Serbia: New draft RES law – Contours of the new support scheme for renewable energy sources
Serbia: New draft RES law – Contours of the new support scheme for renewable energy sources
January 2021 – The Ministry of Mining and Energy (“Ministry”) has published the Draft Law on Renewable Energy Sources (“Draft RES Law”) following its recent adoption of guidelines relating to the Draft RES Law (“Guidelines”). The Draft RES Law is available for public consultation from 21 January to 9 February 2021.
The Draft RES Law codifies the principles contained in the Guidelines—such as mitigating the impact of fossil fuels on the environment, encouraging the development of new technologies and their contribution to local communities, and the integration of renewable energy into the electricity market— as goals that may in future serve as the background against which potential loopholes in the framework should be interpreted.
Further, the Draft RES Law explicitly sets out that the use of RES is in the public interest and is of special importance for the Republic of Serbia. Public interest will be implemented through strategic and other documents to be adopted by the Republic of Serbia and its administrative subdivisions. In this regard, a local self-government unit may grant certain benefits to investors that during the reconstruction, adaptation, and/or energy recovery of existing buildings envisage alternative sources of electrical or thermal energy from RES. Such benefits may include, for example, a reduction of contributions for the regulation of construction land and the amount of contributions for missing infrastructure. A local self-government unit may also decide to provide financing for activities improving the properties of such buildings.
A public tender procedure for the selection of a strategic partner for the construction of RES objects is conducted based on a decision by the Serbian government in the following cases:
if the application of the incentives system for the production of electricity determined by the law has not provided sufficient new production capacities for the production of electricity from RES required to achieve the planned growth dynamics of production of electricity from RES and the mandatory national goals defined by the Integrated National Plan for Climate and Energy, which should be prepared by the Ministry; and/or
when new production capacities for the production of electricity from renewable sources of energy are required to achieve the goals of energy transition and compliance with international obligations.
As expected, one of the key changes envisaged by the Draft RES Law is the introduction of the market premium model as an incentive measure, which is implemented through an auction process. According to the explanatory notes to the Draft RES Law, the main idea behind the introduction of auctions is to increase the efficiency and decrease the costs of financing RES projects. However, as indicated in the Guidelines, the feed-in tariff system is maintained for small-scale projects (i.e., power plants with capacity below 500 kW and below 3MW for wind power plants) and so-called demonstration projects, which are defined as non-commercial RES projects that demonstrate a relevant novel technology and represent a significant innovation greatly exceeding the highest level of existing RES technology, and which as well has the status of an innovation project in line with the laws governing innovation. The Serbian government will develop the details of the support scheme in a separate decree.
The following is a detailed overview of the main novelties introduced by the Draft RES Law.
Support scheme for RES power producers
In line with the Guidelines, the Draft RES Law envisages that the RES support scheme shall be comprised of both market premiums and feed-in tariffs available to RES producers within a certain incentive period; the assumption of the balancing responsibility; the right of priority access to the system; and other incentives. Incentive measures can be obtained for the following plants: hydro, biomass, biogas, wind, solar, geothermal, biodegradable waste, waste gas, communal waste treatment facility gas, and other renewable energy sources. Incentives can be given for electricity produced both in newly built and reconstructed RES power plants.
The Ministry publishes for a period of three years an overview of the incentives system applied, the approximate time plan for the holding of auctions, the frequency of auctions, the expected new capacities from RES that will be in the incentive system, the budget for incentives to be distributed during the three-year period, and the types of technologies that will be supported in the incentive system, if such information is known. The Ministry shall publish an overview of the incentive system by the end of February once every three years, updating it every year by the end of February, if needed.
The Draft RES Law envisages two different incentive systems: (i) market premium and (ii) feed-in tariff.
Market premium system
Market premium is defined as a type of operational state aid granted in addition to the market price of electricity, calculated and paid on monthly basis. The right to this premium is acquired in the course of an auction organised by the Ministry based on the availability of a quota set by the Serbian government.
For the purpose of an auction—where participants compete to offer the lowest market premium—the initial amount of the market premium is determined in advance, and this is the amount of the maximum incentive purchase price, which auction participants cannot exceed with their bids. The methodology for determining the initial amount of the market premium will be prescribed by the Serbian Energy Agency for each calendar year (i.e., by the end of the preceding calendar year).
