Domino effect in Albania of Kosovo’s Energy Independence

Legal Insight

Dr Lorenc Gordani, Independent Energy Lawyer*

The agreement signed between KOSTT and ENTSO-E

On April 20, 2020, the Europe Network of Energy Transmission System Operators (ENTSO) expressed their consent to sign the agreement between Kosovo Transmission Operator (KOSTT) and ENTSO-E. The liaison agreement was voted between the Kosovo Transmission System and the Kosovo Electricity Market System and the operators of the European energy network transmission system with foreseeing the entry into force on 14 May 2020.

Agreement recognizing the KOSTT as an independent control area. A decision which made the Republic of Kosovo put an end to a long dispute with Serbia getting the full control of its energy borders, and could join the Kosovo-Albania Energy Regulatory Bloc. As a result, in simple terms, Kosovo has definitely gained its energy independence and has become part of a block group with Albania.

In the political sense, Kosovo’s sovereignty over the electricity system has now been established. Setting energy boundaries makes it possible to make decisions within its electricity limits. In this regard, from now on, the way is open for KOSTT to participate in the Albanian Power Exchange (APEX) and integrate into the regional and European energy market.

 

The importance of this achievement beyond the political interest

First of all, the approval in principle and then the signing of this agreement marks an important step for the KOSTT for operation with the rest of the European system operating standards. Moreover, the recognition of KOSTT and the operation as an independent control area opens a new era of cooperation in the energy sector between Albanian-Kosovo and the rest of the europian countries.

The next step will be to put into operation the 400 kV Albania-Kosovo Interconnection Line, a valuable power and asset that was completed in 2016. It will also be followed by the entry into force of all agreements signed between OST and KOSTT, increasing the security of the operation of the electric power system and optimizing common resources. Further, it encourages regional initiatives to optimize the use of balancing energy, which is accompanied by a relevant reduction of technical losses in the respective transmission systems.

Then, in particular, directly we will have the increase of trade exchanges and the creation of facilities for electricity traders to carry out transactions on the Albania-Kosovo border. It will be followed very soon with the development of the first phase between the two sides of cooperation in the development of the common electricity market. Which, of course, will directly affect the promotion of regional initiatives for the merger of energy markets, which are expected to bring a relevant reduction in energy prices for all consumers.

The above, consider its strategic importance, comes in coordination and is the implementation of the previous steps taken earlier, between the KOSTT and the Transmission System Operator of Albania (OST) for the establishment of the regulatory block of energy systems Kosovo-Albania, which was planned to start implementing lately from November 2019. However, all the above is part of the finalization of a long trip that is started from the early 2000s.

 

Main political actors involvement inside and outside Kosovo

Given the importance of the signing of the above has found a wide echo with official and personal statements on social networks by all political authorities in Kosovo and Albania. It was greeted by the President of Kosovo, the in-office Prime Minister, and the leaders of all political forces, in Kosovo and Albania, as well as international one as the German Embassy in Kosovo, emphasizing that the agreement is a historic moment for Kosovo.

It is an extraordinary event: after Rruga e Kombit, the energy “highway” has been described as the largest investment connecting the two countries. Of course, given its importance, it has come through a long process and direct involvement of main partner countries, led by Germany and the United States and other friendly countries. For example, the voting process for granting Kosovo the right and independence to sign the KOSTT agreement with continental Europe transmission operators is the result of voting at the Regional Group of Continental Europe with 22 votes in favour, 4 abstentions and 3 against (Spain, Bosnia and Herzegovina and Slovakia).

It has been commented as a particularly important day for everyone as it opens a new era not only for Kosovo but also for a very effective cooperation between the energy systems in south Europe to design joint projects and have a common vision for the future. A development policies that will give a great boost to the economy in general but also a further deepening of a cooperation of the energy sectors of Albania and Kosovo.

 

The role of EU, Germany and the United States

This achievement, start with the contribution of the European Union External Action Service in the framework of the Brussels dialogue process for normalization in 2015 between the delegations of Kosovo and Serbia. But the Serbian President Vucic was among the first to acknowledge that the energy issue is a matter of sovereignty and did not allow further progress, but called for it to be linked to a “final agreement”, or if not, at least with the establishment of the Serbian Association of Municipalities.

