Serbia: Auction procedure sinks electricity bills

4. October 2019. / News Serbia Energy

While experts have no dilemma that starting next year, instead of feed-in tariffs for renewable energy sources, auctions should be held to select investors for their construction, opinions on whether small hydropower plants should be omitted from the process are to say the least clashing.

 

The feed-in tariffs for RES electricity were introduced in 2013 and imply that for a period of 12 years, the Electric Power Industry of Serbia pays for the electricity generated in this way to its owners under higher prices than regular, making their investment profitable. The cost of the feed-in tariff is borne by consumers through a fixed charge on the electricity bill, amounting to RSD 0.093 per kilowatt hour.

In practice, this for example means that a household spending 350 kilowatt-hours will pay additional RSD 32.55. Those spending 500 kilowatt-hours will be chipping in additional RSD 46.5, while consumers using electricity for heating and spending, for example, 700 kilowatt-hours in the winter period, would be plunking down RSD 65.1 for this fee. Given the low incomes and the high amount that should be allocated to the consumer basket, most citizens consider this an unjustified cost.

Feed-in tariffs in Serbia depend on the electricity source and plant capacity. The price for hydropower plants is 6 to 12.6 euro cents per kilowatt-hour. For biomass from 8.22 to 13.26. For biogas from 15 to 18.33 euro cents per kilowatt-hour. Electricity from waste is charged between 8.44 and 9.2 cents per kilowatt-hour.

For wind farms, the purchase price is 9.2 and for solar power plants it is between 12.4 and 14.6. Geothermal and waste-to-energy power plants generate electricity charged between 8.2 and 8.57 euro cents per kilowatt-hour, respectively. For combined heat and power plants, the cost is 7.45 to 8.2 cents per kilowatt-hour.

According to available data, in 2016, EPS charged consumers RSD 2.5 billion for electricity generated from renewable energy sources.

When it comes to renewable energy in Serbia, some 450 megawatts have been connected to the distribution network so far, while Serbia’s commitment to the European Union is to reach 27 percent of eco kilowatt energy by next year. So far, around 130 small hydropower plants, five wind farms and two large photovoltaic power plants have been built in Serbia.

Speaking at the opening of MK Fintel’s wind farm in Vrsac, Minister of Mining and Energy of Serbia Aleksandar Antic recently said that he believed that in 2023 or 2024, all solar and wind projects connected to the power grid would be able to develop under market conditions without feed-in tariffs. According to him, this is a new system for the sale of RES electricity in auctions, and that wind and solar energy will be purchased under market terms.

On the other hand, the transition from the system of feed-in tariffs to auctions in Serbia has been recommended by the Energy Community and it is still unknown when this will happen. At this point, a regulation providing for feed-in tariffs remains in force until the end of this year. Thereafter, the Government of Serbia may extend the validity of the current regulation or approve an auction procedure for selecting investors building RES power plants. Although there are still three months remaining until the end of the year, it is completely uncertain which model the authorities in Serbia will opt for, while experts point out that this is driving away potential investors in the area.

Slobodan Ruzic, director of Energy Saving Group, a consulting firm, tells Danas that auction procedure should be introduced because it is more favourable to consumers. – Instead of the feed-in tariffs, whose levels are high and fixed, in the case of the auction procedure, the most favourable bidder is selected and the maximum amount of subsidy that the investor still receives is prescribed to be lower than the former designed under the feed-in tariffs. This specifically means that the RES fee in electricity bills will be lower than now. However, the problem is that our auction procedure is being introduced too quickly.

In developed countries, this has only happened after competition was introduced after some twenty years of applying feed-in tariffs. It will simply be difficult for investors to obtain credit support from banks to build renewable energy sources, as it will take a long time for bankers to understand the new system and study how secure it is in terms of granting loans. It took bankers some time to become familiar with the functioning of feed-in tariffs and now all too quickly, it is possible to switch to another system whose procedure outside the profession is not easy to understand – our interviewee points out.

He explains that the auction procedure will only be applicable for the construction of large wind farms and photovoltaics, where it is only cost effective, while smaller facilities will still be subject to a feed-in tariff. Ruzic categorically opposes that investors in small hydropower plants remain without subsidies. – It is true that to some extent they have an adverse environmental impact. However, wind turbines, photovoltaics, biomass have the same adverse impact, even to a greater extent, without their construction being suspended and subsidies abolished. If small hydropower plants are a bad solution, why did Austria build around 5,000 of them? It is a fact that there is a dirty campaign against small hydropower plants by certain lobbies affected by their development.

They are by far necessary, as they have their own purpose and their subsidization should be continued. All RES owners, including small hydropower plants, are required to undertake environmental measures. Therefore, investors not doing so should be penalized, and subsidies for all small hydropower plants should not be abolished – said Ruzic.

Professor of the Belgrade School of Economics, Ljubodrag Savic, has a different opinion and believes that the construction of small hydropower plants should be completely banned in nature parks. – It is about technology destroying waters and aquatic life. Water is an important resource and we need to conserve it. Therefore, the construction of small hydropower plants, which brings more harm than good, should be banned in protected areas. Subsidies to such plants should also be abolished.

When it comes to subsidizing electricity producers, Serbia has obligations assumed towards the European Union, and by next year, almost a quarter of its electricity should be generated from renewable sources. Subsidies are still needed to achieve this. It is far more advantageous for citizens to determine them at auction procedures, because in this way their amount is lower than currently prescribed by feed-in tariffs – Professor Savic concludes.

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