This chapter presents key policy priorities to ensure a green recovery in Albania through energy transition. Albania can become self-sufficient in clean energy, and even a net exporter, through a combination of energy efficiency measures in buildings and the development of intermittent renewable energy sources such as wind and solar. Given its large hydropower storage potential, Albania has sufficient baseload capacity to replace its electricity imports with domestic intermittent renewables. Albania could explore the possibility of its hydropower storage potential (including pumped hydropower) becoming a “green battery” for the wider region. By incentivising the use of more energy efficient cars and modernising its railway system, Albania could significantly reduce air pollution and greenhouse gas emissions from its very energy-intensive transport sector. To ensure progress is measurable, capacity for air quality monitoring needs to be strengthened. To reduce the environmental impacts of energy infrastructure projects, particularly of small hydropower plants, such projects should be subject to consistent application of environmental impact assessments. More broadly, financing and regulatory frameworks for renewable energy and energy efficiency in buildings need to be further developed.
Multi-dimensional Review of the Western Balkans
15. A green recovery in Albania
Abstract
The Initial Assessment of the Multi-dimensional Review (MDR) of the Western Balkans identified a green recovery as a top policy priority for Albania and the region as a whole. Energy and air pollution are complex challenges and significant obstacles to future economic development and well-being. Air pollution, unreliable access to clean energy and unsustainable environmental practices were identified as key constraints in Albania and the Western Balkan region in the Initial Assessment. Albania’s reliance on hydropower, and the absence of coal in its energy mix, mean that the energy sector, climate and environment challenges it faces are very different from the rest of the region. Building on the initial assessment, the “From Analysis to Action” phase of the project provides policy suggestions to help foster a green recovery from the Covid-19 pandemic in Albania and the other Western Balkan economies. The peer-learning workshops on green recovery served three complementary aims: to identify problems hampering the green recovery; to identify key policy challenges; and to put forward key policy priorities for Albania and for the region (Figure 15.1).
Figure 15.1. Towards a green recovery in Albania and the Western Balkans
Note: Purple = policy actions developed by peer-learning participants. Orange = policy actions suggested by the OECD.
Source: OECD peer-learning workshops.
Albania’s energy sector differs significantly from other Western Balkan economies. Most notably, Albania relies almost entirely on hydropower for electricity generation, which accounts for 99.5% of domestically generated supply (Eurostat, 2021[1]). As hydropower output is subject to variability reflecting fluctuating rainfall patterns, Albania imports about one-third of electricity consumption from neighbouring countries (INSTAT, 2021[2]). The high share of hydropower for electricity generation means Albania performs well in terms of energy efficiency and greenhouse gas (GHG) emissions: its energy intensity (2.5 GJ/USD 1 000 2015 PPP in 2019) is below the regional average (4.6 GJ/USD 1 000 2015 PPP) and the EU average (3.8 GJ/USD 1 000 2015 PPP in 2019). In fact, it is the lowest in the Western Balkan region (IEA, 2021[3]). Albania has the lowest per-capita carbon dioxide (CO2) emissions in the Western Balkan region and in Europe. In 2018, its per-capita CO2 emissions were only 1.5 t CO2, against a regional average of 4.4 t CO2 and an EU average of 6.1 t CO2. In relation to economic output, however, Albania’s GHG emissions (0.27 t CO2 per unit of GDP [2015 USD]) remain above the EU average (0.16 t CO2 per unit of GDP) (IEA, 2021[3]).
Albania has an excellent basis to forge ahead on a green recovery path, reflecting remarkable progress in recent years across different dimensions. Albania adopted a Law on Climate Change in 2020 and Albania was the first Western Balkan economy to adopt its National Energy and Climate Plan (NECP) in December 2021. Albania further adopted an enhanced Nationally Determined Contribution (NDC) in preparation of the 26th Conference of Parties to the UN Framework Convention on Climate Change (COP26) in 2021, including a more ambitious GHG emission reduction target. Albania has had a Law on Energy Efficiency since 2015, to which ambitious amendments were recently introduced to include additional energy efficiency measures. In 2017, Albania was one of the first Western Balkan economies to introduce renewable auctions for solar and wind energy (based on a contract-for-difference variable premium).
To ensure a fully green recovery, Albania must now tackle a set of important challenges that remain. In Albania, energy and climate policies are not sufficiently prioritised, and policy implementation frequently lags. Monitoring of air quality is insufficient, and Albania lacks a GHG monitoring, reporting and verification mechanism. Several factors hamper investment in solar and wind power: difficult access to financing; low public awareness of the benefits of renewables; and a shortage of people with relevant skills. Additionally, Albania’s net-metering and contract-for-differences schemes are yet not operational. Recent roll-out of small hydropower plants (SHPP) are reportedly damaging the environment, due to poor planning and monitoring as well as failure to comply with environmental standards. Gaps remain in Albania’s legal and institutional framework for energy efficiency in buildings, and there are persistent financial, legal and social obstacles to energy efficiency improvements. Poor and outdated public transport and old passenger vehicles generate high levels of air pollution, particularly in urban areas (Figure 15.1). These issues reflect policy challenges raised by participants from Albania during the green recovery peer-learning workshop.