Auctions are initiated on the basis of a public call prepared and published by the Ministry containing the conditions that participants in the auction must fulfil, the available quotas per type of RES plant, the amount of the auction deposit that prospective participants must pay, and the deadline for completion of the project, etc. The auction procedure comprises three phases: qualification, bidding, and selection of the best bids. The Draft RES Law does not contain an overview of the timeline of this procedure or other relevant details related to the determination of the market premium. Such details will be regulated in the bylaw that is to be adopted by the Serbian government within six months following the adoption of the Draft RES Law.
During the bidding phase, bidders that have passed the qualification phase compete by offering a lower market premium compared to the initial market premium, i.e., a lower maximum incentive purchase price compared to the initial maximum incentive purchase price. In the event that two or more bidders offer the same market premium, the relevant quota will be distributed proportionally to those bidders. Following the completion of the selection phase, a separate commission compiles the list of the best bidders together with a report and proposal for the decision to award market premiums to the Minister for Mining and Energy, which adopts the relevant decision on awarding market premium(s).
The above decision is the basis to acquire a preliminary privileged power producer status (“4P Status”), which is deemed acquired on the date the aforementioned decision is issued. 4P Status lasts for three years as of the date of the finality of the decision on awarding the market premium, with the exception of solar plants, where the status will last for one year and may be extended for one additional year. Unlike the existing Energy Law, the Draft RES Law does not require that a request for such an extension be accompanied by evidence that the plant has been constructed.
Following the obtaining of 4P Status, the relevant entity should submit to the Ministry a bank guarantee or deposit, which serves as the guarantee that the investor in question will obtain the status of a privileged power producer within the deadline prescribed by the law. After submission of such guarantee, the investor concludes an agreement on market premium with the authorised counterparty; the details of such counterparty are not further given in the Draft RES Law.
A 4P Status holder that obtains, among others, an energy license and is permanently connected to a transmission and/or distribution or closed distribution system, acquires the status of a privileged power (“3P Status”).
The incentive period during which the market premium is paid to the investor lasts until the expiration of the depreciation period of the power plant, but not longer than 12 years from the date of the first payment of the market premium. The incentive period for biomass power plants may last longer than the depreciation period in accordance with state aid rules.
Until the establishment of organised intra-day power trading, a producer that obtains a right to a market premium is exempted from the full balancing responsibility. However, such entities will bear the costs of balancing towards the balancing responsible party if their production deviates in the prescribed percentage from planned production in the relevant accounting period. The Serbian government shall regulate in detail the percentage of allowed deviation from planned production. Following the establishment of organised intra-day power trading, the full balancing responsibility and related internal regulation of such responsibility will rest with each producer that has obtained the right to a market premium.
Feed-in tariff system
A feed-in tariff is defined as a type of operational state aid in the form of an incentive purchase price guaranteed per kWh for electricity delivered to the electrical power system during the incentive period. A feed-in tariff may be acquired for small plants and for demonstration projects and is calculated and paid on a monthly basis.
The right to a feed-in tariff is awarded by the Ministry in an auction procedure based on the available quotas prescribed by the Serbian government. As in the case of the market premium system, the auction participants compete to offer the lowest feed-in tariff, relative to the initial amount of the feed-in tariff, which is determined in advance. Likewise, the methodology for the calculation of the initial amount of the feed-in tariff will be prescribed by the Serbian Energy Agency for each calendar year (i.e., by the end of the preceding calendar year).
The same rules that apply to the market premium system related to phases of the auction process, the acquisition of 4P Status and its duration, the provision of collateral by the 4P Status holder (small plants and demonstration projects with installed capacity of less than 100 kW are exempt from this requirement), the obtaining of 3P Status and the duration of the incentive period apply in relation to feed-in tariffs as well.
However, the start of the period for the calculation of the duration of 4P Status differs from the market premium system, as it is calculated from the date of issuing of the decision on awarding a feed-in tariff, and not from the date of finality thereof. In addition, unlike in the market premium system, the guaranteed supplier with whom a producer concludes an agreement on a feed-in tariff undertakes the balancing responsibility on the basis of the agreement on the feed-in tariff, and the privileged power producer is exempt from the balancing responsibility and the payment of balancing costs.
Details related to feed-in tariffs, the acquisition of 4P/3P Status, and other relevant provisions will be determined in a separate decree to be adopted by the Serbian government within six months as of the date of adoption of the law.
