Serbia Enhancing Energy Efficiency and use of Renewable Energy Sources

1. “Energy Crisis and Climate Change – Challenges for Politics and Business in South East Europe”Evangelische Akademie Tutzing, 28 March 2009.Republic of Serbia - Ministry of Mining and EnergyDejan Stojadinovic, Assistant Minister Serbia Enhancing Energy Efficiency and use of Renewable Energy Sources

2. Legal Framework • Energy Law (OJ RS 84/04) provides the overall foundation for development of renewable energy sources and energy efficiency • Energy Law has established Serbian Energy Efficiency Agency, with the mission to promote and enhance rational use of energy and use of renewable energy sources - in order to ensure sustainable energy development through promotion and information dissemination, technical advices and demonstration projects • Energy Sector Development Strategy of Republic of Serbia by 2015. (2005) emphasize importance of utilization of renewable energy sources for distributed heat and power generation and recognize Serbian Energy Efficiency Agency, Energy Efficiency Fund and introduction of support schemes as the main instruments for the achievement of these goals • Programme for Implementation of Energy Sector Development Strategy 2007-2012(2007)elaborate Strategy in more details and define priorities for utilization of renewable energy sources. Programme is updated every two year, and next update will be prepared for the period 2009-2011 • Regulation on technical and other requirements of liquid biofuels (OJ S&M 23/06)defines technical requirements for biodiesel and biofuels

3. Institutional Stakeholders – EE & RES • Renewable energy and energy efficiency policy development and implementation • Financing some energy efficiency and renewable energy programs MINISTRY OF MINING AND ENERGY ENVIRONMENTAL PROTECTION FUND • Sectoral energy efficiency programs • Training and public awareness campaigns • National Programme for Energy Efficiency – technology dissemination and demonstration facilities MINISTRY OF SCIENCE AND TECHNOLOGY ENERGY EFFICIENCY AGENCY • Building standards • Some energy efficiency provisions MINISTRY OF ENVIRONMENT AND SPATIAL PLANNING • Belgrade, Novi Sad, Nis, Kragujevac, Kraljevo REGIONAL ENERGY EFFICIENCY CENTRES NO INSTITUTIONAL MECHANISM TO COORDINATE POLICIES WITH FOCUS ON ENERGY EFFICIENCY AND RENEWABLES

4. Energy production and consumption 10% THERMAL ENERGY 13% SOLID FUELS 40% LIQUID FUELS 11% GASEOUS FUELS 26% ELECTRICITY 55% PRODUCTION PLANNED PRIMARY ENERGY SUPPLY IN 2009. – 17.794 M toe PLANNED FINAL ENERGY SUPPLY IN 2009. - 8.915 M toe 45% IMPORT Energy intensity 2005. (est.) 0.41 toe per thousand USD of GDP 2.7 times higher than average for OECD Europe Technical potential for energy efficiency – 30% Economic potential for energy efficiency – 20% Regulation under preparation Law on Rational Use of Energy Secondary legislation Introduction of Energy Management

5. Energy Balance 2009 Serbia 2009 Planned Production of Renewable Energy

6. RES Technical Potential Serbia’s endowment of renewable energy resources is substantial - realization of these potentials require Government action Clear technical potential of renewable energy - insufficient information about the economic potential

7. Biomass • Most promising utilization options for biomass: • Space heating in households and buildings using biomass pellets or briquettes • Co-firing or total replacement in district heating plants firing heavy oil or coal in south Serbia, where natural gas is not available yet • Production of electricity utilizing agricultural and wood wastes Wood biomass 1 Mtoe Agriculture biomass 1.4 Mtoe

8. Small Hydro Power Plants SHPP Cadastre (1987) 856 locations 500 MW • >5 MW: 9 locations • 2-5MW: 30 locations (average3 MW) • <1 MW :largest number of locations • 1,500 GWh/year • Number of SHPP in Serbia – 60 • (50% out of operation) • Revitalization • Construction

9. Small Hydro Power Plants

10. Solar AVERAGE DAILY SOLAR IRRADIANCE ON HORIZONTAL SURFACE IN kWh/m² Average yearly insolation in Serbia about 1,400 kWh/m² Average daily value about 3.8 kWh/m²

11. Solar • Most promisin utilization options • Sanitary water heating • Space heating • If each housing unit (2.65 million units) would install average 4 m² of collectors • Equivalent to some saving potential of • 7,420 GWh

12. Geothermal Average geothermal flow density in Serbia is higher than 60 mW/m³ There are 160 natural resources of geothermal waters (excluding Panonian basin) with temperature above 15ºC Highest temperatures recorded Vranjska spa - 96ºC Jošanička spa - 78ºC Sijarinska spa - 72ºC Total flow rate of geothermal water resources is 4000 l/sec 60 locations are in the water reservoirs up to 3000 m depth Use of geothermal potential is mainly for balneological purposes, sports and recreation Prospects for expanding geothermal energy for agricultural heat and water heating are reasonably good Potential for larger scale geothermal electricity is limited - requires water temperatures above 100°C.

