North Macedonia has already established a significant legislative foundation for the low-carbon transition, is well advanced in the process of submitting its National Energy and Climate Plan, and submitted an ambitious enhanced Nationally Determined Contribution to the Paris Climate Agreement. Within the Western Balkan region, North Macedonia has the lowest coal subsidies; it has, however, recently stepped up production of coal and coal-fired electricity. This chapter considers how North Macedonia can follow through on its climate- and environment-related legislation and strategic documents, which has historically been a challenge. To strengthen investment in renewable energies, North Macedonia needs to increase the use of market-based support mechanisms, eliminate remaining coal subsidies and increase excise taxes on fuels. Likewise, relevant administrative procedures should be streamlined, the electricity system should be updated for more flexibility and potential investors should be better informed about investment procedures. Similarly, the support system for energy efficiency in buildings needs to be strengthened and fully operationalised.
Multi-dimensional Review of the Western Balkans
18. A green recovery in North Macedonia
Abstract
The Initial Assessment of the Multi-dimensional Review (MDR) of the Western Balkans identified a green recovery as a top policy priority for North Macedonia 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 North Macedonia and across the region in the Initial Assessment of the MDR. A high carbon-intensity in combination with low levels of energy efficiency results in considerable air pollution and greenhouse gas (GHG) emissions in North Macedonia. The share of solar and wind energy in the economy’s energy mix remains low. Building on the initial assessment, the “From Analysis to Action” phase of the project provides policy suggestions to ensure a green recovery in North Macedonia and in the other Western Balkan economies. The peer-learning workshops on green recovery served three complementary aims: identify problems hampering the green recovery; to identify of key policy challenges; and to put forward key policy priorities for North Macedonia and for the region (Figure 18.1).
North Macedonia is already in the process of making its development greener. In May 2020, North Macedonia became the first Western Balkan economy to submit its National Energy and Climate Plan (NECP) to the Energy Community for review. It subsequently adopted (in February 2020) its Energy Development Strategy 2040 and an enhanced Nationally Determined Contribution (NDC) (in May 2021), the latter of which aims to reduce GHG emissions by 30% by 2030. North Macedonia is also supporting development of renewable energies through several incentive schemes and subsidies for households. In parallel, it has been increasingly aligning its legislation on energy efficiency with EU standards and supporting – through subsidies – a small number of households in energy efficiency improvements.
To ensure a fully green recovery, North Macedonia must now tackle a set of important challenges that remain. Peer-learning workshop participants indicated three overarching areas for improvement: energy and climate policies could be given higher priority; existing legislation could be better enforced; and implementation of strategic documents could be significantly strengthened. Additionally, the private sector, civil society and academia are not yet sufficiently included in energy and climate policy making. North Macedonia also lacks a GHG monitoring, reporting and verification mechanism, and liberalisation of its energy markets remains incomplete. Subsidies for coal and low excise taxes on fuels (particularly diesel) remain challenges. Institutional, financial and technical obstacles to renewable energy development persist, and North Macedonia does not yet have appropriate incentives (particularly for vulnerable consumers) and enabling conditions for energy efficiency improvements in buildings. A shortage in important skills for scaling up renewable energies and energy efficiency improvements was also noted. Participants argued that it is important to aim for a just transition and to strengthen compensation for those who have “something to lose” through green policies such as increasing excise taxes on fuels and phasing out fossil fuel subsidies (Figure 18.1).
Figure 18.1. Towards a green recovery in North Macedonia 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.
Seven policy priorities have great potential to ensure a green recovery in North Macedonia, including decarbonisation and emissions reduction, and the most important one being to accelerate policy implementation. These policy priorities reflect the issues raised by peer-learning participants from North Macedonia during the green recovery peer-learning workshop (Box 18.1):
Make decarbonisation and emission reduction policy priorities and accelerate policy implementation (policy priority)
Do more to include academia, businesses and civil society in energy and climate policy making
Step up carbon pricing and phase out fossil fuel subsidies
Create enabling conditions for renewable energy development
Create appropriate incentives and enabling conditions for energy efficiency improvements in buildings
Implement existing energy efficiency policies and legislation
Build up the skills needed for scaling up renewable energies and energy efficiency improvements
Box 18.1. Outcomes of the green recovery peer-learning workshop – North Macedonia
The participants (representing government, the private sector and civil society) from North Macedonia in the OECD green recovery peer-learning workshop identified as the top priority the implementation (adoption) of the energy and climate package, the Nationally Determined Contribution (NDC) and other strategic and legal frameworks (e.g. Law on Energy, Long-term Strategy on Climate Action) in accordance with the National Programme for the Adoption of the Acquis Communautaire (NPAA). Participants suggested an action plan that could complement current policy efforts, identifying six specific actions with corresponding monitoring indicators and measures (Table 18.1).
Table 18.1. Implementation (adoption) of key strategy documents and legal frameworks)
Action plan, monitoring indicators and measures
Note: PM2.5 and PM10 refer to different sizes of particulate matter. SO2 = sulphur dioxide.
OECD peer-learning workshops.
In addition to these national actions, peer-learning participants from North Macedonia stressed the need for improved integration and collaboration across the region. They highlighted the importance of solidarity and goodwill to create regionally integrated energy markets, facilitate electricity flows across borders and establish an effective carbon tax. Most importantly, a set of interrelated actions should be pursued at the regional level: electricity system operators should become much better integrated and power exchanges should be established; electricity prices on the wholesale market should eventually be the same across all regional economies; and North Macedonia should increase its use of cross-border interconnectors.
