Incentive measures for the producers of electricity from renewable sources (Part I)

All projects involving renewable energy production are complex, require multiple steps and their implementation can be very expensive, from technological point of view, as well as from the administrative and legal angles. Maybe one of the most important thing for the potential investor, who for example wants to build a bio-gas energy plant, are incentive measures, that the government is willing to provide.

In accordance with the Energy law (which was summarized in a previous AKT blog-post – https://www.akt.rs/en/publication/renewable-energy-production-in-serbia—the-general-framework-of-the-energy-law), Government enacted the Regulation on incentive measures for the production of electricity from renewable sources and from high-efficiency electricity and thermal energy cogeneration (http://www.mre.gov.rs/doc/efikasnost-izvori/Uredba%20o%20podsticajnim%20merama%20ENG20092016.PDF) as lex specialis. Purpose of this Regulation is to state in more details the incentive measures for the production of electricity from renewable energy sources, conditions for their realization, the duration of the incentive period, as well as the rights and obligations contained from these measures for privileged producers and other energy entities. This and the next blog-post will provide a summery of key provisions of this Regulation.

1 – Incentive measures

Article 3 enumerates the incentive measures:

1) The incentive period lasts 12 years starting from the first reading of the amount of electricity in the power plant or part of the power plant after the established status of privileged producer, unless something else is stated by the Regulation and the power purchase agreement;

2) The incentive purchase price at which the privileged and preliminary privileged producers sell to the guaranteed supplier the appropriate amount of electricity produced during or before the incentive period;

3) Assumption of balancing responsibility by the guaranteed supplier for the delivery points for electricity of the privileged producer, during the incentive period;

4) Assumption of balancing costs of the privileged producer, during the incentive period, by the guaranteed supplier;

5) Free of charge access to electricity transmission, and/or distribution systems.

The preliminary privileged producer has the right to incentive measures from the day of conclusion of the power purchase agreement. This period includes the trial operation of the plant, or part of it, and the period from the finalization of the trial operation until the date of the commencement of the incentive period.

Incentive purchase price is defined as a form of operational state aid to privileged and preliminary privileged producers. This price is determined based on the type of the power plant and its capacity, as well as the maximum effective operating time for the relevant type of power plant. The incentive purchase prices are expressed in Euro cents per kilowatt hour (¢€/kWh) and rounded off to two decimal places. The regular annual adjustment of the incentive purchase prices due to inflation in the Eurozone is carried out in February of every year, starting from 2017. The incentive purchase prices is paid in RSD counter value as per the National Bank of Serbia mean exchange rate on the date of invoicing.

2 – Required conditions for getting the incentive measures

The privileged producer is entitled to incentive measures valid on the day of submitting the application for the acquisition of the status of privileged producer of electricity, unless established otherwise for a particular case by the Regulation or the power purchase agreement.

A preliminary privileged producer having acquired the status of privileged producer of electricity is entitled to incentives for a power plant, or part of it, which were valid on the day of submitting the application for the acquisition of the status of preliminary privileged producer, if during the period of validity of the status of preliminary privileged producer they have acquired the status of privileged producer unless provided otherwise.

In the case of phased construction of a power plant, the right to incentive measures is realized for each independently built part of the power plant, if the status of privileged producer was acquired separately for that part of the power plant. The incentive period runs separately for each part of the plant. The incentive purchase price for each separately built part of the plant is equal to the incentive purchase price valid for the entire plant.

3 – Manner of exercise of incentive measures – Power Purchase Agreement

The right to incentive measures for the privileged producer and the preliminary privileged producer is exercised through a power purchase agreement concluded with the guaranteed supplier. In Serbia, the guaranteed supplier is for now always JP EPS (Public Enterprise “Elektroprivreda” Serbia) as it has a monopoly in distribution of electricity.

In the case of cancellation or termination of the power purchase agreement the right to incentive measures ceases to exist under the conditions and in the manner defined under the power purchase agreement, irrespective of the will of the guaranteed supplier and/or the privileged producer or preliminary privileged producer.

If a power plant or its part is not operational, or the guaranteed

supplier is unable to purchase the electricity produced during the incentive period due to force majeure, the rights and obligations as per the power purchase agreement are suspended for the duration of the force majeure unless stated otherwise.

Other reasons for the suspension of rights and obligations under the power purchase agreement causing a standstill in the incentive period, unless provided otherwise under the power purchase agreement, are those relating to the actions of other state and local self-government bodies, nationalization or expropriation, or international sanctions.

Due to the complexity of the topic, the issues of rights and obligations of the producers and the guaranteed supplier as well as penalty provisions will be dealt with in the upcoming AKT blog-posts.

Iva Zivkovic