The energy sectors of the Western Balkans economies received significant public support through subsidies and other support measures. During the period 2018-23, energy sectors in the region received EUR 5.8 billion in financial support, most of it during the energy crisis of 2021-23. Over the period 2018-23, some 71.4% of this financial support went to fossil fuels, with the rest going to renewables. In addition, the economies of the region support energy consumption through interventions in how energy prices, and in particular electricity prices, are set. The calculated induced support for consumers through below-market prices was about EUR 19.1 billion over the same period.
Energy Prices and Subsidies in the Western Balkans
Reforms for a Fair and Green Future
Abstract
Governments have long relied on energy subsidies to advance specific development goals or address market failures. The most common argument for introducing and maintaining energy subsidies is that they support important domestic policy objectives, such as rural and industrial development, job creation, improved energy access, energy security and independence, and poverty alleviation. At the same time, energy subsidies can be used to address some potential market failures. Subsidies can mitigate potential social hardships that could occur due to rising international energy prices. Subsidies can also improve access to essential energy services for certain isolated regions by encouraging infrastructure investment (OECD, 2018[1]).
Yet energy subsidies are distortive and costly. By distorting costs and prices, energy subsidies generate inefficiencies in the production and use of energy economy-wide. This can affect the allocation of resources across industries, including by directing long-term capital investment toward sectors that produce fossil fuels or use them intensively, at the expense of cleaner forms of energy and other economic activities more generally. In so doing, these subsidies accentuate the risk that long-lived capital assets end up locking in polluting technologies for years or decades. Energy subsidies can also impose considerable strain on government budgets since they either increase public expenditure or reduce tax revenue (OECD, 2015[2]).
To establish a basis for comprehensive energy sector reforms in Western Balkans economies, the OECD Development Centre has created an Inventory of Energy Subsidies and Support Measures in the Western Balkans. By presenting evidence on the type and size of support measures, the inventory aims to raise awareness among policy makers in the region of existing energy subsidies and support measures, and their potential impacts. This systematic overview builds on the internationally recognised methodology that underpins the OECD Inventory of Support Measures for Fossil Fuels (Box 3.1), which develops a consistent and comprehensive description of such subsidy schemes and provides robust estimates of their volumes. Having an inventory of energy subsidies and support measures can also facilitate 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.
The construction of the inventory is described across four sections in this chapter. The first section establishes the scope of the Inventory of Energy Subsidies and Support Measures in the Western Balkans. The second section describes in more detail how these economies have been supporting their energy sectors through induced support. The third section assesses the scale of financial support, including fiscal and credit support, to regional energy systems. The final section explains how regional energy sector support is allocated to fossil fuels and renewable energy.
The OECD Inventory of Support Measures for Fossil Fuels provides a platform to help governments evaluate their allocation of scarce budgetary resources to fossil fuels, and their alignment with environmental and well-being goals. To do so, the Inventory documents and estimates government measures that encourage fossil-fuel production or consumption, relative to renewable alternatives. The latest edition of the Inventory (2024) includes 1 921 support measures in 51 OECD, G20, and EU Eastern Partnership economies. In addition, the OECD and the International Energy Agency (IEA) produce a combined estimate of fossil fuel support over a greater number of countries.
The OECD Inventory of Support Measures for Fossil Fuels classifies support measures into four groups:
direct transfers of funds from the budget to energy producers and consumers (e.g. grants, support of energy purchases by low-income households)
tax expenditure and other government revenue foregone (e.g. reduction or exemptions of certain taxes, such as VAT or excise taxes on fuel consumption)
induced transfers (import tariffs, below-market electricity/heat prices, cross subsidies in the electricity sector)
transfer of risk to government (e.g. low-interest loans, loan guarantees)
Currently, the OECD Inventory of Support Measures for Fossil Fuels identifies, documents, and estimates government support measures that encourage fossil-fuel production or consumption through direct transfers and tax expenditures. It is based on a bottom-up approach that collects detailed information from official government sources (e.g. budget reports) for individual support measures for fossil fuels. The fiscal cost of support measures for fossil fuels provides information about how government support to fossil fuels impacts a country's fiscal position on both the revenue and expenditure sides.
In the OECD Inventory of Support Measures for Fossil Fuels, individual government policies are classified not only by how public resources are transferred to their beneficiaries but also by the formal incidence of the measures along the fossil-fuel value chain, i.e. whether they benefit enterprise income, or alter the cost of intermediate inputs, that of factors of production, or final consumer prices and incomes.
Each of the countries covered by OECD Inventory of Support Measures for Fossil Fuels corresponds to a separate dataset. Individual entries in those datasets correspond in turn to the particular policies or measures applied by a given country, providing for each of them annual estimates of their budgetary costs or revenue foregone and a detailed description. This description covers several relevant characteristics of the measure, including – where available – its history, its eligibility criteria and beneficiaries, its transfer mechanism, its formal incidence, and the fuels it benefits, among others.
Source: OECD (2024[3]), OECD Inventory of Support Measures for Fossil Fuels 2024: Policy Trends up to 2023, https://doi.org/10.1787/a2f063fe-en, OECD (2015[2]), OECD Companion to the Inventory of Support Measures for Fossil Fuels 2015, http://dx.doi.org/10.1787/9789264239616-en.
The Inventory of Energy Subsidies and Support Measures in the Western Balkans (hereafter the “Inventory”) builds on and expands the methodology and structure of the OECD Inventory of Support Measures for Fossil Fuels (hereafter the “OECD FFS inventory”) (Box 3.1) and expands its coverage to the Western Balkans. The Inventory presented in this report covers the six economies of the Western Balkans (Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia). For each economy, it presents information on subsidies and other support measures to the production, processing, marketing and consumption of energy products. The methodological approach is primarily based on the OECD FFS inventory (OECD, 2015[2]; OECD, 2018[4]; OECD, 2021[5]) but it expands upon the latter by broadening the scope to include induced and financial support for both fossil fuels and renewable sources of energy.
