Renewable Energy Development in Albania: Legal Framework and Emerging Opportunities

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1. Introduction

Albania has established itself as a frontrunner in renewable energy development within South-East Europe, leveraging its abundant natural resources and a robust legal framework aligned with European Union (EU) energy policies. The European Environment Agency’s Trends and Projections in Europe 2023 (Publication 05/2023) reports that Albania achieved a 46.6% share of renewable energy in gross final energy consumption in 2023, surpassing the EU’s 2030 target of 42% mandated by Directive (EU) 2018/2001 on the promotion of renewable energy. This milestone, primarily driven by hydropower, which generated 8.5 TWh or 98% of electricity production in 2023 (International Energy Agency, World Energy Outlook 2023), underscores Albania’s commitment to sustainable energy under the Energy Community Treaty, signed in 2006.

The enactment of Law No. 24/2024 on the Stimulation of the Utilization of Renewable Energy Resources marks a pivotal advancement, introducing market-based mechanisms to promote solar, wind, and hybrid energy systems. This law aligns with the National Energy and Climate Plan 2021–2030 (NECP), approved by the Ministry of Infrastructure and Energy (MIE) in 2021, which sets a target of 54.4% renewable energy share by 2030 and 2 GW of new solar and wind capacity. This article examines the legal framework, procedural requirements, and emerging opportunities for investors in Albania’s renewable energy sector.

2. Albania’s Renewable Energy Potential

Albania’s geographic and climatic conditions provide a strong foundation for renewable energy diversification. The German Energy Agency (DENA), in its Renewable Energy Potential in the Western Balkans (2022), notes that Albania receives 2,700–3,200 annual sunshine hours, among the highest in Europe, enabling cost-competitive photovoltaic (PV) projects with levelized costs of electricity (LCOE) as low as €40/MWh in optimal regions. Wind energy potential is concentrated in the Vlora coastal region and Shkodra highlands, with average wind speeds of 6–8 m/s, capable of supporting 1.5 GW of capacity (MIE, Wind Energy Assessment Report, 2021). These resources complement hydropower, which is susceptible to seasonal variability (e.g., a 15% production decline in 2022 due to drought, per Energy Regulatory Authority [ERE] Annual Report 2023).

The share of solar energy produced in the country experienced a significant increase during 2024. According to official data from the Energy Regulatory Authority, during the period January–October 2024, all photovoltaic power plants together generated around 430,000 MWh of electricity, representing 6.75% of the total energy produced from all active generation sources.

This trend follows that of the previous two years, which were marked by a steady rise in the number of companies licensed to produce electricity from solar energy. In 2023, nine licenses were issued for a total capacity of 102 MW, while in 2022, 15 companies were licensed for projects with an installed capacity of 225.143 MW.

These licenses were granted after a three-year period (2019–2021) during which no new licenses were issued. The first licenses for solar energy production were granted in 2018, and currently, 44 companies are licensed in this sector.

These developments reduce Albania’s hydropower dependency and enhance energy security. Legal expertise is critical to navigate land acquisition, environmental compliance, and grid integration for such project

3. Legal Framework and Support Mechanisms

Albania’s renewable energy sector is governed by a comprehensive legal framework designed to attract investment, ensure market competitiveness, and comply with EU Directive 2018/2001 and the Energy Community Treaty. Key legislation includes:

Energy Acquisition Agreement: Guarantees energy purchase by the Albanian Power Corporation (KESH) or private off-takers for 12–15 years at fixed tariffs, ensuring revenue stability. Contracts require ERE approval and include performance bonds (e.g., 5% of project cost).
Contract for Difference (CfD): Compensates producers when market prices fall below a “strike price” (e.g., €59.9/MWh for Karavasta) and requires repayment when prices exceed it. Administered by the ERE, CfDs are awarded via auctions, with contracts specifying monthly settlements based on Albanian Power Exchange (ALPEX) prices.
Premium Contract: Provides a fixed or sliding premium atop market prices, capped at €20/MWh, to balance efficiency and financial support. Premiums are determined through competitive bidding, ensuring cost-effectiveness.

