The Opportunity For Booth Investors and the Energy Sector Development

Photo-illustration: Unsplash (TJ K)

In accordance with the new Serbian Law on the Usage of Renewable Energy Sources, the manufacturers of electricity from the RES sector must participate in tenders, i. e. is to become competitive and impose their lowest market premium offers, in order to acquire a right to incentive measures. We asked Marijan Rančić, Business Development Director at New Energy Solutions (NES) company, whether the tenders will improve the renewable energy sources industry or not.

In the future, feed-in tariffs, as an operational state aid granted in the form of incentive redemption price guaranteed per kWh for delivered electricity, will be granted only via tenders, and the first of which is going to be given in December.  Even though some would easily say that the golden era of feed-in tariffs has long passed, Marijan Rančić, Business Development Director at New Energy Solution (NES) company, disagrees.

“I would not call it the golden era. FiT, as a system for incentivizing renewable energy sources, is a part of the market maturing process that has a clear goal to mitigate the risks in transitioning towards a competitive and sustainable energy system. On the other hand, the system for incentivizing market premiums should enable lower prices of electricity and reduce the impact on the government fiscal system. When viewed from the perspective of the government, the new system of incentives on market grounds represents one of the strategic instruments for the development of the energy sector that will contribute to Serbia’s sustainable energy transition. From an investor’s point of view, this is an excellent opportunity for new investments and projects that are in preparation for a long time. Additionally, it needs to be highlighted that currently, there is a greater number of international investors in the development of RES projects in Serbia than it was in the first round, which is going to make this process a lot more competitive,” Rančić points out.

He believes that the speed and comprehensiveness of adopting new regulations, along with the fact that the lawgiver thinks about the optimum mixture of technology and capacities that are to be the subject matter of tenders, should indeed be praised.

“I believe bankability of this new system will not be brought into question, but I would like to highlight that the devil is in the details, and it will be necessary to perceive the system as a whole and to assess all the risks for the stakeholders. The level of risks will determine both bankability and capital price and, eventually, the level of reduced costs of electricity (LCOE) that we are going to get in these tenders,” he added.

Photo-illustration: Unsplash (Gonz DDL)

When asked about assessing the readiness of banks for a new investment cycle and what the key project financing criteria will be, Rančić replied that the bankers answered this question at a recently held OIE 2021 conference. The financial institutions, as he points out, mostly expect predictability and consistency in the part of the regulative framework that defines the new system of incentives. A market system of incentives should also be sustainable and follow the criteria stipulated by the EU directives and the Energy Community‘s guidelines. In practice, this will come down to a quantitative and qualitative risk assessment related to RES financing at two levels: macroeconomic and project level.

“International developmental financial institutions (EBRD & IFC) have had a key role in the previous cycle, that practically enabled bankability of the investment framework by defining different mechanisms for risk management in terms of the risks of changing the laws, direct assignment of cash claims and security rights, the other party’s risk, etc. The existence of such important elements is important, and it positively impacted the regulatory environment’s predictability and financial flows of investments. In this cycle, besides these elements and analysis of its risks, the key focus will be on the assessment of risks related to the electricity market (regulations, balancing, placement, interconnection capacities, etc.). The consequence of increased complexity of credit analysis will certainly have some additional security measures for banks that have not been seen in the previous cycle,” our interlocutor says.

Prepared by: Milica Radičević

Read the story in the new issue of the Energy portal Magazine RECYCLING.

Translator Vesna Savić