*Photo by Appolinary Kalashnikova on Unsplash
A new draft law on the promotion of the use of energy from renewable resources has been published by the Albanian Government for discussions with stakeholders. The new draft law will substitute and repeal the existing law no. 7/2017 having the same scope. As the published draft is still in the early stages of stakeholder discussions, the final policy choices could differ from what has been currently published.
The current legal framework (law no. 7/2017) provided for ambitious reforms on the renewable energy sector, such as the establishment of the energy exchange, the creation of the renewable energy fund, the substitution of the feed-in tariff scheme with the new mechanism of contract for difference (CfD), etc.
However, in practice the reforms envisaged under law no. 7/2017 have not been fully implemented and at the time of writing, the Albanian energy exchange is not effective, no CfD has been awarded and the renewable energy fund is not established.
Therefore, the current practice of the government has been to launch auctions where investors are offered a bid based feed-in tariff for a portion of their generation (usually 50%), to be later converted into a CfD mechanism once this becomes operational.
As such, the proposed draft does not substantially diverge from the existing framework, and it aims to write into law the current practice that has been applied by the government in absence of the energy exchange and of a functional CfD mechanism. However, the proposed draft introduces some novelties, a selection of which are noted below.
Considering the current state of pay of the Albanian renewable energy sector, the suggested implementation schedule provided under the published draft, seems once again too ambitious, and doubts may be raised if the system will be functional within the expected timelines.
Objectives
The draft law aims to:
Promote the increase of use of energy generated from renewable resources, to ensure a sustainable development and compliance with the obligations under the Energy Community Treaty;
Reduce the imports of fossil fuel energy, the emission of greenhouse gases and protect the environment, pursuant to international commitments;
Promote regional integration in the development of renewable energy;
Increases the diversification of energy resources and the security of energy supply;
Promote the development of rural and isolated areas by improving their energy supply;
Support the creation of renewable energy communities aiming to establish local generation capacities for the benefit of self-producers.
Renewable energy and priority producers
Under the published draft, renewable energy is defined as the electric energy generated from renewable non-fossil sources, namely from the wind, the sun (thermal and photovoltaic solar energy), the earth’s crust (geothermal), ambient energy, energy from tides, waves and other oceanic energies, hydro power, from biomass, landfill gas, energy from sewage treatment plants, gas and biogas.
Further, the published draft defines a “priority producer” as the producer of renewable energy that benefits from a support schemes provided under the law. By contrast to the current law on renewable energy (no. 7/2017), the definition of priority producer does not provide for an installed capacity cap of 15 MW related to hydro power. Therefore, under the published draft, hydro power producers will be able to benefit from the available support schemes, irrespective of their installed capacity.
Moreover, the published draft does not include specific incentives for small wind (capacity up to 3 MW) and photovoltaic (capacity up to 2 MW) energy producers, who shall be required to compete in public auctions to receive financial support in accordance with the law.
Support measures
Pursuant to the published draft, the Council of Ministers is mandated to approve the measures to support the achievement of the national objective for renewable energy resources, based on proposals from the minister for energy. Therefore, the full scope of the support measures that will be available once the draft is approved into law is unclear. Further, the draft provides that support measure constituting state aid will be subject to approval by the state aid commission in accordance with the relevant legislation.
The published draft lists the following financial support schemes for renewable energy:
Power purchase agreement (PPA);
Contracts for difference (CfD); and
Premium contracts (PC).
The CfD is defined as a financially regulated support contract, where the priority producer receives the negative difference between the “guaranteed price” (i.e. bid price of the competitive auction procedures) and the “reference price” (i.e. the market price achieved in the Albanian day-ahead energy exchange), and pays the positive difference thereof.
The PC is defined as a financially regulated support contract, where the priority producer receives a fixed premium (positive or negative depending on the outcome of the competitive auction procedures) or a variable premium (as the difference between the guaranteed price and the reference price).
The PPA, which is defined as the agreement for the sale and purchase of renewable energy, is listed as a temporary financial support measure to be applied until a liquid day-ahead energy market is established, to be later converted into a CfD.
The financial support schemes will be based on model contracts to be approved by the Energy Regulator (ERE), and will have a duration of 15 years.
Financing mechanisms
The financial support schemes are intended to be funded through a renewable energy tariff payable by the end- customers.
The published draft mandates ERE to approve the value of the renewable energy tariff in accordance to the relevant methodology, as a fee per consumed kWh, payable on an annual basis, or according to the shorter periods determined by ERE.
ERE is further required to approve renewable energy tariff within 6 months of the effective date of the new law.
The financial support schemes shall be managed by the “renewable energy operator”, to be established by the minister for energy within 6 months of the effective date of the new law, as a state owned company independent from existing publicly owned energy companies.
The renewable energy operator is intended to act as contracting party of the priority producers receiving financial support. It shall be liable to make payments to propriety producers, and in case of PPAs, it shall off-take the generated energy and distribute it directly to the organized market. It will receive the renewable energy tariffs that the energy suppliers have collected from end- customers.
