Reducing carbon intensity and improving financial sustainability are key priorities for Kosovo’s energy sector, with ambitious targets to cut emissions and increase the share of renewables. Yet over 90% of electricity is still generated from outdated, highly polluting lignite power plants. Energy market reform can help generate the conditions and free up the resources necessary for this transition. Currently low energy prices and related subsidies hinder efficiency, distort competition, and strain public finances. This chapter provides an inventory off such measures and develops scenarios to analyse the impacts of energy market reform on prices, households, and the economy. It also analyses social transfers and how existing programmes could be enhanced to mitigate the negative social consequences of reform. Drawing on the analytical results and on peer‑learning exchange with key stakeholders in Kosovo, the chapter outlines four key policy recommendations for Kosovo’s energy sector reform: phase out price regulation, expand renewable energy, boost energy efficiency to cut supply needs and reduce import dependence, and protect vulnerable consumers and those at risk of energy poverty.
Energy Prices and Subsidies in the Western Balkans
Abstract
Reducing the carbon intensity of the economy and improving the financial sustainability of its energy sector are key priorities for Kosovo. Significant commitments to tackle energy and climate issues represent notable challenges, however, such as preparing a voluntary Nationally Determined Contribution (NDC) that targets a reduction of 8.95 million tonnes of carbon dioxide equivalent (Mt CO2e) (16.3% compared with 2016 levels) and increasing the share of renewable energy to 32%, both by 2030. Carbon intensity is a key challenge: Kosovo still depends heavily on coal, with more than 90% of its electricity generated from two outdated, highly polluting lignite power plants. Financial sustainability is a priority: Low energy prices make the energy system in Kosovo expensive for the government. Especially when import costs are high, costly subsidies are needed to support the energy sector.
Current financing of the energy sector in Kosovo offers important levers for reform. Reducing regulation could foster a more competitive energy market, creating clearer incentives for both energy production and consumption. In turn, deregulation could encourage diversification through new investments and improvements in energy efficiency. Additionally, rethinking the role of energy subsidies and support measures, particularly during times of crisis, could unlock crucial financial resources. These resources could then be redirected to support Kosovo’s renewable energy and energy efficiency goals, while also ensuring assistance for the most vulnerable populations.
This OECD project makes the case for Kosovo moving towards fewer energy subsidies and less price regulation, accompanied by enhanced social support to balance the fiscal, economic and social impacts. As a basis for such reforms, the OECD has developed an Inventory of Energy Subsidies and Support Measures in the Western Balkans, which can be applied to each economy in the region. Using this inventory in combination with household-level and macro-economic data, the project develops reform scenarios with a focus on understanding how various “shocks” would affect energy prices, household budgets, employment, fiscal space and gender. The analysis presents complementary energy market reform scenarios and findings from macro- and micro-economic modelling.
Inventory of energy subsidies and support measures for Kosovo
At present, support to the energy system is costly for the government of Kosovo:
Keeping energy prices low through price regulation resulted in EUR 2.2 billion of induced support to consumers over the observed period 2018-23, of which about EUR 2 billion accumulated during the energy crisis (2021-23).
To maintain the current pricing model, direct financial support is essential. The energy sector received EUR 608 million in financial support during the period 2018-23. Most of the support was during the energy crisis in 2021-23, when Kosovo had to import large volumes of electricity at high prices. In 2022, financial support to the sector (EUR 246 million) accounted for up to 2.8% of gross domestic product (GDP).
Feed-in tariffs were effective in providing reliable revenue streams when domestic energy tariffs were higher than market tariffs, allowing for long-term project financing of key renewable energy production projects. When the energy crisis drove up market prices, selling at fixed prices resulted in an opportunity cost for renewable energy producers of around EUR 118 million over 2018-23.
Policy scenarios for inclusive energy sector finance reform
Low retail electricity prices in Kosovo protect vulnerable households but also transfer significant value to those who do not need support. Household tariffs in Kosovo are lower than they would be if the universal service supplier (USS) procured electricity at international market prices. They were about 40% lower prior to the energy crisis of 2021-23, and close to 90% lower in 2023. This induced support is not targeted to the poor; data show that the bottom two deciles of the income distribution receive only 8.2% of the total value. However, for the bottom decile, the support corresponds to 4.3% of total consumption expenditure per capita. Any decision to remove price subsidies will require compensatory measures targeted to vulnerable households that are more ambitious than existing explicit energy subsidies.
Converging towards market pricing in wholesale markets in Kosovo can reduce the fiscal risk and generate sufficient income to compensate vulnerable households. A 19% increase in the energy cost in retail tariffs would generate over EUR 80 million in additional income for the state-owned Korporata Energjetike e Kovovës (Kosovo Energy Corporation, KEK), the energy producer, even after accounting for a fall in demand in response to the price increase. It would also induce energy savings that would, in turn, allow the electricity sector to increase sales in the unregulated market or reduce import dependence.
Market reforms that lead to households bearing a larger share of the increase in retail prices have positive macroeconomic impacts but greater social costs. Simulations show that if a lower-bound 19% average price increase is borne entirely by households, it leads to a fall in household consumption but an increase in output, thanks to increased government expenditure compensating for the fall in private demand. In an upper-bound 72% price increase which would bring retail prices to a market-consistent level, having households bear a larger part of the increase mitigates the contractionary impact of reform.
Reforms to bring prices closer to their market-determined levels can pay for the necessary compensation for the poor. The support needed to compensate the most vulnerable households would amount to between EUR 6 million and EUR 33 million annually in the lower- and upper-bound reform scenarios respectively. By allowing market participants to make normal profits, these reforms would generate substantial increases in earnings in the energy sector, in particular for KEK. A fraction of additional earnings (8% to 16%) would be sufficient to compensate those at risk of poverty (the bottom 20% of the income distribution). To mobilise additional KEK income to protect vulnerable households would require collecting funds, probably through dividend payments.
Cross-subsidies should be removed as part of broader electricity market reform. Households in Kosovo pay less for electricity than firms with identical service, which can generate inefficiencies in the market. In practice, non-household customers were served at close to market-consistent prices prior to the energy crisis. While removing cross-subsidies is desirable, it should be part of converging household pricing towards market-reflective levels, so as to avoid introducing additional price subsidies for firms.
Policy recommendations for energy sector reform in Kosovo
Phasing out price regulation is key to encourage the development of competitive domestic electricity markets in Kosovo. Competition in wholesale and retail markets is severely limited by the fact that KESCO (the incumbent USS), supplies most of market at regulated prices that are kept low. This is the result of a bulk supply agreement (BSA) by which the state-owned KEK fulfils KESCO’s needs at prices well-below international markets. The BSA should be gradually phased out to allow passthrough from market conditions into regulated prices. In parallel, customer categories should be excluded from the USS when they can be served in the market. This could be applied, in turn, to customers served at 35, 20 and 10 kV, followed by remaining business customers. The regulated tariff for households should be allowed to adjust to market-consistent levels during this process, reflecting the increase in wholesale procurement prices and the elimination of cross-subsidies
Increasing the share of renewable energy sources in the electricity sector is fundamental to reach Kosovo’s decarbonisation goals. To meet its ambitious target of 1 300 megawatts (MW) of new renewable generation capacity by 2031, Kosovo will need to accelerate investment in renewables. In parallel, this requires streamlining permitting and supporting co-operation across agencies and levels of government. Public-private partnerships (PPPs) can be an important tool in this process, but are new to the energy sector in Kosovo. The framework for monitoring and reporting on fiscal risks of PPPs should be strengthened. Kosovo also plans to invest in refurbishing existing coal-fired power plants to provide baseload and flexible generation while complying with EU emissions standards. In light of upcoming carbon pricing policies, the cost-benefit calculation for these investments should be revisited and compared against alternatives, particularly given the short planned lifespan of the refurbished units.
Establishing clear national guidelines for classification of buildings according to their energy performance would help support efforts to increase energy efficiency in the economy. Kosovo’s energy intensity is 3.6 times higher than the EU average. As such, national plans stress the importance of improving energy efficiency in buildings. Clear national classification guidelines for nearly-zero energy buildings (nZEB) and net-zero energy buildings (ZEB) would help enable precise measurement of energy savings to incentivise investment.
Measures to address energy poverty in Kosovo will be needed to mitigate the social impacts linked to price increases in the process of decarbonisation. Simulations suggest that compensating the income-poor through direct monetary transfers would be cost-effective, requiring resources of a volume commensurate with existing programmes for vulnerable customers. Going forward, a broader action plan to combat energy poverty should be developed, based on a national definition. This effort should be supported by a gender impact assessment to identify any disproportionate effects on women, particularly those in vulnerable households and adjust mitigation efforts accordingly. Such an action plan should combine income support with energy efficiency improvement measures. It should also be supported by tools to more effectively design and measure the performance of energy-based support programmes, for example, through purposeful data collection and micro-simulation analysis.
How to read this chapter
This chapter is structured into four sections. It begins by examining Kosovo’s climate commitments and its energy system. It then analyses public support to the energy sector using the Inventory of Energy Subsidies and Support Measures for the Western Balkans. The third section develops reform scenarios, assessing the potential impact of energy reforms on prices, household budgets, employment, and fiscal space. The final section presents key policy recommendations for energy sector reform, based on the findings and outcomes of the peer-learning workshop held in Kosovo.
Kosovo has made substantial commitments on energy and climate
Kosovo has been showcasing its commitment to tackling energy and climate challenges, focusing on reducing greenhouse gas (GHG) emissions and increasing renewable energy consumption. Kosovo adopted a voluntary Nationally Determined Contribution in March 2025, aiming (by 2030) to reduce emissions by 8.95 Mt CO2e (i.e. 16.3% compared with 2016 levels) and raise the renewable energy share in final consumption to 32%. This will require 1 300 MW of new renewable energy capacity. Noteworthy progress has already been made, with wind power surpassing hydro in 2022, producing 363 GWh compared to hydro's 260 GWh. The voluntary NDC also includes adaptation measures across sectors such as water, agriculture, forestry, land use, biodiversity and health, and a gender analysis to ensure that adaptation actions are gender responsive (Energy Community Secretariat, 2022[1]; UNDP, 2023[2]; Government of Kosovo, 2025[3]).
