Renewable energy opportunities in Albania

EnergyTechnical ArticlesSouth-East European INDUSTRIAL Мarket - issue 1/2022 • 22.03.2022

The Republic of Albania is a coastal country in South East Europe, bordering Montenegro and Kosovo to the north, North Macedonia to the east, Greece to the south, and the Adriatic and Ionian Seas to the west. Its capital, Tirana, is the largest city and the political and economic centre of the country. The second largest city is the port city of Durres. The country is predominantly mountainous, with the more densely populated lowland coastal region spanning the western part of the country. Albania’s climate is typically Mediterranean with warm, dry summers and mild, wet winters. Average rainfall varies seasonally and across the country with about 95% of the annual precipitation occurring in the winter season, predominantly in the North Albanian Alps, while the southwestern part of the country commonly experiences droughts in the summer. A World Bank study, published in 2013, indicates that Albania is one of South East Europe’s most vulnerable countries to climate change. Changing weather patterns have already resulted in increased temperatures, decreased precipitation and more frequent extreme events such as floods and droughts.

Albania has a population of approximately 2,9 million. Tirana’s population of around 896 000 has doubled in the past three decades and amounts to almost a third of the country’s population. Durres accommodates about 10% of the population. More than 98% of the population aged 15 years and older is literate according to the United Nations

Educational, Scientific and Cultural Organization. In 2018, unemployment rates stood at just over 12% and were highest among young people (15 – 29 years; 23%).
Albania has made significant economic progress during the past three decades, moving from a low-income economy to a middle-income country in Europe, with gross domestic product (GDP) per capita increasing from its lowest point of USD 200 in 1991 to USD 5268 in 2018, shows data from the World Bank and the Organisation for Economic Co-operation and Development. The real annual GDP growth rate in 2018 was 4,15%, one of the highest in the South East European region.

According to UN data, the structure of the Albanian economy has remained relatively unchanged over the past decade, with the services sector dominating, contributing to over half (54,1%) of the country’s gross value added in 2019. The industrial and agricultural sectors contributed 21,7% and 24,2%, respectively, in the same year.
Albania is a net importer of goods and services, although exports continue to rise and support economic growth. In 2018, Albania exported almost one-third (31,7%) of its GDP in goods and services, World Bank data shows. However, energy imports place a considerable weight on economic growth and the country’s trade deficit, specifically in the energy sector. A drought in 2017 exposed the electricity sector’s over-reliance on hydropower and resulted in electricity imports that cost the country USD 240 million and put public utilities in the power sector into severe financial difficulty. This expenditure reportedly forced the government to revise its budget to financially assist the imports and use emergency loans for power imports.

According to a Renewables Readiness Assessment by the International Renewable Energy Agency (IRENA), strong and sustained economic growth is a main component of the country’s sustainable economic and social development agenda, and in nurturing this growth the energy sector plays an increasingly critical role. Establishing energy security, energy sector sustainability and an ensured energy supply at cost-competitive prices are some of the key challenges for the country to address in the near term.

In comparison with neighbouring countries in the South East Europe region, Albania’s energy mix has one of the highest shares of renewable energy. Ensuring a cost-competitive, secure energy supply in Albania can be achieved by further increasing the renewable energy share and diversifying the country’s electricity sector.
The diversification of the country’s electricity sector is critical, as the current system is almost entirely hydro-based and thus susceptible to climatic variations. In recent years, the Albanian government has taken commendable steps for the promotion of non-hydro renewable energy use.

 

Energy sector profile

Albania’s primary energy production is dominated by fossil fuels – mainly crude oil – whose share has ranged between 46% and 68% over the last five years. Hydropower is the second largest contributor, with a share ranging from 20% to almost 40%, depending on annual rainfall. This vulnerability to climatic externalities for electricity production creates notable fluctuations in domestic energy production. For example, for the last five-year period, the lowest primary energy production was recorded in 2017, which was a particularly drought-stricken year, whereas the highest primary energy production was recorded in 2015 – a year of considerable rainfall. Other domestic energy sources for primary energy production include biomass (including wastes, residues, non-food cellulosic material, and lignocellulosic material), lignite and natural gas.

