19. A green recovery in Serbia

The Initial Assessment of the Multi-dimensional Review (MDR) of the Western Balkans identified a green recovery as a top policy priority for Serbia and the Western Balkan region as a whole. Energy and air pollution are complex challenges and significant obstacles to future economic development and well-being. Air pollution, unreliable access to clean energy and unsustainable environmental practices were identified as key constraints in Serbia and the Western Balkan region in the Initial Assessment. Serbia’s high carbon-intensity in combination with low levels of energy efficiency result in considerable air pollution and greenhouse gas (GHG) emissions. The shares of solar and wind energy in Serbia’s energy mix remain low. Building on the initial assessment, the “From Analysis to Action” phase of the project provides policy suggestions to ensure a green recovery in Serbia and the other Western Balkan economies. The peer-learning workshops on green recovery served three complementary aims: to identify problems hampering the green recovery; to identify key policy challenges; and to put forward key policy priorities for Serbia and for the region (Figure 19.1).

In recent years, Serbia has adopted diverse measures for a green recovery across several dimensions. Mostly notably, Serbia adopted three key laws in 2021. The Law on the Use of Renewable Energy Sources aims to facilitate more investment in renewables and introduces renewable auctions for large renewable facilities, based on market premiums. The Law on Climate Change lays the foundation for establishing a system for limiting greenhouse gas (GHG) emissions, in line with the EU Monitoring Mechanism Regulation. The Law on Energy Efficiency and Rational Use of Energy aims to achieve energy savings and reduce the impact of the energy sector on the environment and climate change. Importantly, it defines the roll-out of subsidies to households for energy efficiency upgrades. In addition, Serbia has a Law on Housing Maintenance of Buildings (adopted in 2016), which has considerably improved the regulatory framework for residential housing and for multi-apartment buildings in particular. The law regulates building management and maintenance, homeowner associations, and the calculation of regular maintenance and renovation fees. As regards homeowner associations, the law allows for decision making by simple majority and two-thirds majority votes as well as electronic voting. To secure funding for investment in energy efficiency, Serbia established the Budgetary Fund for Energy Efficiency (BFEE), which is managed by the Ministry of Mining and Energy.

To ensure a green recovery, Serbia must now tackle a set of important challenges that remain. Serbia would benefit from a stronger ambition and a strategic vision for an energy transition that includes the phase-out of coal. At present, Serbia’s policy and support framework for renewables remains incomplete: it lacks a clear strategy for renewable energy development and barriers remain for renewable self-consumers. Serbia also needs to create an enabling environment for investment in renewables, including a more flexible electricity system and market-based electricity prices. The existing policy and institutional framework for energy efficiency in buildings is fragmented and Serbia lacks a financing strategy for energy efficiency improvements. The enabling conditions and incentives for more energy efficient heating and insulation in buildings need to be improved (Figure 19.1).

Six policy priorities have great potential to ensure green recovery in Serbia, with renewables being the key priority. These policy priorities reflect the issues raised by participants from Serbia at the green recovery peer-learning workshop:

  • Design a comprehensive strategy and support framework for developing renewables, including incentives for self-consumers (peer-learning priority)

  • Create enabling conditions for investment in renewables, including a more flexible electricity system and market-based electricity prices (peer-learning priority)

  • Design an ambitious strategy for an energy transition and coal phase-out

  • Develop a comprehensive strategic and institutional framework for energy efficiency in buildings

  • Set the right incentives for more energy efficient heating systems in buildings

  • Develop an appropriate financing framework and secure funding for energy efficiency improvements

This chapter is divided into seven sections. Sections 19.1 through 19.6 provide policy implications across the six priorities through a prism of challenges specific to Serbia. Section 19.7 provides indicators against which progress in policy implementation can be measured. This chapter is complemented by the regional chapter (Chapter 14), which provides more specific policy options based on international practice that may be applied, with necessary adaptations, also to Serbia.

