Premiums as support measure for investors in renewable energy projects in North Macedonia

Authors: Aleksandar Josimovski and Ana Bozarova, Attorneys at law engaged by Petrikic & Partneri AOD in cooperation with CMS Reich-Rohrwig Hainz Rechtsanwälte GmbH

The North Macedonian market is currently one of the hot spots for investments in renewables in the CEE region. Both the institutional investors and the financiers have shown a great deal of interest in developing new projects, while the Government itself has announced tender awards for projects with large-scale capacity. Given the lack of renewable projects begun over the past few years, the market is now expected to experience significant growth. In terms of regulation, the country has now harmonized its principal legislation with the EU acquis, but the necessary by-laws allowing for full implementation are in the process of adoption. Among the main innovations brought about by the recent legislative changes are premiums, which may now be used as an alternative to more traditional feed-in-tariff schemes.

Energy Law and support measures for renewable energy sources

The North Macedonian Parliament adopted a new Energy Law in May 2018 (“Energy Law”), harmonizing the energy legislation of North Macedonia with the EU Third Energy Package.

This Energy Law introduced premiums (“Premiums”) to operate alongside the previously available preferential tariffs (“Feed-in Tariffs”) as a support measure for electricity producers that use renewable energy sources. The renewable energy projects, a highly regulated matter in North Macedonian law, are regulated by the Energy Law and its related bylaws.

The Energy Law harmonizes the North Macedonian legislation with the Third Energy Package, including Directive 2009/72/ЕС on the common rules for the internal electricity market, Regulation 714/2009 on conditions for access to the networks for cross-border electricity exchange , Directive 2005/89/ЕС on measures for safeguarding the security of electricity supply and infrastructure investment, Directive 2009/28/ЕС on promoting the use of energy from renewable sources, and Regulation 543/2013 on submitting and publishing data in electricity markets.

As for renewable energy sources (“RES”), the Energy Law regulates the supportive measures for electricity producers that use RES and makes it possible for investors to obtain the status of privileged power producer. As a further incentive, the privileged power producer may obtain the right to use Premiums, as well as the previously available Feed-in Tariffs as a supportive measure.

In February 2019, the Government of North Macedonia adopted the Decree on Support Measures for Electricity Production from RES (“Decree”), that regulates the conditions and manner for determining the Premiums and Feed-in Tariffs.

Rules regarding the use of Feed-in Tariffs and Premiums

Pursuant to the Decree, the Feed-in Tariffs will be awarded to privileged power producers that produce energy from hydropower plants (HPPs), wind power plants, and biomass and biogas thermopower plants. Premiums will only be awarded to privileged energy producers that produce energy from wind power plants and photovoltaic power plants.

For the use of Feed-in Tariffs, the maximum installed power of the producer’s power plant should not exceed:

• 10 MW for a hydropower plant;
• 50 MW for a wind power plant; and
• 1 MW for a biomass and biogas thermopower plant.

Just as an example, the applicable Feed-in Tariff for wind is 8.9 Eurocent/kWh, while for hydro it varies from 4.5 Eurocent/kWh up to 12 Eurocent/kWh depending on the amount of energy produced monthly.

In order for the producer to attain the status of a privileged power producer and therefore be eligible to use Premiums, the maximum installed power of the power plant should not exceed:

• 50 MW for a wind power plant; and
• 30 MW for a photovoltaic power plant.

The Premiums will be granted in a tender procedure carried out by electronic auction, and the criteria for choosing will be the lowest amount offered on a fix premium. The fixed premium will be granted as an additional fixed amount on the price that the producer achieves through the sale of each kWh produced on the wholesale electricity market.

The conditions for granting the premium will depend on several factors (e.g. right to use/own the land, etc.) and the bidders must submit documentation to prove they fulfill the conditions, including a bank guarantee for timely and quality performance of the agreement.

National action plan for the use of RES in the North Macedonian energy market

In November 2015, the Government adopted an action plan for RES that runs until 2025, with a vision until 2030 (“Action Plan”). The Action Plan regulates the projections for the years 2020-2025-2030 for the contribution of RES to the gross final consumption of energy.

The scenario is based on the fact that the future development of hydropower plant electricity production is predictable, although limited by well-known technical and economic hydro potential. The future development of hydropower plant electricity production depends on significant investment that requires a strategic partnership with foreign investors or financing from international financial institutions.

The share of RES in the gross final consumption of energy that can be achieved in this scenario amounts to 21.01% in 2020; 25% in 2025; and 28% in 2030. The contribution from hydropower plants amounts to 158 ktoe in 2020, 228 ktoe in 2025 and 288 ktoe in 2030, from wind power plants amounts to 9 ktoe in 2020, 26 ktoe in 2025 and 53 ktoe in 2030 and from photovoltaic power plants amounts to 3 ktoe in 2020, 4 ktoe in 2025 and 11 ktoe in 2030.

Conclusion

The main purpose of the reform in the North Macedonian energy sector is to ensure increased investment in renewable energy projects and to reach the national targets for the share of RES in the gross final consumption.

However, the caps imposed on several sources like wind, solar, biomass and biogas prevent the country from reaching its targets in 2020. In addition, as the Premiums were only recently introduced to the North Macedonian energy market, they are yet to be granted in practice, so only the actual functioning of the market will eventually show how efficient and competitive this mechanism is.

The fact that the Energy Law was only adopted quite recently in practice also means that some of the main bylaws (e.g. the Rulebook on RES) relevant to the renewable projects are yet to be adopted, but this is expected to happen in the upcoming period.

The Rulebook on RES should provide for the construction of RES energy production facilities in which the electricity produced is consumed by the producer and the remaining electricity transferred to the distribution network (i.e. they will be ‘prosumers’). The currently applicable Rulebook on RES is dated 2011, hence its amendment is quite necessary considering the amendments made to the principal regulation.