Eight policy priorities have great potential to ensure a green recovery in Albania, with energy efficiency improvements in buildings being the first-order priority. These eight policy priorities seek to address issues raised by participants from Albania at the green recovery peer-learning workshop:
Set incentives and create enabling conditions for energy efficiency improvements in buildings (peer-learning priority)
Complete legal and institutional frameworks for energy efficiency in buildings, and fully implement existing legislation (peer-learning priority)
Prioritise implementation of energy and climate policies
Improve monitoring of air quality
Finalise and fully operationalise policy and support frameworks for renewables
Create the enabling conditions for investment in renewables
Improve monitoring, planning and environmental standards for SHPPs, and re-evaluate remaining subsidies for SHPPs
Improve, modernise and decarbonise the transport system
This chapter is divided into nine sections. Sections 15.1 to 15.8 provide policy implications across the eight policy priorities through a prism of challenges specific to Albania. Section 15.9 provides indicators against which progress in policy implementation can be measured. This chapter is complemented by the regional chapter (Chapter 14), which provides more specific policy options based on international practice that may be applied, with necessary adaptations, also to Albania.
15.1. Set incentives and create enabling conditions for energy efficiency improvements in buildings in Albania
High energy consumption in residential and public buildings was highlighted by peer-learning participants as one of the key issues that needs to be addressed in Albania. In 2019, the residential sector accounted for 24% of final energy consumption in Albania; in 2018, this sector accounted for 53% of electricity consumption. At present, solar and wind energy account for only 2% of residential energy consumption (IEA, 2021[3]). For space heating, Albania relies mainly on electricity (45.8%), fuel wood (35%) and oil products (19.3%), with liquefied petroleum gas (LPG) holding the major share of the latter (Figure 15.2). Many Albanian homes are only partially heated – meaning for just a few hours per day. Continued reliance on traditional biomass burnt in outdated woodstoves results in numerous environmental and health problems. According to Albania’s residential and public building typologies,1 all residential and public buildings constructed prior to 2010 completely lack insulation (Regional Environmental Centre, 2015[4]; Regional Environmental Center, 2016[5]).
The need to renovate public buildings, in combination with providing incentives to stimulate renovation of households and businesses, was stressed by peer-learning participants (Box 15.1). Tax or financial incentives could encourage more households and businesses in Albania to invest in energy efficiency improvements. In Bosnia and Herzegovina, the cantons of Tuzla and Sarajevo have used such an approach, subsidising investments in energy efficiency improvements in residential and commercial buildings to encourage replacement of coal-fired boilers with certified boilers and heat-pumps and/or installation of renewables for self-consumption (UNDP Kosovo, 2021[6]). Raising sufficient financial resources is an important pre-condition to increasing energy efficiency investment in public buildings and to introducing financial incentives for energy efficiency improvements in residential and commercial buildings.
Albania requires a financing framework and a strategy to raise sufficient financial resources for energy efficiency improvements in buildings. An estimated EUR 2.3 to 2.7 billion is needed for energy efficiency improvements in Albania’s building sector until 2030 (Regional Environmental Centre, 2015[4]; Regional Environmental Center, 2016[5]). At present, Albania lacks a relevant financing framework and the Energy Efficiency Fund stipulated in Albania’s 2015 Law on Energy Efficiency has yet to be established (Energy Community Secretariat, 2021[7]). It would be important to operationalise this fund as soon as possible. Lack of knowledge on the specificities of energy efficiency improvements makes financial institutions in Albania reluctant to provide financing.
Figure 15.2. For space heating, Albania is more reliant on electricity and oil/petroleum products than other Western Balkan economies – and less reliant on renewables and waste (mainly fuelwood)
Source: Eurostat (2021[1]), Eurostat (database), https://ec.europa.eu/eurostat/.
A mechanism is needed to allow those in informal housing to benefit from financial support for energy efficiency improvements, a step beyond the identified peer-learning priorities. Informal housing is widespread in Albania. Currently, the economy lacks a formalisation procedure for self-constructed, informal housing, which would be a prerequisite for financial support for energy efficiency improvements in these buildings (Andoni, 2015[8]).
Raising awareness on and establishing effective incentives for energy efficiency improvements should be high on the policy agenda. Lack of awareness on the costs and benefits of energy efficiency improvements is problematic in Albania.2 A lack of technical expertise also hampers progress on energy efficiency improvements.
To facilitate energy efficiency improvements for multi-apartment-buildings, Albania needs to consider reforming regulations. Some 43% of residential buildings in Albania are multi-apartment buildings, compared with a Western Balkan average of 39% (Energy Community Secretariat, 2021[9]). In multi-apartment-buildings, decisions on energy efficiency improvements need to be made collectively but achieving consensus in homeowner associations often proves to be difficult. Furthermore, split incentives exist in the rental market: since tenants pay the energy bills, property owners do not receive any direct benefits from investing in energy efficiency measures. In addition, access to financing for energy efficiency improvements in multi-apartment buildings is a challenge, partly because the creditworthiness of homeowner associations is low. Homeowner associations in Albania lack reserve funds for energy efficiency improvements (Regional Environmental Center, 2016[5]). Albania should make it mandatory for homeowner associations to establish funds for energy efficiency improvements, and could introduce an obligation for such improvements when these buildings are renovated. To address the funding challenge in the near term, financial resources could be secured through government loan guarantees or other financial incentives.
