Category: Albania

Albania is undergoing transformation, with a burgeoning focus on tourism and renewable energy, according to CMS Managing Partner Mirko Daidone. While the legal frameworks are aligning with EU standards and the IT sector is thriving, affordability is decreasing and the country faces talent drain challenges.

“Albania is in the midst of an exciting transformation,” Daidone begins. “Over the past months, the focus has been on developing tourism, with the construction of resorts and a noticeable increase in property prices. The real main engines here are renewable energies and other sectors, which are drawing major international companies seeking to enjoy the country’s opportunities,” he shares.

Moreover, Daidone points to the Albanian Prime Minister as a key player in this transformation. “He’s been instrumental in attracting international attention and investments. Albania is widely considered one of the safest places in the world, and its development is progressing rapidly, with new hotels and skyscrapers springing up daily,” he says. “Notably, Marriott and Intercontinental are among the international names coming to Tirana, and the city is quickly becoming a competitive capital in Europe.”

To accommodate all these developments, the legal and regulatory framework in Albania is changing. “The legal framework in Albania has been evolving since 2009, with laws harmonized with EU legislation and directives,” Daidone says. “The country is diligently working to implement these agreements, though GDPR implementation differs slightly and is expected to be completed next year. The pace of development is impressive,” he says.

With all the changes the country has been experiencing, it would stand to reason to assume that it has become a sought-after destination – but it’s not all smooth sailing. “Albania is often viewed as a relatively affordable destination, but that’s changing quickly,” Daidone continues. “The main contradiction lies in the rising cost of living: the wealth gap is widening, with the middle class struggling to keep pace. As a result, many people are seeking opportunities abroad, particularly in Germany. There’s also a lack of personnel, which is a challenge that needs to be addressed,” he explains.

Focusing more on the specific business areas, Daidone puts a spotlight on the IT sector. ”The IT sector is indeed a rising star in Albania – many companies are hiring hundreds of employees to develop tourism and software,” he shares. “The taxation system is favorable, and salaries are competitive compared to other European countries. This sector is growing rapidly, but it’s essential to address the issue of talent leaving the country,” he adds wearily.

Ultimately, Daidone reports that Albania seems to be on the path of becoming “one of the best places in Europe within the next decade. The country is forging its own way, unburdened by the complexities of EU membership. In Central Eastern Europe, other countries may be following a similar trajectory, but Albania’s unique circumstances and mentality set it apart,” he concludes.

Albania is taking significant steps towards ending its five-year prohibition on sports betting, with a draft law recently passing for consideration in the Albanian Parliament. The initial Gambling Law of 2015 defined permissible games of chance, regulated industry conditions, and outlined oversight responsibilities. However, since 2018, Albania has strictly banned gambling activities, except for those within state-sanctioned casinos.

In spite of this ban, data from the supervisory authority of the gambling industry indicates that sports betting has persisted through informal channels. This situation has led to the introduction of the current legal initiative, aimed at reintroducing sports betting but exclusively in the form of “online sports betting”. This reintroduction will come with stringent anti-money laundering and customer compliance requirements (the “Draft Law”).

The primary objective of the Draft Law is to establish a regulated online gambling market, which will be served by licensed businesses with substantial experience in the field of sports betting. These businesses will be subject to real-time monitoring by law enforcement institutions. Additionally, the Draft Law proposes the creation of a Special Fund, funded by the income generated from gambling activities. This fund will primarily support projects in the areas of sports, culture, innovation, and innovative technology, as well as finance player protection programs.

Concerning potential online sports betting operators, the Draft Law establishes rigorous criteria, limiting the issuance of licenses to only ten qualified entities, determined through a competitive selection process. Applicants must be Albanian entities organized as joint-stock companies, meeting specific capital requirements. Shareholders and managers must meet rigorous fit and proper standards, and providing documentation verifying the source of capital is mandatory to ensure compliance with anti-money laundering provisions. Noteworthy, administrative and management capabilities are also critical factors in the evaluation process, in addition to a minimum of three years’ experience in the games of chance industry in EU or OECD countries, coupled with a minimum turnover of EUR 20 million from the previous financial year.

Furthermore, while the Draft Law outlines basic software requirements, it delegates the establishment of detailed software regulations to be defined through secondary legislation at a later stage.

In summary, these legal amendments aim to provide a robust foundation for a revitalized gambling industry operating within a secure environment. Additionally, they create an additional revenue stream for the government. This comprehensive approach to online sports betting regulation reflects Albania’s commitment to ensuring transparency, integrity, and responsible gambling practices in the industry.

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

By Alban Caush and Anisa Rrumbullaku, Partners, and Ermal Mema Associate, Karanovic & Partners

Albania is making significant changes to its gambling laws. The Albanian government has been actively revising its gambling regulations, with the latest amendments poised to usher in a new era for the industry. Recent developments and what they mean for the future of gambling in the country are explored below.

The Albanian gambling landscape has witnessed several key changes in recent years. The initial Gambling Law of 2015 sought to define the categories of permissible games of chance, regulate the industry’s conditions and procedures, and outline the roles and responsibilities of oversight bodies. However, the legal framework underwent unexpected alterations in 2018, which resulted in a significant shift of responsibilities. Under the 2018 revisions, the exclusive authority for organizing, developing, and mediating games of chance, sports betting, and lotteries became the sole responsibility of the state. This abrupt change led to the cessation of private sports betting activity, previously conducted by only few major licensed companies with ten-year permits.

According to data from the supervisory authority of the gambling industry, in 2018, there were 4,214 secondary points of activity for sports betting across the country, employing approximately 6,700 individuals.

Despite the ban, sports betting continued through informal channels, despite significant fines imposed on informal operators. Recognizing the persistence of informal sports betting activities and the associated challenges, the Albanian government has taken the initiative to reintroduce sports betting, this time exclusively online.

The upcoming Draft Gambling Law, expected to be approved in early October, marks a shift in the Albanian gambling sector’s dynamics. It aims to reestablish private sports betting activities, but with a focus on online platforms. This reintegration comes with new regulations and stringent requirements for operators.