Potential exists to considerably scale up solar and wind energy in Serbia, particularly in the light of their increasing cost-competitiveness. In 2019, 29.9% of electricity in Serbia was generated from renewables, with hydropower accounting for the vast majority (90.6%) and much smaller shares of wind energy (8%), biofuels (1.2%) and solar (only 0.1%) (Eurostat, 2021[1]). In 2013, Serbia adopted the its National Renewable Energy Action Plan (NREAP), the National Action Plan for the Use of Renewable Energy Sources, including a target of 27% renewables in gross final energy consumption by 2020 (Balkan Green Energy News, 2021[2]). In 2019, renewables accounted for only 22% of final energy consumption (Eurostat, 2021[1]) and Serbia recently postponed the 27% target to 2025. Currently, Serbia lacks a long-term strategy for integrating renewables in its energy mix as well as credible and ambitious long-term targets for electricity generation from renewable energies. Serbia’s NREAP expired in 2020 (Republic of Serbia, 2013[3]).

Peer-learning participants identified prosumers (renewable self-consumers) as crucial for scaling up renewables in Serbia. Given that a large share of citizens own the homes in which they live, Serbia has considerable potential for small-scale renewable installations by households for self-consumption. This concept is still in the early stages of development and, to date, there are no renewable self-consumers in Serbia (Energy Community Secretariat, 2021[4]). Peer-learning participants identified five key actions to promote and support more self-consumers: finalise the legal framework for renewables; ease administrative procedures for investment in solar photovoltaic (PV) panels; establish a solar cadastre; set an ambitious target for renewables in electricity generation; and secure financing (Box 19.1).

Investment in renewables by self-consumers in Serbia could be facilitated through further simplification of investment procedures and awareness raising. In August 2021, Serbia adopted a decree on self-consumption, introducing a net metering scheme for households and housing communities and a net billing scheme for all other self-consumers. However, investment in renewables by prosumers is still hampered by Serbia’s ambiguous regulatory framework. The procedure for connecting rooftop PV systems to the electricity grid is difficult, cumbersome and time-consuming. Households and small investors often lack knowledge on procedures for installing rooftop PV systems (Energy Community Secretariat, 2021[4]; Energy Community Secretariat, 2021[5]).

Determining where the potential for self-production and -consumption of renewables is highest is vital to optimising the impact of support schemes. Serbia currently lacks a solar cadastre to calculate the electricity production potential of each roof in the economy, as well as detailed data on electricity grid capacities and load profiles of different parts of the grid. A solar cadastre helps prioritise renewable energy investment at the distribution grid level. In turn, this could exploit synergies with electricity generation from wind and minimise the hours in which electricity is fed into the transmission network via the distribution grid by renewable self-consumers.1

Establishing and completing other support mechanisms for renewables, including auctions, is also important to boosting renewables. Serbia adopted the Law on the Use of Renewable Energy Sources in 2021, which aims to facilitate more investment in renewables (most importantly solar plants and wind farms) and to increase the share of electricity generated from renewables. The law introduces renewable auctions for large renewable facilities based on market-premiums but maintains feed-in tariffs (FiTs) for small-scale facilities (below 500 kilowatts [kW] for PV and below 3 megawatts [MW] for wind plants). FiTs also apply to demonstration projects, defined as non-commercial renewable facilities that demonstrate a relevant novel technology and represent a significant innovation. Auctions can reduce the cost of renewables. The law also introduces the concept of energy communities and collective investment in renewable energy facilities. At present, secondary legislation specifying and clarifying more details of the newly introduced support schemes and collective investment in renewable energies remains to be adopted (Kinstellar, 2021[6]; Energy Community Secretariat, 2021[4]).

Improving Serbia’s regulatory and administrative environment for renewable energies is also vital, as is reinforcing the electricity grid. Challenges persist in Serbia’s permitting system and in the grid infrastructure and its management. The electricity grid needs to be modernised and strengthened to be able to absorb large volumes of variable wind and solar energy. A first step would be to develop a technical assessment of options to achieve this, and its costs. Further, transmission system operators (TSOs) have limited experience with connecting large solar and wind parks to the grid. Finally, Serbia’s balancing market has not yet been liberalised yet and remains monopolistic. Beyond posing a direct obstacle to investments in renewable energies, these challenges also result in a risk premium and higher financing costs for renewable energy projects (New Climate Institute, 2019[7]).

