Experts at Dentons Bucharest prepared an overview of the renewable energy in Romania, including general information on the electricity sector, national strategies, and opportunities for the companies to invest in the country's renewable energy projects.
Overview of the energy market structure
In a nutshell, the Romanian electricity market can be summarized as follows. Producers use various sources to generate electricity (e.g. fossil fuels and low carbon sources). The vast majority of electricity producers are state owned. The electricity is then injected into the national grid. Transelectrica is the sole transmission system operator, and it is charged with maintaining a constant balance between electricity production and national consumption. Transelectrica is a joint stock company, where the majority stake is owned by the Romanian state.
Electricity distributors operate local distribution grids and they transport the electricity to final consumers. There are currently eight distribution operators in Romania—five of these have been privatized by the Romanian state.
In turn, the suppliers acquire electricity from the producers or from other suppliers, which they sell to the final consumers on the basis of supply agreements, which are concluded both on the retail and wholesale markets.
Summarizing from the above, the participants in the electricity market are:
Thus, the energy market is the underlying structure where electricity and associated services are traded between the above participants. All of these participants are licensed by the Romanian Energy Regulatory Authority (“ANRE”) and follow distinct guidelines in this respect.
Transactions with electricity are performed on the wholesale market operated by OPCOM, in a manner that is cumulatively transparent, public, centralized, and nondiscriminatory. Further details are described in section IV below, “Conclusion of PPAs.”
Participation in any component of the electricity market is subject to registration and to the applicable technical and legal regulations in force.
National Energy Strategy
On October 4, 2021 the Romanian government approved the National Plan in the Field of Energy and Climate Change (“PNIESC”).
In line with the “EU Fit for 55” package, the PNIESC is to detail the reforms and policies aimed at achieving decarbonation of the energy system by promoting investments in renewable energy sources and technologies and energy efficiency, which facilitate the green transition.
The European Commission has recommended that renewable energy represent 34 percent of the energy mix by 2030. The Romanian government’s target for this is set at 30.7 percent by 2030, which corresponds to a commissioning of an additional renewable capacity of 7GW. As a side note, in 2020, renewable energy represented 16 percent of the energy mix.
This objective can be achieved by:
From a financial perspective, it is intended that the Romanian authorities use funds available through the Romanian National Recovery and Resilience Plan (“PNRR”), which has recently been approved by the EU. In addition, income deriving from EU-ETS mechanisms and EU structural funds are also designed to boost the development and commissioning of renewable energy projects.
As regards energy efficiency, Romania intends to reduce the consumption of electricity and to encourage the use of renewable sources in relevant sectors, such as heating, cooling, transport, etc. As such, Romania aims to reach by 2030 a primary consumption of electricity of 32.3 Mtoe and a final consumption of 25.7 Mtoe, with energy savings of 45.1 percent for the primary consumption and of 40,4 percent for the final energy consumption.
Available support schemes in Romania
Renewable energy projects commissioned by December 31, 2016 have benefitted from a support scheme based on green certificates. Through this mechanism, energy producers were certified by ANRE, and each month they would receive green certificates (“GCs”), i.e. a tradable commodity, issued in accordance with the source used (e.g. solar, wind, biomass, hydro) for the energy produced and delivered into the grid.
As a matter of fact, before 2013, a producer of electricity from a solar source would receive six GCs for each megawatt of energy delivered into the grid. Thanks to this generous support scheme, investments in renewable energy projects increased unexpectedly, mostly in the wind and solar sectors.
Currently, for renewable energy projects commissioned until December 31, 2016, a number of GC is granted as follows:
Under an amendment to Law 220/2008 on the promotion of electricity from renewable sources (“Law 220”), the trading of green certificates was suspended for certain technologies between July 1, 2013 and March 31, 2017, while for solar the suspension remained in place until December 31, 2020, as follows:
As of January 1, 2021, the abovementioned suspended green certificates cannot be traded.
Recovery of the suspended green certificates for wind and hydro of at least 10 MW is taking place between 1 January 2018 and 31 December 2025. In respect of solar technology, the suspended green certificates may be recovered between 1 January 2021 and 31 December 2030.
How does the incentive scheme work?
As per the provisions of Law 220, Energy suppliers and certain producers must acquire green certificates every year that equal the value of the mandatory quota for acquiring green certificates established by ANRE for the respective year, multiplied by the total number of MW.
