Some cities in Kosovo entered the New Year in darkness. With the now common reasoning that overloads are causing transformers to break down, consumers have faced long energy blackouts since December 22, 2021.
With the government calling to save energy ever since winter kicked off and temperatures plummeted, the Energy Distribution Company (KEDS) said that energy blackouts would last around two hours and would affect all consumers at different times, except for those considered critical.
However, the two-hour strategy did not apply evenly across the country. During the first week, media reported outages lasting for more than 14 hours straight in some neighborhoods of the capital, followed by low electrical power once electricity was restored. In rural areas, blackouts longer than two hours continued in the following weeks.
KEDS justified its selective blackout strategy arguing that the power system was overloaded due to an increased consumption, the global energy crisis kept increasing the price of imports and domestic production was reduced. The Kosovo Energy Corporation (KEK) had announced that unit B2 of Kosovo B — the power plant that produces half of the electricity consumed annually — went out of function on December 14. In early January, the Energy Regulatory Office (ERO) began conducting an extraordinary review of energy tariffs, which could lead to a 30-40% increase in the monthly bill.
The return of blackouts has sparked a heated debate between government and the opposition, each blaming the other for the energy crisis, which has translated into a confusing public debate. The controversy revolves around the lack of active measures by the current government and the privatization of KEDS by its predecessors.
In this explainer, K2.0 breaks down some of the key aspects surrounding the energy crisis in Kosovo.
The crisis was not a surprise
Since the beginning of 2021, with the easing of restrictive measures related to COVID-19 and the rapid increase in demand for consumption, there have been warnings of looming crises around the world with varying intensity. In Kosovo, an actual crisis has emerged as a result of the interaction of external and internal factors: internally, due to unstable domestic production that does not match the steadily increasing energy demand; externally, due to the rising energy prices in the global market.
All actors in this sector in Kosovo were involved in this crisis (to better understand the role of each, you can refer to the sidebar below).
KEK, KEDS, KESCO, KOSTT, ERO: Who, what?
Kosovo Energy Corporation (KEK) — a public company — produces coal-based electricity in its two large power plants, Kosovo A and Kosovo B, which consist of several units.
The Energy Distribution Company (KEDS) — a private company — manages the distribution network, which includes the mid and low voltage lines used to distribute energy to customers. At the request of KEDS, KEK sells all of its electricity to KESCO.
The Kosovo Electricity Supply Company (KESCO) — a subsidiary of KEDS — has the duty to supply customers using KEDS’s distribution network. KESCO also bills, collects and connects new customers to the network.
The System, Transmission and Market Operator (KOSTT) — publicly owned — manages the transmission network, which consists of the high voltage lines connecting cities and regions to the grid.
The Energy Regulatory Office (ERO) is an independent body tasked with regulating activities in the energy sector, including electricity, heating and gas. It sets prices every April 1 each year.
Now, let’s break down some of the factors that contributed to the energy crisis in Kosovo one by one.
The Annual Balance of Electricity and Thermal Energy for 2021 — a document published by ERO that plans the annual consumption and import of energy in Kosovo — shows that the plan for total national energy production in 2021 was 5,297.2 GWh. Meanwhile, the total consumption was projected to be 6,433.9 GWh.
According to data from the Kosovo Agency of Statistics (ASK), during the third quarter of 2021 — July, August, September — consumption reached 1,125.9 GWh, which is about 21% of the projected annual production.
Not expecting Kosovo to produce enough for its domestic consumption at all times, ERO anticipated the need for imports during peak time — the time when energy is most used — allowing for exports of energy during the slower periods — low tariffs, which apply when energy is used the least, start at 22:00.
Meanwhile, according to KEDS, electricity consumption in the first days of November 2021 — due to lower temperatures — was over 21% higher than in the same period last year. This increase in consumption would have obliged KEDS to import energy worth 10 million euros, compared to only 2.3 million euros during the previous year.
But consumption had risen even before temperatures dropped. According to the Energy Balance published by ASK, energy consumption for the third quarter had already increased by about 23% year-on-year. According to this data, in this period consumption was only about 25% less than during the first quarter — January, February, March — the time when it is usually higher due to low temperatures.
As this rate of consumption and the breakdown of a unit in Kosovo B power plant were not foreseen, KEK could not produce more, while KEDS spent its projected annual budget much faster than planned, buying energy from abroad at a much higher price than last year due to the global energy crisis that had gripped many countries in the region and the world.
Energy crisis in the region.
Countries in the region such as Albania and North Macedonia declared an energy crisis in October and November 2021, respectively.