The draft National Energy and Climate Plan (NECP) has prompted calls for stronger commitments to phasing out coal and achieving climate neutrality by 2050. Final adoption of the NECP is still pending but is expected in 2025. Key concerns include the lack of a clear timeline for coal phase-out, continued dependence on lignite and the absence of plans for a just transition for affected communities. While Kosovo intends to rehabilitate its coal plants and reduce lignite’s share in electricity generation, lignite use in district heating is expected to increase. The plan sets ambitious renewable energy targets but Kosovo faces significant challenges related to investment, energy security and addressing energy poverty (Energy Community Secretariat, 2023[4]; Government of Kosovo, 2023[5]).
Kosovo's energy and climate policy framework extends well beyond its NECP and NDC. The Climate Change Strategy 2019-2028 emphasises qualitative goals for reducing GHG emissions and adapting to climate change. The National Development Strategy and Plan 2030 integrates long-term climate and energy objectives. The Energy Strategy 2022-2031 targets a 32% GHG reduction in the power sector, a 35% renewable electricity share by 2031, and enhanced energy efficiency. However, it lacks a comprehensive monitoring and financing plan (Ministry of Economy, 2023[5]). The strategy is implemented by various government institutions, as part of the Energy Strategy Implementation Program of Kosovo, with each responsible institution submitting biannual activity reports to the Ministry of Economy. The strategy also includes gender-specific educational targets in energy-related fields and employment targets in the sector. The 2024 Climate Change Law introduced a national climate council and plans for studying the EU Carbon Border Adjustment Mechanism (CBAM) but omits 2030 and 2050 targets (UN Women, 2024[6]). Additionally, the 2024 Law on Promoting Renewable Energy Sources introduces contracts for difference, supports energy communities and aligns with relevant EU directives (Ministry of Economy, 2024[7]).
Kosovo’s electricity mix: Fossil fuels continue to dominate, renewables are slowly gaining share
Over 90% of Kosovo's electricity is generated from coal, primarily through two outdated and highly polluting lignite power plants, Kosovo A and B (Figure 9.1). These plants experience frequent outages due to aging infrastructure and inadequate maintenance (IMF, 2023[8]). Despite increasing reliance on coal over the past decade, the efficiency of these plants has significantly declined. In turn, emissions – particularly dust – exceeded regulatory limits by up to four times in 2021 (CEE Bankwatch Network, 2022[9]). Kosovo plans to renovate Kosovo B, installing new filters in 2025 to reduce dust emissions and upgrading turbines by 2026, which will add 30 MW of capacity. Studies are also being conducted on Kosovo A, where one or two new units may be built, while older units may be decommissioned. Kosovo A will primarily operate in winter to ensure energy security (Government of Kosovo, 2023[5]).
Electricity generation by fuel (GWh)
Source: Eurostat (2025[10]), Complete energy balances, https://ec.europa.eu/eurostat/databrowser/view/nrg_bal_c/default/table?lang=en&category=nrg.nrg_quant.nrg_quanta.nrg_bal.
Kosovo's reliance on outdated coal-fired power plants has had detrimental impacts on public health and made its economy highly carbon-intensive. Measuring emissions per unit of GDP, Kosovo achieved a reduction since 2013 – from 0.54 to 0.33 kg of CO2 per USD of GDP by 2023 – but levels remain the second-highest in the region and significantly above EU levels (Figure 9.2). Per-capita emissions also exceed the regional average. Air pollution, especially indoor air pollution disproportionately affects women and children due to higher exposure from heating and cooking (WHO, 2024[11]).
Carbon intensity of GDP (CO2 emissions per unit of GDP (kg per 2015 PPP USD))
Note: Data for Bosnia and Herzegovina, Costa Rica, Philippines, and Uruguay come from 2022 instead of 2023.
Source: IEA Database (2024) World Energy Statistics and Balances, https://www.iea.org/data-and-statistics/data-product/world-energy-statistics-and-balances.
In recent years, Kosovo has made significant progress in expanding electricity generation from renewable sources, with ambitious plans for the future. In 2022, wind power (5%) surpassed hydroelectric generation (4%) for the first time (Eurostat, 2025[10]). Kosovo is targeting an ambitious 35% renewable electricity generation by 2031, which will require around 1 300 MW of new renewable capacity (Ministry of Economy, 2023[5]). To support this goal, the government launched a pilot auction in May 2023 for 100 MW of solar capacity, attracting both local and foreign investors, and in 2024 a winner was announced (Ministry of Economy, 2023[12]; Ministry of Economy, 2024[13]). Additionally, financing has been secured for another 100 MW solar project on KEK premises and a wind auction for 100 MW was held in December 2024 (Office of the Prime Minister, 2024[14]).
Electricity demand in Kosovo exceeds production, making imports necessary, especially during expensive peak hours and the winter
Overall, electricity demand in Kosovo exceeds domestic production. Except for 2016 and 2020, annual electricity demand exceeded production (Figure 9.3). This pattern is most pronounced in the winter, when domestic production fails to meet the increased seasonal demand. In Pristina, for example, winter hourly loads are about double those in summer (IMF, 2023[8]). In addition, domestic electricity production is unstable, reflecting the unreliability of Kosovo's aging thermal power plants (TPPs). In 2023, operations at the five units of Kosovo A and Kosovo B were interrupted 47 times. In that year, Units B1 and B2 operated about 70% of the hours, while Unit A3 reached 62%, A4 achieved 76% and A5 only 52% (ERO, 2024[15]).
Source: ERO (2024[15]), Annual Report 2023, www.ero-ks.org.
As the energy sector cannot satisfy high domestic demand during peak hours and in winter, Kosovo has to rely on imports, exposing it to international prices. Surpluses of electricity do occur, mainly during night hours (at the time of low tariffs), when regional systems also show surpluses. This causes export prices to be significantly lower than import prices, including on an annual basis (Figure 9.4). Along with the daily pattern of importing during the day and exporting at night, Kosovo follows a seasonal trend, importing more electricity in the winter and exporting more in the summer (Figure 9.5). This seasonal pattern further exposes Kosovo to high international electricity prices in the winter, when global demand for heating surges.
Annual average price of electricity imports and exports (EUR/MWh)
Source: ERO (2024[15]), Annual Report 2023, www.ero-ks.org.
Source: ERO (2024[15]), Annual Report 2023, www.ero-ks.org.
Use of regulation to keep electricity prices low carries high costs for Kosovo, especially in times of crisis
Electricity prices in Kosovo remain low in comparison to international prices. As of the first half of 2024, household electricity tariffs were at 0.0736 EUR/kWh (including taxes) for those consuming between 2 500 and 5 000 kilowatt hours (kWh) annually. This is roughly one-quarter of the EU average, which stands at 0.2889 EUR/kWh. For industrial consumers using between 500 and 2 000 MWh annually, prices in Kosovo are about one-third of those in the European Union. Additionally, unlike in most EU countries where non-household consumers tend to pay lower rates than households, businesses in Kosovo (and the broader region) pay higher electricity prices (Figure 9.6).
Electricity prices including taxes and levies for medium-sized household and non-household consumers, first semester of 2024, EUR/kWh
Source: Eurostat (2025[16]), Electricity prices for household consumers - bi-annual data (from 2007 onwards), https://ec.europa.eu/eurostat/databrowser/view/nrg_pc_204/default/table?lang=en&category=nrg.nrg_price.nrg_pc; Eurostat (2025[17]), Electricity prices for non-household consumers - bi-annual data (from 2007 onwards), https://ec.europa.eu/eurostat/databrowser/view/nrg_pc_205/default/table?lang=en&category=nrg.nrg_price.nrg_pc.
As in most Western Balkan economies, low electricity prices in Kosovo are primarily the result of regulated pricing. In Kosovo, all households and all non-household customers with an annual turnover of less than EUR 10 million or fewer than 50 employees are entitled to the USS (ERO, 2017[18]). High-voltage customers (connected at 110, 220 and 400 kV) do not have access to the USS and must purchase electricity from the free market at market prices. In theory, all customers in Kosovo can choose their energy supplier, many eligible for USS continue to rely on the USS provider. This was particularly true during 2021-23, as the energy crisis led to high international prices (ERO, 2021[19]; ERO, 2017[18]; Energy Community Secretariat, 2022[1]). The USS is shielded from volatile wholesale electricity prices because it sources the majority of its electricity from KEK, which is required to prioritise selling electricity to the USS at regulated prices, which are lower than international prices.
Despite low prices, electricity bills are a burden for many households and energy poverty remains a reality
The cost of electricity for households, as a share of income, is relatively high in Kosovo, making price increases politically sensitive. In Kosovo, an annual consumption of 5 000 kWh costs, on average, 8.1% of GDP per capita, compared with 7.9% in the Western Balkans and just 4.5% in EU countries (both including taxes and levies) (Figure 9.7). This implies a higher cost burden on households in Kosovo. Raising electricity prices would impose significant social costs, which explains the strong political resistance to such measures.
Average price (including taxes) for 5 000 kWh for households (% of GDP per capita), 2024
Note: Price data is S1-2024, GDP data is for 2023 from WDI.
Source: Authors’ elaboration based on price data from Eurostat (2025[16]), Electricity prices for household consumers - bi-annual data (from 2007 onwards), https://ec.europa.eu/eurostat/databrowser/view/nrg_pc_204/default/table?lang=en&category=nrg.nrg_price.nrg_pc and GDP per capita data from World Bank (2025[20]), World Development Indicators, https://databank.worldbank.org/source/world-development-indicators.
