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NewsFinal decision on Komarnica hydroelectric power plant requires thorough research, experts say

Final decision on Komarnica hydroelectric power plant requires thorough research, experts say

The decision to build the Komarnica hydroelectric power plant (HPP) in Montenegro requires detailed research on all key factors. This includes more precise estimates of construction and operational costs, comprehensive analyses of environmental and socio-economic impacts, and evaluations of long-term energy and overall economic benefits. Only through thorough analysis can a responsible investment decision be made, one that takes into account the interests of all relevant parties, says Dr. Jasmina Ćetković, Professor at the Faculty of Economics.

The construction of the Komarnica hydroelectric power plant, one of Montenegro’s most significant infrastructure projects, has sparked intense debate among experts, investors, and environmentalists. While the project promises energy progress and a reduction in reliance on electricity imports, it raises concerns about economic viability, environmental impact and social implications. According to Dr. Jasmina Ćetković, making a responsible investment decision requires a comprehensive analysis of all aspects of the project’s construction and operation, from costs and revenues to socio-ecological consequences.

The process for approving the Environmental Impact Assessment (EIA) for the Komarnica HPP, conducted by Elektroprivreda Crne Gore (EPCG), is still ongoing. The Ministry of Energy stated at the end of last year that the issue of this project is still open and that its potential implementation cannot proceed without a positive stance from the Environmental Protection Agency (EPA).

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“EPCG has submitted the Environmental Impact Assessment to the EPA and received a set of comments that need to be addressed by February 2025. After that, the Agency will revise the document and issue its final position by mid-2025,” the Ministry of Energy said in late 2024.

Below, we explore the key challenges and opportunities associated with this ambitious project through the lens of scientific and financial parameters.

Expert debate

The construction of the Komarnica hydroelectric power plant has ignited a debate among experts, political actors, the civil sector, and the broader public. While some emphasize the project’s potential to stabilize the energy sector and stimulate economic growth, others warn of ecological and socio-economic risks, such as damage to ecosystems and impacts on local communities. The key question remains how to reconcile these competing interests to achieve long-term sustainable development.

Estimates of construction costs range from 246 million to 343 million euros, according to various sources, including Energoprojekt, the government, and EPCG. While some documentation is partially available, it does not provide a clear or complete picture, indicating a need for additional analysis before a final decision can be made. The estimated construction timeline for the hydroelectric plant is seven years, with work set to begin once the spatial plan is approved and financing is secured.

Investment costs

“According to available relevant sources, the costs per megawatt of installed capacity can vary significantly depending on the region and the complexity of the project. The typical construction costs for large hydroelectric plants in Europe and globally usually range between 2,000 and 5,000 dollars per kilowatt of installed capacity,” says Ćetković.

She refers to a study by the U.S. Energy Information Administration (EIA), which indicates that hydroelectric plants typically require investments of about 2,500 to 3,500 dollars per kilowatt. Furthermore, a study published by the International Renewable Energy Agency (IRENA) notes that the total investment costs for hydroelectric plants vary significantly depending on the location, design choices, and local labor and material costs. “Construction works associated with hydroelectric plants tend to make labor and material costs a larger share of the total costs compared to other technologies. However, equipment costs show considerably less variation. In this case, with the terrain’s availability, lack of road and other supporting infrastructure, and the surface area of the reservoir, I find it very difficult to achieve an investment cost below 3,000 dollars per installed kilowatt,” Ćetković explains.

Thus, the total investment value for the Komarnica hydroelectric power plant could reach nearly 480 million euros.

“Of course, only a comprehensive and detailed project, with estimates and projections for all cost categories, can reliably determine the exact costs. However, the amount of the investment is not the only important factor. Operational costs must also be carefully considered. Relevant studies indicate that operational costs for most hydroelectric plants range between 2 and 2.5 percent of the construction costs, meaning that operational costs for Komarnica could range from 6.5 million to 12 million euros annually,” adds Ćetković. Given the likely insufficient own funds for such a large project, it is expected that credit financing will be required, resulting in additional interest expenses.