Peer-learning participants also emphasised the need to raise awareness about sustainability on the consumer side while ensuring that the government commits to more inclusive energy and climate policy making in North Macedonia – including more effective communication to the public. The government and the media can play vital and complementary roles in communication campaigns that target specific groups and provide information on specific measures (e.g. installing heat pumps or reducing use of fuel wood). For energy and climate policy making, better collaboration is needed among government, the private sector, academia and civil society organisations (CSOs). For this, peer-learning participants suggested establishing a council of business representatives at the Ministry of Environment and making better use of the National Council for Sustainable Development for inter-institutional collaboration.
Finally, peer-learning participants stressed the need to step up support for vulnerable consumers by ensuring that the low-carbon transition includes a just transition plan. They encouraged the separation of economic and social subsidies and market-based energy prices in North Macedonia while highlighting the need to mitigate the impact of higher energy prices on vulnerable consumers. They also recommended extending subsidies for energy efficiency improvements – such as those for replacing wood and coal stoves with more efficient cooking and heating devices – to more households
Source: OECD peer-learning workshops.
This chapter is divided into eight sections. Sections 18.1 through 18.7 provide policy implications across the seven policy priorities identified by peer-learning participants through a prism of challenges specific to North Macedonia. Section 18.8 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 for the policy priorities based on international practice that may be applied, with the necessary adaptations, also to North Macedonia.
18.1. Make decarbonisation and emissions reduction policy priorities and accelerate policy implementation in North Macedonia
North Macedonia should make decarbonisation and GHG emissions reduction policies policy priorities and requires an ambitious strategy for coal phase out. In terms of energy and climate policies, North Macedonia has already adopted different strategic documents such as the Energy Development Strategy 2040. North Macedonia’s NECP has already been submitted to the Energy Community for review and is to be adopted soon. Implementation of strategic documents, however, has been slow. Further, North Macedonia has not yet defined an official date and a strategic vision for coal phase out, and coal excavation as well as electricity generation from coal have both been stepped up recently in the context of high and rising global energy prices. The third unit of coal-fired TPP Bitola was reactivated in October 2021 (Balkan Green Energy News, 2021[1]).
North Macedonia requires a broad consensus on a decarbonisation strategy and the energy transition. This consensus needs to include all relevant stakeholders, including civil society, academia, and the private sector. A just transition plan for the coal phase-out could facilitate this process: a broad strategy for decarbonisation should include a new economic model for North Macedonia and measures to mitigate the impact for those negatively affected by the coal phase-out (CEPS, 2016[2]).
North Macedonia has made important progress in building a financing framework for energy and climate policies. This includes the recent adoption of the Growth Acceleration Financing Plan (2022-26). The proposed financing instruments for the Growth Acceleration Plan include, among other elements, green bonds, a Hybrid National Green and Digital Fund for SMEs, Start-ups and Innovative Enterprises to invest in green and digital SMEs, an Energy Efficiency Fund and a Strategic Green Investment Fund to accelerate investment in renewable energy sources and financing energy efficiency solutions (Balkan Green Energy News, 2021[3]; Ministry of Finance, 2021[4]).
Accelerating implementation of energy and climate policies is vital. To date, adoption of relevant laws and strategic documents has advanced slowly and is often delayed: examples include the case of the Law on Climate Action, the Law on Industrial Emissions, the National Plan on Climate Change and the fourth National Energy Efficiency Action Plan (NEAP), which was adopted only in September 2021 even though the previous NEAP had already expired in 2019. Work on the Law on Climate Action1 and a Strategy on Climate Action started in March 2019 and drafts are completed but have not yet been adopted (MOEPP, 2021[5]). Adoption of the Law on Climate Action is key to define more clearly the competencies and responsibilities of the various institutions currently managing North Macedonia’s existing GHG inventory system. In the past, once adopted, strategic documents often fail to be implemented. An Industrial Strategy, which aims to promote green industry, was adopted in 2018. However, the action plan for implementation – which includes investment incentives, the promotion of new technologies, research and innovation, and transfer of know-how – has not yet been implemented. The Energy Strategy adopted in 2010 foresaw the construction of five hydropower plants (total combined capacity of 685.7 megawatts [MW]) between 2010 and 2019. To date, only one plant was constructed and is operational. A law on green industrial zones was adopted in 2013 but no such zones were created (Government of the Republic of North Macedonia, 2013[6]).
Responsibilities for implementation of energy and climate policies should be clearly defined; human and financial resources should be boosted as necessary. Reducing GHG emissions is a complex process that involves a large number of institutions (e.g. the Ministry of Environment and Physical Planning; the Ministry of Economy; the Ministry of Agriculture, Forestry and Water Economy; the Ministry of Transport and Communications; the Energy Agency) and sectors (energy, industry, agriculture, waste, etc.). Defining the responsibilities of all stakeholders is therefore key, as are coherent planning and co‑ordination among those involved. Despite having established the Climate and Energy Working Group, North Macedonia lacks a clear division among different stakeholders of responsibilities for policy measures and actions to meet GHG emissions reduction targets. In addition, key documents such as the Energy Strategy, the Strategy for Industrial Development, the Strategy for Agriculture and Rural Development, and other sectoral strategies, do not include the policy measures required to comply with North Macedonia’s enhanced NDC. Also problematic is that North Macedonia lacks skilled human capital in public institutions to design policy measures and actions for GHG emissions reduction (Government of North Macedonia, 2020[7]).