Quickly dispatchable gas-fired power plants could make Serbia’s electricity system more flexible. Currently, inflexible coal-fired thermal power plants (TPPs) generate 68% of electricity in Serbia. These plants are slow to shut down and restart. Serbia is in the process of securing a stable natural gas supply, a pre-condition for gas-fired power plants that can be dispatched more quickly. Since Serbia is landlocked, mechanisms for energy imports are limited to pipeline transport and the Danube River. In 2018, Serbia imported 83% of the natural gas consumed, mainly from Russia. The gas interconnector with Bulgaria, which is still in the planning and construction process, could considerably facilitate Serbia’s gas imports, providing an additional supply route and a more stable and secure natural gas supply.2

Improved interconnections with neighbouring economies and energy storage are another option for rendering Serbia’s electricity system more flexible. Serbia is already in the process of improving the regional interconnection of its grid. An upgrade of the transmission system in Western Serbia is planned as well as of the transmission lines with Bosnia and Herzegovina, and Montenegro. Further integration, flexibility and efficiency could be reached by better integration of electricity markets between Kosovo and Serbia. The connection agreement between Kosovo and Serbia has not been implemented yet (European Commission, 2020[8]).

Increasing electricity prices to align with actual production costs could incentivise more investment in renewable energies for self-consumption. To keep electricity prices low for households, generation from coal is heavily subsidised in Serbia. Although Serbia has reduced subsidies for coal substantially in recent years – from EUR 95.5 million in 2015 to EUR 41.4 million in 2019 – they remain high. Estimated at EUR 1.92 per megawatt hour (/MWh) they rank second-highest in the Western Balkan region, with one study estimating these subsidies to be even higher (Miljević, 2020[9]; Miljević, Mumović and Kopač, 2019[10]; Bjelić and Molnar, 2021[11]).

Raising public awareness of the benefits of renewable energies is also important. Peer- learning participants stressed this point (Box 19.1), noting that public awareness of air pollution has increased considerably over the past four years, as a result of public information campaigns. This has also resulted in higher awareness and better understanding of the energy transition, energy policies and renewable energies. A large share of Serbian citizens now favours development of small-scale solar PV facilities. However, ambiguous and negative attitudes towards renewable energies remain a challenge among some segments of the population.3

Action is needed to reduce the negative impacts of SHPPs on the environment and local communities. At the end of 2018, Serbia’s state-owned utility, Elektroprivreda Srbije, owned 16 older SHPPs and one newer medium size hydropower plant with a total installed capacity of 40 MW. An additional 99 SHPPs are privately owned. The negative impact that SHPPs have on the environment and local communities has caused considerable dissatisfaction among citizens. Specifically, SHPPs contribute to deteriorating river habitats and a decline in fish populations. Often, SHPP developers have government connections and use loopholes to proceed to construction without the required permits or environmental impact assessments (EIAs) (CEE Bankwatch Network, 2019[12]; Water Logist, 2020[13]). In some cases, hydropower licences have been issued before completion of the EIAs. In other cases, licensing processes have failed to take the EIA recommendations into account, and issued licenses have later needed to be retracted. In an example from 2019, the Ministry of Environmental Protection ordered a SHPP developer to restore the SHPP site, located in the Stara Planina National Park, to its original state – after the municipality had issued a permit. The 2021 Law on the Use of Renewable Energy Sources introduces a ban on building hydropower plants in protected areas – an important first step towards reducing the negative impacts of SHPPs (Kinstellar, 2021[6]; Energy Community Secretariat, 2021[4]).

Serbia requires a clear strategy for an energy transition that includes the phase-out of coal. This implies replacing more than 4 000 MW of coal-fired TPP capacity with electricity production from other sources. At present, Serbia relies largely on domestically produced lignite, which has a low calorific value and relatively high sulphur content. Serbia also has one of the highest energy intensities in the Western Balkan region (Eurostat, 2021[1]). Its fleet of lignite-fuelled TPPs is old and highly polluting, and as a result, Serbia’s energy sector accounts for two-thirds of its total carbon dioxide (CO2) emissions. Serbia currently aims to maintain a stable share of coal in its electricity generation mix and plans to open new surface coal mines (Ministry of Mining and Energy, 2016[14]). A mix of renewables and natural gas (to balance the intermittent electricity supply from renewables), in combination with energy efficiency improvements to reduce energy demand overall, could enable the phase-out of coal. As Serbia’s domestic production of natural gas is very low and falls short of market needs, as discussed above, new infrastructure for imports is being developed.

