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SOUTH-EAST EUROPEAN INDUSTRIAL МARKET » South-East European INDUSTRIAL Мarket - брой 5/2009, Ноември

Energy Policy, Major Market Players, Energy Sources

Energy Policy
Albania had its National Strategy for Energy approved by the Government in June 2003, and after three years the Action plan for implementation to was updated in June 2007. In this Strategy three main issues are analysed:
• energy demand-supply situation until 2015
• restructuring the energy sector
• preparation of an investment package for the implementation of all energy efficiency measures and all master plans based on recommendations of the National Strategy on Energy.
The scope of the National Energy Strategy is to develop an effective energy sector that: guarantees the security of energy supply in general, and electricity in particular and enhances an efficient and economic use of energy, with minimal environmental impacts, in order to support the sustainable development of all economic sectors.
The primary objective of the National Energy Strategy is to restructure the energy sector based on market economy principles and develop a modern energy policy.

Electricity - transmission and distribution
In the last 5 years Albania has started restructuring its energy market toward a more open market, corresponding to European directives. It still faces high distribution losses, the second highest in southeastern Europe. The relatively low price of electricity increased drastically in 2007-2008, from 5.9c/kWh to 7c/kWh. However, because it had been sold at only 75% of its true costs (generation, transmission, and distribution costs) the government and KESH have been introducing strategies to eliminate the subsidies completely, to attract investments, and privatize distribution. The path of KESH privatization required deep reforms in the Albania power sector to transform it from a vertically integrated structure to a structure with legally, functionally, and financially separate Generation, Transmission and Distribution Entities. According to the Energy Community Treaty signed in 2005 (in Athens), the current process of restructuring KESH will liberalize the electricity market, attracting greater interest and participation in the new market structure. The approval of the Albanian Market Model in 2006 was an important step toward the development of a modern European-style electricity market, indicating increased harmonization with EU electricity policies. This should lead to increased socioeconomic benefits through a number of different types of efficiency gains. This, in turn, should yield higher consumer benefits in terms of security of supply and quality of service. The 2006 Concession Law, including the specific law on privatization of KESH Distribution, spun off the energy distribution function of KESH into a new entity, Distribution System Operator (OSSH). As a result of these successful reforms, CEZ was selected as the winning bidder for OSSH, and in March 2009 Albania's Ministry of Economy, Trade, and Energy sold 76% of the shares of OSSH to CEZ for E102 million. CEZ has a long term experience with restructuring distribution companies in the Czech Republic, Bulgaria and Romania. This privatization will introduce modern management practices that will improve energy services for all customers while attracting much-needed capital investment to the country.

Albanian Power Transmission System
composed of 400, 220 and 110 kV transmission lines, faces serious problems due to inadequate development. Lines, most dating from the 1960s and 1970s, have suffered from a dearth of investment for 15 years. Lack of rehabilitation and technological upgrades for the equipment and dispatch center in Tirana have significantly lessened the quality and quantity of the electricity supplied. New investments in cross-border interconnection lines and the transmission grid within the country are needed. The efforts to construct new 400 KV lines between Podgorica, Kosovo, and Macedonia have long been underway and are making slow progress. In 2007, the Croatian power transmission equipment manufacturer Croatian Dalekovod won a 42 million euro tender to build a 157-kilometre long 400 kV electricity transmission line between Albania (Tirana) and Montenegro's capital Podgorica. For a separate line between Tirana and Pristina (Kosovo's A&B Thermal Power Plants), KfW expressed interest after the results of a feasibility study. This project would be of high value to both countries. Kosovo A&B TPP generation capacity (850 MW) exceeds demand for the majority of the year (thought significant shortfalls occur during winter peak demand periods). Albania's Hydro Power plant (HPP) has the potential to partially meet demand shortfalls in Kosovo through such a line, while Kosovo could take advantage of the capacity to transmit excess power and more fully utilize its generation capacity.
Albania's distribution system suffers problems similar to the transmission system. Total technical and non-technical losses in 2007 were 35%. Technical losses of 18% are considered more reasonable within a distribution system and 3 - 3.5% in a transmission system. The investment costs per capita to upgrade distribution lines are greater because of the low population density.

Electricity Regulatory Entity (ERE)
The expected reform of the energy sector has taken into consideration the growth of regulatory role of the state, the improvement of the legal framework and creation of an appropriate positive financial environment for investments. Restructuring or re-shaping of a contemporary system that would respond to the needs of the economic and social development of the country, as well as to the requirements of a regional market, requires an efficient implementation of those measures. Although baring in mind, that the state with its budget cannot afford by itself the financing of the energy sector. Of vital importance is the creation of a complete legal framework defining the basic rules for the organization of different energy sectors, complying with EU directives for liberalization of electricity market and other energy sources within the scope of European norms and standards.
While the "market" is in principle expected to lead to long-term equilibrium in an efficient way, the path from a non-competitive market to a competitive one is long and tends to create forces impeding the introduction of further competition. Even in a fully competitive model, there are forces that lead to high capital concentration (i.e. in generation), which negates the expected benefits from competition. It is therefore necessary that some form of regulation is introduced in order to maintain the market within the boundaries of competition for all market participants. Regulation is carried out through a set of transparent rules regarding the technical and commercial relations among participants. ERE has established itself as an authority accepted and respected by all participants ensuring the smooth and unobstructed operation of the market. ERE is the responsible institution in proposing and monitoring the implementation to the Government a market model and shall reflect the selected model in the market rules and the grid code to be approved by it as the law provides for.
ERE has the responsibility of regulating the performance of Market Participants, under appropriate rules and regulations and in accordance with transparent procedures. Law No. 9072 On Power Sector (Albanian Official Gazette (Monthly Publications issued by Albanian Parliament) (effective August of 2003, and as amended) provides a legal basis for the exercise of those responsibilities by ERE.