North Macedonia should consider reactivating and giving more visibility to its Climate and Energy Working Group. North Macedonia created (in 2018) a Climate and Energy Working Group to ensure better collaboration among institutions and more effective decision making. The working group includes representatives of different government institutions including: the Ministry of Economy; the Ministry of Environment and Physical Planning; the Ministry of Transport and Communications; the Ministry of Finance; the Ministry of Agriculture, Forestry and Water Economy; the Cabinet of the Deputy Prime Minister for Economic Affairs; the Secretariat for European Affairs; the Energy Agency; North Macedonia’s state-owned power company (Elektrani na Severna Makedonija – ESM); and the Macedonian Academy of Sciences and Arts (MANU) (Government of North Macedonia, 2020[7]). According to information available, this working group has not been very active recently.
In the context of its enhanced NDC, North Macedonia has established a more ambitious GHG emissions reduction target. North Macedonia submitted its enhanced NDC to the UNFCCC Secretariat in April 2021, stating the aim of a 51% GHG emissions reduction by 2030 compared with 1990 levels. The enhanced NDC was prepared to comply with the Paris Agreement and the European Green Deal’s 2050 carbon-neutrality target, and went through stakeholder consultation. The enhanced NDC is fully aligned with North Macedonia’s draft NECP and the green scenario from North Macedonia’s National Strategy for Energy Development 2040. In its previous NDC, North Macedonia had committed to a less ambitious target: a 30% to 36% reduction in CO2 emissions by 2030 as compared to business-as-usual2 (Energy Community Secretariat, 2021[8]; MoEPP, 2021[9]).
As an Energy Community Contracting Party, North Macedonia was the first Western Balkan economy to submit (in May 2020) a complete draft National Energy and Climate Plan (NECP) for review to the Energy Community. North Macedonia’s Law on Environment serves as legal basis for preparation of its NECP, which it started preparing as the National Emission Reduction Plan (NERP) in 2018. The process is led by the Ministry of Economy and the Ministry of Environment and Physical Planning; a working group with representatives of all relevant stakeholders was established for its preparation (Energy Community Secretariat, 2020[10]). Through its NECP, North Macedonia aims to reach its long-term energy and climate targets, reduce the administrative burden of the energy transition, improve transparency and ensure security of investment. However, North Macedonia’s NECP still had not been adopted at the time of writing, even though the Energy Community’s review was finalised in 2020.
To meet its GHG emissions reduction target and the objectives of the NECP, North Macedonia requires a functional GHG monitoring, reporting and verification mechanism. GHG monitoring is key to measuring progress towards and compliance with GHG emissions reduction targets, and is required as part of transposing the Monitoring Mechanism Regulation (EU) 525/213. At present, North Macedonia lacks an effective monitoring, reporting and verification system. In turn, the competencies and responsibilities for managing the existing GHG inventory system are not clearly defined (Energy Community Secretariat, 2021[8]; Energy Community Secretariat, 2020[10]).
To meet its GHG emissions reduction target and the objectives of the NECP, North Macedonia requires a more ambitious strategy for decarbonising its energy sector. North Macedonia’s Energy Development Strategy 2040 includes 63 policy measures; for energy efficiency improvements, decarbonisation, R&D and competition, and enhancing the legal and regulatory framework. The strategy outlines three scenarios for greening the energy sector and decarbonisation – reference, moderate transition and green – with specific targets for key areas within the timeframe to 2040. The aims for GHG emissions reduction range from 8.1% to 61.4% by 2040 as compared with 2005. The share of renewables in gross final energy consumption is targeted at 35% to 45% (compared with 19.5% in 2015). Concerning reduction in primary energy consumption, the aim is 34.9% to 51.8% as compared with business as usual. Reduction in final energy consumption aims for a decrease of 14.2% to 27.5% against business as usual. The strategy also aims for full compliance with the Energy Community acquis. Importantly, the strategy aims to meet these targets at the lowest cost; this implies that only the moderate transition and the green scenarios would involve a full coal phase-out and the closure of all of thermal power plants (Government of North Macedonia, 2020[7]). In 2018, North Macedonia’s GHG emissions were 14.8% lower than in 2005. Thus, compliance with the reference scenario (8.1% reduction by 2040 as compared with 2005) would actually allow for an increase in GHG emissions by 2040 as compared with 2018 (World Bank, 2021[11]). At present, North Macedonia is not on the right trajectory for meeting the strategy’s renewable energy target: the share of renewables in gross final energy consumption fell from 19.5% in 2015 to 16.8% in 2019 (Eurostat, 2021[12]).
18.2. Do more to include stakeholders from the private sector, civil society and academia in energy, climate and environmental policy making
North Macedonia has already established an institutionalised dialogue between the public sector and CSOs on environmental issues. Collaboration with civil society is important for the legitimacy and public acceptance of energy, climate and environmental policies. Under the Ministry for Environment and Physical Planning, the National Coordinative Body (NCB) for collaboration with civil society organisations, active in the field of environmental protection, comprises more than 100 CSOs in the fields of energy, environment and agriculture. The Ministry of Environment and Physical Planning regularly consults the NCB for the preparation and revision of strategic documents and legislation.
