During the last decade, Albania has undertaken several initiatives to liberalize the electric energy sector and increase local generation capacities. Such measures have created a lively market, especially in the renewal energy segment.
The internal market is under continuous improvement, both technically and commercially, and the renewable energy sector in Albania offers good investment opportunities, with a high degree of legal security for foreign investments.
Electric Energy Framework
In 2015, the Albanian Parliament passed a new law reforming the electric energy sector that is designed to create a competitive and liberalized energy market by establishing the Albanian Power Exchange as a day-ahead and energy balancing market.
In addition, in 2017 the Parliament passed a new law promoting the use of energy from renewable sources (the “Renewable Energy Law”).
State of Play
With the exception of transmission and distribution activities, the sector is liberalized and a good number of local and foreign investors are active in energy generation and trade. However, as the majority of private energy producers currently enjoy feed-in tariff incentives, a degree of regulation is applicable to energy generation.
The supply of electric energy is also in principle liberalized, but with the exception of high demand customers (consuming more than 50 million kWh/pa) or those connected above 0.4 kV (with few exceptions) who must access the liberalized market, in practice households and other consumers continue to be supplied by the state-owned universal service supplier.
Domestic generation currently consists of almost 100% hydropower generation. A thermal pant of 98 MW is owned by the state-owned energy producer, but it is not operational.
Renewable Energy and Incentives
To reduce its dependency from imports and meet its UNFCCC commitments, in 2018 the Albanian Government approved the National Action Plan for Renewable Energy 2018-2020, which provides for the increase of renewable energy generation capacities by 798 MW (600 MW in hydro power, 70 MW in wind power, 120 MW in solar power, and 8 MW in waste to energy units). The Renewable Energy Law offers priority access to the grid, simplified grid connection requirements, issuance of transferrable certificate of origin, financial incentives, and a temporary exemption from the energy balancing regime (until December 31, 2022, or until the full establishment of a balancing marketplace, whichever occurs first).
The current financial support mechanism available to renewable energy producers is the feed-in tariff system, consisting of a fixed price for kWh (as approved by the energy regulator (ERE) on an annual basis of electric energy injected in the grid (currently approximately EUR 68/MWh)).In addition, ERE has approved premium tariffs to incentive small wind and solar plants of EUR 76/MWh for wind with up to 3 MW capacity and EUR 100/MWh for solar with 2 MW capacity (these tariffs are currently being updated).
The feed-in tariff mechanism will be available for a period of 15 years to renewable energy producers that start operations before December 31, 2020. Renewable energy producers that start operations after this date will no longer benefit from the feed-in tariff mechanism (with the exception of small wind and solar plants, which will continue to enjoy the feed-in tariff mechanism), but will be able to apply for the new financial support mechanism of the Contract for Difference (CdF).
Under the CdF mechanism, which will be accessible through competitive procedures, renewable energy producers will receive a fee equal to the negative difference between the price offered during the competitive procedure and the price they are able to achieve in the open market for the sale of the energy they generate
Renewable energy producers will be able to benefit from the CdF mechanism for a 15-year period, or until they have achieved the return on investment, minus other eventual received financial support.
By Shpati Hoxha, Partner, Hoxha, Memi & Hoxha
This Article was originally published in Issue 6.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.