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Law on Utilization of Renewable Energy Sources

Law on Utilization of Renewable Energy Sources

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On 30 March 2021, Government of the Republic of Serbia, submitted set of energy laws to the National Assembly for adoption, on the basis of which proposals of laws in various energy areas are rendered on 20 April 2021. One of these laws is completely new -  Law on Utilization of Renewable Energy Sources (hereinafter referred to as: “Law on RES”).

By rendering of this law, utilization of renewable energy sources (hereinafter referred to as: “RES”) in energy production is legally recognized as one of the energy priorities of the Republic of Serbia, especially having in mind that production of electric energy from coal leaves grave consequences to the environment, as well as induces enormous emission of harmful gases.

Until now, utilization of RES was shyly regulated in the Energy Law ("Official gazette of the RS", no. 145/2014 and 95/2018 – other law), precisely in its section V – renewable energy sources, by which section such significant area was not comprehensively regulated, and which regulation also represents an obligation of the Republic of Serbia, having in mind its membership in the Energy Community. After adoption of the  law which, as a subject has exclusively RES,  the Republic of Serbia shows more determination to create conditions for production of electric energy from RES as much as possible. It is worth noting that by National action plan for utilization of RES, it is planed that until 2020, Republic of Serbia achieves RES participation of 27% in the gross final consumption of energy in the Republic of Serbia. However, now, in 2021, it is achieved only 20%.

Law on RES sets out goals to achieve, which encompass, among others: i) decrease of utilization of fossil fuels and increase of utilization of RES in order to protect environment, ii) long-term decrease of dependence on import of energy-generating products, as well as iii) creating new working spaces and development of entrepreneurship in RES sector.

Law on RES sets out power plants which use RES, namely, hydropower plants, power plants on biomass and biogas, wind power plants, solar power plants, geothermal power plants, powerplants on biodegradable waste and power plants on landfill gas and gas from the utility for wastewater treatment.

As Law on RES is adopted primarily to protect environment, it is additionally strictly forbidden to construct hydropower plants in the protected areas. 

Also, it is determined that participation of energy from the RES in gross final energy consumption and in final consumption of energy in traffic, as well as participation of production of electric energy and heat energy from the RES, is set out in Integrated national energy and climate plan.

In order to attract investment in this sector, Law on RES envisages various incentives:

  • Market premium;
  • Feed-in tariffs;
  • Undertaking of balancing responsibility; and
  • Right to priority access to transmission i.e., distribution system.

It is particularly marked that for the same power plant, privileged producer of electric energy cannot be simultaneously user of feed-in tariff and market premium.

Regarding the power plants which use RES, in order to be in the incentives system, it is necessary to be newly constructed or reconstructed.

Market premium 

Market premium represents new form of incentives for producers from RES, taking into account that until now only system of feed-in tariffs existed. Incentives in the form of market premium means that guaranteed supplier shall pay market premium (determined in eurocent per kWh) to the user of market premium for every sold kWh, as additional amount to the price for the sold electric energy. The amount of the market premium is not determined a priori but on auctions. 

Auctions for market premium are conducted by the Ministry of Mining and Energy (hereinafter referred to as: “Ministry”), by publishing public invitation. Auction may be related to one or more different power plants (solar, hydro, wind etc.). In the public invitation, the quota of the total power for which the market premium shall be granted is determined, while the maximum amount of market premium that may be bid is set out by the Energy Agency.

In the biding phase, participants determine amount of market premium which satisfies them, and upon the conclusion of the auction, submitted bids are ranked by the criterion set from the lowest to the highest - comparing to the maximum amount of market premium, until the quota is filled. 

Upon the auction, participants to whom market premium is granted, acquire status of temporary privileged producer of electric energy and they are obliged to, within deadline of 30 day as of acquiring such status, deliver to the Ministry the payment security instrument in a form of either deposit or bank guarantee. Upon delivering of payment security instrument, temporary privileged producer of electric energy has: i) right to execute agreement on market premium with guaranteed supplier, and ii) obligation to deliver to the Ministry construction permit and study on assessment of impact on environment within two years. If these documents are not delivered to the Ministry within deadline, Ministry will deprive such entity of status of temporary privileged producer of electric energy. 

