Obtaining the Status of a Privileged Power Producer and Pertaining Incentives in the Republic of Serbia - Wind Energy

The Energy Law establishes the category of privileged (subsidized) power producers. Power plants are considered to be privileged power producers on two grounds: firstly, they use a renewable energy source in their electricity generating process and, secondly, according to the Law, they appertain to small power plants (of a capacity of up to 10 MW). The Energy Law stipulates that privileged power producers have: 1) Priority rights in the organized energy market with respect to other power producers offering electricity under the same terms and conditions, and 2) They are entitled to subsidies, tax, customs, and other reliefs/facilities, in compliance with the Law and other regulations governing such forms of levies, subsidies, and other incentives.

This Law also stipulates the application procedure for obtaining the status of the privileged electricity producer, as well as the Government’s obligation to issue a decision on the requirements for obtaining the status of the privileged power producer.

As late as in the course of 2009, the Government passed the Decree on Requirements for Obtaining Privileged Electricity Producer Status and Criteria for Verification of Compliance with Requirements.

The Government also passed the Decree on Incentives for Electricity Generation Using Renewable Energy Sources and by Combined Heat-and-Power Generation.

Obtaining the Status of a Privileged Power Producer

The Decree on Requirements for Obtaining Privileged Electricity Producer Status and Criteria for Verification of Compliance with Requirements stipulates that the producers generating electricity in a power plant generating electricity using wind energy, provided that, in the generation process, the calorific value of the used renewable energy sources on annual level makes up minimum 90% of the total primary energy. Secondary fuels may be any of fossil fuels or waste. (*105)

This Decree (*106) prescribes as follows: 1) In case a power producer is engaged in this activity in a power plant containing different production units, it may obtain the status of the privileged producer only for those production units that meet the requirements set forth in this Decree, and 2) The power producer engaged in the activity in multiple power plants shall submit the application for the status of the privileged producer for each such power plant separately. The Decree also prescribes the method of establishing the total annual electricity output of the power plant for which the application for the status of a privileged power producer is submitted, as well as the obligation of such a producer to have, in the production units of the power plant, i.e. on each power plant, an installed measuring unit for electricity metering. It also prescribes the necessary documentation to be submitted with the application for such a status. (*107)

The actual application procedure for obtaining the status of a privileged power producer, as stated above, is defined by the Energy Law whereby the procedure involves two stages. The application shall be submitted to the Minister of Mining and Energy, who shall issue a decision within 30 days from the date of submitting the application. The discontented party may lodge an appeal against such decision to the Government within 15 days from the date of submitting the decision. The Law also stipulates the obligation of the Ministry of Mining and Energy to keep the Registry of Privileged Power Producers.

Incentives for Power Producers in Power Plants

The Decree on Incentives for Electricity Generation Using Renewable Energy Sources and by Combined Heat-and-Power Generation prescribes in more detail the incentives for electricity generation using biomass/biogas power plants, incentives for purchase of such electricity generation in power plants, incentives for buying up of electricity - feed-in tariffs, and balancing and readout of sold electricity.

This Decree reaffirms that power plants appertain to those facilities that are eligible to use the incentives, but that they must previously have the status of the privileged power producer established within which the type and the installed capacity of the power plant has been specified. The Decree differentiates the power plants, which are new facilities, and power plants within the existing infrastructure.

The Decree stipulates the purchase prices of electricity, which differ subject to the type of the power plant and the installed capacity.

There is just one category of privileged power plants, specifically: Wind Power Plant - Incentive – Feed-in Tariff: 9.5 cEUR/1 kWh

P is installed capacity in MW; an example of calculation of the purchase price for the power plant having the installed capacity of is: 10.316-1.233*1.2=8.8364 cEUR / 1 kWh

The right to the incentives stipulated in this Decree for electricity generated in wind power plants is limited to a total installed capacity in such power plants of up to 450 MW.

Apart from such privileged producers, the right to incentives may also be acquired by privileged producers for electricity generated in such power plants of a total installed capacity, which is equal to the quantity of 10% of the capacity for electricity generation constructed by a public company in charge of generation, distribution of, and trade in electricity in the period of validity of this Decree. (*108)

A privileged producer shall be entitled to incentives that are valid at the moment of filing the application for obtaining or renewal of the status of a privileged producer.

The mechanism stipulated under this Decree obliges the electricity Buyer - a public company in charge of electricity generation, distribution, and trade in it, to buy up the electricity from the privileged power producer, which meets the requirements referred to in the Decree, at the prices set out in the above Table, in RSD equivalent, at the medium rate of exchange of the National Bank of Serbia on the date of making out the invoice.

The rights and obligations of the privileged power producer and the electricity Buyer, respectively, shall be regulated in a Power Purchase Agreement. Such an Agreement shall be signed for a period of 12 years.

The privileged producer, as the Seller of electricity and the contracting party, shall prove its identity to the Buyer by the decision on obtaining the status of the privileged producer. The privileged producer shall have the right to terminate the Power Purchase Agreement by unilateral declaration of will - termination, but without the right to conclude the same agreement again. The Agreement shall be considered terminated upon expiry of the thirtieth day from the date when the Buyer receives the notice to that effect in writing. The privileged producer, who has concluded the Agreement, shall not pay any remuneration for the services of balancing to the Buyer and shall not be obliged to pay for the service of electricity readout.

