Introduction of market-based incentives for renewables not in Serbia’s interest

May 29, 2018

Introduction of market-based incentives for renewables not in Serbia’s interest

Author: Slobodan Ružić, CEO of Energy Saving Group

The need to incentivize investments in renewable energy sources is not merely something powerful political and business circles lobby for in order to profit off of people. Or at least it’s not just that! Renewable energy has an immense overall social significance combined with clear economic reasons. The aim of providing reasonable incentives to foster the use of renewables is justified and in the best interest of Serbia. This should not be construed as some sort of unjustified pressure to do something not in our interest, or through a conspiracy theory, which some in Serbia still do.

Serbia’s current legal framework for electricity generation from renewables is based on guaranteed feed-in tariffs over a 12-year period. This is the most widely implemented mechanism for incentivizing renewables as it ensures a greater deal of security for investors and financial institutions than other models. The existing legal and regulatory framework in Serbia is very solid, for the most part, aligned with relevant EU regulations, and in some respects even better than in some EU countries, for example in terms of ability to acquire temporary status of a privileged power producer. However, it is essentially a completely new legal framework that investors, financiers and relevant institutions have just begun to become accustomed to, and which has just begun to produce the desired results.

Shortcomings of the current model

Of course, we must not be too proud. There is a number of shortcomings in our legal framework. For example, there is a completely unnecessary constraint on the validity of the decree on incentives, which does not exceed two or three years. At the end of this period, as a rule, a legal vacuum is created and all investments are halted until a new decree is passed.

Also, investors are not protected from the subsequent change of regulations. Namely, after it determined levels of feed-in tariffs, the state allowed public companies and relevant institutions to drastically raise prices for issuing opinions, approvals and conditions, as well as for the use of land managed by them. A new decree on fees for land use in protected natural areas has recently been adopted, introducing new, very high fees for investors. This is how the very idea of feed-in tariffs is being rebuffed, which is a very damaging trend.

Another deficiency is the limitation of the total capacity of solar power plants, as well as the wind farm capacity threshold that is at least two times lower than would be appropriate.

Who is lobbying for auctions and feed-in premiums

However, instead of intensifying discussions on these issues over past year, we are now only talking about terminating the existing feed-in tariffs and transitioning to more market-based schemes such as auctions and/or feed-in premiums for renewable energy producers.

Such initiatives and pressure come from the Energy Community Secretariat, to be precise from the EU itself, supported by various international financial organizations.

As an evidence of this, frivolous statements are made to the effect that such a model of incentives is keeping expenses at the minimum level, also minimizing consumers’ costs. This is a point that cannot be disputed, but only in an ideal market, one with a permanent surplus of capacities and a number of new investors, among which competition can be established.

However, Serbia is far away from such a situation! We cannot be compared to Germany where there are more than 10,000 biogas plants, or to Spain where more than 45 GW wind farms have been installed when there is 1,000 to 2,000 times fewer facilities in our country. Unlike developed EU countries, Serbia has below-market electricity prices.

As a result, investments in renewables will be stalled over a long period if we introduce market-based incentive mechanisms. Furthermore, in order to address our international commitments to reach a certain share of renewables in final energy consumption, we will, sooner or later, have to start importing renewable energy produced abroad. This would be highly damaging, both in terms of suspended investment and imports of the most expensive energy, and an increase of the necessary administrative activity of the state and a negative impact on Serbia’s energy independence and energy security.

Feed-in tariffs should be kept for another 10 years

In conclusion, the transition to market mechanisms for stimulating electricity generation from renewables is in the interest of developed EU countries with a lot of renewable energy capacities, but not in the interest of Serbia.

Therefore, this initiative should not be accepted, and the model should be retained for at least 10 years, with a focus on its improvement. Only when there is an abundant number of small hydropower plants, wind farms, biogas and biomass-fired power plants, and solar power plants, will it be time to carefully introduce market-based incentives.