Energy poverty is a major concern in Kosovo, impacting many households. A recent report by the Energy Community Secretariat (ECS) (2021[21]) estimates upper bounds of energy poverty in Kosovo at 40%, the highest rate among all economies in the region. Using common subjective indicators, energy poverty can be defined as the inability of individuals or households to “adequately heat, cool, or provide other required energy services in their homes at affordable cost” (Pye et al., 2015[22]). The share of people in Kosovo who report being unable to afford to keep their homes adequately warm is 40.2% compared with just 10.6% in the European Union. Additionally, 49.4% of households in Kosovo were in arrears on utility bills in 2021, compared with 6.9% in the European Union. These figures are high even within the regional context, with Kosovo ranking first on both indicators (Figure 9.8). Women-headed households are disproportionately affected as they often have lower incomes and higher energy dependency. 53% of single mothers in Kosovo report arrears on bills at least once in the past 12 months (see Chapter 5).
Note: For all panels data for North Macedonia for 2020, for Albania it is 2021, for Montenegro and Serbia 2022 and for Kosovo 2018.
Source: Eurostat (2025[23]), Inability to keep home adequately warm, https://ec.europa.eu/eurostat/databrowser/view/ILC_MDES01/default/table?lang=en; Eurostat (2025[24]), Arrears on utility bills, https://ec.europa.eu/eurostat/databrowser/view/ilc_mdes07/default/table; Eurostat (2025[25]), Total population living in a dwelling with a leaking roof, damp walls, floors or foundation, or rot in window frames or floor, https://ec.europa.eu/eurostat/databrowser/view/ilc_mdho01/default/table.
A dedicated gender and energy analysis carried out as part of this project shows that different groups face different challenges when it comes to accessing and using energy. Women are primarily responsible for energy-intensive household chores such as cooking, laundry and cleaning, which leads to higher energy use within the home. To manage costs, women often adopt energy-saving strategies, such as performing household tasks during off-peak hours when tariffs are lower. This responsibility is particularly pronounced in female-headed households, where women also face additional burdens in procuring and transporting fuel, tasks traditionally handled by men. Moreover, some women report sacrificing essential healthcare, meat and fruit consumption, and dining out to prioritise paying energy bills, highlighting the difficult trade-offs they must make to manage household energy consumption (Box 9.1).
The OECD analysis incorporates a gender perspective by examining how energy reforms impact men and women as consumers, workers and decision makers. To explore gender differences in energy consumption, access, and responses to reforms, the study applied a qualitative research methodology, including focus group discussions and roundtables across the Western Balkans.
In Kosovo, focus groups were conducted in the Drenas region, Krusha Madhe (Prizren region) and Pristina, covering rural and urban areas, different income levels and recipients of social assistance, with 50 participants.1 Findings from the focus groups and desk research also provided a broader overview of the role of gender in shaping energy consumption, access to opportunities, decision making and energy poverty in Kosovo. Key insights, as well as inputs from participants, are as follows:
Compared with other economies in the region, both men and women in Kosovo focus groups reported experiencing greater daily hardships and challenges in managing energy expenses. It was more common for participants to report being behind on their energy bills or, if not behind, resorting to extreme measures to cover these costs. Notable examples include: a parent ceasing payments for his daughter’s school transportation to afford energy bills; individuals facing disconnection from electricity services and subsequently reconnecting illegally to a relative's supply; or, in some cases, resorting to unauthorised connections from strangers.
Gender roles are associated to different energy uses and responsibilities in households in Kosovo. Women tend to use more energy for household chores (e.g. cooking, laundry) and are more likely to adopt relative energy-saving measures (such as timing chores for off-peak hours). Men typically handle physical tasks (such as wood cutting and transporting) and are more likely to be involved in structural energy issues (such as fuel switching and insulation or home improvement work).
"[...] doing other household chores during the night-time, especially after 22:00 hours, as the tariff is cheaper during that time of the day." - (Woman, 52, unemployed, Terstenik, Drenas region)
Women, particularly in single-parent or female-led households, face significant challenges in procuring and transporting wood or alternative fuels, tasks typically handled by men. This responsibility adds to their existing domestic burdens, making energy procurement physically and logistically demanding.
Women often have limited access to information about energy reforms and tariff increases, with many reporting that they typically learn about tariff hikes through their bills, neighbours or family members.
The inclusion of gender in Kosovo’s energy policies shows more promising developments compared with some of its regional counterparts. The NECP 2025-2030 also addresses gender equality. As part of the NECP, Energy Performance Certification also seeks to promote gender equality by increasing opportunities for women to work as energy assessors, thereby addressing gender-based occupational segregation in the energy sector. 5th Renewable Energy Progress Report of Kosovo 2020-2021 highlights policies supporting women entrepreneurs' investments in energy efficiency (Ministry of Economy, 2023[26]). While Kosovo’s Energy Strategy (2022-2031) does not have a dedicated section on gender equality, it acknowledges the need to develop skills for both men and women and aims for a minimum of 25% female representation in the energy sector workforce by 2031. Additionally, the 2024 Climate Change Law includes a requirement for the Ministry of Environment, Spatial Planning, and Infrastructure to draft guidelines for integrating gender issues into climate change mitigation and adaptation programmes.
1. Participants were roughly equally split between gender (54% women and 46% men). All were aged 18 or older, with about half falling between the ages of 35 and 55. About 75% were unemployed, but only around 30% of participants relied on some form of social assistance.
To provide a basis for comprehensive energy sector reform in Kosovo and across the region, the OECD Development Centre has developed an Inventory of Energy Subsidies and Support Measures in the Western Balkans. The inventory aims to present evidence on the types and size of energy subsidies and support measures to the energy sectors of these economies. As such, it intends to raise awareness among policy makers in Kosovo and in the region about the existing energy subsidies and support measures, and their potential impacts. This has been done by using an internationally recognised methodology to develop a consistent and comprehensive description of such schemes and provide robust estimates of their volumes. The systematic overview of energy subsidies and support measures is largely based on the OECD Inventory of Support Measures for Fossil Fuels (OECD, 2024[27]). Having an inventory of energy subsidies can also be a basis for reporting on Sustainable Development Goal (SDG) Indicator 12.c.1 “Amount of fossil-fuel subsidies per unit of GDP”, which sets a target to rationalise inefficient fossil fuel subsidies that encourage wasteful consumption.
Induced support to the energy sector of Kosovo through regulated prices
Induced support for consumers
The provision of electricity at regulated tariffs, which are lower than market prices, resulted in approximately EUR 2.2 billion in induced support to consumers between 2018 and 2023. This support is calculated as the difference between market prices – approximated using Hungarian Power Exchange (HUPX) prices – and regulated tariffs in Kosovo (Figure 9.9 – Panel A).
Note: Induced support through price regulation in Kosovo (Panel A) includes three schemes: Supply of electricity from KEK (coal) to transmission system operator (TSO) for losses at bulk supply agreement price rather than market/opportunity price, supply of electricity from KEK (coal) to USS at BSA price rather than market/opportunity price, and supply of electricity from KEK (coal) to the distribution system operator (DSO) for losses at BSA price rather than market/opportunity price
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
The supply of electricity from KEK to universal service suppliers at the bulk supply agreement price is the primary price intervention mechanism in Kosovo; during the crisis, it provided significant induced support to consumers. Between 2018 and 2023, KEK supplied electricity at a fixed price of 29.5 EUR/MWh, nearly four times lower than the average HUPX price of 105.5 EUR/MWh during the same period. At the height of the energy crisis in 2022, when HUPX prices soared to 271.7 EUR/MWh (Figure 9.10), this price regulation scheme triggered an estimated EUR 1.05 billion in induced support to consumers (Figure 9.9 – Panel B).
Two additional forms of induced support were the supply of electricity to the transmission system operator (TSO) and the distribution system operator (DSO) to cover network losses. Between 2018 and 2023, KEK supplied electricity to both the TSO and DSO at the BSA price, fixed at 36 EUR/MWh. This arrangement provided an estimated induced support of approximately EUR 38.8 million for the TSO and EUR 228.6 million for the DSO.
Source: ERO (2018-2023), Annual Reports, https://www.ero-ks.org/zrre/sq/publikimet/raportet-vjetore, HUPX (2023[28]), DAM Historical Data, https://hupx.hu/en/market-data/dam/historical-data.
Estimates of induced support based on average energy prices in the EU are similar to the baseline estimate. In the absence of alternative counterfactual prices, the average energy and supply price component in EU markets is used as the basis for an alternative reference price (see Chapter 3). Estimates of induced support over the period 2018-23 based on the alternative benchmark amount to EUR 1.7 billion in Kosovo. The alternative estimate is 20% lower than the preferred baseline estimate but remains very sizeable. Induced support calculated using EU average prices is slightly higher than baseline estimates using HUPX-based reference prices in pre-crisis years, but lower in crisis years, reflecting the lower long-term volatility of the alternative reference price series (Figure 9.11). The series reflects the importance of long-term contracts in wholesale markets and is indeed less volatile than HUPX DAM prices. The use of this series also has a number of limitations: first, it reflects not only wholesale markets but also price interventions across the EU, which makes it an imperfect candidate for a counterfactual market-based reference price; second, the available series from Eurostat does not allow the disaggregation of energy and supply prices.
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
At the retail level, price regulation in Kosovo has resulted in substantial cross-subsidies among energy consumers within the low-voltage (0.4 kV) category, totalling EUR 141 million between 2018 and 2023. As in other parts of the Western Balkan region, these cross-subsidies are embedded in regulated retail electricity tariffs, causing certain consumer groups to pay higher rates that ultimately subsidise supply to others who pay lower rates (Figure 9.12).
