The summer of 2023 was a season where we could see the light at the end of the tunnel – the Government of the Republic of Serbia in cooperation with Joint Stock Company Electric Grid of Serbia (Elektromreža Srbije a.d., hereinafter - EMS) and other relevant entities and factors has enacted a draft Regulation on Electricity Delivery and Supply Conditions (hereinafter - Regulation), thus creating a ground for unblocking the EMS in terms of deciding how and when to decide on pending requests for connection to the grid.
Before we delve deeper into the matter at hand, we must point out that this is a draft Regulation, and that ongoing intensive talks and suggestions between all key factors may change certain provisions in the future. However, the essence of it and most of the provisions should remain intact, since the biggest and most daring part is already done – now there are only the finesses to be discussed.
Bearing in mind the huge interest that has occurred in this field during past two years, the Republic of Serbia (hereinafter - Serbia) had to act and create a better surrounding for investors and to “unclog” the procedure initiated before EMS.
The Regulation itself regulates the following topics:
1) Conditions for issuing approval for connection to the transmission or distribution system, conditions for changing technical conditions at the connection point and approved power;
2) Conditions and method of connection of facilities that are built or installed in accordance with the law regulating the construction of facilities, legalization of facilities, construction of mining facilities, as well as other facilities;
3) The method and procedure for determining the list of end customers who meet the requirements for the status of a small customer/consumer;
4) The place of delimitation of responsibility for the delivered electricity between the energy entity and the customer, i.e. the producer;
5) Conditions for concluding and content of Supply Agreement;
6) Conditions and procedure for suspending the supply or taking over of electricity to end customers, or producers, as well as energy-endangered customers;
7) Rights and obligations of the operator of the transmission or distribution system, supplier and end customer;
8) The type of facilities for the purpose of which the delivery of electricity cannot be suspended in case of non-fulfillment of obligations for the delivered electricity and in other cases (the objects are military facilities and facilities of nationwide importance, as well as public health institutions);
9) Conditions and method of exclusion of the object of the end customer or producer from the system, the rights of end customers or producers;
10) Method of notifying the end customer or producer;
11) Accounting period and mandatory content of invoices for payment of delivered electricity;
12) The procedure, method and deadlines for exercising the right of the end customer to compensation due to deviation from the prescribed quality of delivery, that is, the supply of electricity;
13) Other issues in accordance with the law governing the field of energy (hereinafter - the Law).
Now we shall outline key points that we deem as of highest importance to understand when applying for connection to the grid:
- Conditions of issue of approval for connection to the grid, i.e. transportable, distribution or closed distribution system;
- Conditions for conclusion of the Supply Agreement;
We shall now present an extensive overview of topics introduced above, with the emphasis on the most notable and important provisions.
Conditions for Connection to the Grid
Probably the most important point of all, since EMS can finally be unblocked and start solving the applications that were on hold. Basically the request is submitted to EMS and the EMS decides on the Approval for connection to the grid in the form of a Decision. The form of Application is made by EMS and published on its webpage.
As per Article 4 of the Regulation, if the request for connection (Application) pertains to an object that is being connected to the system for the first time, the system operator shall, as a matter of official duty, obtain:
1. A building permit or a decision on approval for construction works or a decision on legalization;
2. A connection study and a connection agreement if the operator of the transmission system is responsible for the connection;
3. A connection study for facilities for the production of electrical energy that are connecting to the distribution system, except for production facilities of customer-producers.
In cases where a request is submitted for the issuance of approval for the connection of a specific type of objects specified by the regulations on planning and construction of objects, for which no previously listed documents are required, proof of ownership of the land or the right to use the land or the object on which the facility is being constructed or installed, and an act from the competent authority for construction stating that no construction permit is required for that type of object shall be attached to the request. This means that, even though some documents are obtained by EMS itself, the conditions, i.e. documents that must exist are: construction permit, or decision on legalization of an object, connection study and connection agreement (provided that system operator is responsible to carry out the connection), connection study for facilities that produce electricity that are connecting to the grid. Furthermore, if one has a specific object in question, for which no previous documents are required, then proof of ownership or the right of use of the land is necessary, or the object itself depending on where the facility will be built and, finally, an act from the competent authority is required where it is stated that no construction permit is required for such an object (in case of this second group of documents, an applicant delivers them).
Now we shall focus on the connection study and connection agreement as necessary documents for submitting an application/request for connection to the grid.
Connection study - The connection study is prepared at the request of a legal or natural person whose facility is being connected (the Applicant), and after the conclusion of the connection study agreement. In terms of a deadline for submission of such a request (to conclude such an agreement), it must be submitted no later than the 1st day of the month preceding the first month of the interval for preparing the connection study. Request is submitted in a form published on the webpage of the transmission system operator. Now, in order to make the said study certain conditions must also be met.
