Serbia: New Energy law introduces license wholesale supply of electricity

, News Serbia Energy

Although the new Energy Law already formally started to apply, it will only gain full force and effect once the competent ministry has adopted a number of necessary additional bylaws and further regulations. The new Energy Law prescribes a period of one year from the day of its entry into force for the adoption of the necessary secondary legislation. In the meantime, the existing bylaws and regulations will continue to apply. Newly adopted Serbia’s Energy Law introduced encouraging investments in the renewable energy sector and generally improving the Serbian energy sector’s regulatory framework by removing a number of obstacles contained in the previous energy law.

The new Energy Law further implements the EU’s Third Energy Package, thus making a step forward in harmonizing Serbian law with the relevant EU framework in the energy sector. Certain provisions of the new Energy Law also aim at ensuring a better functioning of the process for issuing construction permits for energy assets, with a view to bring the Serbian energy law framework in line with important novelties introduced by the recent amendments to the Serbian Law on Planning and Construction.

Below is a high-level overview of some of the main novelties introduced by the new legislation:

Substantially improved regulatory framework for renewable energy investments

Improved bankability of power purchase agreements (PPA). The previous energy law provided that a so-called preliminary privileged power producer (a RES producer) may conclude a temporary power purchase agreement with an off-taker and only has the right to sign the final power purchase agreement upon having obtained the status of a so-called privileged power producer, which has represented a major obstacle in Serbia to securing financing for renewable energy projects. The new Energy Law addresses this concern by enabling the preliminary privileged power producer to conclude a power purchase agreement with the off-taker designated by law with the condition that such preliminary privileged power producer subsequently obtains, within a prescribed deadline, the final status of a privileged power producer. This new arrangement has already resulted in positive feedback by major investors and financiers and now the expectation is that the necessary detailed rules will be introduced shortly through the adoption of a bankable model PPA by the regulator.

Improved rules regarding the status of a preliminary privileged power producer of electricity. According to the new Energy Law, the duration of the status of a preliminary privileged power producer of electricity in case of wind power projects is now three (3) years (in comparison with the previously applicable period of two (2) years), and it may be extended for an additional year. The same rule has now been introduced for hydroelectric power plants with the installed capacity of up to 30 MW, as well as biomass, biogas, waste, and geothermal power plants, for which such status has not existed pursuant to the previous energy law. At the same time, photovoltaic projects continue to be subject to the period of one year (potentially extendable for an additional year) in terms of the preliminary privileged power producer status.

Possibility to finance and construct the grid connection infrastructure by the power plant or its electricity off-taker. Addressing another issue which has been critical in recent years in power plant development projects in Serbia, the new Energy Law now explicitly provides for an obligation of the electricity transmission system operator (TSO) to authorize the power plant owner or its contracted electricity off-taker (if they so request) to obtain the necessary permits and construct the power plant’s grid connection infrastructure at its own expense, on behalf and in the name of the TSO.

Introduction of the licence for wholesale supply of electricity

The new Serbian Energy Law introduces a new licence for the wholesale electricity supply, i.e. covering trading with electricity on the wholesale electricity market, except of course for the sale of electricity to end-consumers. The new electricity wholesale licence may be obtained by both domestic and foreign legal entities and it is valid for ten years.

Introduction of the trader change rules in the market for natural gas

Pursuant to the new Serbian Energy Law, all end-consumers of gas, also including households, now have the right to buy natural gas on the open market. However, households and smaller gas consumers (meaning gas consumers with annual consumption of up to 100,000 m3, whose gas usage facilities are connected to the distribution system of natural gas)continue to be entitled to public supply of natural gas at regulated prices, unless they opt for changing supplier.