Box 15.1. Outcomes of the green recovery peer-learning workshop (Albania)
Participants from Albania (representing government, the private sector and civil society) at the OECD green recovery peer-learning workshop identified enhancing energy efficiency in buildings as the top priority. They specifically noted the need to start with old public buildings. Across the sector, they suggested an aim of 2% of buildings being retrofitted each year, as well as an action plan to complement current policy efforts. More specifically, peer-learning participants suggested three overarching actions with corresponding monitoring indicators (Table 15.1).
Table 15.1. Enhance energy efficiency in buildings, starting with old public buildings (2% of buildings retrofitted each year)
Action plan and monitoring indicators
Source: OECD peer-learning workshops.
Peer-learning participants from Albania stressed the need for an effective institutional framework and a financing mechanism for energy efficiency, and for efforts to raise awareness. Appointing a responsible institution for energy efficiency is a key action; the importance of involving both central and local governments was noted, along with fostering collaboration with the business community. To secure financing for energy efficiency, peer-learning participants suggested creating a dedicated energy efficiency fund and seeking financial support from international financial institutions (IFIs). Awareness campaigns and education on the benefits and importance of energy efficiency could be launched in schools, through NGOs and through business associations.
Source: OECD peer-learning workshops.
15.2. Complete the legal and institutional framework for energy efficiency in buildings, and fully implement existing legislation
Albania has already taken measures to improve energy efficiency in buildings. In 2015, Albania adopted a new Law on Energy Efficiency (No. 124/2015), which established the Agency for Energy Efficiency and set out the aim to establish an Energy Efficiency Fund (which has not yet been done). The law further stipulates the adoption of an Energy Efficiency Action Plan, including specific targets. The mandate of the Energy Efficiency Agency includes implementing the Energy Efficiency Action Plan, and creating and regularly updating a national database on energy efficiency, which should contain data on final energy consumption and energy savings. The law obliges all entities applying for programmes financed by the Energy Efficiency Fund to appoint energy managers and to undertake energy audits every three years (UNECE, 2018[10]). Albania’s Parliamentary Committee on Production Activities recently approved amendments to the Law on Energy Efficiency. Starting from 01 September 2021, the public sector must renovate a minimum 3% of the total public buildings stock annually to meet the minimum energy performance standards (MEPS). All municipalities are required to draft energy efficiency action plans at the local level. Large energy consumers, following energy audits, have to draft action plans designed to reduce electricity consumption by at least 4% (Balkan Green Energy News, 2021[11]).
Going forward, Albania should accelerate implementation of the Law on the Energy Performance of Buildings. This law was established in 2016; however, by-laws for its implementation (e.g. setting MEPS) and new labelling regulations (e.g. certification of buildings) have not yet been adopted (Energy Community Secretariat, 2021[7]).
Completing Albania’s legal framework for energy efficiency improvements in buildings is also important. The government has already drafted several amendments transposing EU Directive 2012/27/EU on Energy Efficiency (EED), but again these have not been adopted. Albania has not yet updated its National Energy Efficiency Action Plan (NEEAP), which expired in 2019, as required by the reporting obligations of the EED (Energy Community Secretariat, 2021[7]).
Albania has both residential and public building typologies. In the context of the Support for Low-Emission Development in South Eastern Europe (SLED) project, Albania prepared a residential building typology in 2015 and a public building typology in 2016. Both typologies include a classification of existing buildings according to age, size and other parameters, a set of existing building types, estimates of energy consumption for each type, and calculations and scenarios for energy efficiency improvements and savings. The residential building typology includes three scenarios for improving energy efficiency in buildings. A calculation methodology for cost-optimal levels of energy performance of buildings was adopted in July 2020 (Regional Environmental Centre, 2015[4]; Regional Environmental Center, 2016[5]).
Improving co-ordination of energy efficiency policies is vital. This was also stressed by the peer-learning participants from Albania (Box 15.1). At present, energy efficiency policies directed at the buildings sector are not centralised at one institution. Co-ordination between local and central levels of government needs to be improved. Energy efficiency policies could, for example, be centralised at Albania’s Agency for Energy Efficiency.
15.3. Prioritise implementation of energy and climate policies
Going forward, a stronger focus on implementing energy and climate policies is important for Albania. Several strategic documents on energy and climate policies have already been adopted (e.g. the National Climate Change Strategy and the the National Energy and Climate Plan [NECP]). Albania recently revised its GHG emissions reduction target. Overall, however, the economy is not yet sufficiently focusing on implementation of such policies (Energy Community Secretariat, 2020[12]).
Albania has set a target to reduce GHG emissions through an inclusive process. In its enhanced NDC under the Paris Agreement, Albania committed to reduce GHG emissions by 20.9% by 2030 compared with business as usual. In its first NDC, Albania had committed to reduce CO2 emissions by 11.5% between 2016 and 2030 compared with the baseline scenario (Republic of Albania, 2016[13]). The enhanced NDC covers gases other than CO2 (e.g. methane [CH4], nitrous oxide [N2O], and fluorinated GHGs [F-gases]) that were not included in the first NDC (Republic of Albania, 2021[14]). In 2019, Albania joined the NDC Partnership – a global initiative to help countries achieve their national climate commitments and ensure financial and technical assistance is delivered as efficiently as possible. The NDC Partnership and the United Nations Development Program (UNDP) supported Albania in the process of revising its NDC in preparation for the 26th Conference of the Parties (COP26) to the UN Framework Convention on Climate Change (UNFCCC), as part of Albania’s commitments under the National Climate Agenda and the Sustainable Development Goals (SDGs). For the first time, public consultations allowed youth to be involved in the process of revising the NDC (NDC Partnership, 2021[15]).
