Dr Lorenc Gordani, Independent Energy Lawyer*
The recent years have seen the unblocking of many energy projects in the Western Balkans and Albania. 2019 itself was closed with more energy projects, including those of euro-atlantics importance such as TAP, or regional/trans-European relevance such as Devoll Hydropower, reaching a record figure of over 1 Mild/Euro, where together with the extractive industry are estimated around 60% of foreign direct investment (according to Aida).
Also, 2020 has started with even bigger projects. Thus, while the plan for the second pipeline called the Ionian Adriatic Pipeline (IAP) which will traverse Albania from south to north is expected to start very close, the Karavasta Photovoltaic Park has already begun, and new entrepreneurial opportunities are emerging with the audit of public buildings (over 9,200), is moving forward the pre-feasibility and is expected to enter the construction phase of Hec Skavica, as well as wind farms (i.e. wind power generation), etc.
The Karavasta Photovoltaic Park
The weeks we have just left, on May 27, 2020, saw the opening of bids submitted for the construction of Photovoltaic Park in Karavasta. A competition which was not only successful but also saw the announcement of the French company Voltalia as the winner with a request which exceeded any predictions even the most positive before the auction, for the construction of Karavasta photovoltaic park with an installed capacity of 140 MW.
The tender for the construction of the Karavasta photovoltaic park was opened earlier this year. His technical criteria aimed at high-profile companies: however, interest was still very high, including about 30 companies. In the competition, were evaluated the offers of 5 companies (some also connected in consortia with local companies). The winning company, Voltalis came up with an extremely positive offer of 24.89, which envisions investing over 100 million euros with a contract of 30-year.
The here result is of course very positive but not unexpected as we have about 300 sunny days in most of the territory. The average hours of sunshine in Albania are 2400 hours per year, while exactly in the western lowland where this power plant will be built, respectively in the area of Myzeqe, this goes to 2700 hours (which means 1700 kWh/m²/v). Therefore, it is an ideal place, where every hectare of land used for energy production can generate up to a quarter of a million euros a year.
The extraordinary results of the project
The extraordinary result of the Karavasta PV project was hailed as a welcome surprise by all the parties. During its presentation, the Prime Minister Rama said that “the price is fantastic, and beyond any prediction”. Also on the same line where the others very positive official statements come from the EBRD and the ECS Vienna, etc.
So, as it is already known, the price offered for the purchase of energy is recorded at 24.89 Euro/MW. At this price, the Albanian government must provide the purchase of electricity for 15 years of only the 70 MW from the 140 MW. The other half of the production could be traded by the company in the free market.
Therefore, it can be said that in fact, everyone has won, but especially the consumer as it is practically one of the lowest prices at least to date in the Balkans and beyond it. In this regard, for at least a few years, market prices are expected to be higher. Therefore, additional support or load for the customer will be practically zero.
On the other hand, it opens a new page in the history of the energy system, as the Balkan countries and Albania have a huge potential in this direction, and many other companies will rush to come when only this investment taken for itself is a direct foreign investment with over 100 million euros.
The main reasons for the positive and “unexpected” result
First of all, this result is generally related to the fall in the price of the components of this technology at a very steady pace. Costs that have fallen several times in recent years (so the cost of production itself and the need for electricity support has dropped significantly).
Nevertheless, the question may be why Voltalia choose Albania if this could happen anywhere else? In addition to greater radiation almost everywhere else in Europe, there are two other major economic factors: reducing the risks associated with investment and its impact on the cost of money, which is organically linked to the main one, the presentation of the project that an integrated package and the opportunity created by market opening.
Thus, the competition for the construction of the photovoltaic plant of Karavasta was opened in January this year. It comes as a result of a long process that has started for several years ago, seeing the integration of work that is coming to the ECS, the International Agency for Renewable Energy – Irena, EBRD, etc. The winner was also announced at an international auction, a process fully consulted and assisted by the EBRD.
On the other hand, it was accompanied by the new approach following the situation created by COVID-19, which makes the EU consider acceleration of green energy policy by making financing on favourable terms the main elements of recovery. Therefore, it will certainly have an involvement of the EBRD in this regard, which since 2017 has been committed to supporting the construction of 700 MW of solar energy in Albania.
