Serbia’s evolving energy system

Serbia is beginning negotiations to join the European Union.  It has been developing its energy system and its policies are following EU requirements through its obligations in the Energy Community.  Andrew MacDowall writes in the Financial Times about the push to promote renewable energy as well as discussing the energy policy priorities, which interestingly omits energy efficiency.  It would be good to know from readers if this is an accurate view of the priorities.

Energy: Serbia’s renewables growth aims to outstrip EU

Energy security, greater use of renewables and market liberalisation are the three priorities of Serbia’s energy strategy over the next decade.

In June, the government adopted an action plan that foresees meeting 27 per cent of gross final energy consumption from renewable sources by 2020. This is up from 21.2 per cent at present and well above the EU’s 2020 target of 20 per cent.

To this end, the country is aiming for €2bn of investment, mostly from the private sector, to install 1.1GW of new renewable capacity over the next seven years, much of it in hydroelectric plants.

The country guarantees favourable feed-in tariffs for renewables plants for 12 years, after which power-purchase guarantees are locked in at market rates. The ministry of energy, development and environmental protection is also trying to improve the business environment for energy investors.

“In addition to financial incentives, the ministry is very committed to reducing administrative barriers for the construction of facilities,” it says. “Currently, one of the most important goals of the ministry is to simplify authorisation procedures, especially for the investments in renewable energy resources, which will increase investor interest.”

In February, however, Serbia followed a regional trend and reduced feed-in tariffs for renewables. With 1.5GW of existing installed capacity due to be closed by 2018 and ambitions to boost exports, Serbia will require new coal plants, which will be built “in an environmentally friendly manner”, the ministry says.

The ministry has promised greater energy market liberalisation but will not give details. Serbia is due to open its mid-voltage market next year.

Another plank of energy liberalisation is the proposed restructuring, announced in April, of Srbijagas, the state natural gas monopoly. Zorana Mihajlovic, energy minister, says changes will include reshuffling the company’s debt, which is almost €1.2bn after years of selling gas below market rates.

The second phase will involve a restructuring that may be a precursor to privatisation. This proposal is politically charged and has been opposed by Dusan Bajatovic, the company’s chief executive.

Ms Mihajlovic has said the reforms would support the South Stream gas pipeline project, which is designed to bring Russian gas to central Europe via the Balkans, including Serbia. South Stream is controversial as it is seen as increasing the region’s dependence on Russia’s Gazprom , but the project could help boost Serbia’s supply of affordable gas.

“Serbia’s relationship with Gazprom ultimately buffers the Serbian gas market from free market forces – both good and bad,” says Benjamin Gage, associate director of IHS Energy Insight, the industry analysts. “As long as Serbia accepts the security of supply consequences of relying on a single exporter, it ensures certain benefits concerning the price of its gas.”

But it will be some time before any benefits of South Stream are felt. IHS does not expect the pipeline to be completed until 2018 at the earliest.

Gazprom has bold plans to expand in the region through its Serbian subsidiary NIS, in which it has a 56 per cent stake. Last year, NIS announced a programme of investments of €500m every year until 2015 and €1bn annually thereafter.

Analysts question whether the company will be able to meet its investment targets – and whether the seemingly large sums will really be a game-changer for Serbia.

“Beyond Serbia’s borders, NIS’s [exploration and production, or E&P] efforts could offer revenue benefits to offset the cost of Serbia’s energy imports,” says Mr Gage. “However, given the company’s small balance sheet and lack of upstream experience, it is unlikely that it will participate in any world-class E&P plays that could truly transform its situation.”