ALBANIAN ELECTRICITY MARKET AT A CROSSROAD: LATEST

DEVELOPMENT ON LIBERALIZATION PROCESS

EN.TRADING 016 SEMINAR: “UNDERSTANDING SEE POWER MARKET”

21 APRIL 2016, ROGNER HOTEL, TIRANA, ALBANIA

DR LORENC GORDANI

DIRECTOR OF LEGAL OFFICE ALBANIAN RENEWABLE ENERGY

ASSOCIATION - AREA

Albanian Electricity Market at a

Crossroad: Latest Development on

Liberalisation Process

Key Note Speech

THE MAIN BULLET POINTS COVER:

I. EU Forward Looking to the Renewables Investments

II. Assessment on the state of art in the RE in Albania

III. Legislation in the Promotion of Renewable in Albania

IV. Projection on RES Deployment Policy in Albania

V. Our Position on the RES Draft Law in Preparation

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ABOUT US

Albanian Renewable Energy Association (AREA) is the unique professional non-profit

organization, based in Tirana, capital of Albania. AREA represent the investors of the

RES in Albania gathering actually 53 producers of energy from hydropower plants,

build by concession up to 15 MW. Investments that already rise to more than 440 MW

installed for more than 550 Million Euro and the numbers are always in growth because

the new enters in the energy market.

AREA within its institutional framework function as promoter of the renewable energy

sector, contribute to the better assess of the state of art of the renewable energy source in

Albania, helping to identify the market barriers, mitigate the investments risk and the

breaches of the regulatory framework, by setting up policies guidelines based on EU best

practices on the implementation of renewables regulatory framework to the promotion

of energy from renewable sources in the Albania.

In the regional context of European market of energy, beyond the above, Area is

committed to support the build-up of a sustainable regional market through the give of

the contribute on the improve the energy markets, strengthen of NRA’s role as

independent authorities, the enforcement of dispute settlement on the improve of the

investment climate, the involvement of the civil society in energy governance to the

expand of pan-European single energy market.

For more visit the Official Website of AREA | Shoqata Shqiptare e Energjisë se

Rinovueshme - AREA Group in LinkedIn

CONTACT INFORMATION

ALBANIAN RENEWABLE ENERGY ASSOCIATION - AREA

POST ADDRESS | PJETER BOGDANI, P. TEUTA KATI 2, AP. 11, TIRANA (TR) ALBANIA

MOB | +355 699532443 PHONE | +355 42245199

E-MAIL | INFO@ALBANIAENERGY.ORG WEB | WWW.AREASSO.ORG

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ALBANIAN

ELECTRICITY

MARKET AT A

CROSSROAD:

LATEST

DEVELOPMENT ON

LIBERALISATION

PROCESS KEY NOTE SPEECH KEPT AT EN.TRADING

016 SEMINAR: “UNDERSTANDING SEE

POWER MARKET”, 21 APRIL 2016, ROGNER

HOTEL, TIRANA, ALBANIA

«Pure competition means

compensation to those who

provide the best goods at

the lowest price. It provides

an immediate and natural

reward that a crowd of

rivals is anxious to opt, and

acts with greater

effectiveness of a distant

punishment, from which

each anyone can hope to

escape». Adam Smith,

Wealth of Nations, 1776

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Abstract

The purpose to get an overview on the development of upcoming Albanian Power

Exchanges (APE) makes inevitable the in-depth analyses and projections on renewable

energy sector. In the last period, the strategic development of sector is rising up a

complex interdisciplinary debate. This time it corresponds to the upcoming new

challenges – regard the paradigm of the climate goal and the reaches of the renewables

national target – within the long-time effect to the strategic development of the Albanian

energy market in the WBs.

In summary, the here presentation, aim to integrate the latest update on legal framework

related with the issues on the trading and power market exchanges with the regularly

reports and analyses of the organisation that regulate the sector (DG Ener, EnC, ACER,

ERE, AKBN, etc.). A paper that reflect the last development in act, based on the concrete

daily concerns faced by AREA, concluding with a summary of the overall evaluation in

the interest of investment made in renewable sectors in the towards last developments.

