ENERGY AGENCY OF THE REPUBLIC OF

Status of electric industry in Serbia

Petar Maksimović Secretary General

NARUC’ Energy Regulatory Partnership Program AERS - PUC Introductory Partnership Activity 1 , October 29 – November 2, 2007 ContentsContents

z Energy sector reforms- goals z Instruments to achieve the goals z Electricity market in Serbia z Privatization and investment z Main challenges

2 Background

3 StartingStarting pointpoint-- yearyear 20002000

•• DeterioratedDeteriorated infrastructure,infrastructure, accumulatedaccumulated losseslosses andand debtsdebts •• UnfavorableUnfavorable structurestructure ofof consumption,consumption, highhigh energyenergy intensityintensity •• HighHigh environmentalenvironmental impactimpact •• Structural,Structural, legislativelegislative andand institutionalinstitutional underdevelopmentunderdevelopment comparedcompared toto ACC,ACC, andand especiallyespecially EUEU countriescountries

4 Energy Sector Reform - Goals

5 StrategicStrategic goalsgoals ofof thethe reforms…reforms…

SECURITY OF SUPPLY ATTRACTING INVESTMENT

ENERGY SECTOR REFORMS EFFICIENCY ENVIRONMENT COMPETITION AND RES REGULATION IMPROVE EN. EFFICIENCY ENVIRONMENTAL SITUATION 6 EfficiencyEfficiency

• RehabilitationRehabilitation andand modernizationmodernization • RestructuringRestructuring ofof PEsPEs-- corporatizationcorporatization • DemandDemand sideside managementmanagement • IntroducingIntroducing competitioncompetition • RegulationRegulation ofof naturalnatural monopoliesmonopolies

7 SecuritySecurity ofof supplysupply

• CommercializationCommercialization • IncreasedIncreased availabilityavailability andand reliabilityreliability (short(short-- term)term) • RFTRFT forfor captivecaptive customerscustomers • AuthorizationAuthorization andand tenderingtendering proceduresprocedures forfor newnew generationgeneration • T&DT&D planningplanning (mid(mid-- andand longlong-- term)term)

8 EnvironmentEnvironment && RESRES

• LegislationLegislation inin compliancecompliance withwith AcquisAcquis CommunitaireCommunitaire • ReducingReducing adverseadverse impactimpact onon environmentenvironment • IncentivesIncentives forfor RESRES

9 EUEU accessionaccession andand regionalregional integrationsintegrations

• SAPSAP • EuropeanEuropean PartnershipPartnership • MoUMoU • TreatyTreaty EstablishingEstablishing thethe EnergyEnergy CommunityCommunity

10 Energy Sector Reform – Instruments to achieve the goals

11 InstrumentsInstruments toto achieveachieve thethe goalsgoals

• LegalLegal frameworkframework • InstitutionalInstitutional frameworkframework • IndustryIndustry structurestructure (restructuring)(restructuring) • ChangeChange managementmanagement

12 LegalLegal frameworkframework

• EnergyEnergy LawLaw (entered(entered intointo forceforce 01.08.2004)01.08.2004) • EnergyEnergy SectorSector DevelopmentDevelopment StrategyStrategy • StrategyStrategy ImplementationImplementation ProgramProgram • SecondarySecondary LegislationLegislation –– adoptedadopted ((PricePrice regulations,regulations, ConditionsConditions ofof electricityelectricity supplysupply,, LicenseLicense CodeCode,, AuthorizationAuthorization CodeCode...)...) • SecondarySecondary legislationlegislation –– underwayunderway (Market(Market RulesRules,, GridGrid CodesCodes,, incentivesincentives forfor RESRES...... ))

13 InstitutionalInstitutional frameworkframework

• EstablishmentEstablishment ofof AERSAERS • EstablishmentEstablishment ofof SEEASEEA • ClearClear divisiondivision ofof responsibilitiesresponsibilities btw.btw. Parliament,Parliament, Government,Government, MoMEMoME andand AERSAERS