Major Energy Market Players

Transmission System Operator (OST)
An independent state-owned company that owns, maintains, operates and expands the transmission system. The OST verifies, with information provided by the Distribution Company (Disco) and other market participants (as described more fully below), the annual, weekly and day-ahead basis of the supply to Tariff Customers for energy and ancillary services. Disco has to demonstrate to OST that it has procured sufficient supply to serve its load. The OST may, in requiring the Disco to make such a showing, permit supply to match anticipated demand within a specified range, so long as that range does not create a risk of unreliability. The OST has the authority to direct the Disco to make purchases consistent with the amount of supply required. In addition, the OST has the authority to require Eligible Customers to provide information demonstrating that they will be able to secure sufficient supply, including energy and ancillary services, to serve its projected load.
The OST should receive compensation for its services, including compensation for the ownership, maintenance and operation of the transmission system, from the market participants pursuant to tariffs approved by ERE. (Law on Power Sector, 23 May 2003).
In it's "Priority Infrastructure Investments in Power Sector" for 2008 the Albanian Transmission System Operator included: a)Construction of the new interconnection line the former YugoslavRepublic of Macedonia -Albania -Italy; b)Construction of the new overhead transmission line 400 kV from the 400/220/110 kV "Tirana 2"substation (Albania) to "Kosovo B"substation.

KESH Generation (KESH Gen)
KESH Gen sells to the Disco ancillary services and electricity generated by existing hydro units at prices approved by the ERE under bilateral contracts (which may be annual or for such other period as they parties may agree, subject to the approval of the ERE), and additional electricity requested by Disco to meet the load of Tariff Customers to the extent of availability.
To the extent that KESH Gen has excess generation available (i.e., when all of the Disco's requirements are met) KESH Gen may, with ERE approval, sell or "swap" that excess into the export market so long as the financial value of the export is fully transferred to the Disco for the benefit of Albanian Tariff Customers. This provision is to ensure that all benefits from domestic hydro capacity will be preserved for Albanian Tariff Customers.
ERE has the responsibility to ensure that any such sale or swap (alone or in conjunction with other swaps) produces consumer benefits in Albania.
In fulfilling this responsibility, ERE may determine the amount of revenue received by KESH Gen for the sale of excess production into the export market, and ensure that the Disco receives, to the credit of the Tariff Customers, the value of revenue generated by hydro production.

CEZ Trade Albania sh.p.k.
was registered by Albanian Commercial Register on 29 September 2009. CEZ Trade Albania sh.p.k. is sole owned by CEZ, a. s., its registered capital amounts to ALL 40.000.000. The establishment of a new subsidiary was, in compliance with the Company's Articles of Association, approved by the Company's Board of Directors and the Company's Supervisory Board was informed. The distribution company attends nearly a million of customers and its gross annual electricity supply amounts to 5.3 TWh.
The government of Albania and CEZ Group signed a contract for the sale of 76 percent of the shares of the Electricity Distribution Company of Albania. CEZ was selected as the winning bidder by the tendering commission already in October 2008. The decision was then confirmed by the Albanian Government after further consultations. IFC, a member of the World Bank Group, advised the Albanian government on structuring the transaction and executing an open, transparent and competitive bidding process. The value of the contract for the majority stake in OSSH is E102 million. Following negotiations ended in the signed contract.

Oil and Gas Market Players
Despite the involvement of private operators in all activities of hydrocarbons sector, three main companies: Albpetrol (Albanian State Oil and Gas Production Company), ARMO (Albanian State Refinery and Marketing of Oil), and SERVCOM (Service Company of Oil and Gas), actually operate as joint-stock companies completely separated from each other. Privatisation is in progress in the oil and gas sector. The privatisation process of Albpetrol (production), ARMO (refinery) and Servcom (distribution) has already started.
Based on the law no.8450, date 24.2.1999 "On the processing, transporting and trading of oil, gas and their by-products", each subject is obliged to guarantee a security reserve equal to 30 days sale of the previous years activity. In order to apply the above law, many companies have provided to improve the storage structure starting with the construction of seashore deposits. Oil by-products are mainly imported from Greece and in lower quantities from Italy, Russia and some other countries. Import of oil by-products has lately considerably increased, and is mainly done through ports of Vlora, Durres, Shengjin and Saranda. Domestic stocking capacities are capable to face the by-product import, taking into account that during the last decade 100-800 thousand ton oil by-products have been imported every year. The export of by-products started after 1980 mainly consisting in semi-processed products.

Albptrol sh.a is a public company with Albanian Government, the Ministry of Economy, Trade and Energy as the sole owners. Albpetrol has the right to operate in all gas and oil bearing areas within the Republic of Albania territory and to an undetermined period of time. In case of collaboration within foreign investor, 25-30 years. Albpetrol has more than 60 years of experience in oil and natural gas extraction. Currently, the company produces form 6 oil- fields, in carbonatic and terrigenic reservoirs, from 4 gas-bearing areas and 1 bitumen sand area.
In compliance with Albanian Hydrocarbon Legislation, Albpetrol could sign agreements with foreign investors. Currently it has signed agreements with foreign investors for the existing oil and gas resources.

