Member Article

In December of last year, the Serbian Transmission System Operator amended the Grid Code. These amendments did not substantially change the code, but did introduce changes in:

- technical conditions for connecting to the grid, including specific conditions for connecting generating units, and
- access to the grid.

The amendments are published in the Official Gazette of the Republic of Serbia no. 02/12.

Significant delay in RES secondary legislation

Almost a year after it adopted the Energy Law, the government has still not issued new renewables regulations, including a new feed-in tariff, missing its deadline by more than seven months. The current feed-in tariff is set to expire at the end of 2012.

The Government has also not appointed an entity to be in charge of the mandatory take-off of electricity (the energy it is required to purchase) under a feed-in tariff system. The law requires it to do so by October 2012.

As a result of these delays, it is unclear how the tariff system will be applied in practice.

News

May

— Serbia issued its first construction permit for a wind-power plant. The plant, Plandiste I, will be built in Plandiste, Vojvodina.
With an installed capacity of 102 MW, Plandiste I should reduce annual CO2 emissions by about 330,000 tons, beginning in 2013. Plandiste I is the first clean development mechanism (CDM) project approved by the Serbian Designated National Authority (DNA).

— The state-owned-public-enterprise Electric Power Company of Serbia (EPS) and Lotikad.o.o. signed a protocol of cooperation for energy projects in Mecavnik, Mokra Gora. The project, overseen by a joint-venture company established by EPS and Lotika, will include four 1 MW power plants: one solar-, one biomass-, and two hydro-power plants on the Crni Rzav River. Other details of the project, including cost and time frame, have not been published.

— Edison Spa announced that construction of the Kolubara B project will start next year. In the meantime, Edison and EPS will continue work on a feasibility study (reports last year indicated that this study would be complete by the beginning of 2012). According to unofficial reports, construction of the Kolubara B project should be finished by 2017. In May, the Serbian Government issued a letter of support to the investors of the Kolubara B project. The letter has not been officially published, but we believe it is about a potential EUR 400 million loan from EBRD for the project.

— The Ministry of Infrastructure and Energy, and Czech Alta signed a statement of cooperation for constructing the Thermo Power Plant Stavalj and revitalising its mine (TPP Stavalj Project). Another Czech company, VDO, will also be involved with the TPP Stavalj Project. The project will include a EUR 500 million new thermo block, with a 350 MV installed capacity, and a EUR 150 million modernization of the mine, for a total estimated cost of EUR 650 million. TPP Stavalj Project should take 3 to 5 years to complete. After construction is complete, Alta will transfer ownership of TPP Stavalj to EPS, and be compensated by a percentage of the profits.
April
— After three years of negotiations, Comico Oil – Serbian subsidiary of Comico Overseas – and the city of Smederevo signed a 99-year, RSD 652 million (app. EUR 6.5 million) lease for a 113-hectare plot. Comico Oil plans to develop an oil refinery with a planned output of up to 100,000 barrels of crude oil, estimated to cost USD 250 million. Under the lease agreement, Comico is required to employ at least 540 workers and to meet environmental-safety requirements.

— EPS, the City of Novi Sad, a consortium of international bidders (Greek Metka, Russian Optima Energostroj and Slovak Global Group Energy), and Energija Novi Sad a.d. (the project company established by EPS and City of Novi Sad to develop the CG-CT project) signed the Protocol Commencing Final Negotiations for Concluding the Agreement on Joint Investments in the Project. The signatories could not confirm when the agreement on investment will be signed. Consortium members will become shareholders of the project company through capital investment. The project is estimated to cost EUR 320 million, and will be carried out in two phases. If negotiations are swift, CG-CT Novi Sad’s first phase of modernization could be complete by the end of 2014.
March
— EPS and Hitachi Power Europe signed a protocol of cooperation. The companies will work together to improve the boilers on EPS’s thermo-power plants and decrease its nitrate and sulphur-oxide emissions. The companies also intend to join forces for future thermo power projects, including TENT B3, Obrenovac.


Montenegro

New Grid Code issued

The Montenegrin Transmission System Operator issued a new Grid Code in October of 2011, replacing the 2005 Temporary Grid Code.

The Grid Code regulates:
- grid connections,
- the grid’s normal function,
- use of and access to the grid,
- criteria for providing ancillary and system services,
- grid planning and development,
- metering systems, and
- the exchange of electricity between different types of energy systems – e.g. renewable energy source (RES) and thermal power.

The Grid Code also sets the minimum-standard requirements for operating an energy plant. These standards are based on those recommended by the European Network of Transmission System Operators for Electricity (ENTSO-E).

