Switching to more market-based schemes for renewables in Contracting Parties’ interest

Janez Kopač, Director of the Energy Community Secretariat, speaks in an interview for the Balkan Green Energy News about widening the scope of the Industrial Emissions Directive’s application and launching a process aimed at setting targets for renewable energy, energy efficiency, and greenhouse gas emission reduction for 2030. He also explains why switching to more market-based schemes for renewables is in the Contracting Parties’ interest.

The Ministerial Council held in Priština welcomed two proposal of the European Commission –  for a Recommendation on Chapter ll, Chapter IV, Annex I and Annex Vl of Directive 2010/75/EU on industrial emissions, and for a Recommendation on Directive 98/70/EC relating to the quality of petrol and diesel fuels and amending Council Directive 93/12/EEC. When will these proposals become part of Energy Community acquis?

The two new chapters of the Industrial Emissions Directive are covering additional aspects. One chapter is on Best Available Techniques (BAT) and the other deals with waste incineration plants. This effectively widened the scope of the Directive in terms of its application within the Energy Community. First, it was only applicable to large combustion plants (this means power plants fired by any form of fossil fuels such as coal, oil or gas and whose rated thermal input is equal to or greater than 50 MW), and now it will cover waste incineration and co-incineration plants as well, like the one which Serbia is planning in Belgrade. However, it is important to keep in mind that this is a “recommendation”, so while it is part of the Energy Community acquis, it is not obligatory.

When will it be obligatory?

It will become legally binding if the Ministerial Council adopts a decision on it. The truth is that I don’t know. It all depends on the decision of the European Commission to propose such a decision, which could happen next year or in two years. Since the Commission has the right of initiative, the Secretariat cannot come up with such a proposal. The usual way is to start with a recommendation and then in one or two years, the Commission proposes the directive in question as an obligation.

The same goes for the quality of petrol and diesel fuels. While there were some ideas to propose it already as an obligation this year, when we discussed this issue together with the Contracting Parties, it was concluded that it is a very challenging instrument which has a significant influence on oil refineries that have to adapt technologically. Perhaps for Serbia, it is not such an issue given the recent investments by NIS, but for instance, in Ukraine, it is a major issue. On paper, it can be adopted immediately, but in reality… So this directive will certainly have a transitional phase, but I cannot say how long for the time being. We are tasked as the Secretariat to procure a study on the assessment of the impacts of these two directives on our Contracting Parties, including the necessary investments for their implementation.

The Energy Community Ministerial Council launched a process aimed at setting targets for renewable energy, energy efficiency, and greenhouse gas emission reduction for 2030 in the Energy Community. What do you expect from these targets?

We expect a vision. Back in 2009, the EU decided on 2020 targets, which were integrated in the EU’s acquis and this has had implications on different aspects of everyday life. National targets for the increase of renewable energy and overall target for energy efficiency up to 2020 were incorporated into the Energy Community’s acquis, with the exception of the Emission Trading System and GHG emission reduction targets. 2020 is now approaching, it’s very close, and while the EU already back in 2015 decided on the 2030 targets, the Energy Community was a little bit forgotten in this process. We need a similar vision and targets up to 2030, to provide higher regulatory stability, transparency of national efforts and increased investment certainty. In the end, I believe we will be less ambitious than the EU, but we need to have those targets. We have to adapt our own legislation as well, for example, the renewable energy directive and the energy efficiency directives; additional climate legislation might also be needed as currently, only two recommendations are part of our acquis. As I said, we need a vision.

When do you expect these targets to be set?

We launched a study with the aim to present what would happen in our Contracting Parties if they would use the same methodology as the EU, to be one to one at least in this technical part. It is up to our Ministerial Council to decide on the concrete numbers. Will they be more ambitious, less ambitious, I don’t know. But we will prepare them the material to decide.

For example, this study will say if EU methodology is implemented to Serbia, targets would be these?

Concrete numbers will be discussed in the course of 2018 and adopted at the Ministerial Council in October in Skopje. If not in October, then it will be already 2019 and we might see ourselves in a difficult situation. I think a responsible approach to energy policy requires ministers do decide about this.

The Energy Community in June invited Serbia to amend Energy Law in order to align its legal framework with European Union’s acquis for renewables. The draft Policy Guidelines for Competitive Renewable Energy Procurement is prepared by the Secretariat and the European Bank for Reconstruction and Development.  What are the main elements of the Policy Guidelines and what will be the deadline for Contracting Parties to implement it?

The European Commission adopted State Aid Guidelines back in 2015 with the aim to align subsidy schemes for renewables with market mechanisms, to make it more market compliant, I would say. A feed-in tariff is given to investors, including renewables, no matter what happens in the market. So, they are living in their separate universe, this is expensive, and not really always proportionate to the costs. So, the European Commission, which has strong competences in competition law, tried to influence this area through a competition approach.

