Serbian Energy Sector Overview
Serbia has committed itself to using 27% of gross final energy consumption from renewable sources by 2020. This target is based on Serbia’s agreement with the Energy Community. However, the current percentage is only around 22%, so Serbia still has a long way to go. Serbia has significant potential in the utilization of renewable energy sources, as it is only using approximately one third of its potential. Majority of 22% of gross final energy consumption from renewable sources comes from the large hydro power plants that were built in the 1950's and 1960's. Poor energy efficiency and high carbon intensity due to still heavy reliance on fossil fuels are among the main challenges in the energy sector. In order to comply with the Energy Community agreement, some of the coal powered thermal power plants will have to be closed in the near future. Serbia has a great need for know-how and solutions to address energy related environmental issues.
Energy production and consumption
Energy production plays a great role in bringing about environmental challenges in Serbia but also in solving these challenges. Energy production affects air quality, as well as water and waste management. Energy sector is responsible for approximately 70% of the greenhouse gas emissions produced by Serbia. Serbia is the eighth-largest producer of lignite, and lignite covers 68% of the country's energy production. It is followed by hydro energy with 10%, oil 9.1%, firewood 8%, natural gas 3.9% and geothermal energy and biodiesel with less than 1%. In total, primary energy production in Serbia amounts to 10.8 million toe. Serbia's net import of energy is 0.63 toe per inhabitant and energy dependency is on the level of 28.9%.
Looking at Serbia's final energy consumption, oil derivatives amount to 30%, electric energy 27%, heat energy 12%, firewood 12%, coal 11% and natural gas 10%. As already mentioned, coal is utilized mainly from domestic sources, while heavy fuel oil and natural gas are mainly imported from Russia. Households consume 34.1% of the energy, followed by industry with 29.2% and transport with 24.8%. Energy intensity in Serbia is 4.2 times higher compared to the EU countries. There is a great deal of room for improvement in Serbia's energy efficiency, as energy consumption is high as a result of outdated technology.
Households consume more than half of all the electricity produced in Serbia, and heating homes with electricity is common. Overall installed capacity of power plants of the state-owned electricity company, Elektroprivreda Srbije (EPS) is 7,326 MW. Around 70% of the electricity is produced from the thermal power plants and about other 30% is produced from 16 hydro power plants. In 2016 EPS produced 36.461 GWh of electricity. Currently, EPS is going through a restructuring process and is working on modernization of power plants, as well as introduction of renewable energy sources. The World Bank announced that it will provide technical assistance to the Government of Serbia to improve the performance of the EPS through strengthening of corporate governance, risk management and business planning. At the moment, the Government is not planning to privatize EPS after the restructuring, as it is one of the strategic and most profitable companies in Serbia.
Electricity market became almost completely liberalized by introduction of electricity market/power exchange in February 2016. Better integration of Serbia's electricity system with neighboring countries is still needed in order to facilitate smooth functioning of a regional and pan-European electricity market. In this respect, the Trans-Balkan Electricity Corridor is planned to connect Romania, Serbia, Bosnia and Herzegovina, Montenegro, and Italy in the future. First part of this project is completed and it includes 400 kV overhead transmission line between Romania and Serbia.
Serbia has been unwilling to give up lignite in energy production and aims to meet the EU environmental requirements by using clean coal solutions. Some efforts in reducing sulphur dioxide emissions caused by coal plants are already done. Use of renewable energy is not very common, although in electricity production, renewable sources are used fairly well compared to EU countries. Hydropower, particularly small hydro, and biomass (both agricultural and wood-based) could be used significantly more in energy production. As Serbia's EU accession process progresses, it is likely that Serbia will have to increasingly take energy efficiency, environmentally-friendly and renewable sources of energy into account. Recently, there have been improvements in the renewable energy projects related to wind power. Plan of the Government is to connect 500 MW of electricity from wind farms to the Serbian power system in the near future. Consequently, construction of a couple of big wind farms has already started and one of them has a Finnish company involved. Late 2017, Taaleri Group signed an agreement with Cibuk Wind Holding regarding the acquisition of a minority interest in the largest wind project in Serbia to date (with the total planned installed power of 158.4 MW at the end of the project).
Other main focus in the energy field will be modernization of District Heating (DH) plants and power plants, as well as introduction of renewable energy sources, especially wood biomass. Woody and agricultural biomass potential in Serbia amounts to approximately 3.4 Mtoe per year. Out of this, 2.3 Mtoe per year is unused potential. Biomass potential is relevant for the modernization of DH systems in Serbia and realizing a fuel switch. There are 58 DH plants in Serbia and most of them need modernization and introduction of renewable energy sources. The main fuels used in the district heating systems at the moment are coal, heavy fuel oil and natural gas.
EU and energy sector in Serbia
Serbia has made some progress in recent years, but further efforts are required to move Serbia's energy policy closer to EU standards. Furthermore, investments in line with the EU standards will have to be increased in the future. It is estimated that in the energy sector, 700 to 900 million EUR are needed for alignment with the EU standards within Chapter 27. Poor energy efficiency and high carbon intensity due to heavy reliance on fossil fuels are among the main challenges in the energy sector. Serbia's economy is vulnerable to fuel price shocks which on the other hand can affect economic growth and prosperity.
In the gas sector, improved interconnections are necessary to meet the objective of increased security of supply. Serbia's dependence on natural gas imported from Russia through Ukraine and Hungary exceeds 80%. That is why the planned gas interconnection between Serbia and Bulgaria needs to accelerate. Furthermore, measures to fully unbundle the state-owned gas company, Srbijagas, and to develop competition in the gas market are necessary. Finally, further alignment is needed in the management of radioactive waste.
The objective of EU assistance is to increase energy efficiency and competitiveness of the Serbian energy market, to improve security of supply and develop renewable energy sources. These areas will remain a priority for EU financing during the next few years.
The energy sector received around EUR 655 million of international donor assistance, including over EUR 50 million of IPA assistance over the period of 2007-13. A number of EU Member States and other bilateral donors have provided capacity-building support. Furthermore, international financing institutions such as EBRD, KfW and the World Bank have provided loans within this sector and will continue to do so in the future.
Relevant strategies and documents
The most relevant strategies and documents regulating energy sector include:
- Law on Efficient Use of Energy adopted in 2013.
- Energy Law adopted in 2014.
- National renewable energy action plan of the Republic of Serbia adopted in 2013. It encourages investments in renewable energy sources and sets goals for the use of renewable energy sources until 2020, as well as the method of their implementation.
- Energy sector development strategy of the Republic of Serbia for the period by 2025 with projections by 2030 adopted at the end of 2015. It outlines a desired mid-term and long-term energy development and defines strategic preferences. At the same time, it provides the directions for market restructuring and technological modernization of the energy sector.
- Decree on feed-in tariffs adopted in 2016. It sets the incentives for the production of electricity from renewable energy sources.
- Third action plan for energy efficiency of Republic of Serbia for the period until 2018 adopted at the beginning of 2017. It set the targets for energy efficiency until 2018.
- Decree on implementation of the Energy Sector Development Strategy of the Republic of Serbia until 2025, for the period from 2017 to 2023, adopted in 2017.