The Energy Regulation and Markets Review
Third Edition
Editor David L Schwartz
Law Business Research
The Energy Regulation and Markets Review
fte Energy Regulation and Markets Review Reproduced with permission from Law Business Research Ltd.
ftis article was first published in fte Energy Regulation and Markets Review Edition 3
(published in June 2014 – editor David Schwartz).
For further information please email Nick.Barette@lbresearch.com
The Energy Regulation and Markets Review
David L Schwartzftird Edition Editor
Law Business Research Ltd
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Editor’s Preface………………………………………………………………………………………………… vii
David L Schwartz
Chapter 1 OVERVIEW OF CENTRAL AND WEST AFRICA……….. 1
Pascal Agboyibor, Bruno Gay and Gabin Gabas
Chapter 2 ANGOLA…………………………………………………………… 19
Catarina Levy Osório and Helena Prata
Chapter 3 AUSTRALIA……………………………………………………….. 35
Mark Carkeet, Andrew Brookes and Darshini Nanthakumar
Chapter 4 BRAZIL……………………………………………………………… 55
Guilherme Guerra D’Arriaga Schmidt
Chapter 5 CANADA…………………………………………………………… 68
Patrick Duffy, Brad Grant, Erik Richer La Flèche and Glenn Zacher
Chapter 6 COLOMBIA………………………………………………………… 85
Patricia Arrázola-Bustillo and Fabio Ardila
Chapter 7 CYPRUS……………………………………………………………… 97
Michael Damianos and Electra Theodorou
Chapter 8 DENMARK……………………………………………………….. 107
Nicolaj Kleist and Morten Ruben Brage
Chapter 9 ECUADOR………………………………………………………… 118
Jorge Paz Durini, Daniel Robalino, Leyre Suárez and Rafael Valdivieso
Chapter 10 EGYPT……………………………………………………………… 127
Bassam Moussa and Mariam Fahmy
Chapter 11 FRANCE…………………………………………………………… 137
Fabrice Fages and Myria Saarinen
Chapter 12 GERMANY……………………………………………………….. 150
Kai Pritzsche, Sebastian Pooschke, Henry Hoda
Chapter 13 GHANA……………………………………………………………. 162
Emmanuel Sekor and Enyonam Dedey-Oke
Chapter 14 INDIA………………………………………………………………. 175
Akshay Jaitly, Sitesh Mukherjee, Neeraj Menon and Rashi Ahooja
Chapter 15 INDONESIA……………………………………………………… 188
Mochamad Kasmali
Chapter 16 ITALY……………………………………………………………….. 203
Simone Monesi, Piero Viganò and Giovanni Penzo
Chapter 17 JAPAN……………………………………………………………… 220
Reiji Takahashi, Atsutoshi Maeda, Shun Hirota, Yuko Suzuki and Masato Sugihiro
Chapter 18 KENYA…………………………………………………………….. 233
Albert Mumma
Chapter 19 KOREA…………………………………………………………….. 248
Wonil Kim and Kwang-Wook Lee
Chapter 20 MALAYSIA……………………………………………………….. 264
Lukman Sheriff Alias
Chapter 21 MEXICO…………………………………………………………… 273
Gonzalo A Vargas
Contents
Chapter 22 MOZAMBIQUE…………………………………………………. 285
Fabrícia de Almeida Henriques and Paula Duarte Rocha
Chapter 23 NAMIBIA…………………………………………………………. 296
Axel Stritter
Chapter 24 NETHERLANDS……………………………………………….. 315
Louis Bouchez and Maurits Bos
Chapter 25 NEW ZEALAND……………………………………………….. 325
Mei Fern Johnson and Nicola Purvis
Chapter 26 NIGERIA………………………………………………………….. 338
Ken Etim and Ayodele Oni
Chapter 27 NORWAY…………………………………………………………………………. 352
Per Conradi Andersen and Christian Poulsson
Chapter 28 PHILIPPINES……………………………………………………. 362
Monalisa C Dimalanta and Najha Katrina J Estrella
Chapter 29 POLAND………………………………………………………….. 377
Krzysztof Cichocki and Tomasz Młodawski
Chapter 30 PORTUGAL………………………………………………………. 390
Nuno Galvão Teles and Ricardo Andrade Amaro
Chapter 31 ROMANIA……………………………………………………….. 403
Lucian Caruceriu and Anca Mitocaru
Chapter 32 SPAIN………………………………………………………………. 415
Antonio Morales
Chapter 33 SWEDEN………………………………………………………….. 428
Hans Andréasson, Martin Gynnerstedt and Malin Håkansson
Chapter 34 SWITZERLAND………………………………………………… 440
Georges P Racine
Chapter 35 TURKEY……………………………………………………………. 452
Okan Demirkan, Zeynep Buharalı and Burak Eryiğit
Chapter 36 UKRAINE…………………………………………………………. 468
Wolfram Rehbock and Maryna Ilchuk
Chapter 37 UNITED ARAB EMIRATES………………………………….. 486
Masood Afridi and Haroon Baryalay
Chapter 38 UNITED KINGDOM…………………………………………… 507
Elisabeth Blunsdon
Chapter 39 UNITED STATES………………………………………………… 524
Michael J Gergen, Natasha Gianvecchio, Kenneth M Simon and David L Schwartz
Chapter 40 UZBEKISTAN……………………………………………………. 541
Eldor Mannopov, Shuhrat Yunusov, Anna Snejkova and Ulugbek Abdullaev
Appendix 1 ABOUT THE AUTHORS……………………………………… 551
Appendix 2 CONTRIBUTING LAW FIRMS’ CONTACT DETAILS. 577
EDITOR’S PREFACE
