The collaboration between Bulgaria and Greece on energy-related projects has recently gained a lot of attention both at the national and EU levels. The two countries are exploring possibilities for mitigating the unprecedented energy price crisis and the threats for energy security stemming from Russia’s invasion in Ukraine.
Gas and nuclear plans
The first pillar of the collaboration explored is focused on improving the interconnection of the gas infrastructure between the two countries. Specifically, the widely advertised Greece-Bulgaria gas interconnector (IGB) is at the final stages of construction. In its first operational phase it is expected to offer bidirectional capacity for transporting 3 billion cubic meters (bcm) of fossil gas per year, whereas after the completion of the second phase the capacity may be increased up to 5 bcm per year. The project is a joint venture between the Greek IGI Poseidon (50%) and Bulgarian Energy (50%). Moreover, Greece is planning on building an additional LNG terminal in Alexandroupolis capable of delivering 5 bcm of fossil gas per year from countries other than Russia. A share of these LNG quantities will be transported to Bulgaria in order to address Bulgaria’s gas shortage caused by Russia’s recent decision to cease supplying fossil gas to Bulgaria. Both these projects enjoy support by the majority of the political world in Greece and feed the old “dream” of the country becoming an “energy hub” in Southeastern Europe.
Besides gas infrastructure, the two countries have also engaged in talks about constructing a new nuclear plant in Bulgaria which, according to various sources, will sell a share of its electricity to Greek industries. However, the actual materialization of such a plan seems distant as the matter of establishing a price is unresolved and difficult to determine, as is the legal issue on whether the liability -in case of a nuclear accident- can be transferred proportionally to Greece. In addition, Bulgaria cannot use the two purchased Russian nuclear reactors due to the sanctions EU has imposed on Russia. Moreover, construction is estimated to be completed no earlier than six to eight years, which makes such an investment irrelevant in the context of overcoming dependence on Russian fossil gas. The fact, however, that the Greek government is openly supporting the inclusion of nuclear energy in the Sustainable Taxonomy Regulation, which, if approved by the EU institutions, will facilitate funding of nuclear projects, reflects the seriousness by which Greece is contemplating such a horrific political choice for covering its electricity demand in the future even as it assures national and other audiences that it has no plans to develop such infrastructure in its own seismic territory.
The abovementioned plans of developing gas infrastructure and new nuclear plants bring to light the fundamental question of whether such investments constitute a healthy and realistic basis for collaboration between the two neighboring countries in the critical energy sector.
The EU policy context
In addressing this question it is important to examine the priorities in EU energy policy and corresponding funding streams. In the era of the EU Green Deal, the EU Climate Law, and the ‘fitfor55’ legislative package, the answer seems overwhelmingly negative. The recently announced REPowerEU plan, in response to Russia’s invasion of Urkaine and its energy consequences, further reinforces this negative answer. By far, the largest portion of the 300 billion euros dedicated for the achievement of the 2030 goals of the REPowerEU plan, will be channeled for the acceleration of renewables’ deployment -both large and small scale-, new grids and electricity storage infrastructure, the improvement in energy efficiency in all sectors of the economy including industry, a massive increase in the rate of heat pump installation, the scale up of biomethane production and a major increase in the production and import of green, renewables-based hydrogen.
Only 0,5 billion euros (0,17% of the total REPowerEU funds) are dedicated to prolong the operation of existing nuclear plants in Belgium and France and none of that will support the construction of new nuclear plants such as the ones explored in the recent talks between Bulgaria and Greece. Moreover, the 10 billion euros (3,3% of the total REPowerEU funds) that are planned to be channeled for the construction of new LNG infrastructure and pipeline corridors, such as the FSRU in Alexandroupolis and the IGB, is minimal compared to the massive investments in green energy infrastructure.
