Building a Solar Power Plant for Electricity Production and Sale – Step by Step Process

Investments in solar power plants have become a popular trend in the Republic of Serbia in recent years. Many investors have the idea of generating electricity from renewable solar energy. However, this is easier said than done. Starting from planning and site selection, securing financing, obtaining necessary permits, building a solar power plant involves much more than just installing solar panels and counting sunny days in a year. Many individuals and entities, such as engineers, lawyers, and regulatory authorities, assist investors on this challenging journey. To help you understand the comprehensiveness of the procedure, we present a simplified guide for investing in solar power plants for electricity producers from renewable sources, outlining the basic steps.

Location is Key

You have the means to invest, you’ve made the decision, but you’re unsure where to start. The first step is defining the location for your power plant. The chosen location plays a pivotal role in the further development of the project and is a critical factor. There are two scenarios to consider.

In the first scenario, if the investor already has a plot of land where they want to set up the power plant but are unsure whether it’s feasible and how to proceed, they should contact the Electric Distribution Company (“ED“), especially if the power plant will connect to the distribution system. The investor should reach out to the relevant branch of the local government where the plot is located and:

1. Submit a request for the issuance of the system operator’s opinion on connection conditions,
2. Submit a request for the issuance of conditions for designing and connecting to the grid (mandatory for all power plants). By obtaining these conditions, the investor gains insight into the technical solution for connecting the future power plant to the grid (1) and secures a position ahead of other potential investors (2). What does this mean? When another investor submits a later request for conditions in the same area, ED takes into account the capacity of the power plant from the previous request, reserving a place in the grid for the first power plant.

In the second scenario, the investor has several potential locations (selected plots). In this case, there are experts who can assist the investor, consulting firms that will conduct an analysis of the current grid situation at each location and recommend the most efficient location for building the power plant. This can be in the form of a study with a detailed plan for connecting to the grid at a specific location.

Once the location is defined, the investor examines the planning documents and engages a qualified entity (a business entity or other legal entity registered in the appropriate register for design and engineering activities that meet the qualifications regarding professional staff) to prepare a preliminary feasibility study with a general project for construction or a preliminary feasibility study with a conceptual project for construction, depending on the power plant’s capacity.

Next, the investor needs to engage a qualified entity to prepare a conceptual design, which is submitted with the request for location conditions through the central information system (“CIS”). To submit the request, the investor needs a qualified electronic certificate.

Energy Permit

The investor checks whether an energy permit is required for construction at the chosen location. According to the energy regulations, an energy permit is mandatory for solar power plants with a capacity of 1 MW or higher. The request is submitted to the Ministry responsible for energy matters (“Ministry of Energy“). The energy permit is non-transferable and has a validity period of 3 years, during which the investor must complete the construction and commissioning of the power plant.

Environmental Impact Assessment

Subsequently, the investor should check if an environmental impact assessment is required for the chosen location. The assessment is mandatory for solar power plants with a capacity of 50 MW or more, while for power plants with a capacity between 1 and 50 MW, it may be required (to be determined by the competent authority). Power plants with a capacity below 1 MW do not require an assessment unless they are located in a protected area or an area of cultural heritage. The request for an assessment necessity is submitted to the competent authority, which can be the Ministry of Environmental Protection, the autonomous province responsible for environmental protection, or the local government unit responsible for environmental protection. After receiving a response from the competent authority, if it is positive, the investor submits a request to determine the scope and content of the environmental impact assessment study, followed by the completed environmental impact assessment study for approval by the same competent authority.

Construction Permit

Depending on the power plant’s capacity, three different construction permits are distinguished. Below is a table with a schematic representation for better understanding of which authority to contact and what request to submit in each situation.

To obtain a building permit, a project for the building permit, or for obtaining a works execution approval, a conceptual project must be prepared. The investor must engage a qualified entity to develop the project and all technical documentation. The project is also subject to technical inspection carried out by a commercial company or another legal entity or entrepreneur (or several of them for specific professional fields) registered in the appropriate register of economic entities and possessing a permit to meet the conditions for designing for that type of facility or parts of facilities as determined by the investor. The inspecting entity must not be an employee of the commercial company that prepared the project for the building permit.

The request is submitted through CIS, and an electronic certificate is necessary.

After obtaining the building permit, it needs to become legally valid, and the investor must apply for construction work to commence.[1][2][3][4]

The investor has a deadline of 3 years from the legal validity of the building permit to report the start of construction, or a deadline of 5 years from the legal validity of the building permit to obtain an occupancy permit; otherwise, the building permit expires.

Temporary Privileged Electricity Producer

To obtain state aid in the electricity production process, the investor can apply for a public call from the Ministry of Energy to receive state incentives in this area. Market premium and feed-in tariff are two types of incentives that the investor can apply for depending on the capacity of the solar power plant.

Renewable energy producers (investors) compete to offer the lowest price at which they will sell electricity. The auction winners will receive state incentives in the form of a market premium (or feed-in tariff). This means that the state will compensate the privileged electricity producer for the difference in price between the market price and the offered price in the auction process (or vice versa, if the privileged electricity producer sells electricity at a market price higher than the one offered in the auction, they will pay the difference to the state). The auction process is detailed in the Law on the Use of Renewable Energy Sources , and the necessary documentation and participation rules for each auction are defined in a separate public call.