Therefore, an Applicant, alongside the request, must submit the following:
1) Complete data necessary to make the study;
2) The decision on preparation of an appropriate planning document for a producer's facility, which is being connected for the first time, or the corresponding spatial and urban planning document that determines the purpose of space for such a facility, in accordance with the Law on Planning and Construction;
3) Proof of meeting the conditions under which the postponement of connection to the transmission system does not apply to power plants using variable energy sources, if necessary, in accordance with the regulations governing the use of renewables.
4) Proof of depositing funds for the costs of preparing the connection study in the amount determined by the transmission system operator.
Regarding the said costs, the operator is not allowed to freely determine them – the Regulation sets limitations and gives guidance on their determination, depending on the power of the facility. Therefore, the amount of funds needing to be deposited as the costs for preparing the connection study are as follows:
a. For facilities whose requested power amounts to 50 MW or lower – EUR 50,000.00 is the amount of funds necessary to be deposited;
b. If the requested power is larger than 50 MW up to 100 MW – the said costs increase by EUR 400.00 EUR per each MW up until 100 MW;
c. From 100 MW up to 250 MW – EUR 300.00 per each MW;
d. Above 250 MW – EUR 200.00 per each MW.
In case the request is submitted in order to increase the approved capacity/power of the facility/ies of the existing user of the transmission system, the amount of costs is determined as outlined above, whereby the value of the power for which the amount of deposited funds is determined is the value of the difference between the new required authorized power and the existing authorized power.
The amount of deposited funds for a customer who connects a production module with a power of up to 16 MW to his internal installations, without injecting into the transmission system, amounts to EUR 15,000.00.
If the request is complete and timely, a connection study agreement is concluded before the timeframe, i.e. interval, set out above (before the 1st day of the month preceding the first month of the interval for preparing the connection study). The Regulation even prescribes some elements of the agreement (in particular the obligation of the transmission system operator to prepare a connection study, obligations of the applicant, bank guarantee for the construction of the facility, deadlines for fulfilling the obligations of the parties etc.).
Pursuant to such an agreement, a connection study is made each year in two intervals – from 1st March to 30th of June and 1st September to 31st of December, except in case the applicant is a strategic partner to the country where different deadlines apply in accordance with the Law. The connection study consists of two parts - the system part of the study and technical conditions for connection.
The connection study ceases to be valid:
1. If the applicant doesn't provide a bank guarantee within 60 days after receiving the connection study;
2. If the connection agreement isn't signed within the timeframe specified in Article 9 of this Regulation;
3. If the applicant doesn't get approval for the connection within three years from the date of concluding the connection agreement;
4. When the approval for the connection expires.
When the connection study becomes invalid, both the connection agreement and, if it exists, the agreement for constructing any missing infrastructure, also become void. Consequently, the connection process stops.
If one or more applicants, who were part of the process for creating the connection study, decide not to proceed with the connection through a common connection point, the transmission system operator may revise the connection study for those who continue with the process.
During the validity of the connection study, the entity holding it cannot make changes to the information related to the facility that would affect how the connection is made.
As one might notice there are multiple notions to the bank guarantee that the Applicant must provide the system operator with. Article 7 of the Regulation deals with that matter.
Bank guarante, key points:
1. Bank Guarantee Requirement: When applying for a power connection study, the applicant must provide a bank guarantee within 60 days of receiving the study. The guarantee is in euros per megawatt (MW) of power at the specified connection point, EUR 25,000.00 per MW to be precise.
2. Existing Users Seeking More Power: If an existing user of the transmission system wants to increase their approved power capacity, the bank guarantee amount is determined based on the difference between the new and existing capacities.
3. Essential elements of the Bank Guarantee: The bank guarantee must be in Serbian dinars, non-transferable, irrevocable, unconditional, and in favor the transmission system operator, without the right to objection, payable upon the first demand, issued by a bank registered and operating in accordance with the laws of the Republic of Serbia, with a validity period of 37 months.
4. Effects of the Bank Guarantee: It ensures that the holder of the connection study will, within the validity period of the guarantee, do the following:
• Sign a connection agreement within 60 days of delivering the bank guarantee.
• Obtain approval for the connection within three years from conclusion of the connection agreement.
• Construct the facility within the approval's validity period.
• Extend the bank guarantee's validity within 60 days before its expiry for at least three years and maintain its validity until the stage of verifying the conditions for connecting the facility from the connection agreement.
• Extend the bank guarantee in case of force majeure events.