The here paper is part of a wide research work, overtake within the objectives of working

programme of the AREA with purpose to give a qualified contribute to the promote of the

renewable sector and the market liberalisation and regional integration with the propose

to the build-up of sustainable model of the energy market. A presentation that it is

becoming part of presentation in many national and international seminars, workshops

and conferences.

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EU Forward Looking to the Renewables Investments

Today EU electricity sector is in drastically changing: the renewable are taking

control while decarbonisation is progressing at full speed. Speaking in Brussels

on 18 February, Miguel Arias Cañete, Commissioner for Climate Action and

Energy, said: “our challenge ahead is to make Europe number one in renewables. We

must prepare for an energy system in which more than half of electricity consumption

is powered by renewables.” Indeed the energy transition is unprecedented and

opens for new brand of ranges in innovate models.

In this new world, the

core question is

“which is the right

design to our

electricity market?”

Today the EU it is in

the search to the

appropriate ones that

can deliver on

European energy policy goals of 2020-2030, competitiveness and security of

supply. It is thus high time to decide on a future-proof electricity market design

that function with high shares of renewables in national level. The market has

to integrate all players and provide them with a level playing field. Then we

need a “Re-powering Markets” which can be done in several ways depends by

the starting point.

Assessment on the state of art in the RE in Albania

The Law on Renewable Energy was adopted in May 2013. Notwithstanding, the

legal obligation to issues by-laws within six months, since March 2014, key

articles of the Law, namely the adoption of a National Renewable Energy Action

Plan (NREAP) and support schemes, have been suspended with the intention

to be harmonised with the Law on Power Sector. Due to the failure to submit

the NREAP by the deadline of 30 June 2013, the Secretariat has referred the

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pending infringement case against Albania to the Ministerial Council of 15th

October 2015.

In the practical field, the historic development of the gross final energy

consumption (GFEC) with the planned trajectory has been constantly widened.

ENC Annual Implementation Report 2015, state that according to the modelling

results with current policy initiatives (CPI) and planned policy initiatives

(CPI+PPI), Albania will not meet the renewable energy target for 2020 by

approx. 8% if the measures described in the draft NREAP will not be revised.

Source Study on the Assessment of the NREAP and the Progress in Promotion

of Renewable Energy in the EnC, by ECN et all, 2015

In last, the Report of the Secretariat to the Ministerial Council on the Progress in

the Promotion of Renewable Energy in the Energy Community (Annex 05a/13th

MC/05-10-2015), indicates that with the currently implemented and planned

policy measures the country would fail to meet the 2020 targets if no alternative

policies are implemented in the coming years.

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Source: EnC - Expected RE share in 2020 according to distinct policy

pathways (Green-X scenarios) vs. 2020 renewable energy binding target (%)

Despite the above assessments trend, on 21 Mar 2016, we got the notice that

Albania's NREAP was formally submitted to the ECS. An adaptation of NREAP

that came without public consultation with stakeholders as normally required

by law no. 146/2014 of 30 October 2014 "On Public Notification and

Consultation" in Albania. Nerveless the above infringement of internal

procedure the adoption and submission of NREAP is a useful tool to ensure

transparency towards the investors in renewable energy on the policy objectives

to reach the 2020 renewable energy targets.

The problem stand in the concerns on the verifies of the data reported about the

factual deployment and forecast share of energy from renewable energy

sources, taking into consideration that contradictory statistic are referend along

all this years from different sources in Albania. In more, following the

introduction of 10 year moratorium about forest protection which cover around

the 10% of final consumption there is a need to a further assessment of the

submitted NREAPs regard the biomass consumption.

