Overview of the current energy mix, and the place in the market of different energy sources

Due to the recovery of the Slovenian economy over recent years (a 5.1% growth in GDP for 2018 has been recently forecast by the Slovenian Institute of Macroeconomic Analysis and Development), the country’s overall energy demand is increasing and this is reflected in all energy markets.

In 2017, 14,984 GWh of electricity was delivered to the transmission and distribution systems, which is 249 GWh less than in 2016.  The delivery from generating plants using renewable energy sources was 4,479.1 GWh, which is 616 GWh less than the previous year; generating plants using fossil fuels contributed 4,539 GWh or 176 GWh less than the year before.  Nuclear power plant Krško, Slovenia’s only nuclear facility, delivered 5,966 GWh to the transmission system, or 543 GWh more than in 2016.  Half of the electricity produced at Krško (approximately 2,983 GWh) was transmitted to the Republic of Croatia based on the bilateral treaty, yet the plant still supplied 40% of all the electricity generated in Slovenia; renewable energy sources contributed 30% (hydro power, wind power, solar power, biomass); and fossil fuels provided 30% of generated electricity.  Domestic production covered 82.9% of Slovenian electricity consumption and the country’s import dependence was 17.1%.1 Total consumption of electricity amounted to 14,558 GWh and increased by 2.7% in comparison to 2016.2 

Since Slovenia does not have its own sources of natural gas, storage of natural gas or LNG terminals, the wholesale natural gas market is limited by imports of natural gas through neighbouring transmission systems from Austria, Italy and Croatia.  Due to market liberalisation, the long-term contracts with producers from Russia are being replaced by short-term contracts concluded at gas hubs, power exchanges and other points in the EU.  In 2017, 75% of natural gas was imported from Austria.3 Natural gas amounting to 2,114 million Sm3 (or 22,745 GWh) was transferred through the transmission system in 2017, which is almost 2% less than in 2016.  The consumption of natural gas increased for the third consecutive year and amounted to 900 million Sm3 (or 9,677 GWh).  The supply of natural gas is reliable and was not affected by the explosion in December 2017 at Baumgarten gas hub, when supply at the Ceršak entry point on the Slovenian-Austrian border was disturbed for several hours.4

The Slovenian electricity and natural gas markets are transparent and well-integrated in the wholesale energy markets.  In 2017, 69,130 consumers switched their electricity supplier, which is 6.7% less than in 2016 when the market reached a record number of switches (945,442 or approximately 7% of all electricity consumers), and 6,054 consumers switched their natural gas supplier, which is 4.3% less than in 2016.  A significant majority of switches were performed by the group purchasing action of the Slovenian Association of Consumers “Switch and save #2”, in which more than 13,000 consumers switched their electricity supplier (19% of all switches), more than 12,000 consumers switched their electricity and natural gas suppliers, and 2,765 consumers switched their natural gas supplier (46% of all switches).5

As a Member State of the European Union, Slovenia has committed itself to promoting the use of renewable sources for energy consumption, and especially for electricity generation. The use of renewable energy sources (hereinafter: “RES”) has an important role in the national energy policy.  Energy efficiency improvements and increased use of energy from RES bring significant direct and indirect benefits: reduced greenhouse gas emissions; improved security of supply; technological development and innovations; and opportunities for employment and regional development.  The EU Renewable Energy Directive 2009/28/ EC6 sets a mandatory national target for each Member State, stating the overall share of gross energy consumption that must come from renewable energy sources by 2020.  For Slovenia, this target has been set at 25%.  In 2017, 21.8% of estimated gross energy consumption in Slovenia came from renewable energy sources.7

Developments in government policy/strategy/approach

The RES and cogeneration of heat and electricity (“CHP”) support scheme

The national legal basis for the RES and CHP support scheme is regulated by the Energy Act, the Decree on the method of determining and calculating the contribution for ensuring support for the production of electricity from high-efficiency cogeneration and renewable energy sources,8 and the Decree on support for electricity generated from renewable energy sources and from high-efficiency cogeneration.9  The support scheme had to be harmonised with the EU legislation on state aid and was successfully notified and approved by the European Commission decision SA.41998 of October 10, 201610 as a permitted form of state aid.