Serbia’s National Energy and Climate Plan (NECP) is a key strategic document to lay out a strategy for decarbonisation and an energy transition. Among Western Balkan economies, Serbia is the least advanced in the process of drafting its NECP but has accelerated preparations since early 2021. Serbia’s NECP will set targets for reducing GHG emissions while boosting renewables and energy efficiency and tackling energy poverty (taking into account Serbia’s NDC and Low Carbon Development Strategy). It will cover a ten-year period and will be updated every four years. In the first half of 2021, Serbia amended its Energy Law and introduced the obligation to adopt a NECP (Official Gazette of the Republic of Serbia No. 40/2021) and to establish a working group for the preparation of the NECP, under the lead of the Ministry of Mining and Energy and the Ministry of Environmental Protection. The working group consists of relevant ministries and institutions, public companies, and civil society organisations. Serbia has also established key assumptions for modelling and initiated data collection. Drafting and analytical work is ongoing (Energy Community Secretariat, 2021[4]).

Revising Serbia’s energy strategy to include ambitious targets for an energy transition that includes coal phase-out would be another important element in designing an effective decarbonisation strategy. The current Energy Sector Development Strategy is valid until 2025; however, it would benefit from stronger ambition for an energy transition and coal phase-out. In its current form, the strategy envisages a stable share of coal in Serbia’s energy mix (Ministry of Mining and Energy, 2016[14]). Serbia’s Ministry of Mining and Energy has already started drafting a new Energy Development Strategy 2040 with projections until 2050, which will define Serbia’s new energy policy, including new targets for renewable energy, energy efficiency and GHG emissions reduction for 2030. The development of a strategy implementation programme and an action plan for a fair transition are also ongoing. It will be key to ensure that this new strategy is based on more ambitious decarbonisation goals and defines a trajectory for coal phase out.

A GHG monitoring, reporting and verification mechanism and an improved GHG inventory are key elements for the successful design and implementation of an energy transition strategy that includes coal phase-out. Serbia maintains a GHG inventory, but scope exists to improve it, particularly by obliging individual plants to more strictly monitor emissions. Serbia’s Law on Climate Change established the legal basis for a national GHG inventory and inventory report. However, additional technical rules – such as the scope of bodies and organisations responsible for managing information systems and databases – remain to be defined (Serbia and Climate Change, 2019[15]). The Law on Climate Change also introduced the main elements for a GHG monitoring, reporting and verification mechanism, including penalties, but additional technical and procedural regulations remain to be defined (Energy Community Secretariat, 2021[4]).

Serbia requires a more ambitious GHG emissions reduction target. In its Nationally Determined Contribution (NDC) under the Paris Agreement, Serbia pledged to reduce GHG emissions by 9.8% by 2030 as compared with 1990 levels (Republic of Serbia, 2017[16]; UNDP Serbia, 2019[17]). At the time of writing, Serbia was the only regional economy that had not yet officially defined an updated NDC and targets ahead of COP26 (November 2021) (Balkan Green Energy News, 2021[18]; Energy Community Secretariat, 2021[4]).

Ensuring rapid implementation of Serbia’s Law on Climate Change is vital. Serbia adopted a Law on Climate Change in 2021, which lays the foundation for establishing a system to limit GHG emissions in line with the EU Monitoring Mechanism Regulation. It also provides the legal basis for a GHG emissions inventory and GHG projections. Those industrial and power plants covered by the law will be obliged to monitor, report and verify their GHG emissions in accordance with EU principles. The Law on Climate Change also envisages the adoption of a Low Carbon Development Strategy (LCDS) within a delay of two years (Republic of Serbia, 2021[19]). Serbia has prepared a draft LCDS but it has not yet been adopted.

Improving implementation of energy, climate and environmental legislation in Serbia is necessary. Existing legislation is often not enforced in Serbia, and implementation deadlines are often not respected. An air protection strategy was proposed with initial deadline for adoption of 2011, which was extended to 2015; at time of writing in 2022, the strategy had not yet been adopted (UNECE, 2015[20]). To improve and accelerate implementation of energy, climate and environmental legislation and strategic documents, realistic time frames need to be established and supported with sufficient human, financial and material resources. Such policies also need to be integrated into sectoral strategies and relevant strategic documents.

