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The Draft Law on Renewable Energy Sources (hereinafter: “Draft Law”) was published on 21st January 2021 by the Ministry of Mining and Energy (hereinafter: “Ministry”). The public debate was held in the period between 21st January and 9th February 2021.
The Draft law regulates, inter alia, issues related to the principle of using energy from renewable sources, the system of incentives for electricity production from renewable sources, the status of a privileged electricity producer (hereinafter: “Privileged Producer“), the status of a temporary privileged electricity producer (hereinafter: “Temporary Privileged Producer”), procedures for acquiring privileged status, and introduces the term buyer-producer.
The draft law initially stipulates that the use of energy from renewable sources is in the public interest and of special importance for the Republic of Serbia. In this way, the Ministry clearly stated its intention to set the issue of using renewable energy sources as a strategic commitment for future electricity production, while strategic and other documents will elaborate this principle as well as the budget funds of the republic, autonomous province and local government should ensure the fulfillment of obligations provided by future law and bylaws.
Types of incentives
The Draft law itself distinguishes between two systems of incentives.
The first is the long-awaited market premium system, which represents a addition to the market price of electricity that premium users deliver to the market and is determined in eurocents per kWh in the auction process. The maximum amount of the premium is determined in advance by the Government and the participants in the auction compete for a lower price.
In addition to the market premium, the draft law also envisages the already well-known feed in tariff system, which has existed in our country since 2015. This type of state aid is granted as an incentive purchase price that is guaranteed per kWh for electricity supplied to the energy system during the incentive period.
However, the application of feed-in tariff is limited to small plants, i.e., plants intended for the production of up to 500KW of electricity, as well as wind farms up to 3MW and demonstration projects.
In line with the requirements of the Energy Community, the Draft Law envisages an increase in transparency and competitiveness. In this regard, it is envisaged to abandon the system based on the priority of the application and it now implements the auction procedure.
Namely, the Energy Agency of the Republic of Serbia (hereinafter “AERS“) based on its methodology determines the initial amount of the premium or tariff, which also represents the maximum amount of incentives, below which investors compete in the auction process, while auctions are organized on the basis of available quotas. determined by the Government.
The Ministry initiates the auction procedure by public invitation, forms a commission for conducting the auction, makes a decision on the best bids and based on it makes a decision on granting / rejecting the right to a market premium. The commission, formed by a decision of the Minister, conducts the auction procedure until the decision on the best bids is made.
The auction procedure consists of three parts – qualification, bidding and selection process of the best bids.
Qualification is the first, elimination phase in which the selection of participants is based on the fulfillment of the prescribed conditions. The draft law prescribes the basic conditions, while the bylaws will specify them in more detail. One of the basic conditions is the possession of a power plant or a building permit for the construction of a power plant.
Participants who meet the prescribed conditions enter the next phase of the auction – bidding. Participants submit their bids for the premium or redemption price, and then they are ranked from the lowest to the highest amount until the quota is filled. When the total sum of installed power plants reaches the amount of the prescribed quota, the quota is considered to be filled.
Selection of offers
The last phase of the auction is the selection of the best bids. The Commission shall compile a draft ranking list, which it shall submit to the Minister of Energy (hereinafter: the “Minister“) with a report and a proposed decision. Based on the received documentation, the Minister makes a decision on the best bids, and then a decision on granting the right to incentives, i.e., on rejecting the right to a incentives, to the auction participants.
In this way, by applying the auction method, all interested economic entities were given the opportunity to apply for state incentives in the field of energy in a publicly accessible and transparent procedure. Also, the establishment of competition in the fight for state incentives will lead to a drop in premiums or purchase prices, which certainly leads to a more rational use of budget funds.
Temporary preferential producer
The status of a Temporary privileged producer is acquired in the auction procedure on the day the decision on granting the right to incentives is made.
After acquiring this status, the Temporary eligible producer has 30 days from the day of acquiring the status to submit the financial security instrument to the Ministry and 15 days from the day of submitting the financial instrument to submit to the Ministry a request for concluding a premium contract. The status lasts for three years or one year for power plants that use solar energy and can be extended for a maximum of one year.
Preferred electricity producer
A Temporary eligible producer acquires the status of an Eligible Producer if all conditions prescribed by the Draft Law are met, which mostly relate to the power plant and the possession of all necessary permits to engage in these business activities. The Minister decides on granting this status.
The incentive period lasts until the expiration of the amortization period of the power plant, but not longer than 12 years from the date of the first payment of the premium.
Buyer-producer of renewable energy sources
Preferred electricity producer
One of the most important innovations introduced by the Draft Law is the status of the buyer-producer. For the first time, the law regulates such a category and stipulates that end customers have the right to produce electricity for their own needs, as well as to return excess energy to the electricity system and thus exercise the right to reduce bills in the next billing period, i.e., right for compensation by supplier.
Stability of incentives
The Draft law explicitly provides for a stabilization clause which stipulates that the regulations under which the entities have acquired incentive measures may not be subsequently changed in a way that diminishes or limits the acquired rights or jeopardizes the economic viability of the plant. The intention is to attract potential investors in the renewable sector and guarantee them stability and position regardless of changes in regulations that may occur.
However, despite the fact that the Draft explicitly stipulates that Privileged Producers are obliged to comply with the regulations of water management and environmental protection with the prescribed supervision of the environmental inspection and water inspectors, the World Nature Organization warned that the Draft endangers the will of citizens considering that it proscribes incentives for small hydroelectric power plant regardless of the negative consequences they leave on nature.
We will see if this will affect the final proposal of the Ministry. At the moment, the public debate is over, however, there are no announcements regarding the publication of the bill and when it could be submitted to the National Assembly for consideration and adoption.
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