Energy Market Actors
Electricity Market
Albania signed the Treaty establishing the Energy Community on 25th October 2005, in Athens, and after its ratification by the Parliament, on 3 April 2006, became a full member (Contracting Party) of the Energy Community.
The Government of Albania (GoA) has undertaken a series of important reforms in the power sector aimed at the liberalization and development of the Albanian electricity market. A number of measures have been taken to implement such reforms through enhancing security of supply in the Power Sector, with ongoing or planned projects to increase electricity generation and interconnection capacity; establishing a competitive electricity market consistent with EU requirements, including the Albanian Power Coperation (KESH) restructuring, and the new market model,which was adopted in March 2008; setting up and enforcing an effective and transparent legal and regulatory framework, with the Law Nr. 9072, of 22.5.2003, “On Power sector” Official bulletin No. 53, page 2120; Date of publication: 03-07-2003) amended, and secondary legislation; attracting strategic investors in the sector through implementation of privatization; and the process of privatization of Distribution System Operator has been finalised.
A number of measures have been taken by the Albanian Government to implement the "Acquis Communautaire", which includes the following European Community Directives:
- Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC - Statements made with regard to decommissioning and waste management activities, Celex No. 32003L0054; Official Journal OJ L 176, 15.7.2003, p. 37–56: OJ Page 20,
- Directive 2003/55/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in natural gas and repealing Directive 98/30/EC; Celex No 32003L0055; OJ L 176, 15.7.2003, p. 57–78; OJ page 22 and,
- European Community Regulation (EC) No 1228/2003 of the European Parliament and of the Council of 26 June 2003 on conditions for access to the network for cross-border exchanges in electricity, Celex No. 32003R1228; Official Journal OJ L 176, 15.7.2003, p. 1–10: OJ Page 10.
The process of restructuring the Albanian Power Corporation (KESH), which involved the transformation of KESH from a vertically integrated company into an unbundled one with three independent entities, has been completed. The unbundling of the Transmission System Operator (TSO) started in 2004 and the financial unbundling was performed as of June 30, 2006.
The unbundling of the Distribution System Operator (DSO) started in December 2006, when the Government of Albania - Councils of Ministers - passed the Decision No. 862 in 2006; on the establishment of the distribution company: DSO is a joint stock company which was privatized in March 2009 and eventually bought by CEZ Albania.
A New Market Model (AMM) was adopted in March 2008 and technical rules were prepared by the Regulator, with the assistance of the Donor Community.
The AMM also stipulates that the power generation company KESH owns all large generation assets. The AMM stipulates that KESH Generation will provide ancillary services to the TSO and offer its remaining electricity to the Wholesale Public Supplier at a regulated tariff. The AMM distinguishes between a Wholesale Public Supplier, which is part of KESH, and a Retail Public Supplier, which is part of the Distribution Company. The Wholesale Public Supplier is to be responsible for security of supply to all tariff customers. It will sell its electricity to the Retail Public Supplier at a price regulated by ERE. The Distribution Company is responsible for owning and operating the distribution system, and will buy electricity to cover its technical and non-technical distribution losses from the market. If there is excess generation available, KESH may sell it to export markets.
The AMM considers Renewable Energy Sources as Small Power Plant or Indipendent Power Plants allowing their existence on the market and access to the grid. They may also sell directly to eligible customers if they obtain licenses to be qualified suppliers.
Based on a recent decision of the ERE, all non-household customers are free to become eligible, which means that around 40% of the domestic electricity market could be considered legally open. However, given the low final tariffs charged to customers, no eligible customers have shown any interest to leave the system. The Energy Community Treaty calls for the full market opening by 2015.
Electricity Regulatory Authority (ERE)
An Energy Regulatory Entity (ERE), in charge of regulating the energy market and electricity prices, was set up in September 1995. In 2008, the ERE established the AMM.
ERE assumes with the further development and liberalisation of the sector of electrical power an ever greater importance as an independent institution ensuring the balancing of interests of consumers and those licensed in this sector. The continuity of the mandates of the board members of the commissioners of this institution and their replacement in accordance with the requirements of the law no 9072, dated 22.05.2003 “On the sector of electrical power” is an important indicator for the independence of this institution from the government.
In addition to the independence, another very important requirement for the activity of this institution is its transparency. To this effect, the Commissioners Board of ERE should improve the procedures, which regulate the activity of ERE aiming at an increasing transparency.
The involvement of a greater number of private investors in this sector requires the increase of expertise of this regulator. The technical assistance provided by the donors such as USAID has played an important part in boosting professional capacities of the technical staff of this institution.