The Inventory of Energy Subsidies and Support Measures in the Western Balkans identifies individual support schemes and provides detailed information and corresponding values for each, similarly to the OECD FFS inventory. The number of schemes identified ranges between 17 in Montenegro and 38 in Bosnia and Herzegovina. The Inventory includes a number of variables used to characterise energy support. It provides a brief description of each subsidy, outlining its nature and objectives, and specifies the geographic coverage by identifying the regions or areas within an economy where the subsidy is applied. The Inventory also details the duration for which the subsidy and support is active, the transfer mechanism through which the support is delivered – whether through direct budget transfers, tax breaks, or preferential loans – and the type of energy support offered, such as price support, tax incentives, or capital investment aid. Moreover, it distinguishes whether the subsidy targets consumption, like household energy bills, or production, such as fossil fuel extraction or electricity generation, and identifies the specific stage of the value chain where the subsidy is applied. Additionally, the Inventory indicates the beneficiary sectors, from households and industry to transport and power generation, and cites the sources of data used for documentation, including official government documents, reports, and expert estimates.
The Inventory of Energy Subsidies and Support Measures in the Western Balkans expands on the OECD FFS inventory by including additional transfer mechanisms and by also covering renewable energy. The OECD FFS inventory focuses only on fiscal support, including direct budget transfers and tax expenditures (Box 3.1) whereas the Inventory presented in this report also includes credit support and induced support. Additionally, in terms of the scope of energy products covered, the OECD FFS inventory covers only fossil fuels, while the Inventory presented in this report also covers renewable energy (Table 3.1).
Scope of measures included
For analytical purposes, the Inventory of Energy Subsidies and Support Measures in the Western Balkans groups fiscal support and credit support into financial support, as they both imply explicit financial benefits to beneficiaries.
Fiscal support includes direct transfers of funds and tax expenditures as in the OECD FFS inventory
Direct transfers of funds include payments made by governments (or bodies acting on behalf of governments) to individual recipients, such as operating or capital grants to energy operators, or unit subsidies to energy consumers.
Tax expenditures include tax concessions typically provided through lower rates, exemptions, or rebates of consumption taxes on fossil fuels (mainly value-added and excise taxes). Other mechanisms include measures to reduce the cost of extracting fossil fuels (e.g. accelerated-depreciation allowances for capital expenditure, investment tax credits, deductions for exploration and development expenses, and preferential capital gains treatment) and fiscal or parafiscal revenue foregone (e.g. unpaid royalties).
Credit support:
Public loans to energy enterprises: This refers to credit support in the form of loans provided by government or public sector entities to companies involved in the energy sector.
Publicly guaranteed loans for energy enterprises: Such loans to energy companies are backed by a guarantee from a government or public sector entity, thereby ensuring that the lender will be repaid, even if the borrower defaults.
The inclusion of induced transfers (referred to as induced support in this report) is important due to pervasive price regulation observed in the Western Balkans. Induced support refers to government interventions that influence the prices received by energy producers or paid by domestic consumers. These measures are often embedded in broader regulatory frameworks and can significantly shape market dynamics. Examples of such support include regulated electricity prices, feed-in tariffs and feed-in premia for renewable energy producers, and the supply of inputs – such as fuel or equipment – at below-market rates. Other forms include the imposition of price ceilings and capped electricity prices for specific sectors or activities, all of which effectively alter market signals and can impact investment and consumption decisions. This category also includes cross-subsidies, whereby one category of consumers (for instance, industry) pays a premium on the price of energy, which compensates for the losses that suppliers incur by selling energy at below cost-recovery rates to a different category of consumers (for example, households) (OECD, 2018[1]). While governments influence prices, induced support involves transfers between actors within the energy sector– such as producers and consumers – rather than direct transfers from the government. For example, when electricity prices are regulated and kept artificially low, consumers benefit at the expense of producers, who would otherwise be able to charge higher, market-based prices.
Energy subsidies and support measures are classified according to whether support is delivered at the production or consumption stage. In the case of support to producers of energy products, support can be provided in relation to income or may alter the cost of inputs and production factors. Consumption support is typically classified into support by unit of consumption (as is the case of more narrow definitions of subsidy) and income support to households or enterprises.
Scope of energy products covered
The Inventory of Energy Subsidies and Support measures of the Western Balkans covers support provided across the energy sector, to both primary and secondary energy. It seeks to lay out evidence on the mechanisms and value of support to fossil fuels, including coal, natural gas and petroleum. The Inventory also covers subsidies and support measures to secondary energy (e.g. electricity and heating). Most of the identified support to secondary energy in the region relates to electricity.
To provide a comprehensive picture, the Inventory includes support to fossil fuels and renewable energy. Coverage of renewable energy allows the Inventory to capture support provided to renewable energy in the observed period in the region and to compare the volume of support and the means to deliver it between fossil fuels and renewable sources of energy.
Support to the energy sector is apportioned between fossil fuel and renewable sources. For primary energy sources like solar, wind, and fossil fuels, direct categorisation is possible, and the full value of identified support mechanisms is categorised accordingly. For secondary energy such as electricity, support is categorised based on the share of fossil fuels and renewable energy in the domestic electricity mix, following the methodology applied in the OECD FFS inventory (OECD, 2015[2]).
