The Albanian electricity sector has met another milestone towards a more liberalized and functional market. As of 1 April 2021, the Albanian Electricity Balancing Market Rules have entered into full force and effect, marking the official commencement of the balancing market in Albania.

The foundational rules for the creation and operation of an electricity balancing market were already set out in the Power Sector Law 43/2015 and the Transitional Electricity Market Rules (approved by the Energy Regulatory Entity (ERE) Board of Commissioners' Decision no. 139 of 15 August 2016). The market is operated by the Transmission System Operator (OST SHA) which is responsible for keeping the grid system in balance and, to that effect, for procuring balancing services from balance service providers.

The process of establishing in detail the balancing market started in 2018, upon entry into force of the Transitional Electricity Balancing Mechanism Rules (ERE Decision no. 193 of 24 November 2017).

These Rules set out a transitory legal framework on the basis of which the electricity balancing market would start to function. Liability for the costs of imbalances incurred was attached to all electricity market participants registered as balance responsible parties, except for existing priority producers (ie hydropower generators with a capacity up to 15 MW that have commissioned their plants before 2020 and which benefited from the Albanian Government's supportive measures). This was in line with the transitory rules of the Renewable Energy Law no. 17/2017. The Law excluded from the said liability the existing priority producers up until the creation of a balancing market, but no later than 31st of December 2022.

Moreover, the key role of a balancing service provider to OST SHA, was given to the Albanian Power Corporation (KESH SHA - the owner of the largest generating plants). In the absence of a local market price, the imbalance settlement was to be performed by OST SHA, using reference hourly prices from the Hungarian day-ahead market (HUPX).

In 2020, the ERE Board of Commissioners took another step towards the establishment of the balancing market by approving the (non-transitional) Albanian Electricity Balancing Market Rules (Decision no. 106 of 2 July 2020). Such rules circumvented the provisional aspects of the Transitional Rules and provided in more detail the roles of the parties involved as well as the terms and conditions under which the balancing market and particularly the imbalance settlement processes can operate. ERE set out a dry run trial period (without financial effects for the parties) of such Rules (Decision no. 275 of 28 December 2020). It would initially last until 31 December 2020; subsequently extended until 31 March 2021.

On 31 March 2021, ERE implicitly confirmed the end of the trial period and entry into full force and effect of the Balancing Market Rules as of 1 April 2021. However, it also accepted OST request for an extended transition on two matters for which reference shall be made again to the previous Transitional Rules: (i) mechanism of financial guarantee that OST shall apply for the balancing market participants, until ERE makes another decision; and (ii) application of the 1-hour time interval for the processes of nominations and respective disbalance calculations, until 30 June 2021.

Overall, despite the extended application of a few Transitional Rules, and the option for OST and other market participants to propose further improvements to the existing Market Balancing Rules, the ERE Board of Commissioners has acknowledged the commencement of operation of the Electricity Balancing Market in Albania. This should give positive economic signals to market participants and investors as well as improve the operation of the intra-day, day-ahead and longer terms markets.

Certainly, a fully functional electricity balance market in Albania will also require the operation of the Albanian Power Exchange (ALPEX), another objective which should be achieved in a short time.

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