Serbia requires a more transparent and inclusive process for energy and climate policy making. Public consultations are planned in the process of designing and adopting Serbia’s NECP and Serbia’s Parliamentary Energy Policy Forum, a body of the Serbian National Assembly, is informed regularly on the NECP drafting process. However, at present, Serbia lacks an institutionalised dialogue on energy and climate policy making between public entities and the private sector, civil society and academia. Furthermore, according to the amended Energy Law, the government – rather than Serbia’s elected parliament – will adopt the NECP.4

Scope exists to better apply low-carbon and other environmental criteria in public procurement and to provide appropriate capacity building. In Serbia, the legal framework allows for incorporating low-carbon and other environmental criteria in public procurement processes, including life-cycle costs and carbon costs. At present, these criteria are rarely applied.5 In line with the Law on Public Procurement’s Action Plan for 2021, a training was organised in December 2021 by Serbia’s Public Procurement Office with the UNDP’s support, with the aim to educate contracting authorities and equip them with practical tools and examples to facilitate the application of green public procurement. Going forward, this training could encourage an increased usage of green criteria in public procurement.

Outdated and poorly insulated residential buildings contribute to high energy consumption by households in Serbia. Nationally, households account for the largest share of energy consumption at 34.1% compared with 32.4% on average in the Western Balkan region and 26.9% in the European Union (Eurostat, 2021[1]). Electricity accounts for 40.6% of household energy consumption and biomass (mainly fuel wood) for 29.6% (2018) (IEA, 2021[21]). Estimates show that 85% of residential buildings have no thermal insulation and that the total potential for energy savings in buildings is 887 kilotonnes of oil equivalent per year (ktoe/year) (USAID, 2020[22]). By reducing household energy consumption, energy efficiency improvements could also lower energy bills.

The prevalence of inefficient devices for space heating is the main contributor to high household energy consumption in Serbia. In 2018, the main fuels for space heating are renewables and waste (fuel wood) (44.1%) and solid fuels (coal) (13.4%); while these shares are below the Western Balkan average, they are much higher than EU averages (Eurostat, 2021[1]). Among households in the lowest decile of the income distribution, the share relying on fuel wood and coal for heating rises sharply to 78% (in 2019) (Republički zavod za statistiku, 2020[23]). A substantial share (22.5%) of households in Serbia rely on derived heat (district heating systems) (Figure 19.2) (2018). 43% of dwellings in Serbia are either connected to district heating systems or equipped with central heating (Đurić, Krstić and Jović, 2019[24]). Many households use inefficient wood stoves and ovens for heating; while the minimum level of efficiency prescribed by legislation in Serbia is 60%, many of these devices operate at only 20% to 40% (Glavonjić, 2014[25]). In addition to driving up energy consumed, these devices lead to high levels of air pollution: household heating accounts for 77% of PM2.5 and 57% of PM10 emissions in Serbia (2018) (Agencija za zaštitu životne sredine, 2020[26]).

In addition to low levels of energy efficiency in buildings, technical energy losses contribute to low levels of energy efficiency in Serbia. Technical energy losses in the energy system in Serbia are the second-highest in the Western Balkan region: Transformation and distribution losses and energy sector consumption are estimated to 38.8% of primary energy consumption in Serbia (2019) compared to averages of 31% in the region and 26.7% in the European Union (Eurostat, 2021[1]) (Figure 14.7 of Chapter 14). These high technical losses are linked to an ageing energy transmission, distribution and transformation infrastructure, a lack of maintenance and suboptimal distribution regimes. Most of Serbia’s TPPs are outdated and inefficient. Non-technical losses, including theft, are also high in Serbia.

