Renewable regulations package further improved

A comprehensive PPA Package was finally adopted in Serbia roughly a year ago. The package consists of the following three decrees: 

• Decree on Incentive Measures for Electricity Generation from Renewable Energy Sources and High-Efficiency Cogeneration of Electricity and Heat;
• Decree on the Conditions of and Procedure for Obtaining the Status of a Privileged Power Producer, Preliminary Privileged Power Producer and Producer from Renewable Energy Sources; and
• Decree on the Power Purchase Agreement, prescribing a model PPA and with an accompanying model for a Lenders’ Step-In Agreement, available for projects having more than 30 MW in power. 

The PPA Package was warmly welcomed by most of the relevant market players and other stakeholders as it tackled the majority of the concerns previously raised on the market. The initiatives include not only a comprehensive set of incentives available for the renewable projects but also some more sophisticated matters such as developed change-in-law clauses, the so-called ‘political force majeure’ (i.e. prolongation of the investor’s rights in case where the authority’s fail to issue a [timely] permit or license required as part of the project development), the right to feed-in-tariffs even during the trial run (which is important especially for large-scale projects) and ample regulation of lender’s rights when stepping into the project in cases of investor failure. (A more detailed overview is available here)

As a result, a notable number of renewable projects have already reached the project stages of construction and, to some extent, financial close. In addition, there are currently a few fully operational projects up and running, mostly including wind energy. 

But there is still a need to further fine-tune the regulations package in order to address some of the minor outstanding practical concerns. The Serbian government recognized this need and the following improvements to the PPA Package were adopted in June 2017: 

• No political risk insurance required anymore as a condition for political risk related termination events under the PPA.
• The change in law protections refers to changes which result in an increase of costs, instead of changes introduced with the aim to increase costs
• Lenders may appoint a representative in addition to a substitute.
• The step-in period is increased from 90 to 360 days.
• The step-in agreement is in a bilingual form (Serbian prevailing).

 The above improvements mean a significant number of renewable projects are expected to become fully operational by the end of 2018. 

On the downside, the PPA Package still does not provide for an adequate incentives package for heat energy (nor does any other Serbian legislation, for that matter). This has long been on the Government’s agenda and, once finally adopted, it is expected to further boost the renewables and the entire energy sector in Serbia.