Western Balkans Competitiveness Outlook 2024: North Macedonia

13. Energy policy

Abstract

The competitiveness of any economy is heavily influenced by its energy policies. This chapter investigates the energy policies in place to ensure that energy markets are well-regulated, sustainable and competitive. The first sub-dimension, governance and regulation, focuses on how the energy markets are governed and whether policy is conducive for establishing efficient and competitive energy markets. The second, energy security, explores measures taken to make the energy sector more resilient, including through the diversification of energy supply. The third sub‑dimension, sustainability, focuses on the energy sector decarbonisation, including through the promotion of renewable energy and energy efficiency policies. The fourth sub-dimension, energy markets, analyses how energy markets are operated, whether competition is used to promote efficient allocation of energy resources, and the degree of regional integration.

Key findings

North Macedonia has a largely well-aligned legal framework with the EU and Energy Community acquis. In the area of sustainability, it remains well positioned when it comes to renewable energy policy and energy efficiency but needs to enhance its efforts in decarbonisation and addressing energy poverty (Table 13.1). The go-live of the power exchange confirms North Macedonia’s robust framework in energy markets, but regional integration needs to be further enhanced.

Table 13.1. North Macedonia’s scores for energy

Dimension	Sub-dimension	2018 score	2021 score	2024 score	2024 WB6 average
Energy	12.1: Governance and regulation			3.8	3.3
	12.2: Energy security			3.0	2.5
	12.3: Sustainability			3.4	2.8
	12.4: Energy markets			3.7	3.3
North Macedonia’s overall score		1.5	3.7	3.5	3.0

The key findings are:

• North Macedonia was the first Western Balkan economy to adopt its National Energy and Climate Plan (NECP), in 2022. The NECP recognises renewable energy sources (RES) as a key driver of energy security and contains ambitious measures and targets for their development. The NECP also aims to bolster energy security by diversifying energy imports and improving regional interconnection capacity, especially for natural gas, for which North Macedonia relies entirely on imports. To build on this positive momentum and complete the legal and policy framework for energy sector decarbonisation, key pieces of legislation such as the Law on Climate Action still need to be adopted.

• A day-ahead market for electricity in the bidding zone of North Macedonia has been deployed in May 2023 upon the appointment of a National Electricity Market Operator (MEMO). Moreover, MEMO has been designated by the government to perform the single day-ahead and/or intraday coupling.

• North Macedonia has transposed the Third Energy Package into its domestic legislation and has made progress in developing amendments to advance on alignment with the Clean Energy Package. However, these key legislative updates have not yet been adopted. Moreover, the institutional capacities in the energy sector are underdeveloped and insufficiently equipped, which hampers the drafting, planning and implementation of energy legislation.

State of play and key developments

Sub-dimension 12.1: Governance and regulation

The National Energy and Climate Plan (NECP) of May 2022 marks a significant milestone in shaping energy policy’s legal and institutional framework in North Macedonia. Substantial revisions to the Law on Energy in November 2022 followed. These amendments align the Law on Energy with various pieces of EU legislation, including the Electricity Directive and Electricity Regulation, among others.

Despite those developments, North Macedonia has not fully transposed all the Clean Energy Package elements or the Electricity Integration Package into its legal framework. However, efforts are under way to update the legal framework and advance on alignment with the acquis. Amendments to the Law on Energy Efficiency, a new Law on Energy and a new Law on Renewable Energy Sources have been developed. In general, all three legal texts are a step forward in alignment with the Clean Energy Package and the EU acquis; however, their adoption remains outstanding pending upcoming elections and the formation of a new government and parliament.

The full transposition of network codes and guidelines, including those of the Electricity Integration Package, is still pending. Some network codes, such as the Forward Capacity Allocation and Guideline on Electricity Balancing, have been partially adopted. The recent amendments to the Law on Energy also include provisions from the cybersecurity network code.

Although the institutional framework is established, there is a clear need for additional resources and staff at the ministerial level to enhance energy legislation's planning, drafting, and implementation. Moreover, the need for a coherent and co-ordinated energy policy became even more evident with the energy crisis, as also highlighted by the European Commission in its 2023 report on North Macedonia (European Commission, 2023[1]).

