A Fair and Green Future: OECD’s Roadmap for Western Balkans Energy Sector Reform

Electricity prices in the Western Balkans are among the lowest in Europe, averaging just one-third of those in EU countries. This affordability is maintained through heavy price regulation and the influence of dominant public utilities, which suppress end-user prices for both households and businesses. But the OECD warns that this affordability comes at a steep cost. Artificially low electricity prices stifle competition, deter investment in renewables, and leave governments financially exposed during periods of global energy market volatility, such as the 2021–2022 crisis. Market-distorting price controls also block the development of new, efficient energy technologies by reducing the financial incentives for consumers and businesses to invest in alternatives like rooftop solar or home insulation.

The report presents evidence that these subsidies are regressive in nature. While intended to help the poor, they disproportionately benefit wealthier households who consume more electricity. On average, the richest 20% of households receive 26% of electricity subsidies, compared to only 14% for the poorest 20%. In North Macedonia, the disparity is somewhat less skewed, but in most economies, blanket subsidies simply fail to reach the people who need them most.

Reforming the Market: Simulated Scenarios and Fiscal Opportunities

To explore what change might look like, the OECD deploys a series of computable general equilibrium (CGE) models and micro-simulation scenarios across each economy. These simulations show that gradually raising electricity prices to reflect market costs, phasing out direct fossil fuel subsidies, and deregulating retail markets could collectively deliver a triple win: improved efficiency, increased investment in renewable energy, and stronger public finances. For example, in Albania, a 47% electricity price increase could generate €130 million in energy sector revenue, with only €20 million needed to protect the most vulnerable households. Similarly, eliminating direct subsidies to fossil-fuel-powered electricity could free up €509 million annually across the region for green infrastructure and targeted social protection.

The report also recommends removing cross-subsidies, which force business consumers to pay inflated prices to support cheaper household tariffs. Doing so, it argues, would increase competitiveness in energy-intensive industries and promote balanced growth. The overarching message is that market-oriented reforms, if phased in thoughtfully and accompanied by strong social support, can lead to more sustainable and equitable outcomes.

A Fair Transition: Social Protection and Energy Poverty

Energy poverty is a pressing issue in the Western Balkans, affecting even middle-income households. In Albania and Kosovo, up to 40% of the population reports an inability to adequately heat their homes. Despite low electricity prices, energy expenditures often exceed 10% of household budgets, placing a heavy burden on lower-income families. The OECD emphasizes that transitioning to a more liberalized energy market must be paired with modernized social protection systems.

The report outlines how countries can scale up targeted cash transfers or energy-specific vouchers to offset rising costs. In North Macedonia, for example, a 17% increase in household electricity prices could be offset with just a 25% expansion in the national social assistance budget. Even in cases where more funding is needed, such as Serbia, the revenues generated by price reform would far exceed the cost of compensating the most vulnerable households. This targeted approach is not only more efficient than blanket subsidies, but it also preserves incentives for energy savings and green technology adoption.

Gender Matters: Women and the Energy Transition

A key strength of the report lies in its attention to gender. Focus groups held across the region, in collaboration with organizations like the Kosovar Gender Studies Center, Reactor (North Macedonia), and the Public Policy Research Center (Serbia), revealed that women disproportionately bear the hidden costs of inefficient energy systems. Women are typically the energy managers of their households, adjusting usage habits, coordinating appliance schedules around off-peak rates, and juggling household budgets to absorb rising costs. Many vulnerable groups, such as single mothers and elderly women, struggle to access social assistance due to bureaucratic obstacles and poor targeting mechanisms.

The OECD calls for energy and social policy to be fully gender-responsive. That includes offering women-specific energy efficiency grants, encouraging their entry into technical and engineering roles within the renewable energy sector, and designing retraining programs for green jobs that actively include women displaced by the decline of fossil fuel-based industries. The energy transition, the report argues, will only be just if it is inclusive, socially, economically, and environmentally.