The Grid Code & the REA’s decision are published in the Official Gazette of Montenegro no. 5/12.

New Tariff Methodologies enacted

The Regulatory Energy Agency (REA) as created four guidelines that assess:

- regulated income and fees for using the electrical-energy transmission system,

- regulated income and fees for using the electrical-energy distribution system,

- regulated income of public supplier and regulated tariffs for the electrical-energy supply, and

- fees and terms for providing ancillary, system and balancing services for the electrical-energy transmission system.

The first three guidelines are published in the Official Gazette of Montenegro no. 2/12 and amended in the Official Gazette of Montenegro no. 12/12.
The fourth is published in the Official Gazette of Montenegro no. 16/12.

The entities in charge of regulating services have recalculated their fees under the new guidelines. If approved by the REA, these fees will be mandatory for all participants in the sector. Unofficial reports indicate these fees will soon be approved and come into effect by 1 August 2012.

The new fees are expected to be higher than current rates, which were calculated under the 2010 temporary guidelines (issued after the 2010 Energy Law). These temporary measures were terminated with the issuance of the new guidelines.

Ministry adopts Rulebook on the Threshold Consumption of Energy for Determining Major Consumers, Contents of the Plan for Improving Energy Efficiency, and the Report on the Implementation of the Plan.

After nearly a year’s delay, this February the Ministry of Economy finally issued the Rulebook on the Threshold Consumption of Energy for Determining Major Consumers, Contents of the Plan for Improving Energy Efficiency, and the Report on the Implementation of the Plan (Rulebook).

The Law on Energy Efficiency (EE Law), adopted in 2010, introduced the category of “major consumer” into law, and requires these consumers to prepare annual energy-efficiency plans. Though the EE Law came into effect a year ago, the requirements for major consumers could not be applied until the issuance of the Rulebook.

The Rulebook sets out:

- The annual-energy-consumption threshold for determining major consumers,

- annual plan requirements for improving energy efficiency of major consumers, and

- requirements of the annual report on past plans for improving energy efficiency.

The Rulebook is published in the Official Gazette of Montenegro no. 10/12.
Ministry adopts Rulebook on the Information System of Energy Consumption and the Method for Submitting Information about Annual Consumption of Energy
The Ministry finally issued the Rulebook on the Information System of Energy Consumption and the Method for Submitting Information of Annual Consumption of Energy (IS Rulebook) this January.
The IS Rulebook lays out the contents and characteristics of the energy-consumption information system in Montenegro (introduced by the EE Law), as well as the content-and-submission requirements of information about annual energy consumption.

Information Systems

The energy-consumption information system consists of the Central Information System (implemented and maintained by the Ministry) and information systems implemented by major consumers and consumers within the public sector (IS Consumers). IS Consumers are required to install and maintain the information systems for their facilities. The IS Rulebook gives the standards for IS Consumer information systems.

Information from the Central Information System is available exclusively to IS Consumers, who may access it on the Ministry’s webpage.

Information about Annual Consumption

IS Consumers are required to submit forms about their annual energy consumption and factors impacting that consumption to the Central Information System. The forms are due every March 1 for the previous year.

The IS Rulebook is published in the Official Gazette of Montenegro no. 6/12.

News

March

— The Ministry of Economy and Kol Energy signed a 30-year concession agreement for the development of a small hydropower plant, Rastak, on the Rastak River in the municipality of Kolasin. The plant has a planned installed capacity of 624kW, with a planned annual output of 2.5 GWh. The cost is assessed at EUR 1.16 million.


Bosnia and Herzegovina

I. Republic of Srpska (RS)

Energy Strategy has finally been adopted

In March, the RS adopted the Strategy for Energy Development by 2030 (Energy Strategy).

The Energy Strategy is at the core of the RS’s plan for its energy sector. It provides:

- an overview of the current status of the energy sector, available energy resources and energy consumption,

- development priorities in all energy sectors and guidelines for their implementation,

- guidelines for environmental protection (including energy efficiency), and

- guidelines for the development and liberalization of the energy market.

The Energy Strategy calls for significant investment in the energy sector until 2030. Official estimations put the price of development at around BAM 11.2 billion (app. EUR 5.75 billion), more than 15% of which is intended for the renewable-energy sector. As it lacks sufficient funds for the venture, RS intends to seek funds in the international capital markets.

Parliament’s decision is published in the Official Gazette of the RS no. 28/12.

RCERS amends the Rulebook on the Promotion of the Production of Electric Energy from Renewable Resources and in Efficient Cogeneration (RES Rulebook)

In March, not six months after it had adopted the RES Rulebook, the Regulatory Commission for Energy of the RS (RCERS) amended it.