Because domestic energy production is not able to meet demand, Albania is on average a net energy importer. In 2018, Albania’s total primary energy supply (TPES) amounted to 2131 kilotonnes of oil equivalent (ktoe). It remains predominantly fossil fuel based (68% composed of natural gas, oil and lignite), followed by electricity (24%), which is both produced from hydropower domestically and imported. Biomass and other energy sources (such as solar thermal) account for 8% of the TPES.
IRENA data shows that Albania’s electricity demand grew rapidly in 1995 – 2000. This was due to demographic, economic and social trends, including rural-to-urban migration, increased use of electricity for space heating and cooling, and rising living standards.

To meet the growing electricity demand, the country has increased its installed electric capacity over the past decade from 1455 megawatts (MW) in 2007 to 2204 MW in 2018. The majority of the installed capacity (1448 MW) is owned by the Albanian Power Corporation (KESH), while private producers account for about a third of the installed capacity (755 MW).

As stated before, the Albanian power system is dominated by hydropower, representing 95% of the country’s installed capacity with a total of 2096 MW installed. The installed hydropower capacity comprises mainly large hydropower installations (i.e., above 10 MW in size) amounting to 1904 MW, while small hydropower installations amount to 192 MW. The Drin River in northern Albania is the largest river in the country. It hosts three of the largest hydropower stations owned by KESH: Fierze (500 MW), Komani (600 MW) and Vau I Dejes (250 MW), which are also referred to as the Drin River cascade.

The country has a 98 MW fossil-fuel thermal power plant representing 4% of the total installed capacity that has not been put into use since its construction in 2011 due to a failure in its cooling system. In January 2019, the Ministry of Infrastructure and Energy (MIE) issued a tender for a public-private partnership (PPP) for a concession contract to revive the power plant, potentially converting it to a natural gas-fuelled plant to be supplied with gas from the planned Trans Adriatic Pipeline. The remaining 1% (10 MW) of installed capacity in 2018 comprised small-scale (i.e., each less than 2 MW) solar photovoltaic (PV) plants.
Albania’s domestic electricity production has fluctuated in recent years due to the electricity sector’s over-reliance on hydropower and annual precipitation. Despite the steady capacity additions over the years, domestic electricity production during the drought of 2017 fell to 63% (4,5 terawatt hours [TWh]) of the previous year’s production (7,1 TWh).

This forced the country to net import 39,2% of its electricity consumption in 2017 to meet demand. This signals the power sector’s extreme vulnerability to climatic changes and the urgent need to diversify away from hydropower to ensure energy supply security. The electricity system in Albania is also suffering from high losses. Although the country has taken measures to gradually reduce these losses over the past few years, they accounted for around 21,7% of the total electricity consumption in 2019.

Comparison of the net monthly domestic electricity production in 2018 to the average values for the same months over the ten-year period from 2007 to 2017 shows that the difference between the months of lowest and highest electricity production, which in 2018 was three times the average difference of the ten years prior, is notable.
This indicates increased seasonal variations of electricity production. Also notable is that, despite the additions in installed capacities, net domestic electricity production in October, November and December 2018 was below the ten-year average.
This signals increasingly drier months of the last annual quarter and, despite additional hydropower capacities, an increasing inability to meet electricity demand in the second half of the year.
When monthly electricity consumption profiles in 2018 are compared with the ten-year average, peak consumption months tend to be during the hottest and coldest months of the year due to electricity demand for space cooling and heating, respectively. In 2018, compared to the ten-year average, higher electricity demand is evident in the summer months, particularly in July and August, largely due space cooling. This is further compounded by the fact that electricity production decreases significantly from June onwards and is unable to meet domestic demand in the second half of the year. Thus, partially offsetting electricity demand for heating and cooling would allow for domestic production to better meet demand from June to December.

 

Hydropower

Hydropower dominates Albania’s electricity sector with 2096 MW of installed capacity at the end of 2018, representing 95% of total installed power generation capacity. The River Drin alone generates about 90% of Albania’s domestic electricity supply. Of the total installed hydro capacity, large hydro power plants (more than 10 MW) account for 1904 MW, while small hydro power plants (less than 10 MW) account for 192 MW. As of 2018, the total installed capacity of hydropower amounted to just under half (47%) of estimated hydro potential capacity. According to the National Agency of Natural Resources’ (AKBN) estimates, total hydro potential capacity is estimated at 4500 MW, with an estimated annual output potential of up to 18 TWh.
However, climate change is already having an adverse effect on hydropower production, which is likely to continue in the future. By 2050, annual average electricity output from Albania’s large HPPs could decrease by about 15% and from small HPPs by around 20% compared to 2010 levels. IRENA’s 2020 study for the South East Europe region, Renewable energy prospects for Central and South-Eastern Europe energy connectivity (CESEC), estimates that in fulfilling an overall 48% renewable energy share of the gross final energy consumption, the total installed capacity of hydro by 2030 is targeted at 2150 MW.
In other words, no further hydropower capacities are proposed by 2030 in addition to existing plans. However, by the end of 2018, a total of 185 concession contracts were signed for the construction of 525 small HPPs nationwide. Of these, 165 are in production, 316 are under construction and the rest are obtaining the necessary permits. By the end of 2020, 184 MW of hydropower capacity was added with the commissioning of the newly constructed Moglica HPP. This is the largest independent power producer plant in Albania.

