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Renewables opportunities in North Macedonia – interview with CMS Partner Marija Filipovska

Very positive signs are coming from North Macedonia, which plans to reach a 50 per cent share of renewables in electricity production by 2024 and to phase out coal, while energy law and bylaws are harmonised with the EU Third Energy Package.

CEENERGYNEWS spoke with Marija Filipovska, Partner of the CMS Law Firm about the country’s underdeveloped market of renewable energy and the main opportunities, and risks, for investors.

Regarding the country’s plan to reach a 50 per cent share of renewables in electricity production, Mrs Filipovska believes it is quite an ambitious plan.

“The most recent Energy Development Strategy in North Macedonia until 2040 sets 3 different scenarios,” she explains. “Referent, moderate transition and green, by which the greenest and most ambitious defined a total coal phase-out until 2040. And 45 per cent share of the renewable energy sources in the total usage of energy.”

However, according to her, the Strategy should be reviewed in the light of the following important input data, conditions and principles: average annual GDP growth of 3.3 per cent, the lowest cost of the total energy system and by introducing a carbon price in all 3 scenarios.

“Additionally, North Macedonia along with other Western Balkans states have signed in 2020 the Sofia Declaration on the green agenda for the Western Balkans, according to which the signatory States are committed to working towards the 2050 target of a carbon-neutral continent together with the EU,” she adds.

“In parallel, we see a bit dubious practice: one of the plans of the state-owned power plants’ (Elektrani na Severna Makedonija – ESM) plan to extend the lifespan of the REK Bitola thermal plant and open an additional coal mine in Zivojno, as stated in the Investment plan of ESM 2018-2022.”

Thus she said to be excited to see how the plan set by the Strategy and the Sofia Declaration would be followed through. 

Currently, when it comes to renewables, compared to hydropower, there are not many investments in solar and wind projects. In particular, according to the Strategy, North Macedonia has a theoretical potential of approximately 7.3 gigawatts (GW) of exploiting RES. The highest share of such potential is from wind (up to 4.9 GW), as well as solar PV (up to 1.4 GW).

“On a separate note, the institutional capacity seems to be challenging and may need further improvement,” Mrs Filipovska underlines. “It seems that there is lack of human capacities including skilled and experienced workforce and the State authorities appear not to be an exception. In that manner, the strengthening of the human resource capacities seems vital at this point.”

Additionally, she mentions the creation of a separate Ministry of Energy in order to coordinate and supersede the coordination gaps.

“It should be said that in one of the energy-relevant Ministries in North Macedonia, the Ministry of Environment and Physical Planning, almost all subsectors are somewhat connected to the energy sector, however, institutional coordination needs to be set on a solid ground,” she points out. “The positive step in this manner is the formation of a coordinative Climate and Energy Working Group by the Government of North Macedonia in 2018, with representatives from all relevant bodies.”

Additionally, she reminds that each RES has other inputs from which the production and construction depends. For example, regarding the construction of wind power plants, the choice of location depends on other conditions such as terrain configuration, type of ownership of the land (private or State), infrastructure and access to roads for transport, distance from high voltage or medium voltage network and so on.

“The cost-competitive potential could be limited due to wind speed and unreachable terrain in some areas,” she continues. “Furthermore, the geothermal potential for electricity is limited due to the relatively low geothermal gradient in the region.”

“However, it is clear that technological advancements, a decrease of costs as well as environmental constraints will have an important role in exploiting the technical potential in the future. We see that the institutions identified these aspects and are working on them.”

Indeed, the legal framework looks incomplete and further laws/bylaws must be enacted. As an example, Mrs Filipovska mentions the Energy Law adopted in 2018 which transposed the EU Third Energy Package in the electricity and natural gas sector, as well as the RES Directive.

