UPDATE: EU assisting Energy Agency of Serbia to upgrade its regulatory policies, mechanisms, practices in line with the EU Energy Acquis – IV quarter results
- Project: Technical Assistance to AERS – 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
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.
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.
The 4th quarter of 2019
Some of the key project activities during the fourth quarter of 2019 include:
1. Amendments to the connection charges methodology introducing second comer rules
AERS is empowered to issue methodologies for calculation of electricity and natural gas network connection charges. The current legal framework introduces certain divergence from the cost causality principle. Connection costs to be paid by the entity requesting connection for the first time (initial contributor) may be significantly higher in comparison to other users connected subsequently to the same part of network (“second comers”), partially using the new asset paid by the initial contributor. The “second comer” can, to certain extent, free ride on the initial investment.
The project team assessed the regulatory framework identifying any barriers in primary legislation (i.e. the Energy Law) to introduce “second comer” rules in the connection charging methodology set by AERS and proposed changes where this was deemed necessary.
The project team also developed second comer rules proposing mechanisms to reimburse initial contributors and integrate them in form of amendments into the Energy Law and the current connection charging methodology.
2. Designing a web-based electricity and natural gas price comparison tool
The main objective of this task was to provide AERS with the requirements for the development of an electricity and natural gas price comparison tool.
The project team recommended to AERS to initially establish the basic organization for price monitoring, including the infrastructure required for the development of private tools in the future when and if there is interest and then, in a second phase, to develop the public price comparison site to fully comply with the EU Directive 2019/944.
The project team also suggested that the effort should be focused primarily to serving residential and small commercial consumers and that the scope of the organization/systems should include both Electricity and Gas components. The analysis of the requirements provided by the project team includes not only functionality to be automated in a price comparison site, but also processes that will enable participants (policy makers/regulators, suppliers and customers) to have a fully transparent view and monitoring of the market.
3. Legal aspect of TPA contracts
Electricity and gas transmission system operators (TSOs) as well as operators of storage or LNG facilities are required to grant energy companies non-discriminatory access to their infrastructure and offer the same service to different users under identical contractual conditions.
The project team provided guidance on the compulsory clauses for TPA Contracts by using a clause-by-clause legal analysis of them. Also, the project team completed an analysis of the rule of access to networks and the contracts principles, as they have been formed by Member States’ practice. A comparison analysis on the contracting TPA practice and rules between Serbian legislation and practice and EU legislation and practice was also conducted.
Following the above analyses, the project team provided detailed recommendations and instructions on the legal content of the TPA contracts as well as a methodology on how these contracts should be reviewed in Serbia.
4. Assessment of unit costs
In 2015, ACER published a report for both electricity and natural gas infrastructure, focusing on definition of the Unit Investment Cost indicators and providing the corresponding reference values in order to complement the ENTSO-E and ENTSO-G CBA, a requirement imposed by the EU Regulation 347/2013.
The project team reviewed in detail the recommendations that ACER provides regarding the unit investment cost of electricity and natural gas infrastructure and after supplementing/ comparing the information gathered with the information that the Energy Community provides on this matter, the team proposed a mechanism for UIC indicators for AERS to be potentially used as a benchmarking tool for an enhanced assessment of projects.
5. Upgrade the monitoring process in AERS
The project team has performed a gap assessment between the requirements imposed by the applicable EU rules and the identified monitoring and enforcing activities of AERS. An assessment of the efficiency and effectiveness of AERS monitoring activities, as well as an evaluation of the adequacy of AERS staff to perform these monitoring activities was conducted by the team.
The main findings of the above gap analysis were used as basis for upgrading the monitoring process of AERS. Based on existing (and new) info codes collected from market participants (suppliers, TSOs, DSOs, etc) a number of spreadsheets (monitoring checklist, matching spreadsheets, data processing spreadsheets) have been prepared by the project team to support AERS internal market monitoring practices.
6. Review of AERS IT systems and processes
The project team has started working on reviewing the current AERS IT systems and processes including all functionalities of the existing application modules (Archiving, License Register, Regulated enterprises costs, Crude oil and petroleum products object monitoring). This is done by organizing workshops on which AERS representatives present application modules and their functionalities.
After documenting current state, the project team will identify the needed changes in the existing application modules as well as needs for new application modules. These requirements will be used as a basis for the design of the system which will be later used for programming and producing the final implemented information system. Finally, an assessment of the overall investment costs that are required for the IT upgrade will be provided by the project team.
