UPDATE: EU assisting Energy Agency of Serbia to upgrade its regulatory policies, mechanisms, practices in line with the EU Energy Acquis – II quarter results

• Project: Technical Assistance to the Energy Agency of the Republic of Serbia – Approximation of NRA Tasks to the Third Energy Package
• Project duration: July 2018 – January 2020
• Country: Serbia
• Beneficiaries: The Ministry of Mining and Energy of the Republic of Serbia, while the end-recipient of the project activities is the Energy Agency of the Republic of Serbia
• Financing: The project is co-funded by the European Union and the Republic of Serbia (EuropeAid/138046/IH/SER/RS).
• Implemented by: LDK Consultants Global EEIG in consortium with GFA Consulting Group, GFA South East Europe, Kantor Management Consultants and Quiditta

CONTEXT

The project is part of the EU Action Programme for Serbia (2014), whose objective is to support the energy sector in terms of enhancement of the security of supply, the introduction of more competitive energy market structures and improvement of the sustainable energy development. The beneficiary institution of the project is the Ministry of Mining and Energy, while the end-recipient of the project activities is the Energy Agency of the Republic of Serbia.

OBJECTIVE

The specific objective of the project is to contribute to the alignment of policy enforcement, monitoring and harmonization of the Serbian legislation with the EU Energy Acquis.  The project aims to ensure that the regulatory policies, mechanisms and operational practices will be implemented in compliance with the best regulatory practices and applicable provisions of the Energy Community law comprising the 3rd Package of EU Internal Energy Market legislation, the Infrastructure Package and applicable Network Codes.

The project will help Serbian people to get reliable and sustainable energy at affordable prices, will stimulate the network infrastructure investments in the energy sector and will contribute to the creation of an integrated EU energy market.

Wider impact of the project:

• Policy enforcement, monitoring and harmonization of national legislation with the EU Energy Acquis;
• Competitiveness on the electricity market based on non-discrimination, publicity and transparency;
• Protection of energy and energy products customers;
• Development of electricity and natural gas market and their connection with the single EU energy market.

RESULTS

The 2nd quarter of 2019

During the second quarter of 2019, the following project activities were implemented and finalized:

1. Establishment of criteria for assessing the need for price regulation in certain electricity market segments

Following the enactment of the new Energy Law at the end of 2014, only households and small and medium-sized enterprises (SMEs) are entitled to receive guaranteed electricity supply at prices regulated by the Energy Agency of the Republic of Serbia. In addition, the provision of secondary and tertiary reserves, that are required for electricity system balancing,  is also a system service subject to price regulation.  The project team analyzed in detail all the aspects of the market liberalization process in Serbia, including issues such as the development of national and regional competition and the protection of vulnerable customers, and proposed to the Energy Agency internal procedures and criteria for assessing the need for further price regulation for households,  SMEs and secondary and tertiary reserves.

2. Establishment of criteria for abolishing the Supplier of Last Resort in the electricity sector.

The role of the Supplier of Last Resort in Serbia, as defined in the 2014 Energy Law, is to ensure uninterrupted electricity supply for consumers not being eligible for the guaranteed supply regime. In this context, the Energy Agency of the Republic of Serbia is empowered to assess the necessity of the operation of the Supplier of Last Resort and its impact on competition. The project team provided detailed case studies from the operation of the Supplier of Last Resort in EU Member States, assessed the necessity of the operation of the Supplier of Last Resort in the electricity sector under the current  market framework, and provided recommendations to the Energy Agency of the Republic of Serbia for the role and the functions of the Supplier of Last Resort in the future, including assessment criteria on the possible time of its abolishment.