The Commission said the new subsidy models should apply to all new schemes. This is because in the majority of EU countries at this moment old subsidy schemes, feed-in tariffs, are still in place. These countries will continue with feed-in tariffs, but when they expire and the schemes will have to be renewed, they will require the Commission’s approval, which will ensure this new scheme follows those State Aid Guidelines from 2015.

In the Energy Community, we follow the same rules, as a prohibition of State aid is part of the Treaty. We published our own Policy Guidelines as well, which are a copy-paste of the EU’s and then we went one step further, we tried to assist our Contracting Parties by drafting laws in line with these new principles. The first one was Serbia. We sent the draft law in June 2017 to a few members of the Parliament. But it didn’t happen yet.

There isn’t a deadline for Contracting Parties to introduce this?

State aid rules do apply already. National authorities like the Serbian State Aid Commission are tasked to enforce them in the first place, and the Secretariat only if they fail. In any event, switching to more market-based schemes is in the Contracting Parties’ interest, because the new support scheme is cheaper than the one used now, so a country can support more renewables with the same money or lower the burden for electricity consumers. Therefore, it must be in the interest of the country to do it on its own. On top of these two things, the Policy Guidelines and drafted laws, we are now developing Policy Guidelines for Competitive Renewable Energy Procurement.

This is kind of a recipe for good practice, how to do it without making mistakes. We didn’t have this knowledge all on our own, a few things yes, because they are connected to competition, for that we have expertise, but the European Bank for Reconstruction and Development (EBRD) has much more experience and knowledge, so we merged our forces and we did it together.

Isn’t the guidelines finished? Are the main elements defined?

No, but the main elements are known. The Policy Guidelines for Competitive Renewable Energy Procurement has four pillars: feed-in premium (FIP) instead of feed-in tariff (FIT), standard balance responsibility once a liquid intra-day market exists, no incentive to generate under negative market prices and support granted based on a competitive process. These are only Guidelines, there won’t be any deadline. It is only to assist you, take it or leave it, but we recommend to take it because it is based on lessons learnt from many costly experiences.

Germany as an example is very often mentioned in Serbia when spoken about cost of the renewable subsidies.

Yes, this is the prime example for the high costs of “old-school” feed-in tariffs. But Germany went into this policy very intently. You have countries, Austria for example, that always have a cap – this year we will give that much money to support renewables. Germany didn’t have such a cap for a long time. In any event, you have to have a stable policy, not ups and downs, the worst thing is to start and then to stop, to start and to stop. You must have a predictable environment for investors.

For 2018, you announced that Contracting Parties will have an obligation to report on emissions of large combustion plants. Do you see any problem in implementation?

It is too early to say, as we have only entered into the implementation stage of the Large Combustion Plants Directive and the first reporting will be due when the data for the year 2018 becomes available, i.e. in the beginning of 2019. At the same time, problems in reporting have always existed – while some Contracting Parties are quite disciplined, some are quite reluctant in documenting the implementation of the Energy Community acquis.

When do you expect the adoption of a new list of Projects of Energy Community Interest and of Mutual Interest?

At the Ministerial Council in Skopje in October. It is in the process, the new selection procedure is ongoing.

Are you satisfied with the implementation of the projects on the list?

If we talk about the Western Balkans 6 initiative, the most important new project is the Trans-Balkan Electricity Corridor from Romania to Montenegro where Serbia has a major part of it. This one is advancing in a fairly stable manner and even the first section, 400 kV overhead line Pancevo (RS) – Resita (RO), is commissioned and put into operation from Serbian side on 21 December. A few weeks ago, one of our colleagues analysed a few studies on the potential needs for additional electricity transmission capacity increases in 2040 and he produced a map which shows that everywhere there is a need for new capacities. This is based on different scenarios of development, more renewables, less renewables, bigger GDP growth… If you take into account the different studies with their different scenarios, you will find that in every scenario there is a need for more cross-border electricity interconnection. I think that now the critical one is Banja Luka – Knin, it’s missing, because nothing is happening there.

Very important is this ongoing investment between Albania and former Yugoslav Republic Macedonia, Štip-Elbasan, this one is badly needed. The Kosovo* – Albania high-voltage cable, which is not in operation because of the dispute between EMS and KOSTT, is also important.

What is a problem there – political or technical?

Political, but even more commercial.

What is a problem with unbundling of the Serbian gas company Srbijagas?

Srbijagas doesn’t allow any competition on the territory of Serbia. The Government of Serbia, when Aleksandar Vučić was still prime minister, in consultation with Dušan Bajatović, director of Srbijagas, designed the road-map for unbundling which envisaged that in April 2017, the entire procedure would be completed, but they didn’t even start.

Srbijagas founded a new company. Wasn’t it enough?

Yes, they established a new company, which has one employee, and this is the director. I mean this company exists on paper only, it is not functioning. And Yugorosgas is not unbundled properly. Nevertheless, the Energy Agency of the Republic of Serbia (AERS) gave them the green light, certified them, but it is not in compliance with the acquis.