Indisputable evidence for the abolition of incentives for small hydropower plants

The analyzes of the Environmental Association Rzav, prepared with the support of WWF Adria, indisputably indicate with their arguments that it is necessary to urgently abolish incentives for privileged producers of electricity from small hydroelectric power plants in Serbia.

According to the latest report of the Energy Agency, at the end of 2021, 149 small hydropower plants participated in the production of electricity, with a total annual production of only 1.36 percent. Despite this negligible participation in the supply of Serbia’s energy system, thanks to the incentive system under which they receive the status of a privileged producer and a guaranteed profit for a period of 12 years, the owners of small hydropower plants were paid more than 21 million euros in 2021 alone.

These are just some of the facts that were presented at the conference entitled “Where are we after more than 10 years since the introduction of incentives for small hydropower plants?” which was organized by the Ecological Association Rzav in cooperation with the World Nature Organization WWF Adria and the Regulatory Institute for Renewable Energy and environment (RERI) recently organized in Užice and Kragujevac.

At the conferences, the “Innovated analysis of the economic justification of concession fees and incentives for small hydropower plants in Serbia” by Damir Miljević, economic analyst, from the Regional Center for Sustainable Energy Transition “Reset” from Banja Luka, as well as the analysis of the “Legal framework of the incentive system for production of energy from renewable sources in the Republic of Serbia”, by lawyer Jovan Rajić from RERI, on the basis of which, among other things, it was concluded that there is no public interest in the construction of small hydropower plants, but exclusively private.

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“The Law on Energy does not define the obligation of electricity producers to pay any form of concession or concession fee, but this matter is regulated by the Law on Fees for the Use of Public Goods, which stipulates that producers of electricity from MHE pay a fee for the use of water. The amount of the fee for the use of water for the production of electricity is paid per kWh of electricity produced at the threshold of the power plant and amounts, for MHE up to 10 MW, to 2.3 percent at the price of 1 KWh of 3.70 dinars. The income from the fee belongs to the budget of the Republic of Serbia, so that the local communities on whose territory MHPs operate and devastate the environment, do not receive any compensation for their work. Accordingly, electricity producers from MHE in Serbia paid a total of 28,882,049 dinars, or only 245,700 euros, in 2021 based on the fee for using water as a public good,” explains Miljević.

Considering the socio-economic losses and the irreversible ecological damage to the total biodiversity that they cause, as well as the fact that the positive effects of their construction are negligible from an energy and economic point of view, it is necessary to prohibit the construction of these hydropower facilities not only on watercourses in protected areas, but also on all others in Serbia.

“Taking into account the problems faced by all the countries of the Western Balkans, including Serbia, when it comes to air pollution and challenges in the framework of decarbonization, it is clear that in the coming period it is necessary to increase the share of energy produced from renewable energy sources in the gross final consumption , to increase the number of projects and investments in the field of renewable sources, whereby a significant part of the produced energy should be intended for consumption in the Republic of Serbia, and not for foreign sales,” Rajić points out.

It is now almost evident that the total damage that will occur to society in the next 10 years by using the existing model of subsidies for the production of electricity from MHP, with the current level of incentive purchase prices, based only on encouraging the current number of producers from MHP, can be estimated at over 100 million euros.

In this regard, these organizations agree that in order to preserve water resources, the mechanism for abolishing subsidies lies in the amendment of the existing legislative framework. As the Spatial Plan of the Republic of Serbia with the period from 2021 to 2035 is currently in the process of being adopted, that is, of public discussion, the simplest way is to change the decision in this highest planning act (compared to the previous valid one), which is adopted in the form of a law and with which all lower acts must be harmonized, in such a way that it de facto prohibits the construction of small hydropower plants. This should be preceded by the determination of strategic documents in the same sense, such as the Energy Strategy, as well as the entire horizontal legislation dealing with issues of environmental protection and biodiversity (including amendments to the Law on Nature Protection).

Also, the amounts of fees for the use of public goods are unrealistically low, which makes them very stimulating for investors in MHE, and as the meaning of the fees is the valorization of the use of natural resources and the compensation of potential damages that may arise from the use of natural resources, organizations will, through the amendment of the Law on Use of public goods, to influence the amount of water fee for the use of water for the production of electricity from the existing MHPs to be increased multiple times in order to at least partially rehabilitate the social damage that will occur as a result of their continued operation.

In this way, it would be impossible for local governments to selectively interpret the regulations and there would be no planning basis to treat this issue differently at the local level.

Source: WWF Adria