Client Alert
How efficient are investment opportunities for the production of electric energy from renewable energy sources?
Different legal regimes are applicable in the three entities. In the energy sector, the transmission of electric energy and the operation of this system on the state level are regulated by the laws and bylaws of BiH. Other fields in the energy sector, including the use of renewable energy sources (RES), are regulated by the regulations of the respective entity
Over the past ten years, the investment climate in BiH has been growing due to an increase in foreign and domestic investments, especially in the infrastructure and energy sector. In its Strategy 2014-2016 [1], the European Bank for Reconstruction and Development recognized the energy sector as one of the areas with the most potential for foreign and domestic investments.
BiH has made some significant regulatory changes in the field of RES. Both entities enacted relevant laws and bylaws regarding the usage of RES and the provision of incentives for producers of RES-electricity. In FBiH, almost all feed-in-tariffs have been allocated to the producers of RES-electricity. The feed-in-tariffs for producers is being paid out of the accumulated levy paid by end consumers of electric energy in FBiH. On the basis of the most recent decision [2] adopted by the Government of FBiH in 2017, the levy for renewable sources was increased by almost 100% compared to the levy in 2016. This decision brings the total available feed-in-tariffs into accordance with the Action Plan for Use of Renewable Energy Sources in FBiH (APOEF), which determines the total amount of available feed-in-tariffs until the end of 2020. Consequently, new investors in facilities for the production of electricity from renewables may expect a greater amount of feed-in-tariffs in the upcoming period, as the current amount of available feed-in-tariffs has proved to be insufficient compared to the expressed interest. Hence, the said decision seems as a wise move because it will attract potential investors and encourage them to invest in this type of facility in order to recoup their investment more quickly. International investment practice has shown that the vast majority of investments in RES production facilities have a very high internal rate of return, especially if they are followed with feed-in-tariffs as an incentive. According to the Law on Use of Renewable Energy Sources and Efficient Cogeneration in FBiH (Law) the investors, as the potential producers of electric energy from RES, have an opportunity to conclude a pre-contract to purchase electric energy with the Operator for Renewable Energy Sources and Efficient Cogeneration (Operator), thus "reserving" the available feed-in-tariffs for themselves. Upon conclusion of the pre-contract, the investor is obliged to commence with construction of the production facility 12 months at latest from the signing date and to finalize the construction within the time period designated in the respective energy permit and in accordance with the provisions of the applicable bylaw and signed pre-contract. By signing the pre-contract, the investors gain the status of a potential privileged producer. Furthermore, when the investor obtains the use permit and license for production of the electric energy issued by the competent regulatory agency for electric energy, together with other necessary documents, the investor may be granted the status of a privileged producer and at the same time is allowed to conclude the contract for purchase of electric energy with the Operator.
In RS, the competencies for all activities as incentive measures for the production of electric energy from RES are vested with the Operator of the Incentive System. Considering that the Operator has not been established as an independent legal entity, the role and all other activities of the Operator are currently being performed by the Public Enterprise of Elektroprivreda RS with the consent of the RS Government. The legal framework in RS is almost identical to the energy framework in FBiH, and it allows investors to conclude the contract for the preliminary purchase of electric energy as well as the contract for the purchase of electric energy from RES.
One of the main differences between the legal framework of FBiH and RS is that in RS, the investors have the right to incentive benefits for only a portion of the produced amount electric energy on the basis of the concluded contract during the incentive period. This stands in contrast to the framework of the FBiH, where the investors can obtain the incentive benefits only when the facility with its total installed capacity is covered by the available feed-in-tariff, i.e. dynamic quotas (dinamicke kvote). Accordingly, the criteria for acquiring incentive rights are different in RS and FBIH and, consequently, the legal framework in RS allows for a slightly more favourable option for potential investors through partial incentivization of the electric energy produced, which is not envisaged by the Law in FBiH.
In both entities, the total amount of available feed-in-tariffs for incentivizing the production of electric energy from RES has been determined based on APOEF. The APOEF in both entities can be changed and amended once a year, allowing for adjustments to the planned available feed-in-tariffs or increases to the previously designated amounts, provided that the accumulated levy and expressed demand allow for it.
In light of this, the legal framework in BiH opens up great potential for the construction of production facilities using RES. Another significant benefit is that the complete sector of RES is now fully regulated; those regulations have been successfully implemented for several years since their enactment. Whilst the expression of interest for such projects grows with time, the competent authorities in BiH will be more responsive and efficient vis-à-vis the needs of investors in this field.
[1] The EBRD Strategy for Bosnia and Herzegovina was prepared in 2014 for a period of three years. It is expected that the EBRD will enact a new Strategy for Bosnia for the period 2017-2021 soon.
