EUROPE AND CENTRAL ASIA: Western Balkans: Market-based mechanisms for the promotion of renewables, Phase II

The countries in the Western Balkans region are heavily dependent on coal-generated power. They are also among the most vulnerable European countries to climate change, threatening economic sectors such as agriculture and infrastructure. To meet their commitments under the Paris Climate Accord, the Western Balkans 6—Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia—are looking to increase renewable energy generation and strengthen regional cooperation.

The region faces numerous obstacles to private investment in renewable energy. One issue is that all six countries have been slow to phase out feed-in tariff incentives—where renewable energy producers are guaranteed certain remuneration levels—and move towards more cost-effective market mechanisms for clean technologies as mandated by the European Union.

Other challenges to attracting investment to the sector include inadequate policy and regulatory instruments, weak local developers, small project sizes, limited credit and capacity from local banks, and financially weak utilities.

The World Bank launched the Western Balkans Energy Transition Program to support the introduction of market-based mechanisms, including auctions, feeding premiums, and other competitive bidding mechanisms. Achieving this goal will require the governments in the Western Balkans region to modify their legal and regulatory frameworks.

In support of the World Bank initiative, PPIAF is providing technical assistance to review each country's regulatory framework, drafting new regulatory instruments, designing competitive procurement mechanisms, and preparing specific renewable energy transactions. Assistance was tailored to each country's particular needs. Training staff of government and transmission companies ensured they had the technical capacity to design and conduct auctions or other mechanisms for competitive renewable energy procurement. In addition, PPIAF provided support to address country-specific barriers to investment in renewable energy, for example, developing regulations for integrating renewable energy into national grids, streamlining permitting procedures, and creating a quality pipeline of projects. PPIAF supported this initiative along with ESMAP.

Progress is underway to a green transition. The Renewable Energy Law has been approved in Serbia, and the largest utility in the country is undergoing corporate reform. In Kosovo, work is underway to finalize the draft legislation for its energy law.

PPIAF’s support is enabling the scale-up of renewable energy for power generation in the Western Balkan countries, facilitating their progress in meeting binding targets established in their National Renewable Energy Action Plans. It also supports the Western Balkan 6 Initiative, which aims to strengthen a regional cooperation program for job creation and sustainable growth. In time, integrating renewable energy into national power grids will enable the Western Balkans countries to phase down their use of coal and make progress toward net-zero emissions.