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Forecasts on Electricity Price in Albania by Dr Lorenc Gordani, 16th October 2016

The electricity have significant impacts on the developments of the economy. The prices of which depends on energy costs including those related to grid costs and services, environmental policy, renewable (such as feed-in-tariffs), the stranded investments, back-up and reserve as well as profit margin. The Albania actual electricity prices before tax (VAT) for services is 13.60 Lek/kWh (9.93 Euro cent/kWh) while for households is 9.52 Lek/kWh (6.9 Euro cent/kWh) then the average price is 11.22 Lek/kWh (8.2 Euro cent/kWh).

In regard, the above variables to the price, in the future, the stringency of climate policy commitments will have limited impact on wholesale price development. In Albania, the wholesale price will be rather dependent on the regional generational capacity expansion than on the ambition level of climate policy. As at the regional level, significant capacity expansion is foreseen in the coming five years both in fossil and renewable based generation, it drives wholesale electricity prices down in the whole SEE region until 2025.

However, the Albanian electricity system is sensitive to meteorological conditions with a relevant impact along the dry years. This sensitivity toward droughts could drive up prices by 10 €/MWh, and in the long term by 4 €/MWh. In such a year, the country heavily rely on import, and only in the most ambition scenario, its import would reduce to 15 % of the consumption. In other scenarios, import could peak up to 60% in dry years. In regard, the gas fired CCGTs would not help much in the SoS situation of the country, as import would be more competitively priced.

Concerning the carbon price, it can be assumed an ETS carbon price of 22 €/tCO2 for Europe by 2030. ETS price linearly goes from its 2014 value of 6 €/t to 22 €/t by 2030 in all scenarios. The ETS price applied in Albania differs in timing in the various scenarios. Instead the support levels that is needed for the RES-E deployment it would not reach the 2012 levels of Czech Republic, Greece or Portugal by 2020 (9.3 €/MWh compared to 13.4 €/MWh). In addition, this 2020 value would be the peak as the required support level decreases afterwards. However, Albania would not be able to generate significant carbon tax based revenues (either by a national taxation scheme or the EU ETS), to finance part of the required RES-E support budget after 2020.

The evolving of above depends strongly by the development in regional level: the EU from 2010 to 2020, average electricity prices has increasing by 13%. This is due to increased capital costs, which more than compensate the observed decrease in fuel costs. Beyond 2020, average electricity prices increase up to 2030 and then remain broadly stable beyond 2030, as the benefits, in terms of fuel cost savings, resulting from the restructuring investments in electricity supply come increasingly to the fore. In addition, lower technology costs from technology progress and learning over time help contain electricity prices.

Prices of electricity across the EU tend to converge towards the EU average in the projection period; this convergence is driven by a combination of factors including the elimination of subsidies where these are still present, an increased penetration of RES in all countries, as well as wider market coupling. Over time, the structure of costs slightly changes; capital-intensive investments (RES and CCS) and increasing grid costs bring a decrease of the share of variable cost components and a corresponding increase in the capital cost components.

More specifically, capital costs and fixed costs increase significantly. Higher shares of RES in power generation with similar fuel prices imply a reduction of the fuel cost component. Smaller components of the cost increase are national taxes and ETS allowance expenditures. In addition, there are the arithmetic effects of successful energy efficiency policies, which through curtailing electricity demand reduce the denominator for sharing out the electricity costs while the numerator is less affected due to the high share of fixed costs in electricity generation and supply.

The grid costs increase over time due to the augmenting share of RES, and particularly variable distributed RES. The models although not being geographically defined uses functions to determine grid costs based on the share of distributed generation (mainly wind and solar); the function has been econometrically estimated based on the requirement for high, medium and low voltage grid requirements. In the period to 2030 the grid costs increase both due to the increase of distributed RES as well as to the development of the TYNDP of ENTSO-E.

The prices for households and services are projected to increase moderately in the medium term and to decrease slightly in the long term. Prices for industry on the contrary are stable or decrease over time as industry maintains base-load profile and bears a small fraction of grid costs and taxes. Taxes apply mainly on prices for households and services.

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