Our third year of writing and publishing The Energy Regulation and Markets Review has been marked by an increase in exploration and production of petroleum products and natural gas, investment in energy infrastructure, renewable resource development, competitive market developments in the electricity industry, privatisation of state-owned energy companies, and Chinese state-owned investment. We have also seen decreases in rate/tariff deficiencies and hydroelectric generation productivity in certain low-rainfall regions, as well as an effort to reduce reliance on nuclear generation.
From a supply perspective, upstream oil and natural gas exploration, development and production has continued to grow in North America. Canada continues to look for export opportunities, the United States is continuing to consider export authorisations, and Mexico is constructing natural gas pipelines to import low-cost natural gas from the United States. In the wake of the Fukushima disaster, some countries, including Germany, Switzerland, France, Japan and Korea, are seeking to reduce their current reliance on nuclear generation. Certain countries, such as the United States and Denmark, have also witnessed extensive retirements of coal-fired generation facilities, owing to greenhouse gas emissions targets and comparisons with the cost of natural gas. At the same time, other countries (including Malaysia, India and Indonesia) are continuing to develop coal generation resources due to significant electricity generation needs that require fuel source diversification. We have also seen increases in renewable generation development efforts (including in Sweden, Denmark, Romania, Kenya, Australia, India, Japan and Malaysia), while many other countries in Europe and North America have reduced subsidies for renewable resource development.
From a demand perspective, we are seeing noteworthy reductions in demand in
some countries, owing to the residual effects of the global financial crisis, while we are witnessing significant demand growth in other countries, including Indonesia, Turkey and Angola.
From a market and rate perspective, we are observing substantial efforts to reduce rate/tariff deficiencies. Many countries have fully liberalised their generation markets, while others are heading towards a competitive market model. ftere are continued efforts to develop competitive electricity markets for energy and capacity, and some countries have developed effective carbon pricing mechanisms. We have seen an increase in privatisations of state-owned energy companies, including in Turkey, Cyprus, New Zealand and Nigeria. Chinese state-owned companies have acquired interests in utilities in Australia (State Grid acquisition of significant shares of two Australian utility companies) and Mozambique (China National Petroleum acquired certain offshore gas rights).
Editor’s Preface
Natural disasters and political strife continue to impair the ability to provide reliable energy services, as evidenced by the impacts of Typhoon Haiyan in the Philippines and the continued unrest in Ukraine. On the other hand, a lack of political strife has contributed to significant development of the energy industry in other countries, such as Angola, which has seen increased capital investment, including in oil exploration and production.
I would like to thank all the authors for their thoughtful consideration of these difficult challenges. We look forward to identifying possible mechanisms to resolve the many issues and concerns discussed in these chapters.
David L Schwartz Latham & Watkins LLP Washington, DC
June 2014
Chapter 31
Lucian Caruceriu and Anca Mitocaru1ROMANIA
I OVERVIEW
In 2013 there were significant changes in the regulations applicable to the energy sector in Romania.
Some of the changes have materially reshaped the framework applicable to the renewable energy sector, limiting financial and political support, increasing regulatory and business risks and ultimately bringing to a halt new investments in green projects.
Other changes have been implemented at the level of substantial secondary regulations, with a view to bringing them in line with the provisions of the Electricity and Gas Law No. 123 of 2012 (the Energy Law) and to continue the liberalisation of the electricity and gas markets.
