Serbia exclusive: Electricity price structure for consumers, power market liberalization insight report

Published on 18. December 2013., News Serbia Energy

January the 1st next year is the official date when the total number of free market participants able to choose their own electricity supplier in Serbia will change from a modest 26 to over 2700. However, it is possible to get a feel for the upcoming consequences of this event now, in November, with the December issue of Market Player. Creditworthy buyers of electrical energy are keen to get ready in time to make use of their option to switch current supplier, and the first step is to price their hourly consumption profiles against the market with the help of alternative offers.

To succeed in this task and come up with adequate price comparisons the consumer needs to have access to an accurate hourly consumption diagram. This is not just a problem for the final consumer that does not know their own consumption profile, or the private supplier (trader) who does not want to take the risk of balancing bigger unpredictable hourly imbalances. It is also a problem for the public supplier company that barely has information on consumers’ hourly consumption despite the fact they are obliged by law to provide fixed regulated prices and a full supply contract (bearing the costs of any hourly imbalances). Probably everyone understands today that the price of electricity depends largely on the consumption profile; therefore increased uniformity of the hourly level directly and positively influences lower average prices.

Legal definitions of measurement also point to interpretation of regulations becoming increasingly complex in the buyers’ domain, with a huge number of measurement points (such as: shopping, restaurant and hotel chains, company owned commercial spaces, factories with distributed production facilities as well as reception of electrical energy at different voltage levels, and similar). There are as yet no clear laws defining the possibility to transfer payment responsibility per measurement point belonging to the commercial space owner with the legal body (company) renting the space and actually consuming the electrical energy. This prevents the company that rents the space from procuring and sourcing the energy for a particular measurement point from the market together with the total purchase quantity for other points, and therefore remains the single measurement point to be supplied from the public supplier at regulated tariff. In this case some of the objects used by companies supplied from the market will most likely stay in the public supplier domain. In addition, since one of the criteria to decide upon eligibility of the buyers to be supplied by an alternative supplier is that the connection point must be above 1 kV, the law is somewhat incomplete in respect of what happens to the objects of customers whose measurement point on low voltage is lower than 1 kV, and whether these objects should remain in the mode of public supply, or the contract should specify the price in this case? There are different opinions on this; however, such questions cannot be allowed to remain incomplete when the market is opened up.

The problems of identifying their own profile as well as the interpretation of the law are just some of the issues that are already engaging new market participants. On the other hand, what is also clear to most participants, and the biggest problem facing electricity suppliers, is the necessity of a clear pricing structure for the customer.

Suppliers want to know, among other things, the extent to which the grid fees (a fee for access to the transmission and distribution systems) shall affect the price of electricity, and who will calculate and collect the network fee? Apparently, in a full supply agreement, the bill for the network fee to the buyer details a supplier, who will be required to pay the fee directly to the appropriate transmission or distribution system. Identification of the exact amount of the grid fees shall be very important for the customer in the procurement process, enabling comparison of the final cost of the public supplier to the price of the supplier under the contract, but also enabling comparison of the price of electrical energy (without grid fees) on the retail market with the price at the wholesale market level (both in Serbia and in the Southeast Europe region, Germany and the markets of Central Europe).

In addition, the price of electricity that a supplier should offer the end customer includes fees for reservation of cross-border capacity, which can be reserved at the annual, monthly and daily auctions organized by the transmission system operator, as costs that are relevant for the electricity generated by purchases from abroad (environmental certificates, export fees).

Only when aware of all the factors that affect the final price, can the supplier determine their margin as the final addition to the costs, and thus complete the process of price formation for the end customer.

One of the important factors that affects the final cost of electricity is the network fee.

Network fee for access to the transmission (high voltage) system for transmission of electrical energy

According to the price established for access to the electricity transmission system by the transmission system operator, Public Enterprise “Elektromreza Srbije” (“Off. Gazette of the RS”, no. 16/2013), the prices for access to the electricity transmission system are:
Approved and excess power is charged per installed capacity; while active and reactive energy are charged depending on the actual quantities consumed and are directly added to the final purchase price of electricity per MWh. These charges are unified for the entire territory of Serbia.

All companies whose facilities are directly connected to the transmission system only pay this fee in respect of measuring points for these objects.

Grid fee for access to electricity distribution system at medium and low voltage

In Serbia, there are five electricity distribution system companies (operators), which operate as subsidiaries of the public utility “Elektroprivreda Srbije”, namely:

⊲ “Elektrovojvodina“ d.o.o. Novi Sad;
⊲ “Elektrodistribucija Beograd“ d.o.o. Belgrade;
⊲ “Elektrosrbija“ d.o.o. Kraljevo;
⊲ “Centar“ d.o.o. Kragujevac;
⊲ “Jugoistok“ d.o.o. Nis.

Currently, the public enterprise “EPS Snabdevanje“ d.o.o. Beograd, supplies using the regulated prices and collects transmission and distribution grid access fees from customers. These grid access fees are combined, and do not contain separately stated charges for the transmission and distribution systems, even though the end user should know the exact amount of any charges payable. Clear understanding of the charges will be of importance to the end user during price and contract negotiation.

The public supplier pays the operator of the distribution system a fee to access the system and the distribution system operator pays the transmission system operator compensation for access to the transmission system.

The cost of access to the distribution grid is much greater in comparison to the fees for access to the transmission system, particularly in the domain of the widest consumer class (households).
Fees for access to the distribution system in Serbia are not equal, and each distribution system operator regulates the price in its own territory, with the fees generally increasing from the northern part of the territory to the south of Serbia.

Source; Serbia Energy