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Albania: Investment Opportunities and Challenges in the Energy Market

Albania: Investment Opportunities and Challenges in the Energy Market

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The Albanian energy market is experiencing several developments reflective of regional and global events. Local and foreign investors’ interest in renewable energy projects is surging. However, some questions remain open as to whether the government will be able to fully satisfy their expectations.

The parliament and the government are following their normal course of legal initiatives aimed at implementing the commitments under the Energy Community Treaty. This includes the legal and institutional reform for the establishment and functioning of the Albanian Power Exchange (expected to be functional by the end of 2022) as well as putting in place the balancing rules for all market participants. Yet, the continuous changes in rules and regulations remain a concern in terms of legal security.

Meanwhile, the government has taken concrete steps in promoting and awarding renewable energy projects (solar and wind) to interested investors through at least two schemes.

Under the first one, the Ministry of Energy and Infrastructure is launching tenders for awarding projects for the development, financing, operation, and transfer of solar or wind power plants. Winning bidders are offered free access to state-owned land, subject to selling part of the electricity produced to the public offtaker (currently Furnizuesi i Tregut te Lire SHA) for a maximum period of 15 years and against a competitive price resulting from the tender. For the rest of the capacity, the project developer is free to sell the electricity on the market. So far, two solar power projects have been organized and successfully awarded: the Karavasta Solar Project (140 megawatts) and the Spitalla Solar Project (100 megawatts). A previous one, the Akerni Solar Project (100 megawatts), has not received a green light due to controversies between the state and the winning bidder ending in arbitration. Currently, a tender for several onshore wind projects is in the pipeline, to be awarded to different developers in different locations in Albania. Each project may have a capacity between 10 and 75 megawatts, up to a total capacity per project of 100 megawatts. The prequalification deadline was set for June 13, 2022.

Under the second scheme, private investors, at their own initiative, may propose to the Ministry of Energy and Infrastructure the development and operation of solar or wind projects, whereby land rights are secured privately, and electricity is fully sold on the free market. A royalty fee is applicable. Within a few years, hundreds of applications have been filed with the Ministry of Energy and Infrastructure, but only some of them have been successfully processed. The rest are still pending evaluation. Questions have arisen as to whether they will ever be accepted, even if meeting the feasibility requirements. The limited grid and storage capacities are also worth mentioning. Still, interest has not decreased – on the contrary, it seems to be the better option of the two, given the high electricity prices over the last months.

At a quicker speed, the Albanian government has purported to mitigate the negative effects resulting from the global energy crisis and the Ukraine conflict. Emergent measures have been taken in response to the increased prices for energy, oil, and food. Following the government’s announcement of an emergency in the electricity supply in Albania on October 8, 2021, investment projects by state-owned companies in the electricity market were suspended. Moreover, as of March 12, 2022, the government announced a “special situation” due to the accelerated reduction of oil and gas supply in the country and established a board – composed of governmental high officials and food trading industry players – to temporarily control and set up ceiling prices for oil, gas, and by-products. On May 18, 2022, the government also announced a “special situation” due to the accelerated price increase of raw materials, affecting the implementation of public works contracts awarded by means of public procurement procedures and entitling them to compensation for the price difference. It is uncertain whether the government will apply mechanisms to also address the concerns of investors in the energy sector having concessions or similar public contracts that are suffering changes in circumstances due to the increased prices of raw materials.

The Albanian market offers good opportunities, particularly for private investments on the free market, as electricity prices have risen to their highest levels. Beyond that, investors need to keep track of the continuous changes in legislation, as well as institutional actions to accommodate local and global developments affecting the sector.

By Jola Gjuzi, Partner, Kalo & Associates

This Article was originally published in Issue 9.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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