1 April 2012
Romania has a rather diversified mix of power production capacities, including coal, gas, hydro and nuclear. Most of these production capacities have historically been and still remain state- owned, with privatization in the energy sector having stalled in the recent years.
The recent focus on green power led to an increased interest in renewable sources of energy, mainly resulting from private investments. In the context of the applicable support scheme, throughout the last five years the development of renewable projects has been the most active energy sector in Romania, with wind being the main focus. At the beginning of 2012, approximately 1,000 MW of wind power were already commissioned, with another approximately 2,000 MW expected to come online in the next two years. In addition to wind, Romania’s potential of power produced from renewable sources extends to hydro, biomass and solar, although so far only a very limited number of rather small such projects have been implemented.
However, especially in the mid and longer term, the positive renewable power trend must be assessed, in the context of Romania’s needs for substantial investments in the development and reinforcement of the power transmission grid and the power distribution grids, as well as the need of additional balancing capacity.
2. Key Drivers
- Diversity of energy renewable sources
Romania benefits of environmental conditions which lead to a diversity of renewable sources with substantial energy potential. If it is to exclude large hydro, the renewable energy spectrum is shared by biomass and biogas followed by wind and solar, in various medium to large proportions, while small hydro and geothermal energy sources are less represented, but still attractive.
There is substantial biomass potential resulting from cereal, corn and grapevine waste, followed by firewood, biogas, urban household waste and wood waste. Nevertheless, so far the current biomass exploitation for industrial use amounts to only 5% of the biomass usage.
Wind has been for the past several years and continues to be nowadays the most targeted renewable energy resource, with the eastern and south-eastern regions of Romania being considered most suitable for wind farm developments, including by reference to other sought- after European windy areas.
Romania also enjoys a suitable geographical distribution of solar energy potential and the support scheme presently in place would favour the shift of focus from wind to solar.
The small hydro plants functioning in Romania currently account for a relatively small share of the estimated possibilities, the high potential of small-scale hydropower being yet insufficiently exploited.
- Need for efficiency
After the political changes occurred in the 1990’s, Romania inherited power production capacities which correspond presently to the technological level of the years 1960-1970. Although the domestic consumption did not grow significantly in the last couple of decades, the need for energy efficiency combined with the European targets in terms of environmental protection are encouraging the development of new power production capacities, especially from renewable sources.
- European momentum
Romania’s accession to the European Union had its effects also over the local energy market, which was compelled to evolve in line with the European directives; in addition to targets regarding opening of the market, unbundling of vertically integrated undertakings, exploitation of natural resources in line with environmental protection practices, the promotion of renewable energy sources is one of the objectives steadily followed by the authorities.
Following its European commitments and also its accession to the Kyoto Protocol, Romania offers greenhouse gas emissions reduction mechanisms, the emissions being expressed in carbon dioxide equivalent (including the joint implementation mechanism and the international emissions trading mechanism) and implemented the European Union emissions trading system as well as specific mechanisms for promoting high efficiency co-generation.
3. Policy & Regulatory Framework and Incentives
- Focus on renewable. Main policy-makers
Of late, Romania’s energy policy started to show a specific focus on renewable sources, in light of the commitments and targets assumed by it within the European Union and internationally in relation to green energy and given the substantial interest demonstrated by potential investors.
The main players involved in the preparation and implementation of the energy policy in Romania are the Parliament (the main legislative body), the Government and the Ministry of Economy, Trade and Business Environment (with their ability to issue certain pieces of legislation and prepare strategies) and ANRE, the regulatory authority in the energy field. Under their supervision, other entities are also involved in this process or indirectly influencing it, including Transelectrica (the majority state-owned transportation grid operator).
- Green certificates support scheme
For the purpose of promoting the production of power from renewable sources, Romania opted for a main support scheme based on green certificates and mandatory acquisition quotas. Although the promotion system was in place since 2004, it went through a substantial restructuring.
Law 220/20008 for establishing the system for promoting of production of power from renewable energy sources (as amended, “Law 220/2008”) was passed in 2008; nevertheless, the system became applicable in its current form only at the end of 2011, following the approval of the scheme by the EU Commission and the subsequent actual implementation of Law 220/2008.
Some further amendments to the law are still expected due to the fact that the recent changes to it, passed on the basis of a Government Ordinance, must be approved (i.e. potentially with changes) by the Romanian Parliament. In addition, secondary legislation clarifying various aspects related to the implementation of the system is still to be issued by ANRE.
- How does the green certificates support scheme work?