Notably, the Draft Gambling Law does not reinstate electronic games or track race betting, effectively prohibiting companies from offering these services in Albania. Online sports betting, as defined by the Draft Gambling Law, tends to bring precision to the game.

The Draft Gambling Law also introduces a stringent set of criteria for those aiming to venture into the online sports betting arena. According to the same, only ten licenses will be issued, and these will be allocated through a competitive selection process.

The aspiring operators must be an Albanian entity, structured as a joint-stock company with a specified capital requirement. Further shareholders and managers needed to meet stringent fit and proper requirements, and evidence of capital sources is a prerequisite for compliance with anti-money laundering regulations. Experience is another essential criterion. To even be considered, the applicant, or one of its shareholders, should have experience in EU or OECD countries for not less than 3 years combined with a minimum turnover of EUR 20 million in the games of chance industry from the previous financial year. Administrative and management capabilities are also a must.

While the Draft Gambling Law provides basic software requirements, detailed regulations will be established through secondary legislation once the law is approved.

In conclusion, Albania’s evolving gambling regulations are poised to introduce significant changes to the industry. The reintroduction of online sports betting, strict licensing requirements, and the prohibition of certain gambling categories signal a transformative period for the Albanian gambling sector. As the Draft Gambling Law advances towards parliamentary approval, industry stakeholders are anticipating a new era of regulated gambling, awaiting the final version of the Draft Law and its impending enactment.

By Sabina Lalaj, Local Legal Partner, Deloitte Legal Albania & Kosovo

On 07.07.2023, the Council of Ministers of the Republic of Albania adopted the Decision “On the determination of entry, residence, and employment in the Republic of Albania of foreign nationals, employees of an IT company” (hereinafter referred to as the “Decision”).

The Decision, which implements the provisions of Law no. 79/2021 “On foreigners” (hereinafter referred to as the “Law”), determines the entry, stay, and employment of foreigners in the Republic of Albania, who are employees of an Information Technology Company.

According to this Decision, a foreign national who, at the time of crossing any of the border crossing points during entry into the territory of Albania, proves that will be employed by an IT company through a declaration issued by the company itself, has the right to enter without a visa and stay without a unique permit in the Republic of Albania for a period of up to 1 (one) year.
The company must have as primary activity, computer programming, consulting, and related services, data processing, hosting, and related activities, internet portals, and/or publishing computer programs, according to the economic activity nomenclature approved by the Council of Ministers of the Republic of Albania. Additionally, the company should conduct activities as a user in science and technology parks as per the applicable law.

During this period, the foreign national may apply for a unique permit in the Republic of Albania, based on the criteria, documentation, and procedures set forth in the Decision of the Council of Ministers, “On the determination of criteria, procedures, and documentation for the entry, residence, and treatment of foreigners in the Republic of Albania”, as amended.

The Decision was published in the Official Gazette no. 103, dated July 11, 2023, and entered into force on the date of its publication.

By Aidi Milo, Managing Associate, Deloitte Legal

On Friday 21 July 2023, the Albanian Parliament adopted a law which legalizes medical cannabis and industrial hemp (“Cannabis Law”). The Cannabis Law allows licensed companies to cultivate and process cannabis and determines the criteria which must be met to obtain such a permit, but also regulates the cultivation process of the plant and the production of its by-products for medical and industrial purposes.

The Cannabis Law foresees the establishment of a national agency for the control and monitoring of cultivation and processing of the cannabis plant for medical and industrial purposes, as well as the production of its by-products (“Cannabis Agency”). To perform such competencies effectively, the Cannabis Agency should closely cooperate with the Albanian police and other public authorities. According to the Cannabis Law, the Licensing Commission at the Cannabis Agency (composed of representatives from different ministries) would grant cannabis manufacturing licenses for 15 years, with an option for renewal. The activities to be carried out pursuant to the licenses cannot be assigned to third parties unless otherwise provided in the license.

Albania has favourable climate for cannabis cultivation, and it has been estimated that outdoor cannabis can be grown between six to seven months out of the year with no environmental issues. The Albanian government plans to utilize such favourable conditions to boost tax revenue and the country’s economic growth.

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

By Veton Qoku, Partner, and Ermal Mema, Associate, Karanovic & Partners

Following the recent administrative elections, Albania is enjoying a period of calm, political stability, and a strengthening currency, with a draft on medical cannabis production and the first issuance of corporate bonds through a public offer at the top of the agenda, according to Tonucci & Partners Partner Enklid Milaj.

“Currently, the legal market in Albania is experiencing a period of relative calm following the administrative elections that took place a month ago,” Milaj begins. “It is common for the Albanian market to slow down during and after elections. Consequently, legislative activity has slowed down as well, with few major novelties occurring recently.”

One significant legislative development that Milaj mentions is the governmental proposal for a legal framework that will legalize and regulate the production of medical cannabis in Albania. “The production of medical cannabis can commence very soon in the country, provided that certain legal requirements are met, and it will be interesting to see how this impacts any parallel public order issues and whether it could potentially provide a boost to the market and meet certain demands that have been outlined for some time” he explains.

Additionally, for the first time, Albania has witnessed a public issuance of bonds. “Bonds were, and still are, mainly issued through a private offer by the financial institutions in Albania, and this will likely continue. But now, for the first time, they are being introduced to the public markets through the stock exchange. It will be fascinating to observe who invests in these bonds, whether the issuance proves successful, and how it ultimately unfolds,” Milaj says. “The Albanian Financial Authority oversees the entire process. Although the issuance will likely not be too large, there is an optimistic outlook for its success.”

Albania seems to also be enjoying a period of political stability. “Interestingly, Albania’s currency, the lek, has been growing stronger,” Milaj says. “While there might not be a straightforward explanation for this occurrence, tourism seems to be a contributing factor. The country has experienced an increase in activity, and this is expected to further surge during the summer season.”

Additionally, Milaj reports that the Albanian government is planning to “launch a tender for the construction of the New Port of Durres (Porto Romano project), which holds great significance for the country. However, NATO has requested some amendments to the project’s outline in response to the war in Ukraine, causing a delay in its launch.” According to him, “the feasibility study is expected to be finalized by the end of the third quarter and, immediately after, the government will release an international tender for the first development phase.”