Readings of electricity at the privileged producer’s shall be taken by the energy entity to whose grid the privileged producer is connected, in such a way that readings shall be taken every first day in a month and not later than by every fifth day in a month; the readout data for the previous month shall be submitted both to the privileged producer and to the Buyer. Prior to the conclusion of the agreement, the energy entity to whose grid the privileged producer is connected shall have another obligation, to take, at the request of the privileged producer or of the Buyer, the initial state readout of the electricity meter. This obligation shall be fulfilled within three days from the date of receipt of such a request. (*109)

The Decree stipulates certain obligations of the Buyer: 1) To conclude the Power Purchase Agreement (*110) within 30 days from the date of submitting a written application for conclusion of the Agreement, and 2) To provide the service of balancing to the privileged producer without any remuneration. It also prescribes that the Buyer shall be entitled to remuneration of expenses resulting from the specified obligations. The amount of such expenses shall be determined on the basis of energy quantities set out in the Energy Balance of the Republic of Serbia for the forthcoming year. The Decree prescribes the method of calculation of such expenses and the method of their remuneration. The Buyer shall be reimbursed for the specified expenses by disclosing the same in the prices of electricity for tariff buyers. (*111)

The Buyer shall be obliged to notify the Ministry of Mining and Energy and the Energy Agency about the revenues collected from remunerations and from sales of electricity purchased from the privileged producers, as well as about the costs related to the obligation to purchase the electricity from the privileged producers.

The prescribed mechanism does not create a possibility for privileged electricity producers to sell the electricity to future qualified buyers directly on the market - at market prices, if competitive enough. Although it is not specifically regulated, the above mechanism also establishes the obligation of the energy entity, to whose electricity grid the privileged electricity producer from a power plant is connected, to ensure takeover of such electricity in the grid.

The template of the Power Purchase Agreement (*112) stipulates the rights, obligations, and responsibilities of the contracting parties (of the privileged electricity producer in power plants and the Buyer) with respect to the buying up of electricity generated in the power plant of the privileged producer, as well as other issues ensuring operation of the power plant in line with the requirements for electricity supply to tariff and other buyers, under the terms and conditions stipulated in the same Agreement and in the regulations governing the rights and obligations on the ground of generation and sale of electricity from renewable sources. It is necessary to point to the fact that the Template of the Power Purchase Agreement does not include any collateral for fulfillment of contractual obligations, which would give a better legal security to both parties. In view of the fact that it is the Template of the Agreement, there should be no obstacle to stipulate some collateral for fulfillment of contractual obligations in each concrete agreement.

Details of Relevant Legislation:

(*105) Article 10, paragraph 1, point 3) of the Decree on Requirements for Obtaining Privileged Electricity Producer Status and Criteria for Verification of Compliance with Requirements.

(*106) Article 9 of the Decree on Requirements for Obtaining Privileged Electricity Status and Criteria for Verification of Compliance with Requirements.

(*107) The applicant shall submit evidence of fulfillment of the requirements for obtaining the status of the privileged power producer with the Application for such a status, specifically: 1) A copy of the license for pursuit of the activity of electricity generation, of the capacity of the power plant is equal to or exceeds 1 MW; 2) A copy of the contract with the license holder, of the capacity of the power plant is 1 MW or over, and the producer is not the license holder; 3) The as-built design of the power plant facility; 4) A copy of the contract on connection to the distribution grid, or to the transmission system and, for power plants of special characteristics having combined heat-and-power generation, also a copy of the contract on connection and takeover of heat, with the competent energy entity, or other economic operators; 5) The operating permit; 6) Data on the person responsible for the operation of the power plant (name, position, telephone, fax, E-mail).

(*108) Article 5, paragraphs 2 and 3 of the Decree on Incentives for Electricity Generation Using Renewable Energy Sources and by Combined Heat-and power Generation.

(*109) At the time of writing this text, the energy entities operating the distribution networks are affiliated companies of the Buyer.

(*110) The stipulated obligation to conclude the Power Purchase Agreement is set forth in the Decree. In view of the fact that the Decree is an executive regulation, for the time being, breaches or economic offences have not been prescribed as yet, for the case when the Buyer fails to fulfill its obligation prescribed in the Decree and fails to conclude this Agreement within the prescribed time or fails to conclude it at all.

(*111) The prices of electricity for tariff buyers shall be set by the Decision, which shall be issued by the Public Company in charge of generation, distribution, and trade in electricity (PC EPIS), based on the Methodology for Setting Tariff Elements for Pricing Electricity for Tariff Buyers (Official Gazette of the RoS, Nos. 68/06, 18/07, and 116/08), and on the Tariff System for Calculation of Electricity for Tariff Buyers (Official Gazette of the RoS, Nos. 1/07, 31/07, 50/07, 81/07, 21/08, and 109/09) handed down by the Energy Agency of the Republic of Serbia. The approval of this Decision shall be granted by the Government.

(*112) Article 1 of the Template of the Power Purchase Agreement, www.mre.gov.rs

NOTE: Complete text is taken from the document-guide for investors Construction of Wind Farms and Electricity Generation from Wind Energy in the Republic of Serbia, of which authors are Branislava Lepotic Kovacevic, PhD Law, and Bojan Lazarevic, BSc El. Eng.

The project was implemented under the patronage of USAID, GTZ / GIZ Serbia and the Ministry of Energy in 2010.