VZCZCXYZ0010
RR RUEHWEB

DE RUEHBW #1482/01 3451401
ZNR UUUUU ZZH
R 111400Z DEC 09
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 0454
INFO EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS BELGRADE 001482 
 
SENSITIVE 
SIPDIS 
DEPARTMENT OF ENERGY FOR TOM CUTLER 
 
E.O. 12958: N/A 
TAGS: ECON EIND ENRG SR
SUBJECT: SERBIA: SLOWLY CREATING A RENEWABLE ENERGY MARKET 
 
SUMMARY 
 
------------ 
 
 
 
1.(SBU) Serbia is trying to become a player in the Southern and 
Central European renewable energy market.  While the country has 
the potential to be a regional exporter of renewable energy, it 
still has much work to do to develop a viable renewable energy 
sector.  A lack of market and technical expertise, an unclear 
regulatory framework and the ever-present danger of corruption and 
mismanagement remain problems for potential investors in this young 
market. 
 
 
 
FEED IN TARIFFS ADOPTED 
 
-------------------------------- 
 
 
 
¶2. (SBU) On November 20, the Serbian government passed a  renewable 
energy legal framework  that provided incentives for renewable 
energy providers, defined renewables' role in the country's overall 
energy strategy and outlined feed in tariff rates.  (Feed in 
tariffs are government set price incentives to be guaranteed for 12 
years and paid to alternative energy providers, including solar, 
wind, biomass, small scale hydro and geothermal power.)  Deputy 
Energy Minister Dejan Stojadinovic told us on December 3 that these 
tariffs would be paid to renewable energy providers through the 
state electrical utility Electro Power Serbia (EPS), which would 
then pass them on to customers through eventual price increases. 
Stojadinovic estimated that these new feed in tariffs would result 
in annual electricity price increases of around four to six percent 
during the next nine years.  In addition, Stojadinovic said the GOS 
had adopted production limits for some renewable energy sources, 
with 450 megawatts for wind and 5 megawatts for solar. 
 
 
 
RENEWABLES POTENTIAL 
 
------------------------------- 
 
 
 
¶3. (SBU) The Serbian government has chosen to focus its renewable 
energy strategy solely on electrical power generation, Bojan 
Kovacic, the Deputy Director of the state Energy Efficiency agency, 
told us on December 1.  Kovacic said that the GoS' overall goal was 
for 20% of power to come from renewable energy, in line with recent 
EU power generation targets for 2020.  Kovacic was confident 
renewables could supply this much of Serbia's future power needs 
and said that the country could be a net exporter of electricity 
from renewable power.  Kovacic said that wind, biomass and 
hydropower were the most promising renewable power sources in 
Serbia.  He also said that wind and hydropower had attracted the 
most investor interest, adding that the Energy Ministry had already 
given preliminary approval for over two gigawatts of wind projects. 
 
 
 
 
¶4.  (SBU) Even though the country's internal power market is small, 
Serbia has the potential to export power generated from biomass, 
hydropower and wind to other countries in the region.  As a result, 
investor interest in the Serbian renewables market has grown 
quickly, especially in wind and hydropower projects, with the most 
interest coming from western European countries.  According to 
Stojadinovic, Italy has shown strong interest in hydropower and 
wind farms.  He said that Italian interest in Serbia's market was 
driven by a desire to export power that would be transmitted 
through an undersea line planned from Montenegro to Northern Italy. 
However, there are only a few projects in development despite this 
heavy investor interest.    Representatives of the European Bank 
for Reconstruction and Development (EBRD) told us on December 4 
that there was only light interest in their new $75 million direct 
lending facility for renewables, with only two small projects 
currently in development.  They also told us that investment was 
still in its infancy and retained a gold rush like quality, with 
many small investors (including some unnamed officials in the 
government and in the state utility) trying to gain licenses in the 
hopes of quickly selling these rights to other investors.  EBRD 
 
officials said most projects were still in the planning stages and 
would probably never reach completion.   In addition to European 
investors, American company Continental Wind Partners is currently 
trying to build a wind farm in eastern Serbia near the Romanian 
border. 
 
 
 
 
 
TECHNICAL OBSTABCLES TO RENEWABLES 
 
--------------------------------------------- ------ 
 
 
 
¶5. (SBU) Despite Serbia's great potential as an exporter of 
renewable energy, its power grid is in need of modernization and 
currently could not support any significant extra power supplies 
generated by renewable sources.  This is especially true for wind 
power, whose irregular nature makes its integration into the grid a 
tricky technical problem.  Milos Milankovic, the General Director 
of EMS (the Serbian Electrical Transmission company), told us on 
December 2 that incorporating wind power into the grid and building 
the necessary infrastructure for wind farm sites were the largest 
problems EMS had with wind.  EMS was participating in an EBRD 
funded study to gauge wind power's effect on the entire grid.   He 
said that the company planned to build a new transmission line 
through Northeastern Serbia (the province of Vojvodina, and the 
region in Serbia with the most wind power potential) towards 
Romania to support eventual wind power sites. Milankovic added that 
all renewable providers would be required to pay for their own 
connections to the grid, in order to minimize any significant 
infrastructure investments from EMS. 
 
 
 
SERBIAN ELECTRICAL UTILITY: OPPOSED TO RENEWABLES? 
 
--------------------------------------------- ---------------------- 
--- 
 
 
 
¶6.  (SBU) The Serbian electric company EPS generates most of its 
electricity from outdated thermal plants that burn lignite coal. 
With the new framework, EPS will be required to purchase energy 
from renewable providers at prices set by the feed in tariffs.  EPS 
however, has been slow in accepting renewables.  Ian Brown, an 
energy analyst with the EBRD told us on December 4 that he thought 
EPS regarded renewables, especially wind power, as a "lose, lose 
situation."  He added that EPS' top management were all "old line 
plant engineers" who thought that wind power would simply cost the 
company money and market share.  EMS General Director Milankovic 
also said that EPS was very slow to accept renewables, saying that 
the company was "like an old elephant" that was slow to react to 
new situations. 
 
 
 
 
 
COMMENT 
 
------- 
 
 
 
¶7. (SBU) Given global trends and growing resource needs, renewable 
energy will eventually come to Serbia and the region.  The 
government took the correct first steps by passing feed in tariffs 
and creating the beginnings of a legal framework for renewable, but 
more needs to be done.  If the Serbian government is able to 
further define its renewable strategy, provide adequate 
infrastructure and tackle EPS resistance and mismanagement, 
renewables could have a brighter future in Serbia.   End Comment. 
BRUSH