In order that the temporary privileged producer of electric energy becomes privileged producer of electric energy, it is necessary to, inter alia, constructs power plant for which market premium is granted, acquires usage permit, acquires license for conducting energy activity of production of electric energy, connects power plant to the transmission i.e., distribution system.

Incentive period for market premium is 15 years, starting from the first payment of market premium (whereby it is paid on monthly basis).

User of market premium has the right to transfer its balancing responsibility to the guaranteed supplier, up to the law determined limit. However, duration of this right is not related to the incentives period, but until establishment of liquid period, organized within day market of electric energy.

Last but not least, user of market premium has priority right to access transmission i.e., distribution system. Operator of transmission i.e., distribution system is entitled to deny such right only in case the system will be jeopardized. However, this right is not reserved only for user of market premium but for all producers of electric energy from RES, regardless of being  in incentives system or not.

Feed-in tariffs

Second kind of incentives for production of electric energy from RES are feed-in tariffs, which already exist in our legislation. Energy law represented the basis for feed-in tariffs, while the Government determined conditions for acquiring status of privileged producer of electric energy by regulations, as well as the system of incentives for privileged producers of electric energy.

Pursuant to the Law on RES, person entitled to feed-in tariff has guaranteed selling of produced electric energy from RES at a priori determined price. Major difference to the market premium, apart from the fact that feed-in tariff represents selling price of electric energy while market premium is addition to the price acquired on the market, is that feed-in tariffs may be granted only for demonstrative projects (projects using innovative technology) and small power plants (power plant with power less than 500 kW, i.e., wind power plant with power less than 3 MW), while market premium may be granted for all other power plants regardless of their power (save for hydropower plant with power up to 30 MW).

Pursuant to the previous legislative, Government set out exact amount of feed-in tariff payable per kWh, by regulations. However, Law on RES does not envisage such possibility, but persons who wish to be part of such incentive system have to participate on auctions and in their bids they will determine amount of feed-in tariff.

Course of auctions, acquiring status of temporary privileged producer of electric energy, privileged producer of electric energy, execution of agreement on feed-in tariff with guaranteed supplier is the same as described for the market premium.

Difference exists in balance responsibility, precisely, guaranteed supplier undertakes balance responsibility from the user of market premium up to the law determined limit i.e., if imbalance is higher, user of market premium is obliged to pay it. Such limitation does not exist with feed-in tariff. Additionally, balance responsibility of user of feed-in tariff is undertaken by guaranteed supplier during the whole incentive period, while with user of market premium balance, responsibility is undertaken by guaranteed supplier only until establishment of liquid market of electric energy.

Last but not least, incentive period for feed-in tariff is, compared to the previous solution, extended for three years, so pursuant to the Law on RES, it is fifteen years. 

Other provisions of Law on RES

Other noteworthy provision of Law on RES is that producers of electric energy from RES are entitled to sell such electric energy to the final costumers, provided that they have license for supply of electric energy.

Producer of electric energy from RES is entitled to, provided that conditions determined by the law are fulfilled, guarantee of origin. Guarantee of origin represents confirmation that certain quantity of electric energy is produced from RES, and it is issued upon the request of producer by the operator of transmission system, who is obliged to keep record of issued guarantee of origin.

One of the novelties is introduction of costumer-producer institute, who actually represents the final costumer who produces electric energy from RES for his personal needs, and if he does not use it all, he may storage such produced electric energy as well as deliver it to the transmission i.e., distribution system. Costumer-producer does not have rights on incentive measures, nor on the guarantee of origin.

Apart from the production of electric energy from RES, Law on RES envisages possibility of production of heat energy from the RES. Units of local self-government are exclusively authorized to prescribe incentive measures, conditions and procedure for acquiring of right on incentive measures.

By Jelena Gazivoda, Partner, Nikola Djordjevic, Partner, and Marko Mrdja, Senior Associate, JPM Jankovic Popovic Mitic

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