Renewable energy is one of the hot topics of today, with the eyes of the world set on COP26 and its aftermath. At the same time, Serbia is upgrading its legal framework on renewable energy and will soon organize the first auction for granting the premium for wind farms.

As a signatory of the Sofia Declaration on the Green Agenda for the Western Balkans, and a member of the Energy Community, Serbia this year started to establish a new regulatory framework for environmental protection in the energy sector. Specifically, it started to develop market models for the use of renewable energy sources.

The most important law in this area is the Law on the Use of Renewable Energy Sources, adopted earlier this year. Its aim is to encourage large investments in this sector, with incentives in the form of market premiums and feed-in tariffs for investors who decide to build certain types of power plants. Specifically, the state is focused on giving incentives for building solar power plants and wind farms.

Apart from this law, Serbia in the last few months also adopted a number of bylaws that regulate this area in more detail. Specifically, the Decree on Market Premium and Feed-In Tariffs, the Decree on the Market Premium Agreement Model and the Decree on the Quota in the Market Premium System for Wind Farms determine who can apply for state incentives, as well as under what conditions and in what way these incentives can be granted. This support package has been examined by Serbia’s state aid authority, which find it compliant with the country’s state aid regulations.

To encourage investors in this area, Serbia has set aside funds in the region of EUR 100 million. The allocation of incentives is planned through feed-in tariffs and the market premium system.

Feed-in tariff is a type of state support granted in the form of an incentive purchase price guaranteed per kWh for electricity supplied during the incentive period. This type of assistance is intended for power plants with the power of less than 500 kW or wind farms with the power of less than 3 MW. On the other hand, the premium is paid in the amount of the difference between the price achieved at auctions and the market price for the delivered electricity. This incentive is intended for power plants with a power of more than 500 kW or wind farms with a power of more than 3 MW.

According to the Market Premium Agreement Model, the market premium is defined as a two-way floating premium. This means that the state will give premiums to investors when the price in the market is lower than the one realized at an auction, whereas investors will be obliged to pay premiums to the state when the market price is higher than the one achieved at an auction (negative premium).

As for the procedure for granting these incentives, they will be given through electronic auction. The Serbian Ministry of Mining and Energy will announce the holding of auctions between 45 and 90 days in advance. An exception is provided in the case of the first auction – in that case, the Ministry may publish a public invitation for the auction within 30 days from the date when the maximum market premium i.e., maximum purchase price and the maximum feed-in tariff, was determined by the Energy Agency of the Republic of Serbia.

The auction is conducted in two phases. In the qualification phase, applications are submitted and the qualification conditions for participation in the auction are assessed. In the bidding and quota-filling phase, the participants’ financial offers are being opened and ranked. Financial offers are ranked based on the difference between the offered price from the financial offer and the maximum purchase price provided in the public invitation.

Following the auction, the investor who successfully acquired the status of a temporary privileged producer concludes a Market Premium Agreement. The investor is further obliged to take all necessary actions to acquire the status of a privileged power producer. After obtaining this status, the investor is eligible for incentive measures for 15 years.

In addition to this regulatory framework, Serbia’s energy regulator, the Energy Agency, recently adopted a decision which sets the maximum purchase price for electricity produced in wind farms to 5.57 eurocents per kWh. Since the public invitation for the first auction can be published within 30 days of the determination of the maximum premium, this decision by the regulator means that the first auction for giving the premium for wind farms is expected to take place in late 2021 or early 2022.