Access to information and public participation in energy and climate decision making processes could be further improved. Information on energy and climate policies is not always easily accessible to the public, even though, as stipulated by the Law on Free Access to Public Information, public institutions are obliged to publish information on decision-making processes, strategic documents and legislation. Potential exists for stronger public participation and consultations in decision-making processes. Slovenia provides a strong example of reforms to enhance public participation. In 2020, it launched an online platform for exchange and provision of up-to-date information to local authorities, CSOs, businesses and other stakeholders as a means to include citizens and civil society in preparing a long-term national strategy for the restructuring and transition of coal regions (most importantly, closure of the Premogovnik Velenje coal mine and phase-out of the Termoelektrarna Šoštanj thermal power plant), (Balkan Green Energy News, 2020[13]).
Improving private sector representation in North Macedonia’s National Council for Sustainable Development is important to enhancing the council’s visibility and impact. The mandate of the National Council for Sustainable Development is to advise the government on implementation of the National Strategy for Sustainable Development 2009-2030 (adopted in 2010). At present, the Council remains dominated by government representatives: of 23 members, representatives comprise: 13 ministries in the government; 1 representative of the Macedonian Academy of Sciences and Arts; 4 from economic chambers and 5 experts from academia. According to information available, the Council last convened in 2018 (Green Development Republic of North Macedonia, 2018[14]; UNECE, 2019[15]); clearly, its visibility and impact could be significantly strengthened.
Existing initiatives by civil society and the international community to raise awareness on energy, climate and environmental issues in North Macedonia provide a good basis to build on. In 2020, CSOs active in education and awareness raising on environmental issues in North Macedonia launched the Climate Coalition in order to increase citizen participation in decision-making processes and in monitoring the implementation of energy, climate and environmental legislation (EKOSVEST, 2020[16]; CNVP, 2020[17]). North Macedonia set up its first Aarhus Centre in 2019, in support to the Aarhus Convention,3 which establishes a number of rights for individuals and CSOs with regard to the environment (UNECE, 2021[18]). By establishing an Aarhus Centre, North Macedonia has provided a platform to engage citizens, governments and the private sector in dialogue on environmental challenges, support public participation in the areas of energy, climate and environment, facilitate access to environmental information and assist governments in implementing the Aarhus Convention. Activities to foster awareness on green policies have further been increased since North Macedonia’s involvement with the Green Climate Fund (GCF) in 2019. Most importantly, extensive consultations were engaged with relevant stakeholders to ensure alignment between chosen GCF priorities and relevant national strategies and on-going efforts (Green Climate Fund, 2022[19]).
18.3. Step up carbon pricing and phase out fossil fuel subsidies
Increasing excise taxes on fuels would reduce pollution while also generating additional resources for investment in low-carbon technologies. North Macedonia has one of the lowest excise taxes on diesel in the Western Balkan region (EUR 0.25 per litre (/l) compared with EUR 0.48/l in Serbia, EUR 0.36/l in Kosovo and EUR 0.29/l in Albania). This rate is 25% lower than the minimum prescribed by the EU Energy Taxation Directive (EUR 0.33/l) (Figure 18.2). Even though diesel is more polluting than petrol, the excise tax on diesel is lower than on petrol (EUR 0.36/l). In 2019, North Macedonia’s excise revenues from fuel and energy amounted to only 1.5% of GDP compared with an EU average of 2% of GDP (World Bank, 2020[20]).Other European countries have increased taxes on transport as part of their green transitions. Germany introduced a carbon tax equal to EUR 25 per megatonne of carbon dioxide (Mt CO2) from January 2021 for the transport and heating sectors (covering petrol, diesel, heavy fuel oil and natural gas). From 2026, auctions will replace the fixed price in Germany, within a price corridor set at EUR 55 to 65/Mt CO2 (Franke, 2020[21]).
Figure 18.2. Excise taxes on fuels in North Macedonia are among the lowest in the Western Balkan region
Source: World Bank (2020[20]), Environmental Tax Reform in North Macedonia, https://openknowledge.worldbank.org/handle/10986/34679.
Fully phasing out subsidies for coal in North Macedonia could encourage energy savings and free up public financial resources for different purposes. Reducing subsidies for coal was a priority suggested by peer-learning participants. Subsidies for coal in North Macedonia are already comparatively low within the Western Balkan context: Between 2015 and 2019, subsidies (through public finance support) for electricity generation from coal by state-owned enterprises (SOEs) amounted to EUR 1.92 million annually on average in North Macedonia – about half of the regional average. In 2018-19, the average amount of direct subsidies per megawatt hour (/MWh) in North Macedonia (EUR 0.64/MWh) was the lowest in the region (Figure 14.13 of Chapter 14) (Miljević, 2020[22]). However, both coal excavation and electricity generation from coal have been stepped up in North Macedonia recently, to boost electricity output and avert price hikes as a consequence of globally high and rising energy prices. This is likely to result in an increase in the total amount of subsidies spent on coal in North Macedonia in the near future. At the same time, North Macedonia is planning to increase public transfers to state-owned electricity energy companies (Balkan Green Energy News, 2021[1]).
