Serbia Seeks Investors to Expand Power Output, Cut Imports

Serbia plans to cut red tape to attract investors in energy projects and increase power production, reducing dependence on imports, Energy Minister Zorana Mihajlovic said.

The ministry is reviewing 170 licenses and nine preliminary agreements with energy developers, including Elektroprivreda Srbije’s deals with Italy’s Edison SpA for the 750-megawatt Kolubara B plant and with Seci Energia SpA for new hydro plants on Serbian rivers, Mihajlovic, 42, said in an interview.

The Balkan nation seeks to become self-sufficient by adding 2,000 megawatts of capacity at an estimated cost of as much as 7.7 billion euros ($10 billion). Serbia currently produces an average of 36,000 gigawatt-hours a year, almost entirely from the 8,360-megawatt capacity of the state-owned monopoly, Elektroprivreda Srbije, or EPS.

“The key is that investors know what our priorities are and we’ll support them,” Mihajlovic, who previously worked at EPS, said Sept. 20 in Belgrade. “If investment conditions are good, they’ll come here,” particularly investors in renewable energy for export, the minister said.

The government will define “priority projects” in about a month and start looking for private investors as financing through sovereign borrowing is off the table due to excessive public debt and the budget deficit, Mihajlovic said.

Permits Cut

The ministry will cut the number of permits needed to start a project to “three to five” from 27 at present and “by the first quarter of the next year make sure that the ministry issues all the permits to investors” so they can immediately start their investment, Mihajlovic said. So far, it took about three years to obtain all the permits, she added.

Serbia will need to import as much as 600 gigawatt-hours of electricity in the fourth quarter as the weather gets cold, Mihajlovic said.

The ministry plans to license EPS for electricity trading by the end of the year, possibly excluding other electricity traders from power purchases for Serbia and cutting down the cost of imports as the government plans no increases in power and gas prices through December. Seasonal energy imports put pressure on the dinar while price increases fuel inflation, which will return to double-digits this year.

Biomass is one of the renewables Serbia wants to encourage with favorable feed-in tariffs, while revising the incentives for other renewable sources.

Revise Tariffs

“We will have to revise those tariffs considering our difficult economic situation,” she said. The duration of guaranteed purchase of the energy will probably be shortened from the current offer of 12 years, while the government will have to assess if it “can afford this level of tariffs.”

Incentives for power production from renewable energy sources range from 7.8 euro cents per kilowatt-hour produced in small hydro-power plants to 23 euro cents for solar energy. Biomass accounts for almost two-thirds of Serbia’s renewable energy potential seen at 4.3 million tons of oil equivalent, she said.

“Biomass is an important energy resource in Serbia and its potential is probably beyond expectations,” Aleksandar Kovacevic, a visiting research fellow at Oxford Institute for Energy Studies, said by phone. “ If given a chance, biomass could facilitate entirely commercial investment path with very little need for financial initiatives.”

Traditional Generation

Focus on traditional power-generating facilities includes a pact with Germany’s RWE AG on building a new, 700-megawatt unit at the Nikola Tesla B thermal plant in Obrenovac near Belgrade.

“We’re optimistic about the support we expect from the minister,” said Ana Brnabic, project director at Continental Wind Partners LLC, which wants to build a 300-megawatt, 450 million-euro wind park in the country.

Together with a coal mine that will feed the facility, the investment is seen at 1.2 billion euros and one of the options to repay the German utility is electricity from Serbian hydro plants, she said. A contract with RWE will probably be signed by the end of the second quarter of 2013 and it will take three years to build. China Environmental Energy Co. and Shenzhen Energy Group Co. may also take part in the project, she said.

Nuclear Ban

Serbia will keep the ban on nuclear energy because “we are a country which still has political and economic problems and we don’t need a nuclear plant on our territory,” Mihajlovic said.

Serbia also wants to build Djerdap 3, a reversible hydro-power plant on the Danube, which will require an estimated investment of “at least 4 billion euros” that will produce annually between seven billion and eight billion kilowatt-hours, to meet the electricity needs of the region, Mihajlovic said.

“The problem is that the state defines projects instead of letting investors do that,” said Kovacevic. “The government must provide much better conditions if it wants to jump start the projects.”

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