HPP sector towards large and more sustainable developments

HPP sector towards large and more sustainable developments

Annalise by Dr Lorenc Gordani

Legal Adviser in Albania Energy Market

  • Summit “Hydropower Balkans 2018”

Albania like the rest of the Western Balkan countries, has continues encourage foreign capital to enter in the energy sector. Investments that have already reached about $ 1 billion, with growth in real term at 10% in 2017. The latest data shows that electricity produced by private sector have reached 33.7% of net domestic production. A high level that have led economic growth for the second consecutive quarter above the 4%.

Considering, that the point of reference for any investment decision has to do with the rate of return, the comparative advantages of the Albanian hydroelectric (HPP) are numerous. At first, they are linked to the great natural potential of the country: with eight major rivers crossing a basin with over 57% of its current administrative extension, with an average height by 700 m above sea level and a perennial flow by 1245 m3/s, for a combined water supply by 40 billion cubic meters.

On above, based in the latest official data, it can be roughly said that today: total installed capacity has reached at 2100 MW; projects granted, but yet not developed, at 1785 MW; the hydropower potential studied, still unexploited, at around 615 MW. Therefore, in a synthesis, considering the theoretical potential by 4500 MW, today only 46% are exploited. As it is worth noting that the country can offer one of the lower cost of production (LCOE) of hydropower in the region starting from an average by 35 euros/MWh.

Passing to the second advantage, given the above hydropower potential, its development has been a key priority of any government, and a fundamental part of the economic development plans from decade, which has been materialized, in: government facilities and subsidies to support investments; creation of high quality technical and experienced workforce; resulting in one of the sectors with a long proven track records of successful foreign investment from countries with the oldest tradition in Europe’s hydroelectric sector.

In third, far as the future is concerned, new opportunities unfold from the transformations. Referring to the new strategy by 2030, it is planed to continue on integration of two main pillars: completing the reforms of market liberalization in the context of regional integration, and the promotion of sustainable development, within five analytical scenarios, built to pave the way to the pursuit of the priorities that will be defined by concrete action plans.

On above, firstly regard the sustainability, the renewable investments could continue to rely on incentives, fiscal and non-tax facilitations. In this direction, the country has committed itself at reaching the 38% target by 2020. In its support, the total capacity available, through the feed-in schemes, for hydroelectric, photovoltaic (PV), wind and biomass power plants, is up to 798 MW. Where, in specific, considering the lower costs, the bigger part of around 600 MW, is reserved to new HPP capacities up to 15 MW.

By the other side, the future of energy market is in some way clear on the progress toward an electricity exchange platform (starting with Albanian one so-called APEX). Process to be completed, in parallel with the intraday and balancing market, as well as the expansion of the network management by the joint auction office (SEE CAO) of Podgorica. Furthermore, at the beginning of 2019, the Albanian market is expected to be coupled with Kosovo or directly in the broader context, where possible, with Italy, Montenegro and Serbia (AIMS).

Regardless of the adapted option or framework, we may think before being there, on how this affects the sector. The development of the regional electricity market ensures that project developers have a wider opportunities for their production. The new network of roads on development in the country also make feasible projects that until here have been considered foreclosed. Options that allows thinking of larger projects, which match with the interest of bigger companies, and hope will promote more sustainability and possibility to base on the market incentives.

In fourth, related to the environmental concerns, the country will continue to need new energy sources and hydroelectric production are the less expensive. Given the considerable challenges faced, a study about sustainable hydroelectric strategy is on progress, with scope on entire Western Balkans, to be approved by the European Commission later this year, from which a series of a fundamental sustainability principles can be already observed:

– Hydropower is among the other sources of renewable energy but priority should be given to the rehabilitation of existing facilities, and a target number of large hydropower plants;

– Any development must be followed with an integrated approach with regard to the regional electricity market, as well as with integrated water resource management, and their development should be addressed in the context of climate challenges;

– In any case, is fundamental the pursue with a deep assessment on the environmental impacts, as well as consider of transnational issues, and the inclusion of the principles of sustainability in hydropower planning.

