Ministry of Energy, Development and Environmental Protection Republic of Serbia Ministry of Energy, Development and Environmental Protection Energy Sector Development Strategy of Republic of Serbia up to 2025 with projections to 2030 – Draft Prof. dr Dejan Ivezic University of Belgrade – Faculty of Mining and Geology

Project realization: Analysis of previous Strategy realization Energy resources and energy potentials of the Republic of Serbia Scenarios of development Energy balances by fuels (oil and oil derivartes, natural gas, coal, electricity, heat and RES) for 1990-2010 Total energy balances for 1990 – 2010 period Energy Sector Development Strategy of Republic of Serbia up to 2025 with projections to 2030 – Draft

Team for project realization doc. dr Marija Živković dr Branislava Lepotić Kovačević prof. dr Nenad Đajić prof. dr Petar Đukić doc. dr Jovan Mikulović prof. dr Vladimir Pavlović prof. dr Dušan Danilović prof. dr Dragan Ignjatović doc. dr Snažana Grujić Aleksandar Vučetić, dipl.ecc. doc. dr Miloš Tanasijević doc. dr Vesna Karović Maričić Aleksandar Madžarević, MSc. Miroslav Crnogorac, MSc

Energy Sector Development Strategy of Republic of Serbia up to 2025 with projections to 2030 Content: I Introductory Considerations II Energy Resources and Potentials of the Republic of Serbia III Basic Assumptions of Serbian Energy Sector Development IV The Strategic Priorities of Serbian Energy Sector Development V The Development of Energy Sectors VI Legal, Institutional and Socio-Economic Framework of Serbian Energy Sector Development VII Serbian Energy Sector after 2030 Annex 1 – Total Energy Balances and Energy Indicators

I Introductory Considerations Energy and economy development Driver and a key element of economic change Base for economy development Reduction of energy intensity, but increasing of energy consumption Sustainability as a challenge for energy development Energy efficiency Renewable energy Less negative consequences for the environment The principle of user/polluter pays Economic efficiency and energy market Social acceptability

II Energy Resources and Potentials Geological reserves of fossil fuels, (mill. toe) Energy Resource Proved and Probable Geological Reserves Total geological reserves and resources Hard coal 2,77 4.02 Brown coal 37,7 45.17 Brown-lignite coal 134,25 193 Lignite 1.583 (780*) 3.698 Oil 10,14 50 Natural gas 3,37 Oil shale 398** * Without AP Kosovo and Metohija **Kerogen

II Energy Resources and Potentials RES (mill. toe/year) Available TP in use Unused available TP Total, available TP Biomass 1,054 2,351 3,405 Agricultural biomass 0,033 1,637 1,67 Wooden (forestry) biomass 1,021 0,509 1,53 Biodegradable communal waste 0,205 Hydroenergy 0,909 0,770 1,679 Wind energy ≈0 0,103 Solar energy 0,240 Geothermal energy 0,05 0,175 0,180 Biodegradable waste 0,043 RES TOTAL 1,968 3,682 5,65 TP – technical potential

II Energy Resources and Potentials Fossil energy resources in Serbia have not been sufficiently explored (except coal) and the data are not conclusive. Geological reserves of the primary energy sources (coal, oil, natural gas, oil shale) are still, an important basis for the development of production and their use in the future for the energy sector of Serbia. Renewable energy sources (excluding large hydropower plants) are at an early stage of development.

III Basic Assumptions of Serbian Energy Sector Development Serbian energy sector in 2010 Projections of final energy consumption SWOT analysis of Serbian energy sector

Serbian energy sector in 2010 Final energy consumption 9,696 Mtoe Industry 24.7% Transport 23.1% Agriculture 1.8% Household 32.5% Non-energy consumption 8.3% Other consumers 9.6% Biomass 10.6% Oil Products 33.7% Natural gas 11.9% Coal 10.5% Heat 8.8% Electricity 24.5% By sectors of consumption By energy sources

Serbian energy sector in 2010 Primary energy consumption 15,531 Mtoe Consumption for electricity generation Coal 64.1% Natural gas 1.4% Hydro energy 34.5% Biomass 6.7% Coal 50.7% Oil 23.7% Natural gas 12.2% Hydro energy 6.7% By energy sources

Serbian energy sector in 2010 Primary energy consumption structure in region Romania29.7% Bulgaria15.2% Serbia 13.3% Hungary 21.9% Albania 1.8% Bosnia and Herzegovina 5.5% Croatia 7.3% FYR Macedonia 2.5% Montenegro 2.8% Montenegro Serbia Bulgaria Hungary Romania World OECD Croatia Albania FYR Macedonia Bosnia and Herzegovina toe/capita Primary energy consumption per capita