“Access to the system and the network are in line with the acquis, encompassing the access to the network at regulated network tariffs,” she says. “The Energy Law enables all electricity generators to participate at the wholesale market. Households and small customers can select their supplier, including the supplier of the universal supply. Still, the ongoing developments in the regulatory framework for the establishment of organised energy markets is yet to be completed. Regarding the natural gas market, North Macedonia has rather deregulated wholesale and retail market.”

Another example is the Law on Environment which incorporates articles that stipulate general obligations and responsibilities regarding greenhouse gases (GHG) inventories and a national plan for climate change.

“With the Energy Law, roles and responsibilities of ERC are strengthened,” Mrs Filipovska highlights. “However, in terms of electric energy acquis, the Strategy 2020-2030 defines that certain obligations are in different levels of implementation.”

Therefore, according to her, there are numerous steps that must be taken going forward. First of all with regards to energy efficiency: having in mind that the new Energy Efficiency Law has been adopted in 2020, Mrs Filipovska reminds that the transposition of the EU Directives in the secondary legislation is yet to be made.

Also, North Macedonia will need to adopt a Law on Climate Action.

“Gaps have been identified with regards to the adaptation and resilience sectoral planning, appropriate monitoring framework, as well as quantifiable and measurable indicators of achievements in both mitigation and adaptation,” Mrs Filipovska says.

When it comes to the Environment, the first key priority would need to be the enforcement of the Large Combustion Directive and Industrial Emissions Directive into practice.

“North Macedonia should also proceed with the adoption of the Law on Control of Emissions from Industry and transposition and implementation of relevant requirements of the Industrial Emissions Directive (with a deadline 1 January 2028 for the existing plants),” she continues.

Also, the legal framework for RES in transport is yet to be harmonised with the EU Directive, including the adoption of sustainability criteria for biofuels and bioliquids.

“The support for RES will continue to develop in line with the Directive 2009/28/EC,” she notes.

“The Directive is transposed with the adoption of the Energy Law and the respective by-laws. Macedonian Energy Law contains requirements for a competitive bidding process for a feed-in premium that will enable support to renewable energy producers and market integration of renewables.”

Finally, Mrs Filipovska mentions the legal and regulatory obligations regarding the completion of the natural gas sector.

Last year the EU said that when it comes to legislation in the energy sector “considerable efforts are needed”. Specifically, when it comes to the environment, the situation in North Macedonia and Serbia was considered as “totally incompatible with EU acquis”.

Mrs Filipovska agrees that North Macedonia is a polluted country, especially in terms of air pollution of the biggest cities (primarily capital Skopje and Tetovo).

“Additionally, the current mindset may be regarded as environment non-friendly,” she adds. “Also, the waste management (including waste selection) capacities are at a low level. It seems that the general remark for North Macedonia regarding the implementation of the rule of law is applicable in this sector. Finally, the creation of foreseeable and unified procedures seems to fit for all (investors, regulatory bodies, Ministry, experts and so on).

Another challenge for North Macedonia is its dependence on electricity from other countries. Mrs Filipovska shares that despite the declining consumption in the last years (average annual rate of decline of 3.7 per cent, primarily due to industry sector), the average share of import in 2010-2016 made up approximately 30 per cent of the total electricity consumption. That means that compared to the countries in the region, North Macedonia has one of the highest shares of import of electricity.
Here the utilisation of its own energy potentials, primarily through renewable energy sources has a vital role to play.

For Mr Filipovska maximisation of energy savings is much needed, as they directly impact emission reductions, decrease import dependence and stimulate the domestic economy with local job opportunities.

“In all three scenarios, North Macedonia will use fewer resources to cover the same needs, with the decoupling of consumption starting from 2020 but with different rates per scenario,” she says.

Other steps include presenting energy efficiency targets in terms of primary energy savings, reduction of losses in the distribution network and the construction and improvement of the efficiency of the central heating systems.

“Putting an additional focus on electric energy in the biggest contributors in the final energy consumption sectors (including transport and industry),” she concludes.

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