However, at the same time, it should all be read as a long-term commitment of the company, as a well-thought-out identification of the potential to expand further in this space that has so many elements in favour of solar energy and of course the country is rushing to liberalize under EU requirements.
So, since Voltalia is a company with high international prestige – it is 100% with French capital part of the large French group Mulliez, one of the five richest in France – involved in all four sides of the world, in a variety of projects (from concept to supply) well balanced in all technologies, which makes it very capable of integrating all these elements that require a new approach, that to some extent Albania at this moment fully offers.
The other main benefits
In addition to the above low record tariff energy is 24.89 euros/MW, the company has been announced the winner of the auction for the construction of a park with an installed capacity of 140 MW (so, relevant compared to the size of the country). Therefore, it is a new capacity that is added to Albania in renewable energy to fulfil the obligations that have not to further violated the rivers and nature (as it is also a green investment).
While the price offered for the purchase of energy for a period of 15 years is only for the 70 MW, the country also increases energy security (just let think what it happens if we have a drought and a temporary ban on cross-border exchanges is imposed: that’s the reason of the built the Vlora TPP that we haven’t used till now even a single day) and it all comes at no cost for the rest of the 140 MW.
While another 70 MW will be able to be traded by the company in the free market. So the liquidity increases (the amount of energy circulating by different actors), because within a year the power exchange will be operational, but in order to be efficient, the competition must be provided at the same time (the entry of different suppliers).
Also, in this direction, we are going today to another important step in the process of diversification, to create alternative sources of energy production and in this case, we are talking about solar energy. Therefore, not only with hydro and in periods of drought when there is a lack of energy from the first we are going to have increased production capacity from the sun.
Meanwhile, about 30 large companies have applied for the documents (a procedure that has a direct cost of 2000 Euros) and this is another signal of how much potential and how much attraction we have in this sector. Therefore, Karavasta Park will be the largest solar power park in the Balkans, producing 140 megawatts of energy, but paving the way for at least two other projects similar to Karavasta.
In Albania, we currently have a panel production manufacture which can already be turned into a real industry. On the other hand, the entry into the Albanian economy of an important economic actor coming from France is accompanied by increased attention and the strengthening of political and economic ties with one of the most powerful countries in the international arena.
All these together make this a very positive development for us, for the government and of course for the progress of our energy system.
Expected projects in solar parks and wind
Undoubtedly, the development of this effort, which was successfully finalized to the end, is above all worthwhile (putting into work) all the auction procedures (which has its own cost). The fact is that the ministry has an agreement from 2017 with the European Bank for Reconstruction and Development to accompany the process, bringing expertise, but also overseeing the approval of competitions with transparency and full integrity to attract international actors in building 700 MW capacity of PV worth half a billion euros by 2020.
The commitments that make us say that already the largest park in the region will be built in Albania, and very soon will start a series of other bids. Also, the public announcement of the start of a competition for a wind energy complex (eolic), for which intensive work has been done over the years, will not be further away than autumn. Let’s not forget that the wind was thought to be used since late 2008-2009. So, together with HPPs much earlier than PV.
In this regard, so far, wind capacity has been licensed more than twice that of hydropower (about 5,400 MW). However, only now we are at the point of saying that the process seems to be coming to an end and the ministry together with the consultants appreciates a very attractive opportunity which made it really realistic to talk about the close development of successful investment in a large foreign project in wind energy.
Diversification with the TAP project
Of course, we are living in a very particular positive time for the increase of the sector where opportunities are released from all directions thanks to the liberalization and integration of markets or technological developments. In this regard, in fact, the first quantities of natural gas coming from Azerbaijan have already been introduced in the Albanian territory to test the commissioning of the new TAP gas pipeline. In parallel, the underwater pipeline with Italian is completed.
In fact, all this is useful, because without going too far, but also just seeing the demand of our economy for energy by 2030, Albania is expected to double the need for energy and where this amount has so far been supplemented with hydropower energy, like almost no other country in Europe.