Serbian energy sector in 2010 Primary energy consumption per GDP in 2010 Montenegro Serbia Bulgaria Hungary Romania World OECD Croatia Albania FYR Macedonia Bosnia and Herzegovina toe/1000$2005 Montenegro Serbia Bulgaria Hungary Romania World OECD Croatia Albania FYR Macedonia Bosnia and Herzegovina kWh/capita Electricity consumption per capita

Projections of Final Energy Consumption Middle level of fertility is assumed for demographic projections Average economy growth 3% Baseline scenario („business as usual”) Scenario with energy efficiency measures (maximal introduction of energy efficiency measures in all phases of energy cycle)

Serbian Energy Sector Model GDP projection Demographic projections Household Industry Transport Agriculture Construction Other consumers Non-energy sector

Projections of Final Energy Consumption Baseline scenario Scenario with energy efficiency measures (EE) Difference in 2020 is 0.920 Mtoe Difference in 2030 is 1.359 Mtoe Millions toe Tables “by consumption sectors” and “by energy sources”

SWOT analysis of Serbian energy sector Strength (existing): Tradition and experience in the previous Serbian energy sector development Available resources and potentials Energy infrastructure systems technically in relatively preserved condition Ratification and entry into force of the Treaty establishing the Energy Community Signing of the Stabilization and Association Agreement between Serbia and the EU Weaknesses (internal): High external energy dependence Non-economic energy prices and disparities in prices of energy and fuels Irrational use of energy Technological obsolescence of existing and the lack of new facilities The inefficiency of energy public companies The legacy of nature devastation and excessive pollution Underdevelopment of the internal electricity and natural gas market Lack of strategy for economic and social development of the country The lack of transparency in energy policy making Lengthy and complex procedures to obtain permits and licenses Underdevelopment and the inadequacy of energy statistics

SWOT analysis of Serbian energy sector Options (development potential): Integration of the Republic of Serbia into the EU Raising the overall economic competitiveness of energy systems Improving energy efficiency Introduction of cleaner production principles in the energy sector Construction of South Stream pipeline Construction of gas interconnections with systems in neighboring countries Upgrade of existing and construction of new natural gas storage Construction of new facilities for the power transmission Building a new system for transport and storage of oil and oil products

SWOT analysis of Serbian energy sector Unfavorable demographic trends and population aging Political opportunism and lack of readiness for depoliticization and professionalization in energy sector Backwardness and slow technological development of energy systems, due to the unfavorable economic situation Lack of harmonization of standards and regulations with the EU, or failure in implementation The adverse effects of climate change to the energy sector Threats (to development): Energy crisis in the world and the possibilities of new energy "shocks" New sudden increases in energy demand in the world, or creation of a new crisis areas Global disagreement about climate change policy and "cleaner" energy strategies Deepening social and economic crisis, growing poverty, indebtedness and slow economic development of the country Falling behind changes in energy policy in the region due to unresolved social and political issues

IV The Strategic Priorities of Serbian Energy Sector Development - Providing conditions for promoting energy efficiency in carrying out energy activities and energy consumption - Creating economic, commercial and financial conditions for generating energy from RES and combined heat and electricity generation - Creating conditions for use of new energy sources - Promoting environmental protection in all energy related areas - Creating conditions for investments into the energy sector - Reliable, safe and quality supply of energy and energy sources - Creating conditions for the safe and reliable energy systems operation and sustainable development - Energy market competition based on the principles of non-discrimination, publicity and transparency Energy and energy sources’ customers protection - Electricity and natural gas market development and their connecting with the regional and internal market of the EU Connecting the energy system of the Republic of Serbia with the energy systems of other countries ENERGY SECURITY ENERGY MARKET SYSTAINABLE ENERGY

IV The Strategic Priorities of Serbian Energy Sector Development Energy Efficiency Renewable Energy Sources Environmental Protection Security of Supply Reliability of Supply Quality of Supply National & Regional Market

IV The Strategic Priorities of Serbian Energy Sector Development Serbian energy sector have to be market-based and economically efficient to the extent that generate its own development, but also to be generator and secure base for the development of the country. Serbian energy development should be with minimal effect to the environment.