2018-23 period totals
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
Various additional forms of induced support to consumers in Kosovo have been identified in the inventory. These include price ceilings on oil products, an export ban on firewood and covering the cost of commercial losses in the northern municipalities. Price ceilings on oil products and an export ban on firewood were not valued in the study due to limited data. The coverage cost of commercial losses in the Northern Municipalities appears twice in the inventory: once as induced support and once as direct fiscal support. These costs stem from unbilled electricity consumption across four municipalities in northern Kosovo. Until 2017, these expenses were recovered through TSO tariffs, effectively distributing the costs across other consumers. A court ruling in 2017 prohibited this practice. From 2017 to 2023, KOSTT managed to cover these costs either from its own revenue or through direct government subsidies. The amounts financed from KOSTT’s internal resources are classified as induced support (EUR 54.8 million between 2021-23), while those covered by government subsidies are categorised as direct fiscal support (EUR 80.4 million) (see next section). Together, these amount to EUR 54.8 million between 2021-23.1
Induced support for producers
Feed-in tariffs are a special category of induced support to renewable energy producers in Kosovo. Feed-in tariffs guarantee a purchase price for renewable generation projects, with aim to make them predicably profitable and thus encourage investment. As for other forms of induced support, the inventory calculates induced support through feed-in tariffs by comparing guaranteed prices and HUPX reference prices. In addition, under the feed-in tariff, renewable energy generators are responsible for only 25% of balancing requirements, with the remaining 75% covered by the TSO. This benefit is not covered in the support estimates for induced support.
Note: Due to lack of data for 2023 for Bosnia and Herzegovina, Montenegro, and Serbia Panel A shows only 2018-23 values.
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
Until 2020 renewable energy producers in Kosovo benefited positively from feed-in tariffs, but rising international energy prices in 2021-22 made the obligation to supply electricity at guaranteed domestic prices a significant cost for producers. Feed-in tariffs shielded privileged producers from market volatility while also preventing them from making windfall gains when prices were high. Feed-in tariffs provided a guaranteed power purchase agreement (PPA) for 12 years for solar photovoltaic (PV) and wind projects, and 10 years for biomass and small hydropower plants. The compensation rates were set at 136.4 EUR/MWh for solar PV, 85 EUR/MWh for wind, 71.3 EUR/MWh for biomass and 67.47 EUR/MWh for small hydro (ERO, 2016[29]). The feed-in tariffs generated positive induced support for producers in 2018-20. The energy crisis shifted this dynamic, resulting in an opportunity cost of around EUR 118 million over 2018-23 for producers that remained in the system (Figure 9.13 – Panel A). Similar trends were observed across the Western Balkan region (Figure 9.13 – Panel B).
Energy production in Kosovo also received indirect support for heat generation. DH Termokos generates thermal energy through cogeneration at KEK’s Kosova B coal-fired power plant. To supply DH Termokos with heat, KEK reduces electricity production from the cogeneration plant, producing approximately 6.5 MWh of thermal energy for every MWh of electricity foregone. According to DH Termokos tariff reports, the price of heat supplied by KEK is directly influenced by the electricity price KEK receives from the USS under the BSA (29.5 EUR/MWh on average in 2018-23). Since BSA prices are significantly below market prices, this results in a subsidy to DH Termokos. The subsidy is calculated as the difference between current payments for heat and the alternative scenario in which KEK does not reduce production and can sell additional electricity at market prices. The reference prices for electricity are based on a yearly average of day-ahead prices on the HUPX market. This gap represents the effective subsidy provided through heat supply, which amounted to EUR 16.1 million in 2018-23. This subsidy has increased significantly since 2021 due to the increased value of electricity during the electricity crisis.
Financial support: EUR 608 million in total for Kosovo in 2018-23, most of it during the crisis
Kosovo’s energy sector received EUR 608 million in financial support between 2018 and 2023, comprising both fiscal and credit support. The majority (EUR 574 million) of the financial support was fiscal support. Before the energy crisis (2018-20), fiscal support amounted to approximately EUR 109 million. During the energy crisis (2021-23), fiscal support surged more than fourfold to EUR 465 million (Figure 9.14 – Panel A) and the energy sector also received EUR 33 million in credit support (Figure 9.14 – Panel B).
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
Fiscal support
Before the energy crisis (2018-20), most fiscal support in Kosovo's energy sector came through various tax expenditures. The largest scheme was a reduced rate of value-added tax (VAT) – from 18% to only 8%, implemented in September 2015 – for electricity supply, transmission and distribution, amounting to EUR 43 million annually (Assembly of Kosovo, 2015[30]) (Figure 9.15). While this reduction does not impact energy prices for businesses (as they can deduct VAT), it lowers electricity costs for households, non-profit organisations and public institutions. The estimated tax revenue loss is based on average tariffs and household electricity consumption (ERO Annual Reports).
Another significant pre-crisis fiscal support measure was the exemption of excise taxes on energy imports used by producers, accounting for EUR 34 million (Figure 9.15). According to Kosovo’s Integrated Tariff Code (Kosovo Customs, 2023), imports of gasoline, diesel and crude oil are subject to an excise tax of EUR 0.385/litre, while natural gas and liquefied natural gas (LNG) imports are taxed at EUR 0.15/litre. Based on Decision No. 13/07 (dated 06.10.2017), producers importing energy sources (directly or through contractors) for production purposes are exempt from these excise taxes. The Ministry of Finance 2022 Fiscal Report provides data on the resulting foregone tax revenues due to this exemption.
Among the range of instruments introduced during the crisis, grants to energy enterprises represent the largest share of support. The government provided three key grants totalling EUR 141 million, broken down as EUR 43 million to KEK and EUR 97 million to the USS, both of which aimed to mitigate the impacts of high electricity import prices on end-user tariffs. A third grant of EUR 0.8 million was awarded to DH Gjakova to provide liquidity support due to its low billing rate (Figure 9.15). The Government of Kosovo also provided direct subsidies to KEK to import electricity, which subsequently sold the electricity to the USS at an agreed price. This arrangement helped offset the cost of imports, reducing the impact on regulated end-user electricity tariffs. KEK submitted annual reports to the government detailing the amount of electricity imported; in turn, based on allocated funds, the government reimbursed KEK for the difference between the import costs and the agreed selling prices. The support to the USS limited a planned overall tariff increase of about 40% for small businesses and household consumers that consume below 800 kWh per month (below the newly introduced block tariff). In 2023, all regulated tariffs (household and non-household) were increased by approximately 14%.
Kosovo’s energy sector also received EUR 80 million in international grants. Of this, EUR 45 million was directed to district heating companies – DH Gjakova2 and DH Termokos.3 Notably, DH Termokos provides heating to the capital city, Pristina, through cogeneration from coal-based energy produced by KEK. In 2022, DH Gjakova began operations, supplying heat to the Municipality of Gjakova through cogeneration using biomass as a fuel source. A grant of EUR 35 million from the European Union was part of the Energy Support Package established to mitigate the socio-economic impacts of the energy crisis (Figure 9.15).
To cover the cost of commercial losses in the northern municipalities of Kosovo, both during and after the crisis, the government allocated EUR 80.4 million. This amount was allocated as follows, rising dramatically during the crisis: EUR 3.3 million in 2018-20 and EUR 77.1 million in 2021-23. These losses are linked to unbilled electricity consumption in four northern municipalities (Figure 9.15).
Note: SA stands for social assistance, DHT stands for District Heating Termokos, DHG stands for District Heating Gjakova, EE stands for energy efficiency. The estimated value of the customs duty exemption for firewood imports totalled approximately EUR 32 000 between 2018 and 2023.
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
Between 2018-23, Kosovo provided EUR 32 million of support to vulnerable energy consumers. Direct subsidies for families benefiting from various social assistance schemes were based on an annual budget allocation from the Ministry of Finance. Approximately 37 500 vulnerable households were eligible for support, with each receiving around EUR 120 annually (Energy Community Secretariat, 2023[31]). Financial assistance was provided under the Social Assistance Scheme (SAS), the Martyrs’ Families and War Invalids Scheme (FDIL), the Blind Persons Scheme (SPV), and the Paraplegic and Tetraplegic Scheme (SPPT). On 5 September 2023, the government launched a reformed Program for the Protection of Vulnerable Consumers in Electricity (Decision No. 01/158). This programme aims to expand the definition of vulnerable customers to include households with an average income of less than EUR 150 per person per month. The programme, designed as a one-year pilot, would gather data and insights to inform the development of a long-term initiative. It is part of the EU Energy Support Package to address the energy crisis. The programme is implemented and monitored by the Ministry of Finance, Labour, and Transfers.
Credit support
In 2023, Kosovo’s energy sector received EUR 33 million in credit support. This included three publicly guaranteed loans from the European Bank for Reconstruction and Development (EBRD): EUR 23 million for the Pristina solar heating project and EUR 10 million for energy efficiency improvements in public buildings in Prizren. The inventory also recorded an EBRD loan to KEK for a 100 MW solar PV energy project, although the loan amount for this scheme was not provided.
Understanding the distribution of induced support between fossil fuels and renewable energy in Kosovo
The inventory distinguishes between support to fossil fuels and that to renewable energy. For primary energy sources (such as solar, wind and fossil fuels), direct categorisation is possible. For energy carriers (such as electricity), support is apportioned based on the share of fossil fuels and renewable energy in the domestic electricity mix.
All induced support through regulated electricity prices in Kosovo goes to fossil fuels. Considering that the incumbent company, KEK, uses only fossil fuels, about EUR 2.2 million of induced support through regulated prices can be allocated to fossil fuels over the period 2018-23 (Figure 9.16 – Panel A).
On the contrary, all induced support through feed-in tariffs in Kosovo goes to renewable energy. When these guaranteed prices exceeded market values, the support effectively benefited producers. This occurred between 2018 and 2020, when feed-in tariffs provided approximately EUR 18 million in producer support. From 2021 to 2023, however, feed-in tariffs fell below market prices, resulting in an opportunity cost for producers of around EUR 118 million (Figure 9.16 – Panel B). Supply of heat from KEK's cogeneration to DH Termokos was another important form of induced support for producers (allocated to fossil fuels) valued at around EUR 16.1 million (not included in Figure 9.16).