 

Solar power

IRENA’s Renewables Readiness Assessment of Albania states that at the end of 2018, 10 MW of solar PV was connected to the grid (EnC, 2019). According to the MIE, since the introduction of the solar FiT support scheme, 88 applications for the construction of solar PV plants of up to 2 MW have been received, and 12 of the applications have been authorised for construction, which amount to a total capacity of 24 MW.
Following the first auction for solar PV, in November 2018, 50 MW of solar PV was approved for construction under a Contract for Difference (CfD) support scheme. An additional 50 MW will be built by the same developer without a support measure. However, the power purchase agreement (PPA) for this project has not been signed. Following another auction round in January 2020, a further 140 MW of solar will be built in Karavasta, near the city of Fier, of which 70 MW will be supported through a PPA with the off-taker at EUR 24,89/MWh (USD 29,37/MWh), while the rest will be sold at market price. Subsequently, the PPA for this project was signed in November 2020.
The latest auction bidding round was launched at the end of 2020 for the construction of a 100 MW solar PV plant in Durres with a price ceiling of EUR 55/MWh (USD 64,9/MWh). Estimated solar thermal installations in Albania amounted to 176 000 square metres of solar water heating capacity, which is equivalent to 123 MW of nominal thermal capacity, by the end of 2015. Of this installed capacity, 90% are flat-plate collector systems, while 10% are evacuated tube collectors.
As stated in IRENA’s Renewables Readiness Assessment of Albania, the country has outstanding solar insolation within most of its territory at more than 1500 kWh/m2 annually, with highs of 1753 kWh/m2 annually, particularly in the western part of the country. The country has some of Europe’s highest number of sunshine hours per year, presenting significant potential for development of solar PV for power generation and solar thermal for heating purposes. On average, the country enjoys 220 sunshine days, or 2700 hours of sunshine per year.
According to IRENA’s study on the cost-competitive renewable energy potential in South East Europe, Albania’s technical potential for the deployment of solar PV is estimated at 2378 MW, with production of 3706 GWh annually. IRENA’s CESEC study proposes in its REmap scenario a solar PV installed capacity of 1074 MW by 2030, with annual generation potential of 1697 GWh.
With regard to solar thermal, a study undertaken by the United Nations Development Programme (UNDP)/Global Environmental Facility (GEF) Solar Water Heating (SWH) project estimated that the potential for installing SWH systems in public buildings alone amounts to 200 000 m2 of collector area. Such installations would collectively correspond to some 100 GWh of electricity savings per year, which would otherwise have been used for the buildings’ various sanitary hot water needs. SWH systems have immense potential to alleviate increased electricity demand for water heating, especially in the peak summer months.

 

Wind power

IRENA’s Renewables Readiness Assessment of Albania states that the country currently has no installed wind power plants. However, according to the MIE, since the introduction of the wind FiT support scheme, 70 applications for the construction of wind plants up to 3 MW have been received. Of these, three have been authorised for construction with a total capacity of 9 MW which qualify for FiT support. At the end of 2020, a 150 MW wind tender was launched, restricted to projects with a minimum capacity of 30 MW and a maximum capacity of 75 MW. Each successful bidder will sign a 15-year PPA for the sale of 100% of electricity generated through the CfD support mechanism.

Annual average wind speeds in Albania range between 3,3 metres per second (m/s) and 9,6 m/s. The most suitable areas for wind power production, with capacity factors typically varying from 22% to 25%, have annual average values ranging between 5,8 m/s and 7 m/s. According to IRENA’s estimates, Albania has a cost-competitive wind potential of up to 7400 MW under the low-cost capital scenario. IRENA’s CESEC study proposes in its REmap scenario a wind installed capacity of 616 MW by 2030, with an annual generation potential of up to 1794 GWh. According to IRENA’s assessments, the highest potential zones for wind power development are in the south and north of the country.