IV The Strategic Priorities of Serbian Energy Sector Development Activities: More intensive exploration of energy resources; The development of the energy market based to the principles of competition, transparency and non-discrimination; The construction of new energy facilities or the rehabilitation and modernization of existing ones; A comprehensive and coordinated approach to the rationalization of energy consumption and the overall increase of energy efficiency; The establishment of adequate regulatory and organizational requirements and simplifying and accelerating the procedure for obtaining approvals and permits; The extensive use of renewable energy sources, including of renewable energy sources in the energy plans of cities and local communities as part of a local energy strategy; The reorganization and restructuring of the companies in energy sector Further harmonization of existing regulations with EU regulations and standards

IV The Strategic Priorities of Serbian Energy Sector Development Measures: Raising capacity of financial institutions to finance energy efficiency measures and production and placement of the best available energy technologies and equipment; Development of innovative financing mechanisms for energy services sector (ESCO concept, etc..) Encourage the development of domestic industries to follow the planned development of the energy sector Analysis of climate change impact to the energy sector and the adoption of appropriate adaptation plans; Systematic capacity building of scientific and educational institutions related to energy sector; Complete and timely information to the public about the state of the sector; Education and awareness raising.

V Energy Sectors Development Electric Power Sector District Heating Systems Renewable Energy Sources Coal Oil Natural Gas Efficiency of Energy Use

Electric Power Sector Strategic Objectives - Security of electricity supply of domestic market - Development of national and regional electricity market Increasing of transmission capacities / corridors over the Republic of Serbia with regional and pan-european importance Decreasing of distribution loses - Creation of opportunities for net electricity export Current State - Growth in net electricity import - Outdated and inefficient production capacities - Dominant share of coal in electricity production Market liberalization process has started, but with strong influence of "social" component Low and inadequate electricity price Strategic Activities - Revitalization of existing electric power facilities: - Adaptation of existing facilities to obligations as Contracting Party in Energy Community - Revitalization and modernization of existing HPPs - Construction of new power plants fired by conventional fuels - Increasing of RES (hydro, wind, biomass, solar energy) use for electricity production Revitalization of existing and construction of new transmission capacities Modernization and construction of distribution systems Liberalization of electricity market according to Energy Law and market price determination Sector reorganization for more efficient operation of companies and attraction of investments Capacity development of engineering companies for greater participation in the construction of power plants and infrastructure

Electric Power Sector Priority Actions: Reconstruction of TPPs according to LCP Directive Construction of new, coal fired TPPs 700 MW until 2025 (350 MW until 2020) Construction of RHPP Bistrica Construction of 450 MW CHP fired by natural gas until 2020 Construction of transmission and distribution infrastructure Baseline scenario Scenario with energy efficiency measures (EE) Difference in 2020 is 3000 GWh Difference in 2030 is 3600 GWh

Electric Power Sector - Production Existing Thermal power plants Existing Hydro power plants New RES power plants New Thermal power plants with conventional fuels Construction of new facilities Existing Thermal power plants Existing Hydro power plants New RES power plants New Thermal power plants with conventional fuels Projection of electricity generation

Electric Power Sector - Production Project Nominal Power Estimated Time for Project Realization Approximate Investment Value (mill. €) TPP Nikola Tesla B3 750 MW 4-6 years 1600 TPP Kolubara B 2 x 375 MW 6 years 1500 TPP Kostolac B3 350 MW 4 years 450 TPP Novi Kovin 2 x 350 MW 1330 TPP Stavalj 300 MW 5 years 650 – 750 CHP Novi Sad 340 MW 2-3 years 400 CHPs – natural gas 860 MW* 4 years (realization in phases) HPP Velika Morava 147,7 MW* 3-7 years (realization in phases) 360 HPP Ibar*** 117 MW** 2-7 years (realization in phases) 300 HPP Srednja Drina*** 321 MW** 5-9 years (realization in phases) 819 PSHPP Bistrica 4 x 170 MW 560 PSHPP Djerdap 3 (I phase) 2 x 300 MW Small HPPs 387 MW 6 years (191 locations) 500 * Total power of few CHP (Pancevo, Beograd, Nis, …) ** Total power of few HPPs in cascade *** Law on Ratification of the Agreement between the Government of the Republic of Serbia and the Government of Republic of Italy on cooperation in energy sector defined the joint implementation of these projects.

