Serbia improves draft Law on Renewable Energy Sources after public debate

Serbia

Correct as of 12pm, 11th March. This article is being maintained.

At the beginning of 2021, the Ministry of Mining and Energy of the Republic of Serbia published a draft Law on Renewable Energy Sources, which introduces the following into the Serbian legal system:

  • auctions for premiums, as the next step towards full liberalisation of the energy market;

  • prosumers and energy communities; and

  • strategic partnerships via public tenders for the construction of renewable energy power plants.

The public debate of the draft Law lasted until 9 February 2021, during which open discussions and round tables were organised, giving all relevant stakeholders the opportunity to present opinions and proposals for improving the initial draft.

Consequently, the Ministry has agreed to accept the following key proposals put forward by stakeholders and investors and include them in the latest draft Law, which is an excellent sign of support for the new investment cycle in renewables:

Producers of electricity from renewable sources that are outside the incentive scheme are also protected from the balance responsibility and have the right to priority access to the system.

This is an important provision, as it seems to allow access to the grid not only for investors winning the subsidies, but also for market-driven projects. The operators of the transmission and distribution system are obliged to take over the electricity produced from renewable sources as a matter of priority, regardless of whether it is covered by the incentive scheme or not.

Balance responsibility is defined in more detail, but further determination required.

Although there appears to be more predictability in the new draft Law than in the initially proposed draft regarding the responsibility and costs of balancing (especially with the introduction of a fixed fee for each kWh of deviation to be paid as a compensation for balancing costs), further details will be determined in the bylaws to be prepared soon.

Construction of hydropower plants in protected areas is strictly prohibited.

The reason for this ban seems to stem from the adverse environmental impact of the small hydropower plants (SHPPs) of derivation type and the fact that natural ecosystems are in severe danger due to their construction, while at the same time the share of renewable energy produced by SHPPs in gross energy consumption of Serbia is negligible. That being said, the Government may allow for the construction of hydropower plants even in protected areas, provided that a positive opinion from the Ministry of Environmental Protection is obtained in advance, and that the particular project is of national importance for the Republic of Serbia.

Construction permit is no longer a statutory requirement for the qualification (or eliminatory) stage of auctions for premiums.

In the latest draft, the Ministry has relaxed the statutory selection criteria by stipulating that a construction permit for the project is no longer required as a selection criterion in the eliminatory stage and that obtaining location conditions and an energy permit will suffice. On the other hand, the Ministry introduced the bid bond as a necessary requirement in this early stage (either in the form of a cash deposit or an unconditional, irrevocable first demand bank guarantee). The preliminary privileged power producer is obliged to, within two years from the date of acquiring this status, obtain a legally valid construction permit for the power plant.

The Serbian government will draft the template Market Premium Agreement.

Instead of the guaranteed electricity supplier, the Serbian government has the responsibility of drafting the template Market Premium Agreement, which was one of the requests from investors during the public debate.

The duration of the preliminary privileged power producer’s status could be extended to a maximum of six years.

Compared to the initial provisions of the draft Law that envisaged a maximum 4P (preliminary privileged power producer) status’ duration of three years, or one year for solar power plant projects, this new solution takes into account the fact that the deadline of three years, and – in particular – one year for solar power plant projects, is not realistic in terms of the developing and financing of large-scale projects. That being said, the newly proposed solution appears to be more investor-friendly than the previous one, and should ultimately lead to more success stories in the market and the implementation of projects using state-of-the-art technology. 

Introduction of corporate PPAs into the Serbian legal system.

Although not regulated in more detail, this section of the latest draft Law may be considered as a new milestone in developing the Serbian energy market, given that for the first time ever a lawmaker has recognised the importance of corporate PPAs, thus making the shift towards the implementation of the RED II Directive into the Serbian legal system.

A further upgrade of the provisions of the draft Law regulating the selection of a strategic partner.

The amended draft Law now explicitly states that the selection of a strategic partner is to be conducted in line with the provisions of the Law on Renewable Energy Sources, thus excluding the application not only of the Law on Public Procurement, but also of the Law on Public-Private Partnership and Concessions.

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Although it remains to be seen what the final wording of the Law will be, the fact the Ministry has heard and accepted some of the key proposals from investors and other members of the expert community is a positive step towards the acceptable and bankable legal framework for new investments in renewables in Serbia. This sector should be one of the leading driving forces for the post-pandemic Serbian economy.

For more information on this draft Law and investing in renewable energy in Serbia, contact your regular CMS partner or local CMS experts.