3. Compliance programmes for Electricity and Natural Gas Distribution System Operators

One of the key requirements of the 3rd Energy Package is the separation of vertically integrated energy companies (“unbundling”), which eliminates the risk of discrimination in the operation of the networks and on the way access to the networks is given. To this end, Distribution  System Operators are obliged to develop compliance programmes and annual reports in order to ensure that there is no discriminatory conduct and that the unbundling process is properly monitored. The project team developed regulatory instructions to the Compliance Officers of the Distribution System Operators on the way that those programmes should be developed and implemented, giving practical recommendations regarding the type of measures that may be included in the programme and the way these measures should be implemented and monitored through the annual reports. In addition, practical guidance was given to the Energy Agency of the Republic of Serbia on how to assess the content of the compliance programmes and the respective annual reports.

4. Recommendations for regulatory investment incentives for electricity and natural gas network infrastructure projects

The EU Directive 347/2013, which has been transposed in the legal framework of the Energy Community, has provided guidelines on the way to manage the risks of large-scale electricity and natural gas network infrastructure projects, as well as the type of regulatory incentives to be given so as to  promote the development of those projects and mitigate incurred risks. In this context, the project team thoroughly reviewed and assessed the relevant regulatory framework set by the Energy Agency of the Republic of Serbia to identify if it creates additional risks or barriers for network infrastructure investments. In addition, risk-related regulatory incentives were proposed to the Energy Agency of the Republic of Serbia for the whole portfolio of electricity and natural gas network infrastructure projects to applied in case that a  certain project promoter experiences higher risks compared to the risks normally incurred by a comparable infrastructure project.

5. Assessment and upgrading regulatory framework for quality of service

The general goal of the quality of service regulation at electricity and natural gas level is to guarantee a good level of continuity of supply, voltage quality, gas quality and efficient services for electricity and natural gas consumers. The project team initially performed a gap assessment of the Serbian legislation against the requirements of the 3rd Energy Package, while analyzed best practice solutions followed at EU level. The next step was the development of suitable indicators and standards for electricity and natural gas service providers, while support was provided on the Energy Agency of the Republic of Serbia on developing regulatory instructions for submission of quality of service data. The last part of the work focused on making recommendations for further development of regulatory mechanisms in relation to price regulation and network planning, while methodologies were proposed for the calculation of compensation to customers due to quality of service deviations.

The 1st quarter of 2019

During the first quarter of 2019, the following project activities were implemented and finalized:

1. Assessment of monitoring activities of the Energy Agency

A solid regulatory monitoring framework enables a regulatory authority to assess the smooth functioning of the energy markets and the performance of the regulated energy entities in line with Serbian legislation, as well as identify fields of improvement and further actions to the benefit of Serbian consumers. The project team reviewed the current monitoring of AERS activities in terms of scope, efficiency, effectiveness and staff adequacy and pinpointed gaps and elements of the monitoring functions, which should be upgraded during the next phase of the project.

2. New calculation methodologies and numerical estimation of the Value of Lost Load for relevant customer categories in Electricity and Natural Gas sector

The estimation of the Value of Lost Load (VoLL) allows for a more effective and efficient transition to a liberalized market structure. It is also used during energy infrastructure project assessment and reflects the real cost of outages for system users, hence providing a good indication for investment decisions. In this context, the project team developed calculation methodologies and performed numerical estimations of the Value of Lost Load for various customer categories in the electricity and natural gas sector, as well provided capacity building to AERS officers on this subject.

3. Certification of the Electricity and Natural Gas Transmission System Operators

Unbundling in the energy sector prevents discrimination in the access of electricity and natural gas networks, allows for fair market competition and can lead to more affordable prices for the consumers. The project team developed procedures for the certification of the transmission system operators, which will be used to verify the operators’ compliance with the Unbundling rules indicated in the 3rd Package of the EU Internal Market Legislation. A training workshop was also performed, whose objective was to enhance AERS capacities in the field of the certification.

NEXT STEPS

In the remaining project period significant capacity building activities are envisaged, as well as the provision of support to the Energy Agency of the Republic of Serbia on the assessment and monitoring of electricity natural gas network development plans,  the development of tools for assessing smart meters roll-out plans, the drafting of specifications for electricity and natural gas price comparison tools, as well as   other activities, as defined and agreed with the beneficiary institution.