Albanian legal framework needed for the establishment of the organised electricity market is under development. Based on the Power Sector Law, the Council of Ministers adopted in July 2016 the Market Model which paves the way towards creating the Albanian power exchange. The Market Model is forseen to be soon complemented by market rules that are being drafted by the transmission system operator.
The decision to create a national electricity market by the Government of Albania is an important step for the future operation of the power sector in Albania. It is in line with the international obligations of Albania vis-à-vis the Energy Community Treaty, and the recent Memorandum of Understanding (MoU) signed by Albania in April 2016 in Vienna as part of the “WB6 process”.
The creating a Day-Ahead Market (DAM) is the natural starting point for liberalizing the power market as this will allow for a smooth integration with neighbouring countries through a market coupling. An organized wholesale electricity market will optimize the operations of the power generation fleet in Albania, reveal the optionality value of the hydro plants with reservoirs, create a transparent price to underpin all future power investments, optimize the use of interconnection capacity with neighbouring systems and help reduce the import prices.
An organized day-ahead market remains however incomplete, without also the co-existence of a Balancing Market (BM). This is the market where the sole counterparty for all the market participants remains the Transmission System Operator (TSO – and in the case of Albania OST). In general terms, electricity as a commodity, has both a spatial and a time connected value; “when” and “where” is delivered. The only true “spot price” of electricity is in real time, when the product is getting physically delivered, and should ideally reflect the true value of the system needs.
It is therefore imperative that Balancing operates as a market, and that the TSO uses market principles in its decisions how to select, procure and commit the various services it requires to keep the power system within its statutory operating limits. The economic signal delivered by the BM has an important impact on costs to customers but also directly impacting on intra-day, day-ahead and longer terms markets. Then, it is necessary for the success of a national electricity market for Albania that a Balancing Market mechanism to be also establishe as soon as possible.
However this project is a challenging task! There are technical, regulatory, legal and financial issues which need to be considered. There are IT systems acquisition, thresholds for derogation to be considered for small players as small variable producer, scheduling, nomination and clearing procedures, the establishment of Balancing Responsible Party perimeters (BRPs), the auditing and pre-qualification of Balancing service Providers (BSPs), development of the detailed rules, financial guarantees arrangements, legal and compliance. It is therefore important to take a holistic approach when starting on the implementation of the ABM.
The timeline of integration process foresee within four years the objective to reach a common balancing market in EU. An ambitious target that obliged TSOs to accelerate the early-implementation work and involve stakeholders pro-actively. In the same time, ERE would have to re-shape the national regulatory frameworks to achieve sufficient alignment and harmonisation to enable market parties to compete fairly on an integrated European market. It is an improvement over the previous Coordinated Balancing Areas (CoBAs)-approach that ran the risk of leaving the integration of the balancing markets unfinished as large and diverging CoBAs could prove too costly to integrate.
However, following the drafting of the Electricity Balancing Guideline closely, and has noted substantial improvements, as well as points of concern, can be share also that this will require an ambitious approach – both from Transmission System Operators (TSOs) as from market participants – to implement the necessary systems as well as strong governance from NRAs to ensure sufficient alignment in market framework.
In regard, it is important to provide clarity on how the strict deadlines can be combined with the ambition of a truly integrated balancing market where market participants can compete on a level playing field. In particular, it is key that standard products are defined soon enough for all stakeholders to be able to be ready for the Go-lives of the platforms. Moreover, it is key that market participants are also involved during the developments and in the selection of the starting points/reference projects.
As it is key to ensure that the imbalance settlement price correctly reflects the real-time value of the energy by removing price caps, avoiding artificial components such as administrative scarcity pricing (Operating Reserve Demand Curve), or/and administrative interventions. The ambition of the EB GL that the imbalance settlement price reflects the real-time value of the energy is welcomed, as well as the abolishment of price caps and floors lower than the VOLL for balancing energy and spot markets.
In last but not lest, if any cross-border capacity reservation for exchanging balancing capacity is deemed required, the mechanism should be open to participation of market participants, since they are best incentivized to find the optimal allocation between the different time horizons, including the intraday timeframe. The current approach allows TSOs to reserve cross-border capacity based on either a complex methodology (co-optimisation) or artificial price signals. Considers that this could compromise the optimal allocation over the different time-horizons. It also excludes the intraday timeframe from the allocation, where market participants should be given more opportunities to balance their portfolio before being exposed to imbalances.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.