1. MED HIGH LEVEL FORUM SUPPORTED BY USAID/KOSOVO “SECURITY OF ELECTRICITY SUPPLY IN KOSOVO” KOSOVO ELECTRICITY MARKET – STEPS TOWARDS REGIONAL INTEGRATION Dr. Goran Majstrovic Prishtina, March 1, 2016

2. Kosovo-Albania Electricity Market Study To compare operation with and without market integration Kosovo – Albania in 4 aspects: 1.Wholesale electricity price 2.Generation output and country balance 3.Cross-border line loading 4.System reseve needs SCOPE OF WORK

3. Kosovo-Albania Electricity Market Study Implemented PLEXOS market simulation software –object-oriented, math programming optimization Year 2020 –SEE region modeled –hourly time step –medium-term step (week) for correct simulation of hydrological regime Two simulation runs: –separate markets of Kosovo and Albania –integrated market of Kosovo + Albania TOOL AND METHODOLOGY

4. Albania dominated by hydro power plants average hydrology load profile –the demand rises in winter months –the hydro seasonality does not coincide well with the load profile seasonality Kosovo dominated by thermal power plants Development plan for 2020, including analysis with new generation unit (450 MW) load profile –smaller than Albanian –larger seasonality in monthly load profile Kosovo-Albania Electricity Market Study INPUT DATA SET

5. Comparison of production –combination of hydro and thermal resources causes significant differences CM vs SM Albania –relatively small difference: generation profile conditioned by hydro inflows and overall energy deficit Kosovo –TPPs production increases to cover the extra demand from Albania in summer months –decreases when Albania has a surplus of energy or during maintenance periods Note: both the SM and CM scenarios do not operate as isolated systems, they are both connected to the regional market Kosovo-Albania Electricity Market Study RESULTS – GENERATION OUTPUT

6. Comparison of imports and exports Albania remains a net importer Kosovo remains a net exporter in CM case: –Albania imports 2680 GWh (42% increase) and exports 1556 GWh (99% increase) –Kosovo imports 1609 GWh (110% increase) and exports 2802 GWh (107% increase) cross-border trading increases Note: in CM case exports/imports between Albania and Kosovo are included Kosovo-Albania Electricity Market Study RESULTS – COUNTRY BALANCE

7. Imports and exports: CM KS-ALB interchange exports are separated from the exports to the regional market the increased exchange between KS and ALB increases the overall export and import Note: all the direct exports from Kosovo to Albania, and the exports from Albania to Kosovo are the results of common market establishment Kosovo-Albania Electricity Market Study RESULTS – COUNTRY BALANCE

8. Comparison of market prices wholesale market prices –both Albanian and Kosovo prices decrease on average in SM –Albania 52,73 €/MWh –Kosovo 52,01 €/MWh on average in CM –Albania 47,35 €/MWh (-10,20%) –Kosovo 46,63 €/MWh (-10,34%) 1.prices decrease on both sides of the border 2.notably increased price stability (less variation in prices) 3.prices settle on a common price level 4.prices are not completely equal, though: because of limited transmission capacity between Kosovo and Albania Kosovo-Albania Electricity Market Study RESULTS – ELECTRICITY PRICE

9. Albania –congested hours per year drop significantly –in CM for more than 2000 hours per year is able to resort to additional imports Kosovo –notable increase in congestions due to higher flows on the interconnectors ScenarioSeparate MarketsCommon Market InterconnectorAL-extKS-extAL-extKS-extAL-KS Hours (h)51852058 3035 (-41%) 3734 (+81%) 124 monthly line loading levels: –stronger seasonality exhibited SMCM Kosovo-Albania Electricity Market Study RESULTS – CROSS-BORDER FLOWS

10. only the operational TPPs and HPPs with storages have been considered the total required reserve is on average reduced by cca 5% reasons for this change: –CM effect on the operation profile mostly occurs in the Kosovo TPPs positive effect of market integration –both sides can count on the reserves from the storage HPPs on the Albanian side Hours (per year) of interconnectors operating at NTC limit MWh/h% change Separate Markets SM Albania 1310,23 SM Kosovo 326,42 SM Albania + SM Kosovo 1636,65 Common Market CM Albania 1311,37 0,09% CM Kosovo 250,19 -23,35% CM Albania + Kosovo 1561,56 -4,59% Kosovo-Albania Electricity Market Study RESULTS – RESERVE CAPACITITES