Privatisation of the major state-owned companies in the energy sector and the liberalisation of the electricity and gas markets are expected to continue to be drivers of changes in the regulations, prompted by the express obligations assumed in these respects by Romania, under the standby agreement with the International Monetary Fund.
fte official rhetoric has pointed favourably to a return to conventional energy sources, encouraged by the positive findings in the onshore and particularly offshore Black Sea explorations. Encouraging and securing access to these natural resources might form the core of the long-awaited sector strategy of Romania and ultimately might deliver on the national objective of energy security and autonomy. Shale gas may add steam to this direction, although shale gas is not yet a comfortable political topic, due to concerns voiced by certain local communities and green NGOs.
1 Lucian Caruceriu and Anca Mitocaru are associates at PeliFilip.
II REGULATION
- fte regulators
Regulators
In addition to the Parliament and the government, which have the main legislative and regulatory powers in any field, there are several regulatory authorities with power within various energy sectors. fte main authorities are:
- the Energy Field Regulatory Authority (ANRE), an autonomous public body controlled by Parliament, with powers in the electricity, heat and gas sectors;
- the National Natural Resources Authority (ANRM), a specialist body under the coordination of the Romanian government, regulating the activities related to natural resources, oil and shale gas; and
- the National Authority for the Regulation of Public Community Services (ANRSC), a public institution of national interest subordinated to the Ministry of Regional Development and Public Administration, regulating and monitoring the activities of public utilities (central thermal energy).
A separate specialist regulator deals with nuclear power plants. fte Ministry of Economy is also involved in the energy field, supervising the privatisation process of state-owned companies, also being the representative of the state holding the state participation in companies in the sector. A special department for energy has been created, which supervises the overall implementation of the government’s objectives in this field by preparing the national energy sector strategy.
Legal and regulatory field
fte legal and regulatory framework in the energy field comprises several categories of enactments:
- laws, passed by the Parliament;
- ordinances (which essentially have a force equivalent to that of laws), passed by the government;
- decisions issued by the government in relation to the implementation of various laws and ordinances; and
- orders, decisions and other similar acts issued by the relevant ministries and regulatory authorities.
ii Regulated activities
fte development, construction and operation of projects in the energy field require various authorisations and permits. Activities such as the sale of electricity and gas may, in principle, be carried out only by licensed entities. Similarly, various activities in the fields of mining and exploration and exploitation of natural resources require permission, a concession or a licence.
fte permissions procedure – especially for the more complex projects – tends to be intricate and time-consuming, with a substantial number of permits having to be obtained. Moreover, due to a lack of centralisation, several regulatory authorities (in addition to those relevant to the energy sector) are usually involved. By way of example, the development, construction and operation of a power plant typically requires a rather extensive set of permits, authorisations and licences. In the development and construction phase, these include:
- urbanism certificates and building permits issued by local administrative authorities (city hall or county council);
- environmental approvals issued by the specialist environmental authority;
- various permits and approvals issued by entities such as the Romanian Intelligence Service, the Ministry of Defence and the Aeronautical Authority;
- grid connection permits; and
- setting-up authorisations.
fte permits relevant for the development and construction phase are issued within a certain period (typically 30 to 60 days) from the submission by the applicant of the complete authorisation file. In the event the authorities are not satisfied with the documents received, they may ask for further information and clarifications. fte documents to be submitted differ from a permit to another. For example, for the civil construction permits (i.e., building permits), the applicant must submit evidence of in rem rights secured over the plots of land on which the power plant project is to be developed.
fte issuance of the relevant permits is subject to the payment of tariffs, the amount of which varies from a certain fixed value set by the authorities (such as for the setting-up authorisation) to a percentage of the value of the intended construction works (as is the case for building permits).
Additional permits must be obtained for the operations phase, including a licence for the production of electricity and an environmental authorisation. fte relevant entity may apply for the licence after completion of the construction works and the connection of the project to the electricity grid, but before commencing the commercial exploitation of the power plant. Typically, regulatory authorities would issue the licences and authorisations for the operation phase within 30 to 90 days of the date the complete documentation is filed and the relevant fee is paid.
In addition, producers of electricity from renewable sources must comply with formalities in order to be accredited for being granted green certificates in accordance with the support scheme.
Activities in the electricity and gas fields also require specific permits, such as supply, distribution, transmission and storage (of gas) licences. ftese energy-specific permits are issued by ANRE to entities fulfilling certain criteria, usually within 60 days as of submission of the complete application documentation.
Activities involving mineral resources are performed on the basis of various licences and permits issued by ANRM, depending on the type of activity (e.g., exploration and exploitation). In principle, exploration and exploitation permits and licences are granted following a public tender procedure, with the possibility of the direct award of licences or permits in certain circumstances.