In 2021, Serbia adopted its fourth National Energy Efficiency Action Plan (NEEAP) (until 2021). As a member of the Energy Community, Serbia is obliged to adopt a NEEAP. Serbia’s fourth NEEAP sets energy savings targets for 2020 and 2021 and defines a set of measures to achieve those targets. Measures include an energy efficiency obligations scheme, energy audits, smart metering and the development of ESCOs. Serbia’s fourth NEEAP further includes measures for awareness raising on energy efficiency, measures for energy efficiency in buildings, measures to enhance energy efficiency in the industrial sector, measures to improve energy efficiency in the transport sector and energy efficiency measures for energy conversion, transmission and distribution (Republic of Serbia, 2021[27]).

Serbia requires a strategic vision for energy efficiency renovations in buildings, backed up by a holistic policy framework and a strong institutional set-up. Current efforts on building renovation and energy efficiency improvements in Serbia are fragmented and rely strongly on donor and IFI support and funding. Serbia has been lacking a designated institution to lead national policy co-ordination and implementation of energy efficiency measures. The Directorate for Promoting and Financing Energy Efficiency, a new entity within the Ministry of Mining and Energy, which started operations in 2022, could become an important instrument in that regard. Serbia also lacks an inventory of its building stock. Establishing an inventory of the building stock will require detailed information on the technical characteristics of multi-apartment buildings. For this purpose, Serbia could make it mandatory for homeowner associations to produce such reports on a regular basis (USAID, 2020[22]). The development of a long-term building renovation strategy is at its final stage and could accelerate building renovation and policy co-ordination of building renovation measures in Serbia (Energy Community Secretariat, 2021[5]).

Serbia has started to establish support programmes to increase energy efficiency in buildings, and needs to further scale up these efforts. This includes the Pilot Project for Energy Rehabilitation of Residential Buildings, Family Houses and Apartments, launched in 2021, and implemented in co-operation with cities and municipalities. The project offers subsidies of up to 50% for thermal insulation, replacement of inefficient boilers, installation of heat pumps, and solar collectors for water heating. The first pilot project involves 67 local self-government units, and will include more than 5 000 households. Expected energy savings amount to approximately 36 million kWh annually and the expected reduction in CO2 emissions to 12 154 tons per year. The Pilot Project for Energy Rehabilitation of Family Homes, also launched in 2021, subsidises up to 50% of the cost of installation of solar panels. 37 local self-government units participate in the pilot project. The government estimates that more than 500 panels will be installed, resulting in electricity production of 3 GWh per year and CO2 emissions reductions of approximately 3 300 tons per year.

Serbia should prioritise rapid implementation of the Law on Energy Efficiency and the Rational Use of Energy. Adopted in 2021, this law aims to achieve energy savings, thereby reducing the energy sector’s impacts on the environment and climate change while also contributing to sustainable use of natural resources. The law rolls out subsidies to households for energy efficiency upgrades, including replacement of windows and doors, installation of insulation in walls and roofs, and replacement of inefficient heating systems (stoves and boilers) with more efficient and less polluting devices. Subsidies will cover 50% of related costs while households will have to cover the remaining 50% (Ministry of Mining and Energy, 2021[28]; European Commission, 2020[8]).

Serbia’s Law on Housing and Maintenance of Buildings and secondary legislation should be fully implemented as soon as possible. This law, adopted in 2016 together with secondary legislation, has improved the regulatory framework for residential housing. It regulates building management, homeowner associations, the calculation of regular maintenance and renovation fees, certification of building managers, and provisions for inspection of implementation of the law. Importantly, the law allows for homeowner association decision-making by simple majority and two-thirds majority votes and allows for electronic voting. The law stipulates that housing renovations and thermal retrofitting of residential housing are a matter of public interest (Republic of Serbia, 2021[29]). To date, application and enforcement of this legal framework is lagging. In particular, housing associations of multi-apartment buildings take considerable time to self-organise and face policy ambiguities – such as legal gaps in the registration process of common property – that hamper full operationalisation of the framework. In addition, the provision of funds from national and local government budgets to support residential housing renovation is slow.

Human resources with the right skills and co-ordination of energy efficiency policies are important elements of successful energy efficiency policy making. At the Directorate for Promoting and Financing Energy Efficiency, the hiring of additional staff is in progress. Additionally, to ensure a sustainable financing system for energy efficiency improvements, better policy co-ordination and alignment is required between the Ministry of Mining and Energy and the Ministry of Finance (European Commission, 2020[8]).

