- K O S O V A N T R A N S M I S S I O N S Y S T E M & M A R K E T O P E R A T O R - O P E R A T O R I I S I S T E M

I T, T R A N S M I S I O N I T & T R E G U T T Ë K O S O V Ë S -

Common Electricity Market Kosovo – Albania

Presented by Naim Bejtullahu, CEO of KOSTT

Content

1) Restructuring process and Country characteristics

2) Why Common market

3) Optimization analysis and cost benefit

4) Legal framework for common market

2

Liberalization and restructuring process

3

KS & AL Countries

of 8th region

Implementation of Acquis Communautaire Creation of single mechanism for cross-border

transmission and electricity trade Increase of investment

From 2003 - 2013 Developed Primary Legislation in Energy Sector Liberalization and restructuring in power sector is

ongoing process • TSOs unbundled from Generation and supply • Unbundled Distribution and Supply from Generation

Signatories of MoU on the establishment of CAO Shareholder and founders of PTC for establishment

of CAO

Development of Secondary Legislation

Market Designs, Market Rules, Technical Codes

Signatories

Current Cooperation in power sector from electricity market point of view

Agreements of cooperation between the respective Ministries of Kosovo and Albania in energy sector

Agreement of understanding between national regulatory Authorities (ERE and ERO)

Inter TSO agreement between OST-KOSTT

Agreement on electricity exchange between power producers (KEK-Kosovo & KESH-Albania)

Ongoing discussion on establishing common market KS-AL

4

Country Market characteristics

relatively small size of national power markets

lack of generation capacity to meet growing demand

lack of diversity and adequacy of the generation capacities

wholesale activities are limited to import and exports

regulated electricity tariffs below recovery cost

long term supply arrangements between supplier and state owned generators

The short term market in Kosovo and Albania is immature with no real trading activities.

There are no day-ahead auctions organized and

It is unlikely that at this stage the spot auction market will be organized.

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Kosovo and Albania currently are characterized with :

Power market Information

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Info - 2012 Units Albania Kosovo KS-AL

Population Milion 3.2 2.1 5.3

Area (103) Sq km 29 11 40

Generation capacities MW 1,433 942 2,375

Electricity Production GWh 4,722 5,471 10,193

Electricity Demand GWh 7,617 5,493 13,110

Production % coal - 98.4 52.8

Production % hydro 100 1.6 47.18

Peak Demand MW 1,485 1,168 ˂2,653

Import GWh 2,894 570 3,464

Average import price €/MWh 63.63 79.46 71.55

Export GWh 300 370 670

Average export price €/MWh 31.16 31.16 31.16

* Source TSOs(KOSTT & OST) , NRA(ERO&ERE)

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2015

2023 2025

2030

TRANSMISSION SYSTEM LONG TERM VISION ( MASTER PLAN 2012-2025)

KS

AL

RSS

MNES

MCS

GRS

200 (800)

400kV interconnections

400kV future interconnections

220kV interconnection,

800

600 (1200)

Existing MW (Future MW)

600

800 0 (600)

600 (600)

400 (400)

0 (600)

Interconnection capacities(natural transfer values)

Why common market KS-AL?...

Will meet the objective of governments for security of supply

Will be more competitive and will provide truthful signals for: investment in power generation and its diversity and

Investment in power networks

The market characteristics in Kosovo and Albania suggest that integrated market would:

benefit the consumers in both countries

optimize the use of generation resources and import export needs.

Increase the reliability of both power system

interconnection capacities and generation mix in both countries enable full integration of the markets.

Operation as a single bidding zone allows: efficient and optimal use of generation resources, reserves and transmission network.

Improvement of the security of supply.