If the investor is awarded incentives, they become a temporary privileged electricity producer on the day the decision to grant the right to a market premium or feed-in tariff becomes final. They are then obligated to build a solar power plant and acquire the status of a privileged electricity producer within the prescribed deadlines. The temporary privileged producer must apply for the conclusion of a market premium contract with the authorized contracting party or a feed-in tariff contract with the guaranteed supplier within 30 days of acquiring this status. In this case, EPS serves as the authorized contracting party.

In the process of obtaining state incentives, among other obligations, the investor must provide and maintain financial security in the form of a bank guarantee or a cash deposit in the amount specified in the public call, which depends on the capacity of the power plant.

Grid Connection

After obtaining the building permit or a permit for work execution, it is necessary for the investor to:

1. Obtain approval for connecting the power plant to the power grid (mandatory).

Depending on the type of operating system, the procedure for obtaining approval for connecting the power plant to the power grid varies. In any case, approval for connection is issued in the form of an administrative decision. In the case of approval for connecting the power plant to the transmission system or a part of the distribution system managed by the transmission system operator, it is necessary to prepare a connection study. The applicant enters into a connection agreement with the transmission system operator and provides a bank guarantee proportional to the power plant’s capacity (EUR 25,000 per MW of power). In the case of approval for connecting the power plant to the distribution system, the request is submitted through CIS. The detailed procedure for issuing approval for connection in both cases is regulated by the Regulation on the Conditions of Electricity Supply and Delivery.

2. Submit a request for connection (mandatory).

After completing the construction of the power plant, the construction of the power plant connection, fulfilling the provisions of the approval, obtaining an occupancy permit, and complying with other legal provisions, the investor submits a request for connection to the relevant branch of the system. Instead of an occupancy permit, a certificate from the technical inspection commission approving the power plant’s trial operation may be provided. After submitting the connection request, the relevant branch of the system conducts a functional test of the power plant and connection to determine compliance with the approval provisions and legal and other regulations.

3. Conclude a power plant operation contract (mandatory).

When the power plant investor fulfills the conditions specified in the approval, as well as other conditions prescribed by law and other regulations, and successfully completes the functional test, a power plant operation contract is concluded just before the power plant is connected.

Exploitation Permit

The process of issuing an occupancy permit is initiated by submitting a request to the competent authority through CIS. Among other things, the request must include:

1. An as-built project with confirmation and certification from the investor, the technical supervisor, and the responsible contractor that the as-built state is equal to the project, if there have been no deviations from the as-built project during construction, or a project of the completed facility made in accordance with the regulations governing the content of technical documentation, or a conceptual project with a statement from the investor, the technical supervisor, and the responsible contractor that there have been no deviations from the conceptual project.

2. A technical inspection commission report stating that the facility is suitable for use and proposing the issuance of an occupancy permit.

3. A certificate of the energy properties of the facility if an obligation to obtain a certificate of energy properties is prescribed for the facility.

4. A geodetic survey report for the completed facility and specific parts of the facility.

5. A geodetic survey report for underground installations.

Within 24 hours from the date of legal validity of the occupancy permit, the competent authority, ex officio, submits the occupancy permit, the geodetic survey report for the completed facility and specific parts of the facility, and the geodetic survey report for underground installations to the authority responsible for state surveying and cadaster. This authority, within five working days from the date of submission of the occupancy permit, issues a decision recording property rights on the facility or specific parts of the facility in accordance with the issued occupancy permit.

License for Conducting Energy Activities

A license is an act confirming compliance with the conditions prescribed by the Energy Law and the Regulation on the License for Conducting Energy Activities and Certification, and it must be obtained by an energy entity that owns one or more power plants with a total capacity equal to or greater than 1 MW.

The investor submits a request for a license to the Energy Agency of the Republic of Serbia, together with the necessary documentation proving compliance with the conditions for obtaining a license in accordance with the Energy Law and the Regulation. The license is issued for each energy activity separately, is valid for 10 years, and is non-transferable.

Privileged electricity producer

The temporary privileged electricity producer acquires the status of a privileged electricity producer for the entire capacity or part of the capacity of the power plant if, among other things:

1. has obtained a license for conducting energy production activities for the production of electrical energy in accordance with the Energy Act, which encompasses the power plant for which it has obtained the status of a temporary privileged producer, unless otherwise required by law;
2. the power plant is permanently connected to the transmission, distribution, or closed distribution system of electrical energy with the approved capacity for which the power plant has obtained the status of a temporary privileged producer;
3. separate measurement is provided for the power plant, separate from measurements in other technological processes, for:
   1. the supplied electrical energy to the transmission system, distribution system, or closed distribution system of electrical energy;
   2. the received electrical energy from the transmission, distribution, or closed distribution system, for the needs of the technological process of the power plant;
4. the power plant is newly constructed or reconstructed;
5. has obtained an operating permit for the power plant for which it has obtained the status of a temporary privileged producer;
6. has concluded a market premium contract or a feed-in tariff contract;
7. an environmental inspector has issued an act for the power plant confirming that the conditions for nature protection, environmental protection conditions and measures prescribed by the impact assessment study, as well as the conditions from the waste management permit and integrated permits for the operation of the power plant and activities, are met, in accordance with the regulations governing environmental protection.

Conclusion

Throughout the entire process, it is crucial to closely collaborate with legal advisors, engineers, and relevant authorities to ensure compliance and smooth project development. Keep in mind that the specifics of each project may vary depending on its size and location, so it is advisable to consult with experts familiar with Serbian regulations to obtain tailored guidance for the solar power plant construction process.

[1] (Official Gazette of the Republic of Serbia,” no. 40/2021 and 35/2023)

[2] (“Official Gazette of the Republic of Serbia,” no. 84/2023)