General Overview

Promptly following the adoption of the guidelines for the upcoming draft law on renewable energy sources adopted by the Ministry of Mining and Energy (“Guidelines”), the Ministry of Mining and Energy (“Ministry”) published draft Law on Renewable Energy Sources (“Draft RES Law”) which is available for the 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 the fossil fuels on the environment, encouraging the development of new technologies and contribution to local community, integration of renewable energy into the electricity market, as its goals that may, in the future, serve as the background against which potential loopholes in the framework should be interpreted.

Further, the legislator decided to explicitly set out in the Draft RES Law that use of RES is in the public interest of and is of a 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 the RES. Such benefits may include, for example, 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.

Public tender procedure for selection of a strategic partner for the construction of the 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 the RES required to achieve the planned growth dynamics of production of electricity from renewable energy sources 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 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 increase of efficiency and decrease of costs of financing of the RES projects. However, as indicated in the Guidelines, the feed-in tariff system is kept for the small size projects (i.e., power plants with capacity below 500 kW and below 3MW for wind power plants) and the so-called demonstration projects, which are defined as non-commercial projects from renewable energy sources which demonstrate relevant novel technology, and represent a significant innovation that greatly exceeds the highest level of existing technology used for renewable energy sources, as well as have the status of an innovation project in terms of the law governing innovation. Details of the support scheme remain to be developed by the Serbian Government through a separate decree.

The following is a more 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 comprise both market premiums and feed-in tariffs which are available to RES producers within a certain incentive period, assumption of the balancing responsibility, 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 RES. Incentives can be given for the electricity produced both in the newly-built and reconstructed RES power plants.

The Ministry publishes for a period of three years an overview of the incentive 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 types of technologies which 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 in every three years, updating it every year by the end of February, if needed.

Incentive systems

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 which is granted in addition to the market price of the electricity and calculated and paid on monthly basis. The right to premium is acquired in the course of the auction which is organised by the Ministry based on the availability of a quota set by the Serbian Government.

For the purpose of an auction, in which 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).

The auction is initiated on the basis of a public call prepared and published by the Ministry, which contains conditions that should be fulfilled by the participants in the auction, available quotas per type of RES plant, amount of the auction deposit prospective participants should pay, 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 and other relevant details related to determining of the market premium. This is because 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 law.

During the bidding phase, bidders who have passed the qualification phase compete by offering the 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, separate commission compiles the list of the best bidders, report and proposal of the decision for awarding market premium to the Minister for Mining and Energy who adopts the relevant decision on awarding market premium(s).

The above decision is the basis for acquiring the preliminary privileged power producer status (“4P Status”), which is deemed to be acquired on the date of issuing of the aforementioned decision. The 4P Status lasts for three (3) 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 (1) year, and may be extended for one (1) additional year. Unlike the existing Energy Law, the Draft RES Law does not require that the request for such extension should be accompanied by the evidence that the plant is constructed.

Following the obtaining of the 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 the privileged power producer within the deadline prescribed by the law. After submission of such guarantee, the investor concludes agreement on market premium with the authorised counterparty, however, the details of such counterparty are not further given in the Draft RES Law.

The 4P Status holder who, among others, obtained energy license and is permanently connected to the transmission and/or distribution or closed distribution system, acquires the privileged power producer status (“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. However, the incentive period for biomass power plants may last longer than the depreciation period in accordance with state aid rules.

Until the establishment of the organised intraday power trading, the producer that obtained right to the 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 the planned production in the relevant accounting period. The Serbian Government shall regulate in detail the percentage of allowed deviation from the planned production. Following the establishment of the organised intraday power trading, the full balancing responsibility and related internal regulation of such responsibility will rest with each producer that obtained the right to the 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 demonstration projects and is calculated and paid on a monthly basis.

The right to a feed-in tariff is awarded by the Ministry in the 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 related to phases of auction process, acquiring of the 4P Status and its duration, provision of collateral by the 4P Status holder (however, small plants and demonstration projects with the installed capacity of less than 100 kW are exempted from this requirement), obtaining of the 3P Status, and duration of the incentive period that are applicable in case of market premium system apply in relation to feed-in tariffs as well.

However, the start of the period for calculation of the duration of the 4P Status differs from the market premium system as it is calculated from the  date of issuing of the decision on awarding feed-in tariff, and not from the date of finality thereof. In addition, unlike in market premium system, the guaranteed supplier with whom the producer concludes the agreement on feed-in tariff, undertakes balancing responsibility on the basis of the agreement on feed-in tariff and the privileged power producer is exempted from balancing responsibility and payment of balancing costs.

Details related to feed-in tariffs, acquiring of the 4P/3P Status, and other relevant provisions will be determined in a separate decree that is 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 the RES have the right to connect to the grid and sell any excess electricity to their supplier. Namely, such end-user has the right to connect a power plant that uses renewable energy sources to the internal electrical installations of their facility for 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 the excess electricity into the electrical energy system for sale.

In addition, the 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 the excess electricity delivered into the electrical energy system. Rights and obligations of the buyer-producer and supplier will be regulated in a separate agreement.

Community of the renewable energy sources

A new concept of a community of the 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 source and energy efficiency projects.

In line with its basic goal, a Community is given the right to acquire the 4P/3P statuses, 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 DSO will have to establish a simplified connection procedure for the power plant of the 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 equivalent power of a connection that is not a three-phase connection.

As a general matter, the TSO and/or DSO are obligated 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, bioliquids and fuels from biomass

In case the biofuels, bioliquids and fuels from biomass comply with both sustainability criteria and achieve savings in greenhouse gas emissions (except for biofuels, bioliquids 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, bioliquids 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 production of heating and cooling energy, shall 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.

In case the electricity, and/or energy for heating and cooling is being produced from solid municipal waste, there is no obligation of achieving savings in greenhouse gas emissions. Sustainability criteria will be prescribed separately for biofuels, bioliquids and fuels from biomass obtained from agricultural biomass, and separately for biofuels, bioliquids 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 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, 4P/3P Status granting, and 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. Also, all the documents to be supplied to the Ministry in the relevant procedure under the Draft RES Law shall 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, 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 Branislav Marić, Partner and Tijana Arsenijević, Senior Associate