A lost bet on electricity, how the HPP-s on the Drin river went dry waiting for the rain

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  • Dependent on “hydro”, Albania sank under the clutches of the energy crisis due to the wrong decisions of KESH and the Ministry of Energy. Data and evidence collected by Investigative Network Albania show that the authorities pinned their hopes on the rain, causing our country to be exposed to the dizzying increase in the price on the stock market. Confidential sources warn of another difficult season for about 230,000 families, who may be affected by the return of the bracket-based energy bills, a scheme to fill the black hole of finances in this sector.

    Author: Emirjon Senja

    Taking Germany as a model, which has started drastic energy savings, during a meeting with the country’s mayors, Prime Minister Edi Rama warned Albanians to ‘tighten their belts’.

    We are talking about total cuts in electricity supply, we have made this plan, it is an emergency plan, not for now”, Rama declared, asking the mayors and citizens to start saving.

    One day after Rama’s statement, on July 23, energy prices on the Hungarian stock exchange, which Albania also refers to when it goes to the market to buy, reached record levels of 510 euros/MWH, but during the peak this price went to 596 euros/MWH.

    This staggering price, mostly influenced by the Russia-Ukraine war, is turning into a nightmare not only for Albania.

    Dependent on water resources, which are not at all optimistic, KESH tried during the hot summer of this year to maintain a 50 to 50 balance for the production and import of electricity, in order to conserve the Drin River cascade. But on July 25, when the prices on the stock exchange reached staggering figures, KESH produced about 73% of the electricity needs from the Drin cascade.

    Albania is estimated to produce about 70% of the country’s energy needs but the Achilles heel remains the way cascades are managed.

    At the beginning of this year, when the level of Fierza dropped to minimum quotas and the old city of Kukes ruins came to light, Sef Cungu returned to the place where his village, Ram-Has, was located 46 years ago. The 76-year-old managed to find the ruins of the house where he and 15 other generations of his large family had lived.

    Among the ruins of his childhood home, Sefa tells INA MEDIA that the village was known as “Little Istanbul” and was inundated by the waters of Fierza along with everything: land, houses and numerous fruit trees.

    Photo from the old Kukës, the ruins of which emerged after the significant fall of the waters of Lake Fierza, provided to INA MEDIA by Ramadan Tola

    “We visited about 200 houses in that village. We had endless fruit trees, lots of land and other properties, which were flooded by the hydropower plant”, he says, while not hiding his disappointment about what happened next.

    But, while for Sefa the drought was a rare opportunity to return to the past, for the Albanians it was a warning that the country could very quickly find itself under the clutches of a long energy crisis.

    When the bells of the energy crisis rang, Albania was buying 1 MW/h of electricity for about 300 euros, but not only Albania, almost all European countries were in the middle of an energy crisis. Russia had just attacked Ukraine, and Europe had to make a choice: to continue buying Russian gas or to cut off this important source, risking the continent entering a major crisis.

    As a result of this uncertainty, the electricity price curve experienced a galloping increase.

    The bleak global energy picture looks set to deepen further this year. The data shows that until the month of July, energy imports were reaching the level of the quantity that Albania imported almost for the whole of last year, while the government has warned that 500 million euros may be needed for imports this year.


    Betting on the weather

    The emergency was declared on October 4, 2021, while the Fierza HPP was at its minimum historic quotas. With an extreme decision, the government took over the entire country’s energy system. According to the prime minister, who took this sector under his care, it was no longer a question of price increases, but of a lack of energy resources.

    Referring to this decision, the government stopped all investments of companies that produce, transmit and distribute electricity in order to direct funds towards its provision.

    The Drini cascade was “squeezed” to its limits, while the price of one MW/h of electricity in the market was at least three times more expensive compared to the month when the maximum utilization of the Drini HPPs was decided.

    The average flows in the lake of Fierza during the year 2021 compared to the historical average flows (1991-2019) in m 3 /sec. Source: KESH sh. a. Graphic processing: INA MEDIA

    The Fierza basin ended 2021 at a level of 275.1 meters, a not very promising indicator in the face of an uncertain energy situation in the world. Just a few weeks later, KESH was forced to buy the energy it did not save during the summer of 2021 at prices up to 295 euros MW/h in February and March 2022.

