SERBIA: SLOWLY CREATING A RENEWABLE ENERGY MARKET

UNCLAS BELGRADE 001482 SENSITIVE SIPDIS DEPARTMENT OF ENERGY FOR TOM CUTLER E.O. 12958: N/A TAGS: ECON EIND ENRG SR SUBJECT: SERBIA: SLOWLY CREATING A RENEWABLE ENERGY MARKET SUMMARY -------------- 1.(SBU) Serbia is trying to become a player in the Southern and Central European renewable energy market. While the country has the potential to be a regional exporter of renewable energy, it still has much work to do to develop a viable renewable energy sector. A lack of market and technical expertise, an unclear regulatory framework and the ever-present danger of corruption and mismanagement remain problems for potential investors in this young market. FEED IN TARIFFS ADOPTED -------------- ¶2. (SBU) On November 20, the Serbian government passed a renewable energy legal framework that provided incentives for renewable energy providers, defined renewables' role in the country's overall energy strategy and outlined feed in tariff rates. (Feed in tariffs are government set price incentives to be guaranteed for 12 years and paid to alternative energy providers, including solar, wind, biomass, small scale hydro and geothermal power.) Deputy Energy Minister Dejan Stojadinovic told us on December 3 that these tariffs would be paid to renewable energy providers through the state electrical utility Electro Power Serbia (EPS),which would then pass them on to customers through eventual price increases. Stojadinovic estimated that these new feed in tariffs would result in annual electricity price increases of around four to six percent during the next nine years. In addition, Stojadinovic said the GOS had adopted production limits for some renewable energy sources, with 450 megawatts for wind and 5 megawatts for solar. RENEWABLES POTENTIAL -------------- ¶3. (SBU) The Serbian government has chosen to focus its renewable energy strategy solely on electrical power generation, Bojan Kovacic, the Deputy Director of the state Energy Efficiency agency, told us on December 1. Kovacic said that the GoS' overall goal was for 20% of power to come from renewable energy, in line with recent EU power generation targets for 2020. Kovacic was confident renewables could supply this much of Serbia's future power needs and said that the country could be a net exporter of electricity from renewable power. Kovacic said that wind, biomass and hydropower were the most promising renewable power sources in Serbia. He also said that wind and hydropower had attracted the most investor interest, adding that the Energy Ministry had already given preliminary approval for over two gigawatts of wind projects. ¶4. (SBU) Even though the country's internal power market is small, Serbia has the potential to export power generated from biomass, hydropower and wind to other countries in the region. As a result, investor interest in the Serbian renewables market has grown quickly, especially in wind and hydropower projects, with the most interest coming from western European countries. According to Stojadinovic, Italy has shown strong interest in hydropower and wind farms. He said that Italian interest in Serbia's market was driven by a desire to export power that would be transmitted through an undersea line planned from Montenegro to Northern Italy. However, there are only a few projects in development despite this heavy investor interest. Representatives of the European Bank for Reconstruction and Development (EBRD) told us on December 4 that there was only light interest in their new $75 million direct lending facility for renewables, with only two small projects currently in development. They also told us that investment was still in its infancy and retained a gold rush like quality, with many small investors (including some unnamed officials in the government and in the state utility) trying to gain licenses in the hopes of quickly selling these rights to other investors. EBRD officials said most projects were still in the planning stages and would probably never reach completion. In addition to European investors, American company Continental Wind Partners is currently trying to build a wind farm in eastern Serbia near the Romanian border. TECHNICAL OBSTABCLES TO RENEWABLES -------------- -------------- ¶5. (SBU) Despite Serbia's great potential as an exporter of renewable energy, its power grid is in need of modernization and currently could not support any significant extra power supplies generated by renewable sources. This is especially true for wind power, whose irregular nature makes its integration into the grid a tricky technical problem. Milos Milankovic, the General Director of EMS (the Serbian Electrical Transmission company),told us on December 2 that incorporating wind power into the grid and building the necessary infrastructure for wind farm sites were the largest problems EMS had with wind. EMS was participating in an EBRD funded study to gauge wind power's effect on the entire grid. He said that the company planned to build a new transmission line through Northeastern Serbia (the province of Vojvodina, and the region in Serbia with the most wind power potential) towards Romania to support eventual wind power sites. Milankovic added that all renewable providers would be required to pay for their own connections to the grid, in order to minimize any significant infrastructure investments from EMS. SERBIAN ELECTRICAL UTILITY: OPPOSED TO RENEWABLES? -------------- -------------- --- ¶6. (SBU) The Serbian electric company EPS generates most of its electricity from outdated thermal plants that burn lignite coal. With the new framework, EPS will be required to purchase energy from renewable providers at prices set by the feed in tariffs. EPS however, has been slow in accepting renewables. Ian Brown, an energy analyst with the EBRD told us on December 4 that he thought EPS regarded renewables, especially wind power, as a "lose, lose situation." He added that EPS' top management were all "old line plant engineers" who thought that wind power would simply cost the company money and market share. EMS General Director Milankovic also said that EPS was very slow to accept renewables, saying that the company was "like an old elephant" that was slow to react to new situations. COMMENT -------------- ¶7. (SBU) Given global trends and growing resource needs, renewable energy will eventually come to Serbia and the region. The government took the correct first steps by passing feed in tariffs and creating the beginnings of a legal framework for renewable, but more needs to be done. If the Serbian government is able to further define its renewable strategy, provide adequate infrastructure and tackle EPS resistance and mismanagement, renewables could have a brighter future in Serbia. End Comment. BRUSH