Obtaining mining licences in relation to which tender procedures must be followed usually takes a longer time (e.g., several months).
fte holder of an exploration licence can automatically benefit from an exploitation licence for any or all of the mineral resources detected on the exploration perimeter.
Exploitation permits are granted on a first-come first-served basis, subject to the regulatory conditions being met. Obtaining an exploitation permit on a different perimeter is conditional upon fulfilling the environmental rehabilitation duties in the previously exploited perimeter(s).
Moreover, the holder of a prospection permit benefits from an additional benefit when attending a public tender for the issuance of an exploration licence (but only for the perimeter where such applicant performed the prospection activity).
iii Ownership and market access restrictions
Certain requirements of Romanian law may to a certain extent limit the direct access of foreign entities to the Romanian energy market. ftus, for example, Romanian legislation envisages the possibility of a foreign company holding an electricity supply licence issued in its home state to perform electricity supply activities in Romania on the basis of that licence (without having to obtain another licence in Romania). However, this possibility is available only if a bilateral agreement regarding the mutual recognition of the validity of supply licences exists between Romania and the respective foreign state. No such bilateral agreements appear to have yet been concluded by Romania and therefore the access to certain activities on the Romanian electricity market is still conditional upon obtaining a licence locally.
Following an investigation, the European Commission has concluded that the operator of the centralised electricity markets (Opcom) abused its dominant position by requiring that foreign entities that wanted to register on the market had to obtain a Romanian VAT number. fte European Commission concluded that Opcom has abused its dominant position on the electricity market, due to the fact that it had discriminated between national and foreign companies, and applied a fine of €10 million. Following this sanction, Opcom is in the course of changing its practice.
New legal provisions passed in 2013 prohibited the development of new photovoltaic parks on agricultural land for which permission was not obtained before 31 December 2013.
iv Transfers of control and assignments
A change of control over a company performing a licensed activity may trigger the obligation to notify certain regulatory authorities. fte transfer of (material) relevant assets would entail the prior written approval of the regulatory authority that issued the sector-specific licence. In general, the transfer of licences cannot be performed without the consent of the issuing authority, which sometimes actually involves the re-issuance of the licence. ftese aspects are relevant in several scenarios, including in a project financing context, with respect to the enforcement of mortgages over the relevant assets or licences created in favour of a financing party.
In the case of corporate restructuring processes (e.g., mergers or spin-offs), such regulatory approvals may also need to be obtained and, in certain cases, the applicable legislation expressly provides that the relevant licences or permits must be amended as an effect of corporate restructuring, or the licences can be actually transferred to the new entity resulting from the corporate restructuring process. Typically, this procedure may last up to several months.
In addition to the sector-specific regulatory requirements, a change of control in or sale of assets by entities that carry out activities subject to environmental authorisations have to be notified to the environmental authority, together with any arrangements entered into between the selling and purchasing entities with regard to the allocation among them of the environmental obligations. On this basis, the environmental authority may then decide whether any authorisations or permits already issued to the relevant entities need to be amended.
fte sale of shares or assets may also be subject to Competition Council clearance.
III TRANSMISSION/TRANSPORTATION AND DISTRIBUTION SERVICES
i Vertical integration and unbundling
fte energy sector has undergone multiple changes in recent years, many affecting the energy infrastructure, mainly due to the reforms needed to adapt Romanian legislation to incorporate EU norms. ftus, in the field of electricity, Romania authorised a single, majority state-owned transmission system operator (TSO), responsible for providing system services, drafting grid investment plans and cooperation with other European TSOs.
Distribution activities are undertaken by eight different companies that have been granted concession agreements in eight main distribution areas. ftree are still controlled by the Romanian state. fte subject of privatisation with respect to these distribution companies has recently resurfaced, prompted by the commitments in the standby agreement with the IMF.
In the natural gas sector, Romania also authorised a single state-owned transport operator responsible, inter alia, for the elaboration of development and investment plans and ensuring interconnection with European and international gas corridors. Natural gas distribution is carried out on the basis of concession agreements. Currently, 55 companies are active in the distribution sector.
In the oil sector, the major players are private entities, except for the company that manages the state pipeline infrastructure for transport, which is still majority state- owned.
Refining activities, along with the distribution of oil products and LPG, are mainly undertaken by companies or groups of companies active in several sectors in the field, including exploitation, refining and the sale of oil products.
In line with the EU rules, the Romanian legislation imposes the obligation of unbundling distribution of electricity and other electricity activities. In the field of natural gas, the same unbundling principle applies.