Revenue projections and financial viability

On the other hand, a hydroelectric plant with a projected capacity of 172 megawatts has the potential to improve the country’s energy balance, enabling greater production and reducing the need to import electricity. According to HUPX exchange data, the average electricity prices during the first three quarters of 2024 fluctuated significantly, with the average price for 2024 reaching around 140 euros per megawatt-hour. Given that electricity prices are influenced by both predictable and unpredictable factors, accurately forecasting future prices over a long period, especially for a large-scale project, is extremely difficult.

For example, Ćetković calculates potential revenue from electricity sales under two scenarios: one with a lower unit price of 90 euros per megawatt-hour and the other with a higher price of 140 euros per megawatt-hour. With an expected annual production of 213 gigawatt-hours, potential revenues could range from 19 million to 29 million euros annually.

Based on these financial assumptions, with a construction timeline of seven years and 25 years of operation, a more favorable scenario with lower construction costs (reduced to the current value of around 220 million euros), lower operational costs and higher electricity prices would make the project entirely profitable. Revenue from electricity sales would cover the project’s expected costs, and the investor would generate a financial profit. However, in a less favorable scenario with higher construction costs (increased to around 410 million euros), higher operational costs, and lower electricity prices, revenue would not be sufficient to generate an adequate profit for the investor, Ćetković concludes. Due to the lack of more precise data, particularly regarding investment costs, a final conclusion about the financial viability of such a large project cannot yet be made.

Risk assessment

“Deeper analyses, based on more reliable and comprehensive data, as well as risk assessments, would be crucial for a more precise evaluation of the financial justification of the project and making a responsible investment decision,” Ćetković advises.

She stresses that a financial analysis alone is not enough to make a final decision.

“For such projects, a comprehensive socio-economic analysis is needed to examine the broader societal and ecological aspects, to better understand the long-term impacts on communities, the environment, and the economy. This analysis should consider not only the commercial benefits and costs for the investor but also non-commercial aspects, such as reducing CO2 emissions, improving infrastructure, and potential negative effects like threats to biodiversity and increased local pollution,” Ćetković explains.

The challenge is that societal impacts are often complex, comprising both positive and negative aspects.

“For example, during the construction of the Kariba hydroelectric power plant on the border of Zambia and Zimbabwe, there was increased investment in local health infrastructure, including better medical care for workers on the construction site. However, in Brazil, during the construction of the Belo Monte Hydroelectric Power Plant, dust posed a serious health risk to workers, contributing to increased respiratory illnesses. The economy of the project typically brings a mix of effects. While construction can temporarily create jobs and increase economic activity, the long-term effects can lead to dependency on a single industry,” Ćetković explains, adding that infrastructure improvements, such as enhancing the energy network and better market connectivity, could bring benefits, but there are also risks of overloading existing infrastructure and damaging existing facilities.

“Damage to flora and fauna, with long-term consequences for biodiversity and ecosystem stability, is undeniable. Habitat destruction and disruption of migration could seriously harm local communities, while geological and seismic effects could increase the risk of landslides, causing significant remediation costs. While dam construction could improve irrigation resources and water flows, it also carries the risk of water contamination and damage to the natural drainage system, which could lead to high long-term maintenance costs,” Ćetković concludes.

According to her, while the hydropower plant could reduce CO2 emissions and reliance on fossil fuels, there are potential negative impacts on the local ecosystem and microclimate, which would require additional investments in protection and methane emission control.

“Finally, all the aforementioned and other socio-economic effects of the Komarnica hydroelectric power plant need to be carefully considered and evaluated due to the long-term impact of the project on the environment, quality of life, infrastructure, economic development, and more,” Ćetković concludes.

Supported byMercosur Montenegro

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