Then, intervene the Germany where the issue of the energy agreement was raised several times at the highest levels. Germany invested € 75 million in HVCD 400 kV and € 100 million in KOSTT. She did this as part of fostering economic development in the region, but also to stabilize the European energy network. Further, while negotiations did not continue, Germany undertook successful lobbying to depoliticize the issue, making it part of the decision-making of energy operators at the European level.

On the other hand, as it is known at the moment, we have an energetic action of the US President Donald Trump through the US Ambassador to Germany Richard Grenell as special presidential envoy for peace negotiations between Serbia and Kosovo. Action focused on the phrase “tariffs and reciprocity must fall in order to strengthen US and EU support for Kosovo“.

In this regard, some commentators have seen a discrepancy between the US and the EU (i.e. Germany). However, it can be said that different countries base their policies on their specific weights, which makes them move on different axioms at the diplomatic level. Thus, with regard to the Kosovo issue, this is mostly just an appearance, as the common denominator stands to continue further and as quickly as possible with the process of serious negotiations to provide concrete solutions.

 

What changes in the status quo scenarios so far are expected?

Why is such a thing happening right now? First, it has been working on such developments for many years. So the shaping of the regional market is a real politic. The fact is that recent years have seen the unblocking of many energy projects in the Balkans and Albania. Only in 2019, more projects were closed in the field of energy (including TAP, Devoll), reaching a record figure of over one mild Euro (Aida). Even 2020 started with more projects (e.g. IAP, Karavasta, etc.) and new opportunities for entrepreneurship in the energy sector (e.g. Skavica, wind farms, etc.).

Furthermore, the verification of the COVID-19 crisis made it clear that more work needs to be done to find smart ways for economic recovery. This event further raised awareness of the need to support regional programs that increase the efficiency of the use of internal energy resources and activate funding mechanisms and opportunities for EU financial support. An approach that is enabling the activation of additional credit lines, made available by international financial institutions and development banks, supported by EU funds for technical assistance and financial incentives.

On the other hand, the discussion on the construction of a port for liquefied natural gas (LNG) has entered an “unexpected” stage lately. The innovation that aims to turn Albania into a distribution center for the region of the ones produced in the USA. Steps that are possible with the opening of the market: in the coming days is expected the confirmation of the group that will be the shareholders of the Albanian electricity exchange. Also in the following period, the field of the interconnection line with Macedonia is expected to start. The all is becoming possible with the deregulation started from several months by the unbundling process of OSHEE.

 

The future of the energy sector after Covid-19

The year 2019 closed with many projects in the field of energy, reaching a record figure, together with the extractive industry, over 55% of foreign investment (Aida). As said, even 2020 started with more projects and new opportunities for entrepreneurship in the energy sector only after it entered in a critical phase of high uncertainty which is losing enthusiasm and becoming an obstacle for investors related to the COVID-19.

Actually, the Ministry of Infrastructure and Energy has open the procedures for selecting participants in the power exchange. The power exchange which will be a structure responsible for the management and administration of the organized market between the market platform, based on the day in advance and within the same day, as well as for all related activities, including the activity of financial clearing (clearing) between market participants, in accordance with market rules and model.

Of course, there are still many aspects to be achieved in creating a fluid and functional market, but a “big part of the way is done”, and recently we are working on concrete measures to activate the power exchange market, in terms of the selection of shareholders (confirmed by the Kosovar side). The here will be pursued with the completion of the infrastructure with Macedonia, which is also the last border country with which we still do not have a land connection, integration in the regional energy market, etc.

In this context, regional developments are already working for a change of approach by decision-making authorities, public and private companies, but also the consumer himself. A slight change in the current practice that is also imposed as an absolute priority regarding purchasing power and the significant total of our income that goes for energy, which registers every year a 5-7% growth trend, already reaching one turnover about 550 mil/Euro.

Dr Lorenc Gordani, Professor at the Tirana Business University (TBU) and Albanian Coordinator of the International Renewable Energy Agency (IRENA)

Published @energyworldmag #36 issue, May-June 2020

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