ARMO oil refiner is the only oil refiner in Albania. It owns oil refineries at Ballsh and Fier, research center, 11 depots, a small network of fuel stations, and the Vlore Terminal located in the south coast on Adriatic sea. The Ballsh refinery is the largest refinery in Albania and has a designed capacity 1 million tonnes per year. Fier refinery has a capacity of 500 thousand tonnes per year and is designed mainly to produce bitumen.
In June 2008 a U.S.-Swiss group won a tender for 85 percent of ARMO for 125 million euros ($197.6 million). The group is made up of Refinery Associates of Texas and Swiss-based Anika Enterprises SA and Mercuria Energy Group Ltd.
The group beat independent trader Vitol which offered 97 million euros for the company, which has a refinery at Ballsh, a smaller one at Fier and a small network of petrol stations.

Servcom deals with the drilling and the development of the oil and fields of Albania.

Supply: Energy Sources

Electricity Generation

The Albanian electricity market regime is based on a Power Sector Law which came into force on May 23 2003, with the aim to restructure the Albanian Power Sector. The regulatory framework attempts to promote competition in electrical energy production and supply. Up to now the only one player in Albanian power sector is KESH (with total installed capacity about 1660 MW) and some very few small hydro power plants (with total installed capacity about 14 MW).
The total installed power generation capacity in 2005 was 1659 MW, including 1446 MW hydro and 213 MW thermal. From TPP capacities, only Fier TPP is actually working with a reduced capacity of 12-20 MW from the existing 159 MW. 96% of the total annual power generation comes from HPPs, from which the three HPPs on Drin river cascade generate 86% of the total production. In a normal year, the total generation of electricity is 4160 GWh. As shown in the figure, the generation capacity had a rapid increase after the construction of three HPPs on Drin river cascade: Vau Dejes, Fierza and Koman. On the other hand, the construction of TPPs was more uniform, but as the years passed, after the construction of Koman HPP in 1986, the domination of HPP was evident.
Quite the contrary occurred with the TPP, especially after 1990 when the capacity started to reduce due to the lack of operation in a number of coal-based TPP. After the decommissioning of Korca TPP in 1995, the coal-TPPs stopped the operations. With other TPPs, practically out of work, efforts were concentrated on the rehabilitation of Fier TPP, especially the Czech unit with an installed capacity of 60 MW, constructed in 1980. KESH and the Albanian Government consider the rehabilitation of Fier TPP as a first hand priority. The rehabilitation will lead to a higher technical capacity, more security and obviously to a lower electricity generation unit cost. The first investment for the rehabilitation of the Czech unit (60 MW) is 23 Million USD.
World Bank, European Bank of Investments and European Bank for Reconstruction and Development have expressed their support to finance a new TPP with a considerable capacity. The construction of the combined cycle TPP will be divided in three phases. Each phase will have an installed capacity of 135 MW and a first investment of 140 Million USD (first phase). The construction of the first phase started on March 2007.

Transmission and distribution systems
During the period 1985-1990 the industry was the largest consumer, followed by service and residential sector and other sectors in a smaller extension. Electricity consumption in the residential sector has continuously increased during the period 1985-2005. Consumption in the service sector increased during the period 1985-2005 but after that started to decline due to the lack of supply rather than the lack of development.
Currently, losses in transmission and distribution systems amount to 25.5 %. At present various measures are taken from Ministry of Economy, Trade and Energy, KESH with the support of Donors Community, to reduce these losses. As emphasized in the description of power situation, all action plans have been established every year since 2000 and a number of objectives have been achieved. Still 96 % of the total annual power generation comes from HPPs, from which the three HPPs on Drin river cascade generate 86 % of the total production. In a normal year, the total generation of electricity is 4160 GWh. However, in the years 2003-2006 the yearly production was even higher than 5000 GWh. Up to now there is not any new power plant in the construction. However, in spring 2007 the start of the construction of CCGT Vlora Power Plant with an install capacity 90 MW is planned.

Electricity Network and Interconnections, Trade and Transit
Electric interconnections with neighbor countries include three lines: Elbasan-Kardia (400 kV) with a capacity of 1100 MVA, Fierza-Prizren (220 kV-250 MW) and Vau Dejes-Podgorica (220 kV-250 MW). Due to system instability, the effective capacity of lines is reduced to 400 MVA. The capacity was considerably increased in 2001 due to an increase of transformer capacities at the Elbasan substation and the commissioning of a 220 kV line (4 km) between the Elbasan 1 and Elbasan 2 substations in August 2002. This created for KESH the possibility to import large quantities of electricity and reduce the electricity supply shortages. Actually through the financial aid of German Bank kfW and Italian Cooperacione is becoming possible to start the construction of Elbasan - Tirana - Potgorica 400 kV interconnection line and the biggest substation in Tirana (400/220/110 kV). Another very important project is interconnection of Albania with Kosovo, through 400 kV line Tirana-Kosova B. Albania is net importing country since 1997 and the main electricity trade is done with Bulgaria, Kosovo, Serbia, Greece and Bosnia and Herzegovina.

