Analysis by Dr Lorenc Gordani
Head of Professional Masters Department
Tirana Business University (TBU)
Albania like the rest of the Western Balkan has continued encourage foreign capital to enter the energy sector. In 2018, the net inflows of foreign direct investment amounted to 8% of the national GDP (IMF, 2018). Investments that have already reached above $ 1 billion in 2019.
A considerable interest that has made that electricity produced by private sector reached 43% of net domestic production in 2019. Notwithstanding which the country remains a net importer on average for around one-third of its needs. Notably, in 2019, drought-triggered electricity imports cost by € 209 million and put the power utility KESH and distribution operator into severe financial difficulty.
The development the energy sector has been a vital priority of any government, and a fundamental part of the economic development plans from the decades, which has been materialized, in government facilities and subsidies to support investments, accompanied with the creation of high quality technical and experienced workforce. The all have been materialised, in one of the long proven track records of successful foreign investment from countries in Europe’s with the oldest tradition in the energy industry.
II. Technical potential and practical developments
Considering, that the point of reference for any investment decision has to do with the rate of return it directly makes fundamental the focus on the analyse of the technical potential of different resources.
The country is predominantly mountainous, 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 yearly. Then, by first, the traditional sources developed in Albanian have been based on its hydroelectric potential.
On regard, it can be said that today the total installed capacity has reached at 2400 MW. However, projects granted, but yet not developed, at 1485 MW (33%) and the hydropower potential studied still unexploited remains at around 615 MW (14%). Therefore, in a synthesis, considering the theoretical potential by 4500 MW, today, only 53% 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 30 Euro/MWh.
Passing to alternative renewable, Albania has outstanding sun irradiation within most of its territory. The country has among the highest number of sunshine hours per year in Europe; on average, there are 286 days with up to 2700 hours of sunshine per year. Therefore, it is an ideal place, where every hectare of land used can generate up to a quarter of a million euros yearly.
A vast possibility opens in PV considering that up to now less than 1% of total energy production came from solar generation. Until today have been installed only seven photovoltaic power plants up to 2 MW, covered by Feed-in Tariff of 100 Euro/MWh. Besides, according to preliminary zoned studies, currently, there is untapped technical potential for the deployment of solar PV of up to 2378 MW available with low cost of capital.
The wind potential as an energy resource is distributed throughout the territory, with an average annual wind speed among 6-8 m/s. Then, the huge amount of licenses are given calculated up to approximately 4200 MW. However, yet, no wind farm projects have been completed, but there is currently some project in the pipeline. In regard, at the begin of June, Prime minister has made public the preparation of the huge investment in a wind power plant (estimate to be among 150 MW). Even Tirana Water Supply and Sewerage (UKT) has opened a tender of wind feasibility project.
Passing to the natural gas it has some kind of historical tradition in Albania, and in last, the new development of the hydrocarbon sector has led to further associate reserves with oil. However, more important is that Albania is one of the transit countries for the Trans Adriatic Pipeline, carrying Azeri gas across Greece, to Italy and the rest of the EU. In January 2020, the Ministry of Infrastructure and Energy (MIE) has intensified the meeting with the highest represents of the sector in the US, discussing about the plans to make Albanian one of the main gates of the US LNG port projects in Europe.
In meanwhile, the country has an oil-fuelled power plant of capacity of 98 MW, representing 4% of the total installed capacity, which has not been put into use since its construction in 2011, (due to a failure in its cooling system). In January 2019, the MIE issued a tender inviting for a public-private partnership (PPP), to revive the power plant converting to a natural gas-fuelled plant. Failure of the first attempt of which will make possible in short the released of a new one. In the same time, particular interest presents the project in pipeline CCGT Korça by 480 MW proposed by Austrian company of IVICOM Holding, with feasibility financed by WB/IFC.
