CMS: Montenegro – What does the new Law on renewable energy usage bring?

Author: Tamara Zejak, Senior Lawyer at Petrikić & Partneri AOD in cooperation with CMS Reich-Rohrwig Hainz

On 31 August 2024, the Law on renewable energy usage (Renewable Energy Law) came into force in Montenegro. For the first time, it comprehensively regulates the use of renewable energy sources and introduces new concepts such as market premiums, auctions, strategic partnerships, and renewable energy communities. In addition to this, the Renewable Energy Law has brought changes in regulating the status of prosumers, the issuance of guarantees of origin, the use of renewable sources in heating and cooling, and the transport sector, and it has addressed other important issues related to renewable energy usage in Montenegro.

Although the full implementation of the Renewable Energy Law also depends on the adoption of by-laws, it seems that this law will ensure a new wave of investment in the renewable energy sector in Montenegro. The following section outlines the most significant novelties introduced by the new Renewable Energy Law.

The Ministry responsible for energy as a single contact point for project permit issuance

The Renewable Energy Law stipulates that a preliminary privileged producer, a privileged producer, or an investor in a power plant for electricity production from renewable sources may submit a request for a permit to build a power plant and other necessary documentation directly to the Ministry as the designated contact point. The Ministry is then obligated to forward these requests, without delay, to the relevant state and local authorities responsible for decision-making regarding the permits.

The responsible authorities and holders of public authority must ensure that the permit issuance process initiated by the applicant does not exceed the following timeframes:

• two years – for the procedure of obtaining a permit for power plants utilising renewable sources with an installed capacity of more than 150 kW;
• one year – for the procedure of obtaining a permit for power plants with an installed capacity of less than 150 kW; and
• one year – for the reconstruction of the capacity of existing power plants.

Permit issuance procedures may be extended, upon request, by up to one additional year for justified reasons, if extraordinary circumstances occur that the applicant could not have influenced.

Incentive systems for electricity production from renewable sources

The Renewable Energy Law introduces two incentive systems for electricity production from renewable sources: market premium and feed-in tariff.

The market premium is a type of financial support paid as the difference between the reference market price and the achieved price for the produced electricity. This premium can be positive when the reference market price is lower than the achieved price, or negative in the opposite case.

The right to a market premium is granted after an auction process for power plants that use renewable energy sources (such as solar energy, wind, hydropower plants over 10 MW but excluding reversible hydropower plants, geothermal energy, biomass energy, landfill gas and biogas, wave and ocean energy, and gas from wastewater treatment plants).

Auctions for market premiums are conducted through public tenders, with quotas for auctions determined by the Montenegrin government in three-year plans

Auctions for market premiums are conducted through public tenders, with quotas for auctions determined by the Montenegrin government in three-year plans. These quotas can apply to predetermined or unspecified locations. Auctions may be held for predetermined locations (which are predefined and state-owned, with bidders competing based on the offered price for land lease or natural resource use) or for unspecified locations (where bidders select project locations, provided that property and legal issues are resolved).

The government sets a maximum price per kWh that bidders can offer in advance, based on factors such as investment costs, operational costs of the plant, expected operational lifespan, and other relevant factors. Bidders are ranked according to the prices they offer for electricity, and the premiums are awarded in order of ranking until the quotas are filled. After the auctions, the Ministry issues decisions granting the right to a market premium and the status of preliminary privileged producer. Once this status is granted, the preliminary privileged producer provides a bank guarantee for the project completion and signs a market premium contract with the market operator. This contract is essentially a financial agreement following the Contracts for Difference (CfD) model. A draft of the market premium contract will be specified by the Ministry as part of the tender documentation. The right to a market premium is valid for a period of 12 years from the date the decision is made to grant the status of a preferential electricity producer.

The market premium system is being introduced gradually, and during the transitional period, which lasts until Montenegro’s electricity market is merged with the European day-ahead market (expected by 31 December 2025), privileged producers have the right to physically sell electricity to an authorised contractor or the market operator. After the transitional period, privileged producers will sell electricity on the open market but will retain the right to the market premium.

The right to a feed-in tariff is also granted after a public call and within specified quotas, but only for small installations, as well as for demonstration projects

The right to a feed-in tariff is also granted after a public call and within specified quotas, but only for small installations (with an installed capacity of up to 400 kW for installations to be commissioned by 31 December 2025, and up to 200 kW for installations commissioned after 1 January 2026), as well as for demonstration projects. The feed-in tariff is awarded based on the applications of bidders who meet the qualification requirements stated in the public call, with the quota being filled on a first-come, first-served basis. Preliminary privileged producers gain the right to feed-in tariffs, a support period (12 years), and the transfer of balancing responsibility by signing a feed-in tariff contract with the authorised contracting party, which will be valid for the duration of the support period. The Ministry will prepare a draft feed-in tariff contract.

