Energy is one of the largest sectors of the Serbian economy, accounting to some 10% of the Serbian GDP. The Serbian energy sector consists of oil and natural gas industry, coal mines, an electric power system, a decentralized municipal district heating system and industrial energy. Activities in the energy sector include the production of domestic primary energy, the importation of primary energy (mostly oil and natural gas), the production of electric power and thermal energy, the production and the secondary processing of coal and the transport and distribution of energy and energy products to energy consumers.
The vast majority of the Serbian energy infrastructure is state-owned and is operated by the public enterprises that were established by the state to manage the various domestic energy sectors. The Serbian energy infrastructure is generally old and outdated, often in a very bad condition due to more than 10 years of neglect, a lack of investment, and the severe damage it took during the NATO bombing in 1999. The repair process started in 2000 with the assistance of international funds. However, the process is far from being finished, and much of the existing infrastructure is awaiting modernization which will require significant investments by both the public and private sector.
Electric Power Subsector
The Serbian production of electric power includes power plants with a total power of 7,120 MW, including 8 lignite-operated thermal power plants (“TPPs”) with an installed power of 3,936 MW (two of these are located in Kosovo), 9 hydro power plants (“HPPs”) with a total installed power of 2,831 MW. In addition to this there are mazute and natural gas operated thermal power plants operated by district heating companies with an installed power of 353 MW. Almost the entire production of electricity is concentrated in the Public Enterprise Elektroprivreda Srbije” (“EPS”), which is currently the only producer of electricity in Serbia.
The Serbian power transmission system is consists of 9,500 km of power lines of 400, 220 and 110 kV and accompanying transformer stations, and is interconnected with all the neighbouring countries. The entire Serbian transmission system is operated by the Public Enterprise “Elektromreža Srbije” (“EMS”).
The distribution network consists of the low-voltage network that is located in all major consumer centres and is operated by EPS through its fully-owned subsidiaries for five regional centres including Belgrade, Novi Sad, Kragujevac, Kraljevo and Niš.
The consumption of electricity in Serbia is very high. According to the Energy Balance for 2009, the estimated consumption of electricity in Serbia for 2009 was to be 28,854 GWh. The high consumption of electricity is due to the fact that the majority of Serbian households use electricity for heating purposes. In addition, there is a very low level of energy efficiency and the price of electricity charged to the consumer is still not sufficient to satisfy the cost of its production. The average annual production of electricity is still for the most part sufficient to satisfy the national consumption, but certain quantities still have to be imported every year, usually during the winter when demand is at its highest.
The modernization and revitalization of the Serbian power plants is seen as an urgent priority. Serbian infrastructure for the production of electricity is old and outdated (for example, according to the Energy Program, some 60% of the total installed power infrastructure belonging to Serbian hydro electric power plants is more than 40 years old, whilst the average age of Serbia’s thermal power plants is 30 years). In the period 2000-2005, significant improvements were made, but there is still much to be done in this respect. In addition to the revitalization and modernization of the existing production capacities, the Energy Program sets out ambitious plans for the construction of new power plants, including the following:
· The utilization of the available hydro potentials and the construction of new HPPs. This includes harvesting the hydro electric potential of the river Drina (on the Bosnian border), the River Sava, the Danube and the river Morava.
· The reconstruction and re-activation of the existing small HPPs (some 60 HPPs, 50% of which are currently not active), and the construction of new smaller HPPs (with estimated plans including some 856 locations with a total power of 500 MW).
· The construction of new thermal power plants which will use available domestic reserves of coal in the Kolubara and Kostolac basins. The opening of new mines facilitating the supply of coal to new TPPs. The Construction of TPPs which will use imported fuels, primarily imported gas, and the reconstruction of existing power plants.
· Cogeneration projects to facilitate the conversion of local heating companies into facilities for the combined production of both heat and electricity.
· The installation of new environmentally friendly technology into the existing power plants, primarily, thermal power plants. The Energy Program envisages that the EPS should allocate around EUR 1.2 billion for these purposes.
· In addition to the improvement of the production capacities, the continued development of the energy sector will require investments in the modernization, revitalization, improvement and the extension of the electric power transmission grid which is currently outdated. Its capacities are becoming increasingly insufficient to cover the domestic consumption of electricity which is expected to increase in the coming years.
· In November 2009, EPS and the Government signed a memorandum of understanding with the German company RWE AG (“RWE”). This lays a foundation for the cooperation between the two parties in the construction of the hydropower plant “Djedrap III”1 and the cascade HPPs on the river Morava and the river Drina which are located on the border with the Republic of Srpska. The estimated value of this investment is EUR 5 billion.
· EPS has announced a public tender for the selection of a strategic partner for the financing and construction of the thermal power plants Kolubara B2 and TENT B33. The estimated value of investment is EUR 1.6 billion.
· In March 2009, representatives of the Governments of Serbia and Italy signed a protocol on the cooperation between the two countries in the development of new capacities for the production of electricity from renewable sources of energy. This included the construction of hydropower plants on the rivers Ibar, Drina and Sava (with a total estimated power potential of 589.2 MW) and small HPPs and wind farms (with a total estimated power potential of 500 MW). In November 2009, the Serbian Ministry of Mining and Energy and the Italian Ministry of Economic Development and the Italian Ministry for Environment and Protection of the Land and Sea, signed two agreements which set out the foundation for the establishment of a system for mutual recognition of green certificates, the cooperation of the national transmission grid operators in the improvement of the Serbian system for the transmission of energy, and the development of interconnections between the Serbian transmission grid and the transmission grids of the neighbouring countries. In June 2009, national producers of energy, Serbian EPS and the Italian company “Seci Energia S.p.A” signed a preliminary agreement on the cooperation between the companies regarding the construction of HPPs on the river Ibar and the river Sava (and the possible extension of the project to HPPs on the river Drina).
· In February 2009, the public enterprise “Termoelektrane i kopovi” Kostolac (subsidiary of EPS) and the Chinese National Corporation for the Import and Export of Machinery signed a protocol on the cooperation between the two companies in a USD 1.2 billion project for the revitalization of units B1 and B2 of the TPP “Kostolac” (350 MW each) and the construction of the new unit “Kostolac B“. The works should start this year, and are expected to be finalized by the end of 2015.
· In February 2009, the Serbian Ministry of Mining and Energy and the Spanish Agency for International Development signed a memorandum of cooperation in the area of renewable energy. This includes the commitment of some EUR 223,000 for the development of projects aimed at the promotion and the use of solar energy.
· In October 2009, the Public Enterprise “Energija Novi Sad” (the joint venture established by EPS and the Novi Sad city government) announced a public tender for the construction of a new gas-fuelled combined heat and power plant in Novi Sad with a power output of between 400 and 500 MW and with a heating power capacity of at least 300 MW. The new plant should provide heating for more than 80,000 households and business users in Novi Sad.