Apart from the oil transport operator, which only undertakes transport activity, the rest of the companies active in the oil sector are typically vertically integrated.
In the electricity sector, certain changes have occurred as a result of the increasing interest of investors in renewable energy capacities, which has resulted in limited and rather local investment in transmission and distributions capacities.
In the gas sector, after the failure of the plans regarding the Nabucco project, Romania turned its attention towards funding from the EU for developing interconnection corridors with neighbourhood countries and creation of an LNG terminal in one of the harbours at the Black Sea.
ii Transmission/transportation and distribution access
Romanian legislation regulates the principles of transparent, non-discriminatory and regulated access to transport and distribution grids. In reality, however, access may in some cases be limited by the capacity of the relevant grid. For example, the limited capacity of the electricity distribution and transmission grids has already been overbooked due to an impressive number of grid connection permits having been issued for renewable projects. In addition, the current physical status of distribution and transmission electricity grids results in some cases in the need to implement rather costly grid reinforcement works in order to ensure the connection of new projects. In practice, the developers of the respective projects are expected to bear (at least temporarily) a substantial part of these costs.
Competition is required and sustained in all energy sectors in Romania, but transmission activities largely remain a monopoly, in line with the practice in other EU states.
Usually, transmission and transportation and distribution services are carried out on the basis of concession agreements granting exclusive rights in the relevant area or in relation to certain infrastructure assets. In the electricity distribution sector, for example, distribution licences may be granted to third parties only with the consent of the entity holding an exclusive concession in the respective area.
On the electricity and gas distribution side, some competition has emerged following the privatisation of some of the incumbent operators. However, this is limited due to the separation of various concession areas and the fact that tariffs are regulated.
iii Terminalling, processing and treatment
Romanian legislation provides for the creation of underground storage facilities for gas as well as the possibility of exploitation licence holders in the oil sector to hold storage capabilities, based on a special licence. fte storage of natural gas is the responsibility of licensed operators that have to fulfil a series of obligations, such as granting non- discriminatory access to storage facilities on a first-come, first-served basis to operators included on a priority list, and not to block the quantities stored. Natural gas transport operators also have the obligation to hold and maintain sufficient quantities of natural gas in order to ensure the balance of the national transport system.
fte processing and treatment of natural gas is regulated, including through a technical code setting out the conditions for the operation of companies active in this field, the technical requirements for treatment operations and safety requirements.
Oil storage can take place on the basis of an oil storage licence.
Romania has also established an obligation for producers and other operators that sell or buy oil products to establish minimum stocks. fte minimum stocks are determined each year by the Ministry of Economy and the operators concerned may delegate the responsibility for at least 10 per cent of the storage to other parties.
In 2013 a new LNG technical code entered into force, regulating the design and construction of LNG facilities. It determines, inter alia, the location, testing and operation principles, as well as the design and construction methods and techniques. Alongside this technical code, several pieces of secondary legislation and international technical standards are used in order to assess the proper functioning of LNG facilities. fte operation of these facilities is a licensed activity.
fte tariff for natural gas storage is also regulated. It is set annually by ANRE, based on a predetermined regulated income for the storage operator. fte national regulator can take into account the development of the open market in order to determine prices for certain geographical areas. fte national regulator can adjust the regulated prices, based on the usual economic factors, such as inflation and contingencies, or based on specific factors, such as the total quantity of stored gas.
fte operation of storage facilities is also regulated with respect to access to storage facilities (e.g., a list is set up on a first-come, first-served basis), the level of the reserved capacity, and safety requirements.
iv Rates
ANRE determines the tariff for transport and distribution of electricity and gas, based on a predicted and approved regulated income for transport and distribution operators.
For the electricity sector the tariffs and costs associated to transport, distribution and supply services are determined by the national regulator, for each voltage level, taking into consideration the providers’ costs plus a reasonable rate of return, based on a methodology that aims to ensure compliance with principles such as the prevention of unreasonable advantages and efficient use of the existing infrastructure. In addition, the national regulator can choose to establish different tariffs for each geographical area or administrative unit. Following an infringement procedure initiated by the European Commission, ANRE has eliminated the tariffs for import and export of electricity inside the EU.
For the gas sector, tariffs for the underground storageof natural gas cover three main regulated components: the price for reserving the storage capacity, the price for the injection of natural gas in the underground facility, and the price for the extraction of the stored quantity. fte tariffs for transport and distribution services are determined by the national regulator in order to reflect the costs for reserving transport capacity and for effective transport service and maintenance of the transport system.