Time period covered and the energy crisis in the period 2021-23
The Inventory covers the period 2018-23. Across Western Balkan economies, the availability of data depends on the types of schemes. For schemes in place and operational over the period 2018-23, values for all years are reported whenever data are available. A number of schemes reflect one-off support, most commonly in the form of direct transfers or loan agreements.
The period covered coincides with an episode of high and volatile energy prices, which gives rise to multiple analytical challenges for measurement and interpretation of the data. Due to the global peaks in energy prices in the period 2021-23, energy prices were subject to step increases, as highlighted in the analysis. Energy markets began to tighten in 2021 because of a variety of factors, including the extraordinarily rapid economic rebound following the COVID-19 pandemic. The situation escalated dramatically into a full-blown global energy crisis following Russia’s invasion of Ukraine in February 2022. The price of natural gas reached record highs and, as a result, so did electricity in some markets. Oil prices hit their highest level since 2008 (International Energy Agency, n.d.[6]). As a consequence, the Inventory captures a number of measures implemented as a response to the energy crisis, which were only in place in the period 2021‑23. In addition, high international prices impact the reference prices used to value several policy instruments
Valuation of energy subsides and support measures
Values for energy subsidies and support measures are either directly reported or calculated based on data obtained through publicly available information. Schemes for which levels of support are directly reported include direct transfers of funds (fiscal support) and the value of loans included in credit support. Values for tax expenditures are calculated by comparing the preferential tax rates for a given scheme against the usual tax rate that would be applied. For example, for a scheme such as exemption of value-added tax (VAT) for diesel consumption, the VAT rate 0 is compared to the usual VAT rate. The differential is then multiplied with the value of consumption covered by the scheme. For price regulation and feed-in tariffs, the levels of support are calculated using the difference between domestic electricity prices and the reference electricity price.
Valuation of credit support
To account for credit support (public loans and publicly guaranteed loans), the Inventory collects data on total loan amounts at the time of signing, as well as a measure of government support implicit in loan conditions. Direct and guaranteed loans are means for government and public institutions to take on risk associated with energy sector loans and projects. Government intervention as a lender or guarantor allows the loans to be provided at more favourable conditions than would be otherwise offered. In many cases, it simply allows the provision of credit that would not otherwise be offered by a private entity. The government therefore incurs a cost by either subsidising loan terms or taking on the risk differential between the market conditions for the buyer and the conditions of the loan.
The OECD recommends estimating this support component by calculating the difference between the present discounted value of a government-backed loan (or guarantee) and the cost of equivalent financing under market conditions, using a risk-adjusted interest rate (OECD, 2018[4]). This method allows the implicit subsidy to be expressed as a share of the loan’s face value, making it comparable with other forms of public support. Producing this estimate requires information on the conditions of individual loans (interest rates, and information of repayment schedules or at least maturity and grace period). In addition, the method requires the ability to identify appropriate risk-adjusted rates corresponding to the counterfactual conditions under which the lender would be able to borrow from the market. When loan conditions are available, the inventory reports the support component on the basis of average comparable market interest rates. However, due to limited data on interest rates and loan conditions in the region, the subsidy element could only be estimated for a small number of cases.
While many of these loans may be repaid by beneficiaries and therefore do not constitute subsidies in a strict sense, the Inventory presents data on loan amounts because they are informative of the amount of liquidity support from government institution to the energy sector. Credit amounts are useful to gauge public support to the energy sector in the Western Balkans. Indeed, there are multiple cases of loans from public institutions being written off and of public guarantees being called. However, these operations are not easily identified in government budgets and company balance sheets in a systematic manner. In reporting the value of financing provided, this report follows the practice of other international organisations like the IMF, which reports on-lending and direct loans as part of budgetary support for the energy sector in economies like Albania (IMF, 2022[7]).
Valuating induced support through electricity prices
Electricity pricing in the Western Balkans is heavily regulated. Except in Montenegro, most households and a significant portion of small consumers across the region purchase electricity at regulated prices through universal service suppliers. Although prices under the supplier-of-last-resort mechanisms are intended to incentivise consumers to switch to market-based providers, in some cases, these prices still fall below prevailing market benchmarks. In addition to regulation, it is common in the region for state‑owned electricity producers or suppliers to follow discretionary guidance from governments in setting prices.
To assess the value of support through price setting, the Inventory compares realised prices with counterfactual market-based prices. Annual average day-ahead prices in the Hungarian power exchange’s day-ahead-market (HUPX DAM) are used as the reference market price for electric energy.
This approach was chosen particularly due to the absence of a fully developed regional energy market during the period covered by the Inventory. HUPX prices are used as reference across the region. Energy traders and companies in the Western Balkans frequently rely on HUPX as a benchmark for bilateral contracts and cross-border electricity transactions and they are used as reference for price setting by regulators.1 The value of electricity is therefore estimated with reference to a counterfactual situation where electricity producers and suppliers would sell and procure electricity in international day-ahead-markets. In practice, most transactions in electricity wholesale markets in the Western Balkans are carried out through bilateral contracts, which can isolate market participants from fluctuations in market prices. HUPX is preferred as a reference price to domestic wholesale prices because support to energy consumption in the Western Balkans is often provided precisely through interventions in price setting in wholesale markets. In addition, data on the average price of wholesale transactions, including bilateral contracts, is not freely available in the region.