Compensating poor households for higher electricity and fuel prices is vital to achieve a just transition. Low fuel taxes and subsidies for coal, which lead to low electricity prices, serve as indirect income support for households. However, they are highly inefficient as measures for poverty reduction, since most of the benefits go to higher income households that consume more energy. Poor households could be compensated for higher electricity and fuel prices through targeted, income-based support, such as social benefits or vouchers for a monthly allowance of electricity consumption. Subsidies for energy efficiency improvements, such as low-carbon heating technologies and insulation of residential buildings, could reduce actual energy consumption and thus the energy bills of poor households (OECD, 2021[23]). In 2021, North Macedonia introduced electricity vouchers for vulnerable households to support them in dealing with globally high and increasing energy prices (SeeNews, 2022[24]). Going forward, it would be important to maintain and to further expand these vouchers whilst reducing energy subsidies.
The social and economic impact of closing coal mines could be alleviated through targeted measures to support coal miners who become unemployed. Measures could include re-skilling programmes, in combination with monetary compensation and public employment programmes in sectors requiring similar skills (Szpor, 2021[25]; Szpor, 2018[26]). North Macedonia’s coal mines and coal-fired thermal power plants, located in the regions Bitola and Kičevo, employ approximately 4 000 workers. Taking into account these workers’ family members, approximately 12 000 people in Bitola (12% of population) and 4 000 in Kičevo (14.8% of population) depend directly on electricity generation from coal. Many small companies and their employees in these regions also depend on coal mines.4 Thus, unless mitigation measures are put in place, phasing out coal is likely to result in significant job losses and increased poverty, with significant impacts on these local economies.
18.4. Create enabling conditions for renewable energy development in North Macedonia
Scope exists to significantly scale up solar and wind power in North Macedonia. In 2019, renewable energy accounted for 22.9% of electricity generation in North Macedonia, with generation from hydropower holding a massive share (86.6%) (Eurostat, 2021[12]). A further breakdown shows that 77.9% of hydropower comes from large hydropower plants (>10 MW) and 22.1% from small hydropower plants (SHPPS) (<10 MW) (2020). Wind energy constitutes only 7.8% of electricity generation from renewables, while smaller shares are from biogas (3.8%) and solar photovoltaic (PV) (2.7%) (2020). These low figures fail to reflect that North Macedonia has one of the highest potentials for solar energy in the region. The share of renewables in gross final energy consumption in North Macedonia was 18.1% in 2018 – less than in 2017 (19.6%) and below the 23% target for 2020 (according to Directive 2009/28/EC on promotion of the use of energy from renewable sources) (Energy Community Secretariat, 2020[10]).
The share of small, private-owned companies – mainly small hydropower, solar PV and biogas plants – in electricity generation in North Macedonia is increasing but remains low. In 2020, it stood at 5.69%, equivalent to 291.91 MW (ERC, 2021[27]). The largest private-owned electricity generation plant is TE-TO Skopje, a natural gas-fired combined cycle heat and power plant (installed capacity of 220MWe/160MWth), which is primarily a Russian private investment (Te-To AD Skopje, 2021[28]). At the beginning of 2021, the first private-owned wind park opened (30MW) – an investment by a Slovenian company (The Slovenia Times, 2021[29]). A public-private partnership (PPP) project is under development (ESM AD and private investors from Turkey and Bulgaria) for a 100 MW (2x50MW) solar PV plant close to the Oslomej coal-fired plant in Kičevo (sited on a depleted coal mine) (Balkan Green Energy News, 2021[30]). Private investors for these projects were selected through electronic auctions.
The use of feed-in premiums (FiPs), as opposed to feed-in tariffs (FiTs), can improve transparency in the selection of investors and result in lower prices. North Macedonia incentivises renewable energies through both FiTs and FiPs. The market operator is required to buy electricity generated by producers benefiting from FiTs, whereas electricity producers benefiting from FiPs sell their electricity in the market. In 2020, 203 producers of electricity from renewable resources – mainly SHPPs (58.8%) but also wind farms, biomass, biogas and solar PV - with a total installed capacity of 148.5 MW benefited from FiTs. The first FiP auctions were conducted in 2019, with first contracts signed in 2020. Total installed capacity for electricity generation benefiting from FiPs is 62 MW, mainly larger solar PV plants. In North Macedonia, auctions are based on bids for an additional fixed FiP, on top of the price realised by selling each kWh of electricity on the wholesale market (Energy Community Secretariat, 2021[8]).
Figure 18.3. North Macedonia has the second-highest potential for solar PV in the Western Balkan region
Note: Theoretical PV potential: 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[31]), Global Photovoltaic Power Potential by Country, https://globalsolaratlas.info/global-pv-potential-study.
North Macedonia could better take advantage of solar irradiation through self-consumers (prosumers). A net-billing scheme governed by the Rulebook on Renewable Energy allows households to install up to 4 kW and small businesses up to 20 kW of renewables for self-consumption. By mid-2021, only 42 self-consumption installations had been put in place. In its Energy Development Strategy and NECP, North Macedonia set a target for 250 MW of rooftop PV by 2030 and 400 MW by 2040 (Energy Community Secretariat, 2021[8]).
More subsidies for solar PV prosumers could boost renewables in North Macedonia. In 2021, North Macedonia adopted a programme to promote renewable energies and energy efficiency in households. Of the programme’s total budget of EUR 840 000, it stipulates that EUR 130 000 be directed towards subsidies for renewable prosumers. The subsidies available amount to 30% of the cost and installation of solar thermal collectors, which is boosted to 70% for low-income households (approximately 650 households covered in total) (Ministry of Economy, 2020[32]).
