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Market Snapshot: Renewable Energy in Albania

Market Snapshot: Renewable Energy in Albania

Issue 9.11
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During the past decade, the Albanian energy sector has benefited from a wave of domestic and foreign investments in hydro-power generation. Photovoltaic and wind energy generation has lagged behind for a long time. Increasing environmental concerns over the excessive use of water resources and the continuous reduction in technology costs are now shifting the government’s focus toward photovoltaic and wind energy generation.

Currently, photovoltaic projects in excess of 300 megawatts in capacity have been awarded, and the government is planning to award wind projects of approximately 100 megawatts in capacity.

Additionally, the energy crisis caused by the war in Ukraine will likely speed up the development of the domestic renewable energy sector. As such, Albania is expected to continue offering new opportunities for potential investors in renewable energy.

Renewable Energy Incentives

Currently, the feed-in tariff is the main financial incentive available to existing hydro-power producers (with an installed capacity of up to 15 megawatts) and small wind (capacity of up to three megawatts) and photovoltaic (capacity of up to two megawatts) energy producers.

The value of the feed-in tariff is approved annually by the energy regulator (ERE) considering the reasonable return on investment, according to the type of technology used, in accordance with the methodology approved by the Council of Ministers. Under the current legal framework (Law no. 7/2017 on the promotion of the use of energy from renewable sources), larger-size wind and photovoltaic energy producers must compete in public auctions to receive financial incentives under the contract for difference (CfD) mechanism. Under this mechanism, renewable energy producers receive or pay back – as the case may be – the difference between their auction bid price and the market price they effectively achieve in the energy exchange.

At the time of writing, no CfD has been awarded, as the Albanian energy exchange is not effective and the renewable energy fund that will finance the CfD was not established.

Therefore, for large-size wind and photovoltaic generation projects, the current practice of the government has been to launch auctions where investors are offered a bid-based feed-in tariff for a portion of their generation (usually 50%), to be later converted into a CfD mechanism once this is operational.

New Act on Renewable Energy

The Albanian government has recently published a new draft law on the promotion of renewable energy for discussions with stakeholders. The proposed act is intended to substitute and repeal the existing Law no. 7/2017, which has the same scope. The proposed act is generally similar to the existing Law no. 7/2017, but it provides for some notable changes.

First, the proposed act aims to write into law the above-described practice that has been applied by the government in absence of the energy exchange and the CfD mechanism. As such, the financial support schemes available under the proposed act are (1) power purchase agreements (PPA); (2) contracts for difference (CfD); (3) premium contracts (PC), all bid based and valid for a period of 15 years. The PPA is treated as a temporary mechanism, until a liquid day-ahead electricity market is established, to be later converted into a CfD. The PC is defined as financial support, where the renewable energy producer receives a fixed premium (positive or negative depending on the outcome of the competitive process) or a variable premium (as the difference between the guaranteed price and the reference price).

Moreover, the proposed act no longer excludes hydropower producers larger than 15 megawatts from the definition of renewable energy. Also, the proposed act no longer offers specific financial support for small renewable energy producers.

The proposed act provides that already awarded support mechanisms shall not be affected by the new act, which shall only be applied to future projects.

Finally, the proposed act aims to establish the renewable energy fund within a period of six months after the entry into force of the new law, to be financed through a renewable energy tariff payable by end customers.

As the published draft is still in the stage of early stakeholder discussions, the final policy choices could differ from what has been currently published for discussions.

By Shpati Hoxha, Partner, and Ilir Johollari, Senior Associate, Hoxha, Memi & Hoxha

This article was originally published in Issue 9.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here