Based on the green certificates support scheme as currently applicable:
- producers of power from renewable sources accredited by ANRE are entitled to receive each month a certain number of green certificates per one MWh of power produced and delivered into the power grid;
- the suppliers (and certain producers) of power have the obligation to purchase each year a number of green certificates determined by multiplying (i) the mandatory acquisition quota set for the respective year by ANRE with (ii) the volume of power (in MWh) supplied to final consumers; failure to do so triggers the application of a penalty; and
- the green certificates obtained by the producers are sold on a market separate from the power market at a price which must range between the minimum and the maximum limits set by law (EUR 27 to EUR 55, adjustable based on the inflation index). These prices are valid for the period 2008 – 2025; afterwards, the trading value shall be determined on the green certificates market, but cannot be lower than the minimum trading value applied in 202
For power produced in new plants the support scheme is applicable for 15 years, provided that the relevant production capacity is commissioned by 31 December 2016.
- How many green certificates is a producer entitled to receive?
The number of green certificates granted to the producers of power from renewable sources for each 1 MWh produced and delivered into the grid varies depending on the source. Thus, for example:
- three certificates are granted for hydro power if the hydro-electrical plants are new or two if the hydro-electrical plants are refurbished, in both cases provided that the installed capacity of the plant is up to 10 MW;
- two certificates until 2017 and one certificate starting 2018 for wind power;
- two certificates for biomass; one additional certificate is granted for power produced (i) in high efficiency co-generation biomass power plants and (ii) in power plants using energy crops;
- one certificate for landfill gas and sewage treatment plant gas; and
- six certificates for solar
Green certificates are issued on a monthly basis by Transelectrica and may be sold within the regulated price band either on a centralized market managed by a market operator or on the basis of bilateral agreements.
- Other promotion systems/incentives
Investors in renewable sources may also benefit from European Union financial support. However, this state-aid type support is only partially compatible with the green certificates support scheme. Thus, a renewable power producer that already benefits from EU grants may be eligible to receive a lower number of green certificates (determined by ANRE) than the standard numbers set out above.
Moreover, as an alternative to the green certificates support scheme, certain producers of energy from renewable sources may also opt for other promotion mechanisms. For example, in relation to high efficiency co-generation power plants, a bonus-type support scheme is applicable. On its basis, the relevant producers are entitled to receive a fixed amount in RON per one MWh of power produced in high efficiency co-generation units and destined for domestic consumption. This bonus promotion system cannot be cumulated with the green certificates support scheme and the producers that would be eligible for both must choose between the two.
4. Opportunities and Challenges
The implementation of Law 220/2008 following the approval from the EU Commission boosted the interest of investors and financiers in the Romanian renewable market. Although the market was active for the last four years, with wind being the most powerful trend on renewable energy, legislative uncertainties delayed and even blocked projects, both on the development side and on the transactional one. With the support scheme now in place (although still affected by certain unclear aspects) the investors regained their appetite in the market, while potential financing parties started to evaluate more concrete opportunities, including based on project finance structures.
The rather low development costs (compared to other EU markets), the higher number of green certificates granted for certain technologies, as well as the price band are seen as main attractions for potential investors in the Romanian renewable sector.
Wind continues to be the most active segment, with increased interests shown in the more recent period in relation to solar and biomass projects. Micro hydro power plants are also one of the fields with a significant potential in relation to renewable power in Romania.
Although the current legislation intends to provide a complete framework for promoting renewable sources, there are still aspects to be further covered/updated allegedly in the near future under secondary legislation.
In addition to such still open aspects in the regulatory framework, projects in the renewable energy field face difficulties during the development stage throughout the process of securing the land necessary to build, own and operate the capacity, mostly as a result of the effects of the application of the restitution laws enacted after the fall of the communist regime. Difficulties often arise throughout the permitting process as well, due to sometimes unclear and uncorrelated enough procedures for obtaining a quite substantial number of permits and approvals required.
Grid availability also raises concerns and it is definitely one of the aspects which need due consideration in the assessment of a project, not only because of the limitations on capacity which cannot be excluded, but also from the perspective of potential reinforcement works which may become necessary and hence impact the overall feasibility and profitability.
These concerns result in barriers on project finance with the banks unprepared to cope with the risks.
After commissioning, new challenges may result from an yet inadequate legal framework on balancing obligations.
As new renewable sources units reach commissioning and presumably the market matures, such challenges call for prompt decisions and actions by the authorities.
Despite difficulties, most of which are linked to historical conditions, the Romanian energy market, through the natural advantages and the legislative support translated inter alia in the support scheme based on green certificates, creates a particular interest, mainly for renewable energy projects the volume of which is expected to increase.
Following commitments assumed at European and global level, Romania concentrates on green energy. Despite being energy wasteful, through the state owned power capacities affected by decades of under-investment, Romania, like other countries in the region, may become energy intensive with the increase in demand along with the projected economies expansion in the region.
Renewable energy should also lead to an increased energy security by further diversifying the already exiting energy mix.
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