Introduction
The Montenegrin Act on the Use of Energy from Renewable Sources (Renewables Act) came into force on 31 August 2024. This legislation aims to promote the production and use of green energy, and to implement the EU’s Energy Efficiency Directive. Its centrepiece is the introduction of support schemes for energy from renewable sources. Additionally, it introduces the concept of renewable energy communities, while updating the rules for active customers and guarantees of origin.
The support scheme can be in the form of a market premium (with a transitional period before full implementation), or a feed-in tariff. These schemes apply to facilities that produce electricity from renewable sources, including solar energy, wind energy, hydropower (up to 10 MW of installed capacity, excluding pump-storage hydro plants), geothermal energy, biomass, landfill gas, wave and ocean energy, gas from wastewater treatment plants, and biogas. Small-scale plants and demonstration projects are not eligible for market premiums and may only be awarded feed-in tariffs, whereby the small-scale plants are defined as those with installed capacities of up to 400 kW if commissioned by 31 December 2025, or up to 200 kW for those commissioned after that date.
The support scheme details will be determined by the Government of Montenegro through three-year incentive plans. These plans will define quotas for renewable energy projects, eligible technologies, and the schedule for auctions for market premiums. As an exception, the quota for the first auction for the market premiums can be determined by the Government’s decision before the adoption of the three-year plan. Additionally, these plans will include quotas for feed-in tariffs for small-scale plants and demonstration projects, along with the corresponding eligible technologies and the allocation schedule.
Market premium
The Renewables Act establishes a system of market premiums that are awarded through public auctions. These premiums function as two-sided sliding premiums, that is as contracts for differences. Under this arrangement the producer is compensated for the difference when the market price falls below the price that the producer offered at the auction (bid price), and conversely, if the market price exceeds the bid price, the producer pays the difference to the market operator.
However, the market premium model will not be fully applicable form the outset. Initially, the bidders who are awarded the premium will be entitled to sell electricity to the market operator at the bid price, effectively making this incentive to function as a feed-in tariff. This regime will apply during the initial transitional period which will end when the following two conditions are met: (i) the integration of the Montenegrin day-ahead electricity market with the unified European organized day-ahead electricity market or an equivalent market, and (ii) the achievement of an annual trading volume of at least 1 TWh through interconnectors with a non-EU market. Until these conditions are met, producers that are awarded market premiums. Once the transitional period ends, the power purchase arrangement with the market operator converts into the right to the market premium.
The market premiums are awarded in public auctions, organized by the ministry in charge of the energy sector (Ministry) upon the Government’s approval. The qualification criteria are to be specified in the public call. The auctions can be organized either as site-specific, for predetermined state-owned sites, or as site-agnostic, for the sites chosen by the bidders.
The site-specific auctions are carried out in two phases as they include the mandatory lease of the state-owned land and, depending on the type of the renewable source, they may also include compensations for the use of natural resources. In the first phase the bidders are being prequalified and ranked considering the general eligibility criteria and the fee they offer for the land lease and, if applicable, the compensation they offer for the use natural resources. In the second phase the prequalified bidders are ranked based on their offer for the price of electricity. On the other hand, the site-agnostic auction is performed in a single phase where the bidders are ranked based on the offered electricity price.
Upon completion of the auction process, the winning bidders are granted preliminary privileged producer status by the Ministry. During this phase the producer signs the market premium agreement with the market operator. The status of preliminary privileged producer is initially valid for two years, during which the producer must obtain a construction permit for the plant. Once the construction permit is secured, the producer can extend the preliminary status for an additional three years. The producer is granted final privileged producer status after completing the plant, obtaining the generation license, and satisfying all other legal conditions for electricity production. Once these requirements are met, the producer becomes entitled to receive the market premium.
Market premiums can be granted for a period of up to 12 years, starting from the date when the status of preliminary privileged producer is granted.
