1. 1 Faruk Serdarevic - Chief of Party Ceia Whitaker - Deputy Chief of Party REPOWER – KOSOVO AECOM International Development Faruk Serdarević – Chief of Party Celia Whitaker – Deputy Chief of Party Prishtina, March 01, 2016 Kosovo Power Sector – challenges and opportunities

2. 2 Kosovo electricity market structure

3. 3 ENHANCEMENT OF SECURITY OF SUPPLY Security of Supply significantly improved but not sustainable ! Kosovo key energy projects in 2016: 1.New Kosovo Power Plant coal fired generation transaction 2.Refurbishment of TPP Kosovo B and 3.Common electricity market between Albania and Kosovo

4. 4 POWER SECTOR MAIN ISSUES IN 2016 1.New Kosovo Power Plant –Heads of Terms signed; financial close 2016 2.Market for offtake –Market competition – possibilities for new investments –Common electricity market with Albania - important to export excess baseload and import reserve, to benefit of both countries –400 kV line to Albania almost complete – removal of main physical barrier –Proposed HVDC line to Italy will provide an additional market

5. 5 POWER SECTOR MAIN ISSUES IN 2016 3.TPP Kosovo B –Development of rehabilitation project; multi year life extension, environmental compatibility with current environmental standards 4.TPP Kosovo A –Maintain in operations until Kosovo B rehabilitated to reduce imports 5.KEK unbundling –Separation of KEK mining from other KEK activities

6. 6 POWER SECTOR MAIN ISSUES IN 2016 6.Renewable energy sources –Streamline administrative processes and facilitate investment in RES (establishment of One Stop Shop) 7.Remove retail market barriers –Rebalance tariffs –Put Supplier Switching Rules in place –Identify and remove remaining administrative or structural barriers 8.Environment –Ensure and upgrade environment compliance

7. 7 POWER SECTOR MAIN ISSUES IN 2016 9.New suppliers –Energy Agreement – Northern municipalities - failure to request a licence must not block ENTSO- E membership application 10.Affordability –Enhance customer protection to shelter the most vulnerable customers 11.Third package implementation –Major exercise by many institutions to implement

8. 8 Challenges but also opportunities

9. 9 Linkages and dependencies

10. 10 REQUIRED ACTIONS Power sector participants need to work together actively, collaboratively and coordinated to achieve the milestones essential if 2016 is to be a turning point Kosovo will require support from its international partners to enable it to achieve energy security, civil stability and economic growth EU needs to recognise the security of supply imperative and allow Kosovo time to comply

11. 11 REQUIRED ACTIONS Kosovo is committed to clean energy projects – our International partners and NGOs must be realistic about Kosovo’s reliance on lignite and accept that Kosovo has an unavoidable duty to protect its citizens’ welfare – and keeping the lights on is part of that duty. Kosovo business sector needs to recognize the opportunities that electricity market will offer together with further enhancement of renewable energy market

12. 12 USAID Development Objectives in Kosovo USAID/Kosovo Country Development Cooperation Strategy: Increased Investment and Private Sector Employment Intermediate Result: Improved Natural Resource Management in Key Areas Objective 1: Promoting Clean Energy Legal and policy Regulation and projects prioritization Market coupling Objective 2: Improving Enabling Environment for Private Investment in the Energy Sector Power sector unbundling Financing strategies REPOWER - KOSOVO

13. 13 REPOWER-KOSOVO Project Implementer: AECOM International Development Duration: 5 years (1 Oct 2014 – 30 Sep 2019) Contract Value:12 mil.$ Main Beneficiaries: Energy Regulatory Office (ERO) Ministry of Economic Development (MED) Transmission, System and Market Operator (KOSTT) Kosovo Energy Corporation (KEK) REPOWER - KOSOVO ERO

14. 14 KOSOVO - EU INTEGRATION PROCESS

15. 15 KOSOVO’S LEGAL / TREATY OBLIGATIONS On 21 st October 2005, Kosovo adhered to the Athens Treaty establishing the Energy Community to Create a stable regulatory and market framework capable of attracting investment Create a single regulatory space for trade ΧEnhance security of supply through investment and interconnection ΧImprove the environmental situation through the efficient use of electricity and the use of energy from renewable sources ΧDevelop market competition

16. 16 KOSOVO’S LEGAL / TREATY OBLIGATIONS This echoes the underlying ethos of the EU itself, which is to create “an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured …” (Art. 26.2 TFEU) Kosovo has worked to approximate the latest iteration of Energy Community Rules into national legislation Some obligations require gradual implementation to remove barriers to genuine implementation de facto not just de jure implementation

17. 17 11 YEARS IN THE COMMUNITY - ACHIEVEMENTS TO DATE 1.ERO was established in 2005; has issues of under-funding and under-staffing but October 2015 Budget Law confirmed its full funding request 2.KOSTT was fully unbundled from KEK in 2006; it is independent in accounting, management and legal terms from electricity generation and supply 3. ERO set multi-year price controls for the sector in 2012 – the first in the region

18. 18 11 YEARS IN THE COMMUNITY - ACHIEVEMENTS TO DATE 4.KEDS was fully unbundled from KEK in 2013; in 2015 its supply and distribution functions were separated legally. Compliance programme is approved 5.Distribution and supply are fully privatized 6.Government intends to further unbundle KEK’s remaining activities to separate mines from generation – no obligation, but has positive impact on Treaty goals 7.New generation projects will reduce market concentration and State stake

19. 19 LEGAL OBLIGATIONS: CURRENT ISSUES The free movement principle – but Kosovo is constrained in practice Kosovo is committed to genuine market liberalisation – but implementation may take time Security of supply – foundation of the European internal market: ‘social and territorial cohesion’ 2017: Legal duty not to exceed environmental limits – but must recognize security of supply imperative

20. 20 REPOWER’S SUPPORT ON TREATY OBLIGATIONS REPOWER-KOSOVO among others will support MED and other institutions in the sector during the 2016-19 period by: –Assisting MED, ERO in the development of secondary legislation to fully transpose the TEP –Assist in designing and planning actions required to implement TEP –Support MED, ERO and other institutions in removing administrative barriers to RES development

21. 21 Thank you for your attention!