 

Geothermal energy

Albania is in the very early stages of geothermal assessment. However, similar to other South East European countries, low-enthalpy geothermal energy resources are available in Albania.
Maximum temperatures of up to 80°C can be found in the south of the country bordering Greece and in the northeast. The majority of Albania’s geothermal resources are located in the Kruja Geothermal Area, which extends from the Adriatic Sea in the north of Albania and runs in a southeastern direction through the country towards the Konitza area in Greece. Within this zone in carbonate reservoirs lies an estimated geothermal energy potential of 5,9x108 – 5,1x109 gigajoules. Due to the low-enthalpy resource, geothermal potential for power production is not likely and would mostly be exploited in heating applications.

 

Biomass energy

Albania’s biomass use is largely firewood utilised for various heating applications. For the production of biofuels, Albania has an operating plant that has total capacity to produce 100 kilotonnes (approximately 112 million litres) of biofuels annually. According to some estimates, this plant can produce close to the 10% biofuel blending targets by volume if operated at full capacity. However, this plant operates at 10 – 15% of full capacity on average.
According to IRENA’s CESEC study, biogas and biomass power production could reach 86 MW (495 GWh annually) by 2030, while liquid biofuels are estimated to be able to meet 8% (4 petajoules) of the transport fuel demands by 2030.

 

Critical actions to scale-up renewables

For solar and wind resources in Albania, analysis of availability and economic potential is very limited. This hinders policy development in setting achievable targets. In particular, zoning for solar PV and wind generation projects should be prioritized, recommends IRENA. This entails the identification of areas of high-quality resource potential for power development, the exploitation of which is environmentally sound and both technically and economically viable. AKBN, as the institution tasked with gathering resource potential data, should therefore lead the development of a renewable energy zoning study for solar and wind, in co-operation with MIE and development partners, using IRENA’s potential suitability analysis presented in the Renewables Readiness Assessment as a basis.

Acording to IRENA a comprehensive energy plan can support effective decision-making and guide the sector’s development in a coherent way, offering clarity and visibility for various energy stakeholders, including investors and development partners. The planning department of MIE, along with AKBN, are encouraged to take the lead in developing a holistic least-cost master plan for the energy sector to aggregate sub-sectoral plans and assess the accompanying infrastructure needed to reach overall energy goals. Specifically, this plan should guide when, where and how investments in the energy sector should be made.

The Albanian distribution network suffers from overloading in high-demand centres, such as in Tirana, posing serious obstacles to the injection of distributed generation such as solar PV net-metering systems, notes IRENA. The distribution system operator, OSHEE, must immediately prioritise the refurbishment of the distribution grid around the main load centres of Tirana and Durres; begin planning for an active grid that can allow for bidirectional electricity flow to accommodate renewable energy prosumers; and initiate grid upgrades close to planned renewable energy generation zones so that power can be effectively evacuated to major demand centres.

Although Albania has made progressive efforts to establish various support incentives for the greater uptake of renewables, these could be further strengthened, for example by reducing VAT to incentivise deployment. Whilst exempted in some cases of imported solar PV machinery and equipment, in the domestic sale of equipment – especially for systems below 500 kW – the full 20% VAT is applied. VAT reductions could therefore be applied on all machinery and equipment related to all renewable energy technologies. Furthermore, the renewable energy financing obligation for those who purchase directly from the transmission system operator should be embedded into electricity pricing for non-tariff consumers connected to the transmission system (about 10 – 12% of consumers).

According to IRENA Albania also requires a dedicated renewable energy agency, with its own funding stream unconstrained by treasury limitations, to inform the coordinated development of renewables in line with national and international obligations. Based on an envisaged mandate stipulated within the Renewable Energy Law, such an agency could also keep an updated registry of renewable power producers and service providers; collaborate for training, certification and capacity building; track the energy balance contributions of all energy stakeholders and draft timely assessments; monitor the effectiveness and implementation of energy sector master plans; carry out resource potential analyses and pre-feasibility studies for renewable energy resource development; and provide transparent information on renewable energy data, incentives, energy sector development plans and permitting procedures for the public and private sectors.

Other actions that IRENA recommends include developing a strategy for a greener transport sector, developing a heat bylaw, facilitating financing of bankable project proposals, raising public awareness of the benefits of renewable energy, enhancing institutional capacities and local human resources and strengthening communication and co-operation among stakeholders.

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