Serbia will build renewable power plants totaling 3,000 MW within several years

Due to the changes in the regulatory framework, auction calls and the upcoming strategic partnerships, Serbia should get power plants using renewable energy totaling 3,000 MW within several years, Minister of Mining and Energy Dubravka Đedović announced. In an interview with Balkan Green Energy News, the minister also revealed how auction rules would be changed and how much capacity the transmission system can handle, but also how the Government of Serbia intends to help companies prepare for the introduction of the European Union’s CO2 border tax – Carbon Border Adjustment Mechanism or CBAM.

After amending the Law on the Use of Renewable Energy Sources and issuing several directives and calls to auctions for market premiums for solar power plants and wind parks, what are the ministry’s further plans when it comes to the legal framework and renewable energy incentives? Will there be changes in auction rules?

The Government of Serbia has approved the Incentives Plan for the Use of Renewable Energy Sources for the Period 2023-2025, which was also published on the ministry’s website. After the current auction for 450 MW, which we expect to be finished in September, the next auctions, according to the plan, should be held in the first quarter of 2023, where the quotas are 300 MW for wind power plants and 100 MW for solar power plants, and in the first quarter of 2025, where the quotas will be 300 MW for wind power plants and 150 MW for solar power plants.

In the following auctions, investors will also have to be prepared to offer a part of the capacity to the guaranteed supplier

This is Serbia’s most ambitious plan so far. I will remind you that 1,092 MW of capacity was planned in the National Action Plan for the Use of Renewable Energy Sources for the period 2013-2020, while now we envisaged awarding incentives for 1,300 MW within three years. In addition, the government plans to build another 2,000 MW for the needs of Elektroprivreda Srbije (EPS) through strategic partnership, so it translates to more than 3,000 MW of new green capacities within only several years, which clearly shows how much significance the ministry gives to green energy in the future.

In the government’s next auctions, future investors will have to be prepared, in addition to a favorable price, to also offer a part of the capacity to the guaranteed supplier for the needs of households and small buyers or to offer a part of the capacity directly, to the end buyer, which was introduced with the aim to ensure the country’s energy security.

In the world’s developed economies, more batteries are being installed for storing electricity as one of the solutions for variable production from renewable sources. In Serbia, the decision to obligate producers to balance 20% of the active installed capacity of their power plants prompted reactions from developers, who say the decision was premature given the degree of development of renewable energy in the country and that the percentage is particularly problematic. Is changing the percentage being considered? When can the presentation of Elektromreža Srbije’s (EMS) adequacy be expected, which should offer a more realistic picture of the available connection capacities? Does the ministry see introducing batteries as a way to handle a large number of connections to the transmission system?

It is important to first understand the context from before the law was changed by introducing solutions that potentially caused certain dilemmas and concerns among some, but certainly not all investors. Namely, Serbia’s electric power system was already for two years facing an extremely large number of connection requests. From 2021 until this year, the number of requested connection capacity grew from a large 3.8 GW to and extreme 20 GW, while Serbia has around 8 GW of production capacities in total.

It is a huge amount. With the best knowledge and the available means, it cannot be integrated into the system either in the short term or a longer term without jeopardizing its functioning. The safety of the system’s functioning is the system operator’s main task and it represents the most important interest in the electricity sector. Without the system functioning safely, we cannot count on power, and we all know what power means for our everyday life and for the economy.

The transmission and distribution system operators accepted the obligation to integrate about 5 GW in capacity into the system

In such a context, we found a compromise solution, which enables further development of RES, but not at the expense of the safety of the system’s functioning. The law envisages the measure of delaying a connection if the adequacy analysis points to risks for the electric power system’s safe functioning amid a lack of the system’s balancing reserve. The measure won’t apply for the capacity of about 5 GW for which the transmission and distribution system operators accepted the obligation to integrate into the system, which is the upper limit of our electric power system’s integration capability, according to the transmission system operator’s currently available data.

However, in spite of it, we gave a possibility also to investors that want to avoid being subjected to connection delays, to secure additional balancing capacity for the system operator when there is none physically available in the market. In practice, for an investor, it is mostly a  battery storage unit.

The share of 20% of a power plant’s active installed capacity was defined from the point of view of the electric power system’s interests and based on the average miss in the production of intermittent energy sources, and as such it can’t be changed. Investors will find their business model within these limits and it is not at all their obligation but a right, if they want it, and if they don’t see their interest in that, they can wait for the connection until additional balance reserve appears.

This is not the only solution. For the long term, we are thinking to increase the system’s capacity to integrate renewable energy by building pumped storage hydropower plants (PSHPP Bistrica), strengthening the networks and cross-border capacities through many infrastructure projects like the Trans-Balkans Corridor, Pannonian Corridor, Beogrid…, which will increase the system’s flexibility.

How close are we to finalizing the Integrated National Energy and Climate Plan? Since the process began, the plan underwent significant changes. Which scenario does the government consider to be the best, and at the same time the most realistic?

The draft INECP (NECP) should be completed by September and adopted in the autumn. Public discussions were held in Belgrade, Novi Sad and Niš and we will consider all proposals that can contribute to improving the document’s quality.