Global policies to achieve decarbonization targets, as well as the lack of gas production in Russia and oil by OPEC (the Organization of the Petroleum Exporting Countries) countries due to declining demand during the pandemic have caused energy prices to rise in comparison with previous years.
In October 2021, KESCO asked ERO to increase tariffs to reflect the global energy crisis and rising consumption. However, ERO decided to keep the current tariffs until April 2022. As a result, between the two options, raising the price of energy or implementing rolling blackouts, KEDS went with the latter. However, on December 13, ERO announced that it had opened the process of extraordinary review of electricity tariffs to reflect the situation. If KEDS’s request is approved, energy bills could increase by 30-40%.
Ultimately, the energy crisis has been to a large extent self-inflicted. Although the breakdown of one of Kosovo B units has reduced domestic energy production, the difference could still be bought abroad. But everyone refused to pay the bill.
After ERO initially rejected KEDS’s request to increase the prices for consumers, the company, being a for-profit organization, would not use its own funds to purchase energy and willingly take the loss. On the other hand, the public is against rising energy prices and public institutions are well aware of that. In fact, to cover the shortage of domestic production the government allocated 20 million euros to KEK on December 18 to subsidize electricity imports. But that is not a sustainable solution.
Consequently, the lack of willingness to provide for an uninterrupted power supply led to energy reductions.
Ultimately, the energy blackouts were also allowed by a decision of the government, ratified by the Assembly of Kosovo on December 26, 2021, declaring a state of energy emergency for 60 days. The constituent emergency measures of the decision include restrictions on electric supply to consumers.
Although KEDS has already launched an online platform that provides information about expected two-hour cuts and the neighborhoods affected, the tool does not always provide accurate information and social networks have been flooded with complaints about even longer reductions.
Meanwhile, to increase production capacity, KEK signed a contract worth 248,650 euros on December 23 with an expert to inspect and repair the damaged unit, which is expected to return to operation by January 20.
The infamous privatization debate
Since its inception in the 1960s, KEK was vertically organized — that is, responsible for the entire cycle: electric generation, transmission, distribution, supply and fee collection.
As early as the post-war years, under UNMIK management, the aim was to dissolve vertical companies and establish independent companies specialized in one service, thus aiming at the privatization of public companies and establishing a free market. With the signing of several memoranda, Kosovo assumed mandatory legal obligations for the dissolution of vertical enterprises in the energy sector.
In 2005, the System, Transmission and Market Operator (KOSTT) was separated from KEK, remaining in operation to this day as a separate public company. In the same year, Kosovo’s first energy strategy was adopted, envisioning the restructuring and privatization of KEK to combat its everlasting problems, including large losses in the distribution network and an unsuccessful collection of energy bills.
In 2008, the government — then composed of the Democratic Party of Kosovo (PDK) and the Democratic League of Kosovo (LDK) — decided to establish KEDS and privatize it. This process ended in 2013, when the Turkish Limak-Çalık Consortium took over KEDS.
The purchase contract between them and the government was never made fully public. From the extracts that were published, the consortium had promised investments of 300 million euros in the following 15 years and guaranteed the jobs of existing employees for three years following the privatization. In exchange, the consortium did not assume the outstanding debt accrued by KEK over the years due to unsuccessful fee collection.
In the long debate over KEDS’s privatization, two general points of contention remain about the process: KEDS was sold much cheaper than the value of its assets through a non-transparent process and KEK’s two divisions, supply and distribution, should not have been sold to the same owner.
The privatization of the supply and distribution services was met with widespread public criticism.
In January 2013, a few months after the Limak-Çalık consortium took over KEK, electricity bills tripled. This led to large-scale civil protests in Prishtina that lasted from early February to late April. These protests initially focused on bill prices, but soon turned against the alleged corruption in KEK/KEDS.
Following pressure from these protests, members of Kosovo’s Assembly established an inquiry committee on the matter. The committee concluded that errors had been made in reading and consequently in billing, for which citizens would be compensated.
Meanwhile, the Riinvest Institute published an analysis in 2015 assessing that the privatization process was non-transparent and ignored the Assembly of Kosovo. According to them, the role of the Assembly was limited to approving the decision taken by the government and more specifically, the Governmental Commission for Privatization. Moreover, according to them, the Assembly had approved only in principle the privatization of KEDS but conditioned it to feasibility studies that were never presented.
At the same time, although the goal of KEDS’s privatization was to dismantle the vertical companies of the past — which tended to be inefficient and unprofitable — the energy sector in Kosovo has been privatized but not yet liberalized, rather operating with a new monopoly.