Electric Power Sector - – Transmission and Distribution Strengthening of internal transmission capacity and the capacity of the regional corridors - 400 kV transmission network in the direction of northeast - southwest Strengthening of internal transmission capacity and the capacity of the regional corridors - 400 kV transmission network in the direction of east-west Strengthening of strategic directions in 110 kV transmission capacity Modernization and investments in distribution systems

Electric Power Sector – Market Market opening until 2015 The growth of in electricity prices Why? maintenance of existing infrastructure investment in new infrastructure environmental costs Leads to a short-term increase in the cost of production and services Encourages the implementation of energy efficiency measures The use of other forms of energy to substitute, and where it is justified own production Careful planning of continuing real growth in regulated electricity prices to reach the level of prices in the region Reorganization of energy companies based on market principles.

Cumulative investment (million €) Electric Power Sector Challenges: Required resources Year Until 2020 Until 2025 Until 2030 Reconstruction of TPPs according to LCP Directive 634 - Modernization of existing HPPS 200 100 Construction of new TPPs fired by conventional fuels 1100 500 Construction of PSHPP 360 300 Construction of RES plants 2323 520 750 Investments in transmision systems 170 Investments in distribution systems 250 Cumulative investment (million €) 5317 7157 9057

Electric Power Sector Challenges: Limit in СО2 emission and ETS Electric power resources and projects at AP Kosovo and Metohija Rights for RES use and “green energy” export

District Heating Systems Strategic Objectives Priority Actions: Strategic Activities - Security of heat supply with strictly respect of environmental limits in heat production - Increasing of energy efficiency in production, trasport, distribution and use of heat - Increasing RES use for heat production - Sustainable operation of district heating companies - System based only to fossil fuels (natural gas 48%, coal 23%, 29% oil derivates) - Average age of facilities is 25 years - High specific energy consumption - Absence of market, inconsistent and inadequate method of payment Continual modernization of existing district heating systems Creation and application of uniform tariff system for heat production, distribution and supply Institutional connection of DH companies Expansion of existing DHS Promotion of fuels swich and their more efficient use: - Less share of oil derivatives and coal - Higher share of biomass (including co-firing in existing heat plants) - Higher share of communal waste - Increased use of sanitary hot water - CHP in heat plants - Capacity building in municipalities related to market regulation Reduction of energy losses in the networks Introduction of heat consumption measurement and payment according to energy consumed Current State

District Heating Systems Oil products Natural gas Coal Biomass Projected changes in the structure of energy sources for heat production Year 2020 2025 2030 Reconstruction, modernization and building of district heating plants 85 45 65 Rehabilitation of the distribution network 95 Rehabilitation of heating substations 40 25 30 Cumulative investment (million €) 220 335 485 35

Renewable Energy Sources Strategic Objectives Current State Strategic Activities Priority Actions: Share of RES in gross final consumption is 20.1% Dominant share in consumption has traditional biomass use and large HPPs Feed/in tariff was introduced Increase in RES use for less dependence of energy import and increasing energy security Adoption and implementation of National renewable energy action plans Determination of national targets for RES utilization and monitoring of realization: - RES use for electricity production - RES use for heat production and in final consumption: - Substitution of fossil fuels (coal, oil derivatives and natural gas) in heating - Substitution of electricity in sanitary hot water preparation - Introduction of RES in building sector (primary in public buildings) - RES use in transport Development of distributive network for connection of small electricity producers Production and use of equipment for more efficient RES use Informing and education of the public Realization of National renewable energy action plan until 2020

Renewable Energy Sources Hydro power plants (<10 MW) Hydro power plants (>10 MW) Solar power plants Wind power plants Geothermal power plants Biogas power plants Biomass power plants Projection of new capacities for electricity production using RES Projection of energy consumption from RES Existing Hydro power plants New RES power plants Final consumption District heating plants thousand toe

Coal Strategic Objectives Strategic Activities Secure and reliable supply of thermal power plants Ensuring necessary amounts of coal for final consumption and heat production Intensification coal deposits exploration on the territory of Serbia Opening of new open pit mines for the replacement of the existing ones and for operation of new TPPs Optimization and concentration of underground coal production in profitable mines Introduction of systems for coal quality control Current State Old facilities and equipment, revitalization needs Problems with expropriation of land necessary for opening new open pit mines Underground coal mining is unprofitable and its operation depends of state suport Priority Actions: Opening of new open pit mines in Kolubara basain Increase of Drmno open pit mine capacity

Coal Thermal power plants District heating plants Final consumption thousand toe Basin Kolubara Tamnava - West Field, Fields C and D, displacement of Vreoce - 470 mil. € Field E opening (replacement of Field D) - 532 million € Field G opening (replacement of Veliki Crljeni) - 161 million € Opening Radljevo open pit mine - 600/1.232 million € Basin Kostolac Open pit mine Drmno 100/230 million € Basin Kovin - € 500 million Underground coal mining - € 330 million