Regarding policy evaluation and performance assessment, data on key indicators related to the energy policy framework is collected through various information systems and databases. However, there is a need for greater transparency regarding these indicators, especially regarding their availability, regular collection, and updates.

The Energy Regulator of North Macedonia (ERC), while possessing adequate resources to perform its roles and tasks, could benefit from additional resources to alleviate occasional bottlenecks. The regulator's independence is legally enshrined, and ERC demonstrates that independence in its day-to-day operations (European Commission, 2023[1]). Nevertheless, there are areas where the ERC could see further improvement, notably in three key aspects.

Firstly, the ERC's ability to enforce regulatory measures is somewhat limited, as it can only bring cases to the Administrative Court. Secondly, ERC's financial independence is not fully ensured, which requires particular attention as a robust and independent financial status is crucial for any regulator to carry out its duties effectively. The ERC operates with its own budget, which it autonomously executes, although it is subject to parliamentary approval. The Energy Community Secretariat in its latest Implementation Report finds that the lack of annual budget approval by parliament in the previous years represents an obstacle to the ERC’s financial autonomy (Energy Community Secretariat, 2023[2]). Finally, strengthening the regulator’s institutional capacities remains a vital and ongoing task, especially considering the recent expansion of the ERC's responsibilities. With the latest amendments to the Law on Energy, the ERC has acquired new competencies for regulating waste management services. Additionally, the regulator is expected to undertake further roles and tasks in response to deeper regional integration in the future, and to the evolving nature of the energy acquis.

Sub-dimension 12.2: Energy security

In response to the energy crisis, the government swiftly declared a crisis in the electricity sector and adopted various emergency measures to strengthen crisis response and resilience. To ensure preparedness for any future crisis, a structural process has been established that includes forming fast crisis reaction mechanisms, standing decision-making bodies, and regular international co-ordination. Additionally, emergency plans are in place to address any temporary demand- or supply-side shocks.

To bolster the security of supply, the Government Regulation on the Criteria and Conditions for Announcement of Crisis in the Electricity Supply, adopted in line with Article 14 of the Law on Energy, aims to enhance both resilience to future crises and emergency response capabilities. According to this Regulation and the Law on Energy, there is a requirement for the Transmission System Operator (TSO) and Distribution System Operator (DSO) to prepare emergency plans for energy crises. Work on transposing the Risk Preparedness Regulation is ongoing as part of the new draft Law on Energy, which would mandate the Ministry of Economy to prepare a risk preparedness plan.

ERC has adopted the Ten-Year Network Development Plan for the Period 2023-32 regarding the management and maintenance of energy infrastructure. Yet, implementing investment projects often encounters delays due to budget constraints, permitting/licensing issues, or land purchase or usage rights challenges.

In the context of diversification of energy supply, both the NECP and the Energy Strategy acknowledge renewable energy generation as a key driver of energy security. The NECP seeks to ensure energy security by supporting the growth of RES and diversifying import sources for natural gas, including through interconnection with neighbouring economies such as Albania, Serbia, Kosovo and Greece.

Regarding the natural gas supply framework, the Gas Storage Regulation and the Regulation on Measures to Safeguard the Security of Gas Supplies have not been transposed into national legislation. Currently, no emergency procedures are in place for addressing temporary supply shortages, whether caused by supply restrictions or excessive demand, which is concerning considering North Macedonia’s reliance on imported natural gas in its energy mix.

Sub-dimension 12.3: Sustainability

There have been some notable developments in the policy framework for energy sector decarbonisation in North Macedonia. While the NECP was adopted in May 2022 following extensive consultations with relevant stakeholders, the transposition of the Governance Regulation into the Energy Law has been only partial; this was primarily to create a legal basis for adopting the NECP. Still, North Macedonia’s proactive attitude in this area is worth highlighting, as it was the first economy in the Western Balkans to submit its draft NECP as early as June 2020, before such submission became binding under the Energy Community acquis.1

The Law on Climate Action is still in the drafting stage. Its adoption is necessary for the full transposition of the Governance Regulation and to establish a legal framework for the deployment of emission allowances and for monitoring and reporting greenhouse gas (GHG) emissions by operators. In addition, the Greenhouse Gas Inventory, prepared on a project basis, should be legally established by adopting the draft Law on Climate Action. Although there is currently no GHG pricing mechanism, the Energy Strategy will be in place until 2040, and the NECP anticipates the introduction of such a mechanism or a CO₂ tax in the medium term (2023-27). The government is seemingly committed to achieving climate neutrality by 2050, yet the 2050 target still needs to be formally integrated into the national legal and strategic framework. The government's adoption of a Just Transition Roadmap in 2023 can also be regarded as an additional sign of the government’s commitment to develop a comprehensive approach towards climate neutrality, taking into account the socio-economic impacts of the necessary reforms.