However, the Albania Gas Master Plan (GMP) 2017 sees the rising up to 2.4 bill/m3 within 2030. The current gas pipeline network of 498 km is mostly not operational. Nevertheless, a sector will have a great chance of developing due to the first quantities of natural gas (already introduced to the commissioning test of the new TAP gas pipeline). In regard, in parallel is going ahead with the Ionian Adriatic Pipeline (IAP) interconnectors and there is a possibility of the constructing of natural gas pipeline between Albania-Kosovo (AlKoGaz).
III. Valorisation of the small local particularities
In more, the energy market deep renovation on the renewable energies sees even the turning attention toward the regional peculiarities. A tendency that was finalised in the ambitious Consolidated National Action Plan on Renewable Energy Sources 2019-2020 (NREAP) 2020 that see to rise the use of biomass from 8 MW to 41 MW within 2020.
As well as in energy efficiency, there is a huge potential complete untouched. Then, in last period it starts with the approve the first troupe of auditors and manager of energy that will kick-off with the audit of around 10000 public building and the audit and managing of big consumers above the 3 mil/kWh (a threshold to be decrease at the 1 mil/kWh). Then, in regard, there are a huge of investments planned to be taken and more than 7 commercial banks that have prepared packages of support, based to incentive and grant offered by developing international banks.
Last but not least important, regard the transport, there is a new law approved that establishes 10% of the amount of fuel consumed for transportation in-country should consist of biofuels by 2020. Other initiatives have to do with the smart cities, and electrical taxis or busses considers of the huge benefit that this has in Albania base to the high price of oil and low of the electricity as well as the target of 10% posted by consolidated NREAP 2019-2020.
IV. The transformation toward integrate market of SEE region and Italy
The Albanian electricity grid suffers from ageing infrastructure and inadequate development over the past decades. However, it is noteworthy that grid losses have steadily been decreasing over the last five years, reaching 21.79% level along 2019. As part of efforts to strengthen grid network, Albania has initiated several improvement projects with planned investments in the order of 100-150 Mil/Euro by year.
Albania’s electricity system is already interconnected with the rest of the neighbouring systems of Montenegro, Kosovo, and Greece. In addition, the country’s energy sector development was completed a new 400 kV interconnection line between Albania and Kosovo in June 2016. In regards to North Macedonia, the government approved in June 2016 the construction of the 400 kV line, which was included on the list of regional interest project (PECI) in 2018. The tendering procedure and implementation were launched in April 2018. The estimated cost for the Albanian side is EUR 70 million, and it’s schedule for completion is foreseen for 2021.
V. Energy Legislation, Policy and Strategy
A. Legal Instruments
Now, as far as the future is concerned, new opportunities unfold from the transformations. Referring to the new strategy by 2030, it is planned to continue on the integration of two main pillars: which regard the 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 prepared and presented by the interested private players.
On above, regard first component of the sustainability, the last NREAP 2019-2020, confirm that renewable investments could continue to rely on incentives, fiscal and non-tax facilitations. In terms of target setting for renewable energy, it foresees a 38% of Albania’s gross final energy consumption by 2020. Further on, according to the National Energy Strategy 2030, renewable energy share aims to raise at least 42% by 2030.
B. Enabling Frameworks
Until recently, Albania had a limited supportive regulatory framework for the deployment of renewable energy sources, other than hydropower since 2007. A change of game came with approving of the new RES law of the second generation in 2017. A legal framework that enables the feed-in tariff available for new and existing small hydropower plants with a capacity of up to 15 MW, but also the solar PV plants up to 2 MW and wind power plants of up to 3 MW.
A new framework that was followed by first with the agreement between the MIE and the European Bank for Reconstruction and Development (Ebrd) on May 6, 2017, and then the one of the Ebrd – Energy Community Secretariat (EnC) on June 9, 2017. The agreements that see the engagement to accompany the process bringing expertise, and overseeing the approval of competitions with transparency and full integrity to attract the interest of big international actors for the developing of 700 MW capacity in the PV worth half a billion euros by 2020.
