Financing the green economy in Albania

Financing the green economy in Albania

Analysis by Dr Lorenc Gordani

Head of the Department of Professional Masters

Tirana Business University (TBU)

Photovoltaic (PV); self-consumption (DER); energy performance certification in buildings; real estate value; energy target in sustainability; better protection of the environment.

Recently, I led a series of business-to-business (B2B) meetings organized by the Cooperation Development Institute (CDI). The trilogy’s focus was on energy efficiency within the INTERREG IPA CBC Italy-Albania-Montenegro project program the ENEA – Energy Efficiency Living Lab – implemented in collaboration with CE.FAS and Expeditio. Meetings were held at the premises of Tirana Business University (TBU), and hosted a large number of different actors, mainly from the business sector, as well as experts in the field, academics, etc.

Specifically, in one held on December 7, 2021, focused on “Financing mechanism facility and businesses benefiting in energy efficiency in Albania” we found out that there is a great interest in what is the situation of these financing mechanisms, proper not only to save energy but also to increase the value of productivity and reach the energy target in sustainability and better protection of the environment, by meeting European standards for candidate countries such as Albania.

Indeed, the transition to Clean Energy requires a significant investment. As a result, energy projects usually require high preliminary costs, which are recovered over a long period. To this end, donors and development banks have played a crucial role in opening up the regional market over the past decade through long-term financing, technical assistance and incentives.

They still provide most of the financing available to commercial banks. After the initial phase of learning using IFI and donor funding and technical assistance, the latter manage to finance their funding scheme to increase energy efficiency and renewable energy. Some of the primary sources of financing in Albania, enriched and gradually expanded over time are Union Bank – Residential EBRD/GEFF; “Fondi Besa” – Residential EBRD/GEFF; OTP – Residential EBRD/GEFF; BKT – SMEs & RE projects, residential GGF; Procredit Bank – Households & SMEs; NOA – Microfinance Residential & SME, IFC (TA); Credins – Bank Residential, IFC (TA).

Actually, some commercial banks are well-capitalized and finance their renewable energy investment programs, albeit generally in smaller volumes. What has hitherto been considered a barrier includes, among others, the perception of high energy costs by RES and the need for subsidies; old transmission and network infrastructure struggling to cope with large variable volumes of energy from RES; slow and unpredictable planning processes; regulatory uncertainty, as the country is moving towards competitive support schemes, underdeveloped power market, limited regional integration.

However, nowadays, we are assisting in raising the price of electricity on power exchanges. As a result, prices have gone from the average standard of around 50 Euro/MWh to over 250 Euro/MWh, reaching peaks of up to 450 Euro/MWh. Therefore, a context that is expected to stabilize at around 150 Euro/MWh for the coming years makes the above support measure no longer necessary, including PPAs.

What remains is that the country, having no fully liberalised market, had to adopt detailed rules for any development it undertakes. Then, as they are constructed in a table, some remain challenging to apply in practice, for example, even in small net metering projects. Moreover, there is a lack of comprehensive understanding of the legislation and regulatory framework, even e.g. for small-scale renewable installations (mainly PV) for self-consumption.

There is also a slow pace of adapting to changes by public authorities, which also hinders private sector financing by banks. However, given that projects are contract-based and the latter in technical studies, it is also essential to involve and train the private sector in preparing bankable projects ready to benefit from fast financing by banks, especially to understand those that generate hefty profits or tangible and measurable savings.

To understand that these instruments are aimed at specific groups of beneficiaries, such as households, entrepreneurs (mainly the SME sector) and other entities, such as local government, housing communities and cooperatives. Against this background is that banks, investors, and local authorities have little experience developing partnering in the renewable energy projects and energy efficiency, increasing the cost and overall investment time.

Mitigation of these risks can be achieved through partnering where state institutions, companies and businesses, as well as those of education, senior experts in the field, and other stakeholders work together. In this context, it is also essential to apply for public funding in the form of soft loans, grants and insurance programs in a project suitable for the benefit of the public and the general interest.

Author: Dr Lorenc Gordani, is an Energy Lawyer and Pedagogue and Director of the Department of Masters at Tirana Business University (TBU), in addition actually to being a guest lecturer at many universities, including the Metropolitan University of Tirana (UMT), Global Entrepreneurship Academy (GEA), Akademia e Integrimit Europian dhe Negociatave (AIEN), as well as involved in many projects, including AFD/Expertise France & Gas Suez, GWP-MED, Balfin etc.

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