Slovakia pursues energy security

Most investments in the energy sector, and certainly the building facilities to generate electricity, are long-term projects and that is why several significant investments are materialising now that were planned well before the global financial and economic crisis and even before the interruption of natural gas supplies in Slovakia in early 2009. Two of the most significant energy projects that are in the pipeline – and are nearing completion – are the building of additional natural gas storage facilities in western Slovakia and new gas transmission pipelines and the construction of two new nuclear reactors that will supplement two existing units at the power station owned by Slovenské Elektrárne (SE) in Mochovce.For the past two winters, since January 2009 when Russian gas flowing via Ukraine was completely halted and caused a temporary but significant crisis involving the shutdown of many important manufacturing operations in Slovakia, concerns have mounted about the security of the country’s natural gas supplies. While representatives of the Ukrainian government have assured their counterparts in Slovakia that the supply of gas will be trouble-free during the winter of 2011/2012, Slovakia has continued to expand its gas storage capacities and extend its distribution infrastructure so that there are more options in the event of natural gas supply problems from the east.When Slovakia began closing one of its older nuclear power stations in Jaslovské Bohunice in 2006 to meet EU admission conditions, the country lost its self-sufficiency in generating electricity. It is expected that the country will resume self-sufficiency in late 2012 when the first of two new reactors at the Mochovce nuclear power plant, a €2.8 billion project by Slovenské Elektrárne (SE) that supplements the two reactors it currently operates at the site, is phased in. SE plans to phase in the fourth nuclear reactor in 2013. The two new units have a combined annual capacity of 880 MW. In 2010 Slovakia imported 3.6 percent of its electricity consumption, a drop from the 4.8 percent imported in 2009, according to a recent report by the Economy Ministry on the supply of electricity. The country’s nuclear power stations generated 53 percent of the electricity supply, while hydroelectric stations produced 20 percent and thermal power stations 18 percent. Electricity from other sources such as companies’ own generators and renewable energy sources accounted for 9 percent.Over the past decade Slovakia has been investing in renewable energy sources, particularly solar facilities. In mid-2011, over 800 solar facilities with an aggregate installed capacity of 478 MW were operating in the country, according to the Regulatory Office for Network Industries (ÚRSO). But a new law that became effective on July 1, 2011 curbs subsidised construction of solar power stations. The change in the law was initiated by the Economy Ministry to halt the boom in construction of subsidised photovoltaic power stations on arable land in response to findings that subsidising solar power was increasing electricity prices for end-users. The law restricts feed-in tariff subsidies to only small solar power stations with an installed capacity of less than 100 kW that are mounted on roofs or walls of existing buildings.

Avoiding another natural gas crisis

Consumption of natural gas in Slovakia amounted to 5.7 billion cubic metres in 2010 and about 98 percent of that was imported, the Slovak Economy Ministry reported earlier this year. In the event of supply problems via Ukraine the Slovak government believes that any problems will be mitigated by natural gas currently stored in underground facilities in western Slovakia as well as alternative supply contracts that the country’s gas utility, SPP, signed with E.ON Ruhrgas and GDF Suez after the 2009 crisis.

Nafta, Slovakia’s biggest natural gas storage company, decided to expand its capacity due to increased demand even before the 2009 supply crisis and the soon ensuing economic crisis. Preparatory steps on its Gajary-Báden storage facility in western Slovakia began in 2007 and when the entire project is finished in 2014 it will add about 500 million cubic metres of natural gas storage capacity. The company officially opened its control centre for the new facility on September 6, 2011 signalling the completion of the second and most important phase of the project that has a price tag of €166 million.

“By opening the Gajary-Báden project, which is part of the up and running Láb complex of storage facilities, Nafta’s storage capacity will increase to 2.5 billion cubic metres,” said Alexander Spies, chairman of Nafta’s board of directors at the opening ceremony for the control centre. “This represents a full 50 percent rise [in capacity] within one decade, from 2003 to 2014.”
In addition to improving the security of Slovakia’s gas supply, Martin Hollý, Nafta’s CEO, sees the Gajary-Báden project as supporting the liberalised gas market in Europe, which will strengthen the position of Nafta’s storage facilities in the central European energy industry.

The role of underground natural gas storage facilities is essentially to balance the seasonal differences in gas consumption between summer and winter but it has even more strategic importance in Slovakia since gas supplies coming to the country are not well-diversified. The importance of Nafta’s expansion project in terms securing the reliability of gas supplies in central and eastern Europe was recognised by the European Commission as it provided a grant of €3 million to interconnect Nafta’s facilities in Láb and Gajary-Báden, adding new entry and exit points to the existing transmission system.

With the changing environment in the energy market, Nafta developed new storage possibilities for its customers early in 2011 by allowing them to inject and withdraw gas and to change their entry and exit points at any time during the year, according to a company press release. The new gas storage facility in Gajary-Báden is located at a depth of 1,800 metres and is actually positioned directly below the Láb storage facility known as UGS Láb 3.