Then it is hope that the Secretariat (ECS) have already evaluate the adequacy of

the measures envisaged by the Albania in accordance with Article 3(2) and has

issued related recommendation. Actually, we are looking forward to have the

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assessment made on the above submission, which has to comply with the

template in the presentation of national renewable energy action plans. The all

has to enter to the Eurostat statistics (Regulation (EC) No 1099/2008) and will be

keep continuously on eyes regard the accomplishment of the above

commitments.

Legislation in the Promotion of Renewable in Albania

Then, Albania, as all WB6 countries, enter now in the most critical phase when

need to act decisively to complete the overdue national tasks if it want to reach

the fixed targets. Despite the commitments taken, and the significant renewable

energy potential,

the country is

hesitant in

opening the

energy markets

and removing

non-cost barriers

to attract

investments in

renewable energy

projects. The

progress in

adoption of new legislation or amending the existing frameworks is very slow

and often delayed by the institutions in charge.

Non-discriminatory treatment of investors is not fully ensured and

transparency needs to be further improved. Administrative procedures for

permitting, authorisation and connection to the grids have to be simplified,

coordinated and streamlined to a greater degree. Due to the relatively high

political risk in the region and incomplete regulatory frameworks, access to

finance remains challenging.

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Seen the limit time here in availability, in following it is going to focus in

particularly detail only to support schemes. The Law on Renewable Energy

adopted in May 2013, establish that the amount of support for new small

hydropower plants

has to be calculated

yearly by ERE based

on a methodology,

which was included in

the now Law 138/2013

on Renewable Energy.

In above situation

AREA after exhausted

the administrative

procedure has open a cases law in the administrative court for the a temporary

and definitive ERE Decision on the Energy Fixed Tariff, to be paid to the

producers of the electricity from hydro power plants for the year 2016. Now we

are close in appeal to the constitutional court, and in short to address (already

requested thought ERE) an official request for asking the interpretation of the

Energy Community Secretariat. Before ECS it is already open e preliminary

procedure with assignment the official case number ECS-01/16.

Specifically, based on the Consolidated Rules of the Procedure of Dispute

Settlement under the Treaty of the Energy Community, adopted on 16 October

2015, our request consist in an assessment of the compliance with the acquis

communautaire of the situation when a law of renewable resources in force (e.g.

as the L. 138/2013) issued to align the internal framework to the Directive

2009/28/EC, establish the procedure for determining the tariffs for the producers

every year for a period of 15 years, is bypassed repeatedly:

(1) with a decision on the tariffs came in violation of the methodology procedure

assigned by prescription of the renewable energy law (Article 15, para. 1) to be

decide in virtue of its independence to the ERE;

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(2) in more the Albanian Government (a party direct in conflict of interest as a

shareholder of 100% of all the incumbent public companies i.e. KESH, OST,

OSHEE) has decide the above formula making use of ones not foreseen by the

Law no. 138/2013 "On Sources of Renewable Energy”.

In regard, the crosscutting measures in the liberalization request the

independence of national energy regulatory authorities based on pre-defined

indicators (January 2016). The Third Package compliant independence

requirements have been transposed by the Power Sector Law, but no progress

has been made. In more, Albania is expected to apply for observer status in

ACER based on a positive opinion of the European Commission (July 2016). As

a prerequisite, regulatory independence needs to be ensured and all secondary

legislation needs to be adopted.

Projection on RES Deployment Policy in Albania

The RES policy projection and the related regulatory framework, foreseen after

the finalization of the NREAP, the propose by MEI of the new draft law on RES

(Recast of 138/2013). In regard of the support mechanism, the new draft law on

RES foresee that the support granted to producers based on power-purchase

agreements concluded before the entry into force of the new law shall not be

affected but there will be the right to switch to the new support scheme for the

rest of the contract period. Renewable Energy Producers with power-purchase

agreements concluded before the entry into force of this law will get fixed feed

in tariffs for the rest of the contract period.

