Electricity price liberalisation for large companies: rationale, impact and policy outlook
The liberalisation of electricity prices for large and medium-sized companies in Kosovo, scheduled for 1 June 2025, is a necessary step to fulfil the country’s obligations under the Energy Community Treaty and to advance towards the goal of achieving a full liberalisation of the electricity market. However, the shift away from regulated tariffs also presents considerable economic challenges, particularly for energy-intensive sectors. While the iron and steel industry has already faced substantial cost pressures under liberalised pricing, the upcoming wave of liberalisation will affect over 1200 companies – estimated to include around 10% of total electricity consumption
Expected electricity prices of ca. 120 EUR/MWh represent an increase of ~70% compared to current regulated tariffs. Following an initial phase of market adjustment, the average burden is expected to remain manageable at the sectoral level, with food processing among the most affected sectors. To mitigate the impact, targeted support for renewables and a competitive electricity market are recommended.
A long-delayed reform enters its next phase
Kosovo committed to liberalising its electricity market in 2016 as part of its adoption of the EU’s Third Energy Package. However, implementation was delayed after initial liberalisation steps at high-voltage levels in 2017, in the course of which three Kosovar companies entered the open market. The upcoming phase, effective June 2025, will extend liberalisation to businesses with over EUR 10 m in annual turnover or more than 50 employees.
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These companies will be required to procure electricity on the free market, losing access to regulated tariffs. This will bring Kosovo into closer alignment with EU rules, which prohibit general public intervention in electricity pricing. However, the experience of the metallurgical company Ferronikeli, which was forced to shut down for almost two years from 2021 to 2023 due to high electricity prices, shows that price exposure without safeguards can severely threaten business viability.
Economic impact: sectoral risks are uneven
Companies entering the liberalised market can expect electricity prices above the regulated rate available with the Universal Service Supplier (USS). Following an initial phase of market adjustment, the average open market price is estimated around 120 EUR/MWh – roughly 70% above the current regulated rate. However, the open market for electricity supply is still underdeveloped in Kosovo, as most licensed suppliers are currently inactive, resulting in uncertainty and price volatility. In order to assess the vulnerability of different economic sectors, we estimate the additional electricity costs per sector based on the medium-term market price (the absolute burden), as well as the share of additional electricity costs relative to sectoral gross value added (GVA) – the relative burden.
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The absolute financial burden will fall most heavily on the food industry, followed by services, as well as agriculture and forestry. The food industry is also the most vulnerable among the newly liberalised sectors in relative terms, expected to see electricity costs rise by up to 3.8% of sectoral GVA. For most other sectors, the cost impact is below 1–2% of GVA. However, the iron and steel sector remains a special case. Compared to a counterfactual scenario in which electricity prices remained at the regulated level, the additional electricity cost under market prices corresponds to over 40% of the sector’s GVA. Already liberalised since 2017, Ferronikeli’s temporary shutdown from 2021 to 2023 highlights how liberalised pricing, particularly under volatile conditions, can undermine business continuity in energy-intensive operations.
Regulated tariffs also on the rise
In parallel to market liberalisation, the Energy Regulatory Office (ERO) recently approved a 16.1% increase of the regulated tariff, citing rising wholesale energy procurement costs, higher network-related pass-through charges, and increased demand as the key reasons. While still at very low levels in comparison to other European countries, this marks the highest regulated electricity price Kosovo has seen to date. For most household and non-liberalised business consumers, this change will be reflected in higher bills starting in June. Importantly, the decision excludes the four northern municipalities (Leposaviq, Zubin Potok, Zveçan and North Mitrovica). For almost 25 years, residents in the country’s four northern municipalities did not pay for their electricity. Billing in this area began in February 2024 but payment rates are still below 20%. These areas remain unaffected due to the decision of the local public utility Elektrosever not to increase prices along with the Universal Service Supplier KESCO who serves the rest of the country.
Import dependency and winter vulnerabilities
The winter of 2024/2025 underscored Kosovo’s continued dependence on electricity imports to balance volatile domestic supply. In December 2024, almost half of all final energy consumption was met through imports. This is mostly due to Kosovo’s outdated lignite plants, which provide about 90% of Kosovo’s total annual domestic electricity production but lack flexibility and frequently face unplanned outages. Elevated prices on regional exchanges, coupled with tight cross-border transmission capacity, placed significant strain on the national electricity system. These difficulties were exacerbated last winter by low domestic renewable output, drawing attention to the urgent need for investment in local generation and storage capacity as well as regional market integration. Reducing reliance on imports is long recognised as a key priority for enhancing energy security and price stability in Kosovo.
While the upcoming wave of market liberalisation will mean higher electricity prices for companies, it could gradually reduce the price pressure for the publicly owned generation company KEK, which is obliged to prioritise electricity sales under the Bulk Supply Agreement (BSA) to the USS at low prices for regulated consumers. As regulated consumers gradually move to the open market, KEK can generate more profit and thus create additional financial space for necessary refurbishments and investments in renewable energy generation capacities.
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Next steps: targeted policy measures needed
To ease the transition for companies moving to the open market, Kosovo has several support mechanisms in place. Prosumers – companies and households that produce their own electricity – can benefit from net-billing schemes and installation subsidies. Additionally, the government has announced a forthcoming support scheme aimed at helping local producers reduce energy costs and improve energy efficiency. Further policy responses should include supporting competitive electricity markets through continued RES auctions and advancing market-coupling with additional neighbouring countries. In the medium term, phasing out legacy mechanisms like the BSA could help increase liquidity and competition on the Albanian Power Exchange (ALPEX). Finally, reforming the support scheme for vulnerable consumers in preparation for broader liberalisation, including smaller businesses and households, should also be a priority.