2018-23 totals
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
Between 2018 and 2023, financial support in Kosovo was allocated as EUR 512 million to fossil fuels and EUR 95 million to renewable energy. For fossil fuels, the entire EUR 512 million was provided as fiscal support (Figure 9.17 – Panel A). Most of it (EUR 319 million) was intended either for electricity and heating production or for consumption. Fiscal support (EUR 193 million) directly intended to fossil fuels included schemes such as: exemption from customs duty tariffs for imports of benzene and diesel; exemption of excise taxes on imports of all energy sources used by producers; support to DH Termokos (credit support for installation of measuring devices for district heating and support for expansion and rehabilitation of the district heating grid); exemption from coal royalty taxes for KEK during COVID-19 recovery; and subsidies on fuel excise taxes for farmers. Credit support of EUR 33 million was through three government-guaranteed EBRD loans for renewable energy (Figure 9.17 – Panel B).
2018-23 totals
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
Energy sector reform in Kosovo will require carefully balancing the efficiency of energy markets with the economic and social consequences of reform, while ensuring that reforms are fiscally sustainable. This section draws on micro-simulation and macro-economic modelling to probe policy scenarios for electricity prices and energy subsidies and support measures in Kosovo, building on the inventory presented in this chapter. This section starts with a description of the tools used, discusses the capacity of the social protection system in Kosovo to put in place compensatory measures, and moves on to discuss price regulation reforms. The section finishes with considerations on how such reforms can be implemented, including the role of block tariffs and of energy efficiency measures.
Analysing the macro-economic impacts of potential energy sector reform in Kosovo
Changes in energy sector regulation will impact the economy widely. At the macro-economic level, changes in market regulation generate changes in the allocation of value between categories of consumers and the energy sector, as well as to the public purse through three mechanisms: increased tax receipts on energy consumption; increased tax receipts linked to increased profitability of energy producers; and dividend payments linked to improved performance of SOEs. Sectors and firms will be differentially impacted depending on their current status. At present, all large consumers already procure electricity in the open market. Small and medium enterprises (SMEs) have the option of being served under regulated prices, which cross-subsidise household tariffs but remained attractive during the energy crisis of 2021‑22. The energy intensity of different sectors and their ability to shift consumption among energy sources will also play a role in the distribution of eventual impacts. To shed light on how the various effects combine, this report applies macro-economic computable general equilibrium (CGE) modelling as a flexible tool to analyse the impacts of ‘shocks’ triggered by such reforms in individual economies in the region (Chapter 4).
This chapter relies on a CGE model presenting a simplified version of the economy of Kosovo. The XK‑POWER‑CGE model is an instance of the POWER-CGE model developed for the case of Kosovo. The model uses a 26-sector representation of the economy (at NACE section level). It has been augmented to reflect the nature of electricity markets in Kosovo, with a fixed-price, regulated sector that meets the posted demand of regulated customers4 and a flexible-price unregulated sector in which markets clear. The regulated sector is itself modelled as two different firms, serving respectively firms and households in the regulated segment. This allows simulations to shift prices for households and firms independently. The model is static, and the results are meant to represent new equilibrium situations after a policy or market shock has occurred.
The data for the XK-POWER-CGE model was compiled from multiple sources to build a complete social accounting matrix for Kosovo. The usual starting point for such a dataset is input-output tables for the economy. As these are not available for Kosovo, constructing the baseline dataset proceeded in two steps: first, gathering key flow variables from national and international sources and then using these to calibrate the split of regionally aggregated data from available global input-output data. Key economic indicators – such as employee compensation, gross fixed capital formation, tax revenues, sector-level foreign trade and value added – were obtained from national accounts (Kosovo Agency of Statistics, 2024[32]). In addition, the World Development Indicators (WDI) from the World Bank provided data on net capital flows (World Bank, 2025[20]). Data from the International Monetary Fund (IMF) (2024[33]) were used for gross domestic savings and government deficit. All data was harmonised and transformed to 2022 values, expressed in the national currency (EUR). All sectors were mapped and reconstructed to align with the NACE sectoral decomposition, ensuring compatibility across the model. The data were combined with the underlying database of the Global Trade Analysis Project (GTAP 11), which uses 2017 as the reference year (GTAP, 2023[34]). The GTAP database includes a global input-output matrix as well as social accounting matrices for 160 regions. Since Kosovo is included as part of a regional aggregate in the GTAP database, the social accounting matrix was built based on the domestic data gathered and this data were combined with the GTAP database to isolate Kosovo from the regional aggregates to fill remaining data needs.
Social protection and energy subsidies in Kosovo
Reforming the energy subsidies and support measures that sustain the current energy market in Kosovo would trigger changes in the retail prices paid by both households and firms. According to the inventory presented in this chapter, regulated retail prices for households were, on average, 40% lower than market-consistent prices before the energy crisis, and averaged about half the value of reference prices in 2023. To contain any adverse social consequences of energy market reforms, it is vital to understand the distributional incidence of price shifts and the potential for redistribution of the current tax and social protection systems in Kosovo.
At present, implicit electricity subsidies transfer significant value to those who do not need it. Based on household budget survey (HBS) data for 2022, the value of implicit subsidies of 40% of electricity prices is compared with total consumption expenditure. Households in the bottom deciles spend a significantly higher proportion of their incomes on electricity (11.2% of total expenditure in the first decile). At this level, a proportional subsidy makes a sizeable contribution to household finances. Electricity consumption is larger for households with greater income. Ultimately, this has the effect that universal subsidies through low prices result in a larger transfer to the middle classes and better-off households.
In Kosovo, there is a larger gap between the consumption of poorer households and the middle classes than between the middle classes and better off households. The composition of energy expenditures suggests that better-off households are more likely to report additional sources of energy for heating, in particular firewood (World Bank, 2019[35]). This implies that the absolute value of subsidies increases marginally less in the top half of the distribution. It is also likely, however, that purchases of firewood are underreported in the data, particularly if purchases are made in bulk at few occasions during the year.
Recently introduced block tariffs can moderate the regressivity of electricity subsidies. In 2022, Kosovo introduced block tariffs by adding a high price block tariff for consumption above 800 kWh/mo. Unit prices for consumption in the top block are significantly higher than for the rest (1.9 times the rates in peak hours). Given the relatively high correlation in the data between electricity expenditure and total expenditure, progressive pricing is likely to moderate the regressive impacts of existing electricity price subsidies. This approach, however, has important limitations. Households with more members, in particular those living in poorly insulated housing, are likely to suffer from progressive pricing.
Size of 40% implicit subsidy to electricity prices, in EUR per capita and relative to average consumption expenditure
Source: Authors’ calculations based on HBS 2022 (Kosovo Agency of Statistics, 2022[36]).
Micro-simulation analysis can help determine how well tax and transfer systems can compensate for distributional impacts of potential energy policy changes. The Commitment to Equity (CEQ) framework can be used to compare the ability of taxes and transfer systems across economies to redistribute income and reduce poverty (Chapter 4). Comparing inequality (Gini coefficients) and absolute poverty headcounts based on market income with their counterparts (including all taxes and transfers) offers a measure of the ability of each economy to redistribute income (Figure 9.19). To this end, inequality and poverty are compared before and after direct and indirect taxes and transfers. This provides information on the impacts of the overall tax and transfer system on redistribution (Figure 9.19 – Panel A) and poverty (Figure 9.19 – Panel B). In Kosovo, the tax and transfer system has a modest redistributive effect. Inequality, as measured by the Gini coefficient, is 0.02 points lower after direct and indirect taxes and transfers compared to before taxes and transfers. This is in line with other economies in the region, while in some EU economies, the impact of taxes and transfers is much larger (Figure 9.19 – Panel A). Government interventions through taxes and transfers are, notably, associated with an increase in poverty in Kosovo. This is mainly the result of indirect taxes. Direct taxes and transfers reduce poverty by 3.81 percentage points in Kosovo, a relatively large impact for a middle-income economy. However, indirect taxes reduce consumable incomes significantly. When all taxes and transfers are accounted for in Kosovo, their impact is a notable increase in poverty. These results suggest that social transfers cannot fully offset the burden of taxes on poverty. The pattern is not exclusive of the economies of Kosovo or the Western Balkans and can also be observed in Türkiye and in other Central and Eastern European economies (Figure 9.19 – Panel B).
Gini coefficient based on market income and after direct and indirect transfers and taxes (Panel A), and absolute poverty headcount based on market income and after taxes and transfers (%) (Panel B).
Note: Data for the latest available CEQ assessment in each comparator economy: Colombia, Croatia and Poland (2014), Romania, Türkiye and the United States (2016), Argentina and Spain (2017). Data on Albania are for 2022. Data for Serbia are based on 2019 reference data. Data for North Macedonia are based on 2018 baseline data but simulate current social protection systems. Panel B. Poverty measured at the upper middle-income absolute poverty line (5.50 USD/day in 2011 PPP, 6.85 USD/day in 2017 PPP). Results for Croatia and Poland correspond to the lower middle-income poverty line (2.5 USD/day in 2005 PPP. Results for Croatia and Poland correspond to the lower middle-income poverty line (2.5 USD/day in 2005 PPP). For Albania, poverty and inequality measured at market income include pension benefits.
Source: Data sourced from background papers prepared for this report: Albania data from Zhabjaku Shehaj (forthcoming[37]) Bosnia and Herzegovina data from (Vladisavljević and Žarković, forthcoming[38]), Montenegro from (Vladisavljević and Žarković, forthcoming[39]), Serbia data from (Vladisavljević and Žarković, forthcoming[40]), North Macedonia from (Petreski, forthcoming[41]). Others sourced from (CEQ Institute, 2024[42]) CEQ Standard indicators web version 5.0, CEQ Institute, https://commitmentoequity.org/datacenter/.
Preliminary data suggest that social assistance programmes in Kosovo are effective at reducing poverty and inequality but have limited reach. Non-contributory pensions are estimated to reduce poverty by 1.76 percentage points (measured by the international moderate poverty line). Social assistance transfers, in contrast, have a substantially smaller stand-alone impact on poverty (0.11 percentage points), largely due to their relatively small size in relation to market incomes. These programmes can serve as benchmarks for analysing potential new forms of support for the poor or energy vulnerable.
