The adoption of these methodologies creates the basis for the implementation of the Law and for the initiation of the auctions for electricity produced in highly efficient cogeneration and for the follow-up of allocation of feed-in tariffs for the electricity produced in small cogeneration and micro-cogeneration units.
Pursuant to the Law on Energy Efficiency and Rational Energy Utilization (“Official gazette of the RS” no. 40/2021 “Law on Energy Efficiency”) which was adopted in April 2021, producers of electric energy in cogeneration are entitled to, inter alia, financial incentives. Financial incentives are divided into two forms: i) feed-in tariffs and ii) market premium.
Our Partner Nikola Djordjevic and Senior Associate Marko Mrdja give insight into the adopted methodologies below.
Feed-in tariffs may be granted for producers of electric energy in micro-cogeneration (power plants less than 50 kW) and micro-cogeneration (power plants from 50 kW and less than 500 kW). Feed-in tariffs are granted through the administrative procedure without conduction of auctions.
Market premium may be granted for producers of electric energy in highly effective cogeneration (power plants with installed power over 500 kW). This incentive is granted through auctions.
As one of the preconditions to allocate financial incentives to producers of electric energy in cogeneration, it is necessary to set out the amount of feed-in tariff which will be granted as well as to set out the maximum amount of market premium which amount cannot be exceeded by participants` bids in the auctions. In this regard, the Energy Agency of the Republic of Serbia in cooperation with the Commission on State Aid on 04 November 2021 adopted two methodologies: i) Methodology for determination of market premium and ii) Methodology for determination of feed-in tariffs (both methodologies: “Methodologies”). Methodologies were published in the Official Gazette of the Republic of Serbia no. 106/2021.
Methodologies are based on the principle of Levelized Cost of Electric Energy to prevent granting of incentives to the participants with unreasonably high bids, as well as to determine the amount of feed-in tariffs. Furthermore, when calculating the amount of market premium and feed-in tariffs, Methodologies envisage that the following parameters must be taken into account: i) investment costs, ii) operational costs, iii) fuel costs for production of electric energy, iv) annual production of electric energy, v) discount rate, vi) utilization term of the power plant, and vii) coefficient of utilization of electric energy in micro/small/highly effective cogeneration.
Pursuant to the Law on Energy Efficiency, the Government of the Republic of Serbia, upon the proposal of the Ministry of Mining and Energy, is obliged to render decisions determining amounts of feed-in tariffs, i.e., the maximum amount of market premium for auctions within one month as of the adoption of Methodologies being 04 December 2021.