In the liberal model aimed at during the privatization process, the desired outcome was the unbundling of the company, resulting in a situation where someone owns the infrastructure (gas pipelines, cables) and someone else uses it to provide services (gas, electricity). In this model, infrastructure is usually owned and managed by public, mixed or private companies that charge service providers — who can also be both public and private — for its use, usually simultaneously and competing among themselves.
When this situation is achieved, healthy competition is guaranteed. If this was the case with the energy sector in Kosovo, any new supply company could start operating at any moment, buy electricity from KEK and sell it to the public in competition with KESCO. In practice, however, this can not be done so easily because of regulatory barriers and the fact that some of the power lines are owned by KEDS, which is owned by the same group as KESCO in a clear conflict of interest.
Under these circumstances, although KEDS does not produce its own electricity, it buys energy from KEK in a regulated market and without dealing with the problems of managing the obsolete power plants. Eventually, the privatization of KEDS has led to a market that still functions as a vertically integrated company would.
(Un)sustainability of energy in Kosovo
Lacking a clear vision for the future of energy, electricity supply has relied on coal as it is cheaper and the most available energy source locally. In the region, Kosovo ranks first in coal-based electric production — about 90% of annual production. This has allowed Kosovars to pay much cheaper energy than almost all countries of the European Union and the Western Balkans.
Yet, the two main power plants, Kosovo A and Kosovo B, were built more than 40 years ago — which exceeds the recommended lifespan of a power plant. The units of Kosovo A were built between 1962 and 1975, while those of Kosovo B date from 1983-1984. Two of Kosovo A’s older units have already been decommissioned and yearly repairs are needed in each functional unit of both power plants.
In 2004, the government, in the framework of the implementation of European Union standards in gas emissions, pledged to close Kosovo A by 2017, as it is considered the biggest environmental polluter in Europe. To this end, they planned to build a new power plant that would replace it.
Kosovo A and Kosovo B, which are prone to suffering unpredictable breakdowns, remain the only substantial source of electricity in Kosovo.
In 2005, when the first Energy Strategy (2005-2015) was drafted, the government proposed the construction of a new power plant, Kosovo C — later referred to as Kosova e Re, or New Kosovo. At the end of 2017, 12 years later, the government signed a contract with the American company Contour Global worth 1.3 billion euros for the construction of this power plant, which would be put into operation in 2023.
However, in 2018, the World Bank decided to withhold its support for this project, as it was based on coal. This was also the reason for many opponents from civil society, who were categorically against the construction of a coal-based power plant.
In March 2020, Contour Global finally withdrew from the project citing political changes as the main reason. The company also said it has no plans to build coal projects in the future and that this would have been the last.
Thus, Kosovo A and Kosovo B, which are prone to suffering unpredictable breakdowns, remain the only substantial source of electricity in Kosovo. Meanwhile, the instability of the energy sector is also caused by the lack of diversity in energy sources in Kosovo.
As the world turns to renewable energy with the goal of reducing carbon emissions, ERO projected that only 222.4 GWh for 2021, about 4.1% of annual electricity production, would be generated by wind, solar and hydropower. The dam at Gazivoda/Ujman Lake, which could make a substantial contribution in energy production capacity, has its potential capped by an ongoing dispute with Serbia regarding ownership.
One project that would diversify energy sources was the recently discussed construction of a gas pipeline connecting Kosovo with North Macedonia. The pipeline would allow the use of gas as a transitory energy source until hydrogen’s potential is developed. This project was envisaged with the support of the Millennium Challenge Corporation (MCC), a US agency, and would be funded through loans from the European Bank for Reconstruction and Development and the Western Balkans Investment Framework.
Natural gas is considered a cleaner fossil fuel, with reduced emissions and a higher effectiveness, but substantially more expensive than coal. The cost of building the pipeline and a gas power plant was estimated at around 600 million euros, according to the government. However, it said the construction of this project was not economically viable, so it decided not to move the project forward.
The crisis has been the result of the lack of a clear vision for the energy sector by the successive governments that will be paid for by the general population. After ERO finishes its review — which continues in January — everyone’s monthly budget is likely to receive an additional hit in the form of utilities, as energy bills could rise over 30-40%.
As long as electricity supply is based on two obsolescent power plants and its stability depends on imports, subject to the volatility of the global market, crises such as that of this winter are possible to take place again in the coming years.
Additional reporting by Francisco Garcia.
Feature image: Ferdi Limani / K2.0.
This article has been produced with the financial support of the “Balkan Trust for Democracy,” a project of the German Marshall Fund of the United States and the Norwegian Ministry of Foreign Affairs. Opinions expressed in this article do not necessarily represent those of the Norwegian Ministry of Foreign Affairs, the Balkan Trust for Democracy, the German Marshall Fund of the United States, or its partners.