Private hydropower plants warn of bankruptcy after price cut

The Association of Renewable Energy warns the government decision which cut by 30 percent the electricity prices that the state run KESH power corporation charges on small HPPs affects 70 small HPPs worth Euro 200 million.
TIRANA, Dec. 2 – Albanian and foreign companies which have invested in small private and concession hydropower plants have warned the reduction of electricity prices under a unilateral government decision few days ago risks taking them to bankruptcy.
In a reaction to the government decision which cut by 30 percent the electricity prices that the state-run KESH power corporation charges on small HPPs, the Association of Renewable Energy, warns the decision affects 70 small HPPs worth Euro 200 million.
Under a decision taken few days ago, the government has proposed a new formula which is based on the average electricity prices at the Budapest Stock Exchange. The new methodology would bring down electricity prices for new HPPs from an average of 9.3 lek kWh (Euro 0.065) currently to 6.4 lek/kWh. HPPs connected to the distribution grid are expected to get a 10 percent bonus.
“The damage incurred to these producers could be a 30 to 35 decline in income which means we are going to sell electricity below cost,” says Eugen Lici, the head of the Albanian Association for Renewable Energy.
“Why should they hastily approve a government decision which is based on a foreign stock exchange and takes into consideration the minimum price there and not other costs such as transmission ones. As far as I am concerned, the Hungarian Stock Exchange deals with nuclear and thermal energy and not renewable energy,” added Lici.
In a reaction to the association’s claims, the Energy Ministry said the new measures were meant to guarantee liquidity in the energy sector and ease the burden of KESH power corporation as part of a reform which targets liberalizing 30 percent of the market by lifting regulated prices for businesses linked to the mid-voltage grid.
State-run KESH power corporation, which sells the electricity purchased from HPPs almost four times cheaper to the distribution operator, lost around 32 million euros in 2013 from the purchase of electricity at regulated prices from private and concession HPPs with a capacity of up to 15 MW.
The Energy Ministry says the review of this methodology will bring positive impacts on the costs of electricity purchase for KESH at around 2.3 billion lek (Euro 16 million) for 2015 and end the deformation in the internal electricity market, says the Energy Ministry in a statement.
Some 164 concession contracts were signed by the previous government on the construction of 435 HPPs. Electricity generation by small HPPs is estimated at 748,000 MW for 2014 and is expected to rise to 920,000 MW in 2015 which in case of lack of intervention in the regulated prices would further increase the burden of KESH and Albanian taxpayers and lead to increased electricity prices, argues the ministry.
The KESH power corporation has also applied for a 50 percent price increase in the electricity it sells to distribution operator OSSHE, proposing a 3.34 lek/kWh (Euro 0.023 ) tariff, up from 2.2 lek/KWh currently.
The state run power utility buys electricity from small and medium-sized HPPs at an average price of up to 9.37 lek/kWh and sells it to the distribution operator at regulated prices of 2.2 lek/kWh, which is four times lower compared to the purchase price.
The situation has further aggravated the finances of KESH which owes around Euro 11 million only to private and concession HPPs, not to mention hundreds of millions of Euros it owes to commercial banks for electricity imports.
Currently, KESH purchases electricity from 88 hydropower plants with installed capacity at 223 MW but the amount of electricity is projected to increase due to new HPPs expected to be made operational.
Electricity prices for new hydropower plants remained unchanged at 9.3 lek/kWh in 2013, after rising by 35 percent in 2012 due to the stimulating policy by the former government applying bonuses on average import prices to attract investments in hydro-electricity. Power prices for older private or concession contracts remained almost unchanged at 7.77 lek kWh in 2013 based on the average household tariffs.
Since 2007, the Albanian government has awarded more than 400 concession contracts to private companies, of which only 70 have already been made operational.
Electricity generation by private and concession hydropower plants rose by 8.2 percent to 783.604 MWh in the first half of 2014 after Turkey’s Kurum acquired four small and medium-sized HPPs and several new HPPs launched operations, accounting for one-third of domestic electricity generation.
The launch of the Ashta hydropower plants in late 2012 and the operation of several new smaller HPPs, has more than doubled electricity generated by private and concession HPPs in Albania, according to a report by energy regulator ERE.
Some 80 private and concession HPPs were involved in electricity generation in 2013 with total installed capacity of 240 MW, of which 40 MW by new HPPs in 2013. Total electricity generation from these HPPs in 2013 reached 759 GWh or 11.1 percent of total domestic generation in 2013, up from 7 percent in 2012.