Understanding the Romanian Promotion System for Renewable Energy (Law 220)

[originally published by: RESbroker)

After the new law 220 came into force in November 2011, a lot of investors have been looking at the the Romanian market, especially for wind and solar power (Photovoltaic) plants. The promotion scheme as adopted by the government by law is indeed very generous but looks somewhat complicated to many as it is not a straight forward FIT (feed-in tariff) but a combination of feed-in and green certificates.

Many investors are asking us about a PPA and when we tell them that there is no PPA available for let’s say 20 years, they get confused and uncertain about the possible investment opportunity. That is logic if you do not know how the system works.

First of all, a producer of green energy becomes a priority producer when he applies for it at the ANRE, the national energy authority. This certificate can be obtained only after the plant has been constructed. Once the producer received this qualification, then the distributor has to take the energy from the producer by law. This means that every producing plant with this certificate is sure that the distributor will take his energy with only one exception: when for technical reason the operations of the RPS (Romanian Power System) are in danger. Only then the plant can be shut down, temporarily of course. Usually the grid operator will balance the system and see that these situations do not occur.

So while there is no PPA, the plant does have a contact with with the distributor or TSO for plant above 50 MWe, that allows him to deliver the energy. In that contract the conditions are specified.

For each MWh produced and delivered to the GRID, the producer of electriccity thorugh wind energy receives 2 green certificates (and 1 after 2018). Also these certificates are sold on the market. The OPCOM operates this market and at this moment certificates are sold at 56.15 EURO each. It is also possible to sell them with a long term contract to a large consumer. This can be the distributor or an industrial company that is marked as large consumer. To the latter category belong cement industry, steel, fertilizer and other industries. The price then is an agreement between two parties: the producer and the large consumer and is not disclosed (not public). It is believed that prices range between 35-45 EURO for a long term contract. These contracts however are rare and not easy to be obtained by a single producer. The best way is to sell them on the OPCOM market.

Price development.

How the price will develop, no-one knows. What we do know is that the electricity prices in general will increase over the next few years while the price of green certificates is likely to come down to 27 EURO in a couple of years.

While a MWh (Megawatt Hour or 1000 Kilowatt hour) of electricity now sells between 35 and 60 euro, such depending on the time related to the market demand, experts believe that it could go up to 70 EURO average in a couple of years time bringing the prices into a 60-100 EURO range.

In Romania the price of the Green Certificate is guaranteed by law and therefore the GC’s cannot be sold under 27 EURO each while the maximum is set to 55 EURO. Because this price in indexed – Romania has its own currency- they currently sell at 56.15 EURO.

The green certificates, as said before, are currently sold at 56.15 EURO each. This is on the OPCOM, a market where sellers (producers of green energy) and buyers (large consumers) meet each other. For each MWh cunsumed, the law obliges the consumer to purchase green certificates at a rate calculated each year until 2020, when 20% of the electricity needs to come from green sources (Large Hydro Power not included) If a consumer did not buy the number of green certificates that he has to according to the quota, then he pays a penalty of 100%. This assures that the green certificates are actually sold as no-one wants to pay double when he can buy at the normal market price.

The problem arises when there are more green certificates than needed to cover the quota. This will happen when there is more green energy produced than needed. When that point has been reached then the surplus of green certificates will basically not be sold on the domestic market. But the law 220 foresees in a possibility to sell the green certificates abroad as it in fact is a certificate of origin and therefore represents one Megawatt of clean produced electricity. Experts believe that the domestic market will be saturated around 2017-2018 while the price will slightly go up again in 2018 when the 2 GC’s for wind energy will be limited to only 1 per MWh.

In the end we believe that green energy should pay itself by the sales of energy and not by temporary local measures. Moreover we think that Europe should decided on a European system rather than leaving it to each member State how to promote RES in order to reach the European target of 20% by 2020. This leads only to a patchwork of tariffs and laws and does not provide investors a transparent system. What Europe did with the ETS (carbon credits) they also should do with the green energy promotion schemes.

(Tariffs in Europe)

In a couple of years the European Grid will have connected West to East and North to South meaning that I can sell (green) electricity that is produced in the Black Sea area through a company in Spain on the Dutch Market. This implies the need for a European tariff system rather than local governments deciding on promotion schemes which then are changed time after time when the economic situation or local interests tells them to do so.

Markus Vrieling is Portfolio manager at RESbroker and panel member at Green Power Conference 2012 in Bucharest.

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