector – our energy strategy.

According to claims, there is no need for an energy strategy, given that we have the Energy and Climate Plan and the Recovery Plan.

I disagree. The Recovery and Resilience Plan is focused on the economy after the Covid pandemic and was combined with the goals of the Green Deal, but it cannot replace the energy strategy, which is a deeper and specific document for a specific industry.

I will give an example of how the American Chamber of Commerce in Bulgaria (AmCham) commissioned the preparation of a report on the electricity sector to the international company Compass Lexecon, which was based on the current energy mix of Bulgaria and the long-term goals of the European Commission to reduce carbon emissions by 55% by 2030 and complete carbon neutrality by 2050. The report gave scenarios for changing the mix and where it should be invested to reach the EC’s objectives at minimum cost to society. This analysis can be a good foundation for a real energy strategy. It shows how the goals of the Green Deal can be met in a way that is sparing for the Bulgarian society. This is possible with increased investments in RES, but with the preservation of the TPPs for the stability of the system and the energy independence of Bulgaria.

The report was prepared before the Russian invasion of Ukraine, and now its conclusions are confirmed even more. There were similar reports from the Association of the Industrial Capital, as well as from the RES business. They can also form the basis of a new energy strategy. But the Recovery Plan cannot replace an energy strategy, because it is a plan in which the government has fixed sectors and policies that it believes should be supported.

Is there a collision between coal and RES and energy storage projects, which come to the forefront of the European and national policies?

For some, there may be such, but the people in the energy sector are aware that there is no collision. Every technology is needed for its time. To get to where we are going - a mix of nuclear energy, RES, and storage batteries, to have zero CO2 emissions, we need a transition period and coal is very necessary for it until investments in innovative green technologies are made.

There’s no way to do that with a magic wand, so when we go to bed today to wake up with a whole new energy mix tomorrow. For this to happen and to ensure the security of the electricity supply, we must rely on coal. I don’t mean that coal will be burnt in 2050. It may probably be burnt or not, but carbon emissions will be captured and stored. The idea of such a project in Bulgaria did not come into the Recovery Plan, but the government can develop it in parallel.

The European Parliament recently recommended to the European Commission that CO2 capture systems be supported by future European funds. Can such a Bulgarian project receive a grant?

I believe that Bulgaria has great potential for such CO2 capture system. We, at the complex, are already working on such a project with the University of Mining and Geology, and its first phase showed that there is a geological structure close to Maritza East, which is suitable for the storage of carbon dioxide. We need to complete this analysis, and possibly use European resources to see how much such a solution would cost, and compare it with other alternatives.

If we say that a comprehensive solution to the problem of CO2 emissions provisionally costs BGN 3 billion, this amount in itself sounds very high. But at the same time, if it is acknowledged that tens of thousands of people and families will need new jobs and social assistance when a power capacity closes, such an investment may prove to make sense in the long term, even if it is financed by the state budget. Because this means independence from the shocks on the energy exchanges, gas imports, and geopolitical shocks. And it may turn out that these BGN 3 billion, or BGN 5 billion or BGN 2 billion, are not at all so much compared to the other alternatives.

Imagine a well-developed system for long-term use of Bulgarian resources, with the available installations in the complex, with preservation of jobs and at the same time with no carbon emissions emitted – this is a potential solution from which everyone would benefit.

Is the idea presented by Nucleon as part of the state’s cooperation with Gemcorp and IP3 for the use of carbon emissions in the Maritza East complex for methanol production and its use for chemical products a utopia?

I wouldn’t call it a utopia, because I’m only familiar with its concept, but I’m not familiar with the details. The project sounds very interesting because it is an alternative to everything else that is happening. This is a project that looks like it will preserve everything we have and attract new investments into the complex that may be of mutual benefit to all. And if a part of carbon dioxide is stored, another part is used as a raw material to produce other products and there are new investments, that’s interesting. But we have yet to see its financial model and what our potential role and involvement in it will be. We need the details to make it clear what will happen in stages and to assess whether the calculations behind this project are economically viable.

Again, I get back to the question of how will it be assessed which of the many projects will be implemented so that they do not remain neglected and the real transformation does not happen? Is this a decision only of the power capacities affected by the new environmental requirements?

In the last year and a half, we have participated in presentations on all kinds of projects - the Nucleon project, emissions capture, on hydrogen production. The projects are so numerous that many companies from the sector have united around the opinion that we ourselves have no way of judging which of them would be the most sensible. It would therefore be appropriate to set up a working group at the level of the Council of Ministers or the Ministry of Energy to gather the detailed information on each of these projects, analyze them, say what is suitable, and what is not, and concentrate on those with economic importance. We proposed this a few months ago along with colleagues from the sector, industry, and trade unions.

But apparently, there is no such expert group.

Not that I know of. And it’s extremely important to have a unit for evaluation of the alternatives. Among these alternatives is a common project to solve the problems of Maritza East developed by several universities (Technical University, University of Chemical Technology and Metallurgy, University of Mining and Geology), which was funded by the Ministry of Education. This is also intriguing. The assessment of the alternatives for the future of a strategic complex such as Maritza East is not in the hands of the individual investors, and a systematic and comprehensive approach is needed under the leadership of the state and local authorities with the participation of all stakeholders.

Territorial plans for the transformation of three of the coal regions, which will open up access to separate EU funding, are also delayed. Is it going to happen that there are subsidies available, but Bulgaria will not be able to take advantage of them?

I’m not a fan of excuses, but the entire last year was marked by political turbulence. It’s about strategy papers. Although delayed, let them slow down a bit more if they have to, but become useful, actual projects that attract investors rather than being prepared in a hurry and doing something that, in time, may turn out to collect dust somewhere, or as you said, money has been spent on something that no one is interested in.

Do you see among the energy projects in the Recovery Plan those that are controversial for implementation? Could this be the case for building a network of energy storage batteries?

There’s always the risk of a project not happening. The plan is a fact and received many positive assessments from the EC.

The battery park project is very ambitious, but in the end, one is as big as one's dreams are. In my opinion, the project is feasible, but it is very important to build the regulatory framework for such batteries as quickly as possible. We don't have one at home right now. If, I as an investor want to take advantage of the opportunity for energy storage in Bulgaria, I have to make my business model – what revenue and profits will the battery provide, how it will use them, etc. I hope that soon there will be regulations and, on their basis, to assess the investor interest. I can say that at AES, being the owner of the largest wind farm in Bulgaria – St. Nikola near Kavarna, and a manufacturer of batteries for energy storage, we have analyzed a project for the installation of such a battery there, but the economic estimates at the moment do not give a positive result. It is, therefore, crucial to develop the regulatory base and create a market model that will attract investors to such projects.

Do you think that such a battery park could be a balancer of the energy system and with such a power to replace the base coal-fired power plants, given the expected expansion of the RES projects?

The battery is a very suitable technology for easing short-term imbalances in the system and for perfectly balancing the RES, but there is no way to replace coal capacity. In winter, when there is no sun for 14 hours a day, and the industry and the households need electricity, we need a base power to produce it. No battery can give off power for 14 hours. So, batteries are good for short-term grid turbulence. Therefore, if base capacities are gradually decommissioned in Bulgaria, this should be done only while introducing new replacement base capacities. I once again turn to AmCham’s analysis that the phase-out of coal-fired power plants between now and 2035-2040 is related to replacement power capacity, with the alternatives being gas and nuclear power. However, given the volatility of the gas markets, I think that building new nuclear power facilities has no alternative.