Serbia: Projections of electricity market development

, News Serbia Energy

With the next Energy Law, which was adopted in August 2011, the further steps were made toward the liberalization and establishment of this market and the harmonization and convergence of regulatory and institutional framework of the European Union were provided. In early 2013, with the established model of wholesale markets, it started to move toward the gradually establishing the model market retail.

Therefore, since 1st January 2013, the end customers, whose facilities are connected to the distributive system, have had the right to public supply of the electricity and in that way it has really started the functioning of a market segment on retail. Thereby, it began the so-called first phase of the market liberalization, and from 1st January 2014 the second phase started, which involves the right to public procurement only for small customers and households.

From 1st January 2015, the third phase of the liberalization started. In accordance with the new law, all the customers had a choice of suppliers, and the right to a guaranteed supply could earn only the households and small customers (legal entities and entrepreneurs who had less than 50 employees, total annual revenues of up to EUR 10 million, of which all facilities were connected to the distributive system of electricity voltage below 1kV and with a consumption of 30,000 kWh per year).

The liberalization of the electricity market on a global scale is a progress that began more than decades ago and is still ongoing. This process is not yet fully popular in the region, which also applies to the Republic of Serbia. Still, in the field of electric power, Serbia has progressed a lot towards the harmonization with the European Union. Specifically, the accounting and legal unbundling of the electricity transmission, from the production activities, distribution and trading of electricity, were performed. In early 2013, with the established model of wholesale markets, it moved toward gradually establishing model market retail, and so the Law terminates the right to the regulated supply to all the customers whose facilities are connected to the transmission system from 1st January 2013, and thus it really began the functioning of one market retail segment. Thus, it began with the so-called the first phase of the market liberalization. From 1st January 2014, the customers whose facilities were connected to the distribution system, and had over 50 employees or revenues higher than EUR 10 million, had to choose their supplier, which meant the second phase, which involved the right to public procurement for small customers and households. With the new Energy Law, which was adopted on 29th December 2014, the third stage of liberalization began, where the right to regulate guaranteed supply had only the households and small customers (legal entities and entrepreneurs who had less than 50 employees, the total annual income of up to EUR 10 million, of which all the facilities were connected to the distributive electricity system with the voltage below 1 kV and with a consumption of 30,000 kWh per hour). The new Law expresses the readiness of Serbia to implement in its legislative framework the main objectives of the Third Package of the EU directives, among which the most important are: increasing the security of supply, sustainable energy development, increase the efficiency of the energy sector and environmental protection. In order to achieve the reform objectives, the Law envisages the strengthening the role and independence of the Energy Agency of the Republic of Serbia in the further development of the electricity market in Serbia, greater independence of the transmission and distribution system, the availability of the network capacity to all market participants and transparent monitoring of the third party access to cross border capacities, etc. The aim of this paper is to show the direction in which the electricity market in Serbia will develop and illuminates the new role of the Electric Power Industry of Serbia in this field.

The adoption of the Energy Act of 2004 initiated the process of reforms of the energy sector in order to provide the prerequisites for the development and efficient operation of all the entities performing the energy activities according to the market principles of business, as well as the harmonization of the laws with the EU legislation. That Law, to a large extent, implements the provisions of the second package of the EU regulations, including the most important electricity Directive 2003/54 on the rules for the internal market in electricity and Regulation 1228/2003 on access to the electricity network for cross border exchange of electricity. This package defines the rules relating to the functioning and organization of the electricity sector and introduces the obligations: of free access to the network, which must not be discriminatory and must be transparent and economically justified price, of legal separation of legal entities for transmission and distribution in the case of vertically integrated companies and legal separation of transmission and distribution from the production and supply activities. In addition, a free entry into the production of electricity was enabled and the conditions were made for the establishment of an independent regulatory body responsible for implementing the regulations.

Therefore, this law established the Energy Agency of the Republic of Serbia (AERS), as an independent regulatory body to conduct activities on improvement and directing the energy market development based on the principles of non-discrimination and effective competition, monitoring the implementation of the regulations and energy system operation codes, adjusting the activities of energy entities in ensuring the regular energy supply and services and their protection and equal position, as well as other activities. Simultaneously with the formation of the AERS in July 2005, the first separation of the activities was performed, resulting in the formation of two independent legal entities, public company “Electric Power Industry of Serbia” (PE “EPS”), within which the activities of production, trade and distribution of energy was performed and public company “Elektromreže Serbia” (PE “EMS”), which dealt with the activity of electricity transmission. As the national transmission system operator, PE “EMS” is responsible for the transmission and transmission system management, electricity market organization and for the allocation of the rights to use available transmission capacity on the interconnection lines of the Republic of Serbia with neighboring countries.

After its adoption, the Republic of Serbia signed in 2005 and ratified in 2006 the Treaty establishing the Energy Community (EC) between the European Community and the Republic of Albania, Republic of Bulgaria, Bosnia and Herzegovina, the Republic of Croatian, the former Yugoslav Republic of Macedonia, Montenegro, Romania, Serbia, and the United Nations Interim Administration Mission in Kosovo pursuant to the UN Security Council Resolution 1244.

Although Directive 2003/54 insisted on the restructuring of the vertically integrated companies and the establishment and strengthening of the role of the independent regulatory bodies, that did not fully happen, so that in some EU member states the problems still exist in establishing the electricity market under equal conditions for all customers without discrimination in access to the network. It was also noted that in the Member States there were no harmonized level of effective regulatory monitoring.

Therefore, adoption of the Directive 2009/72 followed, which repealed Directive 2003/54, Regulation 713/2009 concerning the establishment of the Agency for the Cooperation of Energy Regulators and Regulation 714/2009 concerning the conditions for access to the network for the cross border exchanges in electricity.

All previous documents are part of the so-called “Third Energy Package” of the European Union, which has been implemented since March 2011 and whose aim was to ensure the removal of identified systematic problems in the functioning of the electricity and natural gas market, primarily market concentration and market power, vertical closings, insufficient integration of the markets and the lack of market transparency. The main elements of the “Third Package” are more stringent requirements for unbundling the transmission systems, significantly strengthening the authority and the functional and financial independence of the regulatory bodies, improving coordination of the transmission system operators (particularly in the field of investment planning), improved functioning of the wholesale energy market and improving the protection of the electricity and natural gas consumers. Decision of the Ministerial Council of the Energy Community of 7th October 2011 establishes the obligation of the Republic of Serbia to implement these regulations (the “third package”) until 1st January 2015. , transmits