The levels of the fixed feed in tariffs are derived on Article 40 of the German

RES Law 2014 regarding hydropower: 6.31 cents per kilowatt-hour up to and

including an installed capacity of 5 megawatts per company; 5.54 cent per

kilowatt-hour up to and including an installed capacity of 10 megawatts per

company; 5.34 cents per kilowatt-hour up to and including an installed capacity

of 15 megawatts per company. In regard are forgotten tariffs applying for

capacity under 0.5 MW go to 125.2 €/MWh and for capacities 0.5 - 2 MW to 825

€/MWh as well as the financial support is guaranteed to all receivers for a 20

years duration period.

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Our Position on the RES Draft Law in Preparation

Without prejudice to the individual rights of each affected Small Producer, the

investors are interested in finding a forward-looking solution that will bring

stability to their existing investments and enables them to commercially operate

the facilities and pay of their debts. Historically, the purchase price for electricity

produced by small hydropower plants had been calculated on the basis of the

formula PU = PI * 1.1 * REX. It take into account the average price of electricity

imported by KESH in the previous year, a co-efficiency bonus and the average

exchange rate Eur/ALL for the previous year.

The application of this formula prior the intervention of 2014 resulted in the

purchase prices of up to All 9,3/kWh (approximately c€6.6/kWh). This has

actually produced prices that benchmarked against both nascent renewable

energy support schemes in the Balkan region as well as more mature support

schemes in other European countries with comparable resource proficiency and

investment environment, are lower to mid-section of support prices. By way,

the following four country examples epitomise this:

Country

Price for small-scale hydroelectric power plants (currency

conversion valid from 31/03/2015)

Installed capacity:

Standardised

grouping

Installed capacity:

Country-specific

grouping

Price (c€ / kWh)

Cro

atia

< 2 MW < 0.3 MW

0.3 - 2 MW

14.001

12.16

2 - 5 MW > 2 MW 11.51

5 - 10 MW > 2 MW 11.51

10 - 15 MW > 2 MW 11.51

5 - 10 MW > 5 MW 6.93

10 - 15 MW > 5 MW 6.93

1Conversion on 31/03/2015, 1 HRK = 0.130782 EUR

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Ser

bia

< 2 MW < 0.5 MW

0.2 - 0.5 MW

0.5 - 1 MW

1 - 10 MW

12.40

13.727 - 6.633*P2

10.41

10.747 - 3.37*P

2 - 5 MW 1 - 10 MW 10.747 - 0.337*P

5 - 10 MW 1 - 10 MW 10.747 - 0.337*P

10 - 15 MW 10 - 30 MW 7.38

Ger

man

y

< 2 MW < 0.5 MW

0.5 - 2 MW

12.52

8.25

2 - 5 MW 2 - 5 MW 6.31

5 - 10 MW 5 - 10 MW 5.54

10 - 15 MW 10 - 20 MW 5.34

Un

ited

Kin

gd

om

< 2 MW < 0.015 MW

0.015 - 0.1 MW

0.1 - 0.5 MW

0.5 - 2 MW

29.163(FiT)

27.23

21.52

16.81

5 - 10 MW > 5 MW 13.81 (strike price

under CfD)

10 - 15 MW > 5 MW 13.81 (strike price

under CfD)

Considering by one side the above uncertain and discriminatory situation and

by the other side the contracts concluded between KESH and the Existing Small

Producers (the PPAs), the structural elements of the renewable energy support,

and the aforementioned treaty obligations as regards investment protection,

have the following implications in relation to the New Law project proposal on

renewable energy:

(i) the historical fixed price equal to ALL 9.3/kWh (approximately c€6.6/kWh)

was reasonable when benchmarked both against comparable nascent markets,

2P = installed power of plant

3 Conversion on 31/03/2015, 1 GBP = 1.38091 EUR

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countries in the region and mature markets with comparable resource

conditions;

(ii) the historical price formula considered elements of market price for an "all-

in" electricity import price, a mark-up for the additionality of renewable energy

generation, and a stabilisation of investment through an exchange rate

adjustment;

(iii) the implementation of an electricity exchange based price for the Small

Producers, which is not "all-in" but only reflects conventional power generation

prices in a market other than Albania (which are further depressed by the

impact of priority dispatched renewable generation on conventional generation

offered via the exchange), would lead to a breach of the investment protection

criteria;

(iv) any other solution of the New Law would lead to a state intervention which

would not meet the investment protection criteria of the Energy Charter Treaty,

the Energy Community Treaty and the Bilateral Investment Treaties.