This report also uses counterfactual retail prices to calculate the value of induced support. Counterfactual retail prices are constructed by replacing procurement prices with HUPX prices in price-setting formulas used in cost-plus regulation. In practice, they include network charges2 (transmission, distribution, market operator charges), as well as an allowance for supplier margins. In the cases for which data on supply costs per unit of electricity delivered are available, they are also included in counterfactual prices and the margin is calculated on the basis of total costs. In other cases, the supplier margin is calculated on the basis of procurement and network costs and augmented to cover supplier costs. The 11.5% margin attributed to the USS in North Macedonia is used as a benchmark in the latter case, as it is the only margin determined through open auction in the region and better approximates an open market counterfactual. Whenever data on network charges is available by market segments, counterfactual retail prices are calculated for each market segment with the corresponding level of disaggregation.3
Wholesale prices are the preferred method to calculate the value of induced support whenever price interventions take place in wholesale markets and data are available, due to their accuracy and transparency. Subsidies at the wholesale level are typically passed through to consumers. As regulated prices are based on a cost-plus principle, changes in wholesale prices are fully reflected in consumer prices. However, counterfactual retail prices rely on additional assumptions and are limited by data availability, which can introduce potential inaccuracies. Wholesale prices offer a clearer and more reliable measure of induced support, as they avoid the complexities and potential inaccuracies associated with estimating operational costs and margins at the retail level. At the wholesale level, induced support was calculated for Albania, Kosovo and North Macedonia. Wholesale prices are also used to estimate the value of support included in below-market pricing of sales to transmission and distribution operators to cover losses in Bosnia and Herzegovina, Montenegro, and Serbia. However, it was not possible to measure induced support at the wholesale level for Bosnia and Herzegovina, Montenegro, and Serbia for other schemes as data on wholesale electricity sales from producers to suppliers was not available. This limitation is related to the fact that unbundling has not been completed in these economies. Instead, given that retail prices inherently reflect wholesale costs, retail-level data are used to measure of support to electricity consumption, potentially including interventions in wholesale and in retail markets. A description of which approach was taken for each identified scheme of price intervention is presented in Table 3.1
Induced support through price or market regulation does not have direct budgetary implications. For net importers of electricity, induced support measures the gap between the value of electricity consumption and the full cost of provision, and international prices are taken as a way of measuring the value at the marginal cost of provision which would determine the price in a competitive market. For exporters, this value represents the opportunity cost of pricing domestic energy below market levels. In both cases, the full cost of provision is lower than the reference price as at least a share of inframarginal units can be provided at lower cost than international prices. Induced support can, however, have indirect budgetary implications: when prices are not sufficient to cover producer or supplier costs, governments may intervene to shore up their finances. Such transfers are not included as part of the induced support in the Inventory, but rather recorded as per their nature as direct or credit support.
As a robustness check, induced support in the region was also calculated with an alternative reference price based on Eurostat data on components of retail prices for household and non-household customers. Reference prices are sourced from the Energy and supply component of prices provided by Eurostat for household and non-household consumers (Eurostat, 2024[8]; Eurostat, 2024[9]). The EU average is used as the reference price for household and non-household consumers. For the wholesale schemes in Albania, Kosovo and North Macedonia, except for the induced support to TSOs and DSOs for losses, the weighted average of the EU household4 and non-household5 prices were used. For the induced support in the sale of electricity to TSOs and DSOs to cover losses, the non-household prices for prices for the consumption band of 150 000 MWh or over were used. For Bosnia and Herzegovina, Montenegro and Serbia counterfactual retail prices were calculated using the EU average prices (for household and non-households) similarly as when using the HUPX reference prices, with the difference that the margin was removed because the EU prices include supply costs.
Note:
1. For the supply of electricity to the distribution system operator CEDIS for grid losses reference market prices that REGAGEN publishes for year 2023 were used.
Data collection and validation
Data and information on energy subsidies and other support measures were collected using publicly available information and in collaboration with regional experts. Data and information cited reflect publicly available domestic and international sources. This includes government official reports (including budget reports, tax expenditure reports, legislation, and government decisions and amendments on allocated budget lines), annual reports of energy regulators, technical and financial reports of energy enterprises, websites, and expert reports. One key reference used was work by the Energy Community, which has developed an energy subsidy inventory in the Western Balkans focusing specifically on subsidies to electricity generation from coal (Miljević, 2022[10]).
To complement and validate the information retrieved, the OECD organised a series of online and in-person validation and consultation meetings with relevant local experts. Validation was carried out in two stages. The OECD held initial online validation meetings with government stakeholders on the basis of a first draft database. These meetings engaged relevant line ministries – particularly those responsible for energy, finance, and social protection –as well as key energy sector actors, including energy producers, transmission and distribution system operators. The second iteration of the Inventory was subsequently presented across the six Western Balkan economies to a broader group of stakeholders, including government officials, energy sector representatives, civil society organisations, academia, and international partners active in the region.
Induced support refers to government interventions that influence market prices without direct budgetary transfers. This section outlines the main forms of induced support identified in the Western Balkans and examines how they benefit both consumers and producers, including regulated electricity prices, feed-in tariffs, and cross-subsidies, as well as price interventions in coal and heat.
Induced support for energy consumers through electricity prices: EUR 19.1 billion over 2018-23
Supply of electricity at below-market prices accounted for induced support to consumption of about EUR 19.1 billion over 2018-23. This support is calculated as the difference between market prices – approximated using HUPX prices – and actual prices across the six regional economies (Table 3.3). Induced support to consumption ranged between EUR 1.2 billion in Montenegro to EUR 8.6 billion in Serbia over 2018-23. As prices in the region have been kept stable and low throughout the observation period, the large increase in induced support corresponds to changes in electricity prices on international markets during the energy crisis (2021-23) (Figure 3.1 – Panel A). Relative to the individual economies, induced support through price regulation was most significant in Kosovo at 4.6% of GDP over 2018-23 (Figure 3.1 – Panel B).
