Current Situation in Albanian Power Sector

In the last years Albania is facing with difficulty to supply its consumers with electricity. Lack of primary energy resources, no network
and gas resources, limited production and interconnection capacities
and full dependence of it’s power production on hydro resources, are
some of these difficulties.

The demand of electricity is much higher than domestic generation, which means that Albania is one of net
importer countries in the region. In 2007 the utility has imported more
than 50% of it’s consumption and also has made 17 % load shedding. The
hydrological situation was improved in 2008 and the utility has made
only about 5 % load shedding, but we continued to import 40% of our
consumption. In 2009 the situation was improved totally and we are
supplying normally our consumers and the import is only 11 % of our
consumption.

To overcome this situation a program of reforms for improving energy sector performance, increasing tariffs to cover the cost,opening the market, un bundling KESH from a vertically integrated company, towards
separated company according to the functions, is ongoing . Now the
Transmission System Operator (TSO) and the Distribution System Operator
(DSO) are fully unbundledfrom KESH and after a lot of works, CEZ was
selected the winner of the tender for privatization of the DSO and the
contract SPA with this company was signed on 11 March 2009.

AlsoAlbania is making efforts to meet the requirements of the Energy Community Treaty regarding transposition of the acquits.

Actually only hydropower makes a significant contribution to theelectricity consumption in Albania. However, the country has also significant potential for renewable resources in the form of wind and
solar.

We have a complete primary and secondary legislation for construction of the new hydro power plants.

With the Concession Law No.9663/2006, amended, the secondary legislation and the related concession procedures, the Albanian Government has reconfirmed its policies to attract private investment
in the sector of hydropower plants (HPP). In this context, The Energy
Regulatory Entity (ERE) has approved a new tariff methodology in 2007
for existing and new SHPPs. The related Feed-in Tariffs are set in view
of encouraging investments in the SHPP sector. Up to December 2008
about 36 concessions have been granted underthis new law and more than
100 proposals are being processed at the moment.

Also a positive impact on promoting investments were created by amendment of the Power Sector Law No. 9072/2003, amended, that gives to the Council of Ministers the right to issue the authorization permits
for the construction of the new generation capacities, RES included,
that are not subject of the Concession law.

The CDM no. 1701, date 17.12.2008, on “Regulation on Procedures for granting of the authorization for concession of Power Plants notsubject of concession”establish the procedures and documents necessary for
application, evaluation and granting of an authorization.

An Electricity Market Model (AMM) was approved in March of 2008,which is characterized by bilateral contracts of electricity between and among market participants.
Based on this market model design, the Regulator developed and approved the Market Rules and
technical and commercial codes that greatly facilitate power purchase
agreements between small power producers (SPPs) and independent power
producers (IPPs) anda variety of regulated and unregulated electricity
suppliers.

Small Power Producers (SPPs) and Independent Power Producers (IPPs)may sell electricity to all markets, so to the Wholesale Public Supplier, with regulated prices or to Eligible Suppliers or Traders or
DSO, at commercially agreed terms and if no agreement can be reached,
on terms approved by the ERE;

Also they may sell directly electricity to Eligible Customers ifthey obtain licenses to be Qualified Suppliers;

Beginning from 2008, all non-household customers have been granted the right to become eligible consumers and choose their own suppliers.

An updated Energy Strategy for Albania is prepared and is under procedures for approval.
The development of renewable resources is one of the objectives foreseen in this Strategy, having an impact not only on the supply safety, but also
on the use of the clean energies specially
for:
*Exploitation of the hydro energy from the small HPPs;
*Construction of facilities of solar panel systems;
*Exploitation of the Wind Energy.
*There are no grid access restrictions for electricity generated by RES
andregulations for issuing the certificates of guarantees of origin for
electricity production from renewable sources have been defined.

EVN (Austria) and Statkraft(Norway) signed in December 2008 a concession agreement with Ministry of Economy, Trade and Energy for the construction of three HPPsin DevollRiver (installed capacities will be
173 MW, 138 MW and 28 MW). The investment will be around 1 billion €.

In September 2008 an agreement was signed between the Albanian government and the Austrian company Verbundfor the development of a 48.2 MW HPP at Ashtain northern Albania.