C. A feed-in tariff support system
The above was finalised in Albania with the approve the new NREAP 2019-2020 that rises the PV capacity planned form 120 MW to 490 MW, the wind from 70 MW to 150 MW, and the biomass from 8 MW to 41 MW. Further, on, the mentioned strategy provides a solid framework that will also serve as a basis for the development of an integrated National Energy and Climate Plan (NECP) as the other union members within the end of 2020, which will serve as the base for the NREAP 2030.
D. Premium tariff/Contract for Difference
The larger renewable energy power plants are eligible for a Premium Tariff by a Contract for Difference (CfD). The tariff is determined in a competitive bidding auction process. The CfD, according to the RES Law 2017, is foreseen to have a duration of 15 years.
VI. PPPV Akerni, first project-based to the market principle
The first auction for a 50 MW solar PV plant was launched in August 2018. Albania was the first country in the southeast European region to introduce an auction for renewable energy producers with the support of the EnC and EBRD. More than 40 companies expressed their interest, with six bids submitted for the tender and three developers shortlisted. MIE has awarded a contract to build the large-scale PV project to the India Power Corporation Limited. The solar park will have a total capacity of 100 MW. The 50 MW section of this project is awarded a 15-year tariff of € 59.9 Euro/MWh. The remaining power of the 50 MW will be selling to the local retail electricity market.
VII. Karavasta PPPV and expected projects in PV and wind
On May 27, 2020, was open the bids submitted for the construction of the second Photovoltaic Park in the Karavasta area with an installed capacity of 140 MW. A competition, which aimed at high-profile companies and notwithstanding this the interest was still very high, (including about 30 companies). In the competition, were evaluated the offers of 5 companies. The winning French company Voltalia came up with an extremely competitive offer of 24.89 Euro/MWh, which envisions investing over 100 million euros with a contract of 30-year.
Undoubtedly, the development of this effort, which was successfully finalized to the end, is above all worthwhile for the putting into work all the auction procedures. The outstanding result of which has made already to ranks it as the largest park in the region, and very soon will follow with a series even bigger of other rounds bid. Along with the same ceremony, Premier Rama announce the close start of a competition for a wind energy eolic complex, for which intensive work has been done over the years.
VIII. Net metering scheme
Further, in June 2019, MIE announced the final approval of a net metering scheme for renewable energy. The scheme open to renewable energy systems includes wind and solar projects up to 500 kW incapacity. Net metering scheme to which is recognised a full return of energy delivered without the payment of any cost for the use of the grid. This is thought to enable the deployment of up to 200 MW of PV for the private households, public institutions and small and medium-sized enterprises.
IX. Incentive, customs and excise tax exemptions
Further support mechanisms, apart from the above just mention FiT/FiP tariffs, is the fact that the PPA offer the in-take of all energy that comes down, without balances cost or even duties for their schedules. In addition, renewable energy producers are given priority and guaranteed access to the grid as well as the priority of dispatch.
Regarding the fiscal incentives, for renewable energy producers with an installed capacity higher than 0,5 MW there are the customs duty exemptions for machinery and equipment used for the construction of new capabilities. Based on this scheme, the developers are also entitled to beneﬁt from tax exemptions from excise products (e.g. fuels used in the build of the project).
As well as a support can come with the framework of procedure facilitation for the strategic investments and within the upgrade of structure for the e-licences in the competence of e-albania and the National Business Centre, which aims to operate as a one-stop-shop for shortening procedures and increase the transparency of the licensing process.
Last but not least, the immovable property required for renewable energy production in most of the cases is provided by the State to the producer. For the relevant project, qualified as strategic, the land is offered with a symbolic price of one Euro.
X. A project that is followed regard liberalisation
Passing to the second component of EU integration strategy, the Albanian energy market is undergoing a full restructuring process, and the country, similar to the transformation-taking place in the region, regarding the trading and supply is increasingly entering in an emerging market of distribution of renewable energy (DER), alternative trading’s and deregulate of supplies.
