Government to review regulated hydropower prices

TIRANA, March 26 – The Albanian government says it will initiate a reform in the energy sector which targets reviewing the regulated electricity prices small and medium sized hydropower plants currently apply causing considerable losses to state-run KESH power corporation. Energy regulator ERE says it is also carrying out a study to decide on whether household electricity prices could face an increase next year.
“The electricity producers are not the same, and not all producers have the same electricity costs, and I think the model that has been shaped in Albania regarding electricity prices for private hydropower plants must be reviewed. We will follow the best models which adjust to your investments but at the same time the needs the energy system faces,” Energy Minister Damian Gjiknuri said recently in a conference with HPP operators.
He announced the approval of a new energy law targeting the liberalization of the energy market and reducing the burden to the state-run KESH power corporation.
Italian Ambassador to Albania Massimo Gaiani, who represented the interests of several Italian investors in hydroelectricity, said the Albanian government should also take into consideration taxes and employment that local hydropower plants generate compared to imported electricity prices.
“If compared to the import prices, it must be taken into consideration that every kWh produced in Albania generated taxes and employment. This must be taken into consideration from the point of view of sustainable system which has to face the problem of losses and the gap between electricity generation and billing. Physical losses and bill collection are the biggest problem for the equilibrium of the system,” said the ambassador.
The Albanian Energy Association representing several small hydropower plants says a reduction in the regulated electricity prices risks taking these investments toward bankruptcy.
The favourable prices set for electricity purchases from small and medium-sized hydropower plants built under concession contracts in the past seven years is severely affecting the troubled finances of state-run KESH power corporation. KESH lost around 32 million euros in 2013 from the purchase of electricity at regulated prices from private and concession hydropower plants and the losses are expected to increase to 39 million euros this year, KESH sources say as quoted by local media.
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 CEZ 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 situation 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.
“It is obvious that with this pace of electricity generation by small and independent generators, the financial pressure toward KESH is increasing. With all due respect to private investments in the electricity generation, I think it is high time to review support policies to these investments,” says KESH director Agron Hetoja.
The Albanian government has recently approved around 82 million Euros in loan guarantees for KESH power corporation for electricity purchases due to the drought period until early January 2014.
Electricity sold by new hydropower plants rose to 9.3 lek/kWh in 2012, up 35 percent compared to 2011 because of the stimulating government policy calculating them on electricity import prices, says energy regulator ERE in its 2012 report. Power prices for older private or concession contracts rose to 7.77 lek kWh in 2012, up from 7.57 lek kWh in 2011 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.