13. Wind Wind data based on 10 metre heights extrapolated to 50 metre heights 2,300 GWh 1,300 MW of capacity at sites with minimal average wind speeds of 5 m/s

14. Wind Case Study: Popadija wind farm

15. Barriers for wider use of RES • Institutional barriers • Lack of experience • Need for the experience of how a private sector renewable energy project can work in Serbia • Absence of “first set” of projects • Transition Issues • Many industrial companies are in transition – both with regard to structure and ownership, and managements are not yet ready to consider measures to rationalize energy activities • Financial barriers • Absence of a price support mechanism • Renewable energy projects are not bankable without a price support mechanism • RES cannot compete with fossil electricity generation based on lignite (whose price does not reflect their environmental damage costs) • Debt Financing support • Difficulty to secure long term loans appropriate for small renewable energy projects • Electricity tariff • Low electricity tariff does not stipulate domestic, commercial and industrial consumers to use renewable energy - current average price is under 5 €cents/kWh

16. Barriers for wider use of RES • Technical barriers • Absence of technical standards • Despite the existence of manufacturers of heating equipment and biomass fuel (briquettes and pellets), production standards are not regulated • Equipment for biomass energy utilization need clear information about technical specification and performance characteristics • Barriers to biomass utilization • Low electricity price, which decrease motivation to install biomass firing boilers • No developed market for biomass fuel and biomass utilisation facilities • Absence of a renewable energy resources inventory • Update and development of Small Hydro Cadastre • Wind monitoring programe with wind speed measurements at 50 meters needed

17. Legal regulation under preparation Purpose: to promote investments in renewable energy projects • Amendments to the Energy Law • drafting • Production, transporting, storaging and trading of biofules is recognized as energy activity • Definition of renewable energy sources is amplified and contains biofuels, biogas, landfill gas, sewage gas • Definition of biomass reffer to biodegradable material developed in agriculture, forestry and accompanying industry for energy purposes • Definition of privileged power producers includes all RES producers except hydro-power plants and biomass power plants larger than 10 MW • Guaranteed grid access to a privileged power producers - through obligation of local distribution company to purchase all the electricity produced from RES • Regulation on privileged power producers will be the definition of what types of renewable energy producers qualify for privileged status • Deadline for adoption: 1 July 2009. • Feed-in tariffs as the price support mechanism • Deadline for adoption: 1 July 2009.

18. Assumptions for development of Feed-in tarriffs • a purchase price, expressed in c€/kWh, is guaranteed and fixed during the 12-year period. The level of a purchase price is set to provide invested capital returned in 12 years, with covering all operating costs incurred during the same period; • in case of power plants that have been in operation before the application of feed-in tariffs – proposed feed-in tariffs are valid for the shortened period of time • feed-in tariffs for old power plants that have been out of commission for at least five years are separately defined, in order to encourage revitalisation and re-entering in operation of these plants; • additional criteria for setting the feed-in tariff is to have the internal rate of return at least 14%, i.e. not below this percentage

19. Investment incentives applicable to RES projects INVESTMENT INCENTIVES In case of investments in production facility, Government approve grant between 2000 and 5000 euros per new job creation, minimal investment value is within the range of 1 and 3 million euros, whereas the minimal number of new jobs is 50 An investor that invests in fixed assets, i.e. in whose fixed assets other entity invests over 600 million RSD (6.8 million EUR), and uses these assets for conducting business in Serba and during the investment period additionally recruit at least 100 people - shall be exempted from corporate profit tax payments for the period of 10 years proportionally with the investment made TAX CREDITS A tax payer that made profit in newly established business unit in an underdeveloped area will receive a corporate profit tax reduction in the duration of two years, proportional to the share of such made profit in total profit of the company ACCELERATED DEPRECIATION OF FIXED ASSETS This incentive is provided for fixed assets that are used for the prevention of air pollution, water and soil pollution, noise reduction, energy savings, forestation, and collection and utilization of waste for industrial raw materials and fuels FOREIGN INVESTMENTS INCENTIVES The law on foreign investments stipulates free import of goods that are the foreign investor’s nominal capital (founding capital) – providing it fulfils acts regulating environment protection. Import of equipment as the founding capital of a foreign investor, except for passenger motor vehicles and game & gambling machines, is free from customs and other duties. Besides, a foreign investor and a company with foreign founding capital are entitled to tax and customs related deductions in line with the law

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