At the end of 2018, the Government of the Republic of Serbia extended the validity of the Decree on Incentive Measures for the Production of Electric Energy from Renewable Energy Sources and High-efficiency Cogeneration of Electric Energy and Thermal Energy (the “FIT Decree”) until the end of 2019. The FIT Decree was initially valid until the end of 2018.
The FIT Decree is part of a package of decrees setting out the support scheme for renewable energy, along with the decree governing the status of (preliminary) privileged power and a model power purchase agreement.
The current support scheme set out the overall quota for supporting wind power projects if up to 500 MW of installed capacity. The entire quota was distributed well before the initial term of the FIT Decree expired.
As a result of the extension of the validity of the FIT Decree, wind projects which have not secured their place within the quota – which have not yet obtained the (preliminary) privileged power producer status – may not benefit from incentives. According to the latest information available, there are nine wind power plants (with a total capacity of approximately 570 MW) in different stages of development that have previously expressed interest in receiving support.
The extension makes it clear that the Government has not yet decided what the support scheme will look like in the future. Apparently, the Government gave itself a one-year window to decide whether it will stick to the feed-in tariff with some adjustments or move towards more market-based incentives.
According to unofficial information, the Ministry of Mining and Energy engaged an external consultant to propose a support scheme for the future. Again unofficially, the proposal should be ready for public presentation before this summer. The Government should pass a new scheme by the end of the year, with the first round of incentive awards in accordance with the new scheme taking place in 2020.
Previous endeavors have shown that the critical factor for the realization of large-scale projects is a support scheme that meets bankability criteria. Stakeholders rightfully hope that the new scheme will implement the lessons learned from previous schemes. In the first place, the new scheme would need to ensure an adequate allocation of risks among the parties involved to ensure that a party most suitable to bear the risk actually does so. For example, as long as there is no intra-day market, transferring the balancing responsibility to the producers would not be justified. It goes without saying that ensuring that the support entity is of adequate creditworthiness, that reasonable deadlines are in place for the finalization of projects, that protection exists in the case of force majeure, and that reliable dispute resolution mechanisms must be put in place if we want to see new blades spinning.
In preparation for the new support scheme, the decision makers should ensure that the new scheme envisages a competitive process for awarding incentives, rather than the first-come-first-serve system that Serbia has historically employed. A competitive process would promote the cost-efficient development of wind projects by achieving competition among reputable developers, resulting in lower financial burdens for consumers. The competitive process would also provide for greater transparency and equal chances for projects that have been developed for years (as mentioned above, nine projects have already expressed an interest in receiving support). Last but not least, both the Energy Community and, at this point, indirectly, the European Union, insist that support schemes promote sustainable, market-oriented, and transparent support mechanisms. This can only be achieved through a competitive process for awarding incentives.
There is still no indication whether the new scheme would envisage the support through power purchase agreements or so-called contracts-for-difference (where the support granted is the difference between the price which the producers have been guaranteed awarded and the market price of electricity). The impression is that the mechanics itself is of less importance if the support scheme is takes into account the criteria discussed above.
By Petar Mitrovic, Partner / Independent attorney at law in cooperation with Karanovic & Partners
This Article was originally published in Issue 6.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.