Electricity Prices
Electricity is the only energy commodity that does not have price liberalization status. Although big steps were taken in this direction, the complete liberalization process of electricity prices still lags behind other energy forms. In figure 8 gives the electricity price trend for different consumers during the period 1994-2005. The first conclusion from analysis is that prices did not increase considerably during that period as recommended by various studies.
The "relax" pricing continuing for years forced the actual rapid increase of electricity average price in order to make up for lost time and equalize the average sale price with the long-term marginal running cost of generation/transmission/distribution system for electricity. Limitation on electricity price increase caused big damages because no other energy commodity was used, especially for main services in the residential sector. As mentioned above, after the approval of the plan, the Government is seriously engaged to adopt prices that cover the marginal cost of electricity including G/T/D. The approval from the parliament of the Law "On the Power Sector" gave to ERE the possibility to define the electricity tariff system. Action Plan 2003-2006 submits several important proposals on electricity prices, as follows:
 • Increase of average tariff every year by 8 % for all consumers categories (10 % for residential consumers and 5 % for other consumers);
• No more favourable consumers, except for water main enterprises, that will last until year 2009.
Another important issue related to tariffs (especially residential ones) is the two-block division and low limit level of monthly electricity consumption. New tariff system should contribute to reduce electricity consumption particularly for space heating, promoting electricity efficient use, establishing conditions for the use of other alternative energy sources (particularly for space heating), improving KESH financial aspects in order to meet new investments and reduce Government's subsidies for electricity import, and attract foreign investments.

Oil and Natural Gas

Oil Reserves
Oil reserves in Albania, despite predomination of normal technologies of oil exploitation, still conserves relatively high oil resources, which may be extracted applying the enhanced oil recovery. In the existing oil fields, the total reserves are about 450 Mtoe from which 340 Mtoe from sandstone deposits and some 110 Mtoe from limestone deposits (2005). Greater share of reserves are situated in Driza, deposit is estimated at a value of 200 Mtoe and in Kucova at a value of 68 Mtoe. Both representing 60 % of the total geological oil reserves. Oil fields are of high gravity of 12-25 API rank and with 4-8 % sulfur content.

Oil Supply and Exploration
The domestic oil fields have good potential capacities since their recovery coefficients compared with oil fields in analogue conditions are very low due to the lack of modern extraction technologies and sometimes due to exploitation in bad manner of these oil fields. There are actually 12 oil fields administrated by oil and gas company Albetrol, which are located in Saranda, Vlora, Mallakaster, Fier, Lushnja and Kucova. The total number of wells in oil field is 4666, from which 3123 are operating wells and 981 are out of work. The oil well inflow in our oil fields are very low, varying to a range of 0.2-1.5 m3/day in sand stone and 2-12 m3/day in limestone oil fields. The main reasons causing the significant reduction of oil recovery for the period 1990-2005 are:
• Significant reduction of the number of operating wells.
• Significant reduction of the number of new wells.
• Not utilization of recovery oil methods.
• Significant reduction of oil production from the use of working methods in the layers.
• Limited investments for production in oil sector.
Taking into account the potential capacities of the sand stone field for enhanced of production, on September 1994, Albpetrol and a group foreign companies signed the agreement "On Patos-Marinza and Dumrea area". After fulfilling the license obligations, according to the respective phases, the partners interrupted the research operations in Dumrea, thus the license remained valid only for Patos-Marinza oil fields. The development plan for Patos-Marinza oil fields represents in details the rehabilitation and development of the oil fields through drilling of 400 new wells, increasing of the recovery through use of a new technology and the necessary investments to guarantee the expected profits.
Ballsh and Fier are the only operating refineries, but due to the decline of crude oil production and their physical depreciation, they use only 30% of their capacity. Ballsh refinery commissioned in 1978 as the only complex refinery of the country composed of modern plants for the production of a large range of oil by-products. Although built in 1978, the refinery technology belongs to '60. It should be underlined that the parameters of many technological processes such as oil desalination or water cleaning do not comply with the environmental requirements. Ballsh refinery needs to be rehabilitated due to the heavy depreciation. Fier refinery produces heavy products such as heavy fuel oil, bitumen and heavy fuel oil. Booth refinery needs a feasibility study to assess the economic justification of continued operation (based on the conclusion of the National Strategy of Energy).

Activities of production and transportation of the natural gas in Albania are carried out by Albpetrol. The natural gas is the "big losers" since the trend was followed by natural gas which production declined from 206 ktoe in 1990 to 7.9 ktoe in 2005. Contribution of natural gas declined to 0.40% in 2005 compared to 10% in 1990, due to a number of factors:
• Existing natural gas fields are in their last production period,
• Researches for new resources have not been successful so far.

Natural Gas Resources
Gas resources in Albania have incurred drastic decline since 1985, reaching the minimum after '90 as a consequence of the lack of investments in the existing gas fields and non-discovering of new reserves. Below is shown an estimation of gas reserves in the natural gas resources, gas condensate (in Delvina well) and associated gas. In recent years, the exploration of new gas fields was limited on a small number of gas fields and are concentrated mainly on the Divjaka region and less on that of Frakulla. Reduction of exploration activities is caused by the high costs of well drillings and increase of difficulties to discover new commercial gas reserves.
In Divjaka structures are planned and projected to drill a number of wells in both gas-content zones. In the Pliocene zone will be drilled 8 wells with deepness of 1220-1600 m with an initial debit of 6000-8000 m3N/day and a monthly decreasing coefficient of 4-6 %. In Mesiniani-Tortoniani deposits will be drilled 4 new wells with a deepness of 2950 to 3650 m, and based on the up to date experience it is expected to be extracted some 147 million m3N. Frakulla structure is a gas field under exploitation where gas contents are proven to be in all part of the structure. From 88 wells drilled in this area, up to date, 30 of them have given positive results and deposited reserves result to be around 260 million m3N. Panaja source is still undeveloped with exception of the stratum of well Pa-10 with reserves of 50 million m3N. Particular of geological problems of this gas fields obliged to do gas exploration and production with foreign partners in this area using the most updating technologies. In Povelca structure are drilled totally 36 wells. Results of last wells in northern part of the structure, where the reserves for each well are below the average of all wells, influenced the suspension of drilling of new wells. In Delvina structure, an associated gas source is proven with estimated resources of 1.3-1.9 billion m3N.
Summarizing, the total proven reserves of natural gas in the country are some 57 million m3N. Drilling in the Mesiniani-Tortoniani deposits guaranties the needs of Ballsh refinery and Albpetrol self-consumption. Delvina is another very effective gas field to continue drillings and to produce associated gas.

