Kopač: Serbia taking big steps in energy; power prices must be raised

After a period of many years when not much was happening with regard to the alignment of Serbian energy regulations with the European Union, a lot is happening now indeed, Energy Community Secretariat Director Janez Kopač said. He praised the reforms but also stressed the prices of power for households must be increased while that the failure to separate the activities of Srbijagas is the biggest problem in the sector.

Serbia is still near the top in the region when it comes to the electricity market and it achieved great success when it comes to oil reserves, but it is far behind in the gas sector, Energy Community Secretariat Director Janez Kopač told members of the National Assembly of Serbia. He asserted he is “happy about the processes” happening in the country that Deputy Prime Minister and Minister of Mining and Energy Zorana Mihajlović set in motion.

“We can barely manage to comment on everything coming from Serbia on a daily basis… Following a period of many years when not much was happening, a lot is happening now indeed and, of course, we are very pleased with the fact,” he said during a presentation of his organization’s annual report on the progress in the implementation of the Energy Community and European Union’s legal order.

At a meeting before the session of the responsible parliament committee, Mihajlović thanked Kopač for the help during the creation of laws and amendments and stressed Serbia and the Energy Community will cooperate in the fields of the energy transition, decarbonization and fight against climate change. The two officials also visited the construction site of the flue gas desulfurization unit in thermal power plant Nikola Tesla A (TENT A).

Srbijagas is the biggest problem in Serbia’s energy sector

Serbia used to be in the lead in the region in all sectors, and now it lags behind Montenegro, North Macedonia and Albania, which accelerated reforms, Kopač said. The oldest infringement procedure within the Energy Community is the one that was initiated in 2013 because the transmission and distribution activity of Srbijagas weren’t separated, he noted and asserted it is “the biggest problem in the energy sector”. Srbijagas is the state-owned gas company.

The infringement procedure against Srbijagas is the oldest active one in the Energy Community

Serbia took on the obligation all the way back in 2006 with the Second Energy Package, Kopač underscored and expressed belief the issue would be solved this year.

Mihajlović responded the separation would be conducted relatively soon and pointed to four bills from her sector that will soon be sent to parliament. She said the country is on the right path when it comes to investments, especially in solar and wind energy and stressed the importance of the upcoming work to produce an integrated national climate and energy plan. Such documents are generally known as national energy and climate plans –  NECPs.

EMS is not fully separated from EPS

The process of separating power transmission system operator Elektromreža Srbije from state-owned electricity producer Elektroprivreda Srbije is also not complete, Kopač added. He asserted it should be determined by law that the two utilities are controlled by different ministries.

The share of cross-border power transmission capacity intended for trading must be lifted to 70%

Power transmission system operators in the EU are obligated to secure that 70% of cross-border capacity is for trading, which enables lower prices for consumers, and the quota could be introduced in the Energy Community too, Kopač said. He pointed out that Serbia’s level is above 40% and the highest in the Western Balkans.

Serbia should continue to work on market coupling with its neighbors, Kopač said. The report notes EPS is the only entity in Serbia offering balancing services while that the market segment is completely liberalized in Bosnia and Herzegovina. Serbia conducts regionally coordinated capacity allocation only on the borders with Bulgaria and Croatia, which makes import power prices higher than they could be, he said.

Low power prices for households burden industry, Kopač says

The Energy Community Secretariat is concerned that the prices of power for households are far below the EU average, while they aren’t so low for the industry, which means the burden is on the industry side and that the economy’s competitiveness is weakening, Kopač stated and urged for stricter control over aid that is approved to socially endangered people so that only those that really need it get free kilowatts.

EPS’s power prices would double if carbon pricing was introduced

Power prices for households must be raised, Kopač underscored. He pointed out that the introduction of carbon pricing would “push EPS into bankruptcy or lift prices horribly.” The head of the Energy Community Secretariat said the prices of the certificates for carbon dioxide emissions reached EUR 40 per ton, which is near to what is released when 1 MWh is produced. That way EPS’s power prices would double, Kopač stressed.

The secretariat will suggest to the state-controlled electricity producer to just calculate the expenses for the CO2 allowances in the beginning and combine them with the price of power, he said. The money paid for the certificates would remain in the country and it could be used for energy efficiency measures and the support for green energy production, he stated.

Coal subsidies are unacceptable

Direct subsidies for the production of electricity from coal in Serbia were two times higher in 2019 than for renewable sources, making it the worst in the region, and Kopač warns it isn’t allowed to stimulate the coal industry. As for EPS, the distribution system operator still isn’t separated. The retail market has been liberalized but EPS, which is both the guaranteed and the reserve supplier, controls 99% of the supply as the regulated price of guaranteed supply is under the market price and under what is economically justified, the report reads.

Renewable energy auctions, which are under preparations, could slash stimulus to close to zero

Serbia’s share of renewable energy reached 20.3% in 2018 compared to the 27% target determined for 2020. Feed-in tariffs are unnecessarily high so it led to the situation where new investment is practically blocked, Kopač claims. The issue could be solved with the Law on Renewable Energy Sources that is being rolled out, so with the introduction of auctions the stimulus “may be close to zero,” he said.

“Investors are standing in line” to apply when the law comes to force, he underscored and added he is “full of trust with regard to fast development in the positive direction.” According to the secretariat’s calculations, there was only 11 MW in solar power installed in Serbia at the end 2019.

Monopoly lifting household gas prices

Among other objections, Kopač mentioned that the gas interconnector in Horgoš, at the border with Hungary, is practically closed for all entities except those to which Serbiagas allows to use it. Srbijagas has a monopoly, which is bad for consumers, and solving that obstacle is a condition for the opening of chapter 15 of EU accession negotiations, he said. According to the secretariat’s estimates, household gas bills would be EUR 20 lower on an annual basis if there was competition.

The report says the Commission for Protection of Competition didn’t make a single decision on anticompetitive conduct in the energy sector and that the Commission for State Aid Control issued no rulings with regard to energy.

Energy efficiency is energy of future

The Energy Community Secretariat recommended in February that clearer clauses be included in the Draft Law on Energy Efficiency and Rational Energy Consumption and that Serbia should continue to align with the organization’s directives, as it is late in doing so.

“It’s not just about the deadlines. We care that the countries make progress in development as the power or the gas that you don’t use are the cheapest. The main energy of the future is energy efficiency. Too much energy is wasted,” Kopač stated.

SO2 emissions in Serbia were six times higher than allowed in 2019

Turning to environmental protection, the biggest objection was raised over sulfur dioxide emissions, mostly from thermal power plants Kostolac and Nikola Tesla or TENT. They were six times above the legal limit in 2019 and even more if EU regulations are applied, Kopač said and underscored that desulfurization plants weren’t installed in time.

“We are not here to criticize. It is constructive criticism. We would like to help. Your success is our success as, eventually, the Energy Community’s work is assessed only through the members’ progress. We are here for you,” he stated.