Oil Strategic Objectives Strategic Activities - Security of supply with oil derivatives with quality that matches EU standards - Decrease of import dependence - Ensure of new directions for crude oil supply Provision of required reserves of oil and oil products (reconstruction of existing and building of new storages) Exploration aimed at finding new deposits Maintaining the high level of crude oil production in the country Refineries modernization Ensuring of more efficient oil product transport by pipelines Competition in the sector for ensuring the most favorable prices for the consumers Current State - High import dependence - The dominant import from one direction - Oil Industry of Serbia is joint stock company with majority share of foreign partner Priority Actions: Reconstruction of existing and building of new storages The increase in refinery processing depth

Oil 800 750 160 170 Sub-sector Activities Investments (mill. €) Exploration and production of oil and natural gas Exploration in the country and in the region aimed at finding new deposits Application of new technologies and methods of exploitation 800 Refinery processing The increase in processing depth and further modernization of refinery in Pancevo and Novi Sad 750 Trade of oil derivatives Modernization of gas stations and building of new ones Construction of storage capacities Modernization of filling stations Procurement of new transport facilities 160 Transport of crude oil and oil products Construction of pipeline network for oil product transport 170 Oil and oil derivatives Biofuels Thousands toe

Natural Gas Strategic Objectives Strategic Activities - Ensuring security of supply of domestic market - Establishment of national and regional natural gas market - Research in the country with the aim of discovering new deposits of natural gas, (including unconventional gas) - The use of natural gas as a substitution for electrical energy consumption for heating purposes - The use for the combined production of electric and heat energy in industry and cities - Participation in international projects for natural gas supply - Regional interconnection Current State Single supply route with technical import limits Underground storage meets the current consumption Inadequate natural gas prices of public supply Priority Actions: South Stream pipeline construction Establishment of at least two regional interconnections up to 2020 Completion of the gasification of Serbia

Cumulative investment (million €) Natural Gas Project Until 2020 Until 2025 Until 2030 South Stream pipeline 1700 - Regional interconnection 120 60 20 New gas storages 100 Completion of the gasification of Serbia and rehabilitation of existing system 500 200 Cumulative investment (million €) 2420 3080 3400

Efficiency of Energy Use Strategic Objectives Strategic Activities Enhancing energy efficiency in all consumption sectors - Consistent implementation of the Law on efficient energy use - Adoption and implementation of the National Action Plans for Energy Efficiency - definition of national energy saving targets, total and by sector, and monitoring of realization - The use of combined electric and Heat energy production in industry - Introduction of energy management - Capacity building of energy statistics - Informing and public education Current State Energy indicators in 2010: - energy intensity 0,452 kg oe/€2005 - ratio of primary energy consumption and GDP, adjusted to the purchasing power parity 0,223 kg oe/$2005 - Primary energy consumption per capita 2.140 kg oe Priority Actions: Energy reconstruction in the building sector Introduction of energy management in the public sector Energy intensity Ratio of primary energy consumption and GDP, adjusted to the PPP Serbia Primary energy consumption per capita EUindex= 100

VII Legal, institutional and socio-economic framework The impact of international obligations Development of institutional framework Legal and market framework of energy sector Social and economic aspects of planned development Energy and related sectors – horizontal harmonization

The impact of international obligations The Energy Community Treaty The Stabilization and Association Agreement Agreement with Russian Federation on cooperation in the oil and gas sector United Nations Framework Convention on Climate Change Other regulations

Development of institutional framework Capacity building of the Ministry in charge for energy sector Establishment of the Institute for Energy in Serbia Coordination with the Ministry in charge for Science and Education Capacity building of Energy Agency Co-ordination with the Statistical Office of Serbia

Legal and market framework of energy sector Electric Power sector Natural gas sector Oil and oil derivates sector Heat energy sector RES Energy efficiency

Social and economic aspects of planned development Energy development in the function of social growth Faster development of existing branches of economy New economic and service activities Employment increase Energy sector based on market principles Prices of energy Influence on the budget deficit reduction Reductions in material and energy intensity of the economy Local Economic Development Social aspect Social dialogue Delicate and socially vulnerable groups of consumers

Energy sector and related sectors – horizontal harmonization Environment and climate change Participation of the public in decision-making The concept of "public goods" The principle of competitiveness and state aid

Energy sector in Serbia after 2030 “Energy Roadmap 2050” Energy efficiency Renewable Energy Sources “Clean coal” technologies

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