Albania integration into the European energy network

Albania integration into the European energy network

Analysis by Dr Lorenc Gordani

Legal Advisor in Albanian Energy Market

integration into the European energy network; Albania integration; European energy network; Lorenc Gordani; Analysis; Albanian Energy Market; Albania-Kosovo; Agreement on a Regulatory Block; Albanian energy market; Restructuring; Kosovo energy system; power exchange; market coupling; integrations with the regional power exchanges; coupling with Italy; deregulation of energy supplies; final consumers.

Albania-Kosovo Agreement on a Regulatory Block

The Albanian energy market is going through a process of complete restructuring and the country, together with the Kosovo energy system, is close to releasing its power exchange. A process considered only a first step of further going on market coupling integrations with the regional power exchanges included the broader option of the coupling with Italy. In the same time, the all is accompanied by a strongly increasingly of the framework of the deregulation of energy supplies for the final consumers.

On above, the very fluid situation has seen one of the last most essential development in the signing of the historic agreement for the creation of the Albania-Kosovo Regulatory Block (AK Block), made public on 2 December 2019. An agreement with multiple and direct technically and economically benefits on smoother operation and balancing of both power systems. In the same time, it increases the energy security for both countries and the entire region of Southeast Europe (SEE) and the EU.

Furthermore, it has also many indirect effects, such are the expected put in the operation of the interconnection line with Kosovo, which has been waiting to be used now by several years ago from 2016. A development that will help the establishment of the basis for the rise of completion of the energy market in Albanian and the creation of a common energy market between Albanian and Kosovo.

Establish of the interconnection among Western Balkans and Italy

The above integration has been required to be reached by several years. However, it becomes necessary and possible only now following the very relevant and recent directly link of Italy through the submarine HVDC with the Western Balkans (Montenegro) inaugurated on 15 November. In the previous the only interconnection was the very limited capacity through Greece, which see now the added of the here interconnection, also with the projection to be double, consider its build in the logic of market coupling. To each, in fact, it is already added in last period even Macedonia and Bulgaria (for more the press release of Italian Authority).

Then, following the above, on the 21 Oct. 2019 is the notice that the SEE CAO (that coordinate borders from Turkey to Croatia) have Set of Allocation Rules of Allocation Rules, Forward Capacity Allocation and even Daily Capacity Allocation on IT-ME Border. Instead, on 04 Dec. 2019 it was the announcement of the performing of the explicit of the Yearly Auctions and OC for 2020 on IT-ME border allocation).

The pivotal economic effects related to the market liberalisation

The creation of the regional market is now at the point of no return – as stated by the last meeting of EnC at Tivat. The project a regional electricity market is delivered among five regional projects tackling some of the biggest challenges in the WB6. Lately, even the national electricity market operator of North Macedonia (MEMO) has signed the WB6 Memorandum of Understanding on Regional Electricity Market Development. Its continuation is critical to meeting the region’s energy priorities – ensuring the security of supply and meeting decarbonisation objectives.

In specific, regard Albania the above means to join the region’s internal energy market rising the interaction and integration with the European energy market. Such achievement is strongly reflected lately as a must by the Concluding Statement of the IMF on November 26, 2019. Among which consider the “ongoing financial weakness of the state-owned electricity sector” the IMF urges a “calls for the careful implementation of bold reforms, establishing a power exchange and unbundling the electricity distribution company”.

Last but not least, it will be one of the key drivers in the model of economic development within the block and throughout the region in the upcoming period. Its launch, specifically related to the energy sector, will have an enabling effect in the undertaking of new and more significant investments for building common facilities such as HPP Skavica, and a possible new electricity transmission line between Albania and Italy, (as well as also with relevant effect on the development of the Albania-Kosovo Gas Pipeline (Alkogas)).

The upcoming changes of Albania energy market

Then, the question is at which point of preparation we are to such targets and what scenarios open ahead. In regard, simplifying a lot among many developments, up to now, there are 33 consumers connected to 35 kV that assure already their energy needed in the free-market supplied by 4 companies. Within the first half of 2020, 1100 more businesses will have to find their own energy in the free market as declared recently by Elton Sevrani, Head of the Commercial Division at OSHEE. It means that it will extend to all the one connected above the 0,4 kV with the possibility to continue with the last supply resort. A change that is become at this stage mandatory for the big consumers.

The active drivers toward market transition

Then wanted to explain this transformation without precedents for the region, in case of Albania after the abandon of the idea to reintegrate the KESH with OSHEE, the following period has been an advance without stopping. The general framework of the reforming of the sector has never seen any other similar reflection with such priority and punctuality such as the Strategic Plan for the Reform of the Energy Sector in Albania approved by the Albanian Council of Ministers on December 2018.

Its appointments as a key political priority are very important because the reforms are hard and are finding many obstacles even in more developed countries. As the experience in Albania has shown them are made only where is no other solution and mostly remain only in papers. However, a live PXs is different from documents, and, in this case, the country finds in kind of “checkmate”.

The reasons are multiple, but the core stands in the fact that today, KESH sells through long-term contract all the energy needed to OSHEE with 11 Euro/MWh. The here paradox base to the fact that from many years OSHEE has to buy the energy from hydro priority producer with a regulated price higher than the market. It amounts up to 2018 more than 1/3 of the total of energy used, but it is in continuous growth (along 2019, suddenly it rise around 60%).

In addition, the OSHEE have to buy the power from PV by 100 Euro/MWh and have to make investments to accommodate new DER. Now the new NREAP 2019-2010 foresaw the rise up to 490 MW in PV and 150 MW in the wind the situation will be more challenging. To which 290 MW will be PPPV by 2 MW and the other bigger ones. In more, due to the drought, this year has seen up to now the import of at least 175 Mil/Euro by OSHEE. This brought to the cancellation of all the investments apart what is emergent: consider that this strongly affects the reduction of losses negotiated with the Word Bank.

In last, it is to consider that the country aims to open the EU accession negotiation in spring 2020, but even without this, the Albanian cannot stand the last country in the WB without PXs. Otherways, the KESH will be soon invited to quote 50% the first year and 75% the second year of its energy through the Belen. A fact that the national players in Albanian, such as the traders and public companies, has made to find more interest to accelerate the open a Power Exchange in Albania.

However, the PX Belen seems to be designed to be the power exchange of region above all due to the geopolitical role of this country as the first one that will be admitted in EU by the rest of WB (already complete the open of all the chapters including them of energy n. 15 and the infrastructure n. 21), presence of CAO, completed of the submarine interconnection with Italy, etc.

Finally yet importantly, now in ongoing, every new support by international donors is designed based on Policy-Based Lending instrument (PBL). Actually, following the above, in the upcoming day is expected the new bid call to establish the stockholders of Albanian Power Exchange APEX. This is a quite reasonable to happen within the end of the year, but in meanwhile on the 10 December already came the re-launch of OSHEE unbundling (Albanian DSO).

Further consideration and recommendations

Therefore, by the first day of next year, there is expected a full radical game of change of status quo in Albania. Then, now more than never does not remain that to find the mood to make steady progress among these targets. Nerveless, the transition is challenging even for the most developing countries of EU, regarding different needs such as the adoption of market mechanism and fully deregulation, attract renewable investments with less burden for consumer, etc.

The above makes impracticable now the only imposing of the next step from up to bottom approach but need the following the reform in dialogue with the stakeholder, in creating smart tools that can make the thing work. To this regard, it needs to start by investing in building the capacities form the research centre to public companies to finalise something sustainable but also well promising first of all for the system and consumers in Albania.

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

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