Serbia’s energy sector is poised for significant development and growth, as it stands in need of substantial investments. This presents a compelling and prominent opportunity for investors in the market, with the potential for the sector to become a key driver of new contributions to Serbia’s economic growth
The generation of energy is a key economic activity in Serbia. Serbia’s electric utility power company provides over 95% of electricity for domestic consumption. It determines prices for industry and the population. These prices determine the cost of heating space with fuelwood for 56% of Serbia’s population.
During 2022, fuelwood prices dramatically exceeded their decades-long link with electricity prices. The perception of risk to supplies as a consequence of the war in Ukraine and technical failures in the Serbian power supply system propelled fuelwood prices to their highest level in decades. Per unit of usable thermal energy, fuelwood thus turned out to be the most expensive fuel on the market. That in turn pushed up food prices and the inflation rate.
A combination of technical failures, depleted brown coal mines, a lack of domestic oil and gas resources and an increase in European energy prices showed the Government of Serbia just how large the fiscal risk of an unsustainable energy sector can be.
A new reality emerged in 2023. The electricity supply is now stable despite technical failures. Fuelwood prices have fallen somewhat, but remain twice as high as they were prior to 2022.
Serbia’s President used his COP28 speech to emphasise the disproportionate impact of climate change, signalling potential interest in new energy policies and heightened awareness of supply risks
The most positive development in 2023 has been the growing understanding between energy professionals that relief is not sustainable. Brown coal mines are not going to improve and old power plants are going to deteriorate further, while there are no more gas and oil reserves. The gas supply contract with the traditional supplier is also far from secure, due to a combination of technical risks and exposure to military threats.
The Serbian energy sector needs massive investments. This sector is becoming the most prominent investment opportunity on the market and the key driver of new investment contributions to Serbia’s economic growth.
The President of Serbia devoted his COP28 climate change conference speech to the disproportionate impacts of climate change across the territory of Serbia. This may (and may not) indicate political interest in a new energy policy and heightened awareness of supply risks.
If Serbia truly commits to investments in sustainable energy, and if the EU provides a grant mechanism directed towards the commercial operator through its accelerated accession to EU Emissions Trading System by 2026 and the allocation of EU ETS allowances for the phasing out of coal during the 2026-2034 period, that could mark a decisive shift towards EU integration and sustainability. That could be done without the nuances of full EU accession. This is the hope that 2023 brought to the table, beyond the understanding of how dark the alternatives could be.