Gas Supply and Exploration
Gas production and use in Albania for commercial purposes began in 1963 by putting into production the gas condensate formations of Bubullima (Kallm zone). In 1964, Divjaka natural gas field was put into production that was followed by the discovery and production of other gas and gas condensate fields such as Frakulla (1972), Finiq-Krane (1974), Ballaj (1983), Povelca (1987), Panaja (1987), and Delvina (1989). As of 2002, the natural gas and oil fields have produced about 4 billion Nm3 of natural gas, 13 254 395 366 billion Nm3 of associated gas and about 9 344 548 669 million Nm3 from Delvina field.
Natural gas fields occur mainly in the sea shore area of Albania and are part of the PeriAdriatic Depression (U.P.A.). The gas-bearing depositions of the commercial formations in these fields relate to sand bodies that mainly pertain to Tortonian, Messinian and Pliocene. Divjaka gas field has been discovered in 1964 and put into production by well Div-5/a. Divjaka reservoir structure represents a brachyanticline fold of meridional extension and soft western asymmetry. It occurs in the neogenic structural range of Ardenica, Divjaka, Kryevidh of PeriAdriatic Depression. The gas-bearing deposits relate to sand bodies of Tortonian, but gas beds have also been found in the sandstone thickness of Pliocene, as well. Frakulla gas field has been discovered in 1972 by well Fr-4b and put into production gradually up to 1988. Frakulla reservoir structure is part of U.P.A. The gas-bearing formations relate to deltaic deposits of Tortonian-Messinian at a depth of 250 to 1600m (based on the conclusion of the National Strategy of Energy).
Povelca gas field has been discovered in 1987 by well Pov-1/b. Povelca reservoir structure occurs in the structural range Zvernec-Poro-Povelce-Seman being part of U.P.A. The geologic section is made up of neogenic deposits of the turibidite type (deep sea). Gas-bearing formations relate to Tortonian deposits. The gas-bearing formations have got a depth of 400-500m. Finiq field has been discovered and put into by well Vu-5 in 1973. Finiq reservoir structure occurs in the western branch of Fterra anticline of Kurveleshi anticline belt and has got the form of a brachyanticline of SE-NW extension. The gas-bearing formations relate to limestone deposits of Cretaceous-Paleogene (Cr.-Pg.) divided into four lithologo-stratigraphic packs. Delvina field has been discovered by well Del-9 in 1985 and began production by well Del-4 in 1989. Delvina reservoir structure occurs almost in the middle of Kurveleshi anticline belt, under the overthrusting of Mali i Gjere Anticline. The reservoir is of structural, massive dome type, contains condensate plus gas with an oil belt. The producing surface area is 170 ha.

Coal and Lignite
Supply and use of coal has declined from approximately 644.5 ktoe or 22 % of the supply with primary energy sources in 1990 to 20. 9 ktoe in 2005. Coal contribution in the Albanian energy market has declined due to the following reasons:
• Coal extraction technology is very old,
• Domestic coals are of lignite type with low calorific values, high content of sulphur, humidity and ashes,The characteristic of indigenous coal sources is that they are extracted from 200 m depth with a lower thickness of layer of 70 -100 cm,
• Extraction and enrichment costs are very high,
• High content of sulphur and ashes would need environmental protection plants that mean a bigger pollution and a higher cost for a generated energy unit.
Actually, the capacities of coal mines are, at their minimum, producing around 9000 tons from 2 million tons produced in years 90', and this production comes mainly from Memaliaj mine and other three small mines in Korca (based on the conclusion of the National Strategy of Energy).

Coal Production and Reserves
Coal is one of largest energy source of Albania and is spread in four main basins that are given in the table 10. As it shown in the table, the forecasted coal reserves are around 226.49 Mtoe. Currently, the coal industry is facing with various problems relating to lack of financial means for updating the already old technology, mineral transportation and competition from the imported coal, etc. In general, our coal basins have coal with low net calorific value and thin mineral layer that cause a higher cost for energy unit compare to imported coal. These problems led closing down of many coal mines in Tirane-Durres, Pogradec and Korca basins except Bezhani mine, which is almost an open one. The Bezhani mine reserves are around of 2.77 Mtoe and it is the only mine in Korca basin with an efficient coal extraction cost. Proven reserves are approximately 14.7 Mtoe.
In Tirana-Durres basin, 70 % of total reserves are proven reserves. Maximal thickness of layer goes up to 2 m. From analysis done above it results that the proven reserves in this coal basin are around 114.96 Mtoe. Our coal is characterized by low quality, high sulfur content (3-5 %), high ash content, which is 30-60 %, and moisture content up to 60 %. Our coal has a low calorific value of range 8400-16400 kJ/kg and is extracted from the deepness, which goes up to 300 m. Together with the coal, a considerable amount of peat is discovered in Korca area (Maliq source with 156 million m3) and Saranda area (1.3 million m3) with a thickness of the layer varying from some centimeters to three meters. Peat is combustible and with a calorific value of 12180 [kJ/kg].