For 2020, the mandatory GCs quota is the value of 0.45061 green certificates per MWh and the mandatory estimated annual quota for green certificates acquisition for 2021 was established at the value of 0.4505 GCs per MWh.
Duration of support scheme
The support mechanism applies to renewable power plants that were accredited by ANRE by 31 December 2016 as follows:
The market for green certificates
Green certificates can be traded only on the centralized markets operated by OPCOM in a transparent and non-discriminatory manner between operators that have to acquire green certificates. The centralized markets operated by OPCOM are:
Only producers are allowed to sell green certificates, and one green certificate can form the object of a single transaction.
As per the provisions of Law 220, until 2032, the minimum price per green certificate is €29.40 and the maximum price is €35, calculated in lei, at the average exchange rate established by the National Bank of Romania for the last month of the previous year.
Projects put into operation after 31 December 2016 do not qualify for any support scheme, meaning that these renewable energy producers are only able to sell their electricity on OPCOM markets.
As a consequence, a new support scheme has to be put in place. The completion and subsequent enactment of the support scheme based on a “contract for difference” (“CfD”).
The most important advantage of the CfD support scheme is the safeguard granted to electricity producers from wholesale price volatility. The mechanism guarantees a strike price and tops up payments when the wholesale price falls below this amount, and vice versa.
The connection between the approval of a CfD support scheme and new investments in the renewable energy sector has been emphasized in the section of the PNRR dedicated to the green transition.
The Romanian Government approved the memorandum on CfDs, but for state aid purposes the finalized proposal will need to be approved by the European Commission.
The CfD support scheme is expected to be applicable in 24 months and should apply to the following:
Conclusion of PPAs
As mentioned in section I above, power producers can only conclude power purchase agreements (PPAs) using the OPCOM markets in a manner that is cumulatively transparent, public, centralized, and non-discriminatory. The following are exceptions to this rule:
The wholesale market operated by OPCOM has the following components:
Thus, Romanian power producers cannot conclude PPAs off the market e.g. as a result of a direct negotiation process with a freely chosen buyer. In addition, the producers must sell the electricity on OPCOM markets to any interested supplier, trader or final consumer (registered on the market) available to purchase it under market conditions and at the prevailing market price at the respective time.
Notably, even if PPAs can be concluded on short, medium or long term, in practice electricity off-takers seem reluctant to acquire electricity on the long term. Thus, the absence of long-term PPAs has affected investments targeted in renewable capacities, as the banks became reluctant to finance them in the absence of long-term agreements guaranteeing stability in the revenues stream.
Expected evolution for concluding PPAs
In order to remove unjustified barriers, The Romanian Government issued Emergency Government Ordinance no. 74/2020 (“GEO 74/2020”).
GEO 74/2020 states that, by way of exception to the above rules, power producers are allowed to conclude bilateral PPAs outside OPCOM centralized markets, at negotiated prices, only in relation to the electricity produced by capacities commissioned after June 1, 2020.
Even if GEO 74/2020 produces legal effects as of its publication date in the Official Journal (mid 2020), it must still be approved by the Romanian Parliament and as such become a law. Market participants are expecting this change, as the stability of long-term PPAs is crucial for their bankability, since new renewable energy projects have difficulties accessing funding for their development.
Investment appeal
Romania has attractive, long-term growth prospects and is actively seeking to attract foreign investment. It has had the fastest-growing economy in CEE during the last five years, and the government’s programs are intended to put the economy on a path toward sustainable growth.
To this extent, even though the Romanian economy was impacted by the COVID-19 pandemic, it shrunk by only 3.9 percent, below that registered in the eurozone (-6.6 percent). Moreover, in the first trimester of 2021 the economy grew by 2.8 percent over the last trimester of 2020 in the last quarter of 2020; the labor market had a stable trend, with an employment rate of more than 70 percent, while the jobless rate reached 5 percent.
According to the forecast of the National Commission of Strategy and Prognosis, a complete return of economic activity is expected, with an estimated GDP advance of 5 percent, followed by an average rate of 4.9 percent until 2024.
Offshore wind
This kind of economic growth leads to higher future demand for electricity and higher electricity prices. From this perspective, Romania is the second-largest national gas producer in the EU, while the Black Sea initiatives and developments could expand the use of energy resources.