11. KEY FINDINGS AND CONCLUSIONS Production –in Albania, generation profile remains largely unchanged –production from local lignite fired Kosovo TPPs changes based on Albania energy surplus/deficit Wholesale energy prices –in CM, the prices settle on a common price level –prices decreasing in both systems Cross-border transmission congestions –Overall effect on relieving the congestion with external markets More demand satisfied internally In CM, Kosovo interconnection to external market is more congested, though Available reserve capacities –the total available reserve is on average reduced by 5%, but… –…a larger share of generation resources available overall → Step toward common European electricity market… Kosovo-Albania Electricity Market Study

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13. ACTIVITIES AND RESPONSIBILITIES Rob Barnett Prishtina, March 1, 2016 MED HIGH LEVEL FORUM SUPPORTED BY USAID/KOSOVO “SECURITY OF ELECTRICITY SUPPLY IN KOSOVO”

14. So why a common electricity market?  improve security of electricity supply in Albania and Kosovo;  the lack of generating capacities in Albania, and in Kosovo;  the power systems of Albania and Kosovo are complementary, and common power system will have opportunity to optimize all resources and provide welfares for all stakeholders;  the binding objectives of Albania and Kosovo to implement EU Directives in creating a large, open, competitive and harmonized market, in line with EU defined principles and goals;  the importance of regional cooperation initiatives for merging national markets in order to facilitate the use of cheaper electricity sources and the exchange of electricity on a regional level.

15. Market models are broadly complementary Long-term to Day Ahead Real time Within day Day Ahead Albania Bilateral contract  Financial onlyBilateral contract  Financial only PTRs  FTRsPTRs  FTRs DAMDAM Gate closure and I/C NominationsGate closure and I/C Nominations AS ContractingAS Contracting? Balancing marketBalancing market AS utilisationAS utilisation Kosovo Bilateral contractBilateral contract PTRsPTRs AS ContractsAS Contracts Gate closure and I/C NominationsGate closure and I/C Nominations Renomination windowsRenomination windows Balancing marketBalancing market AS utilisationAS utilisation EU Target Model Bilateral contract or Financial onlyBilateral contract or Financial only PTRs or FTRsPTRs or FTRs DAM and market couplingDAM and market coupling Intraday tradingIntraday trading Gate closureGate closure Balancing marketBalancing market AS utilisationAS utilisation

16. There are large potential efficiency savings ItemSavings Shared reserve requirementSignificant Common AS contractSmall Integrated balancingSubstantial Common sale of cross-border transmission rightsSmall Single imbalance priceSmall Single settlement systemSome Common credit requirementSignificant Common PXSome Intraday marketSome

17. Albanian PX is happening; Kosovo has role Transition to Common Market? –PX separate from MO so not on critical path PX contributes to efficiency of price setting Common PX will save administration costs Common PX will be more liquid than separate ones

18. Cross border exchange improvements –New line makes congestion less likely Kosovo to make available its borders for market coupling? Kosovo not coupled with Albania –Need to make capacity available at border (KOSTT/OST agreement) –Kosovo-Albania border needs firmness guarantee

19. Integration with common market PX not on critical path to Common Market –Useful addition –But so are forwards markets and intraday markets Not useful for Kosovo to develop own PX –Liquidity from Kosovo very useful for PX Negligible changes to PX for Common Market –(maybe broaden governance and regulatory responsibility but not essential)

20. Roadmap: Phased approach to market integration  Phase 1: Integrated DAM  this will create allocative efficiency at the day ahead stage and allow for cross-border efficiencies within the region through market coupling  Phase 2: Integrated balance responsibility and settlement  this will set out common trading arrangements allowing parties to integrate their imbalances across both markets.  Phase 3: Integrated system operation  by developing a single system operator, savings in reserves and ancillary services will be maximized  single imbalance price

21. MarketsRegulatorsInstitutions Forward DAM Intraday Balancing System Operation Forward DAM Intraday Balancing System Operation TO SO MO DSO Participants Forward DAM Intraday Balancing System Operation Forward DAM Intraday Balancing System Operation TO SO MO DSO Participants Forward DAM Intraday Balancing System Operation Forward DAM Intraday Balancing System Operation TO SO MO DSO Participants Phases of market integration National Common National Common National Common PHASE 3: System Operation integration PHASE 2: Balancing and Settlement Integration PHASE 1: PX integration

22. Conclusions  This Roadmap recommended that integration be progressed by phases to full integration  Reasons for recommending this option relate to its delivery of the following substantial efficiency savings:  Reserve sharing across both market  Integrated balancing  Integrated credit security requirements minimizing participant costs  The EU Target Model seeks to improve trading efficiency in forward, day ahead, intraday and real-time timeframes, but for those steps is necessary appropriate level of market maturity.

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