Methodologies for feed-in-tariffs and market premium for renewable energy sources

On the session held on October 28, 2021, the Energy Agency of the Republic of Serbia has adopted Methodology for Setting Maximum Purchase Electricity Price and Methodology for Setting Maximum Feed-in-Tariff for Electricity.

The Law on Use of Renewable Energy Sources defined that the Agency adopts these methodologies, that create the basis for the implementation of this Law and for the initiation of the auctions for electricity produced from renewable energy sources. Herewith, our Partner Nikola Djordjevic and Senior Associate Marko Mrdja give insight into the adopted methodologies.

Pursuant to the Law on Utilization of Renewable Energy Sources (“Official gazette of the RS” no. 40/2021, “Law on RES”) which was adopted in April 2021, producers of electric energy from renewable energy sources may acquire incentives in two forms, as market premium or feed-in tariffs. Both kinds of incentives are granted through auctions.

As one of the preconditions to organize auctions, it is necessary to set out maximum amounts for market premium and feed-in tariff, which amounts cannot be exceeded by participants` bids in the auctions. In order to do so, the Energy Agency of the Republic of Serbia (“AERS”) adopted two methodologies: i) Methodology for determination of maximum market premium for electric energy and ii) Methodology for determination of maximum feed-in tariffs for electric energy (both methodologies: “Methodologies”). Methodologies were adopted upon conducted public consultation by AERS and were published in the Official Gazette of the Republic of Serbia no. 103/2021.

Methodologies are based on the principle of Levelized Cost of Electric Energy to prevent granting of incentives to the participants with unreasonably high bids. Furthermore, when calculating the maximum 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 power plant efficiency.

Pursuant to the Law on RES, AERS has the obligation to calculate maximum amounts of market premium and feed-in tariffs for each kind of power plant eligible for incentives, on the basis of the Methodologies. Such calculations AERS must perform during December 2021 and will be applicable to the auctions held next year. Additionally, amounts shall be expressed in Eurocent per kWh.

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