Moreover, Milaj reports an “uptick in the number of solar energy producers in Albania, with domestic entrepreneurs (but not only) leading the way. The administrative landscape is being prepared to support this growth, and we may anticipate potential project financing to be even more present in the market,” he shares.

Finally, Milaj notes “the Albanian government is involved in various international disputes, which are ongoing and will be intriguing to follow in the coming months.” According to him, “these disputes have more of a legacy nature and involve mainly administrative or concessionary matters. International law firms are typically engaged in handling these cases, and they find them particularly interesting, while local lawyers are involved for the domestic legal aspects.”

Contributed by Kalo & Assocaites

1. SUMMARY 

2. OVERVIEW OF THE COUNTRY’S RENEWABLE ENERGY SECTOR 

2.1. Legal Framework

The Albanian legal framework governing the energy sector, including the promotion and use of renewable energy sources (RES), has undergone significant developments in the last dec-ades. This is due to the commitments of the Republic of Albania in the context of the Europe-an Union (EU) integration process (this involves the process of approximation of the Albanian legislation with the EU acquis), as well as the Energy Community Treaty (EnC Treaty) to which Albania is a party. The result is an evolving legal framework where the respective laws and secondary legislation have been and still are subject to continuous amendments.

The power system in the Republic of Albania consists of electricity production, transmission, distribution, trading and supply to customers. These activities are exercised by entities li-censed pursuant to Law no. 43/2015 “On the power sector”, as amended (Power Sector Law). The regulatory authority is the Energy Regulatory Entity (ERE).

Until very recently, the key regulatory basis for the promotion of RES production in Albania was found in Law no. 7/2017 “On promoting the use of energy from renewable sources” (Old Renewable Energy Law). This Law approximated partially the EU Directive 2009/28/EC of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC. This Law was abrogated by Law no. 24/2023 “On promoting the use of energy from renewable sources” (New Re-newable Energy Law) which was published in the Official Gazette on 14 April 2023 and en-tered into force on 29 April 2023. The New Renewable Energy Law approximates partially the EU Directive 2018/2001 of 11 December 2018 on the promotion of the use of energy from re-newable sources. 

Notably, the New Renewable Energy Law cannot be considered fully applicable since its key provisions require further regulation by means of secondary legislation to be enacted by the Government of Albania, MIE, and ERE. For this transitory period, which is expected to last up to 12 months, the New Renewable Energy Law calls for the temporary application of the exist-ing secondary legislation that was issued based on the Old Renewable Energy Law. Against this background, the following is based on the currently applicable rules as per the secondary legislation still in force, whilst also referring to the new rules under the New Renewable Energy Law to the extent they are fully applicable as such or otherwise provide hints for the future regulation of the renewable energy sector in Albania. 

There are also rules in place regarding energy efficiency and energy performance of build-ings, which promote the use of renewable and energy-efficient technologies in heating and cooling in order to achieve energy performance targets.

The New Renewable Energy Law sets out the following key principles and objectives based on which the Government shall promote the RES production and sale in Albania: a) promote the increase of RES use to ensure sustainable development in Albania and to comply with its commitments under the EnC Treaty; b) reduce the import of fossil fuels, greenhouse gas emissions and protect the environment in compliance with the international commitments of Albania in line with the relevant international treaties or agreements; c) promote the develop-ment of the renewable electricity market and its regional integration; d) increase the diversifi-cation of the energy resources and the security of energy supply in Albania; and e) promote the development of rural and isolated areas by improving their supply with energy. 

To that effect, the Law provides for the legislative framework for promoting the use of RES, the binding national objectives for the contribution of RES energy in gross final energy con-sumption by 54.4% in 2030, the rules for supporting RES-produced energy, accessing and operating grids by RES producers, issuing, transferring and canceling guarantees of origin for the renewable energy produced, etc.

As pointed out above, the legal framework is further detailed by means of several governmen-tal acts (Council of Ministers’ decisions (CMDs)) and regulatory acts (ERE Board of Commis-sioners’ decisions). The currently in force CMDs provide for two key categories of schemes under which RES projects may be developed in Albania: (a) the auctions or Government-supported schemes, whereby the Government offers certain incentives to the private devel-oper selected through a competitive process, and (b) the commercial off-take or merchant scheme, whereby the right to develop the RES project is not subjected to a competitive pro-cedure and no incentives are granted as in the first scheme (elaborated in Section 3.1.). Two PV projects have been already awarded under the auctions scheme: (i) Karavasta Solar PV power plant (140 megawatts), and (ii) Spitalla Solar PV power plant (100 megawatts). Mean-while, in 2021 Albania announced a 100 megawatts wind auction where bidders can compete with projects between 10 megawatts and 75 megawatts and the winners will be awarded a 15-year power purchase agreement (PPA), which will be converted into a contract for difference (CfD). The second phase was concluded in September 2022 resulting in six qualified bidders. The ceiling price for the bids is set at EUR 75/megawatt hour and qualified bidders may sub-mit are expected to submit their bids on 31 May 2023.

Since 1 April 2021, the rules setting out the balancing responsibility for each and every market participant have become effective. Such responsibility can be exercised directly vis-à-vis the Transmission System Operator (TSO) or through a balancing group responsible party. 

The Albanian power exchange (ALPEX SHA) was recently incorporated and started opera-tions in early  2023, contributing further to market liberalization.

On a broader level, Albania ratified the United Nations Paris Climate Agreement in 2016 and has taken strategic and legal action to implement its terms.

According to the Albanian National Energy Strategy 2018-2030 and the National Plan for En-ergy and Climate 2021-2030, Albania’s energy policies pursue three objectives: i) support for the overall economic development, ii) increase the security of energy supply, iii) protection of the environment. Moreover, Albania’s strategic targets include the following:

• Reduction of the final request for energy by 15,5% related to energy efficiency
• Reduction of greenhouse gases by 11,5%
• Reduction of energy intensity in the GDP by 18%
• Increase of natural gas penetration in the country through the Trans Adriatic Pipeline, for the supply of primary energies, from 0,36% in 2015 to 19.81% in 2030.