By the end of 2017, more than 2,500 producers with 3,864 production facilities were included in the support scheme (85% of them solar power plants).  Most of these production facilities involved in the support scheme fall under the terms which were in force before the enforcement of the Energy Act, while four producers were selected in the first public tender.11

Under the initial support scheme (approved by European Commission decision no.  SA.28799), operators of eligible installations were automatically entitled to the support.  However, after January 1, 2017, all beneficiaries must be selected through a competitive tender.

Beneficiaries under the support scheme for RES installations include: energy potential of watercourses; wind energy used in generating plants on land; solar energy used in photovoltaic power plants; energy from biogas obtained from biomass and biodegradable waste; energy from landfill gas; energy from gas obtained from sludge produced in wastewater purification plants; energy from biodegradable waste; and, most recently, operators of wood biomass installations that are depreciated and would otherwise not be eligible under the support scheme if, owing to the price of wood biomass, their production costs exceed the market price for electricity.12 For CHP installations, aid may only be granted to high-efficiency cogeneration installations as defined in the Guidelines on state aid for environmental protection and energy 2014–2020 (hereinafter: “EEAG”).13  Eligible beneficiaries under the Energy Act are limited to a maximum nominal installed capacity of 50 MW for wind installations, 20 MW for CHPs and 10 MW for all other RES.

The beneficiaries are selected based on a two-phase tender.  In general, the first round allocates between 70–90% of the overall available budget in any given year and is open to new installations falling into two ‘pots’.  Pot 1 is available for RES generators operating technologies based on the exploitation of resources, which do not need to be purchased (i.e. non-fuelled technologies including solar, wind and hydropower), and pot 2 for technologies which are less competitive or bear higher risks during the preparation phase (i.e. fuelled or less competitive technologies, including CHP, biomass, biogas and geothermal).  Projects from both pots which fail to be selected in the first round are eligible to compete in the second round.  If the number of applicants in pot 1 and/or pot 2 is insufficient to use all of the funding allocated to that pot, any unused budget is added to the budget for the second round.  The second round is open to all projects including renovated installations and depreciated wood biomass facilities that are otherwise too old to be deemed eligible under the scheme if, owing to the price of wood biomass, their production costs exceed the market price for electricity.  This round is run on a technology-neutral basis with the most cost-effective projects.

The first public tender for the support scheme, with available funding in the amount of €10 million, was completed in June 2017 by funding 78 projects (of which 30 were hydroelectric plants, 28 internal combustion engines, two steam backpressure extraction turbines, seven solar power plants and 11 wind power plants) with total rated electrical power of 61.36 MW.14

The second public tender for the support scheme, with available funding in the amount of €10 million, was completed in January 2018 by funding 93 projects (of which 11 were hydroelectric plants, 26 solar power plants, 37 wind power plants, one wood biomass power plant, one biogas power plant and 17 CHPs) with total rated electrical power of 98.03 MW.15

On February 23, 2017, the Energy Agency published the third public tender for the support scheme, again with available funding in the amount of €10 million, which was completed in June 2018 by funding 41 projects (of which two were hydroelectric plants, 15 internal combustion engines, 13 wind power plants and 11 solar power plants) with total rated electrical power of 129.4 MW.16

The completed public tenders for the support scheme show high interest of potential investors to invest in RES and CHP production facilities.  The projects funded by the support scheme are encouraging for the further development of such electricity production.  On the other hand, however, the number of funded wind power projects is worrying, as the construction of wind power plants in Slovenia is very complex with respect to their geographic location, and time-consuming.  Currently the wind power plants contribute only approximately 3 MW of rated electric power in the support scheme.17

Installations with a nominal installed capacity up to 500kW may continue to receive the feed-in tariff as approved in the European Commission decision SA.28799 of November 26, 2009.  For installations exceeding this threshold, support will be paid in the form of a market premium on top of the market price.  The market premium awarded to projects which succeed in tender is based on the difference between the reference costs of electricity and the actual market price of electricity (calculated on the basis of the reference market price).