Feed-in tariff
Feed-in tariff can be granted only for small-scale plants and demonstration projects. The procedure for award of feed-in tariffs is initiated by a public call from the Ministry, outlining quotas, eligible technologies, tariff rates, financial requirements, and other conditions. Bidders who meet the qualification criteria receive the tariff on a first-come, first-served basis until the quota is filled. For site-specific award of feed-in tariffs, the same rules apply as for the two-phase auctions for site-specific market premiums. Detailed rules for the procedure of award of feed-in tariffs are yet to be prescribed by the Ministry.
The regime for the preliminary privileged producers and the conditions for acquiring the final status of the privilege producers that are prescribed for market premiums, apply mutatis mutandis to producers who were awarded feed-in tariffs. The producer is entitled to receive the feed-in tariff for the produced energy from the moment of acquiring the status of the privileged producer.
The maxim duration of the incentive is 12 years from the date when the status of preliminary privileged producer is granted.
Balance responsibility
Privileged producers are responsible for their balancing deviations, but they have several options to transfer the balance responsibility.
Privileged producers with market premiums are entitled to join the market operator’s balancing group during the ‘transitional period for balancing responsibility.’ The cost to the producer will be set annually by the Ministry as a fixed rate per kWh of deviation, with an appropriate indexation mechanism for inflation in Euro zone. This period ends with the establishment of the Montenegrin intraday electricity market, at which point the contract with the market operator for transferring balancing responsibility terminates, and the producer assumes full balancing responsibility. Privileged producers with feed-in tariffs are entitled to transfer their balancing responsibility and costs to the market operator for the entire duration of their status as privileged producers.
Finally, any privileged producer may at any time enter into an agreement to transfer their balancing responsibility to a third party. In such a case, a privileged producer with a market premium can no longer be a member of the balancing group with the market operator, and a privileged producer with the feed-in tariff loses the right to the balancing support from the market operator.
Guarantees of Origin
The Renewable Act expanded the scope of the guarantees of origin to include not only electricity but also renewable production of gas, including hydrogen, and thermal energy.
Privileged producers are required to deliver and transfer to the market operator the guarantees of origin obtained for the power generated by plants with respect to which they have the privileged producer status. The market operator is then obligated to sell these guarantees of origin, and to use the proceeds to finance incentive schemes.
Another novelty is that foreign guarantees of origin can be recognized in Montenegro. Guarantees of origin issued in other contracting parties of the Energy Community are valid in Montenegro under the condition of reciprocity in accordance with ratified international agreements. Guarantees of origin issued by third countries will not be recognized in Montenegro unless the Energy Community signs an agreement with that third country on mutual recognition of guarantees of origin, and only if there is direct energy import or export between Montenegro and that third country.
Active Customer (Consumer-Producer)
A novel aspect for active customer is the grant of priority dispatch rights. This means that the operator of the distribution system, closed distribution system, or transmission system must prioritize the acceptance of electricity from active customers, unless this prioritization jeopardizes the security of the system’s operation.
The compensation schemes for active customers are now varied based on installation capacity. Hence, the net metering scheme applies to installations up to 16 kW, the net billing scheme applies to installations between 16 kW and 50 kW, and commercial supply schemes apply to installations exceeding 50 kW.
Energy Communities
The Renewables Act introduces the concept of (renewable) energy communities, that are special legal entities designed to promote local community involvement in the production of energy from renewable sources to address local needs. These entities own local renewable energy projects, while their shareholders or members can only be the members of the local community who are located in the vicinity of the project. Shareholders or members can include individuals, legal entities, or local government units.
The energy community has the right to produce, consume, store, and sell electricity from renewable sources, including by entering into power purchase agreements. Additionally, they can distribute renewable energy generated by its facilities among its members while maintaining their rights and obligations as consumers. The energy community also has the right to access relevant energy markets, either directly or through aggregation.
Finally, the energy community is entitled to incentives under the Renewables Act. Further measures to promote and develop renewable energy communities are supposed to be defined by the national energy and climate plan of Montenegro.