Passing to the second argument, the better understanding of the above (i.e. activation towards large-scale power plants), and the approach needed to transfer rights, can come through the explorer of the framework in which base the granting rights of hydropower investments. In practice, there are basically two procedures, and a third one is emerging, on the rights of granting of hydroelectric sources.

Firstly, the authorization procedure is followed for the project up to 2 MW, considered as small investments and fundamentally of interest to local investors. A framework based on the principle that leaves the great load (or major risk) of the work to be followed by the investors. However, on the other hand its approval within the ministry is perceived as a fast procedure.

Therefore, for the most relevant projects, considering the level of difficulty and depending on the nature of the hydroelectric risk, are based on the regime of public-private partnership (PPP). What is necessary, from the already existing framework, is a qualified wise reflection of all the rights recognized by the law to the contract between the parties, based on the fact that the legal provisions governing the project contract provide clear guidance on the key issues that will be dealt, allowing the parties to freely negotiate the flexible terms of the concession contracts.

Based on the contractual conditions for plants up to 15 MW, the sale of energy generated by the operator is guaranteed through a long-term contract (PPA) for 15 years, signed with the operator charged of the public service obligation, with regulated tariffs, through a “feed-in” scheme, determine by an independent authority. The construction of power plant that is subject from 15 to 20 permits and complex licenses of various bodies, but it is secured and facilitated by the assumption and provisions as a co-responsibility of the public authorities.

Regard the third procedure, recently, the Ministry of Energy opened the tender for the selection of the bidder for the construction of the PV plant above 50 MW in the southern Albania. A first project based on pure principle of the capacity tender, which has been partially applied in many HPP projects at least over the last 2-3 years. Thus, it represents a large-scale innovation, where everything is prepared in the package by the public authority, giving the maximum support to investors interested. A practice thought to act as a model for further hydroelectric concessions.

As perceived by above procedures, consider the multi-importance for the economy and the complex challenges in their deployment in practice, the current legal framework has seen a continuous revision with the goal of improvement. Despite it, the importance of legal framework is in some way limited to the taken period of the sign of contract, and the core of investments in long term based on accurate technical studies. In addition, their preparation from the earliest stages is also crucial for gaining access to the financial system with a convenient interest rate.

Therefore, the development of sound technical studies, well above the minimum required by law, becomes fundamental. Normally their width and depth vary according to the relevance of the project. In any case, regardless of the technology used, or even the form of investment as an unsolicited proposal or capacity offer, the studies should provide sufficient technical, economic and financial reliability, as well as guarantees in its environmental and social impact.

In final of the above analysis, considering the high number of projects awarded but not yet realized, despite the continuous interest in the acquisition and transfer (A&M), the current situation shows all the complexity in this direction. The factors are different, where the legal procedure in the transfer rights first requires the consent of the public authorities, in the same form given for their approval. Furthermore, a problem is the reliability of the projects, if considers that a good one is sold by itself. In addition, it cost more in financial terms, as well as time and energy, because its necessity to redo the evaluation along the entire chain. Then, finally, the general problem lies in the developers’ approach, as far they are way to what is request form whom is offered to manage renewable resources.

For more on above please find the related slides on Albania hydroelectric sector towards large and sustainable developments, kept by Dr Lorenc Gordani, at 2th edition Summit “Hydropower Balkans 2018” organised by Vostock Capital, among 6-8 November 2018, at the Splendid Conference & SPA Resort, Budva, Montenegro.

Disclaimer: The ownership and the opinion expressed pertain to the author. While all the effort are made to ensure the accuracy of this publication, it is not intended to provide legal advices as individual situations may differ and should be discussed with an expert. For any specific technical or legal advice on the information provided and related topics, contact us through “lorenc_gordani@albaniaenergy.org”.

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