North Macedonia requires a more flexible electricity system, and needs to upgrade its transmission grid to facilitate integration of solar and wind power into its electricity mix. As larger amounts of variable renewable energy resources are integrated in North Macedonia’s electricity mix, management of the transmission grid becomes more complex. It also creates the need for greater grid flexibility through better regional interconnection, storage facilities and integration of a larger amount of flexible generation technologies (e.g. flexible biomass, natural gas) in the energy mix (European Commission, 2020[33]).North Macedonia has recently signed memoranda of understanding to invest in the gas power plant in Alexandropolis, Greece, with a 25% share and in the LNG terminal with a 10% share. In July 2021, North Macedonia and Greece signed an agreement for the construction of a cross-border natural gas interconnector (SeeNews, 2022[34]). These agreements could facilitate a reliable natural gas supply in North Macedonia, and a higher share of natural gas in North Macedonia’s electricity mix. In addition, North Macedonia currently plans the construction of the 333 MW Chebren hydropower plant, which could increase storage capacity complementary with intermittent renewables such as sun and wind.
Simplified investment procedures and better access to financing could facilitate more private investment in renewable energy. The private sector in North Macedonia lacks information on the procedures for investing in renewable energy. In parallel, administrative procedures remain cumbersome and time-consuming, with procedures for land usage approval and obtaining construction permits being particularly complicated. As revenues from renewables accumulate slowly over time, the large up-front investment required is a deterrent. A “fast-track” investment procedure could accelerate and simplify the process, while special training sessions for potential investors could improve access to information.5
Establishment of energy communities could facilitate more investment in renewables. In 2020, a municipality in Skopje launched an energy communities project to promote investment in and development and use of renewable energy facilities. Through these energy communities, households and multi-apartment buildings can join together to invest in renewable energies (e.g. solar PV, wind and biomass) and become energy producers. Croatia is a good example to follow, now having eight local energy communities (NEEP, 2021[35]) through which citizens, companies and municipalities in the same location jointly invest in renewable energies. These energy communities follow democratic principles of decision making, with members sharing both risks and profits.
Ensuring that SHPPs complete EIAs before construction is critical, as is ensuring they carefully monitor their actual impacts on the environment. In 2020, SHPPs in North Macedonia accounted only for a small share of electricity generation: 107 SHPPs accounted for 5.5% of electricity generated and 4.5% of installed capacity. However, SHPPs often have negative impacts on the environment and biodiversity. Many SHPPs are located in areas with a high degree of biodiversity, including protected areas such as the Navrovo National Park (CEE Bankwatch Network, 2017[36]). To date, none of the existing SHPPs underwent a complete EIA before construction, and little effort is made to minimise the negative impacts of SHPPs on biodiversity. Some SHPPs constitute a threat to several endangered species and some obstruct fish passes (CEE Bankwatch Network, 2017[36]).
Increasingly shifting from promotion of SHPPs to solar and wind power generation would reduce environmental impacts. Despite their negative impact on the environment and local communities, SHPPs continue to benefit from generous incentives through FiTs. At present, there is no cap on the total number of SHPPs that can receive FiTs whereas such caps exist for biogas, biomass and solar. A lack of transparency in the distribution of licenses and subsidies for SHPPs is also problematic; investors in SHPPs often have connections to politicians and political parties (CEE Bankwatch Network, 2019[37]).
18.5. Create the right incentives and enabling conditions for energy efficiency improvements in buildings
Improving the insulation of buildings in North Macedonia is of vital importance. A large share of buildings in North Macedonia are poorly insulated: many multi-apartment buildings (particularly those constructed between 1965 and 1980) and public buildings have no thermal insulation at all. In February 2020, North Macedonia began conducting a country-wide assessment of the energy performance of the residential housing stock (which is ongoing).6
Reducing heating based on fuelwood and electricity generated from coal could enhance energy efficiency in North Macedonia. Renewables and waste (mainly fuel wood) represent 59.9% of space heating and electricity 26.6% (Figure 18.4 - Panel A), mainly due to their affordability. Electricity is an affordable source of heating, since low electricity prices are sustained by fossil fuel subsidies. More energy efficient and less carbon-intensive district heating systems (typically firing natural gas in combined cycle mode) are available only in parts of the capital, Skopje, where 24.8% of households (11.6% of all households in the economy) are connected to the district heating system (MoEPP, 2018[38]). Electricity is particularly carbon intensive due to the low energy efficiency of coal-fired thermal power plants (Figure 18.4 - Panel B). Fuelwood-based heating is less CO2 intensive than heating based on electricity but a significant source of air pollution. District heating through gas-fired plants is least carbon-intensive, while natural gas heating systems and heat pumps powered by electricity from thermal power plants fall in between (Figure 18.4 - Panel B) (Takahashi and Louhisuo, 2021[39]; Quaschning, 2021[40]). For public buildings connected to district heating, average annual energy consumption is 147 kWh/m2; consumption is almost double – 285 kWh/m2 – for those using individual heating stoves (mainly schools and health facilities in rural areas) (Government of North Macedonia, 2011[41]).
