Serbia’s need to improve its energy efficiency is both obvious and immense. The new Law on Efficient Use of Energy sets out the comprehensive legal framework for energy performance contracting for the very first time in Serbia. Still, the new law will apparently become fully operable only after all the pertinent sub-legislation thereunder is adopted, which is generally expected to happen by the end of this year. Other remaining challenges include the introduction of the industry-specific incentive schemes and greater familiarity of the financiers with the overall energy efficiency concept.
By Djordje Popovic*
Serbia is currently one of the countries in the CEE region with the smallest rate of energy efficiency. Prospective savings in energy could result in significant reduction of public expenditures, stabilization of the overall energy supply and further development of the energy sector, fostering thus development of the entire economy to a noteworthy extent.
The Law on Efficient Use of Energy as the first coherent and wide-ranging piece of legislation regulating the area of energy efficiency in Serbia has finally been adopted in 2013 but is yet to become fully applicable by the end of 2014, once all the requisite by-laws thereunder are adopted. The Law, for the first time in Serbia, explicitly defines the energy services company (ESCO) and sets out the rules for energy performance contracting (EnPC) generally in line with the EU acquis, aiming at providing the overall legal framework for the energy efficiency arrangements.
On the whole, the Law:
• defines energy services as services which, under normal circumstances, result in verifiable and measurable or assessable increase in the energy efficiency of building, technical
system, production process, public
and private services and/or savings
of primary energy;
• defines ESCOs as entities registered for provision of the energy services which assume a certain degree of financial risk in doing so, because the payment for the services provided is based – either wholly or in part – on the achievement of energy efficiency improvements and on compliance with the other agreed performance criteria;
• principally provides for ESCO, third party and energy-user financing schemes;
• stipulates that provision of the energy services is to be governed by the Energy Services Agreement concluded between ESCO and the relevant energy user. Mandatory elements of this agreement, inter alia, shall include relevant efficiency criteria, measures for increasing the energy efficiency, manner of financing of the project, energy consumption within the reference period, fees for the provided energy services, and the like;
• sets the system of energy management, the subjects of which are the Serbian Government, the Ministry of Energy, the licensed energy managers and the authorized energy consultants as well as the so-called ‘obligors of the energy management system’, those being (i) companies predominantly engaged in the production sector and/or trade and services sector, if they consume energy in excess of respective thresholds prescribed by the Government, (ii) companies predominantly engaged in production not exceeding the threshold applicable to such companies but owning facilities the aggregate consumption of which exceeds the thresholds set for companies engaged in trade/services; and (iii) public authorities and other public services using the publicly owned facilities;
• defines activities subjected to public financing or co-financing under the Law that are related to improvement of the energy efficiency, which include (i) implementation of technical measures in production, transmission, distribution and consumption of energy; (ii) incitement of energy management’s development for entities that are not aforesaid ‘obligors of the energy management system’; (iii) promotion/implementation of energy inspections/audits of facilities, production processes and services; (iv) stimulation of energy services’ development on Serbian market; (v) encouragement of the usage of renewables for own use and (vi) other activities aimed at the more efficient use of energy. The Law prescribes that said activities are to be financed from the central budget and the budgets of the local units as well as from the financial means provided via EU funds and other international funds, credits of international institutions, donations and other sources;
• provides for establishment of the Budget Fund for Energy Efficiency Improvement (EE Fund) for the purpose of registration of financial means envisaged for public financing of the activities related to energy efficiency. The EE Fund is founded for an indefinite period and is governed by the Ministry of Energy. The EE Fund’s funds are to be provided from the central budget’s appropriations for the current year as well as from the credits and donations – in line with applicable public policy acts – and disbursed to EE Fund’s users for the purpose of financing aforesaid energy efficiency activities on the basis of public tenders announced by the said Ministry. Especially, if the financing of services as per the third-party financing agreement is to be done by using the EE Fund’s funds, the Law prescribes that in such cases the relevant funds are to be disbursed under the applicable public procurement law;
• expressly entitles the competent authority of the autonomous province or local municipal units to (i) determine specific financial and other incentives; (ii) establish specific budgetary funds and/or (iii) use the existing funds of their own for projects and other activities related to efficient use of energy in their respective territory;
• prescribes criteria and manner of labelling of energy efficiency of products affecting the energy consumption as well as the rules relating to products’ eco-design;
• makes the energy audit mandatory in respect to (i) facilities used by the public ‘obligors of the energy management system’ (having more than 500 sqm of usable area); (ii) facilities, i.e. their respective parts that are classified within the prescribed energy classes; and (iii) facilities, i.e. their respective parts in case of change of their purpose or owner or if they are intended for renting;
• obliges entities applying for issuance of (i) energy permit for construction or reconstruction of facilities for production of electricity and/or heating as well as for transmission of electricity or transport/distribution of natural gas; and/or (ii) construction permit for construction or reconstruction of distribution of electricity or heating energy, to provide an elaborate on energy efficiency of such facilities proving that the criteria setting the minimum energy efficiency of the system are complied with;
• specifically prescribes that production of electricity or heating energy via renewables is to be deemed a measure of energy efficiency, provided that the energy is produced for own use.
Remaining challenges
It is important to note that the new Law, although providing for a cohesive legal framework for the energy efficiency sector in Serbia, is yet to become fully operable. The main sub-legislation under the Law relevant for hands-on development of the EnPC arrangements, that being the Model Contract for Energy Efficiency in Public Buildings, i.e. Public Lighting, has not been adopted yet.
The complexity of the relevant matters that the said Model Contract is to tackle has so far prolonged the completion of the first draft within the relevant working group in the Ministry of Energy. These matters, by and large, relate to the overall relation of the public procurement and public-private partnerships in Serbia, the multi-annual budgeting and the (non)public debt matters, the differentiated public ownership over various parts of the energy infrastructure and equipment, the prospective cooperation with the public energy supply companies and the need to fully harmonize the said
by-law with diversified and ever-changing regulations relating to factoring, energy supply and real estate development in Serbia.
Still, the said group has reportedly made a significant progress in finalization of the said by-law recently and its submission to the Government for final adoption may be expected in the third quarter of 2014.
Other challenges regarding the operability of the new Law certainly include the need to introduce the concrete sector-specific incentives for the energy efficiency and, moreover, the feasibility of the EnPC projects from the private lenders’ perspective. While some of the banks and other market players in the Serbian financial sector has most recently become acquainted with the overall EnPC concept, the remaining challenge is that the said players often assess the creditworthiness of the client instead of the project itself. Yet, similarly to other countries where these concepts were introduced for the first time, it could still be expected that, gradually – and with very first projects becoming (successfully) implemented – the financiers would become more and more receptive for engaging in the financing of these projects.
Hopefully, the above challenges will be successfully resolved based on the best comparable practices existing on the surrounding and other successful European markets (e.g. Germany, where this concept exists and continues to develop for two decades), resulting thus in the increased energy efficiency of the Serbian market and the overall positive impact on the economy.
* Djordje Popovic is Senior Attorney – Petrikic & Partneri in cooperation with CMS Reich-Rohrwig Hain Law Firm
(www.cms-rrh.com)