With respect to wood biomass facilities which, due to their age, would not ordinarily qualify for support, these installations are still remunerated via a market premium, but the quantum of that premium will only take into account the ‘variable’ aspect of the reference costs, excluding any investment costs which, owing to their age, would be expected to have already been recouped through operation.

The support scheme for eligible RES and CHP producers is funded through the imposition of a “para-fiscal” levy on electricity consumers in Slovenia.  The funds are paid as lump sum payments on connection.

At the level of individual beneficiaries, the aid is granted for a period of 15 years for RES installations.  CHP installations using biomass are granted aid for 15 years, and those using biogas for 10 years.  Furthermore, for renovated installations, the period of support is shorter, with the deduction of the period of time which has elapsed since the renovation from the applicable period for support (10 or 15 years, as applicable).

The Ministry of Energy acts as granting authority.  The eligibility for aid is assessed by the Energy Agency, which is also responsible for ensuring compliance with the cumulating rules.

The funds to provide support to the RES and CHP support scheme are sourced from a combination of:

  • the RES and CHP contributions paid by all final consumers of electricity, natural gas, and other gases used in grid and district heating;
  • contributions levied on solid and liquid fossil fuels, liquid petroleum and liquefied natural gas and heat from district heating systems; and
  • revenues which the Centre for RES/CHP Support receives through the sale of electricity it is obligated to purchase from recipients of the feed-in tariff.

The expected budget for new RES and CHP installations under the support scheme over the lifetime of the scheme is estimated at €600 million and, for the reductions in RES levies granted to energy-intensive users, to total €242.5 million over the lifetime of the scheme.18

Developments in legislation or regulation

In 2017 and 2018, the adoption of further key acts for implementation of the Energy Act19 (and implementation of the EU Third Package of energy legislation) 20 continued, inter alia, by adopting the following acts:

  • Rules amending the Rules on the balancing of the electricity market,21 which govern organisation, membership and participation on the balancing market, reports and notifi cations and financial settlement of the transactions on the balancing market;
  • a Decree establishing the infrastructure for alternative transport fuels,22 which governs alternative transport fuels and the provision of infrastructure for alternative transport fuels;
  • Legal Act on the methodology determining the regulatory framework and network charge for the electricity distribution system;23
  • Legal Act on the methodology for determining the regulatory framework of the gas distribution system operator,24 which governs the methodology for the regulatory framework for eligible costs and cost recovery; and
  • Legal Act on the methodology for determining network charge for the natural gas distribution system,25 which determines tariffs, separately charged services, calculation of network charge and method for charging the network charge and other services.

Simultaneously with the development of smart grids, an adequate level of cyber security of the electricity system must be ensured.  The cyber security and measures for the security of networks and information systems, essential for undisturbed functioning of the state, are governed by the Act on Information Security,26 transposing the Directive (EU) 2016/1148 of the European Parliament and of the Council of 6 July 2016 concerning measures for a high common level of security of network and information systems across the Union.27 The Act on Information security, which entered into force in May 2018, imposes obligations with respect to information security upon the operators of essential services, inter alia, in the energy sector.  The operators of essential services, such as companies in the energy sector, must: (i) take appropriate and proportionate technical and organisational measures to manage the risks posed to the security of network and information systems; (ii) take appropriate measures to prevent and minimise the impact of incidents affecting the security of network and information systems; and (iii) notify, without undue delay, the competent authority or the CSIRT (Competent authorities or the Computer Security Incident Response Teams) of incidents having a significant impact on the continuity of the essential services they provide.

