Albania: Finally on track for a comprehensive support scheme for renewable energy?

Current status

Albania has one of the highest percentages of electricity produced from renewable energy sources (RES) in its electricity mix – more than 95 % of electricity generated in Albania comes from hydropower generation. In spite of that (or maybe because of that), Albania has not had a comprehensive policy on the support of RES in place to date.

Albania had adopted legislation for the promotion of RES facilities in 2013. Under this legislation, the main promotion measure consisted of the implementation of a feed-in tariff system for electricity generated from RES projects with an installed capacity not exceeding 15 MW. Such facilities, in theory, also have right to priority access to the grid. However, this legislation was not applied in practice due to absence of secondary legislation. The only exception relates to small hydropower facilities. Thus, practically, there is no support scheme in place in Albania for other RES sources, such as solar or wind power plants.

Drafting of the new legislation

However, since Albania has a candidacy status for accession to the EU, it is obliged to harmonise its laws with EU laws. The Albanian government has therefore drafted a new Act on Promotion of the Use of Energy from Renewable Sources ("Draft Act"), which is partially aligned with EU RES Directive No 2009/28/EC. The Draft Act was recently adopted by the Albanian parliament on 2 February 2017.

Proposed support scheme

Under the Draft Act, the main promotional measure is a specific form of a feed-in tariff called contract for difference ("CfD"). CfD can be characterised as a sliding feed-in premium system, meaning that renewable energy producers will sell the electricity in the market and receive the variable difference between the auction price and the electricity market price (reference price) as a support measure.

The auction price will be determined within the scope of a competitive auction, in line with the Guidelines on State Aid for Environmental Protection and Energy 2014-2020. The auction will be open to all producers of electricity from RES, on the basis of clear, transparent and non-discriminatory criteria. The auction mechanism will not be used in certain cases, for instance if a competitive auction is expected to result in higher support levels. Under the Draft Act, the CfD shall be concluded for a maximum period of 15 years. Notably, the CfD will not apply to small RES facilities, ie projects with an installed electrical energy capacity up to 2MW (3MW in case of wind energy) – these projects will be supported by separate measures.

Interestingly, if prices in the electricity market go up and are higher than the auction price, the RES producers will be obliged to pay such difference. Another element to the support is that it is limited by the total sum of costs of the facility, to be calculated according to the applicable accounting legislation.

The Draft Act provides for further support measures, including:

• guarantee of transmission and distribution of electricity from RES;
• priority access to the transmission and distribution grids; and
• producers receiving a guarantee of origin for their produced electricity.

However, the RES producers will not receive support in the form of an assumption of imbalances responsibility, as they will be responsible for their own imbalances and will be required to conclude either a contract with the transmission system operator or to transfer the balancing responsibility to another responsible balancing party, thus becoming a member of a balancing group.

Applicability in practice

The applicable target for RES share in gross final consumption of energy in Albania for year 2020 is 38 %. Currently, this share is at the level of approximately 31 %.

Given the warm climate and fluctuation of electricity generation from hydropower in the event of low water levels, Albania has great potential for the construction and operation of new solar or wind power plants. The new support scheme under the Draft Act can be a valuable tool for such development. Also, it may serve as a tool for the construction of modern new hydropower plants.

However, the actual implementation of the Draft Act will highly depend on the factual willingness of the Albanian government to promote RES. Specific rules on how the auction process will be organised are still missing, but are essential in order to evaluate the investment opportunities on a final basis. It therefore remains to be seen whether the promotion scheme will help to create a suitable investment environment for RES projects in Albania.

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