Pursuant to the published draft, ERE may impose monthly, quarterly or annual prepayment obligations to energy suppliers on account of the renewable energy tariff that is expected to be collected. The amounts and periodicity of such prepayments will be determined by ERE pursuant to the relevant methodology.
ERE may further require suppliers to provide short-term liquidity instruments to meet the relevant obligations. The reasonable costs incurred for the provision of these short-term liquidity instruments shall be covered through the renewable energy tariff in accordance with the methodology defined by ERE.
The roles and responsibilities of the renewable energy operator, including the process of calculating and systematically updating the renewable energy fund, will be determined in a decision passed by the Council of Ministers upon proposal by the minister for energy.
Competitive procedures
Pursuant to the published draft, the competitive auction procedures for the award of financial support contracts will be launched by the minister for energy. The minister for energy may decide to launch auction procedures for specific renewable energy technologies / sources, or have technology neutral auctions. Such decision will be based on:
the long-term potential of a certain technology/energy source;
the need to achieve resource diversification;
network limitations and network stability;
network connection costs;
the need to avoid distortions in the market of raw materials from biomass support.
The minister for energy will opt for a technology specific auction if a process open for all priority producers could bring distortions in the result, such as for example on the basis of technology constrains or of other market conditions.
The published draft mandates the minister for energy to approve the rules for the organization of the competitive auction procedures.
Grid priority and connection
The published draft provides that renewable energy is guaranteed priority access to the transmission and distribution networks, on transparent and non-discriminatory basis, according to the criteria and based tariffs approved and published by ERE.
If electricity reductions are necessary, and as long as this does not jeopardize the safe operation of the system, grid operators are required to first limit the electricity that comes from other sources before limiting renewable energy. When grid operators have exhausted all other reduction sources, the renewable energy can be limited and, as the case may be, compensated. Limitations to renewable energy must be transparent and justifiable.
The reduced volume and the corresponding compensation for limitations to renewable energy will be assessed based on a methodology approved by ERE, which will take into account the costs or benefits of participation in the balancing mechanism, the formation of imbalance prices, the profits from the sale of electricity in the organized energy market that the priority producers would have benefited without the involuntary interruption, as well as the benefits that a plant would have received on the basis of awarded financial support according to the law.
At the request of a priority producer, grid operators will propose as access point for connection to the network the solution that, subject to compliance with the gird codes and regulations approved by ERE, is most favourable to the priority producer in terms of connection costs and distance from the network.
In proposing the access point solution, grid operators must consider the technical limitations and economic efficiency of the selected connection point to the grid. Grid operators must provide priority producer with comprehensive information on connection requirements, including:
comprehensive and detailed assessment on the costs of the connection point;
exact and reasonable duration for receiving and evaluating the connection application ;
reasonable indicative time frame for implementing proposed grid connections.
Gird connections will be granted on a priority application basis, based on the existing technical constrains of the specific location. Access point proposals will remain valid for the duration specified pursuant to the relevant grid codes.
Priority producers will be responsible for all of the necessary costs for connecting to the grid pursuant to the proposal of the grid operators. In case the grid operator is not able to comply with its initial proposal, priority producers will be compensated for the additional costs related to the connection to a different access point.
Grid operators will be responsible for the costs of optimization, reinforcement and expansion of their network in accordance to the general plans.
Energy balancing
Under the published draft, priority producer are financially liable for unbalances they cause in the grid. Balancing liabilities will be calculated and assessed in accordance with the market rules and balancing rules approved by ERE.
Priority producers may transfer their liability for imbalances to the other balancing responsible parties, and thus become part of a balancing group.
The renewable energy that has not been delivered to the grid, but stored in its own storage facilities, will be considered as delivered, and therefore receive support at the time of scheduled delivery to the grid.
Priority producers may use their own or other storage facilities at their own cost to mitigate the risk of imbalance and, in case their support schemes so allow, to benefit from hourly differences through dispatch shifting.
The renewable energy operator, at its own cost, can use storage facilities to optimize the overall imbalance costs and benefit from hourly differences through dispatch shifting.
Priority producers can offer balancing services as long as they meet the relevant technical criteria defined by the transmission system operator.
Electricity stored, produced or limited under voluntary participation in the balancing mechanism shall not be subject to the support scheme.
Support for energy storage
Under the published draft, to achieve the reduction of CO2 emissions or the security of supply or the optimization of the use of renewable energy production, the minister for energy may adopt limited measures in support of specific storage technology for renewable energy.
Such support measures may take the form of grants, investment loans, premiums or other operational support measures. Any support measure that constitutes state aid will be subject to prior approval by the state aid commission in accordance with applicable legislation.
Any support measure based on the above must be given through a competitive tendering process determined by of the minister for energy. The form of the support scheme, other conditions of the support scheme, the supporting party and the documents of the competitive tender process are determined before the start of any competitive process by decision of the minister for energy.
