Renewable energy regulatory landscape in Serbia: A closer look at the latest developments

The spring of 2023 brought significant regulatory changes in the renewable energy sector in Serbia. The Law on the Use of Renewable Energy Sources was amended, and several new bylaws were adopted, including the long-awaited decree that regulates balancing responsibility, writes Tamara Zejak, Senior Lawyer at Petrikić & Partneri AOD in cooperation with CMS Reich-Rohrwig Hainz in her op-ed. As a result, the first-ever public call for auctions was launched to award the right to market premiums for 450 MW of wind and solar projects, and the procedure for selection of a strategic partner for the construction of 1GW of self-balancing solar power plants, to be owned and operated by a public utility company, was initiated.

The Law on the Use of Renewable Energy Sources, the first law in the Republic of Serbia that comprehensively regulates renewable energy sources, was adopted in April 2021, with the aim of encouraging further investment in the renewable sector. It introduced the prosumer concept and the auction model for awarding the right to market premiums as the dominant support scheme model in Serbia. By the end of 2021, several relevant bylaws regulating the quota for wind projects, the auction procedure for market premiums and feed-in tariffs, the CfD contract model on market premiums and matters relevant for prosumers were adopted. However, since the adoption of the Law in 2021, disagreements have arisen among key stakeholders about matters relevant to the development of renewable energy projects, such as balancing responsibility, practically blocking the implementation of new renewable projects for some time. Finally, two years later, on 29 April 2023, the Law on Amendments to the Law on the Use of Renewable Energy Sources was adopted.

The Amendments to the Law were primarily aimed at resolving the backlog of requests to connect to the transmission system submitted after the adoption of the Law, which resulted from insufficient transmission system capacity. They were also aimed at relieving the guaranteed supplier of its obligation to assume responsibility for balancing all renewable energy projects. Additionally, the Amendments to the Law include reforms and changes in the auction procedure for awarding market premiums, the permitted installed capacity of a prosumer’s facility, as well as the connection to the distribution system of power plants using variable renewable energy sources.

One month after the adoption of the Amendments to the Law, on 2 June 2023, the Government of Serbia adopted several bylaws as provided for by the Amendments to the Law:

• Decree on assuming balancing responsibility and balancing responsibility contract model
• Decree on market premiums and feed-in tariffs
• Decree on the quota for solar farms in the market premium system
• Decision on the maximum offered price for electricity for the auctions in the market premium system

The following is a brief summary highlighting the most important updates.

Balancing responsibility

The Amendments to the Law stipulate that the guaranteed supplier (currently EPS a.d. Beograd) is only obliged to assume balancing responsibility for privileged producers in the market premium system (and feed-in tariffs), based on a contract model included in the balancing responsibility decree.

However, the obligation of the guaranteed supplier to assume balancing responsibility ceases either six months after the day of merging the organized intraday market of the Republic of Serbia with the unified European organized intraday market, or 30 months after the establishment of the organized intraday market in the Republic of Serbia, depending on which deadline expires first. By the latest date of the cessation of the guaranteed supplier’s obligation to assume balancing responsibility, privileged producers in the market premium system are required to arrange their balancing responsibility on commercial terms like other power producers from renewable energy sources. As announced by the electricity market operator, the intraday market in Serbia should be established by the end of July 2023, which would mean that the guaranteed supplier’s obligation to assume balancing responsibility for privileged producers in the market premium system could cease by the end of 2025 or the beginning of 2026.

Balancing costs and accurate forecasts of electricity production

A privileged producer in the market premium system is required to accurately forecast the production of electricity, as it determines the balancing costs to be paid to the guaranteed supplier. The balancing costs include:

• A fixed fee, calculated as a fixed percentage of the maximum offered price at the auction for each MWh produced. The percentage is determined by the Ministry of Mining and Energy (MoE) through a public call.
• A variable fee representing the positive difference between reported planned production and actual electricity produced in MWh at the day-ahead market price. However, if the privileged producer generates more electricity than planned and reported, the guaranteed supplier pays the difference based on the same model.
• An additional fee paid to the guaranteed supplier if the privileged producer fails to accurately forecast electricity production.

Obligations of the transmission system operator regarding the transmission system development plan and postponement of grid connection procedures for power plants using variable renewable energy sources

In order to overcome the deadlock in resolving requests for connection to the transmission grid, the Amendments to the Law now define the obligation of the transmission system operator to prepare, as part of the transmission system development plan, an analysis of production and transmission system adequacy. The analysis should include an assessment of whether the reserves for system balancing are lacking, and to what extent, in the connection process for all power plants that use variable renewable energy sources, as well as a conclusion regarding the risks to the safe operation of the power system and the need to postpone the connection of power plants using variable renewable energy sources.

If the adequacy analysis indicates risks to the safe operation of the power system due to a lack of reserves for system balancing, the transmission system operator may decide to implement a deferral, which includes postponement of dealing with a connection request until the adequacy analysis shows sufficient system balancing reserves in the power system, allowing all power plants subject to that limitation to be connected to the power system without compromising its safe operation.

Additionally, the Amendments to the Law provide that the postponement of connection to the transmission system does not apply to power plants using variable renewable energy sources if the applicant for the connection:

• provides new capacity for auxiliary secondary reserve services, which will be offered to the transmission system operator for system secondary frequency and power exchange regulation services, or
• allocates new capacity for auxiliary secondary reserve services from its existing production capacities, or
• ensures that another market participant, instead of itself, provides new capacity for auxiliary secondary reserve services.

The regulatory scope for provision of auxiliary services must be at least 20% of the installed active power capacity of a power plant using variable renewable energy sources. If the producer incorporates battery storage, the capacity of that storage must be at least 0.4 MWh/MW of the installed power capacity of the power plant.

The transmission system operator is required to adopt the transmission system development plan, complete with adequacy analysis, within 90 days from the date of the Amendments to the Law coming into force (i.e. by 5 August 2023), while the Energy Agency is obligated to issue consent to the harmonized transmission system development plan within 60 days of the date of submission by the transmission system operator.

Changes to the auction procedure for market premiums

Instead of the previous involvement of the Energy Agency in determining market premiums, the process is now entirely in the hands of the Government of Serbia. For auction purposes, the government determines the maximum offered price for electricity per MWh, while for reconstructed power plants, a separate maximum price that may be offered per MWh for electricity is set. According to the maximum price decision passed by the Government of Serbia at the beginning of June 2023, the maximum offered price for wind projects is EUR 105/MWh, while EUR 90/MWh is set for solar projects.

Furthermore, the Amendments to the Law introduce changes in case bidders participate in auctions only with a portion of a power plant’s capacity. Namely, if an offer for the allocation of a market premium relates to a portion of a power plant’s capacity, that portion must represent at least 70% of the permitted power plant capacity.

Learn more: Balkan Green Energy News