Funding for both nuclear energy and fossil gas infrastructure from other sources will also be drastically limited in coming years. First of all, the rules governing the majority of EU funds render such investments ineligible for funding. The Just Transition Fund, aimed at supporting the shift of carbon-intensive regions towards sustainable economic activities, is perhaps the most characteristic example disallowing any “investment related to the production, processing, transport, distribution, storage or combustion of fossil fuels”. Moreover, recently, the European Parliament voted in favor of the exclusion of fossil gas from the Modernization Fund used to modernize the energy sectors of low income Member States, as well as the exclusion of nuclear energy from all funds associated with the EU’s Emissions Trading System (Modernization Fund, Climate Investment Fund and ETS revenue allocated to Member States).
Private funding for both fossil gas and nuclear energy-related investments will not be a viable option either. Even though the European Commission included investments in these technologies in the Complementary Delegated Act (CDA) for the Sustainable Taxonomy Regulation, the associated constraints are strict. Thus, it becomes very difficult for such investments to obtain the “green stamp” which most private funding institutions require to support investments in the construction of such infrastructure. Besides, it is conceivable that in the coming days, the majority in the European Parliament will vote against any kind of inclusion of gas and nuclear energy-related investments in the CDA. On top of that, some of the financially stronger Member States, such as Austria, Luxemburg, Sweden and Germany also oppose the European Commission’s CDA baptizing investments in gas and nuclear “green”, even under strict conditions. Austria and Luxemburg go one step further committing to bring the CDA to the European Court of Justice, if it is not rejected by the European Parliament.
In addition to difficulties in funding, EU’s official energy policy as expressed by the REPowerEU plan imposes a 64% reduction in the overall demand for fossil gas by 2030 compared to 2020 levels. This reduction is much larger than the EU’s current dependence on Russian gas (40%), clearly indicating that even the diversification of fossil gas sources through new pipelines and LNG terminals will only be temporary. The REPowerEU cuts in fossil gas demand of approximately 256 bcm by 2030 are much deeper than the “default” “fit for 55” package which also forges a 30% reduction of 116 bcm in gas demand by 2030.
Therefore, it becomes apparent that Member States opting to invest in new fossil gas plants, fossil gas-based heating systems and fossil gas infrastructure overall, are risking to be left with stranded assets even before this decade expires.
The sustainable route
Hence, it is in the best interest of both Greece and Bulgaria to shift their energy collaboration priorities towards the exploitation of their rich renewable potential, the expansion of electricity interconnections, investments in energy efficiency and the electrification of the building sector, as well as in new energy storage infrastructure. The new, sizable Modernization Fund from the EU ETS, for which both countries are eligible, provides an excellent funding source for sustainable cross-border projects, according to the proposal of the European Parliament for the EU ETS reform, which is widely accepted among political groups.
Another important area of potential collaboration between the two countries is in the Just Transition of lignite regions. Greece is significantly more advanced in terms of both its 2028 timeline for fully phasing out lignite as well as its planning for the economic transformation of its two main lignite regions. Bulgaria on the other hand, has the latest phase out date in the EU (2040), whereas its largest lignite region has not even initiated the Just Transition process by drafting appropriate Territorial Just Transition Plans, which are a prerequisite to access funding from the Just Transition Fund and the two associate pillars of the Just Transition Mechanism. Thus, Bulgaria is risking the absorption of the significant share (much larger than Greece) of funding. Collaboration with Greece could help Bulgaria accelerate the inescapable lignite phase out and reap the benefits of a faster transition to clean energy, through atransfer of know-how on the type of investments and incentive schemes needed for the rejuvenation of economies deeply dependent on the lignite activity.
Sustainability is a one-way street for the EU’s energy sector as shown by the recent political and policy developments as well the trends in both public and private funding for investments in energy infrastructure. Collaboration between neighboring countries on sustainable projects is of great significance in order to utilize the available funds in an optimal way, and, thus, render the energy transition more affordable, especially for the financially weaker countries and their citizens.