Renewable energy communities
One of the novelties provided by the published draft includes renewable energy communities. Renewable energy communities are defined as legal entities based on open and voluntary participation, which is autonomously and effectively controlled by shareholders or members located in the vicinity of renewable energy projects that are owned and/or developed by that legal entity, and whose primary purpose, rather than financial gain, is to provide environmental, economic or social community benefits to its shareholders or members or to the local areas in which it operates.
Pursuant to the published draft, a renewable energy community shall have the right to (i) produce, consume, store, share, sell renewable energy and offer aggregation, including through energy purchase agreements, (ii) have access to all appropriate energy markets, directly or through aggregation, in a non-discriminatory manner, and (iii) receive support as priority producer in accordance with the law.
The Council of Ministers may decide to support renewable energy communities with additional support measures, by treating them as demonstrative projects, which are defined by the draft as renewable energy project that demonstrates a technology as the first of its kind in the European Union and the Energy Community and represent a significant innovation that is beyond state-of-the-art technology.
Each renewable energy community must enable and incentivize low-income or needy households to become members.
A private company may be a member of a renewable energy community if this participation does not form part of its main commercial or professional activity.
Each end-customer has the right to become a member of the renewable energy community and will maintain the status of end- customer, as well as the status of self-producer of renewable energy, if applicable, with the rights and obligations it has in accordance with the law and will not be subject to unjustified or discriminatory conditions or procedures that would prevent their participation in a renewable energy community.
A renewable energy community is subject to cost-reflective network tariffs, which will be determined by ERE, as well as related fees, taxes and charges, ensuring that it contributes, adequately, fairly and in a balanced manner in the overall cost sharing of the system.
The published draft mandates the minister for energy to approve the terms and conditions for the formation and participation in renewable energy communities.
Self - producers
One of the novelties provided by the published draft includes self-producers of renewable energy. Self-producers of renewable energy are defined as the end-customer producing renewable energy mainly for its own consumption, who may store or sell the non-consumed portion of the generated energy, provided that if the self-producer is not a household customer, the storage and sale of generated renewable energy should not form part of its main commercial or professional activity.
The published draft provides that self-producers will have the right to generate, consume, store and sell the excess production of renewable energy, including through bilateral agreements with energy suppliers and trades, without facing discriminatory or disproportionate burdens.
A producer of renewable energy shall be treated as self-producer under the law, if the capacity of its installation does not exceed 500 kW.
Self-producers of renewable energy will benefit from a compensation scheme based on a net billing methodology , and a remuneration for electricity generated by their installations based on the price approved by ERE, which will reflect the market value and fairly compensate the supplied energy to the network, taking into consideration the costs incurred for transmission, distribution and balancing of the system.
The installations of self-producers of renewable energy may be owned, operated and maintained by a third party, provided that the third party acts on behalf or based on instructions and for the benefit of the self-producer. In such circumstances, the third party is not treated as a self-producer of renewable energy.
Self-producers of renewable energy located in the same building, including multi-apartment blocks, have the right to engage jointly as self-producers and are allowed to organize the sharing of renewable energy produced on their sites.
The detailed rights and obligations of self-producers of renewable energy will be determined by a decision passed by the Council of Ministers, upon proposal of the minister for energy.
Renewable energy agency
The published draft mandates the Council of Ministers to form a Renewable Energy Agency (REA), which will perform these main functions:
maintaining an up to date register of priority producers;
recording on a monthly basis the quantities renewable energy generated by priority producers;
monitoring of concession contracts, issuing of commissioning certificates, and investment attestation certificates;
contributing to the drafting and periodical review of the National Plan on Energy and Climate (NPEC);
monitoring the implementation of the NPEC following to its approval by the Council of Ministers;
Estimating the share of renewable energy in the gross national consumption; and
Collecting the necessary information from priority producers and assisting the ministry for energy in the preparation of the required documentation for policy-making and statistical purposes.
Treatment of existing priority producers
The published draft determines that its provisions, once is approved into law, will not affect financial support contracts that are already awarded to existing priority producers, unless otherwise provided by the specific support contract (i.e. if the contract contains CfD conversion clauses).
The existing priority producers will however be entitled to request the conversion of their existing support contracts into the new scheme, without prejudice to the securities and guarantees given under the existing contracts.
The published draft further provides that at the request of an existing priority producer (or if the contract contains CfD conversion clauses) the necessary steps shall be taken by the relevant parties so as to convert the existing support mechanisms into a CfD, with the day-ahead reference price availability of the Albanian energy exchange for a period of 12 consecutive months, as estimated and determined by ERE. Such assessment must be started not before 9 months after the establishment of the Albanian energy exchange, and the results of the assessment with the relevant findings will be published by a ERE in a specific report.
Any change occurring due to the conversion of a current support mechanism into a CfD must achieve the same balance of benefits, obligations, risks and rewards between the parties as in the existing support mechanisms.
Further, the published draft determines that in any case, the level of support will not be revised in a way that adversely affects the rights granted to the priority producers and damages the economic viability of the projects of the priority producers.
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