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Rouven Stubbe, Marie-Aimée Salopiata

Kosovo’s new energy policy agenda

In March this year, Kosovo has adopted its long-awaited new Energy Strategy, outlining key objectives and measures until 2031. From the strategy, it becomes clear that previous plans for expanding polluting, lignite-based capacities are finally shelved and that the country will focus on expanding renewable energy generation capacities instead. The key target to this end is a minimum of 35% renewable energy share in gross final electricity consumption by 2031, which the government aims to achieve through policy measures such as renewable energy support auctions. While the 35% target is principally achievable with the planned capacity volumes, lacking financing for key policy measures poses a major obstacle to this end. To overcome this obstacle and work towards the even more ambitious measures outlined in Kosovo’s first Draft Energy and Climate Plan (NECP), committing more public funds and soliciting for climate finance from international sources is key.

  • Kosovo
NL 14 | November - December 2023
Energy and Climate
A new Energy Strategy creates momentum

In March this year, Kosovo has adopted its long-awaited new Energy Strategy, followed by an Implementation Programme in September. With this new strategy, Kosovo outlines its energy policy ambitions for the upcoming decade (2022-2031).

The strategy marks a turning point in Kosovo’s energy policy, making clear that the country is aiming at reducing its heavy reliance on outdated, lignite-based generation capacities, which constituted more than 90% of electricity production in 2021. This includes setting aside previous plans for a new lignite power plant. Instead, the strategy focuses on increasing generation capacities from renewable sources.

Key targets

As the key target in this regard, Kosovo’s Energy Strategy aims for a minimum 35% renewable energy (RES) share in gross final electricity consumption by 2031, up from 6% in 2021. To that end, the strategy aims for the construction of at least 600 MW of additional wind farms and 600 MW of additional utility-scale solar PV. On top of that, 100 MW of rooftop solar PV capacities are envisaged in the strategy. In sum, this would be a significant increase in RES capacity in comparison to the 10 MW solar and 137 MW wind installed in 2021. In parallel with the RES rollout, Kosovo aims for at least 170 MW of flexible regulation capacity in the form of battery storage.

In addition, the strategy foresees steps towards reducing lignite-based electricity generation capacities upon which the country is still heavily depending. To this end, one or two of the operational lignite units of power plant Kosovo A are planned to be decommissioned, while the remaining one or two units (opened in 1970/71) shall serve as a strategic reserve. The two units of power plant Kosovo B (opened in 1983/84) are designated for extensive retrofitting to comply with air pollution regulation requirements.

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To reach these envisioned targets, the corresponding Implementation Programme – adopted in September this year – outlines a series of policy measures.

RES auctions as key policy instrument

RES support auctions constitute the key policy instrument to increase investments in this area. These reverse auctions aim to cost-effectively tender out financial support to renewable energy investors by providing a guaranteed purchase price (determined by the auctions) for at least 15 years. Importantly, the support is linked to a minimum 30-year land lease agreement if the developer does not own the land, a guaranteed connection agreement with the transmission grid operator and limited balancing responsibility. The first pilot auction for 100 MW solar PV on public land is currently open for bids until January 31, 2024. Additional tenders are in the pipeline for 2024 and 2025, also including auctions for wind. Moreover, Kosovo has announced tenders for engineering, procurement and construction (EPC) for 100 MW solar PV, 50 MW solar thermal district heating, as well as 45 MW/90 MWh and 125/250 MWh of battery storage.

Ambitious plans require efficient implementation

The targets and measures foreseen in the strategy are ambitious, especially given the timeframe covered by strategy. Still, as modelling results by the German Economic Team show, a successful implementation of the capacity volumes planned until 2031 is sufficient to achieve a RES share in gross final energy consumption of over 35%. However, achieving this requires quick and effective implementation to ensure that a solid regulatory framework for RES investments is in place to allow the initiation of the construction of the planned solar PV and wind parks as well as storage capacities.

Key challenge posed by lacking financial means

Aside from the speed of implementation, securing sufficient financial means for the ambitions outlined in the Energy Strategy is another key condition for successful implementation. Some of the measures outlined above have already secured financing through Kosovo’s government budget and/or donors and international financial institutions (IFIs). Important examples include the EPC tenders for solar PV and solar thermal district heating as well as the battery storage.

Financing for some of the other measures is currently not fully covered. In particular, the government has to ensure that sufficient resources will be available for key measures such as the renewable energy support auctions, lignite power plant retrofits as well as additional investments needed in the transmission and distribution grids to reduce network losses and ensure that the planned renewable electricity generation can be absorbed by the grid. In total, the German Economic Team estimates the uncovered energy sector financing needs until 2030 at around EUR 1.4 bn. This also includes a significant part which will have to be covered by private investors.

To secure the necessary financial means, more funding needs to be committed from the government budget. To this end, the government could reduce quasi-fiscal energy subsidies through its state-owned companies (KEK and KOSTT) and repurpose the freed-up resources for grid investments and targeted support to renewable energy and energy efficiency.

On the other hand, additional IFI and donor support is needed in view of the scale of the challenge. In this regard, an additional challenge is posed by the fact that Kosovo has limited access to many of the key international climate financing mechanisms, including UNFCCC funding opportunities. This is because Kosovo is not yet a member of the United Nations and thus also not a party to the Paris Climate Accords. Securing the necessary finance despite these challenges will require substantial advocacy efforts on the international level, which are currently initiated through the participation of a Kosovar delegation at the COP28 in Dubai and the upcoming development of Kosovo’s first inclusive and voluntary Nationally Determined Contributions (NDC).

Outlook

Kosovo is on course for a renaissance in energy sector investments. The new Energy Strategy is ambitious, but its targets can be achieved if implementation is followed through quickly and efficiently and backed with sufficient additional financial resources.

The new Energy Strategy and the ambitions laid out therein are embedded in Kosovo’s cross-sectoral policy ambitions for decarbonizing its economy. These goals are outlined in the first draft of Kosovo’s National Energy and Climate Plan (NECP), prepared with support from the German Economic Team and GIZ. Going beyond the energy sector and covering all energy-producing and consuming sectors and non-energy greenhouse gas emissions, the draft NECP is significantly more ambitious than the new Energy Strategy, thus also calling for even more financial resources. Additional resources are needed to ensure that targets for the energy-efficient renovation of public, commercial and residential buildings are reached, the adoption of electric vehicles progresses and large infrastructure projects, such as the electrification of Kosovo’s railways and the Kosovo-Albania rail link can be realised.

Overall, Kosovo’s new Energy Strategy and draft NECP lay out the path for an ambitious energy transition across all sectors. The country now needs to work on the efficient implementation of the regulatory framework and a comprehensive financing strategy to ensure that the targets set can be met.

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