Renewable Energy
The major renewable energy source used in Albania is hydro-power. Due to this abundance of hydro-power with very good conditions, the promotion of other renewable energy sources was neglected in the past. Albania has a major hydropower potential of which only 35 % so far is being exploited. Considerable elevation differences exist - twice the average of Europe - with mountains located near the Adriatic Sea. The significant elevation differences, combined with normally abundant highland rainfall, yield a power generation potential yet to be fully exploited. Up to now, only a third of the potential has been used for energy production.
Albania developed its system of hydroelectric generation during the communist regimes of the 1940s and 1950s. The hydroelectric system supplied the country's electricity needs and was also exported for many years. However, droughts in the last decade have crippled KESH's ability to generate adequate power to meet increased demand. While Albania's demand from household and private sectors ballooned as they transitioned to a more productive market-oriented economy, the Drin river dams were producing half the power they did in the 1980s. Lowered production was primarily a function of droughts. Increasing the efficiency of the existing system and increasing overall system generation capacity required new investment.

Private participation in generation of renewable electricity
is also a priority for the Albanian government. Continued efforts to embrace the Market Model and harmonize energy policy with European approaches led to promotion of renewable energy sources in the 2003 Power Sector Law, the 2006 Concession law, and through a series of decrees and amendments to them in 2007 and 2008. To incent investment, the government created feed-in tariffs of 0.05 E/kWh for existing privatized HPP and 0.08 E/kWh for the construction of new small and medium hydro power plants on its rivers. This makes Albania's hydroelectric power generation sector favorable for business investment. Also, the laws in investments and privatization provide favorable tax exemptions and feed- tariffs for investing in renewable energy generation in Albania. National targets for generation of renewable energy, including hydroelectric, are not set yet, but support schemes have been adopted and potential for renewable energy assessed. The hydroelectric potential is considered to be exploited at only 30-35% of its potential, with an estimated 2000MW additional potential (Skavica 350 MW, Devolli 400 MW, Vjosa up to 400 MW). A concession agreement for HPP "Ashta" (48 MW) was signed with the consortium of EVN and Verbund (both Austrian companies). EVN and Norwegian Statkraft also made a 950 million euro deal for the development of three HPP with 400 MW capacity for the Devolli River.

Hydroelectric Resources
Albania is known for its enormous hydropower potential. So far, the country has exploited only 33 percent of the total potential for energy purposes. The already installed capacity is about 1460 MW. The total potential to be installed is about 4.500 MW. The already average generation is about 5270 Gwh. The annual generation potential is about 18 Twh.
New plants in the southern part of Albania (Vjosa and Devoll) have been successful in exploiting nearby rivers.
The Albanian Power System (APS) was created in 1957, but its origins come long before. The total installed capacity is about 1,650 MW from which 1,446 MW (87.2 %) are HPP-s providing more than 95 % of total energy supply. Three HPP-s constructed on Drini River (north of Albania) compose 80 % of the country's installed capacity. The annual generation capacity of the country has been approx. 3,300 - 3,500 GWh, reaching 5,800 GWh in 1996. With an average rainfall of 1,500 mm and an average available head of about 600 m, there is still an enormous potential to be developed.
The energy production is highly dependent on the hydrological situation. The system faces great difficulties in dry years. KESH, the operator of the APS, is also encountering problems with the technical and "non-technical" losses. The electricity demand has increased considerably over the last 10 years. The residential sector consumes over 60 % of electricity production. Most heating systems are run by electricity. Through insulation of buildings about one third of energy for heating could be saved.

Small hydropower plants
Apart from the large and medium sized HPP-s, there are 83 small hydropower plants (SHPP-s) in Albania (owned by KESH) ranging from 0.05 to 1.2 MW. Their installed capacity is 14 MW (this represents 1 % of the APS hydropower capacity) and the average annual production has been about 50 million kWh. Their utilisation scheme is often incorporated for electricity generation and irrigation. Most of them are connected to the national grid. Actually these SHPP-s are in poor working conditions or out of work because of the outdated technology, lack of spare parts and poor maintenance. The production level in recent years is about 12 GWh.
The analysis demonstrates that according to the Passive Scenario their absolute value are higher than that according to the calculation due to drastic decline of fuel wood contribution. However, the ratio of renewable energy sources by the total energy sources according to the calculation is higher than compare with the Passive Scenario due to lower total supplied energy expected according to the calculation. This growth of renewable energy sources in the total energy supply will have a positive impact on our trade balance (as it is given below) and on reduction of adverse emissions in the atmosphere. According to calculation, a significant growth will have the solar energy, which is expected to increase from 0.02 ktoe in 2002 to 92.94 ktoe in 2015.

