Prospectus of a winning bid for the first Albanian PV by 50 MW

By Dr Lorenc Gordani, PhD – Law Adviser in Energy Policy, Regulation & Infrastructure at EuroElektra

In this article we will try to offer an overview of the work to be done to obtain a winning outcome in the auction for the first large solar park by 50 MW in Albania. Even the issues are complex and requires in-depth considerations, the keep of these steps as concise as possible, not only will assure the possibility of a winning bid but above all ensure that the project will be financed with low interest rate and implemented successfully.

The new political and legal framework

The new energy sector strategy up to 2030 is based on two main pillars: the development of reforms to promote market liberalization in the context of regional integration and sustainable development driven by participation in the Energy Community. Thus the renewed action plan up to 2020 has tripled the target for photovoltaics from 40 MW to 120 MW, and doubled that of wind power up to 70 MW. As according to the new law on renewable energy sources (RES) approved in 2017, the overall framework of renewable projects is determined to be based on the auction mechanism (Contracts for Difference – CfDs).

In this regard, considering that from 2007 until 2017, Albania saw a substantial increase in the implementation of power plants exclusively in hydroelectric sources, it was thought that there was a time for a change of the entire paradigm of renewables. Given Albania’s complete dependence on energy production from hydrology, the European Bank for Reconstruction and Development (EBRD) has been mobilized to help the diversify of generation sources with solar and wind, considered as priorities to be developed in the short term.

Thus, at the beginning of May 2017, the EBRD and the Ministry of Infrastructures and Energy of Albania (MIE) signed a Memorandum of Understanding (MoU), followed by a further between the EBRD and the Energy Secretariat in Vienna, on cooperation for the regulatory framework and subsequent development of solar energy projects, through the implementation of competitive processes, to support alternative renewable energy.

In this regard, a first step saw the opened possibility of Net-Metering up to 500kV and the approval of feed-in tariffs 100 Eur/MWh for PV up to 2MW. Lately, while the implementations of the first floor of 20 MW photovoltaics have been started, MIE has opened the tender procedure for the selection of the bidder for the construction of the 50 MW photovoltaic plant. The news of PvPP in the salt lands of Akerni (Vlora) was welcomed by international investors. It represents a large-scale innovation for the benefits and opportunities offered, making that nothing will be the same as before for the entire energy sector in Albania. The positive result of which is designed to be used as a new basic action to replace even the rest of the planned 600 MW in hydropower within 2020.

The main features of the proposed call for PV capacity

For the above, the new approach to a tender for capacity, unlike those for power plants PV by 2 MW, will solve from the root of the many complex problems, such as network connection, granting of permits and especially soil properties. However, the fact that the whole is to be considered in the package, necessitating the possession of a complex know-how, with a complete overview on regulatory, legal and technical aspects on the development of a successful proposal compared to competitors, which is also consistent to achieve the application of the project, obtaining financing, procurement and commissioning, construction and testing, such as successful management for at least 30 years.

The advantage of this first large-scale project is linked to the selected site with one of the highest solar radiations in Europe, for a potential over 1600 kWh/m2. According to a UNDP Report 2013, if the photovoltaic potential is fully utilized, there is the possibility of ensuring up to 10 times the energy needed of the country. However, not all of the country can be filled with panels and this is technically the sunniest place. Furthermore, considering the need for energy in the area, and the major part of production is concentrate in the north, it avoids the high level of network losses. All this has been done to be considered, as the best technology to diversify future production, by many institutions that support the sector such as EBRD, Energy Secretariat, IRENA, etc.

Then fundamental is the understanding of the object under discussion and its novelties respect the unsolicited proposals. The selection of the project for the construction of the photovoltaic system will take place through an open international competition. Among these for the generation of electricity there will be support by Feed in Premium (FiP) for an installed capacity of 50 MW. In addition, the object of the offer in the Akerni area sees the construction of an additional capacity which will not be part of the support measures among 20 MW to 50 MW. This means that the developer has to consider the entrance to the national and international market – an aspect that requires a well-participated evaluation and additional preparatory skills with respect to projects up to now.

In relation to entering the market, the photovoltaic system will be connected to the 110 kV transmission network. This network has already been reinforced or built recently, as it is study the supply capacity in the regional area (including the lucrative Greek market, which opens the way to the Italian one). Therefore, the plant will be connected directly to one of the Albanian energy “highways”, making it very practical for export throughout the region (in this regard, OST has already start the procurement of the power exchange platform). Based on what has been disclosed so far, the contracting authority has not prepared a general site technical project to identify the location of the substations, the connection to the network and the access road, leaving the freedom to the proposal made by the developer. As the above, it means that many issues remain open to negotiation considerations, in particular to imbalances.