Albania has already adopted several strategic documents to facilitate implementation of energy and climate policies. Albania adopted its NECP 2021 – 2030 in December 2021 (Energy Community Secretariat, 2022[16]). International donors and experts support the preparation of the analytical basis of the Albanian NECP (Energy Community Secretariat, 2020[12]; Energy Community Secretariat, 2021[17]). Albania finalised the first Biennial Update Report (1BUR) to fulfil reporting obligations under the UNFCCC in 2021 (expected since 2014) and submitted the report to the UNFCC Secretariat. Albania is currently preparing the Fourth National Communication (4NC) to the UNFCCC (Energy Community Secretariat, 2021[18]).
It is important to fully implement Albania’s Law on Climate Change and other strategic documents. Albania’s parliament adopted a Law on Climate Change in December 2020. This law provides the legal basis for submitting Albania’s NDC to the UNFCCC and aims to integrate mitigation and adaptation policies into Albania’s legislation, strategic documents and policies. The law also creates a comprehensive legal and institutional framework for climate action at the national level. In 2019, the government endorsed the National Climate Change Strategy – a low carbon-development strategy for implementing the Paris Agreement.
Establishing a GHG monitoring, reporting and verification mechanism needs to be an integral part of the green recovery process. Albania’s Law on Climate Change includes provisions on the monitoring, reporting and verification of GHG emissions, but no such mechanisms have been put in place. Albania’s newest GHG inventory is for the 2010-16 period (part of the first Biennial Udpate Report published in 2021) (Ministry of Tourism and Environment, 2021[19]). A GHG monitoring, reporting and verification mechanism is key to gain accurate information on GHG emissions and constitutes the basis for transposing and implementing the EU Emission Trading Scheme (EU ETS) Directive. It is also the legal basis for the adoption of Albania’s NECP for the period 2021-30.
Enhancing collaboration with the private sector, civil society and academia is important in the design and implementation of energy and climate policies. An institutionalised, public-private dialogue on economic policy, including energy and climate policies, exists in Albania. The National Economic Council (NEC) ensures dialogue and consultation between the government and the private sector through periodic meetings and the provision of comments on draft laws and other strategic and policy documents. The NEC also facillitates private sector suggestions and proposals through its official website and through the set-up of temporary sub-committees to discuss specific issues. The NEC’s private sector members include 26 registered business associations (Varfi, 2015[20]). However, at present, the NEC does not include representatives from civil society and academia. The NEC further covers a wide range of topics beyond energy and climate policies.
Albania has already taken steps to improve access to information and public participation in policy making on environment, energy and the climate. Albania transposed important elements of the Aarhus Convention3 into its legislation through two legislative frameworks: the 2014 Law on the Right to Information and the 2015 Law on Notification and Public Consultation (The Assembly of the Republic of Albania, 2014[21]; The Assembly of the Republic of Albania, 2014[22]). Adopted on 25 June 1998 at the Fourth Environment for Europe Ministerial Conference in the Danish city of Aarhus, the Aarhus Conventions aims to empower the citizens and civil society organisations (CSOs) in environmental matters by establishing several rights for each group with regard to the environment (UNECE, 2021[23]). The Law on the Right to Information aims to promote integrity, transparency and accountability of public authorities, and lays out fines and appeal procedures against administrative sanctions. The Law on Notification and Public Consultation lays out a public transformation process for draft laws and strategic and policy documents.
15.4. Improve the monitoring of air quality
Air pollution in Albania is lower than in other Western Balkan economies, but remains a challenge in comparison to international benchmarks. While the World Health Organization (WHO) recommends a maximum annual average PM2.5 air pollution of 10 µg/m3 (EEA, 2019[24]), the average in Albania was 18.6 µg/m3 in 2017, compared with 25.8 µg/m3 in the Western Balkan region and only 12.5 µg/m3 in the European Union. Among 41 European countries, Albania ranks third (after Kosovo and Serbia) in terms of years of life lost per 100 000 inhabitants due to PM2.5 air pollution. This estimation is based on 2016 data, since Albania has not submitted more recent data to the EEA on time, due to a lack of functional air quality monitoring (EEA, 2020[25]). Sources of air pollution in Albania include oil and gas extraction, inefficient technologies for household heating, cement production, and vehicle emissions (transport). Transport is the main contributor to air pollution in Tirana (City of Tirana, 2018[26]).
Albania has a solid legal framework on air quality but gaps remain in air quality monitoring. The Law on the Protection of Ambient Air Quality No. 162/2014, along with subsequent amendments and by-laws, defines the responsibilities of competent authorities. These policies also regulate the publication of information on air quality and provide the legal basis for air quality assessments, actions to reduce air pollution and development of air quality plans – including public participation in these processes. Albania has a National Strategy on Ambient Air Quality (DCM No. 594 from 2014) and approved the National Action Plan for Ambient Air Quality Management in June 2019. The latter plan mostly focuses on measures to reduce transport air pollution and does not direct resources to improving the air quality monitoring system.
