Reforms in the Energy Sector and the Opening Investments Opportunity in Albania

Part of Report: Energy Market and Investments Opportunities in Albania

Lorenc Gordani | Tuesday, August 11, 2015

The Government of Albania is moving forward with an integrated approach to addressing problems in the energy sector overtaking important institutional changes in line with the European Union directives. The objectives of EU policy on energy are competitiveness, security of supply and sustainability. However, the liberalization of the energy market and the introduction of private operators in the market is one of the main challenges of the energy sector under European Union directives.

Albanian from a long period is searching to do progress in aligning its legislation with the EU acquis in the field of energy. The previous law no. 9072, date 22.5.2003 “On power sector” has been revised about 13 time in order to be further aligned with the EU general principles and the acquis on award of energy sector. These changes were reflected in accordance with energy sector development, affecting the improvement of energy supply and energy market opening, but the diversification of electricity sources were still lacking.

Attracting of the investment was the rationale behind many of the here above measures and actions taken. However, the private investment has remained far below the levels hoped. Then during 2014, was prepared the new Law “On the Power Sector” in full compliance with the Third Energy Package of European Union and in specific with the Directive 2009/72/EC dated 13 July 2009 "On common rules for the internal market in electricity”. A process now already completed with the enactment of the new Law on the Electricity Sector no. 43 on 30th April 2015.

Notwithstanding, the new law on the electricity sector approved, constitutes a decisive step forward, it is only the first ones on a long path of the energy reforms in Albania. The adoption of this law, it will be opened the road towards other legal acts, as in particular the preparation of the new design of the Electricity Market and the further liberalisation, with the aim to achieve an efficient and a well-balanced and competitive market opening.

The new law foresee by first the restructure of the institutional relationship between the three public power companies responsible for generation, transmission and distribution (KESH, OST and OSHEE). Specifically, the responsibility for wholesale purchases from independent producers will shift from KESH to OSSHE. ERE will defines rules that enable and promote the establishment and operation of an open wholesale market for generation, wholesale and supply (Article 8, par.1 point a). The draft law also sets in place a schedule for moving all medium-voltage customers out of the regulated tariff structure by end-2017, beginning with 35KV customers by end-2015 (on completion, the share of de-regulated consumption would increase from 13 to 40 percent).

The draft law also clarifies the responsibilities and full independence of the energy sector regulatory authority (ERE). Activity of ERE as seen in last the submitted applications of the three public power companies for tariff adjustments, which were approved and went into effect in January 2015, which see the restructuring of the retail tariff for households by eliminating the subsidized lower block. As a result, the current tariff for 2012–2014 of 7.7 lek/kWh for consumption of up to 300 kWh and 13.5 lek/kWh for consumption above that threshold was replaced with a single tariff of 9.5 lek/kWh;

Increase in tariffs for commercial users ranging from 10 to 39 percent and adjustment in the purchase price for electricity from independent power producers to reflect current import prices, based on a benchmark price from the Budapest power exchange. GoA in cooperation with the World Bank, will also undertake a review of current tariff methodology, with a view to moving toward more frequent and automatic adjustments based on market pricing.

In October 2014, there was launched also a very important campaign to enforce criminal penalties for electricity theft and disconnect service for non-payment of bills. The criminal code has been revised to make power theft and damages to the electricity system infrastructure punishable by imprisonment rather than just an administrative offence. As a result, there were able to reduce electricity distribution losses in October 2014 to 35%, compared with 45 percent in October 2013.

For 2014 as a whole, the distribution losses amount to have averaged 38 percent. The OSSHE is committed to further reducing distribution losses by about 5 percentage points per year, to 15 percent by 2019. The level of distribution losses will be monitored as an indicative target under the GoA program with the IMF. Even the improving of collection rate bills that amounts to 83.4 percent in January-October 2014 to 93 percent in 2019. The efforts in this area are supported by a World Bank project that is financing a targeted investments in priority areas to accelerate cash collection and reduce losses, including metering, grid infrastructure, and upgrades to the commercial billing and collection system.

The government is also committed to ensuring that budgetary, no budgetary, and local government institutions make timely payment of electricity bills. These efforts will be supported by a restructuring of the state electricity companies with a view to improving efficiency. In this regard, the distribution company will have very shortly a performance management contract. It is currently working with qualified expertise and is expect a contract to be signed in mid-2015.

During the 2015-2017 period, will continue the implementation of the program for development of the National Energy strategy for the period 2015-2030. The main challenges during 2015-2017 period and beyond, are linked to the improvement of the structure of supply with primary energy sources, building of the new generation capacity of the country, reduction of network loss, further building of energy exchange capacities with the countries of the region etc.

In the context of liberalisation of the energy market and entry of private operators into the generation market, so far, there have been concluded 169 concession contracts for the construction of 450 hydro-power plants, with a total installed power of 2.9 GW, and an overall investment value amounting to approximately EUR 2.615 milliard. Actually 96 hydro-power plants are productive, with a total installed power 180 MW, which generate 0.9 TWh/year.

The priorities of the 2015-2017 period as part of the long-term priorities of the government for the development of the energy sector are connected to the implementation of the construction of big, medium and small hydro-power plants: investment is expected to have a considerable impact on both the balance of production and exchange of energy and budget revenues.

Main investment are linked to the construction of HPP in Devoll river (280 MW), Osum river (152 MW), Vjosa river (350 MW), Drin / Skavice river (200 MW). The measures taken for successful implementation of the above-mentioned projects are linked with the creation of fiscal and procedural facilities, including schemes to facilitate the crediting of small HPPs.

The main Albanian Projects for the increase of interconnection capacities are the construction of the Albania-Kosovo interconnection line, which is expected to be concluded within 2016 year. During the period 2015-2017, we will work to prepare the technical specification for the construction of the interconnection line with FYROM, Albania-Macedonia, and identifying the financing source. Along with the building of interconnection capacities, work is focused even on the strengthening of the national transmission system, through investments in the strengthening of existing lines and building of new lines, thus increasing the transmission capacity and the supply stability in the country.

The main Albanian project in the construction of transmission lines are project of the south ring, the line 220 kV Tirana2-Rrashbull, the line 220 kV Elbasan - Fier, project of Tirana Ring. With the passing of the Distribution System Operator Albanian in state-owned, is developing a master plan for this sector. This project will be financing with a loan of USD 150 million from the World Bank, of which USD 93 million will be invested to strengthen the distribution network and several substations, as well as supplement with electricity meters of customers, where OSHEE Jsc will co-finance about USD 45.3 million for this project, as part of the obligations arising from the loan agreement.

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