Feeling Energised – Supporting Sustainable Energy in the Region

​It is slowly starting to feel like distant history when civilisation's efforts to satisfy the most fundamental need for energy were focused mainly on utilising non-renewable sources. Fossil fuels, natural gas, oil, and coal have been the backbone of the industrial age's rapid development, effectively helping bring on the contemporary era of existence we are witnesses of. However, due to the many risks involved with exploiting such resources (the least of which being their limited quantities), society has been making a significant push over the past few decades to raise the global level of ecological awareness and refocus our attention onto those energy sources which have been present on our planet since the dawn of time, tasking international and national authorities to come up with the best possible solutions on how to fully rely on such sources. Our region has not been much different in this regard (except for perhaps being a bit more sluggish at first than our Western European counterparts), and has recently introduced a variety of reforms and regulations that are intended to drive this initiative into a fully-formed realisation in the near future.

To start off, one of the cornerstones of all large-scale projects related to renewable energy – especially in those countries of our region with poorer initial infrastructure of such kind – is the much needed government support. The need for this support is perhaps best reflected in how it can encourage investors to join-in on/start their own projects in the field, but also in how essentially helpful it is for the countries' processes aimed at achieving the binding targets for renewable energy outputs set by supervising governing bodies. In the case of our region, these binding targets have been set by the Energy Community (EC), and they currently present the percent of share that renewable energy production takes in the gross final energy production by year 2020. In terms of encompassing countries, these targets have been set the following way: Bosnia, 40%; Montenegro, 33%; Serbia, 27%; Slovenia, 25%; and Croatia, 20%.

The government support is then usually presented in the form of support schemes that work by awarding long-term power purchase contracts to the producers of renewable energy using regulated feed-in tariffs (set electricity prices offered in the form of long-term contracts to renewable energy producers) or feed-in premiums (renewable energy producers receiving premiums from the government on top of the market price obtained in the process of selling). Nonetheless, support can also be offered in the form of preferential terms for the leasing of a particular piece of land, through giving out bonuses that are designated for improving or overhauling the production facilities, as well as through certain country specific methods such as VAT exemptions on construction works (i.e. in Montenegro).

Further examples in this regard include Slovenia where, among other things, the Republic of Slovenia's environmental fund (Eko Fund) is awarding low-interest loans to renewable energy projects through tendering, and where feed-in tariffs are made available to renewable energy plants with capacities that are not exceeding 1 MW. Bosnia & Herzegovina presents something of a special case since its incentives are not within the competency of the Central Government, but within the competencies of its constituting entities – Republic of Srpska (RS) and the Federation of Bosnia & Herzegovina (FBiH) – with examples that include prioritised grid connections for renewable energy operators, and tariffs that are granted for a period of 15 years (RS) and 12 years (FBiH). In Macedonia, those producers that enjoy a privileged status in renewable energy production are exempt from balancing obligations, while in Serbia, the Power Purchasing Agreement (PPA) is in the pipeline with notable involvement of the IFI's and other similar stakeholders. As far as Croatia is concerned, the latest development has been the replacement of the feed-in tariff model with a feed-in premium model, effective from January 2016.  

A number of similar topics have been dealt with during the recently held Energy Community Conference in Vienna, which was attended by Karanović & Nikolić's Senior Partner, Miloš Vučković – who also had the privilege of speaking on a panel on the aforementioned subject of regional state aids, and Senior Associate, Petar Mitrović. Among these topics, another question – albeit of a more general nature – was raised with regard to the size of incentives given and how they pertain to the kind of technology used for the production of renewable energy across Europe. Speaking more precisely, there were discussions on whether governing institutions should be subsidising all technologies used in equal measure, or according to technology-specific criteria. The side advocating equal representation of incentives has been pointing this out as a necessary measure of ensuring fair competition by allowing for no privileged positions. On the other hand, the side supporting the notion that incentives should be weighed against the costs of technologies employed, has been claiming that such measures will help prevent those producers with cheaper technologies from overcompensating with their production of renewable energy.

As of this point, a consensus on this, as well as on a number of many other matters including the regulation of the North European Gas Pipeline, or on the debate on whether bio mass solutions present a mostly untapped resource compared to – currently much more utilised – wind farms (something that is perhaps most relevant to forest-heavy regions such as our own), has not yet been reached. Despite this, it is evident that a tide of activity in terms of strengthening and further widening the presence of renewable energy solutions across the European landscape is continuing – if not gaining further ground – while we hope to soon be on the receiving end of answers to all of the previously mentioned questions.