Competencies in implementing the policy framework are divided between the Ministry of Economy and the Ministry of Environment and Physical Planning. Given the crosscutting nature of climate action and decarbonisation, enhanced interinstitutional coordination is needed to foster ownership among all institutions and ensure optimal policy outcomes.

Concerning North Macedonia’s renewable energy policy framework, the overall renewable energy target, as specified in the NECP, corresponds with the 2030 target established by the Energy Community. However, the national legislation needs to be aligned with the Clean Energy Package, specifically the revised Renewable Energy Directive.

Under the current legal regulations (as per the Decree on Measures Promoting RES), wind projects up to 50 MW (megawatt) and hydroelectric plants up to 10 MW still have access to administratively established feed-in tariffs (FiT), subject to available quotas. This is a general insufficiency, as such an approach is not in line with good practices following competitive procedures and is additionally not in line with the Energy Community acquis.

Amendments to the Law on Energy to transfer the obligation for guarantees of origin from the Energy Agency to the market operator MEMO were adopted in November 2022. The national electronic registry for guarantees of origin in North Macedonia is established, and it awaits activation once the designated issuing body, MEMO, signs an agreement with the service provider.

Prosumers have been legally introduced in the Rulebook on Renewables (and the Law on Energy), but implementation faces several administrative obstacles. The Ministry of Economy published a public call in April 2023 for subsidising rooftop photovoltaic systems for household consumption. While North Macedonia did introduce several measures aimed at simplifying administrative processes and strengthening the role of prosumers over the past few years, the European Commission finds that the procedures for the installation of PV materials on buildings continue to be complicated and represent an obstacle to new investments (European Commission, 2023[3]).

The policy framework for energy efficiency in North Macedonia has seen some adjustments, particularly with the amendments to the Law on Energy Efficiency in November 2022. These amendments aimed to further harmonise the Law with other horizontal laws, including amendments to the Energy Law, and resulted in the postponement of the validation of licences and authorisations for energy audits until the new bylaws of the Law are published.

There is an evident need for a new Law on Energy Efficiency to align with the Clean Energy Package requirements and the amended Energy Efficiency Directive. This new law should address the remaining legislative gaps concerning energy efficiency in North Macedonia. A significant hindrance in the current state of affairs is that the secondary legislation for energy efficiency is not fully enacted, which impedes the implementation of existing legislation. To strengthen alignment with the Energy Community energy efficiency acquis and partially address this challenge, amendments to the Law on Energy Efficiency have been developed but not yet adopted.

The legal framework necessary for deploying the Energy Efficiency Fund has not been established. Nonetheless, support schemes are in place, including financial support such as subsidies for energy efficiency investments. To enhance the effectiveness of these measures, the institutional capacities for energy efficiency need to be further strengthened, primarily by recruiting additional staff. This step is crucial for facilitating the drafting of legislation without delays and ensuring a better enforcement record.

The Programme for the Protection of Vulnerable Energy Consumers is the primary policy framework for addressing energy poverty in North Macedonia. Despite the absence of a formal definition of energy poverty in the national legislation, as highlighted in the NECP, this programme does define a vulnerable consumer. The NECP aims to introduce the term “energy poverty” into relevant legal acts in North Macedonia and elaborates on protecting vulnerable customers from future price shocks.

Given that the legislation does not recognise energy poverty, existing support schemes are currently focused on energy-vulnerable consumers. These consumers are protected through a decree and annual programmes adopted by the government. The system for the protection of vulnerable customers has been further improved with the amendments of the Energy Law in 2022, as these established a more robust legal basis for a permanent framework for the support of vulnerable customers. The new draft of the Law on Energy also entails in Article 10 a definition of vulnerable customers and energy poverty.