Albania should establish additional air quality monitoring stations and ensure regular maintenance of new and existing stations. Air quality monitoring is not functional in Albania (European Commission, 2020[27]). In 2013, two monitoring stations were installed within the urban area of Tirana, but they are insufficient to monitor air quality across the entire city area and in all sensitive areas (most importantly, hot spots from heavy traffic) (City of Tirana, 2018[26]). At the time of writing, lack of funding meant that air quality monitoring equipment was not being maintained and calibrated, and all air quality stations had been turned off (European Commission, 2020[27]). Better air quality monitoring would allow Albania to identify how different sources contribute to overall air pollution, which would support the design of more informed and effective policies to reduce air pollution. It is also important to regularly share information on air quality with the public and make this information easy to access.
Increasing human and financial resources dedicated to air quality monitoring would also be important (European Commission, 2020[27]). Albania lacks financial resources to invest in additional air quality monitoring stations and to carry out regular maintenance of existing stations (European Commission, 2020[27]). Within the Ministry of Tourism and Environment, the number of employees responsible for environmental issues is insufficient to carry out main aspects of its mandate, such as: developing the policy and legal framework for air quality management; inter-institutional and international co-operation; and the daily management of activities to ensure adequate air quality management. This explains why Albania’s Strategy on Ambient Air Quality from 2014 and Plan for Air Quality Management from 2019 were drafted with the help of an NGO called Strengthening Environmental Legislation Albania (SELEA) and the EU-funded project Technical assistance for institution building of the Ministry of Environment in enforcing environmental and climate acquis – Albania (IBECA).4
15.5. Finalise and fully operationalise Albania’s policy and support framework for renewables
The use of solar power is more widespread in Albania than in other Western Balkan econmies but remains limited. In 2019, photovoltaic (PV) solar power generated 0.4% of electricity in Albania compared with 0.2% on average across the region. In 2018, solar thermal energy accounted for 0.6% of final energy consumption in Albania (against 0.1% on average in the region) and for 1.6% of residential energy consumption (against 0.1% in the region). Solar thermal energy amounted to 2.4% of commercial and public energy consumption in Albania compared with 0.6% as the regional average (IEA, 2021[3]).
Albania has potential to scale up solar and wind power for electricity generation, for heating and cooling, and in the transport sector. Albania is among the European countries with the highest number of sunshine hours per year and has the highest potential for solar energy in the Western Balkan region (Figure 15.3) (ESMAP, 2020[28]). Solar irradiation in most of Albania is more than 1 500 kWh/m2 annually (about 4.2 kWh/m2 a day), with peaks of 1 753 kWh/m2 (4.8 kwh/m2 a day), particularly in Western Albania. On average, Albania enjoys 220 sunshine days (2 700 hours of sunshine) per year (IRENA, 2021[29]). It is also endowed with high wind speeds. In many locations, solar PV, thermal solar for heating and onshore wind are cost-competitive.
Figure 15.3. Albania has the highest potential for solar energy in the Western Balkan region
Note: Theoretical PV potential is calculated using global horizontal irradiation (GHI, measured in kWh/m2/day), the long-term amount of solar resource available on a horizontal surface on Earth.
Source: ESMAP (2020[28]), Global Photovoltaic Power Potential by Country, https://globalsolaratlas.info/global-pv-potential-study.
Albania adopted a legal framework (in 2017) for the use and promotion of renewable energies. Albania’s Law on the Promotion of the Use of Energy from Renewable Sources No. 7/2017 provides the framework for defining national renewable energy targets and incentive schemes to support roll-out of renewable energies, including a net metering scheme, a contract-for-difference scheme and feed-in tariffs (FiTs). This law obliges all renewable energy producers to submit data on annual production (The Assembly of the Republic of Albania, 2017[30]). Albania’s Economic Recovery Programme (ERP) 2021-2023 aims to diversify the energy supply by promoting renewable energy sources and energy efficiency improvements (Republic of Albania - Council of Ministers, 2021[31]).
The Law on the Promotion of the Use of Energy from Renewable Sources introduces a contract-for-difference variable premium (feed-in premium) and a fixed purchase price (FiT) for renewables, set by the regulator. Large renewable energy facilities (capacity above 2 MW for electricity generation, above 3 MW for wind power and above 15 MW for hydropower) benefit from the contract-for-difference variable premium. Small renewable facilities (below 2 MW for electricity generation and below 3 MW for wind power) benefit from a fixed purchase price set by the Regulatory Agency (ERE).5 The fixed purchase price for small renewable facilities takes into consideration a reasonable return on investment.6 Starting in 2021, concessions and the FiT for SHPPs above 2 MW were suspended due to the negative impact such plants have the environment and local communities. However, hydropower projects can still compete in auctions and benefit from contract-for-difference support (The Assembly of the Republic of Albania, 2017[30]; Energy Community Secretariat, 2020[12]).