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Common electricity market

Common market of Kosovo and Albania in line with EU target model – objective of Energy community

a single bidding zone in all markets’ timeframes interconnections KS-AL will be considered as internal lines

No capacity booking or scheduling requirement

would be coupled with other zones on the day ahead and intraday markets

cross-border capacities with other zones would be allocated in line with the Forward Network Code

The generation mix would allow generators to optimize their generation portfolio

will link a hydro-based system of Albania with a lignite-based system of Kosovo

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Imp/exp optimization analyses (ex-post )

four days in different seasons are considered in KS&AL High demand days

low demand days

the utilization of generation resources in Kosovo and Albania and their import/export as two market zones are observed

Assumption - no network congestion between KS-AL and

two national markets could operate as a single market

generation output and consumption are merged into a single diagram

import and export with associated prices are netted

daily benefits for the common market are assessed considering the real generation output on the specific days

optimizing only import and export

benefits from import and export optimization are assumed up to EUR 150k per day

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Individual high demand cases (31/12/2012)

12

0

200

400

600

800

1000

1200

1400

1600

1 3 5 7 9 11 13 15 17 19 21 23

MW

h

Imp/Exp AL Hydro AL Consumption AL

-400

-200

0

200

400

600

800

1000

1200

1 3 5 7 9 11 13 15 17 19 21 23

MW

h

Thermo KS Imp/Exp KS Consumption KS

in Albania import is used as a baseload

import prices in Albania assumed at 68 EUR/MWh – region market price

in Kosovo import is used as a peak load

import prices in Kosovo 80 EUR/MWh on average for winter season

Export price off TPP in Kosovo is considered 31 EUR/MWh

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-500

0

500

1000

1500

2000

2500

3000

1 3 5 7 9 11 13 15 17 19 21 23

MW

h

Thermo KS Imp/Exp AL Hydro AL Imp/Exp KS Consumption AL+KS

Merged high demand cases (31/12/2012)

By applying the netting of export and import needs the daily benefits for the common market are assumed close to EUR 93k

14

0

200

400

600

800

1000

1200

1 3 5 7 9 11 13 15 17 19 21 23

MW

h

Imp/Exp AL Hydro AL Consumption AL

-600

-400

-200

0

200

400

600

800

1 3 5 7 9 11 13 15 17 19 21 23

MW

h

Thermo KS Imp/Exp KS Consumption KS

Individual low demand case (07/05/2012)

in Albania import is used as a baseload

import prices in Albania assumed at 58 EUR/MWh – average for April in region

in off-peak periods thermal plants in Kosovo are sufficient to meet demand

Export price off TPP in Kosovo is considered 31 EUR/MWh- average for 2012

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-500

0

500

1000

1500

2000

1 3 5 7 9 11 13 15 17 19 21 23

MW

h

Thermo KS Imp/Exp AL Hydro AL Imp/Exp KS Consumption AL+KS

By merging the markets the benefits for the common market for this day are assumed close to EUR 158k

Merged low demand case (07/05/2012)

Cost benefit of imp/exp optimization

assuming that in 85% of the days there are benefits from optimized import and export, yearly benefit will be around EUR 24 million

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Import

Costs AL

Import

Costs KS

Costs Common

market

Net

benefit

EUR EUR EUR EUR

PEAK AL (31/12/12) 647,406 11,592 565,957 93,041

OFFPEAK AL (01/05/12) 516,627 -15,069 439,347 62,211

PEAK KS (31/01/12) 738,042 514,540 1,252,582 0

OFFPEAK KS (07/05/12) 544,319 -142,817 243,626 157,876Daily costs/benefits

on average611,599 92,062 625,378 78,282

Days

analysed

Benefits from the common market

Lower system costs (for both systems)

Higher security of supply

Encourage power market competition

Encourage economic development through lower tariffs

Preparation for the European Internal Market (EU Membership)

Meeting European objectives 20:20:20 (20% reduction of emissions, 20% renewable energy, and 20% improvement of energy efficiency by 2020)

Harmonization of primary legislation of contracting countries

legal structure of the common market must be determined

identify the options for regulating the common market

Coordination in tariff reforms, supporting the aimed market;

develop the detailed design of the common market All time frames markets;

Balancing and auxiliary services market;

Retail market(s), etc.

Harmonization and adoption of secondary legislation for implementation of the common market;

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Harmonization and development of legal, regulatory, market and operation framework.

Legal framework for common market

Government Approval to establish the Common Market

Conclusion

1. Optimizing import and export needs in a common market provides extra benefits for both countries. (Estimated EUR 24 million annually)

2. There is a high potential to optimize the generation portfolio through economic dispatch. The generation mix allows for a short term market to be developed and efficient use of generation reserves.

3. Common market is in line with the EU target model and is flexible to future integration into regional market.

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There are three main conclusions drawn from our assessment:

Thank You

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