Balancing

Renewable energy producers are responsible for their balancing deviations. Privileged producers who have been granted the right to a market premium may join the balancing group of the authorised contracting party until the end of the transitional period, during which time they may transfer their balancing responsibility to this party. After the transitional period, privileged producers will be responsible for their own balancing deviations.

Privileged producers with feed-in tariff rights may transfer their balancing responsibility and associated costs to the authorised contracting party for the entire duration of their privileged producer status.

Guarantee of origin

A guarantee of origin is issued by the electricity market operator upon the request of renewable energy producers or preferential electricity producers for energy produced in power plants using renewable sources, which are registered in the guarantees of origin registry. A guarantee of origin is issued only once per unit net value of 1 MWh of produced electricity and is valid for one year from the last day of the production period for which it was issued. The market operator must ensure that requests related to guarantees of origin comply with the MEST-EN 16325:2017 standard.

Guarantees of origin are transferable and may be sold independently of the produced energy they represent. To ensure that energy produced from renewable sources is presented to the consumer only once, multiple accounting and presentation are prohibited.

Guarantees of origin issued by other contracting parties of the Energy Community are valid in Montenegro under the condition of reciprocity, in line with international agreements. Guarantees of origin issued by third countries will not be recognised in Montenegro unless the Energy Community concludes an agreement with that third country on mutual recognition of guarantees of origin issued by contracting parties and compatible systems established in those third countries, and only in cases of direct energy import or export between Montenegro and that third country.

Prosumers

The Renewable Energy Law defines a prosumer as an end consumer who operates within their premises, located within a limited area, and produces electricity from renewable sources for their own consumption. The prosumer may also store or sell the excess energy they produce, provided that for non-household consumers, these activities do not constitute their primary commercial or professional activity.

An end consumer attains the status of a prosumer by connecting the power plant to the internal electrical installations of their property and formalizing contractual relationships with the relevant network operator and supplier.

The electricity distribution system operator must establish a simplified connection procedure through notification for power plants of end consumers that produce electricity for their own needs or for demonstration project plants with an installed capacity of 16 kW or less or an equivalent non-three-phase connection capacity. The Ministry will regulate the specific details of electricity production, storage, and sale for prosumers, as well as other relevant issues.

Prosumers sign a contract with the supplier for the purchase of electricity. The supplier is obliged to purchase the surplus electricity produced by the prosumer at the price specified in the supply contract. The supplier must offer the prosumer a contract for the purchase of electricity using one of the following billing methods:

• a net metering scheme for power plants with an installed capacity of up to 16 kW;
• a net billing scheme for power plants with an installed capacity between 16 kW and 50 kW;
• Commercial supply schemes for power plants with an installed capacity exceeding 50 kW.

The supplier takes over balancing responsibility for the prosumer’s metering point. However, if the prosumer’s power plant has an installed capacity exceeding 300 kW, the prosumer is required to submit a daily energy delivery schedule to the supplier, the distribution system operator, or the closed distribution system operator, and bear the costs of imbalances.

Prosumers and suppliers with the existing electricity purchase contracts based on previous regulations must align their contracts and billing methods with the provisions of this law within 12 months from the law’s effective date.

Strategic partnership

The government of Montenegro, upon the Ministry’s proposal, may enact a by-law for the implementation of a strategic project in special cases where additional measures are necessary to achieve goals set out in the national climate plan or international agreements. A strategic partner is selected after a public call or by accepting a letter of intent to carry out all (or some) actions for the development and construction of a renewable energy project, including full or partial financing or facilitating financing.

When selecting a strategic partner and concluding a project implementation agreement, public procurement, public-private partnership, and concession laws do not apply.

Conclusion

The adoption of a comprehensive law regulating renewable energy usage in Montenegro marks a significant and necessary step towards a green transition. If we consider the examples of neighbouring countries, it seems that the auction model for market premium allocation will likely encourage a new wave of investments in renewable energy in Montenegro. However, the full implementation of the law will only be achieved once all by-laws and procedures have been adopted, which is expected within 12 months from the date of coming into force of the Renewable Energy Law.