Fully operationalising Albania’s contract-for-difference scheme requires the signature of power purchasing agreements (PPAs) and the introduction of a day-ahead market. The first renewable energy auctions under Albania’s contract-for-difference scheme (feed-in premium) were organised in November 2018. Albania auctioned a tender for a 50 MW solar park to be built on the Akërni salt flats, near Vlorë. The auction went to Indian Power.7 Following the second auction (in July 2020), the Albanian government and Voltalia (a French renewable energy company) signed a contract for construction of the Karavasta Photovoltaic Park -- at a record-low price of EUR 24.89/MWh (about 40% below the maximum price of EUR 55.00/MWh, set by the Albanian government)8 (PV Magazine, 2020[32]). In June 2021, Albania launched its first tender for large-scale onshore wind power plants. Individual projects with capacities between 10 MW and 75 MW can apply for a total tendered capacity of 100 MW (Ministry for Infrastructure and Energy, 2021[33]). More auctions for construction of large-scale solar and wind projects are envisaged for the period 2021-23. However, PPAs with the winning consortia of solar auctions held since 2018 remain to be signed. In turn, Albania’s day-ahead market needs to be operationalised to support full implementation of the contract-for-difference scheme (Energy Community Secretariat, 2020[12]).
Following the introduction of incentives in 2017, Albania’s solar and wind energy capacities have started to increase, but remain low overall. At the end of 2020, Albania had 1 MW of solar energy installed; in the first half of 2021, three small solar parks (combined capacity of 2 MW) were connected to the grid. Albania has plans to operationalise another 50 MW of utility-scale solar energy in 2021 (from the solar plant constructed near Vlorë). Small-scale rooftop PV remains largely inexistent, meaning signficant potential remains untapped (European Commission, 2019[34]; Energy Community Secretariat, 2021[17]). Croatia, which has similar solar and wind power potential, provides a successful example of having increased its capacities for both technologies since 2004, when the first wind farm was established. As a consequence of generous financial incentives, wind power production increased from 0.067 TWh in 2010 to 1.01 TWh in 2016 (Institute of Public Finance, 2018[35]). Use of solar energy has also increased considerably, particularly in coastal cities. Croatia’s total installed solar PV capacity increased from 0.3 MW in 2010 to 84.8 MW in 2020 (IRENA, 2020[36]).
Fully operationalising Albania’s net metering scheme and introducing incentives for solar heating and cooling are also important. In the context of Albania’s net metering scheme, small- and medium-sized enterprises (SMEs) and households can install up to 500 kW of solar or wind power capacity to supply their own electricity needs. The scheme also allows them to sell any surplus electricity produced to the universal service supplier for introduction into the distribution grid. Electricity consumers need to install, at their own expense, a bidirectional meter. The surplus electricity is sold to the universal service supplier on a monthly basis at a price defined by ERE. By March 2021, ERE had not yet defined this price. According to Law 7/2017 on the Promotion of the Use of Energy from Renewable Sources, the Ministry of Infrastructure and Energy is mandated to introduce a simplified procedure for issuing authorisations for connecting small-scale renewables to the electricity grid – but has not done so yet. Albania still lacks an incentive scheme for solar heating and cooling.9
15.6. Create the enabling conditions for investment in renewables in Albania
Scaling up solar and wind power in Albania requires strategic use of hydropower reservoirs, to complement intermittent renewables. Whereas hydropower is sensitive to the availability of water resources and rainfall patterns, the storage potential of hydropower dams provides significant potential for complementarity with intermittent sources of renewable energy such as sun and wind. At present, Albania relies on electricity imports (equal to 30% of domestic consumption in 2019) from neighbouring economies to complement electricity production from hydropower (INSTAT, 2021[2]). A significant share of these imports could be replaced by domestically produced solar and wind energy. To reliably balance large fluctuations in the electricity supplied from solar and wind power, Albania will need to develop a strategy for delivering dispatchable hydroelectric power during periods of little wind and when the sun does not shine, as well as maintaining good interconnectivity with neighbouring economies for additional flexibility. Contary to other Western Balkan economies, the energy storage potential of hydropower dams allows Albania to solve the challenge of delivering baseload energy to complement intermittent renewables.
Improving access to finance for renewables is critical. High upfront investment costs and relatively high cost of capital in Albania have the effect of deterring wider uptake of renewables. The high cost of capital reflects a perception that renewable energy projects are higher risk than conventional energy projects. Country-level political and off-taker risks make investment risks seen as higher in the Western Balkan region than in the rest of Europe, which contributes to a substantial risk premium. As PPAs are exposed to local currency fluctuations, a third layer of risk comes into play. Risk is further amplified by the non-respect of environmental standards by several hydropower projects in the recent past. These perceptions of high risk tend to drive up collateral requirements for renewable energy projects (often 150% of the loan) while project assets are often not accepted as collateral. To improve acess to finance renewables, effort is needed to improve local financial institutions’ understanding of renewable energy technologies and the financial frameworks for their deployment. The government also needs to standardise project documentation for investments in renewables and strictly monitor project compliance with environmental and other standards (IRENA, 2021[29]).