Judicial decisions, court judgments, results of public enquiries

Compatibility of the support scheme for RES with the state aid rules

The operation of the electricity support scheme, “Support for production of electricity from renewable energy sources and in co-generation installations”, which was approved by European Commission decision SA.28799,28 achieved approximately 21% of renewable energy by the end of 2014, and it is expected that the amended version of the electricity support scheme will allow the 25% target to be reached.  The Slovenian authorities notified an amendment to a support scheme to the European Commission on May 27, 2015 pursuant to Article 108(3) of the Treaty on the Functioning of the European Union (hereinafter: “TFEU”).29

The most significant amendment to the scheme is the introduction of a tender process to select beneficiaries to receive support under the support scheme and determine the appropriate level of that support.  In particular, Slovenia has introduced a two-round public tender process designed to increase competition between potential beneficiaries and ensure that support is granted to the best-value projects.  This change is in line with the EEAG, which requires that, from January 2017, such aid is granted on the basis of a clear, transparent, non-discriminatory competitive bidding process open to all producers of renewable electricity.

The European Commission has assessed the notified aid scheme on the basis of Article 107(3) TFEU and the EEAG and concluded that the measure is compatible with the internal market pursuant to Article 107(3)(c) TFEU (decision SA.41998 of October 10, 2016).30  The notified measure will expire on December 31, 2019.

Merger controls

In 2017, the Slovenian Competition Protection Agency (hereinafter: the “CPA”) cleared three notified concentrations of the companies from the energy sector.  On May 11, 2017 the CPA issued a clearance for the concentration of five distributors of electricity (Elektro Ljubljana d.d., Elektro Maribor d.d., Elektro Celje, d.d., Elektro Primorska d.d. and Elektro Gorenjska, d.d.) with Informatika d.d., a company for business IT solutions, as it found that Informatika d.d. already provided its services to the distributors of electricity before the concentration and that many alternative providers of IT services are present on the market.31  In February 2018, the CPA cleared the concentration of Adriaplin d.o.o. and Mestni plinovodi, d.o.o., both active in the distribution of natural gas.32  In March 2018, the CPA also cleared the concentration of Petrol d.d., Ljubljana (hereinafter: “Petrol”), a company active in the energy sector with a focus on the wholesale and retail distribution of petroleum products, and Megaenergija, d.o.o., a producer of electricity from CHP installations.33

In November 2017, the notifying parties HSE, d.o.o., Elektro Celje, d.d., Elektro Gorenjska, d.d. and Elektro Primorska, d.d. notified the concentration with ECE d.o.o. and E3 d.o.o. to the CPA.  According to the CPA’s assessment, the concentration will increase its market shares on the retail market of electricity, which could raise serious concerns on its compatibility with the competition rules in relation to the presence of notifying parties on the vertically linked markets of production and wholesale of electricity.  With the resolution of May 11, 2018, the CPA thus initiated the investigation of the concentration and invited the notifying parties and any third parties to submit any information, which could be relevant for its decision on the notifi ed concentration.34

Finally, the European Commission cleared the concentration of Petrol and Geoplin d.o.o. Ljubljana (hereinafter: “Geoplin”) by way of acquiring sole control over Geoplin by Petrol, which had an EU dimension within the meaning of Article 1(2) of the Council Regulation (EC) No. 139/2004 of 20 January 2004 on the control of concentrations between undertakings.35,36 In its investigation, the European Commission found that Petrol was perceived by several market participants as an independent supplier of natural gas in the wholesale market; there are, however, sufficient alternative sources of supply and the respective concentration is unlikely to significantly impede effective competition in the market.  Additionally, there are no significant barriers for domestic retailers and wholesalers to source natural gas abroad.  As the retail customers are not dependent for natural gas supplies on Petrol nor Geoplin, the relevant concentration would have no (or limited) competitive impact on the Slovenian retail natural gas market.

Even the minority shareholdings of Petrol and Geoplin in their retail competitors (Adriaplin d.o.o. and GEN-I, d.o.o.) are unlikely to result in unilateral or coordinated effects, especially because: these minority shareholdings do not entitle Petrol or Geoplin to exercise any specific influence over the strategic decisions; the size of these minority shareholdings is limited; there are numerous established suppliers on the retail market; and Petrol’s indirect minority shareholding was in the process of being divested at the time of the decision.