    As results from the official data, KESH has sold electricity during the period June-July 2021 at a price ranging from 50.35 eur/MWh to 150.4 euros/MWh, but never at a price close to what it was forced to buy in the same period.

    The level of Lake Fierza during 2021, compared to the historical average

    Source: KESH sh. a. Graphic processing: INA MEDIA

    As can be seen from the data provided by INA MEDIA, during the months of July-August-September 2021, when an increase in demand for energy was observed in Europe due to the reopening of economies, KESH made maximum use of the Drin cascade.

    The institutions justified the decision for maximum utilization of the largest cascade in the country with the expensive energy prices in the markets, but this emptying of Fierza did not save the country from the crisis. The following months showed that, not only was more money spent from the public finances, but the government was forced to declare a state of emergency.

    During the dry year 2021, Albania consumed a total of 8,415 GW/h of electricity, while the Albanian energy system produced a total of 8,962 GW/h.

    Although with a surplus in terms of production, paradoxically the country had to import large amounts of electricity during the past year due to the unfair distribution of production intensity, as well as network losses.


    The wrong decisions that emptied the Drin cascade

    In May 2021, the water level in Lake Fierza was at historical maximum values, causing the river Drin cascade to reach an energy reserve of 1,520 GW/h. However, from June and throughout the following months, the energy reserve in the Drin basin decreased up to 3.5 times, reaching the minimum figure of 426 GW/h in November 2021.

    Daily energy reserves in the Drin cascade, 2021

    Source: KESH sh. a.

    Graphic processing: INA MEDIA

    Flows in the Drin basin during 2021 were at the historical average throughout the year and significantly above average during the first three months of this year. This, according to ERE, enabled KESH to do a more fruitful management of the Drin cascade during the following periods, but the situation was not managed as it should have been.

    KESH pinned its hopes on the rains, which actually did not come as expected, causing the Fierza cascade to remain in October-November below its historical average.

    How was the Drin cascade emptied?

    The data processed by INA MEDIA with experts in the field show that throughout the summer months (July-August-September), the Fierza cascade has historically been kept at the average levels of 289.4-285-279.4, while in autumn KESH entered Fierza in the level of 275.4. meters. The situation changed completely last year and this year, where the level of Fierza HPP in September 2021 was 271.3, while October found it at 266.7 meters.

    Lake Fierza level during 2021

    Source: KESH sh. a.

    Graphic processing: INA MEDIA

    To assess whether things are good or bad with electricity in our country, the level of the Fierza HPP, which is considered the regulator of the Drin cascade, is taken as a reference.

    According to experts, the error started when the maximum utilization of the Drin cascade was decided, exactly when the price of electricity started to rise in the international markets. In May 2021, 1 MW/h of electricity cost an average of 59.9 euros. In June, the price went to 77.9, while in July it increased to 95 euros/MW/h.

    Seeing the rising price curve, KESH decided to make maximum use of the Drin cascade in the summer, with the hope that they would fill it again with the autumn rains. A decision that resulted in completely opposite consequences. The decision-making experts at KESH and the line ministry, instead of predicting an increase in the price of electricity in the markets, while the economies were reopening from the pandemic, actually followed the opposite logic, that of lowering them.

    It was precisely this moment when Albania “missed the train” of good management of the country’s energy resources and the crisis was sealed.

    Sources from these decision-making bodies told INA MEDIA that they were under pressure and that a different decision could also be perceived as mismanagement.

    “A decision to buy more electricity in the market that was already expensive, at a time when the river Drin cascade was full, could also be perceived as mismanagement, if the price of electricity were to decrease in the following months”, – the source claims on condition of anonymity.

    Eduart Elezi, former director of ERE, is convinced that we are dealing with mismanagement of the river Drin cascade. Based on the current indicators, but especially those of 2021, he even raised accusations of legal violations on the security of the country’s electricity supply.