Improving the skills in demand for installation of renewable energy equipment is a pre-requisite to facilitating more investment in renewables. Human resources, adequately skilled and locally available to work on various parts of the renewable energy value chain, are crucial to support expansion of Albania’s renewable energy sector. Lack of such resources is reported by the private sector as a main hindrance to investment in renewable energies. Albania currently lacks renewable energy curricula at vocational, technical and tertiary education institutions. In particular, a shortage of qualified solar PV installers and energy auditors is noted, with the latter particular affecting installation of solar PV net-metering systems in new buildings. In Albania, before a net-metering system can be approved and installed, it is necessary to determine the building’s energy consumption for the preceding two years. If historic data are not available (e.g. for newly constructed buildings), an energy auditor needs to estimate the building’s energy consumption patterns. The shortage of energy auditors means the approval of net-metering systems can be difficult, with long delays of approvals. Albania should evaluate skills needs in the energy sector, develop a strategy to generate those skills that are lacking, and ensure government institutions in charge of energy policy making and education collaborate closely witih the private sector and civil society (IRENA, 2021[29]).
Some initiatives are underway to create and modernise tertiary and technical renewable energy curricula in Albania. The project Engineering curricula modernisation in renewable energy in Albanian Universities (ENGINE), co-funded by the Erasmus+ Programme of the European Union and led by Polytechnic University, brings together 11 partners. The project aims to modernise and internationalise both vocational eduction and trainng (VET) and Bachelor curricula in renewable energy engineering in targeted universities while aligning curricula with labour market demand (Engine Project, 2021[37]).
15.7. Improve monitoring, planning and environmental standards for SHPPs and re-evaluate remaining subsidies for SHPPs
Albania has a large number of SHPPs, with estimates ranging from 186 to 714 (WWF Adria/Eco-Albania research team, 2020[38]; CEE Bankwatch Network, 2019[39]). While 83.7% of electricity generated from hydropower originates from large state-owned plants, the share of 16.3% from small, privately owned hydropower plants (<15 MW) is notable (CEE Bankwatch Network, 2019[39]).
Regular EIAs are required to improve monitoring, planning and environmental standards for the construction of SHPPs. At present, SHPPs often do not undergo any type of EIA in Albania. As most SHPPs comprise a dam and a reservoir, these structures tend to affect land use, homes and natural habitats in the surrounding area. Many SHPPs lack fish passes, and thus obstruct fish migration and drive down fish populations. Operating a hydroelectric power plant – even a small one - can also change the water temperature and the river’s flow. Reservoirs may cover people’s homes, important natural areas, agricultural land and archaeological sites. Methane, a strong GHG, may also form in some reservoirs and be emitted to the atmosphere (USGS Science for a Changing World, 2018[40]). SHPPs also reduce water availability for other uses for local communities. For example, an SHPP in the Quarishte and Rapuni rivers led to a shortage of water for irrigation and limited water availability for a cornflower mill used by local residents. As in the case of the Ternove hydropower plant close to the city of Bulqize, SHPPs can also cause deforestation and soil erosion (CEE Bankwatch Network, 2017[41]). Albania should ensure all SHPPs undergo EIAs prior to construction and carefully monitor fish passes and other environmental impacts.
In addtion, careful evaluation of those subsidies for small hydropower plants which remain in place needs to determine whether those subsidies are justified. Even though feed-in-tariffs for new SHPP were discontinued in 2021, hydropower plants above 15MW can still benefit from feed-in-premiums and existing SHPPs will continue to benefit from feed-in tariffs for at least ten more years. Feed-in-tariffs for SHPPs in Albania are set 30% above the base price (the price on the Hungarian power exchange) and the amount of subsidies for SHPPs (the payments above the base price only) amounted to EUR 27 million in total in 2019. Thus, SHPPs will receive at least EUR 270 million in subsidies going forward, probably more since there have been new investments in SHPPs before 31 December 2020 (WWF Adria/Eco-Albania research team, 2020[38]).
15.8. Improve, modernise and decarbonise Albania’s transport system
Albania’s transport sector is very energy-intensive and polluting. In 2019, this sector accounted for 40.7% of final energy consumption – the highest share in the Western Balkan region and above the EU average (31.3%) (Figure 15.4). Some 87% of fuels used in Albania’s transport sector are oil products; 13% are biofuels and waste (IEA, 2021[3]). In 2005, Albania’s transport sector accounted for 23.5% of total GHG emissions, with data showing a rising trend to 25.5% in 2009 (latest data available). At 97.5%, road transport accounts for, by far, the largest share of transport GHG emissions (Republic of Albania, 2016[42]).
Figure 15.4. The transport sector accounts for a larger share of final energy consumption in Albania than in other Western Balkan economies
Source: Eurostat (2021[1]), Eurostat (database), https://ec.europa.eu/eurostat/.
Promoting the use of newer and less-polluting passenger cars is a key action point for Albania. People in Albania rely heavily on second-hand passenger cars for transport. As incomes rise, many people make it a priority to acquire a car. In fact, the number of passenger cars almost quadrupled, from 114 532 in 2000 to 436 013 in 2016 (UNECE, 2018[10]). The average age of cars in the capital city Tirana is 13 years (German Cooperation et al., 2020[43]), compared with an EU average of 11.5 years (ACEA, 2021[44]). Some 60% of newly registered cars in Albania are estimated to be second-hand cars from other countries, mainly from Italy (UNECE, 2018[10]).