A key design feature of the support schemes for energy-vulnerable consumers is the electricity bill subsidy, where a fixed amount is deducted from their electricity bill. It is important to note that these measures are also linked to increasing energy efficiency and/or facilitating access for energy-vulnerable consumers to renewable energy sources.

Sub-dimension 12.4: Energy markets

Following MEMO’s appointment as an operator of the organised electricity market, a day-ahead market for electricity in the bidding zone of North Macedonia was established in May 2023. This marks a significant step in the area of market operation in North Macedonia. The establishment of the intraday market in North Macedonia is still pending. North Macedonia’s retail market is very well developed, receiving the highest score possible in the Energy Community Implementation Report (Energy Community Secretariat, 2023[2]). The well-advanced level of deregulation in North Macedonia is also illustrated by the development of market-driven household electricity prices, which have gradually increased over recent years (Table 13.2). This is apparent from the figure below, which shows a slight upward trend before the sharp spike induced by the energy crisis since 2022. Other key indicators such as the switching rates also attest to North Macedonia’s market’s competitiveness (Energy Community Regulatory Board, 2022[4]).

Table 13.2. Electricity prices for household consumers in North Macedonia (2018-23)

Consumption from 2500 to 4999 kilowatt-hours (kWh), all taxes and levies included in EUR

	2018	2019	2020	2021	2022	2023
Electricity price	0.0787	0.0790	0.0833	0.0840	0.1030	0.1053

Source: Eurostat (2023[5]).

The rulebook on the procedure for following the functioning of the energy markets was adopted, marking the start of the implementation of the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT). Additionally, the EU Transparency Regulation has been fully transposed and largely implemented. Accordingly, North Macedonia regularly submits electricity data to the European Network of Transmission System Operators for Electricity (ENTSO-E) Transparency Platform.

Concerning unbundling and third-party access rules, differentiation is needed between the electricity and gas sectors (Box 13.1). In the natural gas sector of North Macedonia, the process of unbundling and certification, as stipulated by the Third Energy Package, is not yet complete. Third-party access to the natural gas infrastructure is in line with the EU acquis, but transparency needs to be improved, as noted by the European Commission. This contrasts with the electricity sector, where unbundling and certification were completed before January 2021. Moreover, access to and use of the system is based on compliant and transparent tariffs, as observed by the Energy Community Secretariat (Energy Community Secretariat, 2023[2]).

Box 13.1. Unbundling as a fundamental basis for efficient energy markets

Unbundling refers to separating energy production, transmission, and distribution activities within the industry. This regulatory strategy aims to foster competition, enhance market efficiency, and improve service quality for consumers and was already one of the cornerstones of the EU Third Energy Package. The essence of unbundling is to ensure that companies operating in the electricity and natural gas markets focus on specific segments of the value chain, thereby preventing vertical integration that could lead to monopolistic practices and inhibit market entry for new players.

The principles of unbundling are grounded in the desire to create a more competitive and integrated European electricity market. There are several forms of unbundling: ownership unbundling, where companies are required to have separate owners for production, transmission, and distribution operations; legal unbundling, which mandates the legal separation of these segments within a company; and functional unbundling, where operational and management activities must be independent, even if the company remains under a single ownership. Each of these models is designed to reduce conflicts of interest and ensure that the transmission and distribution networks operate in a non-discriminatory manner.

Unbundling is a fundamental principle for reforming the Western Balkan energy sectors, driving competition, efficiency, and innovation while supporting broader policy objectives such as energy security, sustainability, and market integration. Its continued implementation and refinement are essential for achieving a resilient and future-proof energy system in the region.

Sources: Florence School of Regulation (2020[6]); European Commission (2010[7]); Mumovic (2018[8]).

Regarding legislative developments, the Law on the Settlement of the Dispute between the Government of North Macedonia and Makpetrol Ad Skopje was adopted. This law facilitated a settlement that led to the merger of two state-owned TSOs, GAMA and National Energy Resources, into a new entity, NOMAGAS, a fully state-owned joint-stock company for the performance of energy activities, specifically the transmission of natural gas. An application for certification of the newly established company NOMAGAS was submitted to the Energy Community Secretariat in October 2023.