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
Note: KESH - Korporata Elektroenergjitike Shqiptare (Albania’s state-owned power utility), EPBIH - Elektroprivreda Bosne i Hercegovine (state-owned power utility in the Federation of Bosnia and Herzegovina), EP HZHB - Elektroprivreda Hrvatske zajednice Herceg Bosne (state-owned power utility in the Federation of Bosnia and Herzegovina), ERS - Elektroprivreda Republike Srpske (state-owned power utility in Republika Srpska), KEK - Korporata Energjetike e Kosovës (Kosovo’s state-owned power utility), EPCG - Elektroprivreda Crne Gore (Montenegro’s state-owner power utility), ESM - Elektrani na Severna Makedonija (North Macedonia’s state-owner power utility), SLR – supplier of last resort, TSO – transmission system operator, DSO – distribution system operator.
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
Alternative reference prices for measuring induced support
The volatility of the HUPX DAM price used to construct this report’s baseline estimates of the value of induced support can lead to high estimates. The HUPX day ahead market is a spot market. However, the price of electricity paid by consumers is only partially linked to spot prices because of the importance of bilateral contracts including forward contracts and power purchase agreements, in wholesale markets. Forward contracts allow suppliers and large consumers to stabilise prices. As a result, wholesale prices experienced smaller increases than spot prices in 2021 and 2022. HUPX-based reference prices would therefore lead to higher estimates of induced support than estimates based on counterfactual wholesale prices that reflect the importance of long-term contracts.
Taking the reference prices based on EU averages provides an alternative estimate of induced support. In the absence of alternative counterfactual prices, the average energy and supply price component in EU markets is used as an alternative reference price. The series reflects the importance of 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. In practice the series is higher than the HUPX-DAM based reference price series prior to the energy crisis and in 2023, reflecting both the inclusion of supply cost recovery and inertia in wholesale markets.6
The alternative measure provides a lower-bound estimate of the value of induced transfers, albeit with similar orders of magnitude than the preferred baseline estimate. The calculated induced support using reference prices based on EU averages across the region over the period 2018-23 amounts to EUR 14.5 billion, or about 76% of the induced support using reference prices based on HUPX (Figure 3.2). Across all economies and before the 2021-23 energy crisis, induced support calculated using EU average prices was slightly higher than when using HUPX-based reference prices. However, during the crisis, induced support based on HUPX prices rose significantly, surpassing estimates based on the EU average.
2018-23 totals, in EUR million
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
Cross-subsidies remain a source of support to household consumers
At the retail level, cross-subsidies are also an important form of support. Cross-subsidies are a regulated retail electricity tariff structure under which some groups of consumers pay higher prices than other groups with comparable supply conditions. They are currently embedded in all of the Western Balkan economies, especially within the low voltage (0.4 kV) customer category, such that households have lower prices than commercial customers. In the period 2018-23, support through cross-subsidies ranged between EUR 31 million in Montenegro to EUR 195 million in Albania (Figure 3.3). Although cross-subsidies are considered in the analysis, they are not included in the Inventory of Energy Subsidies and Support Measures in the Western Balkans, as the benefits provided to one group of customers are offset by costs borne by another.
Deviations in retail prices are taken as the basis to identify and value cross-subsidies. Cross-subsidies are calculated by first selecting a specific group of customers determined by their supply conditions (in particular the voltage level of their connection), then determining the weighted average price across all customers within that group. The price difference between each subgroup and the weighted average is then calculated and multiplied by the corresponding electricity consumption to estimate the value of the cross-subsidy and its direction.
The approach taken allows for an estimation of price differentials but can lead to an overestimation of cross-subsidies. The approach relies on the assumption that customers with similar supply conditions generate comparable supply costs and should therefore face the same price. This involves comparing average energy prices faced by household and non-household customers served at low-voltage levels, and, where data is available, comparing average prices faced by non-household consumers across different sectors when connected at the same voltage level. When data is only available in aggregate form, consumers with different circumstances (in terms of power requirements, metering, etc.) may be confounded, which would result in identifying as cross-subsidies commercially justified price differentials. In addition, since the approach does not rely on an estimation of supply cost, situations where a group receives a subsidised price while others pay cost-recovery prices are also identified as cross-subsidies.7
2018-23 totals, in EUR million
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
Induced support for consumers through price-setting also takes other forms across the region
Other forms of induced support for consumers were identified in the Western Balkans inventory For Kosovo, induced support measures include a price ceiling for oil products, a ban on export of firewood, and coverage of commercial losses in Kosovo Northern Municipalities. The latter scheme, which reflects coverage of costs related to unbilled electricity consumption in four municipalities in the North of Kosovo, appears twice in the inventory – once as a direct transfer and once as an induced support. Until 2017, these costs were covered through the Distribution System Operator (DSO) tariffs; in other words, they were spread to other customers. Since 2017, a court decision prohibits the DSO from recovering such costs through the tariffs. From 2017 these costs were transferred to the TSO, which covered these losses through their own funds, this induced support amounts to EUR 54.8 million. From 2017-23, the TSO also received additional direct government subsidies in the order of EUR 80.4 million to cover further costs.
Price ceilings were imposed on energy products across the region during the energy crisis. The value of several of these schemes was not included in the Inventory due to limited data to estimate counterfactual market prices. In North Macedonia this includes a price ceiling on petroleum products and capped electricity prices for certain users. North Macedonia capped electricity tariffs at 80 EUR/MWh for food producers and bakeries, and at 95 EUR/MWh for public water supply companies and schools. The scheme was in place from November 2022 until March 2023, and amounted to EUR 8.5 million. In Montenegro, a limitation of prices of wood pellets was one identified support scheme for consumers. In Serbia, identified forms of induced support for consumers include ceilings on the prices of diesel, gasoline and wooden pellets.