Two PV projects have been already awarded under the auctions scheme: (i) Karavasta Solar PV power plant (140 megawatts), and (ii) Spitalla Solar PV power plant (100 megawatts). Meanwhile, in 2021 Albania announced a 100 megawatts wind auction where bidders can compete with projects between 10 megawatts and 75 megawatts and the winners will be awarded a 15-year power purchase agreement (PPA), which will be converted into a contract for difference (CfD). The second phase was concluded in September 2022 resulting in six qualified bidders. The ceiling price for the bids is set at EUR 75/megawatt hour and qualified bidders may submit are expected to submit their bids until May 2023.

Since 1 April 2021, the rules setting out the balancing responsibility for each and every market participant have become effective. Such responsibility can be exercised directly vis-à-vis the Transmission System Operator (TSO) or through a balancing group responsible party. 

The Albanian power exchange (ALPEX SHA) was recently incorporated and started opera-tions in early  2023, contributing further to market liberalization.

2.2. Domestic Sales and Imports/Exports 

On average, Albania is a net-energy importer (ERE’s annual report of 2021 shows that elec-tricity imports in 2020 marked the value of 3,238 gigawatts hour and exports the value of 963 gigawatts hour). 

Hydropower represents more than 90% of the country’s installed power capacity, therefore, accounting for the largest share of its electricity generation. According to IRENA’s 2021 Study on Albania’s Renewables Readiness Assessment, renewable energy, especially other than hydro, is deemed to be a solution to decreasing Albania’s dependence on energy imports. It will also mitigate the impact of climate change resulting in unreliable hydropower production.

Albania is aiming to reach its renewable energy targets by promoting renewable energy use from sources other than hydro both under the Government-supported and the merchant schemes. Other measures are also considered such as tax exemptions, net metering, etc.

TSO is responsible for setting the cross-border transmission capacity values and for recon-ciling them with the partner TSOs in compliance with criteria established by ENTSO-E. The Power Sector Law and other secondary legislation provide the procedures as well as the auc-tion criteria for cross-border allocation capacity, in both directions, between the control zone of TSO and the partnering TSOs. They aim to establish a transparent process for the alloca-tion of interconnection capacities which is monitored by ERE. 

According to the EnC Secretariat’s Annual Implementation Report of 2022, all cross-border capacities are allocated through SEE CAO, except split auctions on the interconnection with Serbia. The Albania – Kosovo control block cooperates on cross-border balancing. Market coupling between Albania and Kosovo is envisaged to take place in parallel with the launch of the day-ahead market in Kosovo.

Currently, Albania has interconnection lines with Greece (400 kilovolts and 150 kilovolts), Montenegro (400 kilovolts and 220 kilovolts), and Kosovo (400 kilovolts and 220 kilovolts). A 400-kilovolts overhead line with North Macedonia is under construction, to be completed by 2023.

Expansion and/or upgrade of the transmission and distribution grid can be made where it is deemed necessary by the relevant operator (TSO and Distribution System Operator (DSO)) and in line with the mid-term and long-term development and investment plans approved by ERE pursuant to financial and technical criteria specified under the Transmission Grid Code and Distribution Grid Code respectively.

2.3. Foreign Investment and Participation 

Foreign and local companies are treated equally as regards acquisitions of interests in com-panies operating in the renewable energy sector.

2.4. Protection of Investment 

With a view to the energy sector, Albania is a party to the Energy Charter Treaty (ECT) as well as to the EnC Treaty. The key objective of this latter treaty is to extend the EU internal energy market rules and principles to countries in South-East Europe, the Black Sea region, and beyond, pursuant to a legally binding framework. In view of that, Albania has undertaken specific commitments vis-à-vis its counterparties which it is reflecting in its strategic docu-ments and domestic legislation.  

More broadly, in its effort to attract and protect foreign investments, Albania has concluded numerous international investment agreements, applicable also to investors in the energy sector, including 45 bilateral investment treaties (BITs), 7 treaties with investment provisions (TIPs), and 21 investment-related instruments (IRIs). The majority of such agreements are already in force (39 BITs and 7 TIPs). Albania has also ratified the International Convention for the Settlement of Investment Disputes as well as the New York Convention on the Recog-nition and Enforcement of Foreign Arbitral Awards.

Such international instruments offer foreign investors substantive protections again discrimi-nation, expropriation, unfair treatment, non-transfer of capital, etc. They also provide for the possibility of settling investment disputes through international arbitration and offer favorable rules on the enforcement of foreign arbitral awards. 

3. DEVELOPMENT OF RENEWABLE ENERGY PROJECTS 

3.1. Granting of Grid Connection Rights 

Albanian legislation offers different schemes for investors to obtain the right to develop RES projects. These are elaborated below along with the authorities responsible for granting the related approvals.

a) Government-supported schemes

In order to ensure the national target on renewable energy, the Council of Ministers upon pro-posal by the Minister of Infrastructure and Energy (MIE/Minister) approves measures to promote and support the use of electricity from renewable sources. These measures are fur-ther detailed by the Minister through its instructions. A ‘support scheme’ is defined as the in-strument or mechanism applied to promote the use of RES energy by reducing the cost of that energy, increasing the price at which it can be sold, or increasing, by means of a renew-able energy obligation or otherwise, the volume of such energy purchased. 

The following comprises a list of the schemes currently applicable (based on the secondary legislation currently in force which will apply until the new secondary legislation is approved pursuant to the New Renewable Energy Law):

• support under a PPA concluded for a maximum duration of 15 years with the public offtaker by existing priority producers (HPPs that have been awarded concessions in the past and started operations until December 2020) and small projects of up to 2 megawatts (solar) and 3 megawatts (wind) based on feed-in tariffs which are set by ERE on the basis of a prior methodology approved by the Albanian Government
• support under a PPA concluded for a maximum duration of 15 years with the public offtaker by private investors that have won an auction organized by the Albanian Government for higher capacities based on a fixed price resulting from the auction, of-ten combined with the possibility to also sell in the free market certain part of the elec-tricity generated (hybrid form). Such investors may be also granted the right to use state-owned land for free for a certain period of the project (recent deals were for 30 years) 
• support under the CFD to be concluded between the auction winner and the soon-to-be incorporated Renewable Energy Operator (REO) for a maximum duration of 15 years and which takes the form of a variable premium calculated as the difference payment between the price with which the RES producer was declared successful in the competitive process for granting the support (the strike price) and the market price for electricity (the reference price)). Once it is fully available (regulation is still in-complete and there may be issues with market functioning), the CfD is expected to substitute the existing PPAs under the previously mentioned support scheme. 

