Policy-Based Loan to support the reform of the electricity sector in Albania

Albania is a country rich in energy resources with a high potential in renewable resources (solar, wind and geothermal energy), which are scarcely exploited today. The electricity mix (in terms of operational installed capacity) is 100 % hydropower dependent. As a result, the country is highly dependent on climatic variations and on imports.

Albania joined the Energy Community (EnC) in 2006 and has made strong commitments to adopt the energy acquis communautaire. The reform of the sector and corporate governance, the setting of prices to ensure cost recovery, the establishment of the electricity market and the development of renewable energies are considered as essential to ensure the sector’s financial recovery and sustainability.

A reform roadmap for the 2018–2021 period has been drawn up by the Ministry of Finance and Economy (MoFE) and the Ministry of Infrastructure and Energy (MoIE).

The general objective of this policy-based loan  is to contribute to improving the Albanian electricity sector sustainability through support for sector reform and electricity mix diversification towards renewable energies.

The program is structured on the following specific objectives:

• A healthier financial situation and an improved financial sustainability of operators in the sector
• Establishment of an electricity market and a gradual tariff deregulation process, to improve trade transparency
• Electricity mix diversification and renewable energies development
• A stronger legislative and regulatory sector framework

A consequent technical assistance program is being financed by AFD and deployed by Expertise France to support the Albanian government in developing a new tariff model. Modeling tools and a study on the impact of the reform on vulnerable populations will support decision-makers in implementing the reform.

The purpose of the operation is to support the government in the implementation of a series of transformations aimed at completing and strengthening the regulatory and institutional frameworks of the electricity sector, to ensure the security of supply and energy sector sustainability in the long term. The creation of a transparent energy market, as promoted by the reform, will spur economic growth in the country and encourage private sector investment in this market. AFD's action will make it possible, through the commitments defined in the matrix and the technical assistance program, to promote the development of intermittent renewable energies, to strengthen investment planning and the analysis of the impacts of the reform, to strengthen the capacity of the actors to adapt to the new sectoral context and finally to support the implementation of a reform process that is financially, socially and environmentally sustainable.