The Albanian Energy Regulatory Authority (ERE) gave a license for 500 MW wind energy exploitation on 95 thousand hectares in Vloreprovince to the company “EnpowerAlbania Ltd”owned by the Italian
company MoncadaConstruzioni. The project is part of a larger deal that
also includes construction of an 500 MW under sea transmission line to
enable power sales to the Italian market.

Another private company has been licensed to develop and construct the construction of a wind park for electricity production , that will comprise 78 auto generators with installed capacity 234 MW, with an
annual electricity production of 750 million kWh anda biomass TPP with
a capacity of 140 MW in north-west part of Albania.;
Six other private companies were licensed by the Regulator to develop and
construct seven wind farms with a total installed capacity of about
676MW.
The French company Sogreahcarry out a feasibility study on the
hydroelectric potential of the Vjosa, Semani, and DrinRivers as part of a financing by World Bank.

Albania has developed international cooperation projects to foster renewable energy.

KfWis supporting a program with a fund of €9 million for:

Facilitating of Renewable Energy Sources “REF”. It is a guarantee fund (up to 3.5 million Euro), given by KfWto support the local commercial banks to invest in the rehabilitation or construction of
small HPP, by covering up to 50% of the risk;

The promotion of incentives for increasing the energy efficiency, by investing up to 3.5 million Euro in public buildings;

Technical assistance with the main goal the achievement of the above objectives and to guarantee contemporaneous knowledge for the residential building capacities, through their continuous training;In
this framework, a conference on Investment Opportunities in Small
Hydropower Plants (SHPP) in Albania was held in Tirana, on 18 March
2009.

UNDP/UNEP/GEF/ALBANIA are promoting solar water heating market transformation with an objective to facilitate the installation of 75,000 m2 of solar panels in Albania, over the duration of five years
the project.

Total budget: USD 2,750,000

Total budget (UNDP managed): USD 1,150,000

Allocated resources:

Government: USD 999,000

UNDP TRAC: USD 150,000

GEF: USD 1,000,000

Other (in-kind and parallel): USD 601,000

Also, a project from Italian Government is helping the Government of Albania to develop its public and private sector capacities to access carbon finance for projects eligible for Clean Development Mechanism
and other carbon market mechanisms, with a fund of about 5 million
EURO. This agreement aims to identify and implement several pilot
projects in Albania in compliance with article no. 12 of Kyoto Protocol
concerning renewable energy sources (CDM). A “Call for Proposal”was
issued during first quarter of 2009, and two proposals for the
construction of a wind power plant anda SHPP are already presented for
this call.

Albania has taken concrete measures to implement the EC Directive 2001/77/EC. A number of positive steps have been taken recently to promote directly or indirectly RES projects.

Law No.8987, dated 24.12.2002, “On the creation of facilitating conditions for the construction of new sources of the electricity generation”constitutes a key element of the investing environment in
the energy generation sector. Pursuant to this law, “Each legal person,
native or foreigner, that shall build sources of production of energy
with installed powernot less than 5 MW per source and that use liquid
or solid fuels, without restriction for other renewable sources of
production, is excluded from customs taxes for the machinery and
equipment that are part of the object of the production of energy”.

Small HPPs(with installed capacity less than 15 MW) can make a PPA , if they wish, with the Public Supplier up to 15 years, butwith yearly regulated feed –in tariff, approved by ERE.

Also, a new draft law on the promotion of RES is under preparation.

Albania has significant renewable energy resource potential from hydro, wind and solar energy. The country currently relies on hydropower for almost all of its electricity, which creates
difficulties when water flows are low. The potential areas for
follow-on activities to support the expanded use of RES in Albania
include:

Technical assistance for preparation of a new specific law on renewable energy sources;

Technical support for RES tariff design.

Secondary legislation dealing with the green certificates procedures is not in place. Also technical support for design of a green certificate program that integrates with the European countries is
needed.

Policy support for implementation of the new National Energy Strategy, Updated;

Support for a review of taxes and duties pertinent to RE technology.

Detailed analysis of the biomass market potential and economic appraisal;

Technical and institutional support to obtain carbon finance for RES projects.

- Erlet Shaqe - www.erletshaqe.com -