The RES Rulebook initially offered existing hydro- and wind-power facilities – those that had been operating for up to 15 years before 1 January 2012 – mandatory take-off/premiums while simultaneously precluding them for plants with equipment more than 10 years old. As these two provisions often conflicted, the RCERS amended the RES Rulebook so that the 10-year age limit for equipment only applies to new facilities – those that started operating after 1 January 2012.

In addition, only new facilities will suffer decreases to their guaranteed prices/premiums for installing used equipment that is under 10 years old.

The Amendments to the RES Rulebook are published in the Official Gazette of the RS no. 53/12.

Operation Rules have been adopted

Acting as RES Operator, the public enterprise Mixed Holding – Electric Power Company of the Republic of Srpska (Mješoviti Holding – Elektroprivreda Republike Srpske“) issued the Operation Rules in January.

The Operation Rules establish detailed procedures for promoting the production and consumption of energy from RES and cogeneration (CHP) though the use of incentives. The incentives for RES and CHP generators in the RS are laid out in the Government’s Decree on the Production and Consumption of Energy from Renewable Energy Sources (RES Decree), and include:

- The mandatory take-off of green electricity under guaranteed prices on the basis of the Power Purchase Agreement (PPA) concluded with RES generators and CHPs,

- premiums for electricity sold in the market (if the eligible generator decides not to sell its electricity to the RES Operator) or electricity consumed by the generator,

- priority in access to the grid, and

- privileges in relation to connection to the grid.

With the adoption of the Operation Rules and the preparation of model PPAs (see below), the RS has completed its RES regulatory framework, and the incentives for green energy will finally be effectively available to RES generators.

The approval of the Operation Rules is published in the Official Gazette of the RS no.15/2012

Model PPAs have been prepared

In early 2012, Mixed Holding – Electric Power Company of the Republic of Srpska (Mješoviti Holding – Elektroprivreda Republike Srpske), again acting as RES Operator, prepared model agreements for using the incentives established by the RES Decree, including a:

- model PPA for RES generators,

- model PPA with CHPs,

- model PPA for existing facilities,

- model preliminary PPA,

- model agreement for premium payments for electricity sold on the market for RES generators, and

- model agreement for premium payments for electricity sold on the market for CHPs.

These model agreements regulate the deals and incentives the RES Operator can offer to generators of green electricity.

The model agreements are available at:
http://www.ers.ba/images/stories/obnovljivi/ugovor_o_obaveznom_otkupu_i.pdf


II. Federation of Bosnia and Herzegovina (Federation)

Decree on the Use of Renewable Energy and Cogeneration declared Unconstitutional

In June, the Constitutional Court of the Federation ruled that the Government’s Decree on the Use of Renewable Energy and Cogeneration (CHP Decree) was unconstitutional, because it was not authorized by the proper authority. Only Parliament can regulate this sector. The Constitutional Court allowed the CHP Decree to be applied for a six-month transitional period following the ruling, after which renewables would return to Parliament’s exclusive jurisdiction.

The Court’s ruling is published in the Official Gazette of the Federation no. 60/12.

Law on Renewables expected by the end of 2012

Even before the Constitutional Court found the RES Decree unconstitutional, the Federation planned to establish a comprehensive law on renewables. Work on the law began in early 2011, with an analysis of the current status of the RES regulatory framework in the Federation and the drafting of a law by national and international experts. The Counsel of Ministries adopted the official draft of the law (Draft) at the end of 2011. The Draft is expected to be adopted by both Houses of Parliament by the end of 2012.

Assuming the Draft is not substantially altered before it is adopted into law, the new law on renewables will regulate:

- the use of RES and CHP,

- RES and CHP electricity generation,

- the terms and conditions of incentives for green electric, thermal and transport energy

- the share of green energy in the Federation’s overall energy generation and consumption

- the authorities and responsibilities of the RES Operator (the entity in charge of incentive administration),

- testing of RES potential, and

- certificates guaranteeing the origin of green energy.

The new law will provide incentives for thermal energy and biofuels, as well as electricity, a first in the Federation. The law also allows investors to acquire the right to incentives before their projects are complete, which they can then exercise after their plants are operational.

News

July

— Public-enterprise Electric Power Company of Bosnia and Herzegovina (EPBH) announced that during July it will issue international tender to select a partner for construction of block 7 of its thermo-power-plant Tuzla.

June

— China Development Bank, the RS, and Energy Financing Team signed a 14-year, EUR 350 million loan agreement for the construction of a thermo-power plant, Stanari, near Doboj, RS. Stanari has a planned installed capacity of 300MW and will be fuelled by lignite provided from nearby mine that is run by EFT. The project’s total cost is estimated at EUR 550, with completion anticipated in 2016.