Scope exists to reduce residential energy consumption by expanding district heating systems. Some 22% of occupied dwellings in Serbia are connected to one of 58 operational district heating systems, making this approach much more widespread than in other Western Balkan economies (Energy Community Secretariat, 2021[4]). However, 57% of dwellings are neither connected to district heating nor do they have central heating systems. Many of these dwellings rely on fuel wood and coal, which is often burned in inefficient devices (Đurić, Krstić and Jović, 2019[24]). The average annual energy consumption of Serbia’s most efficient district heating systems is 110 kilowatt hours per square meter (kWh/m2); in sharp contrast, average annual energy consumption for heating by households relying on fuel wood and coal combusted in inefficient devices is more than 350 kWh/m2. Clearly, expanding district heating systems could lead to significant energy savings.

Decarbonising and modernising district heating systems in Serbia could enhance energy efficiency. District heating systems in Serbia rely mostly on natural gas for heat production (80%), combined with coal, petroleum products and a limited amount of biomass (20%). Other renewables make up only 1% of fuels used for district heating. While natural gas is much less polluting than coal, integrating renewable energies into the energy mix for district heating could cut pollution even more. Serbia could further reduce its emissions by phasing out the remaining coal-fired district heating plants and replacing them with plants that rely on renewables and natural gas. Overall, Serbia’s district heating systems are inefficient and in need of modernisation. In fact, their utilisation rate is low due to poor design predicated on a small number of large units operating at a capacity that aims to deliver sufficient heat to all users – even on the coldest day (Poslovno udruženje toplane Srbije, 2020[30]). Serbia is already making progress in the modernisation and decarbonisation of district heating systems, by transforming four district heating systems from fuelling based on mazut and coal to biomass (woodchips). Two of the four district heating systems are operational, totalling 10 MW capacity of biomass heat production. Serbia is also performing analyses on the potential utilisation of solar energy in district heating. Furthermore, Serbia has already rehabilitated 23 district heating systems.

Consumption-based metering and billing for households connected to district heating systems would encourage energy savings. In many district heating systems in Serbia, electricity billing is not based on actual electricity consumption. This hampers energy efficiency improvements, since energy savings do not reduce consumer electricity bills (USAID, 2020[22]). Serbia has taken first steps to introduce consumption-based metering and billing in district heating systems, with 15 district heating companies adopting this approach (European Commission, 2020[8]). Serbia’s Law on Efficient Use of Energy (LEUE) (from March 2013) defines criteria for metering district heating in new buildings and generally prescribes the installation of meters for measuring heat delivery at the building level. However, the law requires installation of metering equipment in individual apartments only if it is technically and economically feasible (USAID, 2020[22]). Serbia has not yet taken the necessary steps to implement consumption-based metering and billing in district heating systems on a large scale (European Commission, 2020[8]).

Serbia should develop strategies to secure more funding for energy efficiency improvements. The investment required for energy efficiency improvements in residential, public and commercial buildings in Serbia is estimated at EUR 4 541 million – 65.7% for residential, 27.2% for commercial and 7.1% for public buildings. Annually, this would result in energy savings of 887 ktoe and cost savings of EUR 548 million (due to lower energy consumption). To date, programmes and financial instruments for energy efficiency improvements and renovation have been sporadic – often relying on donor financing – and did not trigger a scale-up effect. The economic recession linked to the COVID-19 pandemic and the tightening of Serbia’s budgetary resources are likely to further reduce financing available for energy efficiency improvements (United Nations Serbia, 2020[31]). At the time of writing, expected new financing for energy efficiency included loans from the World Bank and the EBRD, totalling USD 50 million and EUR 20 million, respectively.