The establishment and the ever increasing opening of the market of electrical power and the key role which had been vested with ERE for the regulation and monitoring requires the increase of the monitoring level of ERE. This shall require a re-organisation of the structure of this entity, aiming at creating a department or sector responsible for the monitoring of the market. Such a department should be completed with the necessary staff, which shall have the high technical expertise for making possible the fulfilment of the tasks and responsibilities, as well as a modern IT.
Consolidation and strengthening of this institution remains one of the main institutional objectives, and is one of the requirements of the Community Treaty of energy of South-Eastern Europe Countries, which has been signed by the Minister of Economy, Trade and Energy and ratified by the Assembly of Albania by law no 9501, dated 3.4.2006 for an independent and transparent regulator. At the same time, this meets also the requirements of the provisions of the Directive 54/2003/EC of the electrical power market.
With the connection of Albania into the international natural gas network and with the increase of production of this energy resource in Albanias’ economy, including the use for the production of electrical power, there is a need for the establishment of a regulatory entity for the natural gas sector, which shall issue the licenses, approve the transmission and supply fees with gas, and it shall impose the conditions for the service of the licensed entities in the gas sector. Taking into account, the similarity of the natural gas sector to that of the electrical power, as well as the experience gained in the issues of the regulation by ERE, it would be natural that the regulatory responsibilities for the natural gas sector be carried out by this institution.
a. Transmission System Operator (TSO)
OST is an independent state-owned company that owns, maintains, operates and expands the transmission system. TSO company has been registered as a legal entity in July 2004 as a KESH sha branch, while during this time efforts have been concentrated on its consolidation. Relying also on the technical assistance of consultants of World Bank, TSO has undertaken a series of actions and measures for this consolidation. The approval of an organisational structure as well as of the description of the tasks for each position of each company, ensured an important development for TSO.
The approval by ERE of the transmission fee which has become effective since 1 July 2006, has of course been an important step in the further financial division of TSO, but on the other hand this fee is a temporary fee since it has relied only on the operative costs of the company. In this framework, KESH sha and TSO sha have approved the report of accounting expert on the division of financial accounts in TSO sha and the changes in the capital of KESH sha; this report has also been approved by the supervisory council of KESH sha and TSO sha. This transfer is important not only for the preparation of the new financial statements of TSO, but at the same time it is going to have an impact on the calculation and proposal for real transmission fees.
Relying on the amendment of the law on the electrical power energy from May 2006 and on the Market Transitory Model, TSO has, in addition to the functions of the management of transmission network and operator of the transmission system, been tasked with the responsibility of market operator. The necessary staffing of the office of the Market Operator as well as provision of the necessary infrastructure and IT programs is going to be very important in the successful implementation of the market model.
b. KESH Generation ("KESH Gen")
KESH Gen (in the Transitional Market Model referred to as the Public Generating Company or "PGC") will, until a decision is made to privatize the generation assets, be within the holdings of KESH.
KESH Gen will sell to the DSO (Distribution System Operator)
- ancillary services and electricity generated by existing hydro units at prices approved by the ERE under bilateral contracts (which may be annual or for such other period as they parties may agree, subject to the approval of the ERE), and
- additional electricity requested by DSO to meet the load of Tariff Customers to the extent of availability.
To the extent that KESH Gen has excess generation available (i.e., when all of the DSO's requirements are met) KESH Gen may, with ERE approval, sell or "swap" that excess into the export market so long as the financial value of the export is fully transferred to the DSO for the benefit of Albanian Tariff Customers. This provision is to ensure that all benefits from domestic hydro capacity will be preserved for Albanian Tariff Customers.
ERE has the responsibility to ensure that any such sale or swap (alone or in conjunction with other swaps) produces consumer benefits in Albania.
In fulfilling this responsibility, ERE may determine the amount of revenue received by KESH Gen for the sale of excess production into the export market, and ensure that the DSO receives, to the credit of the Tariff Customers, the value of revenue generated by hydro production.
c. Small Power Producers ("SPPs")
Small Power Producers (small hydro and cogeneration of five MWs or less) shall be licensed in the country to sell capacity and energy to the DSO, to the export market, or to Eligible Customers at commercially agreed upon terms, or, if no agreement can be reached, on terms approved by the ERE that both facilitate development of such projects and provide consumer benefits.
ERE shall determine in issuing the license to which category or categories of customers the SPP may sell, but shall not prevent SPPs from selling to any category chosen by the SPP.
ERE shall also establish a unified, simplified tariff governing the terms and conditions of sales from small hydro SPPs ("SHPPs").
d. Independent Power Producers ("IPPs)
IPPs (including Combined Heat and Power Plants ("CHPs") in excess of five megawatts may be developed and licensed and may sell capacity or energy to the export market or to Eligible Customers at market prices, or to the DSO a contract price approved by ERE.
