To: Energy Regulatory Office (ERO)
From: Government of the Republic of Kosovo

Date: 28 March 2025

Topic: Comments and suggestions regarding the review of electricity tariffs

The Government of the Republic of Kosovo has examined the consultative reports and analyzed the trends in the electricity sector, including the trends of consumption, generation, imports, and consumption structure. Based on these analyses, below we summarize the requests for clarifications and the comments and suggestions on the basis of which we consider that the proposed tariff increase level should be reduced, and the burden of the increase be distributed fairly.

1. Reflection of increased generation from B2 Unit after the modernization of the turbine
   We are aware that the shutdown of B2 Unit for more than 4 months this year has increased import forecasts and consequently the pressure to raise tariffs.
   However, at the same time, ERO should consider the positive effects of investments in B2 Unit of the Kosovo Energy Corporation (KEK) for the modernization of the turbine, and other planned investments, which will result in:
   • an increase in generation capacity by 14-17 MW from the end of September;
   • an increase in generation by about 30 GWh in the October–December 2025 period.

Considering that these are the most critical months of the year when energy purchase prices and transmission tariffs are highest, we conclude that:

• consumers will save at least 6 million euros on imports during the October–December 2025 period, which should be reflected in a reduction of allowed revenues and consequently a reduction of the proposed tariff increase.

 

2. The quantity and price of electricity imports
   The need for imports during 2024 is identified as one of the main reasons for the proposed tariff increase. From our analysis of the sector’s data, we note that:
   • electricity generation by the Kosovo Energy Corporation (KEK) has increased by 7% compared to the previous year, and similarly total domestic generation (according to data from KOSTT);
   • the selling price of electricity from KEK has remained the same;
   • overall domestic consumption has decreased by about 0.9% compared to the previous year (according to KOSTT data), whereas household consumption has increased by 0.85% (according to USS-KESCO data);
   • overall electricity imports have decreased by 2.5% compared to the previous year (according to KOSTT data).

Although data from the Hungarian Power Exchange (HUPX) show that the average price during the year has remained approximately the same, despite a noticeable price increase during the winter months (e.g., according to HUPX, the average price was about 65% and 75% higher compared to the same months of the previous year), overall it is unclear how such a drastic difference in forecasts arose, compared to the previous year’s tariff process when not only was there no tariff increase, but there was a decrease of tariff blocks over 800 kWh and for businesses.

Consequently, we consider that:

• the issue of import costs should be seriously analyzed by ERO, including the components that have resulted in increased import values, and the same should be explained to the public;
• it should be assessed whether they could have been better managed by the operators and, if so, not accept such expenses and/or oblige the operators to take steps for improvement;
• the effects of these improvements should be reflected in the reduction of the operators’ allowed revenues for this year, thus mitigating the impact of the proposed increase.

3. Trends in the consumption structure by consumer group
   Our analyses of consumption structure (based on USS-KESCO data) over the years show several trends in the consumption structure that we consider to be positive:

• household consumption, which was previously growing at exceptionally high rates of an average of 7.2% per year in the 2017–2021 period, thus increasing the need for imports, has now stabilized. In the last 3 years, household consumption has increased by less than 0.2% on average;
• business consumption in the regulated market has increased by an average of 6.5% over the last three years;
• as a result, the share of businesses in electricity consumption in the regulated market has been steadily increasing, reaching a record 38% of consumption, up from 31.9% and 32.9% in 2020–21;
• a significant portion of winter consumption comes from a relatively small percentage of household consumers, e.g., in November 2024, 12% of households (those consuming over 1000 kWh) consumed 39% of total electricity; or, in January 2025, 9% of consumers (those consuming over 2000 kWh) consumed 29% of total electricity, which is more than the total consumption of all consumers who used less than 800 kWh combined.

These trends show that:

• the block tariff introduced by ERO and the support and implementation of energy efficiency investments by the Government of the Republic of Kosovo have successfully curbed consumption, and this is despite the connection of 63,000 new houses and apartments to the system;
• unlike the past, consumption increases now mainly come from businesses, indicating growth in economic activity;
• however, there is an extremely high concentration of consumption among a small number of household consumers with extraordinarily high consumption levels (above 2000 kWh or even above 3000 kWh).

Taking into consideration the above, we believe it is fair that:

• in forecasting consumption and imports, ERO accurately reflect the curbing of household consumption growth and the increase in business consumption, part of which will exit to the open market, thus reducing the pressure on regulated tariffs, lowering allowed revenues, and consequently reducing the proposed tariff increase;
• consumers who consume less than 800 kWh per month not face any tariff increase;
• household consumption above 800 kWh be divided into more bands (blocks), and tariffs be progressive so as to protect consumers who consume less and encourage savings for those with very high consumption levels;
• the distribution of the burden takes into account the change in consumption trends (and consequently the need for imports) of households and businesses, and the fact that in past years households carried a heavier burden of the increase compared to businesses.