Major events or developments

Baumgarten incident

On December 12, 2017, there was an explosion followed by fi re at the Baumgarten gas hub on the Austrian-Slovakian boarder, which disturbed the supply of natural gas at Ceršak entry point for several hours.  In the absence of storage facilities, Slovenia’s gas supply is largely dependent on the natural gas transferred from Austria through the Ceršak entry point.  On the day of the explosion, the volume of natural gas transferred through Baumgarten dropped and Slovenia reacted by importing gas from Italy (the technical capacity of the Šempeter entry point reaches only 20% of the Ceršak entry point).

One third of the Russian gas transferred to Western Europe passes through Baumgarten, so the explosion caused confusion on the market with significant price hikes.  Italy, which is dependent on the Russian flows for almost one third of its demand, faced almost double the price in comparison to the previous or the following days, and declared a state of emergency. The incident increased Slovenian import costs by the combined effect of higher-priced imports from Italy on the day of the explosion and the need to buy more expensive withinday capacities the day after.  The estimated extra costs due to this incident amounted to approximately €120,000.37

The natural gas supply of consumers was not disturbed, the gas transmission system worked properly, and the Energy Agency declared a so-called level of early warning.  However, this incident raised considerations regarding the security of supply; if the supply through the Ceršak entry point would be disturbed for a longer period, the operator of the transmission system or gas suppliers would have to adopt respective measures under the Regulation on the emergency plan for natural gas supply38 and, as a last resort, limit the consumption of natural gas.39

Cross-border market coupling as a step towards a single integrated European power market

Market coupling is the use of an implicit auctioning system, where transmission capacity represents an input parameter in the exchange of offers between two or more power exchanges.  In 2016, BSP SouthPool Energy Exchange, designated as a nominated electricity market operator40 for the trading area of Slovenia, in cooperation with other European Power Exchanges and system operators, successfully implemented a project of day-ahead market coupling on the Slovenian–Italian and Slovenian–Austrian borders.

Finally, on June 19, 2018, the coupling of the Slovenian and Croatian market was also successfully implemented.  With the implementation of implicit allocation of day-ahead cross-border capacities on the last non-coupled Slovenian electricity border (the Hungarian power exchange HUPX is not included in the multi-regional coupling and the Slovenian and Hungarian markets are not linked through interconnector), the Slovenian bidding zone is fully coupled and integrated in the single European electricity market. The latter primarily brings a benefit for end-consumers derived from more efficient use of the power system and cross-border infrastructure as a consequence of a stronger coordination between energy markets.  We can expect that the fully integrated Slovenian bidding zone will give an additional liquidity boost to the Slovenian spot power market.  Considering the large volumes of available cross-zonal capacity on the Slovenian–Croatian border, it will also strengthen the Slovenian electricity price index SIPX.41

Proposals for changes in laws or regulations

On November 30, 2016, the European Commission presented the so-called Winter Package of eight proposals to facilitate the transition to a clean-energy economy, which will have a strong impact on all EU Member States.  The European Commission aims to provide a stable legislative framework to facilitate the clean energy transition, thereby taking a significant step toward the Energy Union.  The package has three main goals: (i) putting energy efficiency first (EU level binding target of at least 30% energy efficiency by 2030); (ii) achieving global leadership in renewable energies (at least 27% renewables in the final energy consumption and emissions cut by at least 40% by 2030); and (iii) providing a fair deal for consumers (clean energy transition needs to be fair for sectors, regions or vulnerable parts of society affected by such a transition; all consumers are entitled to generate electricity, store it, share it, consume it or to sell it to the market).42

The proposals can be grouped into three categories: proposals amending existing energy market legislation (third package of electricity market liberalisation measures); proposals amending existing climate change legislation (measures aimed at aligning and integrating climate change goals); and proposals for new measures (risk-preparedness in the electricity sector and governance of the Energy Union).43

Endnotes

  1. Report on the energy sector for 2017, of the Energy Agency, pp. 14–17.
  2. Report on the energy sector for 2017, of the Energy Agency, p. 21.
  3. Report on the energy sector for 2017, of the Energy Agency, p. 139.
  4. Report on the energy sector for 2017, of the Energy Agency, pp. 110 and 159.
  5. Report on the energy sector for 2017, of the Energy Agency, p. 98 and pp. 154–155.
  6. Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC.
  7. Report on the energy sector for 2017, of the Energy Agency, p. 24.
  8. Official Gazette of the Republic of Slovenia, no. 46/2015.
  9. Official Gazette of the Republic of Slovenia, no. 74/16.