    “There are two violations here. The first is related to the violation of security of supply, which constitutes a legal violation. The second is related to the high cost of purchasing electricity from imports, therefore a very accurate management of the country’s energy resources is needed. If we had good management, the balances would also be maintained”, claims the former head of ERE, Eduart Elezi.


    Salty invoices for the “indulgent”

    Faced with an energy crisis,
    the Albanian government has found a way to discourage energy consumption on the one hand, but also to fatten the system’s financial indicators on the other.

    It is about a new electricity tariff for household subscribers who consume more than 700 kW/h per month. According to the calculations made by INA MEDIA, all families that consume more than 8,000 lek per month for electricity will be categorized in this new band. Each kilowatt consumed above the 700 kW/h band will be paid at a different price, not 9.4 ALL, as it is now.

    Until now, there is still no final decision regarding the band, which can be raised up to 800 kW/h, as the Minister of Infrastructure and Energy, Belinda Balluku, warned at the beginning of July.

    But how many family subscribers are affected by this change in the electricity price?

    Unofficially, a figure of 5% or about 65 thousand family subscribers has been circulated in the media, but INA MEDIA learns that in fact the figure of those affected is expected to be much higher, which will vary from 20-25% of the total number of subscribers, depending on the season. Translated into figures, it is a number between 190,000 and 230,000 family subscribers, who will pay more expensive bills, if the 700-kilowatt band is approved.

    For the former head of ERE, Eduart Elezi, this is a “de facto” increase in the price of energy. According to him, the government tells a half-truth, when it only refers to the price of energy in the stock market (which is really expensive), but deliberately “forgets” the fact that the cost of 1 MW of electricity produced by KESH is extremely low .

    “The government talks about its price increase for the 700-800-kilowatt band, referring only to the price on the stock market, which is really expensive now, but KESH produces 1 KW/h of electricity at a cost of 12 euros, so it should be an interweaving of import costs with those of local production”, he said.

    But, Eduart Gjokutaj suggests a different solution from the government regarding this initiative. According to him, the energy market must first be liberalized, where there is a regular financial management, without political patronage, and then move on to the charging in question.

    “As long as the public energy market is maintained in conditions where the tariffs do not cover the costs, the first reform related to progressivity should be addressed precisely in relation to the tariff reform, which constitutes the basis of the efficiency of the sector”, he says.

    The government intends to complete the study for the determination of the lower limit of energy at the reached price during the summer months. The income generated by this scheme, which will be entered into the OSSH coffers, will be used to purchase electricity during the autumn months in order to maintain the river Drin cascade in acceptable quotas.


    A difficult solution

    In September of this year, a floating plant, leased by the Albanian state, is expected to be put into operation. It will start producing energy on behalf of KESH, injecting 100 MW/h into the system.

    INA MEDIA learns that 1 MW/ha produced by this mobile unit will cost the Albanian state around 160-170 euros depending on the price of fuel. A favorable price, if we consider the fact that currently prices range up to 390 euros/MW/h.

    Eduart Gjokutaj, well acquainted with this sector, at the same time an expert at ALTAX, a research and information center, thinks that this trap, which the Albanian authorities fell into last year, has served to draw the right lessons.

    “After the energy crisis, there is probably a greater awareness from the leaders of KESH. sh. a., but above all from MIE and the Supervisory Board, to enable the effective management of water reserves, as well as the possibility of putting resources to work depending on the implementation of all documents, updating them according to the situation”, – he says.

    This is also confirmed by the current data from Fierza, which prove that the Albanian authorities are being more careful. Production from the Fierza HPP throughout the first five months of this year has been kept at its minimum, significantly below the historical average level in order to fill the cascade.

    Despite this, the situation still remains challenging, as Fierza at the end of June was below the historical average. The average of the last 15 years for June is 292 meters, while Fierza closed the first half of the year at the level of 289 meters.

    Experts estimate that the support of electricity production only on hydro sources makes the country dependent on imports, as well as ineffective in resource management.

