Energy sector in North Macedonia

In order to become a member of the European Union (EU) North Macedonia is currently standardizing and privatization its energy industry. The country has a great energy potential due to its favorable geographical location, natural resources and climatic characteristics. However, it currently relies predominantly on fossil fuels (low-grade lignite and gas) and hydropower, and is dependent on electricity imports, a recently published report by the EU supported CEE Bankwatch Network states.

The total production of electricity in 2020 for example was 5436 GWh, and another 2965 GWh were imported to satisfy the total domestic electricity demand. North Macedonia is a full member of the Union for the coordination of production and transmission of electricity European interconnection (UCPTE), which ensures interconnection compatibility with European electric power systems.

Development and capacities

Another report, available on the official website of the International trade administration and including actual data by the International energy agency (IEA) and the International renewable energy agency (IRENA), states that rising energy prices in the last quarter of 2021 and the first six months of 2022 severely impacted North Macedonia.

“Multiple private electricity trading companies canceled contracts to avoid selling at a loss, disrupting the operations of their clients, and forcing clients to fall back on the universal supplier. Still, construction of an internal gas distribution network continued, regional cooperation for electricity and gas interconnections increased, and the government pursued new investments in wind and photovoltaic plants. There were no major energy legislative changes, but North Macedonia continued to harmonize its energy regulations with the EU Energy Community’s Third Energy Package (TEP)”, the report informs.

The country’s state-owned power company was partially privatized in the early 2000s. Since joining the market in 2006, the Austrian utility firm EVN has been in charge of distributing power throughout North Macedonia. Electricity transmission in the country is managed by the state-owned MEPSO (Makedonski Elektronprenosen Sistem Operator), and electricity generation – by the state-owned ESM (Elektrani na Severna Makedonija; formerly ELEM).

One combined generation power plant, a heavy oil plant, a few solar power plants, a few biogas plants, and one wind farm make up North Macedonia’s system for producing electricity. Two coal power plants with a combined installed capacity of 825 megawatts (MW) and several hydro power plants with a combined installed capacity of 695 MW also contribute to the production.

The two coal power plants generate about 55% of the nation’s yearly electrical consumption. To assist North Macedonia in lowering its dependency on electricity imports, the smaller coal power station “REK Oslomej”, which was dormant through 2020, restarted operations in 2021.
“ESM refurbished the “REK Bitola” coal power plant in 2017, but its equipment is still largely outdated. There are two open pit lignite mines with a total capacity of 7 million tons/year and estimated reserves of 10 – 15 years. Domestic lignite has low-caloric value, and the government has announced plans for gradual closure of the Bitola power plant and the coal mines”, the International trade administration reports.

Regardless of significant investments in routine maintenance and minimal upgrading, domestic electricity generation fell by more than 25% during the last ten years, and imports accounted for 33,2% of total consumption in 2021. The total annual production of electricity in 2021 was 5285 GWh, 3,1% more than in 2020, and it covered 66,8% of total domestic electricity needs.

The 333 MW Chebren hydropower project (HPP) is being built thanks to a concession the government has made to private investors. The USD 640 million investment is considered essential for balancing the electricity system.

Challenges and opportunities

ESM owns and operates North Macedonia’s only wind farm, which is a 36,5 MW park in the southern part of the country. With two different 14 MW projects in the same location, it intends to enhance capacity. The government has also identified a future 415 MW wind park project with the German company WPD Group as a “strategic investment” in the country’s northeast part.

Russian gas is transported from the Bulgarian border to Skopje by a natural gas pipeline operated by Gasification-Macedonia (GA-MA), which was once a joint venture between the government and the commercial oil distributor Makpetrol. The entire pipeline’s capacity is supplied by Gazprom. The Skopje, Kumanovo, and Kriva Palanka cities as well as other industrial users are principally served by this pipeline.

The government established National Energy Resources (NER) to supervise the development of an internal gas distribution system. Makpetrol’s stake of GA-MA was purchased by NER for USD 35 million in August 2021, and a merger between NER and GA-MA took place in 2022. To diversify the nation’s natural gas supply, efforts are being made to construct natural gas links with Greece and Bulgaria.

In the country’s western part ESM built a 10 MW photovoltaic power station close to the coal power plant Oslomej with the help of private partners. Testing on the facility started in April 2022, and it is now completely operational. The project received a loan of EUR 5,9 million (USD 7 million) from the European bank for reconstruction and development (EBRD), with ESM providing the final EUR 1,1 million (USD 1,3 million) of the funding.

The Oslomej site will get 80 – 100 MW of photovoltaic capacity according to contracts negotiated by the government with two international partners (Turkish and Bulgarian). In addition, the government committed to paying a premium tariff of EUR 460 000 (USD 543 000) over the following 15 years by signing contracts with private investors to install 35 MW of solar on state-owned territory and 21 MW on private land.

Oil storage facilities in the Greek port of Thessaloniki are linked to an outdated oil refinery outside of Skopje via a 213-km oil pipeline with a 2,5 million ton per year capacity. Only since 2013 have the pipeline and refinery been used for storage. The shut-down oil pipeline may be reopened, according to the governments of Greece and North Macedonia. In North Macedonia, OKTA mostly trades crude oil.

“ESM and Greece-based project developer Gastrade SA signed an Advance Reservation Capacity Agreement (ARCA) in March 2022, which marked the beginning of North Macedonia’s investment in the Alexandroupolis Floating Storage Regasification Unit (FSRU). In April 2022 ESM provided the required EUR 5,6 million banking guarantee, committing to book gas capacity from the FSRU. In March 2021, ESM signed a Memorandum of Cooperation with DAMCO ENERGY S.A. of Copelouzos Group in Greece to acquire a 25% stake in the Alexandroupolis gas-fired power plant”, the International trade administration also informs.

The war in Ukraine altered the geostrategic effect on the global energy markets, which was mostly manifested through changes in the price of energy fuels and power, and thus had a negative impact on plans for the low-carbon transition. Governments have reevaluated their energy policy in response to rising energy prices. Many nations are considering increasing their use of fossil fuels as a response, including North Macedonia.

In order to protect the nation’s energy security, the country has postponed closing coal-fired power facilities since October 2021. This decision was pushed by the substantial rise in energy prices on the market. The local government was compelled by the energy crisis to give fiscal help to the energy businesses, totaling EUR 760,2 million.

At the same time, North Macedonia must abide by EU climate and energy Policies, which take on the developed countries’ duties under the UNFCCC to reduce emissions, as a candidate member state to the EU. The nation is also a contracting party of the Energy community, which is acting to address the climate issue and is pushing the implementation of EU legislation for monitoring, reporting, and verifying greenhouse emissions.