Serbia: Energy Community monitors the unbundling process of electricity market and reform of power utility EPS

24. March 2016. / News Serbia Energy

The most important thing is how the unbundling of DSO is going and whether it is in conformity with the requirements of the Third Energy Package.

The opening of electricity market in Serbia has been crucial for the transformation of the “Electric Power Industry of Serbia“ into a competitive market player. The result of EPS restructuring will be a modernized company with better corporate governance. The Energy Community will closely monitor the progress in the fulfilment of remaining obligations towards a complete unbundling of the distribution system operator (DSO) and EPS, Janez Kopač, Director of Energy Community Secretariat said in his interview for “EPS Energy“.

What will be the tasks for EPS on the Serbian path towards the EU through the opening of negotiation chapter on energy?

EPS will be in the forefront and it should contribute to the implementation of regulations within the field of energy, renewable energy sources, environmental protection and energy efficiency. The change in the way energy is generated and consumed pressures companies to redefine their business model from supplying energy towards providing energy services for clients. This will enable EPS to use the advantages created by the new competitive environment and to deal with the challenges that may arise in a better way.

What is your assessment of the progress in EPS restructuring? Is it in accordance with the ЕU rules?

In the EPS restructuring process, the conclusion of legal unbundling of DSO on 1st July 2015 is an important milestone, but DSO is still not independent in terms of organization and decision-making. EPS has to ensure that DSO is independent in making decisions about the management, maintenance and development of grid. For this to be guaranteed, DSO should adopt a compliance program for ensuring non-discriminatory behavior, which will be approved by the Energy Agency (EARS), and a compliance monitoring officer should be appointed. The Secretariat will closely monitor the progress in the fulfilment of remaining steps towards the complete unbundling of DSO. This is a very important precondition for the development of retail market competition which starts emerging in Serbia.

What is your view of the role of EPS on the regional electricity market?

For the transformation of EPS from a regulated enterprise into a competitive market player it was crucial that Serbia had liberalized prices and allowed the state-owned electricity generating company to trade freely. As the result, EPS became the first state-owned electricity producer in the Western Balkans which had established a subsidiary in an EU member state and started operating on the European electricity exchanges. This was a very good decision for the positioning of EPS on the regional market, as well as on the EU markets. This will serve as a model for other Western Balkan countries in which electricity generation is still a mandatory public service with a regulated price. EPS has to improve its efficiency and raise environmental standards so as to strengthen its role on the regional electricity market. In addition to the wholesale market activities, EPS can be expected to participate actively on the regional and balancing market in the future, as well as to invest in production capacities.

Are the projects in which EPS and Serbia are included within the initiative of the six Western Balkan countries proceeding according to plan?

Serbia has established the first organized “day-ahead“ electricity market in the Western Balkans called SEEPEX. The EPS, as the biggest producer on the Serbian electricity market, will have the key role in encouraging competition and liquidity on this exchange. The announcement that SEEPEX will initiate connection with the neighboring European markets will contribute to the regional market integration.

Europe has mapped out new objectives in energy and climate strategy by 2030. What does it mean for Serbia? What will be the obligations of EPS and the consequences of a possible failure to fulfil the set objectives?

First we should see how Serbia is getting on in fulfilling its obligations by 2020. Serbia has to increase efforts so as to achieve the national objective of having 27 percent of energy from renewable sources in the final consumption. Currently, there are no major investments in this field and there is a risk that Serbia will not comply with this obligation. This is no easy task indeed, even for the countries with more developed economies. In the National Action Plan for Renewable Energy Sources, Serbia has envisaged to contribute to the fulfilment of the objective of raising the electricity generation from renewable sources to 36.6 percent by 2020, from the level of 29 percent in 2009, by constructing small and medium hydro power plants with the total capacity of 188 MW and large hydro power plants with the capacity of 250 MW. It is uncertain whether all these capacities will be connected to the grid by 2020.

When it comes to the electricity generation sector, Serbia has submitted the National Emissions Reduction Program (NERP) to the Energy Community Secretariat in December 2015. This represents an important step in the preparation for implementing the Large Combustion Plants Directive, which sets the limits for emissions of sulphur-dioxide, nitrogen oxides and particles into air. A strict implementation of this program is vital.

The new, more ambitious, European objectives within the field of energy and climate policy by 2030 will certainly affect the legal framework of Energy Community. At this moment, several proposals are being developed that will strengthen the environmental side in the Community regulations. It is logical that, in the atmosphere after the global agreement on combating climate changes in Paris (COP21), the Energy Community should start focusing more on the reduction of carbon-dioxide emissions.

What are the remarks of the Energy Community to the implementation of Energy Law and the introduction of rules from the Third Energy Package in Serbia?

Serbia has been the leader among the Energy Community members in transposing the rules from the Third Energy Package into the national legislation. The Energy Law, adopted in 2014, provides for this to a large extent, but additional effort is necessary so as to also ensure its practical implementation. This particularly refers to the unbundling of the distribution system operator and production and supply in both electricity and gas sector. Serbia has not rectified yet the long-term violation of the Treaty Establishing Energy Community which refers to the unbundling in “Serbiagas“. The underground gas storage in Banatski dvor does not entirely comply with the Third Energy Package of the EU either.

Although the Ministry of Mining and Energy has adopted the certification rules, the actual unbundling depends on the adoption of amendments to laws regulating control over public enterprises. A recent case of non-compliance is also the decision of EARS to almost double the fee for gas infrastructure maintenance so as to compensate for the previous losses of “Serbiagas”. Gas consumers are not obliged to finance the political decisions from the past with respect to the overindebted companies that owe Serbiagas. I am disappointed by the moves of the independent regulator, who should protect the gas consumers, and not fulfil political aspirations.

What are the bottlenecks in the implementation of EU regulations within the field of energy in Serbia? Do the institutions and energy companies have sufficient capacities for this?

The capacity of EARS needs to be strengthened further so as to fulfil the additional obligations within the implementation of the Third Energy Package. As from October 2017, the application of regulations within the field of energy efficiency, also including the new directive, will require the strengthening of administrative capacities of competent institutions, also including the “Electric Power Industry of Serbia“.

It has been announced that the negotiation chapter on energy will be opened this year. Is Serbia ready for this?

The question of mandatory reserves of oil and oil derivatives is crucial for the opening of energy chapter in Serbia’s EU membership negotiations. According to what has been done so far, Serbia is making good progress in providing 90-day consumption reserves. Serbia made significant progress in 2015 when it comes to transposing the regulations within the field of energy efficiency into the national legislation. This will provide a good starting position for Serbia in negotiations within the sphere of energy efficiency.

Penalties

Should Serbia not comply with its obligations, the Secretariat may take infringement measures so as to ensure compliance with the Treaty Establishing Energy Community. This may lead to sanctions by the Energy Community Ministerial Council. Still, I have to emphasize that the infringement measures are a stick, an instrument that we use only as the last resort, said Kopač.

Important Role of EPS

Serbia has to focus on the implementation of the EU Directive 2012/27/EU on increasing energy efficiency by 20 percent. According to this Directive, Serbia should establish a mandatory energy efficiency scheme, which requires energy companies to achieve the energy savings of 0.7 percent annually from selling to end consumers as of 1st January 2017. EPS will have an important role in the implementation of measures for higher energy efficiency of end consumers, said Kopač, transmits Serbia-energy.eu

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