Serbia: Coal – a Strategic Energy Source

20. January 2020. / News Serbia Energy

The price of electricity in Serbia is by far the lowest in the region and the second lowest in Europe, just after Ukraine, according to the latest Fiscal Council analysis. This applies to customers under the regulated regime, who are entitled to guaranteed supply at prices regulated by the Energy Agency of the Republic of Serbia, AERS – households and small customers.

As of 1 January 2014, only this category of customers has the right to regulated prices, with households having acquired the right to choose their supplier since the beginning of 2015. Naturally, EPS has retained absolute dominance in supplying these customers because there is no economic logic to change suppliers.

According to AERS, when it comes to the percentage of customers who are entitled to regulated prices relative to the total number of customers, expressed through measuring points, it is over 97% in 2016. When it comes to the amount of electricity delivered, it is 56% of the total electricity consumed.

After an increase of 3.9% since 1 December last year, the price for one kilowatt-hour in Serbia is 7.3 dinars (6 euro cents), excluding taxes and fees. Energy Minister Aleksandar Antic explained that with this increase, electricity in Serbia is the cheapest in the region – 7.2 percent cheaper than in Macedonia, 18.9 percent than in B&H, 24 percent than in Albania, 35.8 percent than in Bulgaria, 79.97 percent than in Croatia, 85 percent than in Romania, 125 percent than in Slovenia.

The price increase, although minimal, was necessary due to the rise in international market prices, the large influx of renewable energy sources and the cost of transmission of such energy. For comparison sake, the purchase price of one megawatt-hour of electricity produced in wind farms of 92 euros, guaranteed over a 12-year period, is twice the price at which EPS normally supplies electricity.

In this way, in 2018, wind farms were paid € 9.54 million in incentives in the form of so-called feed-in tariffs. It should be borne in mind that the highest wind capacity in Serbia was commissioned in late 2019, within the quota of 500 MW for which incentives are guaranteed, which means that this amount for 2019 and in particular for 2020 will be significantly higher. How this will affect the price of electricity in the future cannot be predicted for now.

On the other hand, we have end customers who buy electricity in the free market (commercial supply), which means that they are supplied at market prices. The market for large industrial consumers has been liberalized since early 2013, and since 2014, legal entities and entrepreneurs with more than 50 employees, annual income in excess of € 10 million, and medium voltage have been entered the free market.

According to unofficial EPS information, the price of electricity for small commercial customers at low and medium voltage, supplied on market terms, is € 64.45 per MWh for a more expensive tariff, or € 41.5 per MWh for a lower tariff . For single tariff meters, the price is 59 euros per MWh. The price for high voltage consumers, who are strategic buyers, is lower and each customer receives a special offer.

Coal and Environmental Projects – a Guarantee of Energy Security

 

Lignite is the most important energy source in Serbia – about two-thirds of the country’s total electricity is produced by thermal power plants. The remainder consists of hydropower and renewables. Of the total EPS generation capacity of 7,326 MW, 4,320 MW are covered by 22 thermal units.

Coal will remain an indispensable energy source for Serbia for the next 10 years, since there is simply no other source to replace it without endangering energy security.

In order to sustainably use coal in electricity generation, EPS has invested € 400 million in green projects, and another € 800 million needs to be invested, Minister Antic explains.

Construction of a desulphurisation plant at the Nikola Tesla A thermal power plant, the most significant EPS project worth €167 million, began in February 2019. The funds were provided by the Japan International Cooperation Agency, JICA. The flue gas desulphurization process using limestone as a reagent will be carried out on Units A3, A4, A5 and A6.

This largest environmental project implemented in Serbia so far will reduce sulphur dioxide emissions from the plant below 200 mg/m3, i.e. from 74,000 tons to 7,800 tons per year, which will also meet the requirements of the EU Industrial Emissions Directive.

EPS is also facing a desulphurization project for both TENT B units, estimated at € 160 million. Attempts to secure funding for this project are currently underway.

In addition to this, three key environmental segments were finalized at TENT, namely the construction of electrostatic precipitators on all TENT units, as well as the reduction of nitrogen oxides, which has been implemented on A3, A4 and A5 units.

Desulphurization plants were built at TPP Kostolac A and B (investment value is about 96 million euros) as part of a Chinese loan.

High Renewables Costs in the Region

 

Given that wind, like other renewables, is volatile, this means that when there is wind, this allows countries with significant wind capacity to export electricity, while the price in spot markets (day-ahead and intraday) falls – sometimes reaching negative values in European markets, which means that wind farm operators pay customers to take over the energy they generate, because it is cheaper for them than to pay the balancing costs.

However, when there is no wind, prices in the spot markets go up and countries are forced to import electricity.

Here is perhaps the best example of neighbouring Romania, which has been facing major problems in the energy sector lately, due to outdated capacities and poor regulations.

Romania, which for the first time in recent history changed its status from a net exporter to a net electricity importer, has about 3,000 MW of wind capacity, which means that on a daily basis the importer/exporter is almost entirely dependent on whether the wind is blowing or not. This creates uncertainty in the electricity market and high volatility in the spot market as well as in the futures markets, affecting to a large extent conventional producers, who have balancing market obligations, as well as long-term contracts to comply with.

Electricity from other renewable sources is also expensive. Thus, in 2018, the average price paid in Northern Macedonia for one megawatt-hour of electricity generated from solar energy was 202 euros, according to official data from the Energy Regulatory Commission.

It is five times more expensive than the price of megawatt-hour produced from coal by the state-owned company ESM (former ELEM) and more than three times more expensive than the average annual price per megawatt-hour on stock exchanges in Serbia or Bulgaria.

Macedonia had 102 companies last year that received preferential prices for solar power generation. These photovoltaic power plants have little installed capacity for generation, compared to wind, biogas or hydro. In 2018, these plants generated 22,788 megawatt hours of electricity. This generation can meet electricity needs of the entire North Macedonia in the course of just one average winter day.

A total of € 4.6 million was paid for the 22,788 MWh generated.

Solar energy has the highest privileged or preferential price in Macedonia over other renewable energy sources. According to the regulator’s official data, average prices of electricity generated by RES in 2018 are: EUR 178 per MWh for biogas (total generation was 54,050 MWh), EUR 89 per MWh for wind, with total generation of 97,338 MWh and 78 Euro per MWh for hydro energy, which has the largest generation share – 202,962 MWh.

Electricity Price on Stock Exchanges

 

When it comes to the price of electricity on the SEEPEX stock exchange, according to the December 2019 report, the average price for base load was 41.19 euros per MWh, which is 4.5% less than in the previous month. The peak load price was € 48.41 per MWh, up 3.6% compared to November. The highest prices in the last year were recorded in January, when the average price for peak load exceeded the threshold of 80 euros per MWh, while the average annual price for base load was 50.54 euros per MWh, and for peak loads 56.73 euro per MWh.

On the Hungarian HUPX exchange, taken by regional countries in not having their own stock exchanges take as a reference, the average DAM price in 2019 was 50.36 euros per MWh, while the peak load price was 57.01 euros per MWh. The maximum price last year reached 138.82 euros per MWh, while the lowest price was – zero. Interestingly, in 2018 the negative price was realized, -25.97 euros per MWh.

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