May

— The Prime Minister and EPBH announced that construction of Block 8 of thermo-power-plant Kalanj will start soon. The Federation previously commissioned the revitalization of Block 6 at Kakanj, which has an installed capacity of 110 MW. It took 11 months, 3,500 workers from 61 companies, and BAM 94.4 million (app. EUR 47 million) to revitalize this block.

April

— Construction of Srednja Drina, a hydropower system costing approximately EUR 830 million, is expected to begin in 2013. The Srednja Drina project includes the construction of three hydropower plants - Dubravica, Tegare and Rogacic, with a planned combined installed power of 321.45 MW, and an annual electricity output of 1,200 GWh.

March

— The Ministry of Industry, Energy and Mining of the RS, and Djurdjevik, a brown-coal-and-lignite mine, signed a concession agreement on the conditions of the mine’s future lignite production. The parties also signed a protocol on reprogramming debt from the previous exploitation period.

— The Ministry of Industry, Energy and Mining of the RS announced that the construction of four hydropower plants on the Upper Drina – Buk Bijela, Foča, Sutjeska, and Paunci – will start in the spring of 2013. The total cost of the project is estimated to be EUR 435 million.


Macedonia

Three new bylaws in the energy sector
In May, the Energy Regulatory Commission of the Republic of Macedonia (ERC) enacted the Rules for the Electricity Market.

Central to the bylaw is the categorization of some 170,000 Macedonian companies as “qualified buyers.” Starting 1 January 2013, these qualified buyers will be required to purchase their electricity on the open market. Households will be required to do the same, beginning 1 January 2015. This bylaw is a crucial step in Macedonia’s liberalization of its electricity market, one of the country’s obligations under the Energy Community Treaty.

Two other regulations were adopted as part of the requirements of the 2011 Energy Law. In May, the ERC also passed the Rules for the Supply of Natural Gas. In July, with the approval of the ERC, EVN Macedonia enacted the Network Rules for Electricity Distribution.

Rules for the Electricity Market are published in the Official Gazette of the Republic of Macedonia no. 57/2012.

Rules for the Supply of Natural Gas are published in the Official Gazette of the Republic of Macedonia no. 56/2012.

Network Rules for Electricity Distribution are published in the Official Gazette of the Republic of Macedonia no. 86/2012.

Draft Law on Geological Institute prepared

The Macedonian Government proposed a Draft Law for a Geological Institute (Draft). The Draft calls for Macedonia to have a specialised geological institute by 1 January 2013. The Macedonian Parliament must first adopt the draft into law before the institute can be established.

The Geological Institute is intended to improve the sadly-lacking geological data of Macedonia. Under the Draft, the Geological Institute will conduct studies aimed at the creation of geological, geochemical and hydrogeological maps. These maps will be key in identifying Macedonia’s mineral deposits, helping the country to exploit its natural resources and benefit from the increase of investors in the mineral-resources market.


News

July

— The Macedonian Government signed a memorandum of cooperation with the Russian engineering-and-construction company Stroytransgaz to construct a national-gas pipeline network in Macedonia. This network should improve the Macedonian economy’s competitiveness in the Balkans. It will also create a stable gas supply for Macedonian households and companies, providing them with ecologically-friendly energy that is both safe and cheaper than energy currently available on the market. Work is expected to begin in late 2012 or early 2013.

June

— After Macedonian Prime Minister Nikola Gruevski’s visit to Russia, where he met with Russian President Vladimir Putin, it was announced that Macedonia will be included in the South Stream – the gas pipeline project that will transport natural gas from Russia through the Black Sea to Bulgaria, and on to Greece, Italy and Austria. Russia and Russian natural-gas giant Gazprom have provided Macedonia with a draft agreement for the project. Macedonia’s inclusion in the pipeline should stabilize its energy sector. Construction is scheduled to begin at the end of 2012, with completion of the project anticipated by the end of 2015.


Croatia

Feed-in Tariff Changes

The Croatian government overhauled the feed-in tariff system in May, after several weeks of consulting with RES stakeholders. This is the first overhaul of the feed-in tariff system since it was introduced in 2007. The original legislation led to the registration of 339 investors in 523 RES projects that had a combined total capacity of 6025 MW.

The original tariff system is published in the Official Gazette no. 33/2007.