The New Renewable Energy Law has introduced some amendments to the existing schemes for supported agreements (PPAs, CFDs, etc.) such as some flexibility for MIE to offer suc-cessful bidders agreements that are longer or shorter than 15 years. Moreover, it has intro-duced a new scheme, specifically the contract for premium whereby a fixed premium (nega-tive or positive, depending on the bidding process) or a sliding premium (as a difference be-tween the guaranteed price and the reference price) are paid above the market price by the REO to the priority producer. Overall, such amendments and the new scheme will only be fully regulated and applicable once the secondary legislation will be enacted and entered into force – expected to happen by April 2024). 

b) Merchant scheme

A company may develop RES projects in Albania also out of the Government-supported schemes by obtaining such development right from the Council of Ministers (for plants with an installed capacity over 2 megawatts) or the MIE (for RES plants with an installed capacity be-low 2 megawatts). The necessary documentation, criteria, and procedures to be met by companies for obtaining such a right are governed by CMD no. 822, dated 7 October 2015 “On the approval of rules and procedures for the construction of new power generation ca-pacities which are not subject to concessions”, as amended.

Essentially the applicant should convince the Government about the feasibility of the pro-posed project, as well as its technical qualifications and financial capacities. 

The right to develop RES projects (above 2 megawatts) is obtained by means of two consec-utive approvals (a preliminary approval by MIE and a final approval by the Council of Minis-ters). Moreover, a project development agreement is concluded between the company/JV and MIE, whereby the company shall have to pay MIE a royalty fee of not less than 2% of the average annual electricity sales for a certain period (recent deals were for 49 years). In any case, the company may start construction and operation of the project, only if it has secured rights over the land and it obtains several other permits required by the domestic legislation.

All system customers and users are entitled to access the transmission grid and/or distribu-tion grid respectively and TSO/DSO are obliged to ensure such access on a transparent, non-discriminatory basis and against tariffs approved and published by the ERE. RES pro-jects enjoy priority grid access and dispatch.

The applicant applies with the TSO or DSO for a potential connection and the latter evaluates and replies with an offer in principle to connect to a certain point of the grid providing also a timeline within which the offer is valid. If the applicant accepts the offer within the indicated timeline (generally 18 months), the parties proceed with entering into a connection agreement. 

The connection agreement is based on the template connection agreement approved by the ERE. 

3.2. Ownership by Foreign Companies 

See Section 3.1. No differentiation is made between foreign and private investors.

Generally, the project development agreements concluded between MIE and the winning bid-der/developer provide that the transfer of such projects to a third party (domestic or foreign) can be made upon prior approval of MIE. Essentially MIE will review the capacities of the po-tential counterparty to ensure the smooth continuation of the project. Often the winning bidder must commit in the PDA not to transfer its shares to a third party for a certain period of time (e.g., three years) after the commercial operation date.

3.3. Stages of the Development Process 

The following key options are available to investors in securing land for developing RES pro-jects in Albania:

• The investor obtains free real rights to use state-owned land for developing a RES project on the basis of the Government-support scheme after having been selected as the winning bidder of a public competitive process launched by MIE. The rights are granted through a project development agreement (an investor-state agreement) con-cluded between MIE and the winning bidder. They include the investor’s right to con-struct the RES facility on the state-owned land, the free and quiet enjoyment of the site, the land usage rights, rights of way and easements, etc. These rights are granted for the duration of the project development agreement (e.g., 30 years), and upon its expiry, the facility and the land are handed over to MIE.
• The investor obtains real rights for free (against the symbolic prince of 1 EUR) to use state-owned land for developing a RES project based on the merchant scheme, pro-vided it is awarded the status of a strategic investor under Albanian law (see also Sec-tion 3.4.).
• The investor obtains ownership or real rights over state-owned or private land against reference prices or market prices respectively, for developing a RES project (Gov-ernment-supported or not) pursuant to the broader Albanian legislation (not applicable to RES projects only).  

The key permits required for the development of RES projects in Albania include the following:

a) Development & construction phase

• Preliminary opinion for the possibility to connect the potential project to the grid issued by TSO or DSO
• Preliminary & final approval for the right to build a renewable energy power plant is-sued by MIE and the Council of Ministers (in the case of the merchant scheme)
• Development permit, issued by the National Territory Council
• Archeological and cultural heritage approval issued by the Albanian National Council of Material Cultural Heritage 
• Preliminary Environmental Impact Assessment approval or in-depth EIA report / Envi-ronmental declaration issued by the National Environmental Agency, depending on the specifics of the project and its anticipated effect on the environment
• Fire protection report approval, issued by the Fire Protection and Rescue office at the relevant Municipality
• Technical appraisal and confirmation of the project, issued by the Albanian Institute of Construction or the Tirana Polytechnic University
• Connection to the grid approval issued by TSO or DSO and connection agreement concluded with the TSO or DSO
• Project Development Agreement concluded with MIE
• Building permit issued by the National Territory Council

b) Operation phase

• Fire safety certificate issued by the competent Fire Protection and Rescue Authority 
• Occupancy permit issued by the National Development Agency / relevant Municipality
• Power generation license issued by ERE
• Any other trading or supply license issued by ERE (if applicable in case of trading and/or supply activity).

3.4. Obligatory State/Public Participation 

There are no legal requirements for private investors to accept the participation of the state or state-owned companies in their investment through shares or management rights. 

Meanwhile, there is legal room for the state to develop joint projects in the case of so-called ‘strategic’ investments. The state may award to the private investor land use rights over state-owned property, or it may obtain shares in the joint venture with the private investor. This requires first and foremost that the private investor satisfies the requirements to obtain the strategic investment status (investment value of the project to exceed EUR 30 million or EUR 50 million, depending on the specific benefits granted by the Government).

