On 27 November 2024, the Republic of Serbia (“Serbia”) adopted amendments to its Energy Law (“Law”}, effective as of 06 December 2024. These amendments are part of Serbia’s ongoing efforts to further harmonize its regulations in the energy sector with those of the European Union (“EU”), specifically the Energy Community Treaty and Ministerial Council Decision 2022/03/MC-EnC.

Among all the amendments, the most notable pertain to the reintroduction of nuclear energy, allowing the construction of nuclear power plants on Serbian soil once again. Additionally, the amendments introduce several changes to the existing legislation, significantly influencing other energy sectors as well.

In light of the above, the amendments are expected to have a significant impact on the renewables sector. While Serbia has a dedicated law and accompanying by-laws regulating the use of renewable energy sources (“RES”), the changes to the Energy Law, as the overarching legislation governing the energy sector, introduce substantial provisions affecting the RES sector.

Can these amendments be considered game-changing for the Serbian market? Let’s explore further by delving into the key amendments below.

Aggregation and Active Buyer

Aggregation is a new energy activity introduced by the amendments, involving the unification of electricity consumption and/or production by a large number of system users for the purpose of buying, selling or auctioning on electricity markets. Consequently, the term “aggregator“ has  also been introduced, referring to a natural person or legal entity engaged in aggregation.

To perform aggregation activities, one must obtain an energy license (not to be confused with the energy permit as a completely different concept). The license is issued by the Energy Agency of the Republic of Serbia (“Agency”). However, as the Agency has not yet established the procedure for issuing this license, this concept remains inadequately regulated for the time being.

The same applies to aggregation contracts. The Law now permits end-buyers (more closely described below as Active Buyers) to enter into aggregation contracts independently of their electricity supply contracts, without requiring the supplier’s consent. This provision introduces greater flexibility for Active Buyers, as having an existing electricity supply contract, does not prevent them from entering into aggregation contracts with aggregators, nor is prior written consent from the supplier required.

The concept of aggregation also allows end-buyers to participate, either directly or through aggregation, as a single pool of customers, in various electricity markets, including bilateral, balancing and organized markets, capacity trading markets, ancillary services markets, electricity futures markets etc. This applies to end-buyers capable of providing consumption management services.

Since the existing regulatory framework lacks the specifics on how to adequately implement all the additional opportunities stemming from aggregation, as well as the details on its practical functioning, it remains to be seen how these aspects will be further defined and clarified through relevant bylaws.

“Active Buyer” is another new concept introduced by the amendments. It refers to an end-buyer, or a group of such, who generate electricity at their own facility. This energy can then be used, stored or sold by such buyer on the market or the buyer can participate in services that enhance energy flexibility or improve energy efficiency. It is important to note that all of these activities must not represent his primary commercial or professional activity.

To acquire the status of an Active Buyer, one must register as such with the distribution system operator (which is Elektrodistribucija Srbije or EDS).

As previously described, Active Buyers are somewhat connected to aggregators as they can participate in the electricity market either directly or through an aggregator, acting as a single point of contact for interested parties. Specifically, Active Buyers can combine, through aggregation, several remote consumption and production points into a single system and, thus, making their produced energy more attractive for purchase while also improving the overall system efficiency.

Nuclear Power Plants

Among the many amendments introduced in the Law, the topic that likely garnered the most public attention is the re-introduction of nuclear energy for electricity production and the construction of nuclear power plants.

Serbia had a moratorium on the use of nuclear energy, which was enacted during the time of Yugoslavia and lasted for over 30 years. This moratorium has now been revoked. The amendments prescribe a development program for the peaceful use of nuclear energy (“Nuclear Energy Program”), which will be executed in three phases:

• Phase 1: Examining the justification for the approach to the development of nuclear energy;
• Phase 2: Developing the Nuclear Energy Program; and
• Phase 3: Implementing the Nuclear Energy

Although nuclear energy is touted as an extremely desirable and clean form of energy, the feasibility of implementing the Program and constructing nuclear power plants remains questionable. Serbia lost all its manpower and expertise in this area, so significant investment is required in educating future experts (and hiring foreign ones) to acquire the essential knowledge for constructing nuclear power plants in accordance with extremely stringent standards.

Additionally, the use of nuclear energy has proven to be a significant burden on the state budget. The costs for constructing and maintaining nuclear power plants are extremely high. The timeframes for their construction are lengthy, nuclear energy is not renewable and the main “fuel” (uranium) necessary for operation of these plants is limited.

Finally, radioactive waste remains even after the plant is completely shut down, as it remains hazardous for thousands of years. This poses a significant challenge for the safe disposal and long-term storage of nuclear waste, both environmentally and financially. Continuous expertise in handling such waste is required, along with adequate storage solutions. This, in turn, demands substantial financial investments, which Serbia lacks to sustain over such an extended period.