14 IndustryIndustry structurestructure

• SpinSpin-- offoff ofof nonnon--corecore activitiesactivities • UnbundlingUnbundling ofof thethe networksnetworks • IncorporationIncorporation ofof EPSEPS

15 EPSEPS unbundlingunbundling

EPSEPSold=EPS=EPSnew+EMS+EMS

Generation Generation Subsidiaries ... EPS- Mother Co. Subsidiaries ... EPS Distribution +Supply Distribution +Supply

TSO MO EMS 16 EPSEPS corporatecorporate structurestructure

BOARD OF MANAGEMENT SUPERVISORY BOARD

GENERAL MANAGER

Economic Association for Coal Departments: Economic Association for and Energy production: Electric Energy distribution: Electric power generation HPP „Djerdap“ d.o.o. Electric power trade “ELEKTROVOJVODINA”,d.o.o HPP „Drimsko-Limske“ Electric power distribution

Bajina Bašta Strategy and investments “ELEKTRODISTRIBUCIJA- TPP „Nikola Tesla“ d.o.o Electric power transmission and BEOGRAD” d.o.o. Beograd distribution and coal production on Mining Basin“Kolubara“ d.o.o. the territory of Kosovo and “ELEKTROSRBIJA”d.o.o Metohia “JUGOISTOK”,d. o.o Niš TPP and mines „Kostolac“d.o.o Economic and financial affairs Kostolac Legal affairs and human resources “CENTAR”,d.o.o. Combined H&PP „Panonske elektrane“d.o.o Novi Sad Divisions:

Internal control and supervision Public relations

1. HPP - Hydro Power Plants 2. TPP - Thermal Power Plants Combined H&PP - Combined Heat& Power Plants

17 Electricity market in Serbia

18 MainMain featuresfeatures ofof thethe marketmarket

• Dual market- parallel operation of free market (eligible customers) and regulated market (captive customers >3 GWh/year) • Market opening: • all except households by 2008 • 100% market opening by 2015 • Market model: • Bilateral contracts • DAM (“under construction”) • Balancing mechanism (“under construction”)

19 DualDual marketmarket ConceptConcept

IPP + ++ += Wholesale PSO GenCo TSO DisCo Supply

trade Captive customers Imports Traders

++= IPP +

Imports TSO DisCo Supply Eligible

Traders Customers

Market prices Reulated prices 20 MarketMarket PlayersPlayers

GencosGencos GencosGencos EPS GenCos IPPs

•Wholesale supplier for tariff customers •Wholesale trade for eligible PE Traders customers EPS MOTHER COMPANY EMS

GencosGencos EPS DisCos/ Retailers

Tariff Eligible customers customers PE EPS

21 Privatization and investment

22 PrivatizationPrivatization andand investmentinvestment

• EPSEPS remainsremains aa dominantdominant playerplayer • CompetitionCompetition pursuedpursued onon regionalregional levellevel • InvestmentInvestment inin electricityelectricity sector:sector: • PPP • Divesting generation/ distribution • IPP • EPS investments

23 Main challenges

24 MainMain challengeschallenges

• PartPart ofof legislationlegislation hashas notnot beenbeen finishedfinished (Energy(Energy LawLaw doesn’tdoesn’t stipulatestipulate deadlinesdeadlines forfor GridGrid andand MarketMarket CodesCodes forfor electricityelectricity andand gas)gas);; • NoNo competitioncompetition inin SerbianSerbian electricityelectricity market:market: • EPS is dominant player; • Till now, there was no interest for private investments (low electricity prices) • regional market • NoNo incentivesincentives forfor investinginvesting inin electricityelectricity generationgeneration –– expectedexpected problemsproblems inin securitysecurity ofof supply.supply.

25 ENERGY AGENCY OF THE REPUBLIC OF SERBIA

ThankThank youyou forfor youryour attention!attention!

Contact details: Petar Maksimović Energy Agency of the Republic of Serbia, Terazije 5/V , 11000 Belgrade Tel: + 381 11 3033829; Fax: + 381 11 3225780 e-mail: [email protected] , URL: www.aers.org.yu 26