Renewables

BEF 2023: Serbia starts bringing order to grid connection process, battery rule may cause problems

bef 2023 batteries auctions ppa contracts

Published

May 10, 2023

Country

Comments

comments icon

0

Share

Published:

May 10, 2023

Country:

Comments:

comments icon

0

Share

Investors are not happy that changes to the law on renewables allow for imposing a battery installation requirement on developers seeking grid connection permit. However, they support measures that are being prepared and efforts to bring order to this field, given that piled up grid connection requests have blocked renewable energy projects. Auctions are still necessary, due to financing problems, but market-based models for green energy development are becoming an increasingly widespread solution, according to the panel Major challenges for an increased share of renewable energy sources in the SEE region.

The panel was held as part of the two-day Belgrade Energy Forum 2023 (BEF 2023), which brought together government officials and major companies in Serbia’s capital city for discussions on the energy transition in Southeastern Europe. Four hundred participants from 28 countries including representatives of international organizations attended the biggest energy conference in the region.

Maja Turković, Executive Vice President, CWP Europe, believes that developers have never been in such a difficult position, given that the situation has become incredibly complicated.

According to her, piled up applications for grid connection in Serbia, but also across the region, have brought projects to a standstill. The state, she added, has failed to protect its key resource, the grid, in time.

As there are many unknowns when it comes to the requirement to install batteries, and investors are still waiting to see by-laws. However, if the idea was to unlock investments, this requirement will not help, according to Turković.

Batteries will push up the cost of power plant development by 20%

Investors have already estimated how much battery installation would increase the costs of projects. According to John Šuša, Head of Large-Scale Project Development for Eastern Europe at Trina Solar, the requirement would push up investment costs by 20%, making a majority of projects under development in Serbia unviable.

He noted that Hungary has applied a similar model and has seen no new power plants installed, but that good solutions can be found throughout Europe.

Miloš Mladenović and Maja Turković

Participants in the panel noted that in the United States, 45% of all solar projects under development include a battery, compared to just 10% of wind projects, adding that this is because batteries are more compatible with solar.

Also, there are 500 MW of batteries integrated into renewable energy plants across Europe, with 40 GW of such power plants installed last year alone. Of the total of 500 MW of batteries, 270 MW is in Britain, which has a developed market for system services.

Turković: batteries make sense primarily for providing system services

The only way to finance batteries is to provide system services, and they have been increasingly used for balancing. When that market gets saturated, they are used for arbitration, explained Turković.

This means, she added, that investors in wind or solar will have to finance batteries from their own capital, which will quickly remove the bottleneck created by grid connection applications in Serbia. In other words, the burden will cause all investors to flee.

Chad Canfield, Director of Project Finance at Green for Growth Fund (GGF) & Finance in Motion, said that project financing for batteries is possible, but that it can be problematic if revenues are not steady.

It is possible to finance a battery in bundle with a power plant even though revenues are not steady if there is a power purchase agreement (PPA) for a power plant of, for example, 400 MW, he added.

The battery installation requirement introduced by the changes to the renewables law refers to projects that applied for grid connection after April 2021, explained the panel’s moderator, Petar Mitrović, Partner at law firm Karanović & Partners.

Lazendić: Auctions are important as a transitional stage

bef-2023-PPA-neda-lazendic-vw

Neda Lazendić

WV-International in partnership with Emergy is developing two wind farm projects in Serbia, Alibunar 1 and 2, which are in the final stages of financing negotiations. Country Manager Neda Lazendić believes that the government’s intention with the battery requirement was to ensure energy security. She thinks, however, that the percentage of 20% is not right and that it should be defined later on.

Energy storage solutions will have to be developed, and that’s inevitable even without this requirement. They are something that could improve an investment, she noted.

Some investors have been present in Serbia for ten years or so, such as WV-International, which started developing two projects back in 2013 and has launched a second investment cycle, Lazendić noted, adding that this indicates that the country has a favorable investment environment.

Projects have been facing numerous obstacles, but a strong local team is crucial because it can reduce the time needed for development as will be seen from the company’s projects in the second investment cycle.

Auctions, according to her, are still necessary as a transitional phase towards projects developed under market-based models.

Mladenović: Serbia is preparing measures to bring order to the grid connection procedure

Miloš Mladenović, CEO of Serbian power exchange SEEPEX, recalled that batteries will be a requirement only if an adequacy study shows that balancing capacities are insufficient. Of course, taking into account the fictitious, as he put it, 17 GW of capacities for grid connection, the study will show precisely that.

He added that Serbia is preparing secondary legislation to define rules for connection, which will envisage serious financial guarantees. It will clearly define steps and deadlines to be met in order to obtain grid connection, meaning that investors who fail to do so will have to start the procedure all over again.

That will separate serious investors from those who are not serious, and in that case the battery requirement will not necessarily cause any irreparable damage, he added.

EMS’ measures will clear up the situation

It is also necessary, he said, to work together with the grid operator, Elektromreža Srbije (EMS), on developing a market for system services to attract balancing providers other than state power utility Elektroprivreda Srbije (EPS), and that requires a change in certain methodology used by Serbia’s Energy Agency (AERS).

He expects new balancing providers to emerge, adding that companies interested in investing solely in batteries have even approached SEEPEX.

