01 August 2009
A number of factors are making Romania emerge as an attractive and alternative location for renewable energy investors who are increasingly concerned about lower returns from more established markets in the Western European countries. Loredana Mihailescu explores.
Electricity demand in Romania declined during the 1990s, and several older thermal power stations have been decommissioned. However, as the economy expands, demand has recently increased. This trend is set to continue.
The development of renewable power plants, on the other hand, has been very limited to date, with only a handful of existing wind turbines – offering around 7MWh of capacity. Despite this, Romania enjoys significant and well-documented wind power resources.
The most promising renewable energy resources are wind, biomass, and hydro power. Romania is considered to have the highest wind energy potential in the region, with a predicted total installed capacity of 14,000 MWh.
Romanian energy strategy has established a target of 33% of the overall electricity consumption to be supplied from renewable sources by 2010. But it has also been acknowledged that this target can only be achieved through foreign capital Investment and know-how, In combination with a generous support mechanism.
What support is available for wind developers?
Romania has been using a combined compulsory quota with the trading of green certificates as its main support mechanism. This has recently been amended – the term has been extended, the number of green certificates for certain renewable resources has been increased, as have the minimum and maximum prices and the annual quotas.
After repeated calls for the Government to extend the green certificate support mechanism (originally available until 2012), new legislation was passed in the last quarter of 2008. Secondary legislation, meant to detail what the additional support mechanism will look like, is due in the coming months.
The new legislation introduces the concept of technology banding, and requires transmission and distribution operators to guarantee the transportation and distribution of renewable energy, and exercise non-discriminatory transport and distribution tariffs. The legislation also provides incentives for renewable energy projects: Energy, regardless of the source, is sold at the market price. This price is established based on offer and market demand, and agreed by the generators and suppliers/traders through Power Purchase Agreement (PPA)s.
In addition to this market price, each generator of a renewable energy source which qualifies for the support mechanism receives a number of green certificates from Transelectrica (the transmission and system operator). This is variable – depending on the sources of energy – for each MWh of green energy delivered into the national grid.
The green certificates received by the renewable generators can be traded independently of the quantity of energy they represent (i.e. 1MWh) on the green certificates market, which is separated from the energy market (or on the centralised green certificates market set up by the Operator of the Romanian Energy Market (OPCOM). The minimum and maximum price levels for green certificates are established by law.
Up until 2014, the minimum price per certificate is €27, and the maximum €55; the value of the green certificates is calculated in the Romanian national currency (RON) at the exchange rate established by the National Bank of Romania for the last month of the previous year. The minimum and maximum price levels are reviewed each year, and indexed with the Consumer Prices Index. Starting from 2015, the minimum value of the green certificates cannot be lower than the minimum value applicable in 2014.
In addition, each electricity supplier is obliged by law to acquire annually a number of green certificates equal to the value of the compulsory quota established by Law 220/2008 for the promotion of renewable energy (Law 220), and multiplied by the quantity of electricity supplied that year to its end-consumers – expressed in MWh
For example, an electricity supplier that in 2013 hypothetically sells 1,000 MWh to its end-consumers, must acquire from generators of green energy 90 green certificates at a price between €27 and €55. Therefore, the supplier pays to the generators a minimum €2,430 and maximum €4,950 – depending on the market price of the green certificates. If the respective supplier chooses not to buy any certificates it will have to pay to Transelectrica €70 per each non-acquired certificate (90 × 70 = €6,300).
After 2020, the Ministry of Economy and Finance is due to establish the compulsory quotas, provided that the quotas cannot be lower than the quota applicable in 2020 (i.e. 16.8%). In the event of non-compliance, a supplier must pay to Transelectrica €70 for each non-acquired certificate. The amounts collected by Transelectrica will be distributed (in a “transparent and objective” way) to grid operators, who will invest in upgrading the national grid to facilitate better access for renewable sources.
The allocation of green certificates depends on the type of renewable technology. For example, from 2008 to 2014, wind energy producers receive two green certificates per 1 MWh delivered into the network. Starting in 2016 this will reduce to one, while biomass energy producers will receive three. The quota support is available for 15 years to all new facilities to benefit (i.e. commissioned between 1 January 2004 and 31 December 2014).
All power plants using renewable sources to produce electricity qualify for the support mechanism (i.e. combined compulsory quotas with trading of green certificates), except for hydro power plants with an installed power exceeding 10 MWh. Biogas is also included.
However, the support mechanism doesn’t apply to the export of electricity from renewable sources, or to the electricity generated from imported industrial and/or urban waste, irrespective of the installed capacity of the energy facility.
What other legislation supports clean energy?
As well as the support mechanism, the current legislation also offers other various incentives to renewable energy generators:
- Accelerated depreciation for investments in energy facilities using renewable sources;
- Tax exemptions for any reinvested profit from a renewables project for three years from the project’s commission date;
- The cost of authorisations and licenses is reduced by 50%;
- There are ffinancial contributions from the state budget for new jobs;
- Up to 50% of medium or long term loans are guaranteed.
State aid to encourage renewables is also available under various other schemes operating from 2009–2013: one targeted specifically at renewables, others supporting investments in general. But these schemes are only available for:
- Projects which have not been financed from any other public funds, and where the funding was sought and approved in principle before work had begun (preliminary studies do not count);
- Initial investments – such as the acquisition of land, machines, and know-how to set up a new unit or expand an existing one, or to make fundamental changes in the global production process;
- Investment in entirely tangible assets, including land (up to 10% of eligible costs), buildings, equipment or installations;
- Investment in entirely intangible assets for small and medium companies (or up to 50% of eligible costs for large companies), such as patents, licenses, know-how;
- A mixture of tangible and intangible assets but not VAT, interest and other commissions, second hand equipment or operational costs.
The schemes are open to companies of all sizes and sectors apart from fishing, real estate development and ferrous metallurgy. Costs which are eligible under one scheme cannot be counted under another. Any costs which are wholly or partly eligible under more than one scheme will be allocated to the scheme with the higher upper limit.
The renewables-specific scheme will support initial investments of up to €50 million in electricity and heat production from renewable technologies such as solar, wind, biomass, biogas, geothermal, wave, micro-hydro (systems with an installed capacity of less than 10 MW) and waste fermentation gas. The aid can cover up to 50% of eligible costs for large companies, 60% for medium sized companies and 70% for small companies, with the remainder provided by the recipient. The general investment schemes will contribute around €28 million for initial investments, and up to a maximum of 50% of all eligible costs where they reach €50 million or more. The recipient must contribute the remainder.
There are still a number of familiar problems for developers in Romania to overcome – such as grid connection problems and financing issues – but the attractive combination of good renewable resources; one of the most attractive support mechanisms in Europe ensuring good long term returns; energy infrastructure that is Improving; and limited local opposition, should ensure that the Romanian renewable energy industry will enjoy growth in the coming years.
A large number of projects have been announced in the past few years. It is too early to tell whether or not all these projects will be developed, but wind capacity is expected to increase significantly in the next few years. Part of this capacity will be absorbed by the internal market, and the remainder will have potential for export. With export in mind, the main role of Transelectrica will be to ensure the interconnection of the national grid with the grids of the neighbouring countries. Last year an interconnection with Hungary was made, and there are plans for interconnection with Serbia and Moldova. There is also an ongoing prefeasibility study looking into the possibility of interconnection with Turkey.
Transelectrica budget investments in the extension and modernisation of the national grid amount to €2.5 billion, which will be needed given that the number of requests for grid connection have been increasing constantly.
|About the author|
|Loredana Mihailescu works for CMS Cameron McKenna SCA, in Bucharest.|