Ljubljana - The Slovenian power generation sector faces challenges in the coming months that it has not seen in decades as the chaos on global energy markets, which has driven prices to record highs, has conspired with domestic factors for what appears to be a perfect storm.

In the first half of this year, domestic energy production covered under 75% of the country's needs, the lowest share in a decade, as power generation dropped by 14% over the year before.

The decline is largely the result of very low hydro production due to a prolonged drought, but also an accident that reduced the output of Premogovnik Velenje, the sole source of coal for the only remaining coal-fired power plant in Šoštanj (TEŠ), a pillar of domestic energy supply.

Instead of reaping the benefits of high market prices, Slovenian producers have thus had to buy power on the market to deliver contractually agreed volumes.

GEN Energija, which operates the Krško Nuclear Power Plant (NEK), the chain of hydro stations on the Sava and the Brestanica gas-fired power station, says Slovenia is currently importing roughly 30% of electricity and much more during times of peak demand.

This is "essentially unacceptable" in terms of strategic reliability, the company told the STA.

Nor is the situation temporary given that demand for electricity continues to grow due to the electrification of transport.

While hydro production is expected to recover at least slightly if not fully, the second pillar of the Slovenian energy sector, the Krško Nuclear Power Plant, will shut down for scheduled maintenance for a month in October. Krško accounts for a fifth of all electricity consumed in the country.

During the shutdown, TEŠ's role will increase as it fires up one of its older coal-fired units, but according to business daily Finance, all available natural-gas plants will also be put into action, in Šoštanj, Brestanica and even the mothballed Trbovlje location.

GEN Energija expects to cover about a third of the demand with increased hydro and gas-fired capacity, but two-thirds will have to be purchased on the market.

The STA has also reached out to HSE, which runs TEŠ, but has not received information in time.

Both GEN Energija and HSE, which among them posted a net profit in excess of EUR 150 million last year, will be hard pressed to remain under water. Business daily Finance expects they will both end in the red.

"Significant deviations from plans are possible, especially in the negative direction," GEN Energija said.

Some relief will come in the form of liquidity guarantees that the state will put in place that will allow the major players - GEN Energija, HSE and gas provider Geoplin, to purchase sufficient volumes of energy and emission coupons.

In exchange, all three, which are in full or majority state ownership, will also retain last year's and this year's profit instead of paying dividends, and they will have to eschew management bonuses.