Second Phase of the Policy-based loan to support the Energy sector reform

Albania has abundant energy resources and shows a high potential for renewable resources (solar, wind and geo-thermal energy), yet insufficiently exploited. The energy mix (in terms of operational installed capacity) is 100% dependent on hydropower. As a result, the country is heavily influenced by climate hazards and imports, making the diversification of the energy mix critical to ensure security of supply and Albania’s adaption to climate change. 

As a Contracting Party to the Energy Community since 2006, Albania has made strong commitments to adopt the "Community acquis" in the energy sector. The 2018-2030 National Strategy adopted in July 2018 confirms this willingness to align the Albanian energy market with the European Union rules in order to move forward on the EU path and strengthen its energy independence.  Reforming the sector and corporate governance, price-fixing to guarantee cost recovery, establishing the electricity market and developing renewable energy are considered essential steps towards financial recovery and sustainable development of the sector. 

In 2018, KfW and AFD were requested by the Albanian Government to support the ongoing power sector reform process through a policy-based loan and a technical assistance program. A roadmap to conduct the reform was drawn up by the Ministry of Finance and Economy (MoFE) and the Ministry of Infrastructure and Energy (MoIE) for the 2018-2021 period. Its approval by the Council of Ministers on 12 December 2018 resulted in the signing, on 14 December 2018, of a non-binding Memorandum of Understanding (MoU) between the Albanian Government, KfW and AFD to finance the reform program.

After a loan agreement of 50M EUR signed in November 2021 towards the financing of the First Phase of this Program, the Albanian Government and AFD signed in June 2023 another 50M EUR loan agreement to support the Second Phase of this Program. The financing of the Second Phase supports the commitments made in the sub-sequent public policy matrix, reinforcing and complementing the roadmap agreed to in the 2018 MoU.

The general objective of this Policy-based Loan (PBL) is to help improve the sustainability of the Albanian power sector by supporting a sector reform and the diversification of the electricity mix towards increased renewable energy sources. 

The program focuses on the following specific objectives: 

• The restructuring of the electricity sector on the new market model. The consolidation of the financial situation after the international energy crisis and the sustainable financial improvement of the operators of the sector, operating on the market without being subsidized by the state;
• The revision of the support scheme for vulnerable consumers under the conditions of a deregulated market and the liberalization of electricity tariffs;
• The diversification of the electric mixer and the continuous development of renewable energies based on domestic, regional and international demand;
• Strengthening the legal and regulatory framework of the sector in accordance with Directive (EU) 2018/2001 of 11 December 2018 for the promotion of the use of energy from renewable sources, in accordance with the 4th Energy Package.

The purpose of the operation is to support the government in implementing a series of transformations aimed at complementing and strengthening the regulatory and institutional frameworks related to the power sector, in order to ensure security of supply and the sector’s sustainability in the long term. 

In line with the commitments set out in the matrix, AFD's intervention is expected to promote the development of intermittent renewable energy sources ; strengthen investment planning and impact analysis of the reform; strengthen the beneficiaries’ capacity to adapt to the new sectoral context; and support the implementation of a reform process that is deemed sustainable from a financial, social and environmental point of view.