The most important targets with which we entered public consultation on INECP are to increase the share of renewable energy in the production of electricity to 45%, significantly increase energy efficiency by limiting the maximum primary and final energy consumption in 2030, and lower greenhouse gas emissions by 40.3% from the 1990 level, in line with the goals from the nationally determined contribution (NDC) for this segment.

The changes that occurred during the creation of the INECP are an implicit part of the preparation process, where there is an exchange in argumentation between the members of the working group, and where key goals were not given in advance, but carefully analyzed from all angles before the document was submitted for public consultation.

The plan defines a total of 156 measures of 68 are reform measures. The key areas which will be worked on include a more ambitious implementation of energy efficiency measures, gradual change in the structure of energy sources toward low-carbon technologies by building new power plants using solar and wind, with a total capacity of about 3.4 GW, and 350 MW in new gas-fired power plants, increasing the use of heat pumps by several times, incentivizing the use of electric vehicles…

On the one hand, the proposed goals lean on our ambitions, that is the goals that the EU is pursuing, and on the other the reality that Serbia has a significant share of coal in the energy mix, more than EU member states had on average when they were entering the energy transition, and at the same time that we don’t have access to the resources that the EU allocates for financing the just transition in its member countries.

Under such circumstances, I believe that the targets that we set are ambitious and realistic at the same time, that by meeting them Serbia will, on the one hand, increse its energy security and independence, and on the other hand, that it will work on fulfilling its international obligations in line with our level of development and the resources that we have available.

The EU’s member countries are receiving vast funds to abandon the use of coal. For instance, Romania got more than EUR 2 billion so far from the European Commission. Is abandoning the use of coal possible without more grants? What are the expectations of the Government of Serbia?

The Just Transition Facility, with which the EU supports its member states, is worth around EUR 100 billion, and Poland is the only member country with a share of coal in the production of electricity that is similar to Serbia’s. The others have a lower share. On the other hand, coal still has a significant role in ensuring the security of supply.

One of the solutions to carry out the decarbonization is to establish a regional fund for the Western Balkans or national just transition funds

There is no “magic wand” for changing that overnight, but it takes time, money, serious planning and financial support. We want to pursue the same goals as the EU but, like in the EU, the process must be financially sustainable and socially just. One of the possible solutions, about which we recently spoke at an informal ministerial gathering of the Energy Community is to establish a regional fund for the Western Balkans or national just transition funds, which would be financially backed by the EU as well, modeled after the current mechanism for EU member countries. We will speak with our counterparts from the region, too, as the decarbonization process has similar challenges for the other countries in the region as well.

Such a facility should envision funds for regions that are affected by the energy transition the most, to support economic diversification, requalification for workers, investments in small and medium-sized enterprises, opening new enterprises, research and innovation, environmental recovery of coal regions, clean energy production, transformation toward technologies with lower emissions of harmful gases. In order to ensure sustainability and predictability, these funds should be combined with the existing funding sources secured by the EU and international financial institutions.

There is a renaissance of nuclear energy in the world and many see it as inevitable for a successful decarbonization of the energy sector. The construction of several conventional nuclear plants are planned in the SEE region, too, and Romania is the first country that established a company with the US for small modular reactors. Is Serbia considering the option to build a nuclear plant on its own or in partnership with some of its neighbors?

There is a moratorium in force in Serbia since 1995 on the construction of nuclear power plants, which not only stopped the construction of nuclear power plants but also the active monitoring of technology development and the staff specialization. Even if the moratorium was abolished and we decide to build or even get a nuclear power plant for free, it takes years to train staff that would adequately operate this facility.

On the other hand, the process of creation of strategic documents in the energy sector is an opportunity to openly discuss all types of energy including nuclear if they could, in the future, contribute to making us energy independent while we are switching to clean types of energy. That option was also considered within the INECP. In any case, we will maintain the possibility for the long-term, as we will also take into consideration the possibility of strategic partnerships with countries that have experience in utilizing nuclear energy, and before entering any project we will analyze its purposefullness.

How will the government help companies to prepare for the introduction of the the CO2 border tax – the Carbon Border Adjustment Mechanism (CBAM)? Will Serbia request to be exempted from it application, and if so, when does it plan to do it, given the short deadlines?

The position of Serbia that I recently pointed to at an informal Energy Community ministerial meeting is that before any further steps it is necessary to conduct a comprehensive, detailed and comparative analysis regarding the implementation of a regional emissions trading system or any other mechanism, primarily concerning the production of electricity, before particular measures to conduct the activities can be discussed.

The position of Serbia is that, before any steps are taken, a comprehensive analysis is required regarding the implementation of a regional emissions trading system or any other mechanism

The consequences of potential decisions with reference to the implementation of the CBAM legislation and carbon pricing are serious and far-reaching for companies and social relations, and adequate analysis is required also on the national level, so that based on them the government could assume a political position.

All past mechanisms in the EU need to be analyzed before that as well to select the ones that will enable the region to align with the EU’s energy and climate policies in a way that would be economically sustainable and socially just.

