ENERGY SECTOR IN MONTENEGRO Radosav Babic Director General Ministry of Economy of Montenegro Ministry of Economy of Montenegro

Legal and Strategic framework Energy Law Law on Concessions Law on Ratification of the Treaty establishing the Energy Community between the European Community and the Republic of Montenegro Law on Cross-Border Exchange of Electricity and Natural Gas Law on Efficient Use of Energy Law on Exploration and Production of Hydrocarbons Law on Ratification of the Energy Charter Treaty Law on Exploration and Production of Hydrocarbons Energy Strategy by 2030 (adopted in 2011) identifies priorities similar to those of the EU: Security of the energy supply Development of the competitive energy market Establishing competition in market activities Sustainable energy development The new Energy Development Strategy with Action Plan Until 2030 has been adopted in June 2014 National Action Plan for the Use of Energy from Renewable Sources by 2020 has been adopted Member of the Energy Community Treaty Member of International Renewable Energy Agency

ENERGY POTENTIAL OF MONTENEGRO The fastest growing sector in the economy of Montenegro Production of 1GWh of electricity from domestic sources contributes to a GDP growth of € 33,000 The total installed capacity of all capacities is cca 900MW, of which 68% belongs to hydro, 24% to thermal capacity of electricity and 8% to wind power The total projected annual net power is about 3,000 GWh It is possible to invest in the following sectors: hydropower; thermal energy; wind energy; solar energy; energy created from biomass.

status of privileged producer Energy Law enables the acquisition of the status of privileged producer of energy from renewable energy sources and for the energy produced from this kind of sources the incentive prices are defined When an investor acquires the status of privileged producer, according to the procedure he is signing contract with Montenegrin electricity market operator Status of privileged producer is determined for a period of 12 years

status of privileged producer incentive prices for energy produced from renewable energy sources - c€/kWh Windfarms 9.6 Biomass power plants from forestry and agriculture 13.71 Biomass power plants from the wood industry 12.31 Solar power plants on roof constructions 12.00 Power plants on solid landfills 9.00 Power plants on waste gas 8.00 Power plants on biogas 15.00 incentive prices for the electricity generated in small hydropower plants classified into groups shall be determined depending on the net power output of power plant in the manner indicated in the table below Net power output of power plant [MW] Group Incentive prices [c€/kWh] net power output of power plant Ppe < 1MW                  1 10.44 net power output of power plant 1 ≤ Ppe < 3 MW           2 10.44 - 0.7*Ppe net power output of power plant 3 ≤ Ppe< 5 MW            3 8.87 - 0.24*Ppe net power output of power plant 5 ≤ Ppe< 8 MW       4 8.35 - 0.18*Ppe net power output of power plant 8 ≤ Ppe ≤ 10 MW   5 6.8 Net power output of power plant shall be calculated by using the following formula: Ppe= Pt* Ƞt*Ƞg*Ƞtr         Pt -  stands for the sum of nominal powers of all turbines in the plant [MW];         Ƞt -  stands for efficiency of the turbine in the amount of 0.90;         Ƞg -  stands for efficiency of generators in the amount of 0.96; Ƞtr  - efficiency of transformers in the amount of 0.99.

Projects in energy sector Connecting Montenegro and Italy with an undersea cable - construction of a 1,000MW direct-current submarine cable with associated converter plants. The investment in cooperation with the Montenegrin electric system is realized by the Italian company TERNA capacity: 2x500MW HVDC cables; length: 415km (390km undersea) start of operation – 2018 Construction of the II Block of TPP Pljevlja - power of 254MW with electrical efficiency of 39.5% at the price of 338.5 million €, while the annual electricity generation would be 1.600GWh - investor Škoda Praha, Czech Republic the II Block of TPP Pljevlja will be constructed in line with all EU standards in terms of environmental protection and District heating system will be developed for town of Pljevlja.

Projects in energy sector Renewable energy sources - small hydropower plants - the 34 contracts envisage construction of 53 sHPP, total installed capacity of around 95 MW and planned annual production of around 311 GWh; the indicative value of investments for all planned sHPPs is € 136 million Renewable energy sources - wind farms - the construction of wind farms is planned at two locations: at Krnovo site (total installed power of 72 MW) at the Mozura locality (total installed capacity 46 MW) HPP Moraca - includes the construction of four facilities: HPP Andrejevo, HPP Raslovici, HPP Milunovići and HPP Zlatica, total installed power of 238 MW and estimated average annual production of 721 GWh; construction costs € 540 million HPP Komarnica - the construction of HPP Komarnica is planned for the total installed capacity of 168MW and annual production of 232GWh, with a construction period of 6 years and an estimated cost of 183 million €

Projects in energy sector Maoce - the project Maoce aims to valorize the most important and largest natural mineral wealth of Montenegro so far discovered. Two variants of TE Mace are planned - namely the construction of one 350 MW block or two blocks with a total power of 500 MW (2x250 MW) Gasification and TAP-IAP - planned construction of gas pipeline from Albania to Croatia, across the territory of Montenegro and Bosnia and Herzegovina. The total length is 530 km and will enable the gasification of Montenegro. Shah Denis Consortium from Azerbaijan has selected TAP gas pipeline as a route of transportation of gas through Europe Oil and gas - the Law envisages the possibility of getting two types of concession contract: Exploration Concession Contract and Production Concession Contract contracts for Hydrocarbons Production Concession for offshore Montenegro were signed in 2016 with companies ’Eni’ and ’Novatek’ and in 2017 with ’Energean Oil & Gas’

THANK YOU FOR THE ATTENTION Ministry of Economy of Montenegro www.oie-res.gov.me www.mek.gov.me Radosav Babic Director General Ministry of Economy of Montenegro radosav.babic@mek.gov.me Ministry of Economy of Montenegro