Liberalization of the electricity and gas markets from the 1st January – problems on the horizon

, News Serbia Energy

At the conference “Is Serbia ready for the liberalization of the electricity and gas markets from the 1st January,” organized by Balkanmagazine, the disputable issues related to the implementation of liberalization process were addressed. It is now up to the Government to decide whether the companies that do not have contracts will face having their electricity cut off or the “deadbeats” will continue to burden EPS.

On the first day of 2013 the Serbian economy will see one of the biggest changes since the beginning of the transition process – liberalization of the electricity and gas markets, which will be followed by the establishment of market prices and the introduction of many other requirements that have not existed so far, especially when it comes to energy supply.

At the conference hosted by Balkanmagazine, the representatives of the Energy Agency, the Ministry of Energy, EPS, EMS and Srbijagas tried to answer a question “Is Serbia ready for the liberalization of the electricity and gas markets?” in front of an audience consisting largely of representatives of the industrial consumers and energy trading companies.

According to the new Energy Law, as of 1st January 2013, large consumers of electricity and natural gas will have to buy those products in a free market. Also, an eligible buyer that does not have the contract with an energy supplier will be taken off the grid. We will see whether the companies, including those undergoing restructuring which are protected by the Law on privatization, will be having their electricity cut off. Mirjana Filipović, Assistant Minister of Energy, underlines that the Law must be respected, but also that cutting off someone’s electricity in the 21st century is not humane at all.

“It is up to the Government to resolve this trade-off,” said Filipović, adding that there are still a few working days left and a few sessions of the Government.

Customers are seeking delay

Although the representatives of companies, which will have to find the best energy supplier in the market, are seeking a delay of the law enforcement or at least additional time for making adjustments, the Assistant Minister of the Ministry of Energy, Development and Environmental Protection states that there will be no delay because it would require amendments to the Law, as well as that the entry into force of the Energy Law is inevitable.

“Eligible customers have been able to choose their supplier since 2007, according to the previous Energy Law, and since 2004 in line with the directive EU/54. In the recent years there has been a lot of talk, but little action towards electricity market liberalization. Even if we postpone enforcement for one more year, nothing would be achieved, and at this time next year we would be unprepared as well. Some things just have to be done, because we have an obligation to do so,” categorically said Filipović.

From 2013, 9.5% of customers will switch to a free market, 43% customers starting from 2014, while the prices will remain regulated only for the households and small customers. As of 2015, they will be also entitled to choose their energy supplier. The Energy Agency is responsible for creating the regulatory framework for liberalization. Ljiljana Hadžibabić, a member of the Council of the Agency, points out that the legal framework for adoption and implementation of this Law arises from EU directive and that the Law was conceived under the watchful supervision of the Agency’s representatives. “The bylaws on electricity market are already prepared, while the legislation framework for gas market will be completed in the beginning of the next year, when the rules on gas transport system will be adopted. Transmission system operators are also ready. There will be no problems as long as only five customers buy energy from different suppliers, but as from 2014, when 400,000 companies start with this practice, we will need to introduce advanced information technology,” says the representative of the Energy Agency.

EPS – both public and backup supplier

Our Law provides for a backup supplier. For electricity it will probably be EPS, but it hasn’t been decided yet. If anyone, for any reason, loses its supplier, it than can rely on backup supplier for 60 days, but the price of energy delivered in this manner will be higher than the market price.

“If customer has not concluded an agreement with a new supplier in the meantime, the delivery of energy to that customer will be suspended,” warns Hadžibabić.

She highlights that customers seem least prepared for liberalization, because they have been “spoiled” by the State that has based its social policy on the lowest electricity and gas prices in Europe.

Another novelty is that in the coming period all market participants will be responsible for the balance. They will have to take care of their consumption, because the suppliers will strive for cost optimization.

“All game rules were subject to public debate, but at that time no one was interested in that,” replies Hadžibabić to the business sector representatives, who complained, saying that they were not familiar with the new regulation. Some even claimed they have not had an opportunity to get acquainted with the rules.

