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Delays plague Kostolac B3 coal unit as Serbia faces energy challenges and missed production goals

The new coal-fired unit at the Kostolac power plant in Serbia, expected to be operational in March or April this year, is set to become the country’s first new energy production facility in nearly 40 years, according to a statement made by Minister of Mining and Energy Dubravka Đedović on January 2. However, nine months later, the Minister is urging the Chinese company CMEC, which constructed the unit, to expedite the remaining tests and inspections, in compliance with the recommendations of the independent engineer and Serbian regulations, so the unit can be handed over to state-owned utility EPS without further delay.

The project, which began 11 years ago with a loan agreement and officially broke ground seven years ago, has faced significant delays. For comparison, a similar thermal power plant, TPP Stanari in the Republic of Srpska, was completed in just 3.5 years.

In 2010, a framework agreement was signed with CMEC, followed by discussions in 2012 about the second phase of the TPP Kostolac modernization, which included the construction of a 350 MW coal-fired unit worth $613 million. The overall value of the second phase, which also included the expansion of the Drmno coal mine, was estimated at $715 million, with financing primarily provided by a 20-year loan from China’s EXIM Bank at a 2.5% annual interest rate, including a seven-year grace period.

Permits and approvals were initially expected in 2014, with construction set to begin shortly after. However, construction did not commence until November 2017, with the unit originally scheduled for completion in 2020. In December 2020, then-Minister of Energy Zorana Mihajlovic expressed frustration with the slow progress, criticizing CMEC for delays, which they attributed to the COVID-19 pandemic, and rejecting their proposed 2022 completion date as unacceptable.

By October 2022, EPS officials anticipated stable operation of the unit by September 2023. Despite these projections, a tender for an integrated permit necessary for the plant’s operation was only issued later that year, with the first network synchronization of unit B3 achieved in March 2024. As of late September, the unit still had not reached full capacity.

In the final quarter of last year, unit B3 appeared in EPS’s production plans operating at around 30% capacity, with expectations of full capacity at the start of 2024. However, further delays occurred, and the unit missed its planned second-quarter launch.

During this time, a summer heatwave significantly increased electricity consumption, while EPS spent around €100 million on electricity imports in July and August. Since the contract’s latest annex expired in June 2023, which should have marked the unit’s transfer to EPS, 15 months have passed. Had the unit been operating, it could have produced 6,000 MWh daily, equating to approximately €240 million worth of electricity based on average market prices.

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