Law No. 7/2017 on the Promotion of Renewable Energy Sources: Partially in force, this law introduced feed-in tariffs for small-scale projects (<2 MW solar, <3 MW wind) and established auction mechanisms for larger projects. It supports 150 MW of small-scale PV installations as of 2023 (ERE, 2023).
Law No. 43/2015 on the Power Sector: Regulates licensing, grid access, and market operations. It mandates non-discriminatory grid access, with the Transmission System Operator (OST) and Distribution System Operator (OSSH) required to prioritize renewable projects. The ERE sets connection tariffs.
Law No. 10440/2011 on Environmental Impact Assessment: Mandates environmental permits, requiring public consultations and National Environmental Agency (NEA) approval. Non-compliance incurs fines up to ALL 5 million.
Law No. 55/2015 on Investments: Provides investor protections, including guarantees against expropriation, profit repatriation, and access to international arbitration (e.g., ICSID or UNCITRAL). Tax incentives include VAT exemptions on renewable equipment for projects >10 MW.

4. Procedural Framework

The development of renewable energy projects involves intricate legal procedures, overseen by the MIE, ERE, and other authorities:

Construction Permits: Issued by the National Territory Planning Agency (NTPA), requiring proof of land ownership or lease agreements. In 2023, 30% of solar projects faced delays due to disputed land titles (MIE, 2024)
Environmental Permits: EIAs, mandatory under Law No. 10440/2011, involve 3–6 month processes, including public hearings. Non-compliance risks project suspension.
Grid Connection Agreements: Negotiated with OST or OSSH, subject to ERE approval. Grid constraints delayed 150 MW of projects in 2023 (ERE, 2023).
Energy Licenses: Required for projects >1 MW, issued by the ERE upon proof of financial capacity (e.g., bank guarantees) and technical compliance.

Regulatory Oversight: The ERE enforces compliance, imposing fines up to ALL 10 million for violations (Law No. 43/2015). It published 2023 auction results awarding 300 MW, attracting €350 million in investments (MIE, 2024).
Investor Protections: Law No. 55/2015 ensures fair treatment, with disputes resolved through Albanian courts or arbitration. In 2023, the Energy Community Secretariat mediated a CfD payment dispute, affirming Albania’s compliance with investor rights (Energy Community, 2023).

5. Legal Challenges and Mitigation

Investors face several legal and procedural hurdles:

Land Disputes: Ambiguous land titles, particularly in rural areas, delayed 25% of renewable projects in 2023 (MIE, 2024). Legal strategies include title verification under the Civil Code (Law No. 7850/1994) and mediation.
Grid Constraints: Limited transmission capacity, especially in Vlora, delayed 20% of projects in 2023 (ERE, 2023). Negotiating priority access agreements with OST is critical.
Environmental Compliance: EIAs require extensive documentation, with 15% of projects facing NEA rejections in 2022 (NEA, 2023). Legal counsel ensures compliance with biodiversity and community consultation requirements
Contractual Risks: Disputes over CfD payments or grid access terms are common. Arbitration clauses in contracts mitigate risks, with 80% of disputes resolved out of court in 2023 (Energy Community, 2023).

6. Market Instruments and Competitive Development

Albania’s adoption of competitive auctions under Law No. 24/2024 and Law No. 7/2017 has driven cost-effective renewable energy development.

The Albanian Power Exchange (ALPEX), launched in April 2023, facilitates market integration. In 2024, a total of 1,172,580.58 MWh of electricity was traded on the Albanian Day-Ahead Market at an average clearing price of €112.01/MWh. The total volume of offers reached 1,534,425.97 MWh on the buy side and 1,868,626.34 MWh on the sell side. ALPEX achieved several records during the year, including a Market Time Unit (MTU) record of 497.87 MWh on May 19, 2024, a daily record of 7,816.05 MWh on May 23, 2024, and a monthly record of 133,906.13 MWh in May 2024. The total invoiced value of purchases and sales reached €301 million. Power purchase agreements (PPAs) with international off-takers, governed by Law No. 43/2015, are increasingly common. Auctions align with EU state aid rules (Regulation 651/2014), with 2023 tenders awarding 300 MW, attracting €350 million in investments (MIE, 2024). These instruments enhance Albania’s appeal to global investors like RWE and Shell.

7. Conclusion

Albania’s renewable energy framework, anchored by Law No. 24/2024, Law No. 7/2017, Law No. 43/2015, Law No. 10440/2011, and Law No. 55/2015, provides a robust foundation for sustainable development. With a 46.6% renewable energy share in 2023, competitive auctions, and investor protections aligned with EU standards, Albania is poised to achieve its 54.4% target by 2030. Legal challenges, including land disputes and grid constraints, require specialized expertise to navigate complex permitting, contracting, and compliance processes.

Oracle Solicitors Albania offers comprehensive legal services, guiding investors through auctions, permitting, contract negotiations, and dispute resolution. For expert assistance in Albania’s renewable energy sector, contact us at info@oraclelawglobal.com or +355595937763.