Taking into consideration that this process concerns other sectors of the economy besides energy, we want, through a dialogue with our companies and relevant state institutions, to adopt a joint position on some solutions and prepare the best that we can for a time when CO2 emissions will certainly affect us.

How does the government plan to solve the problem affecting companies from limiting the capacity of their solar power plants for self-consumption to a maximum 150 kW, given that many companies actually see it as the only way to decarbonize and align their operations with the green agenda?

New changes were introduced concerning buyers-producers by setting limits for maximum capacities for households and small commercial buyers, in line with European practices. As for households, only the end buyers that install solar panels of up to 10.8 kW will become buyers-producers, while the ceiling is 150 kW for the other categories of end buyers.

This way we directed the buyer-producer concept toward small buyers, which need to benefit the most from the model, while a new concept, “active buyer,” was determined for bigger industrial consumers. They will have more responsibilities with it, but also bigger business opportunities.

The ministry is preparing the changes to the Law on Energy including provisions on active buyers. We want to regulate the issue in an adequate way and enable the industry, through this new concept, to valorize all the benefits of the possibility of self-supply through own production, but also acknowledge the importance of the safety of our electric power system’s functioning.

The Law on the Budget for 2023 envisages the possibility to issue state guarantees and approve project loans for several big projects in the energy sector: PSHPP Bistrica, PSHPP Đerdap 3, solar power plants totaling 1 GW, wind power plants of an overall 800 MW to 1,000 MW… Which large energy projects are the closest to implementation?

In the next decade it is necessary to invest around EUR 15 billion in Serbia’s energy sector, and we defined the priorities through the Plan for the Development of Energy Infrastructure and Energy Efficiency Measures for the period up to 2028, with projections up to 2030, which the government adopted in June.

We started with what we need, based on expected energy needs, GDP growth, international obligations, and made a detailed analysis of all projects that were in circulation so far, or were included in plans but weren’t carried out, as well as the projects in which implementation has begun.

The goal is to increase interconnection capacities by 75%

When we speak about new production capacities, the priorities, among others, are to build PSHPP Bistrica, overhaul and revitalize HPP Đerdap 2, build the Kostolac wind park, build solar power plants totaling 1 GW, while the financial and technical feasibility of the PSHPP Đerdap 3 project will also be considered. On the transmission network, in addition to the construction of the Trans-Balkans Corridor, we are also planning the projects of the Pannonian Corridor as well as the Central Balkan Corridor, which will connect us to Bulgaria and Bosnia and Herzegovina.

Generally, we aim to increase interconnection capacities by 75% to get greater system flexibility. More than EUR 450 million will be invested in the distribution system by 2030 with a goal to strengthen the distribution network and cut losses to around 8% per year, which we consider acceptable. In the energy efficiency segment, the planned measures and activities should secure savings of approximately 3 TWh to 4 TWh per year. The savings until 2030 compared to 2020 from energy efficiency measures should amount to about 1.5% in households, industrial production and other sectors.

Carrying out a new investment cycle in the energy sector implies the participation of the public and private sectors. That is why it is important to reform our state-owned enterprises so that they operate more efficiently, but also to attract investments from the private sector by creating a favorable regulatory framework.

What changes can be expected in EPS’s development strategy with the new supervisory board and management? When will the new management team be completed, given that EPS recently got another acting director, so the status is temporary?

The Supervisory Board of EPS was appointed in June and the formation of the executive board has also begun. In the meantime, the supervisory board appointed a new acting director, who will be performing this duty until a new chief executive officer is selected in an international competition. I expect the entire process to be completed in a reasonable timeframe, but not at the expense of adequate planning.

The new chief executive officer of EPS will be selected in an international competition

Don’t forget that the first step was made by adopting the new statute of EPS in April, which was preceded by consultations with the representatives of trade unions, which also today have their representative in the supervisory board. That is when the two bodies that had their responsibilities significantly redefined with the new statute, the assembly and supervisory board, were formed and got to work.

I believe that by appointing the members of the supervisory board, due to their expertise and experience, we showed we are serious in our intention to reform EPS, to alter the way of governance, and that a new era has truly started for EPS.

Today we have experienced professionals from Serbia and the world in key positions in the company. They need to help to make EPS a stable, modern and successful company.

What will be the relation between EPS and other investors in the development of new capacities from renewable sources, is there space for joint projects and under which conditions? Could joint investments in new capacities lead to changes in the company’s ownership structure? Which countries or companies have so far expressed interest in entering EPS’s ownership structure?

The state is the owner of EPS and it doesn’t intend to not be that, but to create the conditions for the company’s faster development through a reform process.

We need new capacities and investments, and different models will be considered in that sense, with a primary focus on the country’s interests and its energy security. For now we opted for the selection of a strategic partner for certain projects that reached a certain development level, for instance to build 1 GW in solar power plants.

The strategic partner will be obligated to develop the project as a turnkey system, to build and deliver it to EPS’s ownership. The same model is planned for the construction of wind power plants of an overall 1 GW. There is interest among international partners also in pumped storage hydropower plant projects, primarily in PSHPP Bistrica, where in parallel to the creation of technical documentation we will discuss financing models as well.