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Draft Law on Renewable Energy Sources

Greener days are coming

Public debate regarding the draft (the Law) ended on 9 February 2021. The next stages include finalisation of the draft, issuance of the official proposal by the Government and adoption of the Law in the National Assembly.

The Law offers two incentives schemes:

  • the long-awaited system of premiums; and
  • the well-known Feed-In Tariff (FIT) system, this time available only for the facilities of the installed capacity of up to 500 kW, wind farms of the installed capacities of up to 3 MW and demonstration projects.

Addressing the concerns raised previously by the Energy Community in relation to transparency and competitiveness, the Law abandons the first-come-first-serve system and envisages the competitive process for awarding incentives. Both the premiums and the FIT will be awarded through an auction process, aiming to ensure greater transparency and equal opportunities for projects.

This is a significant step forward.

Ministry of Energy and Mining deserves credit for their hard work on new regulatory framework aimed to boost new investments in the renewables. However, to achieve this, the Law and bylaws will need to offer solutions that meet bankability criteria, such as proper risk allocation, creditworthiness of support entity and reasonable deadlines for finalisation of projects.

Risk allocation: The Law envisages gradual introduction of balancing responsibility for privileged producers entitled to the premium – initially, the support entity shall bear partial balancing responsibility until the establishment of the intra-day market. Privileged producers entitled to premium would be fully responsible for imbalances after the establishment of the intra-day market. Producers entitled to FIT would remain released from balancing responsibility. During the public debate we have heard proposals to release all renewable producers from balancing responsibility, not only those entitled to incentives. There is no indication whether the Ministry will accept this.

Support entity: Liquidity and creditworthiness of the support entity responsible for paying out incentives has always been one of the critical points towards ensuring bankable projects. This issue came into focus again in the midst of the pandemic in the spring of 2020 when EPS invoked the Force Majeure provisions under FIT PPAs, sending a signal that EPS might have liquidity issues. The Ministry of Mining and Energy is yet to announce who will be the supporting entity for paying out premiums, although it is pretty clear that it will be either EPS or Elektromreža Srbije, the transmission system operator.

Project deadlines: Although the Law was expected to ensure reasonable deadlines for finalisation of the projects and the protection against Force Majeure, the available version of the draft Law seems to be heading downhill. Contrary to standards achieved in the previous incentives package, the Law does not envisage the possibility of extension of the preliminary privileged power producer status in case of delays caused by Force Majeure. As many stakeholders raised this as one of the major bankability issues, this will be hopefully addressed in the approved version of the Law.

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Hopefully, following the public debate, the Ministry will address the most critical concerns raised by stakeholders. This would substantially increase chances that 2021 will bring the first bids under the new regulatory framework.

 

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.