  10. http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=3_SA_41998 . 

  11. Report on the energy sector for 2017, of the Energy Agency, p. 31.
  12. Article 4 of the Decree on support for electricity generated from renewable energy sources and from high-efficiency cogeneration.
  13. Pursuant to Article 5 of the Decree on support for electricity generated from renewable energy sources and from high-efficiency cogeneration, the following technologies are eligible for support: combined cycle gas turbines with heat recovery; steam backpressure turbines; steam-condensing extraction turbines; gas turbines with heat recovery; internal combustion engines; steam engines; micro-turbines; Stirling engines; fuel cells; engines with organic Rankine cycles; and any other type of co-generation technology.
  14. https://www.agen-rs.si/web/portal/-/izbor-prijavljenih-projektov. 
  15. https://www.agen-rs.si/poziv2017. 
  16. https://www.agen-rs.si/poziv2018. 
  17. Report on the energy sector for 2017, of the Energy Agency, p. 30.
  18. Commission decision SA.41998, paras. 70 and 71.
  19. Official Gazette of the Republic of Slovenia, no. 17/14 et seq.
  20. The EU Third Package of energy legislation covers: (i) unbundling energy suppliers from network operators; (ii) strengthening the independence of regulators; (iii) establishment of the Agency for the Cooperation of Energy Regulators (ACER); (iv) cross-border cooperation between transmission system operators and the creation of European Networks for Transmission System Operators and increased transparency in retail markets to benefi t consumers.
  21. Official Gazette of the Republic of Slovenia, no. 28/17.
  22. Official Gazette of the Republic of Slovenia, no. 41/17.
  23. Official Gazette of the Republic of Slovenia, no. 46/18.
  24. Official Gazette of the Republic of Slovenia, no. 21/18.
  25. Official Gazette of the Republic of Slovenia, no. 21/18.
  26. Official Gazette of the Republic of Slovenia, no. 30/18.
  27. Official Journal L 194, 19.7.2016.
  28. Official Journal C 285, 26.11.2009.
  29. Official Journal C 326, 26.10.2012.
  30. http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=3_SA_41998. 
  31. Decision of the CPA, no. 3061-30/2016 of May 11, 2017.
  32. Decision of the CPA, no. 3061-32/2017 of February 23, 2018.
  33. Decision of the CPA, no. 3061-33/2017 of March 14, 2018.
  34. Resolution of the CPA no. 3061-30/2017 of May 11, 2018.
  35. Official Journal L 24, January 29, 2004.
  36. Decision of the European Commission, case M.7936 – PETROIL/GEOPLIN of March 10, 2017.
  37. Self-assessment and development options for the Slovenian gas wholesale market, report prepared in April 2018 by REKK Energiapiaci Tanácsadó Kft. for the Slovenian Energy Agency, pp. 35–36.
  38. Official Gazette of the Republic of Slovenia, no. 43/14 et. seq.
  39. Report on the energy sector for 2017, of the Energy Agency, p. 159.
  40. On December 21, 2015, BSP has been designated by the Slovenian Energy Agency in accordance with article 4 of the Commission Regulation (EU) No 2015/1222 (“CACM Regulation”) as nominated electricity market operator for a period of four years, in order to perform the single day-ahead and intraday coupling within the Slovenian territory.
  41. https://www.bsp-southpool.com/news-item/introduction-of-day-ahead-marketcoupling-and-new-trading-opportunities-for-bsp-members.html.
  42. https://ec.europa.eu/energy/en/topics/energy-strategy-and-energy-union/clean-energyall-europeans. 
  43. L. Hancher and B.M. Winters, The EU Winter Package, Briefing Paper, February 2017, p. 3.