The new regulations alter tariff items and optimize tariff application. All structures on one plot of land now count as a single plant, preventing investors from benefiting from tariffs intended for minor plants by subdividing larger projects. Rooftop solar plants spanning several buildings on the same plot are not subject to this restriction. In addition, the grid operator will now purchase electricity produced during plant test runs at 60% of the average price of electricity, rather than receiving it free of charge. Furthermore, new power-purchase contracts with the market operator will be for 14-years, and current 12-year contracts will be extended for two years. Finally, the Government authorized the Ministry of Economy to annually raise or lower tariffs by factoring in technological advances and changes in the price of RES-plant inputs. Because of this uncertainty, investors will likely accelerate work on projects, to avoid being subject to unknown tariffs in future years.

For solar-power plants, the nation-wide cap for tariff eligibility has been lifted from 1 MW to 5 MW for ground plants, and to 10 MW for building-integrated plants. Existing tariffs for all plants, however, are now a flat rate of 0.146 EUR/kWh. As a result, some plants will see as much as a two-thirds decrease in their tariffs. This will be partially mitigated by a tariff bump given for cogeneration, which could raise tariffs for some projects as high as 0.275 EUR/kWh. Investors with a signed-power-purchase agreement must complete plant construction within the next 12 months, or their contract will be terminated.

Contrary to the initial draft of the amendment, wind-power plants will not see a significant tariff decrease: plants producing up to 1MW will see tariffs of 0.096EUR/kWh, down from 0.0983 EUR/kWh, while wind farms producing more than 1MW will see tariffs reduced to 0.0946 EUR/kWh from an initial 0.0999 EUR/kWh.

Biogas and biomass plants will receive cascading tariffs based on their capacity: the 0.16 EUR/kWh allotted to projects producing under 2MW is actually a slight increase, while larger plants will see a tariff decrease. All projects will face a 50% efficiency requirement to be tariff-eligible, which will affect many projects. Tariffs for liquid biofuel, depository gas, wastewater purification, gas, and alternative energy – e.g. sea waves, tide – are based on the average price of energy in Croatia. These rates are too low to offset the high production costs these plants face, and will likely bring development of these projects to a complete halt.

Any plant that can show it has benefited the local community could receive up to a 15% increase in its overall tariffs.

Investors with pending power-purchase-contract applications will be able to choose between the new and old tariffs. Electricity-purchase contracts that have already been approved will operate under old tariff rates, which will be increased annually based on the consumer price index. The market operator publishes a list of not-yet-operative plants in Croatia with contracts in place. These projects are generally considered investment-grade energy opportunities.

Rooftop Photovoltaics Regulatory Boost

The Croatian Parliament enacted the Electricity Market Act amendment to cut red tape for individuals who wish to install and run rooftop photovoltaic systems. The change is expected to reduce the administrative procedure to less than 60 days. After an additional regulation is issued by the Ministry of Economy in the coming days, investors will only need to obtain a grid connection to be eligible for an electricity-purchase contract with the market operator.

Emission Allowances Initial Grandfathering

The recent Regulation on Free Allocation of Emission Allowances is the first big step in greenhouse-gas-emission-allowance trading since Croatia introduced its Air Protection Law at the end of 2011. The Air Protection Law implemented the protocols of the United Nations Framework Convention on Climate Change, and the Kyoto Protocol. This new regulation, which came into effect on 24 April 2012, implements the Commission Decisions 2011/278/EU, 2010/2/EU and 2011/745/EU. Installations needed to apply for free allocation-allowances by 1 May 2012. Beginning in 2013, projects will receive allowances for 80% of their emissions, which will be gradually decreased to 30% by 2020.

News

June

— Spanish global-renewables-operator Acciona Energia broke ground on the 30 MW-wind-farm Jelinak near the town of Trogir. The plant will consist of 20 turbines, each with a 1.5 MW capacity. Jelinak is Acciona Energia’s most advanced project in Croatia to date. The company has six projects in the country that have a combined total capacity of 202 MW.

May

— National-electricity-incumbent Hrvatska electroprivreda (HEP) joined forces with local robotics-and-electric-car manufacturer DOK-ING to develop electric-car-charging stations. The venture is advertised as an investment not only in the energy sector, but also in tourism, as a way to put Croatia on European electric-highway maps.

— The Croatian government decided to kick-start development of the Island Krk LNG terminal. Using national resources (including HEP and Plinacro), it will be developed at the same location as its LNG Adria joint venture with E.ON, Total, and OMV, which has been delayed for some time. The government is also seeking a private partner to help it resolve a EUR 60 million mortgage held by Hypo. Hungarian MVM is showing interest.

For any additional information on Energy matters in Serbia, Croatia, Bosnia and Herzegovina, Macedonia and Montenegro, please contact:

→Millos Vuckovic, Partner
[email protected]

→Tanja Unguran, Partner
[email protected]