Wind Energy
Wind energy is used for water pumping, windmills and last decades the attention is concentrated on the power generation. Aggregates operating with wind energy have an installed capacity from few [kW] to 2 [MW], and are being used successfully in isolated areas. Wind energy is a considerable potential as energy source, uniformly widespread in every corner of the earth. Windmills can be installed quickly and they need a small area of land. In most of the countries, instalment of windmills have a common concern, that of not having continuous measurement of the wind speed and long-lasting along several years. For this reason, various companies that are willing to invest in this sector it is difficult to take a decision whether it is feasible to invest in a certain area without these necessary data.
Data is only available for the following areas of Durres, Kryevidh, Xarre, Bulqize and Milot. The EU objectives for the next 20 years, is to secure 20% of the electricity supply from wind. In Albania conditions, it is estimated that by 2020, only 4% of the generated power can come from wind energy (some 400 GWh/year). This implies to give priority to the construction of 20 windmills nearby 20 pumping stations that are situated along the Adriatic cost safeguarding the land from floods. Based on some studies carried out by the NAE, in the costal lowland nearby pumping stations (which demand from the power system around 30 GWh/year or 0.7% of the actual domestic power generation), interesting zones from the viewpoint of wind potential are identified. In these zones average speed of wind, throughout the year, is around 4-6 m/s (10 m height), and the average annual energy density of 150 W/m2. Predicting that a concession project with 20 windmills with total investments of US $150 million crediting limits within a period of 20 years (it means building nearby each pumping station a windmill of 9 MW capacity with wind turbines of installed capacity WT1500; WT1000; WT600) will be applied, than it is expected to get by year 2015 an additional power energy of 400 GWh/year in the energy balance. In the analyzed scenarios, a way of penetration of windmills in the Albanian energy sector is described. According to the EBRD's renewable energy profile for Albania, currently there are no operating wind power plants in the country and no projects in the pipeline. The study also concludes that there is a potential for small wind power facilities, and one of the outputs of the Energy Strategy should be a feasibility study that will identify the best sites appropriate for the installation of the wind power farms with the total capacity of 100-150 MW.
There is an expectation that Albania might host one of the biggest onshore wind farms in Europe on the Karaburun peninsula, close to the city of Vlora. Plans to build 410MW generation capacity from wind, with an investment value of EUR 400 million by Italian Companies Moncada Costruzioni and Marseglia, have already been approved by the Albania government. This project will also include the construction of a 400kV submarine transmission line between Italy and the Albanian port of Vlora.
Albania has an excellent climate for development of solar resources (about 129.3 Kcal/cm2 per year). It has a Mediterranean climate with hot and dry summers that yield annual radiation between 3.2 kWh/m2/day in the northeast part to 6 kWh/m2/day in Fier on the coast. The national average is 4.0 kWh/m2/day. Development of this resource for solar heated water could reduce the energy demand for water heating significantly based on the experiences in neighbouring countries. The high investment costs relative to low household income, and limited public budget for underwriting the installation of the systems suggest there will be little emphasis on developing this resource in the near future.

Solar Energy
Albania has an excellent climate for development of solar resources (about 129.3 Kcal/cm2 per year). It has a Mediterranean climate with hot and dry summers that yield annual radiation between 3.2 kWh/m2/day in the northeast part to 6 kWh/m2/day in Fier on the coast. The national average is 4.0 kWh/m2/day. Development of this resource for solar heated water could reduce the energy demand for water heating significantly based on the experiences in neighbouring countries. The high investment costs relative to low household income, and limited public budget for underwriting the installation of the systems suggest there will be little emphasis on developing this resource in the near future.
For Solar Thermal energy, there was a small UNDP project. The demonstration project titled "Solar Panels for heating Administration and Education Centre at the Prespa National Park" was completed in 2000. Its main objective was information dissemination on the solar energy use. 6 solar panels for heating were installed at the Centre. The largest solar thermal heating system (3 sets of solar panels total 48 m2) was installed at the Center of Energy Efficiency. It was funded by both EU and National Energy Agency. The Ministry of Energy plans to install solar panels that will provide about 2,6 PJ of energy by 2015.

Geothermal Energy
There are many thermal springs and wells in Albania, which represent a real potential for geothermal energy. To date in Albania, the geothermal sources have never been used as a source of energy. According to the EBRD country profile, the geothermal situation in Albania offers two directions for exploitation of geothermal energy:
• The use of thermal water springs and wells of low temperatures which cover a wide territory from South, near the Albanian-Greek border to the Northeast districts in Diber region. The water temperatures reach values of up to 60 °C. The table below shows the water temperature of some thermal water springs in Albania.
• The use of hot thermal waters, brought out from deep doublet abandoned oil and gas wells and single wells, for geothermal energy in a form of a "Vertical Earth Heat Probe". At 2000 m depth the waters temperature reaches a value of about 48°C. In many deep oil and gas wells there are thermal water fountain outputs with a temperature that varies from 32 to 65.50 °C . These waters come from different depth levels (800-3000 m) of limestone reservoirs and sandstone reservoirs.