3.5. Risks to be Considered

Key risks include potential legal issues regarding the proper acquisition of land rights as well as detrimental legal changes in response to market developments (global, regional, and do-mestic), particularly the energy crisis. 

4. RENEWABLE ENERGY CONSTRUCTION AND PRODUCTION 

4.1. RTB Status 

See Section 3.3.

4.2. Construction of Renewable Energy Projects 

N/A

4.3. Granting of Renewable Energy Production Licenses

A company may carry out the activity of electricity generation only upon obtainment of a gen-eration license issued by ERE for a maximum term of 30 years, with the right of renewal. To obtain the license, the company should be registered in Albania and its object of activity should refer specifically to power generation. The application file should contain information on the legal, administrative, and ownership aspects of the company, the financial and fiscal sta-tus, as well as the technical and economic documentation. 

The power generation license is obtained through a two-step procedure which is made public and in practice takes approximately 3-4 months. In the first step, the ERE Board of Commis-sioners formally opens the procedure for the evaluation of the application and in the second step, the Board either rejects or approves the application (conditionally or unconditionally).

The generation license follows a template approved by ERE’s Board of Commissioners in 2016. Key terms and conditions of the license include the following:

• the obligation of the licensee to hold one generation license only
• the obligation of the licensee to obtain prior approval from ERE in cases of (i) transfer of the license to a third party, (ii) changes of ownership and control of the licensee as well as (iii) encumbrances over the shares and assets of the licensee (unless the val-ue of the assets is below a designated threshold or their relevance for the licensed ac-tivity is minimal), etc.
• reporting and information disclosure obligations regarding the main aspects of the generation activity, including the anticipated decrease of installed capacity (except for cases of force majeure), etc.
• cases of license amendments undertaken by ERE, where (i) the installed capacity of the plant increases by more than 10% of the approved capacity, (ii) there are changes in the circumstances on the basis of which the license was issued (legal framework, conditions of the investor-state agreement, court decisions or other events that signif-icantly affect the production, transmission, distribution, supply, trading of electricity), etc.
• cases of license revocations undertaken by ERE, where the licensee (i) fails to meet the essential conditions of the license, (ii) violates environmental protection legislation during the performance of the activity, (iii) endangers the citizens’ life, health, and property, (iv) fails to make the regulatory payments imposed by ERE, (v) becomes fi-nancially incapable or initiates a bankruptcy proceeding, etc.

4.4. Renewable Energy Production by Foreign Investors 

There are no specific limitations for transferring licenses to foreigners. Both foreign and do-mestic entities are treated equally in this respect. 

As mentioned in Section 4.3., a valid transfer of a license to a third person may occur upon the prior approval of the ERE Board of Commissioners. The Board evaluates the legal, tech-nical, and financial capacities of the potential transferee based on the same legal require-ments for the issuance of a new license.

4.5. Operation and Maintenance of Renewable Energy Projects

There are no specific regulations on the operation and maintenance of RES projects, apart from the technical requirements stipulated in the Albanian Transmission and Distribution Grid Codes as well as other relevant legislation regarding permitting and approvals (environmental protection, fire protection, health and safety, etc.).

4.6. Decommissioning Process 

There are no specific legal requirements in relation to the decommissioning of renewable en-ergy projects. The general principles and rules under the environmental protection legislation apply in terms of the investor’s obligations to rehabilitate the area when dismantling the facility and/or disposing of the equipment. The detailed technical requirements are found in the envi-ronmental and social impact assessment report prepared by the developer as well as in the corresponding environmental protection approval issued by the National Environmental Agen-cy (EIA approval, environmental declaration, environmental permit, etc.).

4.7. Risks to be Considered

We have not identified any specific risks in relation to such phases of RES projects in Albania.

5. BALANCING OF RENEWABLE ENERGY PROJECTS, STORAGE, SALES 

5.1. Balancing of Renewable Energy Projects 

Under Albanian Power Sector Law, TSO is responsible for ensuring the system balances services from the balancing service providers in conformity with the balancing rules approved by ERE. All market participants are obliged to balance generation, consumption, and electrici-ty sale/purchase processes in accordance with the accepted schedule being financially re-sponsible to TSO for the settlement of the imbalances system. 

Electricity market participants may regulate the balancing responsibility by means of a con-tract with the TSO, thereby acquiring the status of the balancing responsible party, or by sign-ing a contract for transferring the balancing responsibility to another balancing responsible party, thereby becoming a member of the balancing group, in conformity with the market rules. 

Curtailment and outage situations are addressed in the respective distribution and transmis-sion grid codes. There is no express regulation establishing an obligation to compensate pro-ducers for damages resulting from curtailment and outages. There is, however, a general principle laid down in the Power Sector Law under which the grid operator, when carrying out its key tasks of dispatching electricity and upholding system safety, must not affect contracts entered into by grid customers. Moreover, under the grid connection and operating agree-ment templates approved by ERE, the grid operator is obliged to carry out curtailment of gen-eration in a reasonable and proportionate manner to minimize the effect on grid users. These qualifications set out a threshold for the power generator’s rights to compensation from the grid operator where the latter fails to honor agreements by enforcing curtailment of electricity generation. On top of that, the general Albanian Civil Code rules regarding compensation for actual damages and loss of profit will apply.

5.2. Storage 

As opposed to the Former Renewable Energy Law, the New Renewable Energy Law pro-vides certain regulations on electricity storage, which are expected to become fully applicable once the secondary legislation is in place.

The Albanian Government shall adopt measures to support a specific renewable energy stor-age technology to achieve the reduction of CO2 emissions, security of supply, or optimization of the use of renewable energy production. Support measures may take the form of grants, investment loans, premiums, or other operational support. Where they constitute state aid, such support measures shall be subject to prior approval by the state aid commission in ac-cordance with the legislation on state aid. In any case, such support measures shall be awarded through a competitive process launched by MIE. 

With a view to balancing responsibility, under the New Renewable Energy Law electricity pro-duced by priority producers (i.e., any RES producer that benefits from the supported measures), which is not delivered to the grid, but stored in their storage facilities, is consid-ered delivered and benefits from the government-support at the time of scheduled injection into the network. Moreover, priority producers may use their facilities or other storage facili-ties covering all costs to mitigate the imbalance effect and, in case their support schemes al-low, they may benefit from hourly differences through grid injection relocation.