Recalling that the Law was adopted in July 2011, Hadžibabić said that new problems will certainly arise as soon as the implementation starts, but that they will be fixed “on the fly, upon detection of barriers.”

Dragan Vučur, Chief Commercial Officer at “Srbijagas”, says that in the past there were also eligible natural gas customers, which were purchasing gas at unregulated prices that were higher than the regulated ones. The policy of regulated gas prices motivated customers to shift back to these prices, some of them even reselling gas in the regional markets.

“This is one of the most liberal laws in Europe. It is freer than the laws of some EU member states, which have already had liberalized markets. “Srbijagas” notified its eligible customers that they cease to be entitled to the public supply and informed them on the conditions and prices of supply which will be applicable in the future period. A sample proposal for supply contract with large customers can be found on the company’s website,” said Vučur. He added that “the Serbian market is characterized by a lack of technical equipment for the daily functioning of the market and that in 2013 “Srbijagas”, with EU financial assistance, will provide SKADA system. “Srbijagas” is ready to face the first stroke even with old equipment, but we are working to provide IT equipment and platforms for market management.”

EMS ready for liberalization

Transmission network, i.e. “Elektromreža Srbije” seems to be the electricity market segment which is best prepared for liberalization. Miloš Mladenović, corporate Director for International and Regulatory Affairs at PE “Elektromreža Srbije” says that adequate technical capacity and legislation enabling administration of an open electricity market are in place.

“We already have twenty active sellers of electricity, but the only liquid markets are cross-border sales to EPS and transit. Last year we had a turnover of 10 TWh in the internal market. It is necessary to implement “day-ahead” market in order to balance short-term positions,” said Mladenović, stressing that the Law was passed in the mid-2011, but so far the economy hasn’t been ready to deal with the free market.

The Serbian electricity market opens at the moment when we face energy shortage, when regulated prices are lower than economic, and the energy sector is inefficient and underinvested. However, the Serbian electric power system must develop in accordance with European if it wants to remain a part of that system and attract further investments, considers Dragan Vlaisavljević, Manager of Trading Department at EPS.

“As from 1st January, the market is to be liberalized for about twenty customers and for 3.5 billion kWh, which some of 20 licensed traders can easily provide. In the process of liberalization we will have two parallel markets: the market of public supply and the free market. The respect for the Law is of key importance. EPS has no obligation to supply any customer in the transmission network, but it’s a matter of the company’s policy. Future production capacity will be adapted to suit the market conditions. If there are not enough customers, there will be no investment. If the investments do not turn out to be profitable, they will be suspended,” says Vlaisavljević, pointing out that business activity based on 70% electricity production from coal and 30% from water energy is not sustainable with a current level of prices.

Debts will not be forgiven (?)

Some companies, especially those undergoing restructuring, have so far refused to pay their electricity bills, so it is difficult to believe that they will be paying their electricity when market prices are established. Vučur warns that liberalization should be fully implemented, as well as if some customers wish to change their supplier, they must first meet their obligations to the previous one.

Marija Filipović said that the problem of the companies in restructuring was addressed in cooperation with the Ministry of Finance and Economy.

The discussion has also addressed the fact that utility companies would have to pay the market price of electricity, while their services are highly controlled and underestimated. The issue related to energy plants that used to supply the former industrial systems, now collapsed and dispersed into dozen small companies, has also emerged. Slobodan Đorđević from “Energetika Kragujevac” has underlined that in addition to the problem of inadequate pricing, there is also a problem with maximum output power which they are required to report.

Slobodan Petrović, the representative of the Serbian Chamber of Commerce, referring to the meeting on the same topic held in that institution, conveyed the demands of companies, such as cement factories, companies from the chemical and construction industries and enterprises undergoing restructuring, asking for the law enforcement to be postponed by several months, during which the price would gradually increase.

Source Serbia Energy Magazine