Albania sets its own path on energy transition

Dr Lorenc Gordani*

Albania is now in a process of strong restructuring of the regulatory environment in the energy sector. The new legal and regulatory framework seeks to address a wide range of issues, including institutional reforms, promotion and increased energy efficiency and renewable energy generation capacity, the establishment of new electricity tariffs, the development of an organized electricity market as well as integration within the broader regional electricity markets and, finally, the EU’s internal electricity market.

The reform efforts that began in 2006 with membership in the Energy Community were finalized with the adoption of a new law on the electricity sector in 2015. While the reform has slowed down a little over the past two years, in recent months the Council of Ministers and key stakeholders have found new impetus under the impulse of European integration process to continue with sectorial reform. The process materialized through the approval of the strategic plan for reforming the energy sector in Albania in December, 2018.

Today, the country is on the verge of implementing the steps of reforms, which include, among others, the complete unbundling of OSHEE, the creation of an energy power exchange (APEX) and the gradual opening of the retail market along with the creation of a a competitive wholesale market. The liberalisation of the wholesale market alongside bilateral trade (OTC) and forward trading, includes the day-ahead and day-to-day markets, such as the balanced electricity market, where the formation of prices is expected to be freely formed on the basis of scarcity signals, competition and investment needs.

Concerning the above, it is essential to mention that the strategic document came as part of the loan-based instrument of reform policy. The political based loan (PBL) is a tool in which funds from an international financial institution are lent to a public market operator on the basis of the implementation of specific policy reforms listed in the strategic plan of energy (PRE). Furthermore, it should be noted that the strategic plan reviews and implements Albania’s international commitments, particularly with regard to the accession process in the Energy Community and the EU.

In general, the strategic plan includes a comprehensive set of measures and represents a major reform for the energy sector with multiple targets, such as structural, operational and financial. The PRE aims to create an organized market based on the EU model, which is guided by the principles of being transparent, non-discriminatory and sustainable over a long period of time, based on free-price formation through competition.

Key efforts contained in this reform can be summarized as the creation of a transparent and non-discriminatory access and tariffs, the bust of the role of the independent regulator, competitive and transparent setting of prices, fair support schemes with minimum-risk for vulnerable categories, a transparent and non-discriminatory support scheme for producers of renewable energy, etc.

The benefits of these radical changes are expected to lead to the creation of a market that produces, transmits and consumes electricity efficiently, as well as an environment that offers opportunities to investors with the highest profitability. However, in the short term, the main benefit of the reform is the creation of a market with added value for energy assets and public money. It is also very important to recognize and address all risks associated with the partial implementation of this strategic reform.

Loan Based Reform Policy in the Energy Sector

The strategic plan for reforming the energy sector, concluded in December, 2018, contains elements of reform (PRE), which should be implemented by the Albanian authorities and key entities of the power sector to finalize the sector reform efforts that started several years ago. The plan and especially the timing of the reform steps are in line with Albania’s international obligations and steps taken to improve the economic, environmental and social sustainability of the sector.

They are designed in such a way as to form the basis for a political based loan (PBL) to be implemented during 2018 to 2020. The PBL will consist of two periods; implementation and monitoring. The first period is expected to begin in the fourth quarter of 2018 and continue until the third quarter of 2019, while the second period is from the fourth quarter of 2019 to the third quarter of 2020.

Most of the reform policy elements are included in the first implementation period as they are designed to promote the key elements of reforms that seem feasible in the first year and are essential to implement before further steps are taken. Implementation is realistic and is based on the condition that there is sufficient political will after the implementation of the reform.

Regarding the content of the reform policy elements, they are, according to the design, focused on the elements of high-level reform that are crucial to a successful restructuring of the sector. These elements of the reform policy will achieve institutional improvements in the system, market-based measures and the implementation of fair and transparent practices throughout the value chain in the electricity system.

The implementation of the reform policy elements for each term constitutes the condition for disbursing the financial element of the PBL. More specifically, the monitoring of the elements of the reform policy will include an assessment that determines whether the sector has met the conditions and, therefore, qualifies for disbursement.

* Dr Lorenc Gordani, Independent Adviser in Energy Policy & Law, Regulation & Infrastructure in Albania

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