Status of prosumer
Pursuant to the Draft RES Law, end-users that produce energy for their own needs from RES have the right to connect to the grid and sell any excess electricity to their supplier. Namely, such end-users have the right to connect a power plant that uses RES to the internal electrical installations of their facility for their own consumption, provided that the installed power of the power plant does not exceed the approved facility power of the end buyer. The end-user gains the status of buyer-producer by connecting the power plant to the interior electrical installations of its facility and has the right to produce electricity for its own consumption, store electricity, and deliver excess electricity to the electrical energy system for sale.
In addition, a buyer-producer has the right to a reduction in its bill during the next accounting period, i.e., for a reimbursement by the supplier for excess electricity delivered to the electrical energy system. The rights and obligations of the buyer-producer and supplier will be regulated in a separate agreement.
Community of renewable energy sources
A new concept of a community of renewable energy sources (“Community”) is defined in the Draft RES Law as a legal person established in the form of an association and is based on the open and voluntary participation of its members. In addition, under exceptional circumstances, a Community may be a housing community registered in accordance with the law regulating the field of housing and building maintenance.
A member of a Community may be a natural or legal person, local self-government units and other forms of local self-governance, a company, and/or entrepreneur, if electricity production from renewable sources does not represent their predominant commercial or professional activity.
The goal of the Community is the use of RES to meet the energy needs of members of the Community in a sustainable manner that encompasses environmental, economic or social benefits for members, as well as the local community and society. To achieve the primary goal, a Community develops, invests into, and implements renewable energy sources and energy-efficient projects.
In line with its basic goal, a Community is given the right to acquire 4P/3P Status, and the status of a producer of electricity from renewable sources. A Community also has the right to, among others, produce, consume, store and sell renewable energy and access all energy markets, directly or through aggregation, in a non-discriminatory manner.
Simplified connection procedure for small-scale producers
The distribution system operator (“DSO”) will have to establish a simplified connection procedure for the power plant of an end-user producing electricity for their own needs and for a power plant that is part of a demonstration project with an installed power of 10.8 kW or less, or the equivalent power of a connection that is not a three-phase connection.
As a general matter, the transmission system operator and/or DSO are obliged to undertake active measures with the aim of simplifying the connection procedure for power plants producing electricity from renewable sources.
Incentivising production of electricity, heating and cooling from biofuels, bio-liquids and fuels from biomass
In the case that biofuels, bio-liquids and fuels from biomass comply with both sustainability criteria and achieve savings in greenhouse gas emissions (except for biofuels, bio-liquids and fuels from biomass produced from waste and remains, which only need to achieve savings in greenhouse gas emissions), the energy produced from these fuels may be:
taken into consideration for calculating the planned share of energy from renewable sources in the gross energy used in all forms of transport;
the subject of financial incentives with the aim of increasing the use of biofuels, bio-liquids and fuels from biomass, and
included in the calculation for fuel suppliers when assessing compliance with their obligation of achieving the share of renewable energy sources in transport.
Fuel from biomass used in the production of electricity and/or the production of heating and cooling energy must comply with the criteria for sustainability and savings of greenhouse gas emissions in the following cases:
if the thermal power of the plant using solid biomass is equal to or higher than 20 MW; or
if the thermal power of the unit using biogas is equal to or higher than 2 MW.
If electricity and/or energy for heating and cooling are being produced from solid municipal waste, there is no obligation to achieve savings in greenhouse gas emissions. Sustainability criteria will be prescribed separately for biofuels, bio-liquids and fuels from biomass obtained from agricultural biomass, and separately for biofuels, bio-liquids and fuels from biomass obtained from forest biomass.
E-procedure before the Ministry
A major step forward is made with the provisions of the Draft RES Law that explicitly set out that the Ministry will solely conduct a compliance check and not engage in assessments of the technical documentation, nor test the authenticity of documents obtained under such procedures during the implementation of the procedures for auctions, the granting of 4P/3P Status, and the granting of the status of a producer from renewable energy sources, as well as other related procedures.
The Ministry will make a formal decision within the deadlines prescribed by the law in the form of an electronic document. All the documents to be supplied to the Ministry in the relevant procedure under the Draft RES Law must be submitted through the e-Government Portal in the form of an electronic document in accordance with the law regulating e-government. However, complaints and other legal remedies, the evidence supplied with them, and other documents containing confidential data and those labelled with the degree of confidentiality in accordance with regulations on data confidentiality, will still be delivered in the form of paper documents.
For further information please contact BranislavMarić, Partner, at , and Tijana Arsenijević, Senior Associate, at .
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