The thermal springs and wells in Albania are located in three areas: Kruja geothermal area, Ardenica geothermal area, Peshkopia geothermal area.
Kruja geothermal area has the biggest geothermal resources in Albania, with a length of 180 km and a width of 4-5 km. It starts on the Adriatic coast, northern of Rodoni Cape in Ishmi region, continues with Tirana, Elbasani up to south-eastern Albanian-Greek border and extends to the Konica district in Greece. The Ardenica geothermal area is situated 40 km North of Vlora. The Ardenica zone extends on that part of the peri-Adriatic Depression where the Vlora-Elbasan-Diber transverse passes. The Peshkopia geothermal area is situated in north-eastern Albania, in the Korabi hydrogeologic zone.
The most important resources explored until now are located in the northern part of the Kruja geothermal area, from Lixha Elbasan in the south to Ishmi north of Tirana. The values of the specific reserves vary between 38.5 and 39.6 GJ/m2. The southern part of the Kruja area has resources of 20.63 GJ/m2. In the Ardenica geothermal area the specific reserves amount to 0.39 GJ/m2. Geothermal resources of Peshkopia area have been estimated similar to those of the northern half of the Kruja geothermal area. The deep wells Ishmi 1/b and Kozani 8 are in good technical condition. They are located in the northern part of Kruja geothermal area. They have been drilled for oil and gas exploration but brought out only hot water. The Ishmi 1/b and Kozani 8 wells yield respectively 3.5 and 10.3 l/sec of hot water, which could be used for greenhouse heating, as well as for industrial and scientific purposes. The utilisation of the thermal water of the Ishmi 1/b well (located in the plain near Tirana) is supported by a relatively good infrastructure (socially and economically relatively developed area), a geographically favourable position (connected with the national road, close to the future route of an international highway, which will link Yugoslavia, Albania and Greece). Moreover, the advantage of the Kozani 8 well is the higher temperature of the thermal water and the relatively short distance from the West-East Interbalkan highway that will cross the town of Elbasan. In the peri Adriatic Depression, there are areas with a geothermal gradient of 18-20 °C/m where there are several abandoned oil and gas wells which could be used for single or doublet ground-source heat pump installations. They are located in the plain area of the country, e.g. in Divjaka and Kolonja where greenhouses could be built to use the hot water for heating them.
Biomass Resources
Data on forest resources are based on inventories done every 10 years from the Forestry Directorate subordinated to the Ministry of Agriculture. Forests are classified in these major categories:
• High forests which represent 47-50 % of the total wood resources,
• Copses which are 29-30 % of total resources, and
• Bushes, which are 24-25 % of total wood resources.
For all and group species, the averages, by means of multiplication of annual increment in percent with gravity weight for each one species group was calculated.

Energy and the Environment

Albania has ratified the Kyoto Protocol in April 2005. Albania is a Non Annex I country. The state presents an attractive opportunity in terms of carbon finance, taking into account that the Kyoto Protocol has been ratified and the DNA designated. As described in more detail in the sections below, preliminary analysis estimates the aggregate CDM carbon potential of the Republic of Albania to be around 2 Mt CO2 per year. When valued at expected market prices ranging between 6 and 9 EUR per ton of CO2, the resulting potential carbon investment can be expected to range between 12 MEuro and 18 MEuro per year.
Concerning GHG emissions the greatest part of them derives by Energy sector. The Energy sector accounts for 62.95 % of CO2 emissions, 7.99 % of CH4 emissions (as a result of fugitive emissions) and around 10.79% of N2O emissions.  44.00 % of the overall national greenhouse gas emissions, expressed in CO2 equivalent, comes from the Energy sector (fuel combustion as well as fugitive fuel emissions excluding fuel wood) and the rest (56.00 %) comes from other remaining sectors.
The biggest part of CO2 emissions comes from the Industry sector (manufacturing industry and construction), followed by the Transport sector (domestic civil aviation, road transportation, railways, internal marine, other transportation), Energy & transformation sector (electricity & heat production, petroleum refining, solid fuel transformation, other energy industries), Commercial sector, Agricultural Sector, and finally the Residential sector. CO2 emissions per sectors are given in Gg towards the total 2902.94 Gg CO2 coming from Energy Sector.

Air Pollution
Fuel production has been the major contributor of environmental pollution in the country. Solid pollutants from coal and oil extraction from industries, at full capacity, were estimated to be more than 1.5 million tons in year 1989. By 2005, they were reduced approximately by 0.27 million tons/year. However, the main concern remains the issue surrounding spills of crude oil and refinery residues in rivers, lakes and oilfield land. In the areas surrounding Ballsh and Fier refineries prevails an unpleasant smell, while the water of rivers and torrents of this area has a high concentration of hydrocarbon residues. The areas of Ballsh refinery and Patos-Marinza oilfield are declared by UNEP as "hot spots".
Losses in gas pipelines are big and it is estimated that 15-20% of the natural gas production is emitted in atmosphere as fugitive emissions. Time by time, around 2-3 thousands tons of hydrocarbons and acid mud are deposited in different places, particularly in the Gjanica riverbed. Problems of environment pollution are caused also by power generation activities.
From fuel combustion, considerable emissions of CO, CO2, NMVOx, SO2 and NOx occurs, which are released into the atmosphere. One of the major problems of environment pollution, at local level, is the acid accumulation. Acid accumulation is created as a result of two main gases (SO2 and NOx) emitted from fuel combustion in energy sector, which mix up with water drops (vapour) creating, respectively, sulfuric and nitric acids.
Acidification of surface waters has caused loss of huge revenues from fishing activities, corrosion of metallic surfaces of ships and fishing boats, corrosion of concrete structures, damage of forests and desiccation of plants. In Albania, a monitoring system of gases emitted from fuel combustion was established by the Ministry of Environment.


Text and picture sources:

Ministry of Environment of Albania; Albanian National Strategy of Energy; BSREC; Austrian Ministry of Foreign Affairs; World Bank; Enerdata; EU Progress Report;;   EBRD; Climate Change Unit; Ministry of Environment of Albania; SEE Business Guides,
Albania; Institute of Statistics, Albania;
 The Swiss Agency for Development and Cooperation (SDC); National Agency Of Natural  Resources, Albania


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