As part of the response to the energy crisis, Kosovo launched a programme to support energy vulnerable households in 2023. Since 2019 families benefiting from existing social assistance programmes (the Social Assistance Scheme [SNS], the Martyrs’ Families and War Invalids Scheme (FDIL), the Blind Persons Scheme [SPV[ and the Paraplegic and Tetraplegic Scheme [SPPT]) received additional transfers to subsidise electricity consumption (Energy Community, 2024[43]). The Program for the Protection of Vulnerable Consumers in Electricity (PVCE) was launched in September 2023 as a one-year initiative financed by the EU Energy Support Package for the Western Balkans. This programme involved a transfer to vulnerable groups (people with disabilities, single parents and isolated older citizens) subject to a means test, set at the international poverty line (Prime Minister's Office, 2023[44]). The PVCE programme was redesigned and a revision of the definition of vulnerable energy consumers was enacted as part of the 2024 budget (IMF, 2024[45]). Going forward, Kosovo will need to assess the ability of means-tested programmes to appropriately reflect energy consumption needs. World Bank analysis suggests that while the overlap between income and energy poverty in Kosovo is significant, some categories of energy-poor households may not be income-poor (World Bank, 2019[35]).
Reforming electricity pricing
Price regulation in Kosovo has insulated customers from market price movements
The pricing of electricity in Kosovo’s wholesale markets effects a significant transfer of value from KEK to customers in the regulated market, with KESCO acting as a conduit. Over the period 2018‑23, bulk purchase agreements resulted in transfers equivalent to EUR 1.9 billion to the USS, EUR 229 million to the DSO and EUR 39 million to the TSO. During the energy crisis, Kosovo provided direct subsidies to actors in the electricity sector (KEK, KESCO and KOSTT) to support them in maintaining relatively low prices.
To examine the impacts of fixing wholesale supply prices from KEK to other actors in the electricity sector, this study calculated a series of market-consistent prices. These correspond to the retail tariff that would result from applying the cost-plus tariff-setting methodology in a situation where prices charged by KEK to KESCO would be adjusted to international market prices (HUPX average annual day-ahead prices). As a simplifying assumption, the prices charged to TSOs and DSOs are not affected, so that the scenario keeps transmission and distribution fees constant. In the case of Kosovo, this reduces the price gap between observed prices and market-consistent prices as the TSOs and DSOs also received below‑market price electricity to cover losses during the period.
The analysis in this chapter relies on series of market-consistent prices for household and non-household customers. Whilst the generalised practice in the region is for only small firms and/or firms connected at low voltage levels to benefit from regulated prices, in Kosovo, firms connected at low (0.4 kV) as well as medium (10 kV, 35 kV) voltage levels are served under regulated prices. Customers at different voltage levels face different distribution charges as well as different pricing schedules. As a simplifying approach and to account for limitations on detailed price data across voltage categories, a single series of market-consistent prices is calculated for the average non-household customer (including commercial, industrial and public lighting customers). Similarly, the analysis relies on a single series for household customers representing the average household (across metering arrangements).
Implicit subsidies in Kosovo vary over time and are larger for household than non-household customers. The gap between average prices and market-consistent prices for each of the categories represents an implicit subsidy to consumers (Figure 9.20). Prices for both households and non-household customers increased in both 2022 and 2023. In February 2022, Kosovo introduced block tariffs for households, with an 85% surcharge on electricity consumption above 800 kWh (ERO, 2023[46]). In 2023, all regulated tariffs were revised upwards by 15%, At the same time, network charges reflected partially the increase in wholesale prices. This led household prices to increase by 10% in 2022 and 16% in 2023. Similarly, non-household average prices increased by 15% in 2021 and by 10% in 2022. Despite these increases, the passthrough from high international and wholesale prices was relatively small. The subsidy is systematically larger for household consumers, who benefit from lower prices despite incurring larger grid charges. In the case of households, the price gap varied widely, from 12% in 2020 to 413% in 2022, driven largely by large shifts in international reference prices.
EUR/MWh
Source: Authors’ calculations on the basis of the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
Scenarios 1 and 2: Market-consistent pricing
To examine the impacts of price regulation, a series of Scenarios are simulated in which regulated prices are adjusted to market-consistent prices. In Scenario 1, prices are adjusted to reflect the average subsidy implicit in the price gap before 2020, which was 19% in 2018-19. As tariffs in Kosovo include a standing charge, this corresponds to, on average, a 19% shift in total electricity costs and to an average electricity price of 94.50 EUR/MWh taking 2023 average prices as a reference. Covering the full gap between actual average prices and market-consistent prices as of 2023 would require a much larger price increase (72% in average prices) to 138 EUR/MWh.
This simulation can be taken as a bounds analysis of the sensitivity of the economy. The lowest desirable increase in electricity tariffs would be one that allows KEK to cover its costs. As of 2023, KEK estimated the wholesale price necessary to cover costs at 32.4 EUR/MWh, while it was selling to the USS at only 29.5 EUR/MWh. This corresponds to a household retail price of about 72 EUR/MWh, slightly above average 2023 prices (not accounting for foregone normal profits by KEK). The upper bound is the cost of procurement if aligned with international market prices, which corresponds to a 72% increase in electricity tariffs.
Such a price increase in Kosovo would have notable social costs. A 19% increase in electricity costs would lower real incomes for households. Given a poverty rate in the vicinity of 21% as of 2023 (World Bank, 2025[47]), to assess the cost of compensation to those in need, it is necessary to target at least the first two deciles of the income distribution. For a 19% increase in electricity prices, full compensation for the bottom 20% of the income distribution would require EUR 6.5 million.
The economic impacts of a 19% tariff increase to all customers would be contractionary. As the price increase triggers a fall in real incomes for households, it also prompts lower aggregate demand. Given that most firms are served in the regulated market, the productive sector would see their electricity costs increase, thus driving production down. The XK‑POWER‑CGE model suggests that overall, the economy would contract by 0.16%. Despite a large decline in electricity demand, households substitute other goods and services, which modulates the contractionary impact such that household consumption falls by 1.02%.
Scenario 1 translates into significant rebalancing of energy costs in Kosovo. The price increase is supposed to correspond to an increase in the prices at which KEK serves the USS (currently fixed at 29.50 EUR/MWh by the BSA). A 19% shift in the retail price corresponds to a 46% increase in wholesale prices, delivering to KEK an operating income increase of EUR 41 million after accounting for a 8.4% drop in demand in the regulated market (using 2023 as the reference year). In turn, the fall in demand would give KEK additional resources (in terms of electricity not subject to the BSA or conversely a fall in purchases in the open market to serve the USS) worth EUR 38 million (if valued at international market prices).
If the price increase falls primarily on household consumers, it has an expansionary effect but a larger social cost. In Scenario 1b, the price increase is distributed between household and non-household consumers according to their segment-specific pre-crisis gaps to the market consistent prices. Non-household customers were served at near market prices up to 2019. Therefore, Scenario 1b applies a 39% increase to household prices, which reach 98 EUR/MWh, compared to non-household prices, which remain at 93.6 EUR/MWh. The gap corresponds approximately to the gap in approved distribution fees, which are lower for higher voltage customers and are therefore lower for non-household customers on average. In Scenario 1b, households still suffer a fall in consumption expenditure (by 0.8%) but it is moderated by the fact the economy expands by 0.17%. Since the corresponding price increase is substantial, Scenario 1b requires doubling the compensation transfers to those at risk of poverty.
Source: Authors’ calculations.
Adjusting fully to market consistent prices would have a larger impact in the economy. Scenario 2 simulates a larger price adjustment, corresponding to the gap between average regulated tariffs and market-consistent prices in 2023. The adjustment drives prices up to 138 EUR/MWh (for reference day-ahead HUPX prices averaged 106.8 EUR/MWh in 2023). Even when a larger burden of the adjustment is borne by households (Scenario 2b), the impact is an economic contraction, as the increased production costs lead to falls in output and aggregate demand. For illustration purposes, this scenario is split into its two main components. When the price increase falls on households alone, the impact on GDP is positive. This shows that the negative economic impact is due to the high share of electricity at regulated prices used in productive sectors.
Market reform can pay for the necessary compensatory measures. Across all Scenarios, Table 9.1 shows the additional income earned in the electricity sector, largely by KEK as it is assumed wholesale prices increase to drive the increase in retail prices. Additional earnings are compared to the loss in purchasing power of the bottom two deciles of the income distribution, this estimate does not account for falls in consumption due to increases in price, but only for the value of demand before the shock. The need for compensation is a fraction (8% in Scenario 1a, 16% in Scenario 1b) of additional income for the sector. As most of the income flows to SOEs, it can be considered that a fraction of it generates fiscal savings, be it through dividend payments or through taxes.
The results of price shift scenarios are indicative of the possible economic impacts of deregulation. Price increases linked to a phase out of the BSA are desirable, to ensure that customers face cost-reflective tariffs. However, ultimately the expectation is that markets can deliver a more flexible, adaptable and efficient electricity sector. In the event of gradual market deregulation, prices would align to different mixes of electricity and agents would benefit from long-term contracts, so that prices need not increase up to the market-consistent benchmarks.
Scenario 3: Removing cross-subsidies
Cross-subsidies represent an additional form of support for households in Kosovo. As presented in the inventory, cross-subsidies are estimated to have channelled EUR 141 million from firms to households during the period 2018-23. For analytical purposes, cross-subsidies are calculated with reference to average tariffs by type of connection. Since average tariffs have evolved little during the period, the size of cross-subsidies has also remained stable.