Regarding the gas distribution companies in North Macedonia, it is noteworthy that they have fewer than 100 000 customers – thus they are exempted from the requirements for unbundling.

To further strengthen regional market integration, fully transposing the Electricity Integration Package, including the required methodologies, into the national legislation in North Macedonia would be essential.

The government has officially designated MEMO to perform the single day-ahead and/or intraday coupling, and a notification of this designation was sent to the Energy Community Secretariat in June 2023. Despite these developments, there has been limited progress in the anticipated market coupling between North Macedonia and Bulgaria.

The amendments to the Law on Energy (Official Gazette 236/2022) provide further clarity on the roles of the Transmission System Operator (TSO) and MEMO, particularly concerning regional integration and market coupling with neighbouring markets. However, the transposition of the Capacity Allocation and Capacity Management (CACM) Regulation is only partial to date. According to Article 40 of the Energy Law, a foreign entity licensed or holding an appropriate document for trading or supplying electricity or natural gas in an economy that is a contracting party in the Energy Community Treaty may engage in these activities in North Macedonia. This is contingent upon the principle of reciprocity and requires a decision to enter the Registry of Foreign Traders and Suppliers of Electricity and Natural Gas, maintained by the Energy Regulatory Commission. Essentially, reciprocity must be established by the national regulatory authority, after which mutual recognition of licences can be applied.

The regional capacity allocation platform Co-ordinated Auction Office in South East Europe (SEE CAO) is used for electricity trade with Kosovo and Greece. Joint allocation rules, previously approved by the National Regulatory Authorities, are in effect for trade with Bulgaria and Serbia. The Net Transfer Capacity is calculated according to a publicly available methodology.

Overview of implementation of Competitiveness Outlook 2021 recommendations

North Macedonia has made some additional progress in its transposition efforts but needs to focus on further transposition of the Clean Energy Package, the creation of markets, and working towards further regional integration (Table 13.3). Deficiencies remain in the area of adequate staffing of key institutions, and stronger efforts are also needed in the area of regional integration.

Table 13.3. North Macedonia’s progress on past recommendations for energy

Competitiveness Outlook 2021 recommendations	Progress status	Level of progress
Finalise the transposition and implementation of the Third Energy Package Additionally, North Macedonia should consider starting to transpose the EU’s Clean Energy Package	The transposition of the Third Energy Package has been finalised. However, its implementation needs to be confirmed by completing the unbundling of the gas transmission system in line with the requirements of the Third Energy Package. In addition, some of the legislation for energy efficiency has still not been enacted. North Macedonia has initiated its alignment with the Clean Energy Package. However, considerable gaps in the legislation still exist, pending full adoption of the new Law on Energy and other key legislation.	Moderate
Expand human resources for key institutions	This is still pending, and the need to strengthen institutional capacities is even more pronounced upon the emergence of the energy crisis. Drafting and implementing legislation is lagging behind due to insufficient human resources, especially in the area of energy efficiency.	Limited
Transform the Guarantee of Origin (GO) certification to allow more renewable energy generators to apply for it	An electronic system for issuing, transferring and cancelling guarantees of origin is still not in place. The national electronic registry for guarantees of origin in North Macedonia was created. It can be utilised when the designated issuing body (MEMO) signs a direct agreement with the service provider. Upon signing the agreement, two or more Contracting Parties can trade guarantees of origin through the regional system established by the service provider. This was supported under the regional project launched by the Energy Community Secretariat in January 2022.	Moderate
Deploy power exchanges for natural gas and electricity	Following MEMO’s appointment as an operator of the organised electricity market, a day-ahead market for electricity in the bidding zone of North Macedonia was established in May 2023. Moreover, MEMO has been designated by the government to perform the single day-ahead and/or intraday coupling. There is no progress concerning natural gas.	Moderate
Seek further market integration and market coupling	The amendments to the Law on Energy (Official Gazette 236/2022) further clarify the role of the TSO and MEMO in relation to the regional integration and market coupling with the neighbouring markets. The government has designated MEMO to perform the single day-ahead and/or intraday coupling, and notification has been sent to the Energy Community Secretariat on 16 June 2023. Following this development, the market coupling with Bulgaria is still expected to move forward. There are delays in the transposition of the Electricity Integration Package, both at the national and regional levels within the WB6, including the adoption of the required methodologies. This further slows down regional market integration.	Moderate

The way forward for energy

While North Macedonia has made progress since the last CO in several areas, additional efforts are needed to close existing gaps and to further align with the EU and Energy Community acquis. The recommendations below provide an outlook on the main topics that, if tackled appropriately, would significantly improve the Macedonian energy sector and its approximation efforts toward the applicable EU acquis.