5. Exemptions from Guarantee: Certain facilities, like those of the distribution system operator or publicly funded projects, don't require a bank guarantee.
6. Penalties: Failure to meet obligations can result in penalties, such as charges on the bank guarantee (for example, and by the said Regulation, an operator charges 10% of its value if the holder of the connection study does not conclude a connection agreement with the system operator within 60 days from delivering the bank guarantee).
7. Guarantee Return: If the connection process reaches the functional testing stage and the holder submits evidence of obtaining a bank guarantee for obtaining the status of a privileged renewable energy producer, the bank guarantee is returned within 45 days.
8. Withdrawal Penalty: If the applicant withdraws from the project within six months of concluding the connection agreement, a penalty of 5% of the bank guarantee's value is applied.
In essence, the provisions of Article 7 of the Regulation outline the rules and requirements related to providing a bank guarantee for power connection in a specific regulatory context, ensuring that applicants follow through on their commitments and responsibilities.
Connection Agreement – the next stage (after making the connection study and providing a bank guarantee) is the conclusion of the connection agreement. The Regulation (Article 9) stipulates the necessary elements of the agrrement – alongside the general elements each agreement must have in accordance with the Law on Obligations, it must contain in particular: description of the connection, year of connection, financial security assets, and rights and obligations of the contracting parties regarding the preparation of planning and technical documentation for the connection, resolution of property rights for the connection, obtaining the necessary permits for the connection, verification of compliance with connection conditions, and other relevant elements for the connection.
The applicant is required to conclude a connection agreement within 60 days from the date of delivering the bank guarantee as specified in Article 6a of this regulation.
The transmission system operator provides the holder of the connection study with an opinion on the conditions and possibilities of the connection within 15 days from the date of concluding the connection agreement.
Upon the completion of the procedure, as outlined above, the Approval for Connection to the System is issued. The said Approval contains the data on approved power of the facility, which can be lower than the actual installed power, in which case the system operator must modify the manner of limitation of power tranfer in accordance with the approved power. If no data on approved power is contained in the document, then the Regulation gives the information on considered apporved power depending on the voltage level of the transmission system to which the facilities are connected (e.g. it is considered that the approved power for electricity production facilities is equal to the maximum active power that the electricity production facility can deliver at the point of connection).
Finally, in terms of Approval for Connection and its validity, the Article 28 of the Regulation stipulates the following:
Approval for connection is issued with a validity period of two years for connection to the distribution system, i.e. a closed distribution system, and three years for connection to the transmission system and to the part of the distribution system managed by the transmission system operator, from the date of the decision.
The said deadline can be extended only once at the request of the applicant, up to two years at most.
Along with the request to extend the validity period of the approval for connection to the transmission system, as well as for the part of the distribution system managed by the transmission system operator, a building permit, i.e. a decision on approval for the execution of works for the connection is attached.
The request for extension of the deadline is submitted on the form published by the system operator on its website, no later than 30 days before the expiry of the validity period of the decision approving the connection.
Upon the expiration of the validity period of the Connection Approval, the connection procedure is suspended.
Conclusion of the Supply Agreement
The regulation lays out the conditions for conclusion of the Supply Agreement with the supplier (which is Elektroprivreda Srbije, hereinafter - EPS). The request for the conclusion of such an Agreement can be submitted in the following cases:
1) Connection of a new facility to the system;
2) Increasing the number of handover points;
3) Change of ownership or use of the facility on other grounds;
4) Exercising the right to change suppliers;
5) In order to acquire the status of buyer-producer;
6) In other cases, in accordance with the Law.
Proof of ownership or proof that the facility is used on a different basis, as well as a unique identification code or number of the measuring point, must be submitted with the request for the facility that is being connected for the first time.
After receiving the request, the guaranteed supplier (EPS) is obliged to inform the applicant about the possibilities, conditions for concluding the contract and the price of supply within two days at the latest.
The supplier who contracts the supply of electricity on the open market is obliged to inform the applicant about the possibilities, conditions for concluding the contract and the price of supply in accordance with his request and according to the principles of free contracting.
Conclusion
By analyzing all that we outlined above, we can conclude that the Government of the Republic of Serbia took the important step to unblock the procedures initiated before EMS, outlining clear path both for the Applicants and the competent bodies involved in the procedure.
However, since it is a draft Regulation, final results are yet to be seen. What we can state for certain is that framework now exists and it is undergoing a “fine-tuning” dialogues which can help shape the document itself, and the Serbian market as a whole.
Contact: Aleksandar Čermelj, Senior Associate at IVVK in cooperation with Lexquire
E-mail: aleksandar.cermelj@ivvk-lexquire.rs
11/10/2023