Induced support for producers: Feed-in tariffs represent a key induced support mechanism across the region
Feed-in tariffs represent a special form of induced support for renewable energy producers in the Western Balkans. Feed-in tariffs provide guaranteed prices for renewable energy producers. In addition to guaranteed prices, privileged producers selected for incentive schemes can transfer their balancing responsibility to the purchasing entity. The value of balancing responsibility that may be transferred is not included in the estimates of induced support. Their value was estimated by calculating the price differences between the guaranteed prices for solar, hydro, and wind energy and the HUPX reference price. These differences were then multiplied by the annual production for each renewable energy category. The resulting values for solar, hydro and wind were then summed to determine the total value of induced support through feed-in tariffs.
Until 2020 renewable energy producers in the region benefited from feed-in tariffs; in 2021‑22, however, rising international energy prices made the obligation to supply electricity at guaranteed domestic prices a significant opportunity cost for producers. In the period 2018-20, the average calculated annual support through feed-in tariffs was about EUR 24 million across the region. With the increase of market prices in 2021 and 2022, actual support to renewable energy through feed-in tariffs became zero (for those producers that exited their agreements) or even negative (for producers that remained in the system and had to sell electricity at guaranteed prices), therefore representing an opportunity cost for producers (Figure 3.4).
Nevertheless, feed-in tariffs remain an important mechanism for attracting investment in renewables, as they provide revenue certainty for producers. Although producers in the privileged system had the option to exit, many chose to remain despite the surge in international energy prices between 2021 and 2023 – due to the stability, predictability, and lower risk offered by the guaranteed pricing structure. This predictability in the income stream is also a key factor in securing finance for investment in renewable sources of energy.
Note: Positive values indicate support from consumers or the government towards producers in the form of feed in tariffs set above prevailing market prices. Negative values indicate support from producers towards consumers in the form of feed in tariffs set below prevailing market prices.
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
Across the region, the Western Balkans economies are moving away from feed-in tariffs to support renewable electricity toward more market-oriented support schemes, such as feed-in premia and contracts for difference (CfDs) awarded through competitive auctions. This shift aligns with EU State aid guidelines and Energy Community requirements, aiming to replace administratively-set feed-in tariffs with auctions that determine support levels competitively. Albania has led the transition, adopting a new renewable energy law in 2023 and successfully holding multiple auctions for solar and wind. Bosnia and Herzegovina is reforming at the entity level: Republika Srpska passed a 2022 law introducing auctions for market premiums, while the Federation adopted a similar law in 2023, with its first auction plan scheduled for 2025. Kosovo stopped granting eligibility for feed-in tariffs to new suppliers in 2020 and launched its first 100 MW solar auction in 2023, shifting to a CfD-style support model. Montenegro halted new FiT awards in 2021 and passed a new renewable energy law in 2024 to enable auctions for feed-in premia, with implementation expected soon. North Macedonia, an early mover, replaced feed-in tariffs with auctioned premiums as early as 2018 and has since awarded over 130 MW of PV capacity through competitive bidding. Serbia enacted a new renewables law in 2021, launched its first CfD auction in 2023 for 450 MW of capacity, and plans further auctions in 2025. While several of these new support schemes are included in the Inventory, their novelty means that no estimates for the value of support have been included for these schemes.
Price interventions in coal and heat markets also generate induced support for producers
Interventions in the market for coal can alter the cost of fossil-fuel fired electricity production. In Bosnia and Herzegovina this was induced support related to coal procured at below-market prices, with the value amounting to EUR 54.3 million over 2020-22. State-owned power utility company (EP BIH) procured approximately 1.5-1.9 million tonnes (Mt) of coal for the needs of Thermoelectric plants Kakanj and Tuzla from seven subsidiary companies (mines) at a price of 50-57 BAM/t. The price is recalculated based on the calorific value of the coal, and therefore varies over the years, as the mix of suppliers differs and each supplier produces coal of different calorific power. Data were obtained from EP BIH and combined with other available reports (only for the 2020-22 period). In addition, EP BIH procured approximately 36-49% of its total coal needs through tenders. As the composition and prices vary, the calculation is based on the geometric mean of this price. The price data were obtained from the Public Procurement portal (Contract Award Notice). The subsidy is the price gap (price from the tender minus prices from subsidiary companies) multiplied by the quantity procured through subsidiary companies.
Heat production also receives support through multiple channels, which are not always easily observed and valued. Supply of heat, from KEK cogeneration to district heating Termokos in Kosovo, amounted to EUR 16.1 million over 2018-22 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). 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.
Over the period 2018-23, energy sectors in the Western Balkans received a total of EUR 5.8 billion of financial support. Most of this support – EUR 4.9 billion – was allocated during the energy crisis in 2021-23. The financial support included both fiscal and credit support, the latter in the form of either direct public loans or publicly guaranteed loans. Over 2018-23, fiscal support totalled EUR 3.8 billion while credit support was about EUR 2 billion in loans and loan guarantees (Figure 3.5).
In EUR million, regional totals
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
The majority of fiscal support between 2018 and 2023 was recorded in Serbia, Albania, and Kosovo, but North Macedonia experienced a notable increase during the energy crisis
Serbia, Albania and Kosovo have been long-standing users of fiscal support, with the energy crisis significantly increasing the need for such support. At EUR 2.1 billion over the period 2018-23, Serbia provided the highest fiscal support to its energy sector, of which EUR 1.9 billion was allocated during the energy crisis. Across the full observation period, Albania provided fiscal support of EUR 577 million to its energy sector and Kosovo provided EUR 574 million (Figure 3.6). In absolute terms, Serbia’s energy sector received the highest amount of fiscal support over 2018-23 (EUR 2.1 billion), while relative to their GDP (at 0.6%), Kosovo’s energy sector received the highest fiscal support over the same period at 1.2% of GDP (Figure 3.6 – Panel B)
Having been very prudent in previous years, North Macedonia was also obliged to mobilise substantial fiscal support to cover the costs of energy imports during 2021-23. In non-crisis years, North Macedonia provided very low fiscal support (EUR 2.5 million) to its energy sector. During the crisis, however, fiscal support soared to about EUR 395 million (Figure 3.6).