[2] Decision on Determination of Amount of Levy for Incitement and Unit Amount of Levy for Incitement for Production of Electric Energy from Renewables ("Official Gazette of FBiH" no. 21/17)
Over the past ten years, the investment climate in BiH has been growing due to an increase in foreign and domestic investments, especially in the infrastructure and energy sector. In its Strategy 2014-2016 [1], the European Bank for Reconstruction and Development recognized the energy sector as one of the areas with the most potential for foreign and domestic investments.
BiH has made some significant regulatory changes in the field of RES. Both entities enacted relevant laws and bylaws regarding the usage of RES and the provision of incentives for producers of RES-electricity. In FBiH, almost all feed-in-tariffs have been allocated to the producers of RES-electricity. The feed-in-tariffs for producers is being paid out of the accumulated levy paid by end consumers of electric energy in FBiH. On the basis of the most recent decision [2] adopted by the Government of FBiH in 2017, the levy for renewable sources was increased by almost 100% compared to the levy in 2016. This decision brings the total available feed-in-tariffs into accordance with the Action Plan for Use of Renewable Energy Sources in FBiH (APOEF), which determines the total amount of available feed-in-tariffs until the end of 2020. Consequently, new investors in facilities for the production of electricity from renewables may expect a greater amount of feed-in-tariffs in the upcoming period, as the current amount of available feed-in-tariffs has proved to be insufficient compared to the expressed interest. Hence, the said decision seems as a wise move because it will attract potential investors and encourage them to invest in this type of facility in order to recoup their investment more quickly. International investment practice has shown that the vast majority of investments in RES production facilities have a very high internal rate of return, especially if they are followed with feed-in-tariffs as an incentive. According to the Law on Use of Renewable Energy Sources and Efficient Cogeneration in FBiH (Law) the investors, as the potential producers of electric energy from RES, have an opportunity to conclude a pre-contract to purchase electric energy with the Operator for Renewable Energy Sources and Efficient Cogeneration (Operator), thus "reserving" the available feed-in-tariffs for themselves. Upon conclusion of the pre-contract, the investor is obliged to commence with construction of the production facility 12 months at latest from the signing date and to finalize the construction within the time period designated in the respective energy permit and in accordance with the provisions of the applicable bylaw and signed pre-contract. By signing the pre-contract, the investors gain the status of a potential privileged producer. Furthermore, when the investor obtains the use permit and license for production of the electric energy issued by the competent regulatory agency for electric energy, together with other necessary documents, the investor may be granted the status of a privileged producer and at the same time is allowed to conclude the contract for purchase of electric energy with the Operator.
In RS, the competencies for all activities as incentive measures for the production of electric energy from RES are vested with the Operator of the Incentive System. Considering that the Operator has not been established as an independent legal entity, the role and all other activities of the Operator are currently being performed by the Public Enterprise of Elektroprivreda RS with the consent of the RS Government. The legal framework in RS is almost identical to the energy framework in FBiH, and it allows investors to conclude the contract for the preliminary purchase of electric energy as well as the contract for the purchase of electric energy from RES.
One of the main differences between the legal framework of FBiH and RS is that in RS, the investors have the right to incentive benefits for only a portion of the produced amount electric energy on the basis of the concluded contract during the incentive period. This stands in contrast to the framework of the FBiH, where the investors can obtain the incentive benefits only when the facility with its total installed capacity is covered by the available feed-in-tariff, i.e. dynamic quotas (dinamicke kvote). Accordingly, the criteria for acquiring incentive rights are different in RS and FBIH and, consequently, the legal framework in RS allows for a slightly more favourable option for potential investors through partial incentivization of the electric energy produced, which is not envisaged by the Law in FBiH.
In both entities, the total amount of available feed-in-tariffs for incentivizing the production of electric energy from RES has been determined based on APOEF. The APOEF in both entities can be changed and amended once a year, allowing for adjustments to the planned available feed-in-tariffs or increases to the previously designated amounts, provided that the accumulated levy and expressed demand allow for it.
In light of this, the legal framework in BiH opens up great potential for the construction of production facilities using RES. Another significant benefit is that the complete sector of RES is now fully regulated; those regulations have been successfully implemented for several years since their enactment. Whilst the expression of interest for such projects grows with time, the competent authorities in BiH will be more responsive and efficient vis-à-vis the needs of investors in this field.
[1] The EBRD Strategy for Bosnia and Herzegovina was prepared in 2014 for a period of three years. It is expected that the EBRD will enact a new Strategy for Bosnia for the period 2017-2021 soon.
[2] Decision on Determination of Amount of Levy for Incitement and Unit Amount of Levy for Incitement for Production of Electric Energy from Renewables ("Official Gazette of FBiH" no. 21/17)