5.3. Sales 

Albanian power producers may sell electricity to other participants in the market through bilat-eral PPAs or the organized market (the recently incorporated power exchange ALPEX SHA started operations in early 2023).

For Government-supported capacities, certain statutory limitations are in place. Producers should follow the pre-agreed contractual scheme of selling their electricity at a fixed price to the public off-taker designated by the Government for a certain period (max 15 years). Note that under the New Renewable Energy Law, the max duration of 15 years is considered a general requirement. This means that the contracting authority (MIE) may even propose oth-er, shorter, or longer, timelines in specific cases.

For the merchant capacities, power producers may enter into PPAs with traders, suppliers and end-consumers. Generally, parties are free to negotiate the terms and conditions within the limits of the Civil Code and the standards of the market rules in force. However, in the case of supply contracts with end-consumers the Power Sector Law requires that the PPA addresses fairly consumer protection issues such as quality of service, compensation in case of failure to meet the agreed quality of service, price, and method of information about changes of the price and other key conditions of electricity supply, dispute settlement mecha-nism, and process, customer’s flexibility for switching the electricity supplier, etc. 

6. ROOFTOP, OFFSHORE, FLOATING, AND AGRICULTURAL RENEWABLE EN-ERGY PROJECTS 

6.1. Offshore Wind and Floating Photovoltaic Projects  

Offshore wind or floating PV projects are not specifically regulated in Albania. Where possible, the general rules are deemed applicable. Exceptionally, given few developments in relation to floating PV projects (currently two floating PV projects have been approved in Albania), ERE has established specific rules for the designation of the selling price of electricity from small-scale floating PV projects (up to 2 megawatts). 

6.2. Rooftop Photovoltaic Projects 

In the context of promoting RES production, the Old Renewable Energy Law provided for a net metering scheme to be used by small and medium enterprises as well as household cli-ents. These categories could install a PV plant with a 500 kilowatts total capacity to cover par-tially or completely their energy needs and inject the surplus energy into the distribution net-work. They should also bear the costs of installing the metering system.

The net balance was to be calculated on a monthly basis and excess electricity is deemed to be remunerated according to prices approved by ERE.

Since 2019 some secondary legislation was in place regarding the requirements to be fol-lowed by the applicant for obtaining authorization from DSO for developing such projects. These rules were simpler than those applicable to obtaining development rights for higher-capacity PV projects. However secondary legislation has been ever since incomplete on the more important aspect of the methodology of calculation and determination of electricity prices for the net-metering scheme. 

The New Renewable Energy Law follows a similar path by promoting RES production by self-producers up to a capacity of 500 kilowatts. Self-producers are defined more broadly so as to comprise any final consumer that produces renewable electricity for its own consumption and that can store or sell self-produced renewable electrical energy, provided these activities do not constitute their main commercial or professional activity. Such self-producers are entitled to generate, consume, store, and sell excess production of renewable electricity, including bilateral supply and trading agreements according to the principles of equality and proportion-ality. 

The New Renewable Energy Law has also introduced rules regarding self-producers of re-newable energy located in the same building, including multi-apartment blocks. These may engage jointly as self-producers and share renewable energy produced in their building, by means of respecting grid charges and other relevant charges, taxes, and duties applicable to any self-producer of renewable energy.

Notably, such rules that were introduced by the New Renewable Energy Law are expected to apply as of January 1, 2024, whilst their full implementation will also require the adoption of secondary legislation regarding aspects such as the rights and responsibilities of such self-producers, the application procedures, the relevant methodology and scheme of compensa-tion, rules of electricity sale, etc. 

6.3. Agrivoltaic Projects 

There are no specific rules in Albania on agrivoltaic projects. Where possible, the general rules are deemed applicable.

7. TRADING OF GREEN CERTIFICATES/CERTIFICATES OF ORIGIN 

7.1. Certification  

Production of renewable energy is certified through the so-called guarantees of origin (GOs). GOs have been already regulated by the previous legislation, and are now in more detail by the New Renewable Energy Law).

A GO is defined as an electronic document that has the sole function of proving to a final cus-tomer that a given share or quantity of energy was produced from renewable energy sources. GOs are issued by ERE upon the application made by a RES producer and once the plant has started operation. ERE should follow the principles of objectivity, transparency, and non-discrimination in relation to the issuance, transfer, use, and end of validity of GOs. ERE holds an electronic register of GOs and publishes the register data on its website.

One GO corresponds to one electricity unit (1 megawatt hour) generated by the power plant and injected into the grid. The GO is valid for one year starting from the last day of the pro-duction period for which it was issued. GOs that have not been canceled expire 18 months after the production of the power unit. 

GOs are transferable. Electricity produced from renewable energy sources for which the producer has sold the corresponding GO separately from the electricity, cannot be traded or sold to the end buyer as electricity produced from renewable energy sources. 

When a priority producer benefits from support measures under the New Renewable Energy Law, the market value of the GO for the same production must be returned to the REO. In case the producer benefits from a support measure for the purchase of energy, the GO is issued to the REO. The REO decides whether to sell the GO directly to suppliers or consum-ers or through a bidding process. 

7.2. Trading 

The concept of GOsis underdeveloped in Albania. To the best of our knowledge, no local market is functional yet. The possibility of trading GOs beyond the local market is also questionable as long as no international agreement with other states for the recognition of Albanian GOs is in place. Meanwhile, in principle, Albania acknowl-edges GOs issued in the Energy Community and may only refuse their recognition when there are reasonable doubts about their accuracy, reliability, or authenticity. ERE will take into account any opinion of the Energy Community Secretariat on the recognition of GOs and will provide written reasons for any deviation.

 

The primary drivers of the Albanian economy are centered around two main sectors – real estate and energy – with increasing shortages of qualified workers emerging as a key hurdle, according to Hoxha, Memi & Hoxha Partner Andi Memi.