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
Before the energy crisis, most support to the energy sectors in Kosovo, Bosnia and Herzegovina, Montenegro, and North Macedonia was ongoing support to energy consumption (Figure 3.7). Kosovo provided about EUR 75 million to energy consumption in 2018-20, with the most notable schemes including: VAT reduction for electricity supply, transmission and distribution (EUR 43 million); consumption duty exemptions for fuel imports (EUR 14 million); and support for vulnerable consumers (EUR 14 million). In Bosnia and Herzegovina and Montenegro, most pre-crisis support was to vulnerable consumers: EUR 18 million in Bosnia and Herzegovina and EUR 9 million in Montenegro. Over the same period, North Macedonia provided financial support of EUR 2.5 million to help consumers install solar thermal collectors, PVC windows, pellet stoves, heat pumps, and solar photovoltaic (PV) systems. These support schemes continued after the energy crisis.
Most pre-crisis fiscal support in Serbia and Albania was ongoing support schemes directed towards energy production. In Serbia, the most notable support – EUR 117 million in 2018-20 – to energy production was to the Resavica coal mine for the consolidation and restructuring of operations. In Albania, most support to production was through servicing of a public debt for energy enterprises (EUR 54 million) and VAT exemptions for energy production (EUR 42 million). In both economies, these schemes were part of ongoing support and continued also after the crisis.
During the energy crisis, the largest increases in support across the region were to energy production. In Serbia, this was due to written-off public loans (at EUR 1.7 billion) to Srbijagas and EPS, due to liquidity issues. Similarly, Albania, Kosovo and North Macedonia also provided substantial grants to their energy enterprises. Albania’s KESH received a capital injection of EUR 168.1 million to keep prices unchanged despite high energy import costs. In North Macedonia, the main measure was direct support (EUR 279.1 million over 2021 and 2022) to the electricity producer ESM to cover supply costs to the USS, as well as transfer losses. This was in place while the price ESM received from USS was unresponsive to market signals. To mitigate high electricity import prices and provide liquidity support, Kosovo awarded EUR 141 million in grants to KEK, the USS and district heating Gjakova.
Bosnia and Herzegovina represents a particular case with significant use of intra-company transfers withing state-owned enterprises in the form of write-offs; these have not been captured in the inventory due to lack of comparability with other regional economies. While the Western Balkan inventory does not currently record intra-company transfers, it does identify write-offs of advance payments, loans and receivables (valued at EUR 106.7 million) provided by EPBiH to its subsidiary companies.
Period totals
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
Credit support played a particularly important role during the energy crisis
Albania, Serbia and Montenegro provided government loans to their respective energy sectors. (Figure 3.8 – Panel A). In Albania, the credit support through public loans includes ongoing annual government sub-loans from international financial institutions to help energy SOEs meet their investment and operating costs (EUR 183.5 million of credit support over 2018-23). The jump in credit support during the energy crisis reflects additional credit support to the energy sector through a government loan (EUR 66.5 million) to KESH in 2022. In Serbia, the key public loan is an outstanding public loan of EUR 204 million to EPS in 2022. This loan is a part of a EUR 500 million public loan provided to EPS in 2022, part of which was written off by the government and therefore treated as fiscal support in this report.
The energy sector in most of the economies in the region also received public guaranteed loans. The biggest recipient of publicly guaranteed loans was the energy sector in Serbia at about EUR 1.03 billion, of which EUR 849 million was granted during the energy crisis. The energy sectors in Albania (EUR 206 million) and North Macedonia (EUR 197 million) also received publicly guaranteed loans (Figure 3.8 – Panel B).
Note: Loans granted and guaranteed are valued at total loan value and assigned to the year of signature.
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
Albania has relied extensively on credit support in the period analysed. Comparing the total credit support (public loans and publicly guaranteed loans) over to the average GDP in the same period, the values range from 0.1% in Kosovo to 0.5% in Albania (Figure 3.9).
Total credit support over 2018-23 as a share of average GDP over 2018-23, %
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
In 2018-23, most of the public support in the Western Balkans went to fossil fuels. EUR 11.4 billion of induced support through below-market electricity prices can be attributed to fossil fuels and EUR 7.7 billion to renewable energy. On the fiscal side, about EUR 3 billion went to fossil fuels, while EUR 727 million went to renewable energy. On the other hand, credit support to both fossil fuels and renewable energy was balanced between fossil fuels and renewable energy sources, at around EUR 1 billion to each over 2018-23 (Figure 3.10). In contrast, feed-in-tariffs were primarily directed to renewable energy (Figure 3.13).
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
At EUR 2.1 billion, Serbia provided most of the regional fiscal support to fossil fuels. While Albania and Montenegro provide more support to renewables (in comparison to other regional economies), both also provide support to fossil fuels (Figure 3.11 – Panel A). In Albania this is mainly due to support schemes for consumption and production of hydrocarbons. Fiscal support to fossil fuels in the Western Balkans can be compared with OECD countries included in the OECD Inventory of Support Measures for Fossil Fuels. Kosovo (0.8% of GDP) and North Macedonia (0.6%) rank highest among the regional economies and the OECD comparator countries (Figure 3.11 – Panel B).
