EEL Events gathered players from the energy industry at the 8th Balkan Energy Finance Forum (BEFF 2015) to discuss the future of the sector in Southeastern Europe. Main topics were the bankability of projects of energy and green energy projects in relation to risks. Case studies were presented about endeavours in several branches, with views on sustainable strategies.
The first day of the event included a panel and presentation on untapped potential of hydropower and opportunities for general and small projects in the sector. On the second day, discussions focused on energy efficiency solutions, power exchanges and coupling in the region, and financing energy production from renewable sources. Speakers covered the development of biomass and biogas projects and energy storage solutions. BEFF 2015 included topics of national policy, incentives and legal certainty for investors.
Borko Raičević, Energy Efficiency Expert, Energy Community Secretariat
Among a number of measures to enhance security of energy supply in the Energy Community, I presented the importance of energy efficiency as the most accessible and affordable fuel. To tap significant efficiency potential, the Energy Community is strengthening regulatory framework in this area, including recent adoption of the Energy Efficiency Directive by the Ministerial Council. Strong regional cooperation and coordination will contribute to the utilization of donor support, and to the creation of harmonized ESCO market in the region.
The Green for Growth Fund, Southeast Europe (GGF) is a public–private partnership fund initiated by the European Investment Bank and KfW, dedicated to supporting renewable energy and energy efficiency developments in the Western Balkans, Turkey, and the Caucasus. The fund carries out its mission through providing financing to local financial institutions for on-lending to worthy projects and through direct financing. For direct financing, the fund can provide senior debt, mezzanine financing, and equity financing to support renewable energy projects, targeting specifically small- to medium-size projects.
GGF views the concept of sustainable investment, in its wider meaning, as critical to the development of renewable energy projects in the region. They should be in line with the host country’s energy frameworks and planning, as well as their international obligations, including toward the Energy Community. They should be based on sound resource assessments and strong contractual frameworks. Finally, they should be constructed and operated in a way that is environmentally and socially sustainable. When Finance in Motion GmbH, the investment advisor to the fund, evaluates projects on its behalf, each of these aspects are taken into consideration in the assessment of prospective projects’ bankability.
Đorđe Popović, Senior Attorney
Petrikić & Partneri AOD in cooperation with CMS Reich-Rohrwig Hainz
We appreciate the efforts of all stakeholders involved in the BEFF to underline the gaps in the current regulatory framework applicable to energy projects, especially the lack of comprehensive and coherent set of rules in the renewable sector, and to outline the major steps needed to make the projects ultimately financeable.
Based on our extensive experience as legal advisors in this sector to date, we believe that the imminent challenge for the Government of Serbia will be to adopt a bankable power purchase agreement model as soon as practicable, together with a complementing set of decrees to regulate obtainment of the (preliminary) privileged power producer status and incentive schemes’ application in a clear and concordant manner.
Specific attention in this regard needs to be paid to full implementation of the rules adopted in the new Energy Law, careful drafting of the force majeure and change-in-law clauses and to feasibility of a phased commissioning of large-scale projects and step-in rights of the lenders.
Once finally adopted, it is of equal importance that these specific rules are well understood and consistently applied by all authorities involved.
Svetlana Cerović, Senior Expert for Corporate Structured Finance
UniCredit Group is a leading project finance advisor and manager for power and infrastructure in Central and Eastern Europe, and enjoys a leading market position and excellent track record in the advisory, structuring and financing of complex transactions. Based on the group’s international expertise and after the establishment of the new regulatory framework for development projects in the renewable energy sector in 2012, UniCredit Bank Serbia managed to finance a number of projects, such as the construction of the first solar plant of 2 MW in 2013 and several mini hydropower plants since, while at the moment we are financing one of the first small wind parks. In the last few years, if we look at the number of projects applying for preliminary status of a privileged producer, comparing to total available quota, we can conclude that Serbia has managed to create a favorable environment which shoud enable us to attract new investments in the energy sector. Improvement of regulatory framework will additionally increase the growth of this sector.
Nenad Stefanović, Senior Expert for Electricity
Energy Agency of the Republic of Serbia (AERS)
Serbia lately made major steps in the process of opening the electricity market, adopting the
new Energy Law, harmonized with the Third Energy Legislation Package and thus defining clear regulatory framework. In line with the European Union’s integral market project and according to the South East Europe Regional Action Plan, the South Eastern European Power Exchange (Seepex) was established and will start operating by the end of this year. Seepex was fully supported by the Ministry of Energy and by the regulatory authority in order to enhance electricity market liberalization in Serbia and the regional electricity market.
Despite the fact that Seepex followed the model of merchant – non-regulated power exchanges (PXs), those in France, Germany and Austria, it will have close cooperation with the national regulatory authority. PX monitoring should be constant due to the possibility that the PX gets monopoly or dominant position, on a national level or through cartelization between several powerful PXs. Although the European Commission fully supports creation of PXs in the EU, with no regulated guidelines, there is a common opinion that PXs’ tasks should be regulated by the EU. PXs shall have a major role in defining regional electricity prices, performing the public service role and supporting efficient cross-border trade. Due to political and national motives, each contracting party of the Energy Community is planning its own PX, without justification and regardless of the fact that the power systems are too small to form a liquid exchange. Therefore, the Serbian PX gave a clear message that it is prepared to offer its platform for the market services to all neighboring bidding zones.