However, we are fully aware that the other missing ingredient, namely in addition to the sun and wind, in energy production with tremendous potential for us, will be natural gas (or methane). Such diversification is necessary to ensure sustainable development that is urgent today for Albania, in order to minimize environmental damage in time, but also to provide an incentive for the economy and employment.
Integration of hydro resources of mountains
The fact is that we have a lot of natural resources. The traditional ones so far are the hydropower plants in the north (with the public HPP in a cascade over the Drin River). However, Albania is a small country and something like this is more visible (pronounced) than in other countries. So not far away, but the whole western lowlands are very valuable for photovoltaic production. Also, the coast and the ridges of the hills are suitable for wind energy.
Although investments in recent years, as reported by a recent report by the Friedrich Ebert Foundation on energy transit in Southeast European countries, Albania remains one of the countries with the largest network losses in the region, with 23% of production. Losses that will be minimized if we achieve the goal of building new generators in the west and south. Let’s not forget that this ultimately rejects the idea that we should definitely use the Vjosa River for energy production purposes.
The use of these technologies in a strong development everywhere in the world, is an innovation with incomparable advantages for our country, as a result of the geographical position with the optimal level of radiation. In any case, all this must be taken into account in relation to the possibility of better diversification of production resources, and the efficiency created by their distribution and homogenization throughout the country, but also the competitive dynamics that are created in the context of opening up and being part of a common regional and European market.
The Skavica HPP – a 100% investment from the government budget
Prime Minister Edi Rama at the opening ceremony of the Skavica HPP project made public the preliminary work was done during the perform of pre-feasibility of HPP Skavica project. The project, which was announced at the start of the Karavasta PV 140 MW project on May 27, 2020, comes from a team of experts from the IPF6 consortium (Infrastructure Facility Project) funded as part of the Western Balkans Investment Framework – WBIF, which is an EU instrument and has the funds of a grant of about 1.5 Million Euros since 2017.
The team started work in January 2019 and is already at an advanced stage to prepare for the implementation of the Skavica HPP project. Thus, currently thanks to this funding, at the first completion of this phase, a wide group of experts working in several directions, has come up with several variants, which represent economic effects and environmental impact of the HEC Skavica project.
In fact, this is a project that has been planned for many decades, because it is known that Skavica is an element that is missing in the original Drin cascade project. The design and construction of the Skavica hydropower plant have been a historic goal of all Albanian governments before and after the 1990s. A project which, with the construction of the Arbri road, is finally becoming much more feasible and concrete.
Moreover, today this project, despite the various difficulties that remain and have pushed it in time, becomes even more strategic and absolutely necessary. In fact, several times in these years we have tried to find the right actors (most recently in 2016) to be able to invest in this project, but now the state enterprise KESH has decided to undertake it itself.
Of course, in this context financing is an essential issue, but despite the innovations and problems, it will not be so difficult to solve as the options are numerous for such primary importance production project as this especially with the opening of the energy market and pushes for the functioning of the integrated regional market itself (i.e. it is useful in the function of the whole regional energy market).
In fact, the project is more important than its only direct production because it optimizes the entire cascade, and it will also put an end of the water spills and floods that follow as a result. So at the moment, we avoid pouring money in the form of water, causing subsequent damage which always is becoming more costly to the state budget to reimburse and help people recover – said, Premier Rama.
Among other things, the form of financing remains to be specified, as it is known that Kesh has a recognized debt of 450 Mil/Euro from OSHEE. KESH itself is also expected to trade the energy generated through the power exchange market and be list on the stock exchange (for this it has also been working for a long time with “clearing” accounts [e.g. recently 150 Million/Euro of OSHEE])).
Moreover, the Albanian Investment Corporation has already been established from several months, as we already have a new framework on Collective Investment Enterprises, Capital Markets, etc. and on the other hand, the Albanian government has just successfully launched a Eurobond of 650 million euros, etc. At the same time, the project is expected to continue with a joint trans-border solutions with Kosovo or Macedonia, which would enable funding from international organizations in part in the form of a grant.
*Dr Lorenc Gordani, Professor at the Tirana Business University (TBU) and Albanian Coordinator of the International Renewable Energy Agency (IRENA)