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans and on OECD (2024[3]) OECD Inventory of Support Measures for Fossil Fuels 2024: Policy Trends up to 2023, OECD Publishing, Paris, https://doi.org/10.1787/a2f063fe-en.
Credit support has been an important way of fostering investment in renewable energy projects. At EUR 456 million, Albania provided the most credit support for renewable energy in the region, followed by Serbia at EUR 290 million (Figure 3.12).
2018-23 totals, in EUR million
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
Most the of the regional induced support through below-market electricity prices that can be allocated to fossil fuels was in Serbia. In Albania such support can be entirely allocated to renewable energy (EUR 2.4 billion) considering that all its electricity is produced by hydroelectric plants. Conversely, in Kosovo all of the induced support related to electricity prices goes to fossil fuels. In the other four economies (Serbia, Bosnia and Herzegovina, Montenegro, North Macedonia), induced support related to electricity prices can be partially allocated to fossil fuels and partially to renewable energy (Figure 3.13 – Panel A).
Support through feed-in tariffs went to renewable energy. Feed-in tariffs were initially introduced to promote renewable energy adoption by guaranteeing producers a stable price higher than the market rate. When these guaranteed prices exceeded market values, the support effectively benefited producers. This occurred regionally between 2018 and 2020, when feed-in tariffs provided approximately EUR 438 million in producer support. However, from 2021 to 2023, feed-in tariffs fell below market prices, resulting in an opportunity cost of about EUR 1.1 billion for producers due to the obligation to supply electricity at guaranteed domestic prices (Figure 3.13 – Panel B). Although not shown in Figure 3.13, Serbia also has the particularity of having feed-in tariffs for combined heat and power (CHP) plants, which therefore supports fossil fuels.
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
References
[8] Eurostat (2024), “Electricity prices components for household consumers - annual data”, Energy statistics - prices of natural gas and electricity, Eurostat, https://doi.org/10.2908/NRG_PC_204_C.
[9] Eurostat (2024), “Electricity prices components for non-household consumers”, Energy statistics - prices of natural gas and electricity, Eurostat, https://doi.org/10.2908/NRG_PC_205_C.
[11] Government of Albania (2017), Methodology for determining the annual purchase price fo electricity that shall be paid to existing priority producers, Government of Albania, Council of Ministers, https://qbz.gov.al/eli/vendim/2017/17/22/687/eb45d137-bd10-48e9-ad8f-e431ae67ac3c.
[7] IMF (2022), Albania: Staff report for the 2022 Article IV consultation, International Monetary Fund, Washington, DC, https://www.imf.org/-/media/Files/Publications/CR/2022/English/1ALBEA2022004.ashx.
[6] International Energy Agency (n.d.), Global Energy Crisis, https://www.iea.org/topics/global-energy-crisis (accessed on 31 May 2024).
[10] Miljević, D. (2022), Investments into the Past Analysis of Direct Subsidies to Coal and Lignite Electricity Production for the year 2020 in the Energy Community Contracting Parties, https://www.energy-community.org/dam/jcr:482f1098-0853-422b-be93-2ba7cf222453/Miljevi%C4%87_Coal_Report_122020.pdf (accessed on 12 August 2022).
[3] OECD (2024), OECD Inventory of Support Measures for Fossil Fuels 2024: Policy Trends up to 2023, OECD Publishing, Paris, https://doi.org/10.1787/a2f063fe-en.
[5] OECD (2021), OECD Companion to the Inventory of Support Measures for Fossil Fuels 2021, OECD Publishing, Paris, https://doi.org/10.1787/e670c620-en.
[1] OECD (2018), Inventory of Energy Subsidies in the EU’s Eastern Partnership Countries, Green Finance and Investment, OECD Publishing, Paris, https://doi.org/10.1787/9789264284319-en.
[4] OECD (2018), OECD Companion to the Inventory of Support Measures for Fossil Fuels 2018, OECD Publishing, Paris, https://doi.org/10.1787/9789264286061-en.
[2] OECD (2015), OECD Companion to the Inventory of Support Measures for Fossil Fuels 2015, OECD Publishing, Paris, https://doi.org/10.1787/9789264239616-en.
← 1. For example, annual average HUPX DAM prices are used as reference to establish the feed-in tariffs for hydroelectric plants with capacity up to 15 MW in Albania (Government of Albania, 2017[12]).
← 2. The method includes actual historical network charges, that is transmission and distribution charges are not adjusted to the levels they would have if transmission and distribution losses also had to be compensated for at HUPX prices.
← 3. Network charges in the Western Balkans typically differ for household and non-household customers. Among non-household customers, they differ by the voltage of the connection (typically 0.4 kV, 6 kV, 10 kV, 20 kV and 35 kV) the level of power contracted or type of installation. In addition, tariffs often differ by type of customer, with public lighting and certain non-household customers (e.g. social service centres, schools, etc.) receiving preferential tariffs.
← 4. For households, consumption band 15 000 kWh or over was not included in the calculation of average prices.
← 5. For non-households, consumption bands of 70 000 MWh or above were not included in the calculation of average prices.
← 6. To account for the inclusion of supply cost recovery in energy and supply prices, supplier margins are excluded from the construction of counterfactual retail prices based on Eurostat data, which therefore reflect average supply costs by customer category. In addition, EU average energy and supply prices for large consumers are used as reference price when valuing the induced transfer included in pricing for network operators (TSO, DSO) to better match the conditions of supply.
← 7. Price regulation in the region typically does not rely on accounts of cost of supply by consumer category, but rather on an apportioning of maximum allowed income between consumer groups, so that accurate cost of supply estimates by consumer group are not publicly available.