Albania should modernise and upgrade its railway system to help reduc transport emissions. Rail transport in Albania is neglected: the railway network has not benefited from any major overhaul since its construction, which started in 1947. It currently only allows for travel speeds below 60 km/h. It has not been electrified and its telecommunication and signalling system is obsolete, causing frequent interruptions in traffic. The capital of Tirana has no rail service due to the poor state of the system overall and to renovation works. Electrification of Albania’s main railway line between Tirana and the main port, Durres, is of vital importance (WIBF, 2021[45]; UNECE, 2018[10]).
Likewise, modernising and decarbonising Albania’s urban public transport system would also be important. The state of urban public transport in Albania, particularly in Tirana, is poor. With light rail and trams non-existent, public transport in Tirana relies entirely on buses. The service frequency and quality of vehicles have been improved, but buses remain overcrowded and the number of dedicated bus lanes is limited. Segregated busways and interchange nodes for buses are also lacking. Connections between central Tirana and the outskirts – in many cases, populated by informal migrants – are often poor (German Cooperation et al., 2020[43]). In this context, there is a need to promote non-motorised transport modes while also electrifying and improving the efficiency of public transport.
Several strategic documents aim to improve Albania’s transport system. The Sustainable Urban Mobility Plan for Tirana – a particular hotspot of traffic congestation and air pollution – was completed in July 2020 and has a vision for mobility in of the city to 2030. A key focus is expanding the coverage and capacity – while improving performance and attractiveness – of public transport (German Cooperation et al., 2020[43]). Albania also has a National Transport Plan, the second review of which was adopted in January 2020. A range of measures to improve public transport systems were included in Albania’s latest (2016) UNFCCC report. Importantly, Albania aims to: rehabilitate existing roads and construct new roads; increase the share of public transport for passengers and freight transport (road, railway and waterways); increase taxes for newly registered, second-hand cars; and develop an integrated, intermodal transport system (land, road and sea) through public-private co-operation (Republic of Albania, 2016[42]). Albania’s Economic Reform Plan 2021-2023 includes several measures to improve the transport system. Two key aspects are a feasibility study for installing charging stations for electric vehicles (EVs) and plans to electrify urban and inter-city transport lines in Tirana, Vlora and Durres (Republic of Albania - Council of Ministers, 2021[31]).
15.9. Indicators to monitor overall policy progress in Albania
To monitor progress in implementing policies for a green recovery in Albania, the OECD suggests a set of key indicators, including values for Albania and benchmark countries (either the OECD or EU average, based on data availability; data from Croatia are the benchmark for the number of renewable self-consumers per 100 000 population) (Table 15.2).
Table 15.2. Indicators to monitor progress in implementing policies in Albania
2019, unless otherwise specified
Note: *2021, **2020, ***2018, ****2017, *****2016. aOECD, bEU, cCroatia.
Source: Eurostat (2021[1]), Eurostat (database), https://ec.europa.eu/eurostat/; IEA (2021[3]), Data and statistics, www.iea.org/data-and-statistics; EEA (2019[46]), Air quality in Europe — 2019 report, www.eea.europa.eu/publications/air-quality-in-europe-2019; Energy Community Secretariat (2021), www.energy-community.org/regionalinitiatives/WB6/Tracker.html; Miljevic (2020[47]), Investments into the past, https://energy-community.org/dam/jcr:482f1098-0853-422b-be93-2ba7cf222453/Miljevi%25C4%2587_Coal_Report_122020.pdf; Miljević, Mumović, Kopač (2019[48]), Analysis of Direct and Selected Indirect Subsidies to Coal Electricity Production in the Energy Community Contracting Parties, https://www.energy-community.org/dam/jcr:ae19ba53-5066-4705-a274-0be106486d73/Draft_Miljevic_Coal_subsidies_032019.pdf; Slok, M. (2021[49]), Incentives and challenges in promoting self-consumption - The case of Croatia, www.energy-community.org/; World Bank (2021[50]), World Development Indicators (database), https://databank.worldbank.org/source/world-development-indicators.
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Notes
← 1. Building typology refers to the study and documentation of sets of buildings classified by similarities in their type of function or form.
← 2. Information from fact-finding in Albania from expert consultants from CENER21.
← 3. The UN Economic Commission for Europe [UNECE] Convention on Access to Information, Public Participation in Decision-Making and Access to Justice in Environmental Matters.
← 4. Information from fact-finding in Albania from expert consultants from CENER21.
← 5. The variable premium paid to renewable energy producers under the contract-for-difference scheme is the difference between the tariff under which the renewable energy producer was declared successful in the competitive tender process (auction) (the strike price) and the market price for electricity (the reference price).
← 6. In 2017, ERE set this price at EUR 10.00/MWh for solar energy and EUR 76.00/MWh for wind power. In 2019, ERE changed these prices to EUR 71.20/MWh for solar energy, EUR 100.025/MWh for floating PV solar plants and EUR 61.00/MWh for existing hydropower priority producers.
← 7. Half of the electricity generated from this project will be sold to a local distributer at EUR 59.90/MWh for 15 years; the rest will be sold on the retail market.
← 8. Half of the plant’s 140 MW capacity will be contracted through the support scheme for 15 years at a price of EUR 24.89/MWh; half of the output is to be sold on the free market.
← 9. Information from fact-finding in Albania from expert consultants from CENER21.