“In recent years, there has been a significant surge in tourism, particularly along the country’s coastline, which has led to a boom in the hotel and leisure industries,” Memi points out. “As a result, major investments are being made to cater to the needs of tourists, from the South to the North of the country.” According to him, Albania has recently attracted the attention of international investors: “in the tourism industry, investors are looking to participate either as direct investors in real estate infrastructure or through management companies in touristic facilities. This sector continues to expand, with significant growth potential.”

“Renewable energies, particularly solar power plants, have also gained increased interest in the last two years, possibly due to the exponential increase in energy prices all around Europe,” Memi continues. “There is a lot of interest in investing in energy projects in Albania, and the government has been expanding its focus on renewable energies, especially solar and wind. Over the past year, several tenders have been issued for grants and concessions for new power plants.”

According to Memi, the expansion of solar power farms is currently the main focus of the Albanian government, followed by wind power, although to a lesser extent. “Solar power is currently favored due to factors such as short construction time, economization of panel cost and efficiency, favorable regulatory framework, and significant solar hours,” he notes. “However, there is a need for more projects to be developed to ensure a diversity of environmental impacts.”

Memi highlights that the state has acknowledged the potential benefits of the energy sector and supporting it – “not long ago, Albania approved a new law on renewable energy, and the government has made changes to the decrees for authorization to streamline and improve the framework,” he notes. “The government has been very active in soliciting offers and capacities for renewable energies.”

“As a result,” Memi notes, “the two primary engines driving the Albanian economy continue to grow steadily. However, there are some emerging challenges that need to be addressed.” One significant shortfall, according to him, “is the shortage of qualified labor force, as many skilled workers are leaving Albania to seek better opportunities in more developed countries with open movement policies, such as Germany,” he says. “The shortage of qualified workforce has led to a significant increase in wages, which has become a major issue for the expansion of this sector. Recently, there has been an increased demand for immigration services from countries such as Bangladesh and Sri Lanka. The construction sector, in particular, is feeling the effects of the labor force gap,” Memi concludes.

As the Albanian government seeks to utilize the energy crisis as a catalyst for encouraging energy investments and production, significant changes are expected in the country’s overall legislation – in light of the negotiation process – to comply with EU standards, according to Deloitte Legal Local Legal Partner Sabina Lalaj.

“Albania’s notable features nowadays include the energy crisis and the government’s efforts to try and turn that into momentum to foster investments in energy production,” Lalaj begins. “The government’s aim is to make Albania self-sufficient throughout the year and an energy exporting country.” According to her, it is evident that Albania is experiencing a boom in energy production investments, “particularly in wind and solar energy, as the government is favorable to facilitate the development of energy projects. To this end, the government is organizing another round of renewable energy auctions to further promote energy production.”

As part of this new initiative, Lalaj highlights recent changes in energy legislation: “The government has sent the amendments to the Law On the Promotion of the Use of Energy From Renewable Sources before the relevant parliamentary commissions. They are currently under review and discussion by those bodies. The law aims to provide better regulation and clarity to the sector and its actors.”

Considering the recent heightened attention on renewable energy, Lalaj says that work in the legal sector has shifted: “lawyers have been particularly busy figuring out how to help smaller companies operating in the energy sector to engage with investors and enhance their capabilities; or directly assisting the investors to identify potential investments in energy projects and carry out the due diligence on such projects. These discussions are taking place in most of the law firms, and many of us are involved.”

In addition to all that, Lalaj notes “there are developments in the capital markets industry. After the approval of the new package of laws on capital markets in 2020, the supervisory authority is now leveling up the approval of a series of secondary legislation that will enable the implementation of said laws and facilitate the operations in the market.”

Another important topic being discussed, according to Lalaj, is that changes are expected in Albania’s overall legislation, to align with EU acquis: “currently, we are in the screening procedures, and a large part of our institutions are preparing to work towards fully aligning our legislation with the EU acquis.” Several legislative proposals are currently in the works, she notes, and will be unveiled in the near future.

The Albanian Government is considering to impose an extraordinary payment for energy companies with regard to the profits that they have been realized due to the spike of energy prices caused by the ongoing war in Ukraine.

For this purpose, a draft law titled “on the establishment of solidarity contribution during the period of energy crisis” has been distributed.

The purpose of the draft law is to establish a “solidarity contribution” for producers of electric energy, with the aim of redistributing the extraordinary profits in support social protection schemes.

Note that the below is based on the initial considerations of the disturbed draft, and the final version of the act could differ substantially.

To whom will the “solidarity contribution” apply?

The “solidarity contribution” is intended to be applied to Albanian resident taxpayers that produce electric energy and trade such energy on the basis of liberalized prices.

What will be the rate of the “solidarity contribution”?

The “solidarity contribution” is intended to be applied at a rate of 50%. The “solidarity contribution” rate will be levied starting from 2023, and will be calculated as the product of the energy quantities sold during the previous year, with the difference between the average market price achieved during the previous year and the reference price indicated in the draft, of 8.5 Lekë/kWh (approx.. Eurocent 7.25/kWh).

When will the “solidarity contribution” become due?

The “solidarity contribution” is intended to be calculated by the Tax Authorities in January 2023 and become due and payable in two equal installments, by the end of March 2023 and the end of November 2023.

What will be the duration of the “solidarity contribution”?

The extraordinary tax is intended to be applied for 2023 as well, if the average HUPEX price for the year will be higher than EUR 180/MWh. In any case, the new law is expected to remain in force until 31 December 2024.

What are the issues of the “solidarity contribution”?

First, despite the fact that the draft is very careful to use the term “solidarity contribution” and not taxation, this is effectively an extraordinary tax, which could be deemed to be retroactively applied to pas periods (i.e. 2022). Under the Albanian Constitution, retroactive taxation is prohibited. Further, the constitutional criteria proportionality and for passing extraordinary measures must be met.

Second, the application of the intended “solidarity contribution” could be deemed as discriminatory and ad personam, considering that it would only apply to a very limited number companies. The number of electric energy producers that sell energy on the basis of liberalized prices is currently on a single digit level, and draft does not apply to traders of electric energy.

Finally, under the draft law energy producers are still required to normally apply the requirements of the corporate taxation law on the actual profit generated for 2022, without the possibility to use the “solidarity contribution” as a deductible expense.

By Shpati Hoxha, Partner, Hoxha, Memi & Hoxha