7. Study visit to Italy
The second study visit was organized in Italy. During this study visit the participants had the opportunity to exchange experiences with experts from the Italian National Regulatory Authority (ARERA), Operators and electricity and natural gas utilities.
Moreover, representatives of AERS and Ministry of Mining and Energy of the Republic of Serbia (MOME) attended workshops primarily focused on the regulatory policies, mechanisms and practices in Italy, in line with the EU Energy Acquis.
The 3rd quarter of 2019
During the third quarter of 2019, the following project activities were implemented and finalized:
1. Network Development Plans
The new Energy Law empowers AERS to approve ten-year network development plans (TYNDP) developed by electricity and natural gas transmission system operators, as well as five-year development plans for electricity distribution and oil, and oil derivatives transport. In addition, AERS is obliged to monitor and assess the implementation of the aforementioned network development plans.
The project team has delivered detailed instructions for network operators elaborating network development plans and a set of criteria and tools that can be used by AERS to assess whether proposed infrastructure investments deliver network planning objectives in the most efficient way.
The project team also delivered the definition of AERS internal procedures for monitoring the implementation of the network development plans (i.e. infrastructure projects comprised in the plans) including data submission templates for the network operators and instructions for their elaboration, as well as the definition of AERS internal procedure on discharging regulatory measures for ensuring implementation of electricity and natural gas TSO investment development plans (request to TSO, tender procedure, capital increase) and accompanying templates.
2.Tools for assessing plans for smart meters roll-out
The Directives 2009/72/EC and 2009/73/EC, which have been transposed into the Serbian energy legal framework, set specific requirements for the development of electricity and natural gas smart meters roll-out plans.
The project team developed the Regulatory Instructions and Guidelines (RIGs) for the roll-out of smart meters in the Republic of Serbia including the allocation of responsibilities per stakeholder in the roll-out process, the list of legal and regulatory requirements, the detailed process and timeline of the development of the CBA and roll-out plans for smart meters, the boundary conditions, costs and benefits to be considered in the CBA, and the criteria for the assessment of the CBA and the roll-out plans.
The project team developed a description of the internal procedures that should be followed by AERS for the assessment of the CBA and the respective roll-out plans, as well as the accompanying calculation model for the elaboration of the CBA in line with the proposed methodology in the Excel-based tool.
3. Cross border cost allocation
Asymmetry in the distribution of the costs and benefits of an electricity or gas interconnector amongst the hosting and/or neighbouring countries can be significant. In an extreme situation the majority of costs may lie on one side of the border while the majority of benefits on the other. Regulation (EU)347/2013 as incorporated and adopted by the Energy Community Ministerial Council addresses this potential asymmetry in sharing by establishing a procedure for the so-called Cross Border Cost Allocation (CBCA) mechanism.
The project team developed detailed regulatory instructions and guidance (RiGs) for the content, structure and accompanying information (including data templates, where applicable) related to CBCA requests for electricity and natural gas infrastructure.
4. Implement and deliver trainings (Study visit to Slovenia)
In the first out of three study visits, was organized in the Republic of Slovenia, participants had the opportunity to share experiences with experts from the Slovenian National Regulatory Authority, Agency for the Cooperation of Energy Regulators (ACER) and from four energy companies.
The study visit provided the possibility for discussion with the representatives of regulatory bodies, electricity transmission and distribution system operators and natural gas transmission system operator. During the study visit, representatives of AERS and the Ministry of Mining and Engineering of the Republic of Serbia attended the workshops primarily focused on the regulatory policies, mechanisms and practices in the Slovenia, but also on the functioning of the European Union energy market, according to the EU Energy Acquis.
5. TPA exemptions
Exemptions from the requirements related to unbundling, third party access and tariff regulation are designed to allow for investments where the level of risk attached to the investment is such that the investment would not take place unless an exemption is granted. The EU legal framework, as adopted by the Energy Community Ministerial Council, sets the conditions for granting exemptions.
The project team provided a set of legal recommendations, as well as the detailed instructions concerning the content of an exemption application and the assessment to be carried out for electricity and gas.
The project team also developed specific guidance regarding technical information to be provided by the applicant, project costs and revenues, economic and financial assumptions and the calculations studies to be provided within and the structuring and contents of the applicant’s own assessment on whether the project meets the criteria of Regulation 714/2009 and Directive 2009/73/EC.
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:
- 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.
- 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.
- 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.
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 design of a web-based electricity and natural gas price comparison tool, legal aspects of third-party access contracts, assessment of unit costs, review of AERS IT systems and processes, and other activities, as defined and agreed with the beneficiary institution.