Better access to financing for energy efficiency improvements in multi-apartment buildings could spur homeowner associations to take action. Some 27% of residential buildings in Serbia are multi-apartment buildings (Energy Community Secretariat, 2021[32]). Banks in Serbia perceive homeowner associations as highly risky borrowers because of insufficient collateral, the involvement of multiple individuals in decision-making, and the complexities of collecting regular income for repayment from members. Also, the legal status of such associations continues to be vague. The common property assets are not adequately registered to be considered for collateralisation. Even when made by majority vote, decisions are often difficult to enforce. Mandating additional fees for homeowners, on top of minimal building maintenance fees, could help finance energy efficiency improvements and provide homeowner associations with higher capacity for down payments, which would increase their creditworthiness. The government could also introduce credit guarantees for such associations. Energy service companies (ESCOs) could provide financing for energy efficiency improvements in multi-apartment buildings. The Law on Efficient Use of Energy introduces a definition for energy service contracts (including contract templates) between ESCOs and public sector entities (USAID, 2020[22]). ESCO projects in buildings, public lighting and district heating are already being implemented in Serbia (Energy Community Secretariat, 2021[5]). In a relevant example, Slovakia developed a successful funding strategy for renovation of and energy efficiency improvement in multi-apartment buildings, including state guarantees and co-financing mechanisms (USAID, 2020[22]).

Vulnerable households in Serbia require financial support to implement energy efficiency improvements. Vulnerable households face additional difficulties in financing energy efficiency improvements, since support schemes such as the one introduced by the Law on Energy Efficiency and Rational Use of Energy generally require significant co-financing by households. The financial resources of vulnerable households tend to be limited, as is access to credit.6

Scope exists to scale up the financial resources and the range of activities supported by Serbia’s energy financing entities. The Directorate for Promoting and Financing Energy Efficiency (APFEE), which replaces the financing role of the former Budgetary Fund for Energy Efficiency, has been allocated a RSD 2 billion budget that includes subsidies to improve energy efficiency in public facilities, energy rehabilitation of residential buildings, family houses and apartments. Going forward, the APFEE’s scope of activities and budget could be scaled up and stabilised by relying on revenues from a carbon tax or other environmental taxes. Municipal energy efficiency funds also exist in Serbia; the capital city, for example, created the City of Belgrade Budget Fund for Energy Efficiency, which invests in retrofits of both public and residential buildings.

To monitor progress in implementing policies for a green recovery in Serbia, the OECD suggests a set of key indicators, including values for Serbia and benchmark countries (either the OECD or the EU average, based on data availability, and Croatia for the number of renewable self-consumers per 100 000 population) (Table 19.2).


[26] Agencija za zaštitu životne sredine (2020), Godišnji izveštaj o kvalitetu vazduha u Republici Srbiji 2019. godine, Agencija za zaštitu životne sredine, Belgrade.

[18] Balkan Green Energy News (2021), Albanija i Srbija jedine u regionu nisu odredile nove ciljeve za smanjenje emisija u skladu sa Pariskim sporazumom, Balkan Green Energy News, Belgrade, https://balkangreenenergynews.com/rs/albanija-i-srbija-jedine-u-regionu-nisu-odredile-nove-ciljeve-za-smanjenje-emisija-u-skladu-sa-pariskim-sporazumom/.

[2] Balkan Green Energy News (2021), Balkan Green Energy News - portal, Balkan Green Energy News, Belgrade, https://balkangreenenergynews.com/rs/srbija-planira-da-duplira-udeo-obnovljive-energije-i-dostigne-40-odsto-do-2040/ (accessed on 13 October 2021).

[11] Bjelić, I. and D. Molnar (2021), Puna cena električne energije proizvedene iz lignita u Srbiji, https://doi.org/10.46793/EEE21-4.38B.

[12] CEE Bankwatch Network (2019), Western Balkans hydropower - Who pays, who profits?, CEE Bankwatch Network, Prague, https://bankwatch.org/wp-content/uploads/2019/09/who-pays-who-profits.pdf.

[24] Đurić, S., M. Krstić and K. Jović (2019), Serbien und Montenegro. Energieeffizienz in Gebäuden. Zielmarktanalyse 2019 mit Profilen der Marktakteure.

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← 1. Information from fact-finding in Serbia from expert consultants from CENER21.

← 2. This interconnector would give Serbia access to gas imports from different parts of Southeast Europe, including existing and planned LNG terminals in Greece and the Southern Gas Corridor (supplying Europe with gas from Azerbaijan).

← 3. Information from fact-finding in Serbia from expert consultants from CENER21.

← 4. Information from fact-finding in Serbia from expert consultants from CENER21.

← 5. Information from fact-finding in Serbia from expert consultants from CENER21.

← 6. Information from fact-finding in Serbia from expert consultants from CENER21.

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