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Zorana Mihajlović Ph.D. Prime Minister And Minister Of Energy And Mining

We Have Thoughtfully Embarked On Deep Reforms

The major changes we’ve instigated in the energy sector are connected deeply, and in multiple ways, with overall economic development, while they have a challenging social dimension and impact markedly on international relations and integration processes. These changes are extending beyond the energy sector, and for a country delving into them from a position like ours, they could be considered a national project to a certain extent.

According to the opinions of experts, abandoning lignite and turning towards cleaner energy sources is a more complex task than any of the reforms we’ve so far gone through. We asked Serbian Deputy Prime Minister and Minister of Energy and Mining, Zorana Mihajlović Ph.D., whether we have the strength for that, given that the structure of our energy sector is largely based on this fuel source?

Energy has been “sleeping” in Serbia for a long time, failing to change fast enough, and those who fail to change and advance in today’s world are left behind. We are only just entering the energy transition process, in the true sense of the word, in 2021 – starting from the legal framework, through the development of strategic documents to the adapting of the investment plan to the kind of energy sector we should have in the 21st century, which should be marked by environmental and climate neutrality.

During the past six months we’ve laid the foundations for the fundamental changes that await us. Laws have been adopted on energy efficiency and the use of renewable energy sources, while the Law on Energy was amended, which – together with the previously adopted Law on Climate Change – provided a new legal framework that’s more favourable to both citizens and investors, harmonised with relevant EU regulations and the Paris Climate Agreement.

At the level of planning and strategic concerns, we’ve begun drafting the Integrated National Energy and Climate Plan, which will, coupled with the new energy development strategy, determine the goals and dynamics of change over the next three decades, until 2050. Apart from this, work is underway on a new investment plan that will reflect changes in energy policy, because it is precisely through new investments that we need to achieve this and ensure we have enough energy and more green energy in total production, while the stability of the system will be achieved with the building gas power plants, as opposed to coal-fired ones.

It is undeniable that these changes will lead, like in the rest of the world, to a gradual reduction in the use of coal and its replacement with low-carbon, green technologies and energy sources.

Major investments have been announced in renewable sources, natural gas and improving energy efficiency. What are we awaited in this package?

The new investment plan that the Ministry is preparing, and which is linked directly to Serbia’s energy transition, encompasses projects in all areas of the sector, worth close to 16 billion euros. In the field of electricity, planned investments amount to around 6.6 billion euros, while RES proejcts – primarily in solar power plants and wind farms – are valued at around 4.4 billion euros.

With the gradual reduction of energy production from coal, it is particularly important for energy security over the coming decades to construct new large and mediumsized hydropower and gas power plants, and to make greater use of renewable energy sources. Plans include, among other things, the building of new hydropower plants and the revitalising of existing ones, with a total capacity of 3.5 GW, which includes the construction of reversible hydropower plants (RHPP) Đerdap, on the Danube, and RHPP Bistrica, as well as new medium capacity HPPs on the Drina, Ibar and Morava rivers.

When it comes to natural gas, the focal point is the diversification of suppliers, which is essential for gas stability, but also regional connectivity. The goal is for Serbia to be the energy hub of the region in gas, as well as in the electricity sector, where we are building the Trans-Balkan Corridor, and for the country to be well connected with all neighbouring states.

We will soon have all the planned projects in one place, in the project book, where all interested investors will be able to see what our priorities are, what public investments we’re planning and where we expect the active participation of the private sector. With the total value of projects standing at close to 16 billion euros, the participation of public and private investments is almost equal, though the state will be represented more in the sectors of electricity, gas and energy efficiency, while the private sector is expected to have greater participation in mining and renewable sources of energy. One of the goals of the adopting of new laws in these areas was to create a more favourable environment for new investments, in order to utilise the potential that exists in these areas.

In order to find ourselves among the winners of transition, to manage its costs and avoid transition risks, we are preparing to act thoughtfully, in a timely and measured manner, adapted to the conditions and potential that we have

To what extent is the legislative framework aligned with this desired change?

The four new laws in the field of mining and energy, which were adopted by the National Assembly in April, actually represent the first step in Serbia’s new energy policy. All four of these laws are aimed primarily at citizens, but they also represent an important incentive for investors, given that they ensure a stable and predictable legal framework for investors, with more efficient administrative procedures and digitalisation in issuing permits and solutions. The share of mining and energy in GDP currently totals about five per cent, but we believe that the contribution of these sectors to GDP could increase to up to 10 per cent with the more dynamic development of these sectors and new investments.

The main goal of the new Law on the Use of RES is to increase the share of renewables in total energy production. The new law introduces, among other things, market premiums instead of the current feed-in tariffs, which are only to be retained for small plants and demonstration projects, in accordance with the EU’s state aid rules. The new incentive system will expose producers to the influence of the market and competition, while reducing costs for citizens and the economy. The new law, as an important innovation, provides for the greater involvement of citizens in the energy transition by introducing the buyerproducer institute. This means that buyers of electricity can install solar panels on the roofs of buildings to produce electricity for their own needs and thus reduce their electricity bills. This law also introduces a ban on the construction of hydropower plants of any type and power in protected areas.

The new Law on Energy Efficiency and Rational Use of Energy is especially important, because we want to raise this area to the level of a national project. This means that we will give citizens the opportunity to become active participants in the energy transition, enabling them to reduce irrational energy consumption in their homes, with the support of the state. Specifically, the state will provide citizens with the opportunity to more easily access subsidies for the replacement of windows, doors, insulation facades and heating systems.

