Millions of euros gone with the wind, instead of producing electricity from wind

Sonja Risteska

The production of electricity from renewable energy sources is far behind thermal power plants and large hydropower plants, as well as from the import of electricity for which Macedonia allocates millions of euros each year. Renewable sources, however, grow year by year – there is abundant solar energy, the price of production is falling and there is a huge interest in their utilization. What does the government do?

It’s no secret that in Macedonia renewable energy, such as solar or wind, is far from being optimally used. Macedonian electricity generation generally relies on a system set up in the former Republic of Yugoslavia, one to two large lignite thermal power plants whose main goal is to support the heavy and black industry as well as additional large hydroelectric power plants.
Unfortunately, this way of centralized production is still prevalent, for the time being without major plans for its replacement with more sustainable ways of producing energy that meet the needs of the citizens and the modern society. Thus, depending on, for example, the water level in Macedonia, the production of electricity varies from 70% of REK Bitola to about 30% of the hydro power plants.

By 2017, the only way to encourage the production of energy from renewable sources (RES) was preferential tariffs. The preferential tariffs are measures to support new technologies and electricity production, where, according to a certain guaranteed price for a period of 15 or 20 years, the production of the investor from that renewable source is paid and guaranteed the purchase of that electricity. Until the adoption of the new Energy Law, which incorporates the Third Energy Package from the EU legislation into the Macedonian legislation, the old regulations for preferential producers, regulated by the Energy Regulatory Commission, are still in force.

As of December 2016, the total installed capacity of the preferential producers is 120,399 MW. Of these, 64 preferential electricity producers were from small hydropower plants (with a total power of 60.88 MW), while 40 small hydro power plants (with a power of 39.370 MW), for which solutions were issued for obtaining temporary status of preferential producer, are under construction and are expected to be put into operation this year. Furthermore, 102 preferred producers from photovoltaic plants with total installed capacity of 16,713 MW were registered. The Bogdanci wind park, where only wind power is currently produced, is the first phase with installed capacity of 36.8 MW, while the remaining power of the power plant of 13.2 MW is under construction and is expected to be put into operation this year. The total installed capacity of three privileged producers of electricity from thermal power plants on biogas is 5,999 MW, while the remaining power of a thermal power plant on biogas from the mentioned three with power of 1 MW is under construction. Three thermal power plants of biomass with a power of 2.20 MW, for which solutions have been issued for acquiring the temporary status of preferential producer, are under construction.
All this shows that the most production is from solar power plants, which is certainly a welcome, but it is still far behind the thermal power plants and large hydro power plants, as well as from the import of electricity for which Macedonia allocates millions of euros each year. Hence it is important to see what the state will do in the future for greater promotion, but also the utilization of renewable sources that grow year by year, the price of production decreases, some are abundant (solar energy) and there is a huge interest in their utilization.

In the newly proposed Law on Energy, besides feed-in tariffs, the so-called premium. According to the bill, the premium “is a form of financial support that is granted to a preferential electricity producer from renewable sources as an additional amount of the price that it generated by selling the generated energy on the electricity market.” The draft law does not determine which technologies, capacities and under what conditions will be granted this premium, but leaves it to the Government. Unlike the preferential tariffs for which there were quotas to be met, “the preferential producer who uses the premium is selected, and the amount of the premium is determined by conducting a tender procedure for granting the right to use premiums for preferential producers, which includes an auction”.

The other option enabling the new draft law is to extend producers who use a feed-in tariff that will further regulate how these privileged status will be issued. So far, the preferential tariffs guaranteed the purchase of the electricity produced and this was calculated in the accounts of the final consumers. With the premium, the idea is to support the production of electricity, but it is competitive and not to cover the costs of construction and operation, but just to be a complement to what is being sold. How exactly this will actually work in reality is not known. Premiums and preferential tariffs will be prescribed by completely different authorities (the first of the Government, and the latter from the ERC). Whether there may be some kind of clash, how they will be distributed, and what rules for which renewable sources will apply remains to be seen. Generally, it is a problem that the new draft law does not guarantee to RES generators that would receive premiums, and it is guaranteed to those who would receive feed-in tariffs. This may create unfair competition between the various RES sources and the preference to invest in those subject to preferential tariffs, although production conditions may be better in those that fall under premiums.

Preferential tariffs are slowly abandoning the EU because of the criticism of the unrealistic price increase for the final consumers and the unrealistic cost of production itself, given that the price of materials falls from year to year. Developed solar markets such as Germany, Japan and the United Kingdom use competitive procurement as a market limitation mechanism to reduce budgetary deficits caused by subsidies, market saturation, constraints and balancing issues as well as high costs.
Hence, Macedonia as a country, which is at the very beginning of the energy transition, should find more ways to support the production of electricity without disturbing the market. An example that can be considered is the Italian, where there are as many as six mechanisms to support the production of electricity. In Denmark, however, premiums are used as support schemes for renewable energy production, as well as network measurement. Thus, the production of renewable energy is promoted through a system of premium tariffs based on bonus payouts. Operators of renewable energy plants usually receive a variable bonus, which is paid as plus the market price obtained for that electricity produced. The other option is net-sterilization. Manufacturers using the generated electricity for their own needs are completely or partially exempted from paying the public service obligation for this electricity, which is otherwise the expense that is obligatory paid. The third option is the so-called loan guarantees. Associations of owners of wind power plants and other local initiatives can apply for guarantees for loans for feasibility studies that are carried out during the construction of wind parks.

All this shows that there are many alternatives and options on how to encourage and support the development of renewable energy sources and how to attract investors in this sector. Macedonia should first adopt, apart from the new law, a new energy strategy up to 2035 with scenarios that are completely decarbonated (in translation – without the use of fossil fuels like coal) and where technical and economic options for development of different renewable sources with emphasis on solar and wind, and less on hydraulic, until they make a new complete analysis of the overall water level in Macedonia.