• Transposition of the remaining elements from the Clean Energy Package. Complete alignment of primary and secondary legislation is needed to ensure proper enforcement. In this regard, adopting the draft legislation comprising the new Law on Energy, amendments to the Law on Energy Efficiency and the new Law on Renewable Energy Sources should be considered a priority. The currently noncompliant legal framework regarding sustainability criteria for biofuels should also be revised. Additionally, transposing and implementing the network codes will be crucial in light of North Macedonia’s obligations under the Energy Community Treaty and its enabling effect for further regional integration. Ensuring sufficient human, administrative and financial resources for fully implementing the Clean Energy Package’s secondary legislation will be critical in the medium term.

• Finalise and adopt the Law on Climate Action. This will enable North Macedonia to align with the relevant EU acquis, thus creating conditions for monitoring and reporting of GHG emissions by the relevant operators. This is of particular importance given that currently, North Macedonia lacks a legal framework for a national inventory system and has not yet implemented a proper reporting system.

• Strengthen the capacity of the energy regulator. By expanding its authority to issue penalties directly, the ERC would benefit from a more streamlined and efficient process to address noncompliance, enabling it to take quicker action and ensure adherence to regulations within the energy sector. Moreover, the regulator’s human and financial resources must be reinforced, especially considering its growing responsibilities.

• Complete unbundling of the gas transmission system. Full unbundling complemented by transposing the Gas Storage Regulation and the EU Regulation on measures to safeguard the security of gas supplies can further reduce the gas supply risks.

• Ensure progress in regional market integration. The transposition of the Electricity Integration Package into national legislation will strengthen the legal framework for regional integration. Additionally, the market coupling between the day-ahead markets of North Macedonia and Bulgaria should be accelerated.

References

[4] Energy Community Regulatory Board (2022), ECRB Market Monitoring Report - Gas and Electricity Retail Markets, https://www.energy-community.org/dam/jcr:e28f0fac-d349-4bda-8f8b-c6548e0ea8ab/2022%20ECRB%20Gas%20Wholesale%20MMR_approved%20by%20ECRB.pdf.

[2] Energy Community Secretariat (2023), Annual Implementation Report 2023, https://www.energy-community.org/implementation/report.html.

[1] European Commission (2023), Commission Staff Working Document, North Macedonia 2023 Report, https://neighbourhood-enlargement.ec.europa.eu/system/files/2023-11/SWD_2023_693%20North%20Macedonia%20report.pdf.

[3] European Commission (2023), North Macedonia 2023 Report, https://neighbourhood-enlargement.ec.europa.eu/system/files/2023-11/SWD_2023_693%20North%20Macedonia%20report.pdf (accessed on 24 January 2024).

[7] European Commission (2010), Commission Staff Working Paper - The Unbundling Regime, https://energy.ec.europa.eu/system/files/2014-10/2010_01_21_the_unbundling_regime_0.pdf.

[5] Eurostat (2023), Electricity Prices for Household Consumers, https://ec.europa.eu/eurostat/databrowser/view/nrg_pc_204__custom_9834069/default/table?lang=en (accessed on 7 June 2024).

[6] Florence School of Regulation (2020), Unbundling in the European Electricity and Gas Sectors, https://fsr.eui.eu/unbundling-in-the-european-electricity-and-gas-sectors/ (accessed on 1 March 2024).

[8] Mumovic, M. (2018), Energy Community: Functional Unbundling Toolbox, Energy Community, https://www.energy-community.org/dam/jcr:91408079-c65b-48a5-be79-c5140f4537dd/REG_SCHOOL_ECS_toolbox_112018.pdf.

Note

← 1.  Upon the adoption of the Clean Energy Package at the level of the Energy Community Ministerial Council in November 2021, https://www.energy-community.org/news/Energy-Community-News/2021/11/30.html