12/3/2014 Internal energy market in the WBs

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03Dec 2014

Challenges of attracting inflows capital and the interdependency between the regulation and infrastructure

By: Adv. Lorenc Gordani, PhD

Short introduction on the liberalisation process

At the opening of the following discussion it is important to start with referring to “Second Strategic Energy Review – An EU Energy

Security and Solidarity Action Plan” the EC proposes following with the priority regard the North-South Electricity and East-West gas

interconnections. In regard, the MC of EnC decided on 6 October 2011 to incorporate the so-called Third Energy Package by the

deadline of fully transpose 1st January 2015.

Potential investment in the new power generation

In order to cover the forecasted demand growth, and also aiming at exporting outside the region, the countries of WBs have

indicated in their strategies very ambitious investments in new power generation by 2020 and beyond to 2030. According to their

own forecasts the new power generation capacity needs represent approximately 21 GW or an increase of capacity approximately

64% from 2009. A total investment cost, for this additional capacity is calculated to around 44.6 billion EUR over the period of 2012

through 2020, for those new projects targeted for development and commissioning within this time period. The figure could be even

higher taking in consideration the capital expenditures growth required later during the decade for new planned facilities proposed

after 2021.

Boost of the investment in infrastructure

The new investments should be directed predominantly towards new renewable energy generation and natural gas fired power

plants, whose potential both in term of enhanced security of supply and contribution to reduced emission remains untapped as of

today in the region. Furthermore it is particularly important bearing in mind the role natural gas can play as a back up fuel in a

market with high penetration of interruptible energy source as the ambitions on renewables seems to imply.

In regard, the selection of TAP as a project to transport Shah Deniz II gas to Europe have significant consequences on the region as a

whole and in particular to the Energy Community Gas Ring. At the same time, the TAP pipeline is determined to be followed with the

planned Ionian Adriatic Pipeline (IAP). Additional gas interconnectors are also planned between Serbia, Croatia and Bosnia &

Herzegovina and a serial of tailored gas infrastructure investment are foreseen by the Gas-to-Power Initiative.

A number of projects of regional significance have been discussed for a long time regarding the crude oil. Here, the objective is to

ensure stable and diversified oil supplies serving both market and security of supply interests. In regard, the storage capacities in the

region amount to 8.8 mcm. In October 2012, the Ministerial Council took a stet further with adopting the oil stocks Directive

2009/119/EC imposing an additional 12.5 mcm required storage capacity.

Implementation of the regulatory framework

The above introduction, permits the reaching to the core considerations of the here topic i.e. the interdependency between

regulation, infrastructure and the flaking policies. The above developments are seen as a good premises for the enabling the

regional market integration with satisfying level of security, competition and sustainability of supply. A real market integration is

assured by the contemporary well developments on two levels: the physical interconnection between the different infrastructures

systems of the respective market and the commercial market behaviour and business rules applicable on the respective market.

Summering here, the last October Ministerial Council, reviewed the state of play of the implementation of the Treaty welcoming the

progress made and recognized the importance of the transposition and implementation of the Third Energy Package in the context

of providing security of supply and adequate conditions for investments. In specific it was recommend the acquis widen to include

additional rules on competition, state aid and public procurement in the energy sector and environmental issues.

Overcame of the challenges to attract institutional and private capital inflows

Given the capital intensity of energy infrastructure, and due to the pressure of the fiscal space on public funded investments, with a

public debt of around or above 60% or 65% of GDP, mobilising additional private capital becomes of the essence. An effort to attract

investments is the rationale behind many of the measures and actions taken by the EnC.

Notwithstanding, the macroeconomic level signs of recovery, both private and institutional investors still perceive most of the CPs to

Dec 3, 2014 @ 13:30 Dijana Hinic MARKETS, POWER

Prospective offered by the developing of the internal energy market in theWBs

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12/3/2014 Internal energy market in the WBs

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Notwithstanding, the macroeconomic level signs of recovery, both private and institutional investors still perceive most of the CPs to

have a risk profile that discourages significant capital inflows. When asked what are the potential obstacles, many project promoters

listed: financing; social acceptance; land acquisition; the need for reorganisation of the company; coordination between countries

and companies involved in cross-border infrastructure; high investment costs (mainly for larger power plants), etc.

Pivotal role of the public financial support

Therefore, the energy market is undergoing a period of radical changes that requires significant investment in order to be fully

sufficient. In more, it is clear that the regulation alone will not be enough. Therefore, public support is necessary to enable the

implementation of the small, but significant share of projects, which are vital due to the security of supply they provide, however

will not be realised even with regulatory support.

Conclusive remarks of the Author

In the last meeting of the highest level kept in Kyiv, the presentation of the priorities of the Albanian Presidency for 2015 has been

shown. The Albanian Minister of Energy Mr Gjiknuri, stated that the focus of reforms of the EnC is in line with the recommendations

of the HLRG, inter alisas, in the implementation of the Third Energy Package in all CPs; adoption of the new acquis, as i.e.Reg.

347/2013 on energy infrastructure, Reg. 543/2013 on transparency on electricity markets, and the first set of network codes.

In regard, it is clear that the bulk of the reform work remains to be carried out by the CPs, their regulatory authorities and network

operators. The success of local and regional market opening and integrated efficiently lies in the determination and commitment to

fully participate in shaping of the future of the EnC. There is also need of strength will to continue working with the EC to make

available additional financial instruments through European and international funds that would support the PECIs.

Moreover, it is important to continue following closely the progress, not only for reporting purposes, but also to assist them in all

possible ways. In this regard, we in ACERC believe that only understanding the situation as it is will allow making suggestions for

improvement, both on the level of the Parties and the EnC itself. This article as others, of course, similar taking part abroad, can

help to stimulate a crystallisation of a better legal, institutional and procedural set-up for the future that is still faraway for being

clear and definitive.

Energy Community, energy market, West Balkans