Rebalancing prices could have positive impacts on the economy. A revenue-neutral scenario for the energy sector, relying on converging to average tariffs, has impacts in the economy. Indeed, in the case of Kosovo, it implies a shift in the composition of demand that would impact the composition of revenues. Residential electricity demand is typically less price elastic than industrial demand in the European Union, particularly in the long run (Csereklyei, 2020[48]). Therefore, such rebalancing of prices could lead to an increase in total electricity demand. Moreover, the fall in costs would stimulate economic activity for economic sectors.
Rebalancing prices towards the average, as in Scenario 3 generates a positive impact on output. This would imply an 10% increase in household electricity prices and a 18% decrease in prices for non-household customers. Efficiency gains generate additional economic activity as productive sectors of the economy see their costs decrease. In the simulations, the general price level falls by 0.7%. Household demand for electricity falls by 4.7% but the impact on consumption is compensated by the fall in prices, and by an increase in government consumption. However, it is likely that the benefits to consumption are not distributed evenly. Since average tariffs are kept constant, the reform would not automatically generate income that could be channelled to compensate those in need. Fully compensating the bottom two deciles (i.e. the income-poor) would require about EUR 3.5 million.
Changes relative to baseline
Source: Authors’ calculations.
Price rebalancing should be part of a broader deregulation reform of electricity prices in Kosovo. In practice, non-household customers in Kosovo did not receive significant subsidies prior to the energy crisis. Average prices in 2018-19 for non-household customers were in line with market-consistent pricing. During the energy crisis, prices were kept stable while market-consistent prices increased. Instead of making regulated prices converge towards their average, gradually increasing household electricity prices – while introducing market signals into retail pricing – would imply an automatic reduction in cross-subsidies. The increase in prices would generate income for the electricity sector that could be channelled towards compensatory measures (e.g. through taxation in the case of KESCO or dividend collection to the budget in the case of SOE producers).
Analysing the impact of fiscal transfers in Kosovo
As documented in the Inventory presented in this chapter, most fiscal support to energy in Kosovo took place during the energy crisis. The largest components of fiscal support, including EUR 141 million in grants to KEK and the USS and provisions to cover the cost of electricity in municipalities of Northern Kosovo, aimed to provide financial resources to energy sector firms to prevent them from passing on increasing costs to consumers. Since the XK-POWER-CGE model is calibrated with pre-crisis data, these transfers would be oversized given the data and are not very informative. In addition, given data limitations, the model’s reliance on a 26-sector economy does not currently allow the isolation of hydrocarbon derivatives (petrol, diesel) as production inputs, which also limits the examination of certain fiscal support schemes.
Three schemes are examined to reflect their impact at the macroeconomic and sectoral level. They include the coal royalty exemption granted to KEK during the COVID-19 recovery period, the imposition of a lower (8%) VAT rate on electricity compared to the general level (18%), and the direct subsidies provided to households. The coal royalty exemption was granted as a one-time form of support, with an estimated value of EUR 10.8 million. It is of interest to gauge its role as a crisis intervention. The removal of the intervention is modelled as an addition of a 12% tax on coal production – this is the ratio of the value of the transfer relative to income from coal in KEK in 2021. The removal of the preferential VAT rate on electricity is modelled as an additional 10% tax on final electricity consumption by households.5 Finally, direct transfers to households worth EUR 9.1 million are simulated to capture the annual average level of direct assistance to households.
Source: Calculations based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
The direct mechanisms simulated have modest impacts on aggregate output but contribute to shape the energy mix. Removing the coal royalty exemption results in a significant (6%) fall in electricity production from coal, paired with a fall in coal production. This in turn leads to a sizeable increase in electricity prices, as electricity is procured from other sources, including from imports. However, the tax generates revenue, which is then spent, and the fiscal multiplier allows the economy as a whole to grow by 0.05%. Similarly, the removal of the low VAT rate on electricity has relatively small impacts at the macroeconomic level. Household consumption falls slightly, while household electricity consumption contracts by 3.5%. However, the increase in fiscal resources allows the economy to grow despite the addition of the tax. Finally, direct transfers to households are found to be contractionary in the model. This is because they decrease government spending at the expense of household consumption spending. It is noteworthy that the model includes only one representative household, so that it cannot capture the relatively higher propensity to consume among vulnerable households who receive such transfers.
Ongoing deep reforms in the energy sector in Kosovo offer a window of opportunity to accelerate the green transition. Kosovo adopted an energy strategy with a 2031 horizon that sets a path to decarbonisation by 2050 (Government of Kosovo, 2022[49]). Notably, it plans for EUR 1.3 billion investment in new renewable production capacity. Kosovo also adopted its first law on renewable energy sources in 2024 (Government of Kosovo, 2024[50]), aligning with the EU acquis and setting up key preconditions for guarantees of origin in electricity and consumer participation in production activities. In addition, Kosovo joined the Albanian day-ahead market (ALPEX) and is working towards intraday market coupling and integration.
Meeting Kosovo’s energy policy objectives will be a significant challenge. At present, lignite-based production accounts for 82% of installed capacity in two old TPPs (Kosovo A was commissioned in 1970, Kosovo B in 1984) that do not meet European emissions standards. Attracting the necessary investment requires markets to deliver appropriate returns on electricity production, and networks prepared to withstand new capacity. As retail and wholesale markets are heavily dominated by regulated SOEs, market deregulation and contestability will be critical to deliver such returns.
This section presents key policy recommendations for the energy sector in Kosovo. It draws on the analysis presented in previous sections and on the results of broad-based consultations in Kosovo. The results of a Peer-Learning Workshop (held in Pristina in the fall of 2024) are also presented and inform the policy orientations provided. As part of this workshop, specific priority policy actions were developed, which are highlighted in the relevant thematic areas (Box 9.3).
A peer-learning process was an integral part of the Just Transition in the Western Balkans project, complementing the data collection and analytical work underpinning this report. As part of this process, a series of workshops were organised with three overarching aims: a) identify key issues for a more inclusive and financially sustainable development of the energy sector at the regional and economy level; b) put forward suggestions for future policy actions at the economy level; and c) foster exchange of policy experiences. The process brought together key stakeholders from the Western Balkans (Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia) in the field of energy transition.
The workshop, “Just Green Transition in Kosovo through co-ordinated energy sector, social protection, and fiscal reforms,” took place in Pristina in Kosovo on 24 October 2024. It was attended by 25 experts representing various societal perspectives, including government, civil society, academia and businesses in Kosovo. Amongst others, the event included representatives from: the Cabinet of the Prime Minister; Ministry of Economy; Ministry of Finance, Labour and Transfers; the state-owned electricity generation company Korporata Energjetike e Kovovës (KEK Sh.a); the state-owned transmission system and market operator company (KOSTT); the Kosovo Energy Efficiency fund (KEEF); and the Kosovo Chamber of Commerce. It also included relevant experts and actors from academia and civil society organisations, including experts on energy transition, gender equality, energy poverty, and environmental and social protection.
The workshop began with a presentation of the preliminary findings of this project, followed by a presentation of national strategies and plans governing the energy sector in Kosovo. It subsequently transitioned into a plenary session during which participants identified and prioritised the most pressing issues for fostering a more inclusive and financially sustainable energy sector in Kosovo. These issues were grouped into key themes, which participants then ranked based on urgency and importance. For the most prioritised themes, concrete policy actions were developed, with a strong focus on their implementation within Kosovo’s political context (Table 9.4).
Outcome of Peer-Learning workshop in Kosovo (in order of priority)
Source: Peer-Learning Workshop, “Just Green Transition in Kosovo through co-ordinated energy sector, social protection and fiscal reforms”.
Phasing out price regulation is key to promote development of competitive domestic markets in Kosovo
Gradually phasing out regulated energy supply and the bulk supply agreement would help enhance energy market competitiveness and attract investments. Removing the barriers to effective market functioning is addressed as a specific objective in Kosovo’s Energy Strategy (2022-2031), with a target to gradually phase out the BSA starting from 2025 until 2031 (Government of Kosovo, 2022[49]).
Phase out the bulk supply agreement between KEK and KESCO
The bulk supply agreement between KEK (the incumbent producer) and KESCO (the USS) is an obstacle to competition in Kosovo’s electricity market. This agreement was entered into during the privatisation of KEK’s distribution and supply assets. It compels KEK to fulfil the demand of USS customers served by KESCO. In practice, the transactions happen well below international market prices. This leads to illiquid domestic wholesale markets and represents the largest transfer of value (in the form of low prices) towards consumers (see the Inventory section in this chapter). As these savings are passed on to retail consumers, retail prices are also particularly low (indeed, the lowest in the Western Balkan region), which significantly hinders the development of retail markets. The BSA is recognised as a key obstacle to competition by Kosovo authorities (such as ERO) and international observers (ERO, 2020[51]; European Commission, 2024[52]).
Gradually phase out customers on regulated prices
Despite being formally liberalised, the electricity retail market in Kosovo remains dominated by the incumbent universal service supplier. Customers in Kosovo are free to choose their supplier; in practice, however, only customers connected at high voltage (three customers connected at 110 kV and 220 kV) are supplied at market prices. Other customers are supplied by the USS (KESCO) at regulated tariffs. In combination with the BSA, this severely limits competition in the retail market and prevents the emergence of alternative means for customers to manage risk.
To transition to a fully deregulated market, customers should be gradually phased out of the USS regulated prices. Such a transition requires a gradual approach to allow the market to adjust accordingly. The process should start by phasing out regulated customers from the existing scheme, starting with companies connected at medium voltage (35 kV) and progressively moving to 20 and 10 kV customers, and finally extending to those connected to 0.4 kV by 2040 (Box 9.3, Policy Action 5). A gradual approach allows customers to become active market players as electricity prices will reflect market prices and incentivise them to voluntarily leave the USS. The shift could be accompanied by a gradual increase in regulated prices, reflecting market conditions for electricity procurement in wholesale markets. This transformation creates incentives for increased investment in renewable resources, while allowing energy producers to bring energy to the market for export.