Issuance of Energy Permits

Since the main focus of both the international and local community, regarding energy is directed towards the RES sector, the amendment to the Law will have a significant impact on RES projects as well.

The most notable is on the procedure for issuing Energy Permits, which are necessary for the construction of RES power plants and are issued at a later stage of project implementation (after obtaining planning documentation, securing grid conditions etc.). To obtain the Energy Permit, an additional condition must now be met – the project must align with the goals outlined in the Energy Strategy and the Integrated National Energy and Climate Plan.

Other new conditions relate to construction in exploitation fields and alternative solutions for the development of new electricity production facilities, such as consumption management solutions or the construction of electricity storage facilities.

Since the Law is vague in further defining these concepts, the aforementioned criteria and conditions remain to be further specified through amendments of relevant bylaws. As a result, the true effects of these amendments are yet to be seen.

Introduction of Redispatching

Aligning with the EU regulations and standards, Serbia has now introduced redispatching – a measure activated by transmission or distribution system operators (one or more) that alters production or consumption patterns, or both, to adjust physical flows in the electricity system, and reduce congestion, or ensure system security. This also includes measures to limit the delivery of electricity.

The Law introduces basic principles and rules of redispatching based on market principles, such as objective, transparent, and non-discriminatory criteria. This concept is open to all electricity producers, regardless of the type of technology they use, energy storage facilities, and manageable consumption facilities on the domestic market. It is also open to market participants in the Energy Community and EU, provided it is technically feasible.

There is also a redispatching based on non-market principles, applied to power plants of electricity producers and energy storage facilities by the transmission system operator, involving the reduction of electricity production at such facilities. This method can only be used exceptionally (for example, at facilities of producers from renewable energy sources when no other alternatives exist, or if other options would incur disproportionate costs or pose serious risks to system security, that such an action is justified and transparent, that a certain fee is paid to the owner of facility affected by redispatching etc.).

It is particularly worth noting that additional protection is provided for renewable energy producers and facilities that exclusively produce electricity from RES for their own needs (zero-injection), as highlighted in the previous paragraph.

Amendments to Energy Storage

The Law now provides a precise definition of energy storage as an activity, which involves delaying the final use of electricity until a certain point after its production, or converting electricity into a form of energy which can then be stored, the storing of such energy, and its subsequent reconversion into electricity or use as another energy source.

To perform energy storage activities and energy storage operations in general, an energy license will be required per the amendments. However, it is positive  that an Energy Permit is not required for the construction of energy storage facilities, thus resolving the previously existing dilemma.

There are some restrictions regarding who may own, develop or operate energy storage facilities, particularly for electricity system operators, who are prohibited from owning, developing or operating them.

Effects on Ongoing RES Projects

A major concern for many is how the amendments will affect their RES projects that are already in an advanced stage, particularly regarding the grid connection procedure that has already been initiated.

The amendments now specify in their transitional provisions that grid connection approvals obtained before the date of entry into force are valid until the expiration of the term for which they were issued. These approvals may be extended once for a period of two years, upon request by the approval holder.

For projects that requested a grid connection study before 30 April 2021 but didn't recieve approval by the time the amendments took effect, they must obtain approval within three years of the amendments' entry into force. Once granted, the grid connection approval is valid for three years and can be extended once for up to two more years, provided that the power plant's foundations are completed before the initial approval expires.

Other notable amendments

For the sake of brevity of this text we will generally outline some of the more notable amendments:

• The Ancillary Services Market is now eligible for opening and pertains to services necessary for the operation of the transmission or distribution system, specifically balancing services and non-frequency ancillary services;
• The Regulation on Conditions for Electricity Supply and Delivery is now completely incorporated into the Law;
• Risk assessment and identification of electro energetic crisis scenarios, actions in such scenarios and cooperation and help between the countries is also introduced;
• Trading on the organized market for the day-ahead and intra-day markets is now also enabled, with other organized markets more clearly defined, along with their functioning, while all organized markets in Serbia are now eligible for integration with the single European organized electricity markets etc.

Final Remarks

Overall, the amendments to the Law are largely aligned with the EU regulations and standards, opening the market to various opportunities in the energy (especially RES) sector, with new activities, organized markets, and energy sources. Additionally the more precise provisions should better facilitate the implementation of (major) energy projects.

 

The situation is, understandably, not ideal, because certain criteria, procedures, rules and definitions still need to be further clarified through relevant bylaws adopted by key stakeholders. This is necessary to turn the lawmaker’s intentions into reality and avoid any loopholes, vague terminology, or new dilemmas.

To sum up, there are a lot of positive developments in the energy sector spurred by the amendments to the Law. How they will work in practice still needs to be further defined and clearly established.

 

Author:

Aleksandar Čermelj

Senior Associate

 

*The information in this document does not represent legal advice and is provided for general informational purposes only.

**Partner, Senior Associate, Associate and/or Junior Associate refers to Independent Attorney at Law in cooperation with IVVK Lawyers in Cooperation with LexQuire.