Serbia: Serbia Powers Up: New Energy Act Adopted

The new Energy Act (the Act) was adopted by the Serbian Parliament on 29 July 2011. The aim of the Act is to harmonise domestic energy regulations with those of the European Union. By adopting the Act, Serbia will implement the Second EU energy package, while the Third EU energy package will be implemented only in part.

The Act envisages liberalisation of the Serbian energy market, introduces market-based mechanisms for determining energy prices and provides a new incentive structure for electricity generation from renewable sources.

Market liberalisation

Liberalisation of the electricity market will begin on 1 January 2013 and end by 1 January 2015. As the last step in the liberalisation process, households will be able to freely choose their supplier after 1 January 2015.1

An open electricity market (and bilateral and balancing energy markets) will be formed through the creation of an energy exchange.

Vertically integrated undertakings will have to (legally) unbundle the operation of the trans-mission and distribution grid (a natural monopoly) from competition-oriented business areas, such as supply and generation. Apart from that, cross subsidising between entities undertaking regulated activities and entities undertaking market activities within the same vertically or horizontally integrated system has been banned.

In accordance with the EU legal framework, electricity generation has been removed from the list of activities of public interest. Consequently, concluding an agreement with the government for energy production in Serbia is no longer required.

Energy permits and licences

Energy permits are issued for three years (two years under the previous Energy Act). Energy licences will be valid for 10 years, save for electricity production, heat energy and the combined production of electric and heating energy, whose licences will be valid for 30 years.

Renewables

The Act aims to increase investments in renewable energy sources. The following incentives to generate electricity from renewables are envisaged:

  • a possibility of obtaining the status of a privileged producer;
  • privileged producers are entitled to the incentives measures;
  • privileged producers will have priority with respect to electricity grid feed-in.

The Act further provides the introduction of guarantees of origin for electricity from renewables. These guarantees of origin will allow producers to export green energy from Serbia to other countries. Guarantees will be issued by the transmission system operator (TSO) and will be valid for one year. Guarantees of origin issued in other countries will be valid in Serbia based on the principle of reciprocity.

The costs of electricity from renewables will ultimately be borne by end-users paying a special fee for incentive measures, which will be separately indicated on the electricity bill.

Privileged producer

The status of a privileged electricity producer can be obtained if the following conditions are fulfilled:

  1. generation of electricity from renewable resources (e.g. water, wind, biomass), except hydropower plants with installed capacities over 30 MW;
  2. an individual generating facility with an installed capacity of up to 30 MW simultaneously generates electricity and heat energy, provided that there is a high percentage of primary energy use;
  3. the facilities are connected to the grid;
  4. the facilities have separate metering stations from those measuring the electricity produced in other technological processes;
  5. an agreement on the sale of heat energy for cogeneration power plants has been concluded;
  6. the facility is dedicated as a wind or solar plant with an installed capacity less than free capacity, i.e. that the request to obtain privileged producer status relates to a part of the installed power that is equal to or less than the free capacity.2

The status of privileged producer is conferred by a decision of the Ministry for Infrastructure and Energy, which must be issued within 30 days from submission of the request and complete documentation.

Another change envisaged for certain producers (using wind and sun energy) is to obtain the status of provisional privileged producer prior to obtaining the status of privileged producer. Provisional privileged producer status can be obtained if:

  1. a construction permit for the facility has been obtained;
  2. the conditions listed above under points (i), (ii) and (vi) for obtaining privileged producer status have been met; and
  3. the applicant provides a deposit or bank guarantee amounting to 2% of the investment.

This provisional status may be held only for up to three years. During this time, it is expected that the provisional privileged producer will complete construction of the energy facility and commence generating electricity (i.e. become a privileged producer). If the status of privileged producer is not obtained following this three-year period, the Act provides in certain cases for the possibility of a one-year extension. Investors with the status of provisional privileged producer can proceed to sign preliminary contracts on feed-in tariffs, which are intended to provide a sufficient basis for obtaining third party financing. Thus, if the status of preliminary privileged producer is obtained, the producer should be entitled to incentive measures.3

Incentive measures for generation of electricity from renewable sources

The incentive measures include an obligation by the public supplier to purchase electricity from the privileged producer at a price set by the government (specified for each type of renewable energy source).

Incentive measures for generation of heat energy from renewable sources

Generators of heat energy from renewable sources are, inter alia, entitled to (i) the incentive purchase price, (ii) subsidies and (iii) tax/customs waivers (holidays). The incentive measures will be regulated in more detail by competent local governments.

Incentive measures for generation of electricity from bio fuels

The incentive measures for generation of electricity from bio fuel are still to be determined by the government. The government will also regulate in detail the mandatory stake of bio fuels in the Serbian transportation system.

Oil market

New regulations apply to (i) oil transport, (ii) measures for providing higher quality fossil fuels and (ii) quality control. Oil and oil derivatives companies participating on the oil and oil derivatives markets will be obliged to maintain mandatory and operative reserves.

Undertakings transporting oil via pipeline must draft a development plan determining the dynamics of reconstruction of existing and construction of new transportation capacities for the next five years.

Natural gas market

The Act introduces clearer provisions concerning (i) non-discriminatory third party access to the gas grid, (ii) management of the natural gas distribution system and (iii) storage and management of natural gas.

The operator must allow users of the system non-discriminatory access to the grid at regulated prices.

Footnotes

1. The Act also envisages that the Energy Agency, as an independent regulator elected by the parliament, will deter-mine energy prices starting from 1 January 2012 (as opposed to such task being assigned to the government in the previous Energy Act).

2. Free capacity in this case means the difference between the maximum capacity for which the incentive measures apply and the amount of installed capacities for the same type of generation facilities of the producers that have ob-tained the status of provisional privileged producer or privileged producer in Serbia.

3. The previous Energy Act failed to clearly regulate this area (i.e. conditions to be fulfilled in order to avail of incentive measures); there was thus a high degree of risk in making substantial investments prior to receiving approval to avail of the incentive measures (e.g. a preliminary PPA).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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