Concerning the multiple progress toward the electricity exchange platform, the country is following with so-called APEX. The 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, the Albanian market is expected to be coupled with Kosovo or directly in the broader context, where possible, with Italy, Montenegro and Serbia (AIMS) with the end of this year.
In this context, a memorandum was signed for coupling the day-ahead electricity markets between the transmission system operators and regulators of Albania and Kosovo in August 2018. A process that has seen in last (just on July 2, 2020) arriving at the signed of the contract between energy public prouder in Albania (KESH) and the operator of transmission in Kosovo (KOSTT) for the offering of the services (mFRR) in order to balance the Kosovo Electric Power System.
Then, coming to one of my “thesis” of this presentation, regardless of the adapted framework and options, the development of the regional electricity market ensures that project developers have wider opportunities for their production. Options that allows thinking of larger projects, which match with the interest of more prominent companies, and promote more sustainability and possibility to base the new project in the market incentives.
XI. Hydro will remain a kingmaker but rise the environment concerns
In conclusion, it want to say that all the above match also with the related environmental concerns. The country will continue to need new energy sources, and hydroelectric production (widely present in Albania) is among less expensive and more valuable source in a liberalised market. Notwithstanding the considerable challenges faced in their deployment, hydropower is among the other sources of renewable energy. Then, the 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 (e.g. regard to the regional electricity market, water resource management, etc.). In any case, is fundamental the pursue with a deep assessment of the environmental impacts, as well as consider the inclusion of the principles of sustainability in hydropower planning. All of this, which can be assured only by the big projects, the only one that has a chance to be developed within such sustainable strictly criteria.
XII. Just commissioned the Statkraft hydropower plant by 184 MW
Among many international energy prominent companies from the world of energy – such is TAP, ENV/Verbund, Shell, Eni – in Albania is present by more a decade the Statkraft. The Norwegian state company has completed the hydropower power plant, Banja in 2016. Besides, just in June 2020 started the commercial operations of the 184 MW hydropower plant of the Moglice which finalised a EUR 535 million investment.
Together with the Banja hydropower plant (HPP), Statkraft’s hydropower production will reach 700 GWh per year, equal to approximately 13% of Albania’s total electricity generation. Statkraft is also following with a project to deliver its first floating solar power plant with EUR 2.3 million total investment, with a FiT by 102.5 Eur/MWh, which is expected to be constructed during 2020-2021.
XIII. Albania presents the HPP Skavica investment of 500 mil/Euro
On the 3 of June was presided in public by Prime Minister Edi Rama the opening ceremony of the Skavica HPP project. The pre-feasibility project comes with a funded grant of 1.5 Million Euros of the Western Balkans Investment Framework – WBIF/EU instrument since 2017.
A team of experts started work in January 2019 and is already at an advanced stage to prepare the implementation of the strategic Skavica HPP project. In fact, this is a project that has been planned many decades ago, because Skavica is an element which is missing to the original Drin cascade, and will serve as a regulatory for the all the rest of 1350 MW installed capacity by public company KESH.
This project is undertaken now by public enterprise KESH itself. In the pre-feasibility study are defined as most reputable three alternatives. The Alternative B with high dam up to the quota 440 m above level see with a tank volume 2319 mil/m3, and surface 54.1 Km2, forecast a dam height by 147 m and installed capacity 210 MW that sees an annual production 915 GWh/yearly.
This presentation has been kept along the Virtual Seminar – Sustainable Energy Development in Albania: Opportunities and Investment Protection Issues on 8 July 2020. Seminar activity organize by Volterra Fietta and was coparticipate by Graham Coop Partner at Volterra Fietta and former General Counsel to the Energy Charter Secretariat.
Notwithstanding its synthetic within the time given, it is hoped has been in some way helpful to provide a full overview of multiple opportunities and options that have to offer the prominent Albanian energy market. For more, on above, it can discover and keep updated in continue, through the Professional Blog.
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, you can contact us through “firstname.lastname@example.org”.
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