First auctions for awarding right to market premium for wind farms and solar parks in the Republic of Serbia

Author: Attorney-at-law Vojinović B. Milan and Legal Trainee Stefan Mićić, from the Law Office “VUK Tax Attorneys”

Date: 26th June 2023

Although first auctions for awarding incentives in the field of renewable energy sources (“RES”) were announced immediately after adoption of the Law on Use of Renewable Energy Sources (“Law on RES”), which entered into force on 30th April 2021, certain problems that have arisen in connection with implementation of the Law on RES, delayed this process as well. Namely, implementation of the Law on RES caused specific problems in practice, primarily due to submission of a large number of requests for connection of solar parks and wind farms to the system, which would threaten the stability of the electric power system of the Republic of Serbia and the unavailability of reserves for balancing the system. Also, there was a delay in the preparation and adoption of by-laws necessary for implementation of certain institutes from the Law on RES, amongst other, in connection with conducting subject auctions. However, after two (2) years from the entry into force of the Law on RES, the Amendments to the Law on RES on were adopted, which entered into force on 7th May 2023, followed by adoption of corresponding by-laws, thus creating necessary preconditions for conducting first auction in the field of RES in the Republic of Serbia. Therefore, on 13th June 2023, Serbian Ministry of Mining and Energy (the “Ministry”), published on its website Public Invitation no. 312-01-517/2023-10, for participation in the proceeding of the first auction for awarding of rights to market premiums (the ”Public Invitation”).

The Public Invitation defines the procedure of the first auction for awarding the right to market premiums, respective deadlines and conditions, determines the criteria for persons participating in the auctions, available quotas by type and capacity of the power plant, maximum offered price, fixed percentage of maximum offered price that the privileged producer pays to the guaranteed supplier for each produced MWh for taking over balance responsibility, method and form of registration for the auction, financial offer (the price must be expressed in EUR per MWh), financial security instrument for seriousness of the offer, list of necessary documents to be submitted with the application for auctions, and other necessary elements defined by the Law on RES.

Bearing in mind that we analysed the auction procedure for awarding incentives in the field of RES in detail in our article “Introduction of the auction system for incentives in the production of electricity from RES” dated 29th July 2021, here we will point out most important details regarding the first auction for RES in Serbia.

Three-year Plan of the incentive system for the period from 2023 to 2025, adopted by the Serbian Government at the beginning of June 2023, foresees total capacity for RES, i.e. total quota in the amount of 1,300 MW. Of this total capacity provided in the Plan, the following quotas were set for first auctions for awarding market premiums: (i) 400 MW for wind farms with a capacity of 3 MW and more, and (ii) 50 MW for solar parks with a capacity of 500 kW and more. These quotas are not determined by geographical area and the right to participate in the auction procedure belongs to applicants, i.e. participants, regardless of the geographical area of the Republic of Serbia where the construction of these power plants is planned.

Maximum price that a RES producer can offer at this auction is determined by the Serbian Government in its Decision on the Maximum Offered Price for Electricity at Auctions in the Market Premium System, which is in force as of 3rd June 2023.This is also a novelty in relation to the initial version of the Law on RES, because in accordance with previously valid provisions, Serbian Energy Agency was in charge to define methodology for determining market premium. Therefore, according to the subject Decision of the Government, for this first auction, the maximum offered price for electricity was defined as follows:

• 105 EUR per MWh for electricity produced in wind farms with a capacity of up to 3 MW and more;
• 90 EUR per MWh for electricity produced in solar parks with a capacity of 500 kW and more.

Participants in the auction are required to submit a financial security instrument for the seriousness of the offer, in the form of a bank guarantee or cash deposit, in the amount of 30 EUR per kW of the offered capacity of the power plant, or part of the power plant in relation to which the participant submitted the financial offer.

The auction is conducted in electronic form, through the “Portal RES – Auction”, where participants submit their applications. Deadline for submitting applications for these first auctions for both wind and solar power plants expires on 14th August 2023 at 11:59 PM.

The auction is conducted in three (3) phases: (i) qualification, (ii) bidding, and (iii) selection of the best offers, as defined by the Law on RES.

Participants in the auction to whom right to market premium is granted, and thus they acquired the status of a temporary privileged producer, are obliged to submit to the Ministry a financial means of security for acquiring the status of a privileged producer within 30 days from the date of acquiring the status of a temporary privileged producer. As with the means of security for the seriousness of the offer, the means of security for acquiring the status of a privileged producer is delivered in the form of a bank guarantee or cash deposit, in the amount of 60 EUR per kW of power plant capacity, i.e. the part of the power plant for which the right to a market premium is granted. By acquiring right of payment of the market premium, status of privileged producer is established for incentive period of 15 years.

The Resolution on granting/denying the right to market premium is final in the administrative procedure. Every unsatisfied participant has the right to initiate an administrative dispute before the Administrative Court, within 30 days from the date of delivery of the decision on awarding/denying the right to market premium. If the outcome of the administrative dispute is such that the participant is entitled to a market premium, the Ministry will grant the right to an appropriate market premium outside the quota of this auction.

Our Law Firm will timely and closely monitor all upcoming activities in the energy market, in order to assist, through its considerable experience and expert analysis, its clients to eliminate all ambiguities and successful realization of investments in the field of RES.