Biding evaluation criteria

According to information, the evaluation criteria of the offers will include compliance with the legal criteria and the reliability of the bidders. The utmost importance for the selection of the winners will be given to the technical and financial capabilities of the company, evaluated with 70 points. However, the financial offer is overestimated, making also a part of one pillars a part evaluate by 30 points worth. This includes the bidder eligibility for a 15-year fixed feed-in tariff in Euro/MWh as part of the support measures and the commitment to build additional capacity from 20 MW to 50 MW, which will not be part of the support measures.

Then, apart from the market issues above explained, it is necessary the calculate of the costs where especially the fiscal ones are the most difficult and could be part of the negotiation. As of important issues also remain with those of construction and maintenance. Therefore, the main objectives of an assignment for the preparation of technical studies must review the legal and regulatory provisions existing in Albania, taking into account the ongoing and planned reforms, in particular regarding imbalances, the construction standards to be applied, and the tax system. Thus, the developer of the technical studies must implement the necessary long-term sensitive analyses with the recommendations for all future changes to secondary legislation and regulatory standards.

The above assessment it is also necessary in relation to the adaptation in accordance with the guidelines drawn up by the EBRD on the design and implementation of competitive processes in support of renewable energy, also taking into account current provisions, existing plans and of the market evolvement context. As well as it will be complete with a conduct of an assessment of the technical options on the development of photovoltaics in accordance with the technical recommendations provided by tender package. A process that has to be completed with a careful environmental and social assessment at the site level related to the plan of dissemination and involvement in order to avoid any stop or delay of work.

The main risks that remain for investors

Normally in a complex project the risks may be multiple and has to be predicted with sensitive analyses for periods of 15, 30 or even more years. When all the scenarios have been built, it is necessary to mitigate the risks by developing tailor-made guarantee instruments (the preferable fiscal ones to be implemented with the support of IFI’s). The results of this work will be the detailed recommendations for the draft proposal, the design and implementation, which must be carried out for the allocation of risks so that investors remain only the risk of constructing and operating the photovoltaic project. In all cases, the developer should ensure that standard and technical studies lead to a bankable support framework but also to convenient loan interests.

Negotiation and signing of the project contract

The difficult issues seem to be the completion of the process, given that the contracting authority will negotiate and sign the contract with the bidder who presented the best compete and valuable proposal. However, more attention needs to be paid during the negotiations, because this will be the law between the parties for the duration of the contract. The revisions are always possible but more difficult and expensive to achieve. The same applies to the long term power purchase agreement for the capacity by 50 MW for a period of 15 years.

However, to remember is that technical analysis is the support and the basis for any eventually dispute about the reciprocal fulfilment obligations among parties. The duration of the project contract is 30 years, which is a long time and problems will rise but with an accurate work a major part can be foreseen and mitigate. Therefore, it is essential the all is done in a short time since the deadline for submitting offers is 17 September 2018. And after the timing for the execution of the work is 18 months from the effective date of signing the contract project. Obviously, the offer process also has a significant cost value of 200,000 euros, which requires preventive work to avoid any delay due to the investor’s fault.

Issues related to the construction and operation

Precisely for all these above aspects, much attention should be given not only to the competition itself, but also to the next stage, to the supervision and monitoring of many innovative issues that will have to be face in practice for the first time. This will make necessary to activate in a short time a long-chain of guarantee mechanisms, normally offered by specialized companies and which at the end also reduce the costs of loans from development funds for a project range between 50 million euros (note: this is a personal estimate of the project calculated by 70MW).

Albania is in the early stages of the development of photovoltaic technologies. This means a high risk of failure due to the lack of standards and experience as a lack of quality assurance (QA). The implementation of a comprehensive quality assurance framework requires a physical and institutional infrastructure, known as quality infrastructure (IQ). IQ requires a holistic approach, which includes not only the equipment, but also the whole system, including design, installation, operation and maintenance services up to the disposal.

The implementation of appropriate quality schemes, as well as the integration of international practices and stakeholder consultation can have a positive impact on each of the stages of the technology life cycle. Quality infrastructures include the entire institutional network and the legal framework necessary to regulate, formulate, modify and implement standards for the common and repeated use of products and services. This also includes the provision of clear evidence on its implementation, testing, certification, metrology and accreditation.

The need to know more about the project PV Akerni

All this makes necessary to explore as much as possible of the project. Tenderers wishing to participate in the bidding procedure must pay the participation fee in the bidding procedure. The fee of participation to be paid into the account of the Ministry of Infrastructure and Energy is Euro 2,000. Only after the potential bidders can send questions on the documents of the bidding process to the designated contact person, by 24 August 2018. The contracting authority will organize a pre-bidding meeting and an on-site visit for all bidders. The calendar and the location of the pre-offer meeting will be held on 27 August 2018 at the Ministry of Infrastructure and Energy.

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