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Serbia: Un(b)locking the Wind Auctions

The Ministry of Mining and Energy of the Republic of Serbia published the much-awaited draft of the amendments to the Law on Use of Renewables (RES Law) on Saturday, 21 January 2023.

It seems that the focus of the amendments is to create pre-conditions for organising the first auctions for awarding premiums for wind farms, which are overdue from December 2021. The key pre-condition being to address the concerns of EMS (the transmission system operator) and EPS (the guaranteed supplier) has been so vocal about from the moment the RES Law was adopted.

Rewind

The RES Law, adopted in April 2021, reformed the system of incentives, promulgated priority of dispatch for all renewables and envisaged a relatively preferential balancing regime for the producers of electric energy from renewables during the transitory period until the market conditions allow them to be fully responsible for balancing their production. Welcomed by the private sector, professional associations and international organizations, the RES Law was the first step of the regulatory reform that aimed to enable a boost of investments in the Serbian renewables sector.

The ambitious plan to have the reform completed by autumn 2021 and hold the first auctions for granting premiums to wind farms by the end of that year soon showed to be unrealistic.

Certain steps have been made (the country set a 400 megawatts, MW, quota for wind premiums and the regulator set the ceiling price at, inadequately low, 55.68 euros per megawatt-hours, MWh), but the public became aware of conceptual disagreement between the (former) Ministry, on one side and EMS and EPS on the other. EMS and EPS objected to the solutions of the RES Law that, in their view, unjustifiably favour the renewables and could have a significant negative impact on the (financial) stability of the entire electric-energy system of the country. Following the heated debate with the former officials of the Ministry, EMS and EPS have suspended all their activities related to the work on the regulatory reform for more than a year. As a result, Serbia entered 2023 without a finalised framework introduced by the RES Law in 2021.

Back to the present

The most notable novelty of the draft amendments of the RES Law relates to the balancing regime. EPS will be required to take over the balancing responsibility only for the producers entitled to premium (or FiT). Other projects will need to regulate their balancing responsibility on market terms. The amendments introduce mechanics that will protect the financial stability of EPS – including the obligation of the producers entitled to premium to pay fees (amounts to be determined in a public call for auctions) to EPS as a consideration for the transfer of balancing responsibility.

The priority dispatch will be guaranteed only for projects below 400 kilowatts (kW), and from 1 January 2026 for projects below 200 kW. The amendments do not mention, though, how the projects will be protected from unjustified curtailment.

And as a cherry on top – the draft amendments introduce the possibility of EMS requesting producers from renewables to secure additional capacities on the system (including batteries or conventional sources) that will be used to secure the stability of the system as a pre-condition for connection. The rationale of this open-ended authorisation of EMS is clear, but it seems to be moving the responsibility for maintaining the stability of the system from EMS to producers.

The only proposed change not requested by EMS and EPS relates to the manner of determining the ceiling price for the auctions for awarding premiums. In order to address the low ceiling price (55.68 euros per MWh) and concerns a number of investors raised about the methodology used by the regulator for determining the ceiling price, the amendments transfer the responsibility for determining the ceiling price from the regulator to the Ministry.

What’s next

The public debate about the draft amendments to the RES Law is open until 9 February 2023.

If these changes, with a bit of fine-tuning during the debate, are put into place quickly and soon followed by the bylaws that would further elaborate the balancing regime (which is expected), it would be realistic to have the first auctions organised by the end of March or during April 2023.

If the ceiling price is determined at an adequate level, there is a good chance that the auctions will be successful and the direct goal of the amendments would be fulfilled.
What would be the long-term impact of the novelties, if they remain in the final text as proposed in the draft amendments, on the green transition in Serbia, remains an open question.

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