Mladenović is convinced that Serbia is an attractive market for investors and that the measures EMS is preparing will clear up the situation on the market in the coming years and create room for serious investors.

Projects still face financing difficulties

bef-2023-PPA-chad-canfield-susa-john

Chad Canfield and John Šuša

Investors are showing great interest in green energy, and a large number of projects are being developed, but is seems that very few of them have reached the construction phase. Financing, apparently, is still a problem.

The Green for Growth Fund (GGF) has sent some 50 preliminary financing offers in the past three years, and almost all of them are close to implementation, but only five projects in the Central-Eastern Europe region have secured the necessary financing.

Chad Canfield says the reasons are various, but that the number is clearly insufficient. He said that citizens’ protests and land ownership issues are some of the obstacles to financing. Change of law is also a big issue for GGF.

Even if there are adequate changes of law it doesn’t mean that we are always comfortable, so one of the things we have been looking at is political risk insurance for some of our investments, according to him.

Long-term PPAs with fixed prices are, according to him, something that banks love the most, but that they are rare.

Serbia has a power market as any Western country

Commenting on the European Commission’s latest proposal for the electricity market, SEEPEX CEO Miloš Mladenović recalled that maintaining a marginal price system is a good move as it provides a price signal indicating how to develop the system and where to invest.

Another measure is to introduce contracts for difference (CfD) with the aim of distributing profits across society, but also phase out subsidies and pursue market-based models.

The third pillar of reforms is to provide flexibility to buyers and enable them to have different supply contracts, including PPAs.

Mladenović noted that the 400 MW featured in auctions is not a large capacity and that Serbia needs to turn to a market-based framework for bankability. He explained that there are two possible ways to ensure market-based hedging – merchant PPAs and corporate PPAs.

Large companies in Serbia are aware of what is going on, but Serbia’s power market design must also be changed, he said.

He recalled that SEEPEX is spearheading these changes, and that it can offer a stable benchmark price and liquid day-ahead, and, soon, intraday market, along with power futures on the European Energy Exchange (EEX).

Bankers’ mindset needs to be changed as well

Serbia has a power market as any Western country, but the grid operator EMS, which is naturally inert, must apply some new concepts, according to Mladenović.

Viktor Delov, Regional Relationship Manager for Cross Border Power Trading at Danske Commodities, believes that the key will be how energy is managed, not how it is produced.

Serbia has strategic potential, because it is a hub with seven state borders, which allows for a lot of flexibility, and because SEEPEX can offer the day-ahead and, soon, the intraday market, he said, adding that the company offers its partners all types of PPAs.

Delov believes that the region has potential, but that it currently lacks a good market environment.

When it comes to financing, Maja Turković said that changes are necessary because developers, financiers, and buyers rarely find common ground, and that is why she believes that auctions and subsidies are not likely to be abolished soon.

Batteries will be the main topic in the coming period, and they are all that will be discussed, according to her.

Supply chains are under threat

bef-2023-Viktor-Delov

Viktor Delov

Despite the battery requirement, says John Šuša from Trina Solar, changes to the law on renewables have further streamlined the procedures for investment, a progress compared with several dozen countries where the company operates.

What is important, according to him, is a conversation between all stakeholders – investors, EPS, EMS, and Serbia’s Ministry of Mining and Energy – in order to find common ground on energy security and the green agenda.

There is no competitive economy without a green agenda, no security without renewable energy sources, he said.

The region must join forces in order to be “seen” by equipment producers

Another problem that has emerged in recent years, according to Maja Turković, is supply chains, and more so in wind than in solar. Wind turbine costs have increased, especially transformers, which she says are impossible to procure as delivery times have risen to up to two years. And that has to be financed by the developer given that payment deadlines are short and insufficient to secure financing for projects.

That is why developers must have an investor who will provide financing before a deal with banks, said Turković.

The project development phase used to be the riskiest phase, but now financing, equipment procurement, and power purchase agreements are bigger problems.

From the point of view of equipment manufacturers, John Šuša from Trina Solar said that countries in the region need to join forces, because individually they are invisible for producers. That is why Trina Solar’s office in Belgrade covers the entire region.

Comments (0)

Be the first one to comment on this article.

Enter Your Comment
Please wait... Please fill in the required fields. There seems to be an error, please refresh the page and try again. Your comment has been sent.

Related Articles

europe energy crisis mickoski north macedonia

Europe is facing energy crisis in winter because of Ukraine

04 October 2024 - About half of Ukraine’s power generation capacity is out of operation, so it has turned from a net exporter of electricity to an importer

Major solar power projects lining up for permits in Montenegro

Major solar power projects lining up for permits in Montenegro

04 October 2024 - Investors are submitting another wave of applications to Montenegrin authorities for permits for major solar power projects

GEN-I second PV North Macedonia

GEN-I commissions its second PV plant in North Macedonia

03 October 2024 - GEN-I Group put into operation a 11.8 MW solar power plant in the municipality of Kavadarci in North Macedonia

EU Solar Jobs Report 2024 solarpower

Europe’s green job growth is faltering, solar workforce to increase 0.4% in 2024

03 October 2024 - The EU Solar Jobs Report 2024 has revised last year’s projection that the European Union would reach 1 million solar jobs by 2025