Serbia: Wind park business, 500MW cap quota and investors’ expectations

13. August 2015. / News Serbia Energy

The case of Serbia can be a perfect example of how wind power plants can contribute to economic growth and social development. According to estimations, the construction and operation of wind farms equivalent to the current wind energy quota of 500MW can generate a net economic benefit for Serbia in the region of EUR 400 million over the 25 years of operation of the wind farms.

This net economic benefit would arise from the use of Serbian companies and equipment during construction and maintenance of the power plants, as well as from the tax revenues collected by both the State and the local administrations. These taxes can be used for other needed investments in Serbia to boost its economy. Serbian workforce would be used for the construction of the wind farms but also for the maintenance during the 25 years of their operation, including field service engineers.

Two-and-a-half years have passed already since the incentive scheme has been adopted. No significant progress has been made with the exception of the adoption of the energy law last December. Many investors are starting to feel deal fatigue. They’ve already invested significantly in projects preparation stated Gaetano Massara CEO of GE for South East Europe.

We are referring firstly to the Power Purchase Agreement, which is the template contract between the developers of wind farms and the offtaker of electricity, which in the case of Serbia is EPS. But also the Decree on the Preferred Power Producer status and the Decree on Incentive Measures are still missing says Massara.

Massara stress that investors should consider also compliance with European Union regulation. Serbia is a signatory country of the EU Energy Treaty. It undertook the obligation to meet at least 27% of its energy needs from the use of renewable energy sources by 2020. The wind energy quota of 500 MW is part of this strategy. If Serbia does not build these 500MW of wind energy, it will have to import it thus further deteriorating its energy deficit and balance of payments. Missing the 2020 deadline would also imply for Serbia being in breach of its commitment with the EU. Meeting this obligation is part of the country’s overall commitment to join the EU and to abide by its regulations.

All the countries have pros and cons. From the perspective of regulation, we see that Montenegro’s regulatory model is a good one, providing adequate guarantees and security to investors while at the same time not exposing the country to over-commitments. Governments usually have this concern: they don’t want to over-commit and then be faced with a situation where they have to make retroactive or drastic changes.

But the case of Serbia is different. Firstly, Serbia is in a different phase of the investment cycle as it has still to start the implementation of sizable renewable energy projects and incentives are needed to attract investments. Secondly, the current level of the Feed-in Tariff for wind energy is a good compromise, as it is not too high and not too low. Thirdly, in setting a wind quota of 500MW the Serbian government made a prudent choice; this choice will protect Serbian energy bill payers. In all these policy choices, the Serbian government has operated very well.

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