The ERE shall determine in issuing the license to which category or categories of customers the IPP may sell.
e. External Suppliers
External Suppliers that are located outside the country may export power to KESH Gen (economy energy), the DSO and, to the extent permitted under Albanian law and regulation, to Eligible Customers;
f. Distribution System Operator (DSO)
DSO shall own, maintain, expand and operate the distribution system throughout Albania and is also be responsible for buying energy, capacity and ancillary services for its Tariff Customers.
DSO is a joint stock company which was privatized in March 2009 and eventually bought by CEZ Albania.
CZ Albania has the responsibility to provide to the TSO annual, weekly and day-ahead schedules showing its expected load and that it has procured sufficient supply of energy and ancillary services to satisfy that load. The Market Model anticipates that, while currently the CZ Albania is a part of and operates as division of KESH, by the end of 2007, DSO is an independent, privately owned company.
The relationships among, and the role of, market participants in the physical operation of the Market Model are to be set forth in bilateral contracts between the various participants consistent with the descriptions below. Contracts (and tariffs, where applicable) between KESH Gen and the CEZ Albania, between the OST and other market participants for transmission and related services, between small hydro SPPs (and where no agreement can be reached other SPPs) and the CEZ Albania, and between the CEZ Albania and its Tariff Customers will be subject to approval and enforcement by the Independent Regulator (ERE).
Oil and Gas Market
Three main companies, precedently under the supervision of the public company Albanian Petroleum Corporation (APC), are operating on the oil and gas market.
Based on the law no.8450, date 24.2.1999 "On the processing, transporting and trading of oil, gas and their by-products", each subject is obliged to guarantee a security reserve equal to 30 days sale of the previous years activity. In order to apply the above law, many companies have provided to improve the storage structure starting with the construction of seashore deposits. Oil by-products are mainly imported from Greece and in lower quantities from Italy, Russia and some other countries. Import of oil by-products has lately considerably increased, and is mainly done through ports of Vlora, Durres, Shengjin and Saranda. Domestic stocking capacities are capable to face the by-product import, taking into account that during the last decade 100-800 thousand ton oil by-products have been imported every year. The export of by-products started after 1980 mainly consisting in semi-processed products.
Since 2006, 103 companies are involved in the wholesale trading of oil by-products. 36 of which are companies for the wholesale of fuels and energy resources, 24 companies for the wholesale of GLN, 37 companies for the wholesale of the lubricant oils and 6 companies for the wholesale trading of the airplane fuels.
The companies for the wholesale trading of the by-products of oil operate with a distribution over the entire territory of the country, but they are concentrated mainly on the western and central zone. Within those zones there are also the main capacities of depositing for the wholesale trading companies for the oil by-products.
The provision of an efficient structure is connected to the fact that the Albanian market of oil and gas products is constantly increasing and according to a calculated scenario the forecast for 2020 is to reach a consumption of 1943 ktoe. In the active scenario, in addition to the measures for the reduction of the use of fuels, even the protection of the market is taken into account, managing the centres for the stocking of the fuels, as well as insuring the quantity of reserve of oil and gas by-products according to the European Union norm (capacity of reserve of security should cover at least 90 days of daily average consumption of the previous year).
Albpetrol
Albpetrol is in charge of the exploration production.
Armo
Armo, which is in charge of the refining and distribution of oil products, supplies about one-fourth of the gasoil delivered in Albania and almost 50% of oil products in the country.
Servcom
Servcom deals with the drilling and the development of the fields of Albania.
Coal market
Coal and natural gas are the "big losers" since the economic changes forced many industrial consumers to close down. Supply and use of coal has declined from approximately 644.5 ktoe of the supply with primary energy sources in 1990 to 23. 9 ktoe in 2008.
Coal contribution in the Albanian energy market has declined due to the following reasons:
- Coal extraction technology is very old,
- Our domestic coals are of lignite type with low calorific values, high content of sulphur, humidity and ashes,
- The characteristic of indigenous coal sources is that they are extracted from 200 m depth with a lower thickness of layer of 70 –100 cm,
- Extraction and enrichment costs are very high,
- High content of sulphur and ashes would need environmental protection plants that mean a bigger pollution and a higher cost for a generated energy unit.
In 2008, the capacities of coal mines were, at their minimum, producing around 12000 tons compared to 2 million tons produced in the 1990s, and this production comes mainly from Memaliaj mine and other three small mines in Korca.
Ownership of the coal mines was passed on from the Albanian government to private enterprises with long-term contracts. In 2009, production of coal from Memaliaj Mine, with average calorific value of 12500 kj/kg, cost 72 €/tonne (Memaliaj Mine, 2009).
