Serbia Update: Energy

Wind Auctions in Serbia – Final Chapter of the Regulatory Reform

In the second half of November, the authorities intensified their activities on finalization of the regulatory reform of the renewables sector in Serbia commenced in the beginning of the year with work on new Law on Use of Renewable Energy Sources.

After the Government decided about the quota for subsidizing new wind power plants – set at 400 MW, the Energy Agency of Serbia published the maximum price for auctions for these facilities. The maximum price is set at 55.7 EUR/MWh and the stakeholders received this information with mixed feelings (at best).

The day after the maximum price was published, the Government adopted the decrees regulating the market premium and the model market premium agreement. The market is anticipating soon adoption of the decree regulating balancing responsibility of the renewables producers (within and out of premium system), the last piece needed to complete the framework (in respect of wind power plants), although under the strict letter of the law auctions might take place even without this decree.

  • Timing for the first auctions

The Ministry of Mining and Energy can publish the public call for the first auctions within 30 days as of publication of the maximum purchase price. As the Energy Agency published the maximum purchase price for the wind power plants on 25 November, the public call for the first auctions can be published as early as 25 December 2021.

  • Participation in auctions

To be able to participate in the auctions, the producers of energy from renewable energy sources (the Producers) must fulfill numerous conditions. Most importantly:

  • Capacity: power plants of capacity of at least 500 kW and wind power plants of capacity of at least 3 MW are eligible.
  • Project development stage: mid-advanced development, specifically the final and enforceable energy permit for the plant, and valid location conditions or construction permit/approval of performance of works.
  • Possibility to connect to the system: it must be ensured that the project can be connected to the system – the Producers must submit either the confirmation of the transmission system operator that the are planning document in place enabling the construction of the connection infrastructure, or the conditions for design and connection of the plant to the distribution system (if the plant will be connected to the distribution system).
  • Financial instrument: the Producers must submit the financial instrument – either the first demand, unconditional, irrevocable bank guarantee issued in accordance with the decree or cash deposit in the amount of EUR 30 per kW of the bidding capacity of the plant. Winning bidders will need to increase the security to EUR 60 per kW to ensure the COD is reached within deadlines.
  • Market premiums – CfD

The market premium agreement is set as contract for difference. This means that if the price that the winning bidder has offered (the Winning Price) is higher than the market reference price (the Reference Price), the winning bidder will receive the difference between the Winning Price and the Reference Price. However, it goes both ways – if the Winning Price is lower than the Reference Price, the winning bidder is the one that should pay the difference.

The Reference Price will be determined according to the price on the day-ahead organized electricity market SEEPEX.

The Winning Price will be adjusted for inflation in Eurozone.

  • Deadlines for reaching COD

The decrees set out the deadlines for the realization of the projects after the auctions, which depend on the project development stage before the auctions.

In particular, if a bidder has not obtained the construction permit for the plant before the auctions, it will have to: (i) obtain the construction permit and the approval to the environmental impact assessment study (or the decision that the study is not needed) within two years as of the date on which the decision on granting premiums has become final; and (ii) obtain the status of the privileged producer and reach COD (i.e. obtain the energy licence, connect the plant to the system, obtain the use permit for the plant, etc.) within the additional three years.

The bidders that had in place the construction permit for the plant before the auctions will have only three years as of the date on which the decision on granting premiums has become final to reach COD. This means that they will have three years to finish construction and obtain the use permit, obtain the energy licence, connect the plant to the system, ensure special metering, etc.

The status can be extended for additional year in case the power plant is constructed.

The decree also allows extension in case of Force Majeure. However, as a step back from the previous system, the decree does not explicitly allow extension in case of acts and omissions of the competent authorities.

  • Deposit for refurbishment

The privileged producers will also have to pay a monthly cash deposit for removal of the plant and remediation of the land, during the validity of the market premium agreement. The amount of the cash deposit amounts to EUR 0.02 per kW for solar plants, to EUR 0.066 per kW for wind power plants and 0.033 for other plants.

Even though introduction of this deposit has the basis in the law, it represents unnecessary burden on the privileged producers considering that the security for refurbishment of the land should be dealt with on case by case between producers and land owners.