“The challenge was that our biggest storage area is located at a depth of 600 metres and we had to drill through it,” said Ladislav Goryl, the head of Nafta’s underground storage facilities division.
Russia has been diversifying the transmission routes for its natural gas exports and in September 2011 started adding natural gas to the first of two planned Nord Stream pipelines that bypass Ukraine. Commercial operation was expected to start in early November. This €7.4-billion project includes two parallel pipelines constructed across the Baltic Sea with an annual transport capacity of 55 billion cubic metres of gas.

Nord Stream is the biggest energy project in Europe, the TASR newswire wrote, and by constructing these routes Russia will bypass other countries and have a direct connection into western Europe.
The Nord Stream project will likely impact the gas transmission system across Slovakia operated and maintained by Eustream, a subsidiary of SPP. That transmission system has an annual capacity of more than 90 billion cubic metres.

“Everything is proceeding in line with our forecast since 2008,” Vahram Chuguryan from Eustream told The Slovak Spectator. “Despite the negative short-term effect [of Nord Stream] we firmly believe that the growing role of gas in the EU’s energy policy, as well as recognition of natural gas as an environmentally-friendly fuel, will lead to a strengthened role for Eustream’s gas transmission system in the medium and long-term horizon and that the short-term drop [in gas transmission] will be compensated.”

Eustream is also actively constructing new interconnections with other natural gas pipelines such as the Slovak-Hungarian gas interconnector.

“The strategic importance of the [Hungarian interconnector] project lies in ensuring access to the new sources of gas supply in the form of a ‘bridgehead’ to the planned South Stream and Nabucco pipelines and to the LNG terminal in Croatia,” Chuguryan added. “Furthermore, we are working on the introduction of new market products such as day-ahead flexible booking as well as the introduction of a national virtual trading point.”

Construction of the Slovak-Hungarian gas interconnector was advanced when a memorandum of understanding was signed in early September 2011 by representatives of Eustream and Országos Villamostávvezeték (OVIT), a member of the MVM Group and a leading player in the energy sector in Hungary.

The interconnecting pipeline is expected to be in operation by January 2015 and will have a length of about 115 kilometres, connecting the high-pressure gas transmission system in Veľké Zlievce in Slovakia with the Hungarian network near the village of Vecsés in the suburbs of Budapest. The total investment is expected to be more than €100 million, €30 million of which the EU will provide from its European Energy Programme for Recovery.

Karel Hirman, the director of the Energy Policy Section at the Slovak Innovation and Energy Agency (SIEA), expects that the launch of the Nord Stream pipelines will reduce the amount of gas transiting Slovakia.

“The long-term contract on gas transmission via Slovakia signed in 2008 with Gazexport was already planned by the launch [of Nord Stream],” Hirman told The Slovak Spectator. “Thus, it is possible to really expect that during the next two years the transmission of gas via the Ukrainian-Slovak transmission corridor will decrease relatively significantly due to Nord Stream, into which Gazprom will redirect not a small portion of its gas supply.”

Hirman added that current developments in the gas market in the EU, which do not confirm the rapid increase in consumption of Russian gas that had been predicted when earlier German-Russian contracts were signed, also indicate that there will be some falloff in gas transiting Slovakia.
In addition to the Nord Stream project, the South Stream pipeline is planned to transport Russian natural gas across the Black Sea to Bulgaria and then on to Greece, Italy and Austria, as well as the Nabucco pipeline that will run from Erzurum in Turkey to Austria, both of which will further diversify natural gas suppliers and delivery routes into Europe.

“Construction of South Stream, a new route from Russia to the European Union which would bypass the Ukrainian-Slovak corridor from the south, is mainly a political project under the current situation in the EU gas market, and its primary goal is to solve disputed issues between the Russian Federation and Ukraine,” Hirman stated. “Nabucco is also more a political for now, even though at question in this case is gaining access to new, highly-prospective natural gas deposits in central Asia for EU markets.”

Hirman believes it impossible at this time to predict the impact of these projects on the transmission route across Slovakia but thinks that building new pipelines into the EU should not have a duplicitous character and that the EU should support their construction only when they secure a new source of gas or they create a new transmission route that can be used to cover increasing consumption.

Self-sufficiency in electricity generation

The launch of a new combined-cycle power station with an installed capacity of 430 MW in Malženice near Trnava, a project by the E.ON energy group, as well as new photovoltaic plants were the two largest sources of new generating capacity launched recently. The new combined-cycle power station in Malženice officially opened on May 16, 2011, while its operation was launched in December 2010.
“The €400 million investment by E.ON represents the largest energy investment in Slovakia realised by the company in recent years,” said Jorgen Kildahl, a member of the management board of E.ON Energie AG, at the ceremony.

The Malženice power plant is regarded as one of the most advanced in Europe in its category from a technical point of view, boasting an efficiency of more than 59 percent that is achieved by simultaneous use of gas and steam turbines.

The power plant has an installed capacity of 430 MW and can generate up to 3 billion kWh of
electricity per year, sufficient to cover the average annual consumption of 600,000 to 900,000 households.

Growth in solar power curbed

More information about Slovak business environment you can find in our Investment Advisory Guide.