North Macedonia should consider banning the use of fuel wood and coal for heating and cooking in urban areas. The high use of fuel wood is not only contributing to GHG emissions but also causes significant air pollution and local health impacts. CSOs in North Macedonia are advocating for a law banning the use of fuel wood and coal for heating and cooking in urban areas.7
Figure 18.4. North Macedonia’s reliance on fuel wood for heating results in high CO2 emissions and air pollution
Source: Panel A: Eurostat (2021[12]), Eurostat (Database) , https://ec.europa.eu/eurostat/. Panel B: Authors’ elaboration based on Takahashi and Louhisuo (2021[39]), IGES List of Grid Emission Factors, www.iges.or.jp/en/pub/list-grid-emission-factor/en?__cf_chl_jschl_tk__=pmd_5ece26e096f74821f6f7383b58f70d21ed16675f-1628854847-0-gqNtZGzNAfijcnBszQcO; Quaschning (2021[40]), Specific Carbon Dioxide Emissions of Various Fuels, www.volker-quaschning.de/datserv/CO2-spez/index_e.php.
North Macedonia should connect more buildings to district heating systems, or to the natural gas grid. Studies estimate that connecting all buildings in Skopje to district heating where it is available would reduce PM2.5 pollution by 7% (Faculty of Mechanical Engineering, 2017[42]). Installing natural gas-based heating in all buildings in areas connected to the natural gas grid could also reduce air pollution and GHG emissions. In 2014, North Macedonia made it mandatory to install natural gas infrastructure in all new buildings (Government of the Republic of North Macedonia, 2014[43]). Similar regulations could be put in place to mandate that new buildings be connected to district heating where available, through amendments to the laws on energy and construction. A comprehensive cost-benefit analysis could identify areas in which constructing either district heating systems or expanding the natural gas grid would be beneficial.
There is a need to make district heating systems more efficient and less polluting. Currently, North Macedonia’s district heating systems are entirely based on natural gas (Energy Community Secretariat, 2021[8]). The systems need to be upgraded and modernised to reduce technical losses to reduce both energy consumption and associated emissions; integrating renewable energies could make them less polluting. An interesting example is found in Vienna (Austria), where surplus electricity from wind power plants is converted into heat and integrated into two district heating plants (Balkan Green Energy News, 2021[44]).
Scope exists to scale up financial incentives for energy efficiency improvements in residential buildings. In recent years, some 10 000 households in North Macedonia have received subsidies to replace wood stoves with heat pumps. In 2021, North Macedonia adopted a programme to promote renewable energies and energy efficiency in households. Of a total budget of EUR 840 000, an amount of EUR 360 000 is earmarked to subsidise the purchase and installation of Polyvinyl Chloride (PVC) or aluminium windows. This will support uptake by approximately 1 100 households, with 50% of the cost covered for most and 70% for low-income beneficiaries. An amount of EUR 230 000 will be directed towards the purchase and installation of pellet stoves, enough for approximately 700 households, with the same shares of costs covered (50% for most and 70% for low-income beneficiaries) (Ministry of Economy, 2020[32]). In reality, some 100 000 households in North Macedonia are in need of this type of subsidy for energy efficiency improvements. More subsidies are needed, particularly in areas with no access to district heating systems or the natural gas grid.8 The planed Strategic Green Investment Fund, discussed above, and a planned Energy Efficiency Fund, discussed below, could help close the financing gap for energy efficiency improvements.
The institutional and regulatory framework for energy efficiency improvements in multi-apartment buildings could be improved. North Macedonia recently adopted new regulations for the management of multi-apartment buildings, which stipulate (among other things) the establishment of reserve funds (Government of the Republic of North Macedonia, 2014[43]). At present, however, reserve funds can be used only for maintenance – not for energy efficiency improvements.
18.6. Implement existing energy efficiency policies and legislation in North Macedonia
Timely implementation of relevant policies is critical to enhancing energy efficiency. Implementation of energy efficiency legislation is slow in North Macedonia. Accelerating the adoption of secondary legislation of relevant laws, such as the Law on Energy Efficiency, and the implementation of these laws are both necessary (Energy Community Secretariat, 2020[10]).
North Macedonia has already established an institution dedicated to the co-ordination and implementation of energy efficiency policies. The Energy Agency of the Republic of North Macedonia is responsible for the implementation of both energy efficiency policies and renewable energy policies. Its main competencies in the area of energy efficiency are drafting national energy efficiency action plans, monitoring and evaluating the implementation of energy efficiency measures, monitoring the implementation of energy audits in large companies and energy efficiency criteria in public procurement, and implementing energy efficiency projects by international donors (Energy Agency of the Republic of North Macedonia, 2022[45]). However, the Energy Agency suffers from a shortage of human and financial resources. There also remains some overlap in the competencies of the Energy Agency and the Ministry of Economy’s Energy Department. There is a need to increase the Energy Agency’s budget and human resources, in particular in the light of the assignment of new competencies to the agency through the 2020 Law on Energy Efficiency (Government of North Macedonia, 2020[7]).
North Macedonia adopted a new fourth National Energy Efficiency Action Plan (NEEAP) in 2021. North Macedonia’s fourth NEAP replaces the third NEAP 2016-18 and proposes 30 energy efficiency measures for the period 2019-22, including measures for the promotion of renewable energies, measures to enhance the energy efficiency of buildings such as retrofitting of buildings and the promotion of more energy efficient heating systems, and measures targeting the transport sector. It aims at cumulative energy savings of 271 ktoe by 2022. The cost of implementation is estimated at EUR 1 300 million, to be provided by the central government, private companies and financial institutions and donors (Government of North Macedonia, 2021[46]).