Goran Matović, Head of EE & RES Department
South East Europe Consultants (SEEC) Ltd.
Serbia intensively started its support in 2009 with the adoption of feed-in tariffs for electricity production from renewable energy sources and efficient combined heat and production (CHP). Up to now, a smaller part of action plans and energy strategies has been realized. However, many pioneer steps have been done; some obstacles and barriers in procedures, administration and legislation solved but still there is space for improvement. In addition, Serbia has obligation to increase the participation of renewable energy sources in final consumption from 21% to 27% until 2020. It needs to improve the efficiency of thermal power plants on the other hand, and according to the Energy Development Strategy, to close some thermal power blocks using coal. All this implies the necessity and expectations for serious development in the energy sector in the next decade, including a significant increase of projects for renewable energy sources, but also more efficient conventional power plants.
Neil Budd, Director of Renewable Energy
We have extensive experience in the legal work involved in developing and financing renewable energy projects. The Balkans region provides great opportunities for renewable energy development with its abundant natural resources. But there are significant challenges too. Low wholesale power prices prevail across the region. Renewable energy technologies need to bring their costs down in order to achieve grid parity and thereby avoid reliance on government subsidy mechanisms such as feed-in tariffs and green certificates. Experience across Europe has demonstrated that governments frequently remain unwilling to commit to these mechanisms in the long term. In addition to government support, other fundamental requirements such as creditworthy offtakers are of key importance. For renewable energy developers and investors, the Balkans remain an interesting region but it is important to treat each country as a separate market, with its own opportunities and challenges.
Andreas Chollet, Head of International Project Development
For the last 10 years, WPD has been quite successful in the region with three wind farms operating in Croatia and a fourth installation upcoming next year. In all these years, we have been observing wind power markets in neighboring countries such as Serbia and Bosnia and Herzegovina. But as there were no installations we have never felt encouraged to go pioneering ourselves. During the conference, I have learnt that two wind power projects are under construction in Serbia – though of smaller scale (6.6 MW and 10 MW) but with international financing schemes. I see this as a very positive sign that the Serbian wind market has finally been launched, and we will explore new opportunities for investment in this country with much more attention.
Petr Machej, Commercial and Business Development Director
As an EPC contractor focused on energy, water and environmental sector, Abengoa sees the Balkan region as a big and perspective market. During the conference it was discussed how many power plants constructed in the seventies should be shut down in the near future and replaced by new and modern facilities. Banks should understand and resolve the challenge of financing of those projects, especially in the situation when prices of energy all around Europe are extremely low. They are the lowest in the Balkans. Besides that, long-term contracts are becoming rare, because they are being substituted with online trading in fuels and energy. Renewable energy’s share in the energy mix of the Balkan region is also growing, so I believe that there will be a perspective market for energy storage, not only for electrical energy, but also for district heating.
Nikola Ćatović, Associate Engineer for Renewable and Energy Efficiency Finance
MACS Energy & Water
The energy finance market in Serbia seems not to be lacking in financing opportunities in energy efficiency, renewable energy and ESCO projects. The interest of foreign and domestic investors is present, and some obstacles that have been identified in the previous years seems to be on a good path to be overcome. However, the unavailability of representatives of the ministry in charge of energy and the Electric Power Company of Serbia left outstanding the questions regarding the new power purchase agreeements for renewable energy projects, implementation of the public–private partnership contracts for ESCOs and results of the energy efficiency strategy.
Shane Woodroffe, Partner
EnerCap Capital Partners
Countries across Europe have all implemented their own individual regulatory support schemes in an effort to create attractive investment environments, and there have been many lessons learnt, both positive and negative. The Balkan region can learn from the successes and failures from a wide range of previous policy approaches.
Experience has shown that support schemes for clean energy have been amended as governments, new and old, adjust the level of support (often downwards) to take into consideration the pace of market evolvement, lower costs of technology and financing and end-user sentiment – the voters!
The challenge for the Balkans is therefore to create a long-term, future-proof environment to facilitate the required investment. Short-term politics and long-term energy infrastructure investments are incompatible.
Thomas Mitschke, Project Development Component Leader
GIZ – Development of a Sustainable Bioenergy Market in Serbia
The introduction of biogas plants on the mid-sized farms in Serbia would generate additional income. Small biogas plants at farms involve the introduction of technology that uses raw material already at the disposal of farms that comes at no price. It can be used to produce heat energy for the farm itself but also to produce electrical energy that can be sold at privileged prices. The amount of earnings from the sale of electricity generated from biogas greatly depends on the size of the farm and number of animals.
By using the electric energy from renewable sources Serbia is approaching the environmental standards of the European Union. Revenues are increasing at the local level and the farms are becoming energy independent, which can play a big role in doing business and planning. Local farmers show great interest in the new technologies that we, as organization, are promoting and we hope that in the years to come we will have an opportunity to talk with the Serbian farmers about the improved wellbeing that biogas brings.