Montenegro: Current complexity and future perspective of the electricity market, connection with Italy will increase traders interest

18. March 2015. / SEE Energy News

Although the electricity market in Montenegro has been fully open since 1st January, for now, no new companies have expressed their interest in participating in the market as suppliers.

According to Dragan Mijajlović, executive director of the Montenegrin electricity market operator (COTEE), the Montenegrin market is expected to become more interesting to potential suppliers after the implementation of the interconnection cable project, which should connect Montenegro and Italy, and the legal and functional constitution of a distribution system operator. In addition to the low electricity price, the insufficiently developed infrastructure, and in certain cases also the market size, are the reasons for the low interest of companies in the participation as suppliers, both in the region and in Montenegro.

Mijajlović explains that, according to the Article 205 of the Energy Law, the tariff buyers – households become qualified buyers as of 1st January 2015, i.e. the electricity market has been fully open since 1st January. He believes that it is very important to stress that, from the point of view of the market operator, the electricity market has been operating for a year and a half already, this market having 26 participants and the balance mechanism implementation being fully carried out. So, imbalances and financial settlements are being determined and the point is that, since October 2013, the system has been established in a legitimate, legal and functional manner for the first time also through the system of “incident situations“ bank guarantees. The conclusion ensues that the market operator is in an advanced stage of implementation of obligations defined by the Law and the License. It is certain that, in terms of both information and personnel, COTEE has the presumptions for the overall market development, and also for the possible interest of new potential suppliers. As a company that already has an information system, which can fully provide all functions in accordance with valid regulations, in COTEE, they believe that the information system harmonization, in compliance with international standards, is a very important step towards the implementation of everything prescribed by the law, the market rules and other regulations.

Asked why the interest in obtaining licenses in this trade sphere is low and whether the current electricity prices are the reason for this, Mijajlović replies that, despite the fact that incentive regulation methods are applied in Montenegro in which the costs, and thus also the revenues, of regulated entities are approved for the period of three years, as well as that there are trends of considering electricity as goods, and not a social category, it can be concluded that the current prices are indeed a very important factor of the low interest of companies in participating as suppliers.

Mijajlović emphasizes two more facts. The first one refers to the still unfinished job related to the separation of the distributive system operator from the EPCG system, i.e. the fact of existence of a vertically integrated company such as the EPCG. The second reason is the size of the electricity market in Montenegro. More precisely, the demand in Montenegro, i.e. the potential number of buyers as the target group of these suppliers is small, more precisely it amounts to somewhat less than 385.000.

Asked about the requirements for a foreign or domestic company to become a supplier, Mijajlović says that the job of enrolling new suppliers is conditioned by the fulfilment of certain obligations. Primarily, interested companies must have certain financial, organizational, technical and administrative capacities on the basis of which the energy regulatory agency may issue a License for performing supply to them. A company becomes a supplier on the date of obtaining the license. Only after this can the company enter the process of registration on the market, which is in the competence of the market operator according to the Energy Law and the Market Rules. So, for a company to become a supplier, it has to go through a certain procedure with the regulatory agency, and after this, so as to become a market participant, it must undergo a procedure with the market operator. These procedures have been clearly defined for a long time already; they are precise and available at the web sites of RAE (Energy Regulatory Agency) and COTEE, which makes them additionally transparent.

In the countries in which the electricity markets were opened at the beginning of year, the situation is similar to that in Montenegro, Mijajlović stresses. So, there is no interest of companies in participating as suppliers or it is very low. The reasons for this are again similar to or the same as those also existing in the Montenegrin market. Primarily the low electricity price, i.e. considering electricity as a social category, and not goods.

After the full market opening in Croatia, competition emerged within the field of supply, this competition including over 20 companies, but the market share of HEP’s competition is small.

When it comes to the electricity market in Slovenia, the situation is a little more specific. Namely, on this market, there are five companies functioning within electricity distribution companies.

The changes that are necessary primarily include price adjustment, security that new participants will be treated equally to national electric power industries, the possibility of fast and easy emergence on the market and eliminating everything that is considered a business barrier.

In the opinion of the executive director of COTEE, as long as these or similar changes have not been made, this part of Europe will not seem attractive or challenging for business development in the eyes of potential suppliers. Their end goal is certainly the profit, which they can hardly achieve in the existing situation. Judging from the present interest, it could hardly be said that they even recognize their final interest in this area at all.

When it comes to the currently most important activities of COTEE and further plans and goals, Mijajlović stresses that, in 2015, the market operator will continue to participate actively in the adoption of the new Energy Law with a quality processing and analysis of the documentation related to the previous year. After the adoption of the law, COTEE will also give full contribution to the implementation of activities related to the amendment to market rules, the preparation of a methodology by which the regulatorily allowed revenue of COTEE is determined as well as of other bylaws.

In addition to these obligations, which will arise from the adoption of the new Law, in COTEE, they are planning to implement a series of activities in the following period that are of crucial importance for further growth and development of the market operator. This primarily refers to solving the issue of business premises, which will be started this year by announcing the public invitation for their purchase. On the other hand, the upgrading and modernization of the application i.e. the information system with partners, with a maximum participation of the employees of COTEE, will be another great challenge not only this year, but in the following years, too.

The energy balance for the year 2015 indicates towards an expected growth of production from renewable energy resources. This increases the attention of COTEE aimed at further affirmation of obligations defined by the Law, which refer to electricity generation from renewable resources and highly efficient cogeneration. In 2014, there was only one producer with the privileged producer status, and in 2015, new producers with this status are expected in Montenegro.

Mijajlović concludes that, considering that COTEE is a young company, and it performs a completely new activity of public interest, it continuously improves the business system, and as a part of its business policy, it pays special attention to its relationship with clients, license holders i.e. energy entities, the energy regulatory agency and the Government of Montenegro as its founder.

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