Tariffs for the transport of oil are regulated by ANRM, while tariffs for storage and distribution of oil are not regulated and therefore depend on market factors.
v Security and technology restrictions
Romania developed a national strategy for the protection of critical infrastructure in order to comply with its obligations at EU level. ftis strategy considers the substantial risk posed by potential terrorist actions but also the possible impact of a lack of supply independence on the overall functioning of society.
Each operator of critical infrastructure, identified as such by competent public authorities, must have an internal department charged with outlining and implementing its own emergency plan. ftis emergency plan must be tested every two years in cooperation with public authorities and adapted to latest security methods.
Following a series of cyber attacks, at the beginning of 2013 Romania adopted a national cybersecurity strategy to identify possible cyber attacks against critical infrastructure. fte strategy intends to clearly identify potential threats, educate the personnel in charge of protecting critical infrastructure from cyber attacks, and promote cooperation at EU and international level. fte measures (including the creation of a Cyber Security Attacks Reply National Centre) have been adopted only recently, so further secondary legislation needs to be adopted in order to implement the strategy.
IV ENERGY MARKETS
i Development of energy markets
Each of the electricity and natural gas sectors cover a regulated market and a competitive market. As the liberalisation efforts continue, the competitive markets should continue to expand. fte competitive market itself comprises a retail market and the wholesale market.
Following certain changes in legislation come into effect in 2012, electricity may be traded only on the centralised platforms operated by Opcom (a subsidiary of the TSO). No bilateral electricity trading agreements may be concluded over-the-counter (OTC). fte centralised electricity trading platforms comprise the day-ahead market, the intra-day market, the centralised market for bilateral contracts (itself with two separate sub-platforms) and the centralised market for bilateral contracts with double continuing negotiation (a platform meant to somewhat cover the needs created by the prohibition of OTC transactions). On these markets, prices are usually determined on the basis of purchase and sale offers and on the day ahead market Opcom acts as central counterparty and settlement agent.
While these rules have been passed with the public intention of making the electricity trading market more transparent and competitive, the immediate effects actually included increased difficulties in financing new electricity production projects (such as renewable projects) due to the impossibility to conclude long-term electricity purchase agreements. Moreover, some of the platforms have not reached the expected liquidity levels and in general were rather slow to adapt to the needs of the market participants which no longer had access to bilateral electricity purchase agreements. Participants to the electricity market must undertake financial responsibility towards the TSO for any imbalances their activity potentially generates in the National Electricity System by registering as balancing-responsible parties or transferring the balancing responsibility to already established balancing responsible parties.
On the competitive wholesale natural market, gas may be traded either on the basis of OTC bilateral agreements or on two new centralised trading platforms managed by Opcom and the Romanian Commodities Exchange Market (RCEM). Recently, certain legislative proposals have been filed with the Parliament, seeking to introduce the prohibition to trade gas outside of the centralised markets (similar with the restrictions applicable to electricity trading). No definitive formal decision has been yet taken in this respect.
Oil and coal may be traded through bilateral agreements concluded on the RCEM.
ii Energy market rules and regulation
fte rules applicable to electricity trading on the competitive markets are set by ANRE and Opcom. fte import and export of electricity is possible subject to the prior allocation of interconnection capacity based on public auctions organised pursuant to an operational procedure prepared by the TSO and approved by ANRE.
In the gas field, specific regulations are applicable with respect to matters such as the obligation of Romanian gas producers to allocate part of their production for internal regulated consumption and the obligation of gas suppliers to purchase and sell to end consumers a mix of gas from import and internal production according to certain quotas approved or endorsed by ANRE.
On the retail electricity and natural gas markets, suppliers sell electricity to customers by concluding bilateral agreements at negotiated or regulated prices, depending on whether the relevant customer has exercised its eligibility right. fte regulated prices determined by ANRE will apply until complete liberalisation of the market.
fte national regulator supervises the overall functioning of the electricity and gas market and may impose sanctions on operators that fail to comply with the obligations set out in the authorisations or licences. In the event of a major breach, ANRE can suspend or even withdraw the authorisation or licence. It can also impose safeguarding measures for the energy market in cases that threaten the overall functioning of the national electricity system, and even the European electricity system.
iii Market developments
fte RCEM initiated court proceedings against Opcom and the national regulator for recognising the RCEM’s right to hold a licence for energy market operator. Since the coming into force of the Energy Law, Opcom is the sole licensed operator of centralised trading platforms, which prevented RCEM from operating a platform for electricity trading and excluded RCEM from the electricity trading.