    Comparison of electricity production in 2021 in Albania with the average between 2009-2021 (in MW/h)

    Source: KESH sh. a. Graphic processing: INA MEDIA

    “The total consumption for electricity in 2021 was almost at the same level as the production, but the distribution of production in the periods of the year does not match the consumption, because in the dry period the production is significantly smaller than the consumption and this is a consequence of the resource profile”, Pajtim Bello, former Minister of Energy, told INA MEDIA .

    The high demand for electricity has increased its price in the market to a historical record level, this was also influenced by the unclear situation of the war in Ukraine and the reopening of the economy after Covid .

    The building of KESH sh. a.

    Data from the Hungarian stock exchange, which Albania also refers to when entering the market, show that 1 MW/h of electricity was purchased during the beginning of July for up to 380-390 euros at peak times. KESH sh. a., explains to INA MEDIA that the electricity, contracted for the period July 4-10, had an average weighted price of 333.42 euros/MW/h.

    Such a situation significantly exposes the country to the lack of electricity, while the situation in HPP-s is not so favorable. KESH itself promises to enable the supply of the local energy system with 55% of the needs, while 45% will be substituted through imports.


    The salty bill of network losses

    Network losses continue to devour millions of euros every year. Only during the past year, Albania had to spend 300 million euros to buy or produce electricity to cover the losses.

    Despite this gloomy panorama, the institutions themselves are optimistic. In a statement for INA MEDIA, the director of the Department of Measurement, Balance and Market Support, at OSSH, Ermal Murati, said that losses decreased to 22.88% during the first five months of this year, with a significant decrease during April and May.

    “The figures are positive, but still far from what we want to achieve, so continuous work with the structures in the regions and cooperation with the justice bodies is required, not only for the identification of abusers of electricity, but also for the prevention of the phenomenon”, says Murati.

    Energy losses are not only due to theft, but also as a result of the worn-out network, which has been operating for 40-50 years and requires large investments to improve. However, the former head of the OST, Klodian Gradeci, thinks quite differently, who says that the energy losses are greater than what is officially accepted.

    “The losses in the distribution network for the year 2021 were 1,557,000 MW/h and, if the collection level according to ERE is 97.4%, then the part that is not collected is approximately 23% of the energy that OSHEE injects into the network”, he explains.

    Former director of OST, Klodian Gradeci

    According to him, OSHEE has 1,280,000 customers, of which about 280,000 have 0-kilowatt consumption. The family consumer part is 50% of the energy supplied by OSHEE, the private consumer occupies 37% and the remaining part is budgetary and non-budgetary institutions.

    “The consumption of family customers, which also covers the item with the highest consumption in the consumer hierarchy, is 36% of the total consumption in the country and has a decrease of 2.5% from last year. This decrease in the number of family consumers is not reflected in the decrease in OSHEE’s level of losses”, he emphasizes, insisting that the argument of the amortized network, which causes losses, is not always convincing.

    Examples, according to him, are the municipalities of Himarë and Selenica in Vlorë, both with a new network. Himara records a loss level of 9.2%, while Selenica, 54.1%.

    “We are dealing with an entire region, like that of Vlora, which has benefited a lot from investments in the development of the transmission and distribution networks, and the argument of technical losses due to network depreciation is not convincing”, he concludes. he.

    Eduart Elezi makes strong accusations in this regard, asking the law enforcement bodies to investigate the high costs of the investments made to improve the electricity distribution network.

    “We have two to three times higher fees for investments made for a 1 km line or transformer compared to foreign markets. Investigative bodies must make the relevant verifications. The losses are not, as stated, but much higher”, Elezi insists.

    Ky shkrim është pjesë e projektit që mbështetet financiarisht nga Zyra e Mardhënieve me Publikun e Ambasadës së SH.B.A. në Tiranë. Opinionet, gjetjet, konkluzionet dhe rekomandimet e shprehura janë te autor-it/ve dhe nuk përfaqesojnë domosdoshmërisht ato të Departamentit të Shtetit. / This article is part of a project that is financially supported by the Public Relations Office of the US Embassy in Tirana. The opinions, findings, conclusions, and recommendations expressed are those of the author(s) and do not necessarily represent those of the Department of State.