A long awaited change. PPAs permitted for new power production capacities

The Government Emergency Ordinance no. 74/2020 amending the Energy and Natural Gas Law no. 123/2012 (“GEO no. 74/2020”) was published in the Official Gazette of Romania on 19 May 2020. The GEO no. 74/2020 enters into force on the same date.

The amendment finally brings a significant change, long awaited by the investors in the energy sector since the introduction in 2012 of the producers’ obligation to trade electricity exclusively on centralized markets.

Specifically, the GEO no. 74/2020 allows producers operating power production capacities commissioned after 1 June 2020 to conclude bilaterally negotiated power purchase agreements (“PPAs”) in order to sell their production. There are no limitations as to the power capacity, technology or energy source. The GEO no. 74/2020 also mentions that the PPAs are to be concluded in accordance with competition rules; in absence of more specific references, we assume this would refer to the generally applicable rules in the competition field, which would apply anyway, even if not referenced in the new ordinance.

The GEO no. 74/2020 also mandates the National Energy Regulatory Authority to publish implementing norms for the application of the new legal provisions within 30 days as of its entry into force.

The possibility of power producers to enter into “over-the-counter” PPAs even prior to the commissioning of the new generation capacities is a positive development, facilitating the development of new projects, including by making them more bankable. The crisis ignited by the Covid-19 pandemic seems to have urged several governments, including from the EU, to accelerate and focus even more on investments in renewable energy, with the aim, on the one hand, of achieving environmental benefits and meeting climate targets, while at the same time kickstarting economic growth and seizing longer term economic benefits.

In this context, the introduction of legislative changes in Romania to support the renewable energy sector seems to be not only a welcome, but also a necessary measure. Other matters which currently are represent significant obstacles to the development of renewable projects in Romania, such as grid capacity and high balancing costs, should also be added on the agenda of the Government and other relevant stakeholders.

This information is not legal assistance. For further details, please contact us.

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