In 2013, RCEM secured a licence for the operation of natural gas trading platforms, in an attempt to prevent its exclusion from natural gas trading, in the event the trading rules for gas would change so as to impose exclusive trading on centralised platforms, similarly to the rules for electricity.
V RENEWABLE ENERGY AND CONSERVATION
- Development of renewable energy
In line with the EU 2020 agenda, Romania undertook that by 2020, 24 per cent of its entire energy consumption will be produced from renewable energy resources. Due to the appealing support scheme for renewable energy generation, numerous foreign companies, especially European companies, have shown an interest in investing in Romania in the field of renewable energy (in particular wind and solar).
fte Romanian renewable energy sector has been boosted by the enactment in 2008 of a support mechanism whereby each producer receives a certain number of green certificates (depending upon the technology) for each megawatt produced from renewable sources and fed into the electricity system. Correspondingly, a green certificate acquisition obligation has been imposed upon suppliers for end-consumers, depending upon their respective actual deliveries. fte support scheme only became effective in its current form in 2011, after approval by the European Commission.
Green certificates are traded only on a centralised trading market, via two trading platforms, operated by an independent trading operator, where producers can sell their green certificates to suppliers that have to demonstrate fulfilment of their acquisition quota.
fte trading of green certificates is subject to a regulated price band (the trading value is set between a floor of €27 and a cap of €55 per green certificate, subject to annual indexation). Possible legislative changes regarding the decrease of the maximum value of the green certificates have been announced, although no legislative proposal has yet been approved to this end. As the green certificates are currently traded at floor price, the initiative seems irrelevant.
In its current form, the support scheme will apply for a 15-year period for each producer and cover producers that commission their projects by 31 December 2016 at the latest. fte actual number of green certificates per technology may be adjusted depending upon certain factors, such as overcompensation, by reference to an approved internal rate of return communicated to and being approved by the European Commission during the process of approving the support scheme.
Although not confirmed by the European Commission, the Romanian government and ANRE announced at the beginning of 2014 that Romania attained its objective of having 24 per cent of its entire energy consumption produced from renewable energy resources.
Driven by the government’s intention to lighten the financial burden created on large industrial consumers as well as end-consumers due to them bearing the green certificates’ prices, in 2013 and early 2014 several changes to the support scheme were implemented. Among others, a certain number of green certificates have been suspended from trading until 2017 at the earliest and also the number of green certificates granted per certain technologies has been decreased due to compensation. In addition, the quotas of electricity benefiting from the support scheme, on the basis of which the actual number of green certificates the suppliers had to acquire, have been lowered and are no longer set out in the law.
ftese changes, as well as discussions about potential further amendments to the support scheme (e.g., potential exemptions for big industrial consumers from the obligation to bear the costs of green certificates) caused a substantial decrease in the activity in the renewable electricity sector, for the first time in years. In addition to specific negative consequences on projects under development or even operational, these changes, as well as the manner in which they have been proposed for public consultation and approved insinuated a certain degree of lack of confidence of the investors in the sector as of late.
However, the current legislative environment may also be seen as an opportunity for certain investors who may be interested in acquiring projects at substantially discounted values.
ii Energy efficiency and conservation
fte National Energy Efficiency Action Plan presents the main actions to be taken by the government in this respect. EU co-funding was used for projects improving energy efficiency of residential buildings and those designed to ensure the improvement of industrial energy efficiency. Public municipalities were responsible for promoting energy efficient lighting and public investments were made in order to promote cleaner urban transport. Some of them managed to attract financing from the EU, although this alternative is still not used at its full potential.
Legislative measures were taken to implement these energy-efficiency measures. Incentives are provided for promoting the use of energy-efficient materials at household level and a national plan was introduced to stimulate the ‘Rabla’ programme for used cars and the promotion of biofuels for transport.
According to the 2013 report of the European Commission on the overall progress of Member States in the energy efficiency sector, Romania has exceeded the EU average for overall energy efficiency gains, and is ranked fifth. In industry and in households, Romania is ranked eighth and second, respectively, at EU level. In the transport sector, however, it is one of the less successful countries as regards energy efficiency gains.