The phase out of regulated price segments in the electricity market and of the bulk supply agreement would be mutually reinforcing. As customer segments become excluded from the remit of the USS, the needs fulfilled by the BSA would also gradually diminish, increasing the volume of electricity available for trade. This would also gradually lower the value of the BSA for KESCO, making its renegotiation more likely to succeed. Similarly, increases in regulated prices as KESCO procures greater shares of electricity in the market will provide incentives for certain customers to seek better conditions from alternative suppliers.
Increasing the share of renewables in the electricity sector is fundamental to reach Kosovo’s decarbonisation targets
Increasing renewable energy source installed capacity is key to plans to achieve a sustainable and secure energy future in Kosovo. Diversifying the energy mix is vital for Kosovo’s decarbonisation efforts and maintaining security of supply is stated as a specific objective in the Energy Strategy 2022-2031 (Government of Kosovo, 2022[49]). Recent adoption of the Renewable Energy Sources law demonstrates a significant step towards these achievements (Government of Kosovo, 2024[53]). This new law aims to promote renewables and cogeneration across sectors to more effectively meet energy demand. In Kosovo’s draft NECP, new renewables capacities are envisaged to gradually replace the use of coal by 2050 (Government of Kosovo, 2023[5]). The strategic objective envisaged in the draft NECP and the Energy Policy is to reach a total capacity of 1 600 MW by 2031 with the renewables share in gross final energy consumption reaching 32%.
Building energy capacity while reaching decarbonising targets in Kosovo
Moving forward with renewables capacity installation is a priority for Kosovo. Plans according to the Energy Strategy 2022-2031 include developing new energy capacity, such as 1 300 MW of electricity (600 MW of wind power, 600 MW of solar power and 100 MW from prosumers), as well as 20 MW from residual sources (biomass and industrial wood) and 300 MW of thermal energy (Box 9.3, Action 1). This is a very significant increase compared with existing capacity, which includes the 32 MW Kitka wind farm and the 103 MW Bajgora wind farm. To reach these objectives, it will be vital to substantially accelerate renewables investments in Kosovo, which requires the necessary feasibility studies, revisions of the regulatory framework to streamline permitting, and ensuring all necessary authorisations are resolved when the auction takes place. A combination of PPPs and public funding is envisaged. Kosovo has a well-established legal framework for PPPs but has yet to develop PPP projects in the energy sector. At present, some gaps are evident in monitoring – especially in terms of fiscal risk assessment and reporting – which should be addressed before PPP volumes increase rapidly (Gap Institute, 2024[54]; Martijn et al., 2023[55])
Kosovo also plans to boost investments in existing lignite-based generation capacities to maintain security of supply during the transition. The draft NECP and the Energy Strategy 2022-2031 put forward refurbishment of Kosovo A units and indicates that the two units of TP Kosovo B would undergo a major overhaul to lower emissions levels according to European standards (Government of Kosovo, 2023[5]; Government of Kosovo, 2022[49]). Kosovo has decided to rehabilitate the units in two stages, with finalisation expected by the end of 2025 and 2026, respectively, in order to provide baseload and flexible capacity (Box 9.3, Policy Action 3). The cost-benefit calculation for refurbishing the older Kosovo A plant should be clarified in light of the planned introduction of a national emissions trading scheme as Kosovo responds to the introduction of the EU CBAM (Government of Kosovo, 2022[49]). Indeed, if coal is to be phased out, the planned investment of EUR 112 million would need to be amortised very quickly, especially with the plant running at only a fraction of capacity.
Increasing energy efficiency to reduce energy supply needs, decrease import dependency and reduce the financial burden of citizens and businesses
Ample room exists to increase resilience in Kosovo’s energy sector through improvements in energy efficiency. Between 2010 and 2022, energy intensity in Kosovo declined significantly, from 0.55 to 0.36 tonnes of oil equivalent (toe) per thousand euros of GDP. As of 2022, however, it remained second-highest in the region (below Bosnia and Herzegovina) and 3.6 times higher than the EU average according to Eurostat. In light of a sharp increase in residential consumption in the past decade, Kosovo’s NECP places high priority on energy efficiency measures in this sector.
Clear guidelines for classification of buildings as a tool for monitoring energy efficiency improvements
Kosovo needs a comprehensive monitoring and evaluation framework for energy savings in buildings, supported by clear classification guidelines to overcome current capacity limitations and attract new investments. The limited number of qualified professionals for monitoring implementation of energy saving activities is identified as a key challenge in the Energy Strategy 2022-2031 (Government of Kosovo, 2022[49]). To effectively monitor energy savings and attract new investments, it is recommended is to develop clear classification guidelines for nZEB and ZEB, based on energy performance. The classification and guidelines will enable precise measurement of energy savings relative to investments and help attract funding for construction and renovation of buildings (Box 9.3, Policy Action 2). This requires policies and procedures for monitoring and evaluation related to energy savings, developed through technical working groups with expertise from engineering, mechanical engineering, and architecture, as well as social and environmental protection and legal expertise.
Addressing energy poverty and protecting vulnerable customers in Kosovo
Mitigating the impacts of future increases in energy prices for segments of the population in need of support in Kosovo is key for the success of reforms. Direct energy subsidies in Kosovo have traditionally been granted to social assistance recipients and war veterans. This is a very narrow group, reflecting very stringent conditions for eligibility to the main social assistance programme (the social assistance scheme [SAS]). The Program for the Protection of Vulnerable Consumers in Electricity, launched in 2023 as part of the energy crisis response, expanded the beneficiaries to include people with disabilities while also modulating benefits to household size. Considering that energy poverty disproportionately affects women – particularly single mothers and elderly women living alone – due to lower incomes and higher energy needs, integrating gender-sensitive approaches in addressing energy poverty would be important.
In the context of market opening in Kosovo, direct cash transfers appropriately targeted to households at risk of energy poverty would be a more efficient mechanism than subsidised prices in the long run. Direct financial support would allow households to fully internalise price signals while being able to fulfil their energy needs. If appropriately targeted, such a programme would cost around EUR 6 million to compensate the poor for price increases to market-consistent levels – a cost similar to existing programmes (although it assumes perfect targeting). Such a transition would, however, require significant shifts in current practices (Box 9.3, Policy Action 4). These measures should also specifically address the challenges faced by women, ensuring that cash transfers effectively reach female-headed households and meet their distinct needs.
Defining energy poverty and vulnerable customers would help improve targeting and tailor interventions. The Law on Electricity (Law 05/L-085) specifies protections for vulnerable customers (“customers in need”) but leaves the definition to an annual programme adopted by the Government. While this allows flexibility, and provided space to improve targeting and selection in 2023 and 2024, it may fail to protect particularly vulnerable groups, such as those needing electricity for health-supporting medical devices. In addition, Kosovo lacks a national definition of energy poverty or the risk of energy poverty. As a consequence, the Program for the Protection of Vulnerable Consumers in Electricity is focused essentially on providing earmarked benefits to those on low income. In the 2024 version of the programme, persons living with disabilities and war veterans were not systematically included; however, as income from disability benefits, war pensions and social assistance is excluded from the means test, they are likely to be included if they meet an additional asset test. The Ministry of Economy is working to define energy poverty through the draft Law on Energy, which has completed all drafting and public consultation phases and includes a dedicated article on vulnerable consumers.
An action plan to address energy poverty would extend beyond direct financial support and include actions to manage energy demand and needs. Energy poverty reflects situations in which a person or a household is unable to meet their needs for energy services. While low income is certainly a key determinant, constraints on energy access, affordability and demand are also important. Given Kosovo’s needs in terms of energy efficiency in residential buildings, such demand factors are likely to play an important role. Support aiming at energy efficiency should be an integral part of addressing energy poverty and protecting vulnerable customers. They can include co-payments for households that are not income-poor but are at risk of energy poverty, and other interventions for those who are income-poor. Energy efficiency programmes should also reflect the specific needs of women, and in particular elaborate tailored communication campaigns to encourage their participation, as evidence shows they are typically less well informed.
Develop tools to improve the design and targeting of energy-based support programmes
To effectively address energy poverty, Kosovo should develop tools to evaluate the effectiveness of energy-based schemes and that of targeting mechanisms, through use of a micro-simulation model (Box 9.3, Policy Area 4). To build a purpose-dedicated model, this analysis should be supported by real-time, gender-sensitive data collection from existing databases. Additional data collection could be sought to match available data on income poverty and asset ownership with household energy consumption and needs. The results should be validated with a broad range of stakeholders to inform policy adaptations and optimise resource allocation.
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← 1. This subsidy covers the cost of losses in the North, which were covered by KOSTT revenues or by deviations to ENSOE, based on data from KOSTT yearly reports. A subsidy reform is planned under the framework of the Agreement on Energy (2013) and the subsequent Implementation Roadmap of the 2013 Agreement, signed between Kosovo and Serbia (21 June 2022) (Government of Kosovo, 2023[5]). As part of these agreements, a new energy company, Elektrosever, has been licensed by ERO. In June 2022, Elektrosever obtained a license to supply and bill electricity to the four Northern Municipalities of Kosovo. Starting 1 January 2024, as the licensed supplier for these municipalities, Elektrosever began nominating energy consumption for its customers.
← 2. DH Gjakova received international support through two schemes: EU support to build a biomass-based cogeneration plant (EUR 13.5 million) and a Swiss grant to rehabilitate the network and substations (EUR 6 million).
← 3. DH Termokos received international support through two schemes: KfW and Government of Luxemburg grants to DH Termokos Expansion and Rehabilitation of District Heating Grid (EUR 12.3 million) and a Millenium Foundation grant to support investment in measured-based billing (EUR 12.9 million).
← 4. In the POWER-CGE model, the volume supplied is determined by demand at the fixed price. The supplier grid purchases power across domestic and foreign producers using different technologies, with a degree of limited substitutability, to meet the level of demand.
← 5. The CGE model does not include a full VAT model, therefore the VAT increase is modelled as a consumption tax increase under the assumption that VAT paid on intermediate consumption is recovered by producers.