Due to its significant renewable offshore potential, Romania has initiated a draft law on necessary measures to carry out operations for the exploitation of offshore wind energy (the “Draft Law”). The Draft Law is currently under parliamentary procedure in the Chamber of Deputies. According to the provisions therein, licenses for carrying out offshore wind projects will be granted by the Ministry for Economy,
Energy and Business Environment (“MEEMA”) on the basis of a tender procedure or on the basis of a direct licensing procedure, applicable to entities that can prove the financial and technical capabilities to develop a specific project.
Offshore wind projects established in accordance with the direct licensing procedure and after the connection to the grid has taken place, are entitled to a premium amounting to a maximum of €0.025 per KWh on top of the electricity market price, capped to a maximum value of €0.060 per KWh. The premium will also be reduced if the market price for electricity exceeds €0.035 per KWh.
In addition to the premium, compensation of €0.020/ KWh will be paid for the balancing of costs, for a period of 20 years from the respective project’s connection to the grid.
Development of renewable energy projects
The development of renewable energy sources in Romania was encouraged by Law 220. Following the first wave of renewable developments, Romania currently has installed capacities in wind energy of 3,000 MW and in photovoltaic energy of approximately 1,400 MW. The country has reached its target ensuring that 24 percent of energy consumption is from energy from renewable sources.
Since December 31, 2016, the green certificate support scheme has not been available for new projects, meaning that the interest in developing new renewable facilities has declined somewhat.
For 2030, Romania has proposed an ambitious plan to reach a quota of 30.7 percent of consumption from renewable energy. Achieving this new target corresponds to commissioning an additional capacity of 7GW of renewables into the grid.
There are signs indicating an increase in wind and photovoltaic projects through greenfield investments and the replacement of existing large-scale generation assets as well as facilities incentivizing prosumers (i.e. generators that consume what they produce). Consequently, support schemes and state aid will have to be implemented.
The PNRR provides for the need to implement reforms to increase the development of renewable energy projects, with an estimated allocated budget of €200 million, to be spent on:
In addition, within the scope of a larger reform measure (Digitalization and transition to RES), funding from the Modernization Fund and Just Transition Fund (in respect of six counties in Romania) will also be available.
Development of new technologies
Romania intends to develop pilot projects using technologies of the future—gas/hydrogen together with innovative storage solutions and green hydrogen in order to reduce green gas emissions. Romania signed the Hydrogen Initiative in 2018, thereby undertaking to continue research and innovation in using hydrogen as an electricity source.
As an important step in ensuring the green transition, Romania intends to develop a national strategy for hydrogen on the basis of which the legislation required for the investments in this field would be adopted. According to the PNRR the end of 2021 should see the first preliminary assessments of this strategy, based on which the authorities will take into account the implementation of pilot projects to promote the use of hydrogen in electricity production and in the industrial sector.
The main challenges of investors when entering the market
Development of the renewable energy sector is at the heart of the accelerated green transition. This stage brings with it many investment opportunities in replacing old generation facilities and implementing new technologies with a view to creating a sustainable energy market with affordable costs.
As mentioned above, Romania has set a very ambitious goal to ensure a share of 30.7 percent of renewable energy in the energy mix by 2030.
Currently, one of the most significant challenges is the length of the authorization procedure, notably the connection to the grid (which can take considerable time, especially in the Dobrogea and Moldova areas where the grid is congested). Full permitting of a project can take some 24 months.
The status of the grid—especially in the Dobrogea area where the network does not allow for connection to the grid without prior reinforcement works—is an aspect to be taken into account. However, various reinforcement works are in progress, and the need for a modernized grid has been stated in the PNRR. Various funds will be made available on this basis.
In addition, even if the Romanian government has adopted GEO 74/2020 in order to eliminate unjustified barriers in the conclusion of bilateral PPAs outside OPCOM markets, this normative act is still in the parliamentary procedure. Together with resolving the PPA issue, further investments require a support scheme for renewable energy projects commissioned after January 1, 2017. To this extent, the Romanian government adopted a memorandum regarding contracts for a difference support scheme but the specific mechanism has yet to be established. Subsequently, the approval of the European Commission for state aid purposes will still be required.
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