In line with the new EU Energy Efficiency Directive, Romania seems to be taking steps for preparing a new National Action Plan and related implementing legislation. fte current draft of the energy efficiency law is merely a copy of the provisions of the Directive, but it has not yet even been sent to the Parliament for debate and approval. ftus, taking into account that the national implementing legislation is subject to the European Commission’s assessment, it is hard to see in which circumstances this draft law will enter into force prior to the deadline established for June 2014.
iii Technological developments
ftanks to the support scheme in the field of renewable energy, Romania has witnessed a substantial improvement in the technology used for electricity production, although the main components are imported. At the same time, numerous actions have been taken to refurbish cogeneration and hydroelectric power plants. Hidroelectrica, the state-owned hydroelectric power company has initiated a large auction procedure for selling many of its old micro hydropower plants, altough some of the sales were unsuccessful. Transport and distribution operators improved their capabilities, but mainly local investments have been made, and large investments are still needed to allow increased connection capacity reliability. Investments in conventional production facilities are also necessary to improve the balancing of services.
A few investments in new hydro and coal-based power plants, the promotion of a new hydroelectric power plant operated together with Bulgaria and a submarine cable for electricity export to Turkey are some of the projects announced by the Romanian government as envisaged to be initiated in the near future.
Also, in the field of natural gas, following an infringement procedure initiated by the European Commission, Romania allowed the export of gas from Romania and at the beginning of 2014 a new reverse flow export capacity towards Hungary became operational. ftere are several projects in different development stages seeking to ensure the export of natural gas towards Bulgaria and the Republic of Moldova.
In 2013 the national regulator introduced an obligation for distribution operators to implement during 2014 at least four pilot projects for smart metering systems and between 2015 and 2020 the smart metering systems will have to be implemented at national level. However, there is no secondary legislation establishing the manner in which these systems will be implemented.
VI THE YEAR IN REVIEW
2013 has been a year of major changes to the support scheme for renewable electricity. ftis means that the most active sector of the energy field slowed down substantially. On the trading side, the participants in the electricity market sought to further adapt to the centralised trading platforms and pushed for the further adaptation of some of the platforms.
On the gas trading side, the opening up of the market to export transactions sent a positive signal, although the actual implementation of such trades is still limited due to physical constraints of the interconnection capacities.
Although discussions about some major investment in the energy field have continued or have been resumed (e.g., in relation to the Cernavoda nuclear power plant, the Tarnita pumping and storage power plant and the submarine electricity cable to Turkey), none of these major projects has actually been initiated. Some are expected to be launched in 2014, but whether the plans will actually come to fruition will also depend on whether the government manages to secure financing or investors.
fte efforts for the privatisation of companies active in the energy field continued, with a focus on capital markets methods rather than investments by strategic investors.
VII CONCLUSIONS AND OUTLOOK
fte Romanian energy sector may yet be full of opportunities, but political and regulatory ways of reboosting the investor’s trust in the energy field must be found and appropriately implemented.
While changes occur frequently, particularly in certain areas, the regulatory framework may be deemed stable and reliable due to the EU commitments, which seem to have been embraced by the government. It is hoped that episodes of political and regulatory instability, such as those witnessed in 2013, remain isolated and, in general, a clearer delineation between politics and economics is obvious.
ftere are still numerous technical barriers to competition, as well as areas in which it cannot properly function. fte trading of electricity and gas must improve further and the impact of competition on the oil sector should barely be seen in the final prices.
Appendix 1
ABOUT THE AUTHORS
LUCIAN CARUCERIU
PeliFilip
Lucian Caruceriu’s main practice areas are energy and natural resources, and corporate. His experience is in assisting clients in developing major renewable energy and cogeneration projects, and various electricity and energy regulatory and permissions matters. He has also advised clients in relation to various complex corporate matters and commercial contracts.
Currently, Mr Caruceriu is part of the team assisting certain leading renewable energy companies in relation to the potential acquisition of several wind farm and photovoltaic projects.
Prior to joining PeliFilip, Mr Caruceriu acquired experience in various dispute resolution cases, including administrative, commercial and enforcement litigations. His previous working experience with the Council of the EU allows him to assist clients with respect to implications of EU regulatory aspects, as well as current and future developments of EU energy legislation.
ANCA MITOCARU
PeliFilip
Anca Mitocaru is an attorney at law of PeliFilip’s energy team. Her main practice areas are energy and natural resources and environment, although her expertise includes areas such as real estate and corporate matters. She focuses her practice on handling issues involving renewable energy projects, cogeneration projects, electricity and gas trading, mining and energy regulatory issues. She has also advised renowned clients active in fields which imply offering substantial attention towards environmental protection matters.
Ms Mitocaru obtained her law degree from the University of Bucharest, Faculty of Law in 2011.
About the Authors
PELIFILIP
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Bucharest 014459 Romania
Tel: +40 21 527 2000
Fax: +40 21 527 2001
anca.mitocaru@pelifilip.com lucian.caruceriu@pelifilip.com www.pelifilip.com