The Directorate for Financing and Encouraging Energy Efficiency will be formed within the scope of the Ministry during June, in order for us also to have budget funds in one place, and these funds will be increased significantly, as will the funds of international financial institutions. The administration and local government units will finance up to 50 per cent of the costs or replacing doors and windows in family houses and apartments, with citizens financing the remaining 50 per cent of those costs. Incentive funds will be allocated through public calls to citizens, in cooperation with local governments.

State support will also encompass the installing of efficient biomass furnaces and boilers and gas boilers, which are important for reducing pollution from individual combustion plants which represent – after the transport sector and thermal power plants – the third most significant source of air pollution.

Amendments to the Law on Energy are important due to additional harmonisation with the EU’s acquis communautaire, the security of supplying energy and energy sources, and the introduction of new participants to the energy market. These amendments to the law also introduce energy-endangered customers for heating energy, alongside the existing categories of endangered customers of electricity and gas. Our expectations are that the current total of 70,000 endangered electricity buyers will increase to around 200,000, while that number could reach around 20,000 in the field of heating energy.

When it comes to mining, the value of confirmed mineral reserves in Serbia totals around 200 billion dollars. Amendments to the Law on Mining and Geological Research should enable the efficient and sustainable use of these resources, which implies the highest environmental protection standards. We want to show that in Serbia we can have not only the world’s largest mining companies, but also the best world practice, in terms of sustainable and green mining. This means that all mining activities, in addition to contributing to economic growth, must comply fully with domestic regulations in the field of environmental protection, as well as with the highest European and world standards.

Serbia’s ability to follow the EU’s energy and climate goals, and the EU Green Deal, will also depend on the availability of financial support from the EU that’s commensurate with that of EU members that have a high share of coal and a similar level of economic development

The plan related to energy efficiency also applies to every household in Serbia and relies on the coordination of national and local authorities. How prepared are local governments to take on their part of the task?

Local governments have an important role to play, not only in financing energy efficiency measures, but also in setting priorities and managing projects, because it is actually local governments that will determine which measures they will seek support for, because they can also encompass the replacing of window frames, the insulating of facades and the installing of biomass or gas boilers.

They will also use their documents to determine the conditions for citizens to apply, and to announce public calls for citizens, but also for companies that deal with energy rehabilitation.

We are taking the first step towards citizens this year, through a pilot project in which we expect the first applications to come from cities and municipalities that have already envisaged funding to increase energy efficiency. I believe that, following the successful implementation of the pilot project, other local governments will also recognise their interest, allocate funds in their budgets for these purposes for the next year and be much more active in this area. Our plan is for the average annual investment in the field of energy efficiency to be around 150 million euros from next year, with greater support from international financial institutions.

If we know that Serbia today consumes about four times as much energy for the production of the same unit of product, that houses and apartments without adequate insulation consume up to four times more energy, and that citizens thus pay higher bills, and that all of this has a negative impact on the environment and climate change, then it’s clear why we want energy efficiency to become a national project in which we will participate jointly, as the state, local governments and citizens.

What are the most important goals related to the restructuring of public enterprises in this domain?

In order to be able to implement the new investment, it is especially important to reform the largest public companies, EPS and Srbijagas, which should carry the large projects that are backed by the state. The Government of Serbia has adopted reorganisation plans, but for now this process has progressed further within EPS. The distribution system operator, Elektrodistribucija Srbije, is beginning to function essentially – and not only formally – separate from EPS, while Srbijagas still has a lot of work to do to separate the Transportagas and Distribucijagas Srbija enterprises from the Srbijagas framework. However, given that implementing reforms in Srbijagas remains one of the important preconditions for opening of EU accession negotiation Chapter 15, I expect us to make more tangible progress in the coming period, with the support of the Government.

Key goals of the energy transition process must be met: ensuring energy security and a secure energy supply, and the full coverage of Serbia’s electricity needs with its own production

What challenges do we face when it comes to diversifying the gas supply area?

Serbia finally receives another direction of gas supplies this year, but it is important for the energy security of our country, as well as the region, to also have diversification of suppliers. Our goal is to have gas connectivity with all neighbours and for Serbia also to be the energy hub of the region in this sector.

Funding has been secured for construction of the Niš-Dimitrovgrad gas interconnection, and selection of a contractor for works that will begin this year is underway, so this gas pipeline will become operational in 2023. The gas interconnection with Bulgaria will provide the possibility of supplying Serbia with natural gas from LNG terminals in Greece, as well as from the TAP and TANAP gas pipelines that form part of the Southern Gas Corridor that transports gas from the Caspian and Middle East regions.

Likewise, Serbia is involved – together with representatives of Israel, Greece, Cyprus, Bulgaria, North Macedonia, Hungary and Romania – in the work of the ad hoc working group for improving energy cooperation and exploring the possibilities of the East-Med pipeline, which also sent a joint letter to the EU Energy Commissioner with the aim of gaining support for financing the project. The realisation of this project would enable gas from gas fields in the eastern Mediterranean to reach Serbia, via Cyprus, Crete, Greece and Bulgaria, which would be very important for the long-term energy security not only of Serbia, but also of the region.

DECARBONISATION

Just as in any country that has a high share of coal in the production of electricity like Serbia does – at about 67% – replacing it is a process that will take decades.

RESPONSIBILITY

It has been shown that market mechanisms in the energy sector are insufficient and that the state must have a significantly greater role and responsibility, and we will act in accordance with that.

COOPERATION

We want energy efficiency to become a national project that includes the joint participation of the state, local governments and citizens.

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