Fully implementing North Macedonia’s Law on Energy Efficiency and finalising secondary legislation is important. In February 2020, North Macedonia’s Parliament adopted a Law on Energy Efficiency, transposing, inter alia, the EU Energy Efficiency Directive (EED) and setting specific targets as required under its Article 5 (energy renovation of at least 3% of the floor area of all public buildings, annually) and Article 7 (energy companies obliged to achieve annual energy savings of 1.5% of total annual sales to final customers). By-laws on energy saving requirements for energy companies, the buildings renovation strategy, energy audits and energy service contracts are currently being drafted but have not been adopted. Similarly, the Rulebook for an Information System for Monitoring and Management of Energy Consumption by the Public Sector, and the Rulebook for Energy Audits in Industry and the Commercial Sector, remain to be adopted (Energy Community Secretariat, 2020[10]).
North Macedonia should prioritise rapid operationalisation of its Energy Efficiency Fund. The Law on Energy Efficiency stipulates the establishment of an Energy Efficiency Fund to support the realisation of energy efficiency measures and policies. This fund has not yet been effectively established (Macedonian Academy of Sciences and Arts, 2010[47]), reflecting the need for North Macedonia to secure a stable source of financing for it (e.g. the revenues of environmental taxes). In a relevant example, Croatia has a very successful Energy Efficiency Fund through which it has been able to reconstruct a significant number of public buildings (particularly hospitals) (EBRD/Energy Community Secretariat, 2020[48]).
18.7. Build the right workforce skills for scaling up renewable energies and energy efficiency improvements
To stimulate investment in renewables and energy efficiency improvements, North Macedonia needs to build capacity in skills that are in demand. Green skills related to renewable energies, in particular the installation, operation and maintenance of renewable energy generation plants (e.g. wind turbines and PV systems), green transport and energy efficiency of buildings are lacking in North Macedonia. Green jobs are not listed in the economy’s 2015 National Classification of Occupations (State Statistical Office, 2015[49]), but the creation of such jobs is featured in national strategies and action plans, including the National Employment Strategy (Government of the Republic of North Macedonia, 2015[50]). It is vital to involve all relevant stakeholders – including the Ministry of Education, chambers of commerce and the academic community – in efforts to identify green skills that are lacking, and to create green curricula.
Incorporating more green curricula in North Macedonia’s secondary and higher education systems is necessary for the energy transition. To date, most efforts to generate green skills are limited to organising trainings for unemployed workers such as plumbers or construction workers. Sporadic workshops, seminars and trainings in green skills have been offered to a limited number of beneficiaries. The TRAINEE project (in 2016/17) targeted 340 blue-collar workers (300 received training in energy efficiency in buildings, 40 in renewable energy skills), 40 technicians, 52 building professionals (engineers) and 20 building information modelling professionals (engineers) (Economic Chamber of North Macedonia, 2016[51]). Additional trainings have been offered in industry, most importantly the European Energy Manager Programme, which certified 100 people (COSMO Innovation Centre, 2020[52]) and the UNIDO Energy Management Systems (EnMS) programme, which certified 26 people between June 2015 and December 2016 (REC, 2020[53]; UNIDO, 2020[54]). University curricula to build green skills exist but remain relatively scarce: the three best-performing public universities in North Macedonia offer undergraduate and masters programmes in environmental engineering and in sustainable energy and environment (Faculties for Mechanical Engineering in Skopje and Bitola, and Faculty for Natural and Technical Sciences in Štip).
18.8. Indicators to monitor overall policy progress in North Macedonia
To monitor progress in implementing policies for a green recovery in North Macedonia, the OECD suggests a set of key indicators, including values for North Macedonia and benchmark countries (either the OECD or the EU average, based on data availability; Croatia is the benchmark for the number of renewable self-consumers per 100 000 population) (Table 18.2).
Table 18.2. Indicators to monitor progress in implementing policies in North Macedonia
2019, unless otherwise specified
Note: *2021, **2020, ***2018, ****2017, *****2016. aOECD, bEU, cCroatia.
Source: Eurostat (2021[12]), Eurostat (database), https://ec.europa.eu/eurostat/; IEA (2021[55]), Data and statistics, www.iea.org/data-and-statistics; EEA (2019[56]), 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; Miljević (2020[22]), 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[57]), 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[58]), Incentives and challenges in promoting self-consumption - The case of Croatia, www.energy-community.org/; World Bank (2021[11]), World Development Indicators (database), https://databank.worldbank.org/source/world-development-indicators
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Notes
← 1. The Law on Climate Action aims to transpose EU Regulation 525/2013 (on a mechanism for monitoring and reporting greenhouse gas emissions), EU Directive 2003/87/EC (on establishing a scheme for greenhouse gas emission allowance trading within the Community) and EU Regulation No 749/2014 (on structure, format, submission processes and review of information reported by Member States).
← 2. Business-as-usual being a situation in which no measures for GHG emissions reduction are taken.
← 3. The Aarhus Convention, adopted on 25 June 1998 in the Danish city of Aarhus (Århus), has the official title of the United Nations Economic Commission for Europe (UNECE) Convention on Access to Information, Public Participation in Decision-Making and Access to Justice in Environmental Matters at the Fourth Environment for Europe Ministerial Conference.
← 4. Information from fact-finding in North Macedonia from expert consultants from CENER21.
← 5. Information from fact-finding in North Macedonia from expert consultants from CENER21.
← 6. Information from fact-finding in North Macedonia from expert consultants from CENER21.
← 7. Information from fact-finding in North Macedonia from expert consultants from CENER21.
← 8. Information from fact-finding in North Macedonia from expert consultants from CENER21.