(v) The weighted end-user price method resulted in a price of c€ 6.75, calculated

using c€ 7.5 as taken from official sources and reduced by 10% as the profit

between wholesale and retail

In the light of the above, AREA have proposed the followings:

(i) The New Law shall include a transition framework for existing hydro

installations. The transitory dispositions shall determine a fixed historical price

(feed in) equal to ALL 9.3/kWh (approximately c€6.6 /kWh) for the remainder of

the existing PPAs timeframe (for a period of 15-20 years which ensures return

on investment). The existing PPAs should be amended as well, in accordance

with the transitory dispositions, to reflect the historical fixed price equal to All

9.3/kWh (approximately c€6.6 /kWh) indexed for inflation and exchange rate

fluctuations;

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(ii) The New Law shall restate clearly the current principle that no use of system,

transmission loss and imbalance charges for small-scale generation from

hydropower will weigh on the Small Existing Producers;

(iii) Furthermore, in relation to the New Small Producers, the New Law, in spite

of the scheme that will be proposed by the authorities, it shall determine a

subvention level to the New Small Producers, that will guarantee coverage to

all investment costs, exploitations costs and a reasonable rate of return on

investment. The Albanian authorities may propose a different support scheme

from the actual feed in tariffs system, after the energy exchange spot market

commences operation4.

Conclusion

In the here conclusion it is seen useful to be remind again that there is a need of

smart regulatory framework that facilitate the most profitable investments and

the contemplation with

the Directive

2009/28/EU in the efforts

to achieves in most

sustainable way the

objectives of the

national consumption of

38%. In regard, we see as

fundamental that NREAP

drew choices guided by thinking with quantitative estimation, using a Levelised

Cost of Electricity - LCOE to get the less economic impact for the public budget

and the burdens for each consumer in Albania.

In the above interest in AREA we remain confident that in the last all the

interested parties as the independent institutions will cooperate successfully to

the support the investments made and the further development of the sector,

4 In regard, AREA will reserve the rights to further detail to its propose system for the New

Small Producers in due course, depending on the Market Model and the energy exchange model

that will be proposed.

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encouraging the implementation of methods that guide to schemes related to

the EU policies of 2020 and 2030 and the other related international treaties.

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Dr Lorenc Gordani

Director of Legal Office AREA

Professor at Polis University

The main activities areas covers the legal strategic expertise, the

applied research and the academic didactics in EU and Albania

energy law and policy for government, international institution,

industry and interest groups with particular focus on energy market regulatory issues

and related policy, concerning the promotion of a sustainable integration of energy

market in the Western Balkans.

The education has taken place in Italy, Germany, France, as well as Netherlands,

Belgium, Sweden, Poland, etc., and has seen the reaches of a PhD level with topic on

market liberalisation and regional integration. In above framework it has worked as

researcher and professor of the International Law, Labour Law, Roman Private Law,

Public Economic Law, Administrative Law, EU Law, Public and Regional Law,

Environmental Law, etc., in several universities in Albania and abroad and as expert

and trainer at national and international institutions and engaged as leader legal

advisor to several international companies and organisations.

The intense activity has been accompanied with publication of an extensively

bibliography on acquis implementation and particularly on energy law and policy.

Activity accompanied with frequent participation as speaker at international high-level

meetings and conferences. An activity that has been accompany also with the

involvement as a consultant to several different working groups at national public

authorities and international institution.

For more visit Official Website of ACERC | Lorenc Gordani in LinkedIn

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ACERC network of the partners, supporters and sponsors include among others