E-RES in Romania

by NÖRR STIEFENHOFER LUTZ

Introduction  

The promotion of electricity produced from renewable energy sources (E-RES) has seen a lot of support in the last years in the EU. The case for electricity sourced from renewable generating plants was set as a high priority for the Romanian energy policy in principal for a number of different reasons.

Romania was in 2003 one of the first EU candidate countries transposing into domestic legislation the provisions of the Directive 2001/77/EC on the promotion of electricity produced from renewable energy sources in the internal electricity market and adopted in accordance with the EU Commission’s recommendation an action plan called “The Energy Strategy of Romania for the period 2007-2020”.

E-RES promise an increase in the energy independence from fossil fuels and in the security of energy supply, amid reducing the energy price risk. Renewables reduces air pollution and greenhouse gas emissions. Medium and longterm climate chance is relying on zero carbon technologies or carbon capture. Finally E-RES ensures the economic and social cohesion by improving the basic energy needs.

The cumulative effect of all the benefits from E-RES makes a robust case for supporting renewables. However, compared with the conventional generation technologies, it becomes apparent that E-RES technologies are characterized by high investment costs per unit of produced electricity. Therefore in practice member states operate different mechanisms of support for E-RES. However, such support schemes is envisaged only in the medium term, whilst in the long run costs are presumed to come down rapidly, due to increasing economies of scale and technological advance. Therefore, in order to lower the costs associated with E-RES technologies, the Government action plan supports some fiscal investments facilities, i.e. accelerated depreciation.

In addition to this, the new guidelines on environmental state aid provide important changes. Member States can grant up to 100% of the additional costs of investing in renewable energy by combining investment aid and operating aid. The amount of investment aid that can be thus granted has been increased from 40% to 60% of the additional cost of generating renewable energy. Finally, companies producing renewable energy for their own use will now be eligible to receive both operating and investment aid (where previously they could only receive investment aid).

Energy consumption and indicative targets  

Romania’s energy consumption needs are covered up to 70% from the domestic fossil fuels and hydropower production. The share of E-RES in the primary domestic energy consumption is around 5.3%, while the average figure at EU level is about 4%, with increasing trends in all E-RES sectors, especially in the wind energy sector. The domestic target allocated for the share of energy from renewable sources in final consumption is 17.8% and will grow up to 24% by 2020.

A large potential for the domestic energy production is in hydro, wind, solar, biomass and geothermal energy sources. This confirmed also by the domestic energy strategy for the period 2007-2020, which suggests an indicative target for the E-RES potential as follows:

One must take note, that these figures mirror rather the theoretical potential of the domestic production. A new evaluation of the real E-RES sources is expected to be conducted by the Government this year.

However, realizing that any such indicative target is still far from reaching, we consider it to be a useful exercise for future policy directions.

 

Renewable energy sources  

On the wind segment, five distinct wind areas have been identified in Romania, based on the existent energy potential and taking into account the environmental and geographical conditions.

The wind map of Romania has been elaborated by taking into consideration the energy potential of the wind sources at the average altitude of 50 m, based on the meteorological data and information which have been collected since 1990.

The results indicate that Romania has a temperate – continental climate – with a high wind energy potential along the black sea coast, the plateaus from Moldova and Dobrogea (“mild climate”) or the mountainous areas (“severe climate”). In areas with relatively high wind potential, favorable locations have been identified, in case the “energetic use of the flowing effect over the hill top” or the “canalization effect of the air currents” is pursued. Based on the preliminary assessments from the coastal areas, including off-shore areas, on short and medium term, a wind energetic potential of round 2,000 MW can be developed, with an average amount of electrical energy of 4,500 GWh/year. The off-shore locations, 3 to 5 km on the continental plateau (up to the sea depth of 5 m), are considered as efficient on long term (over 20 years).

In solar, biomass and geothermal there is also a significant domestic potential which is currently subject to further market analysis and resource evaluations, both from the public and private side.

 

Authorization procedure  

The Government action plan, stipulates in addition to the above mentioned targets, the necessity to ensure better access for renewable energy generators to electricity networks, including the streamlining and expediting of authorization procedures.

The authorization procedure involves several actors such as: the local City Hall, the Romanian Regulatory Authority for Energy (ANRE), the area grid exclusive distributor, the Energy Market Operator (OPCOM) and Transelectrica (TSO). The authorizations are awarded in principle subject to the execution of a feasibility study, an environmental impact assessment and based on a financial assessment.

The competent authorities for the building permits are the county comity and the mayor. The main permits are: (1) the certificate of urban planning, which is mandatory for construction works and contains a list of all required permits and licenses, such as but not limited to: fire protection permit, water and drainage permit, geotechnical survey, environmental survey, civil defense permit etc., and (2) the building permit.

ANRE is the competent body for issuing establishment and operation licenses, E-RES generation license and qualification certificate. Last but not least, ANRE is the monitoring authority for the development of the green certificates (GC) market.

The local energy distributors share the hottest part of the energy network – the distribution grid and are very important players on the market. The grid infrastructure was mainly built when the electricity sector was publicly owned and has been designed to deal mainly with large power plants. In Romania, the main distributors like – E.On, Enel and CEZ still share the distribution grid with the state-owned company, Electrica SA.

The OPCOM, in its capacity of energy market operator, is responsible for publishing the annual prognosis of national offer and demand of green certificates (GC), register the bilateral contracts and the information concerning the transactions between the E-RES producers and electricity suppliers, create and update the GC registry, register the participants to the GC market, ensure a proper functioning of the GC market, publish on a monthly basis the cumulated demand and offer of GC from the beginning of the year and to send a monthly report to ANRE regarding the evolution of GC market.

Transelectrica issues the GC on monthly basis and keeps the E-RES producers, ANRE and the GC market operator informed about the producers receiving the GC and their hierarchy, sanctioning the electricity suppliers not complying with their mandatory quota.

The mandatory quota system is part of the supporting system (together with the GC system) enacted by the Romanian Government for promoting the production of “clean” energy Introduced in 2004, the mandatory quota system consists mainly in the mandatory dispatching and in the priority trade of electricity produced from RES.

In a nutshell, the system works like this: the GC (one GC represents 1MWh of E-RES produced and delivered) are issued by Transelectrica and offered to the E-RES producers which have to trade them on the GC market – operated by OPCOM – or on the basis of bilateral contracts. The buyers of GC are the energy suppliers, which are bound to buy a specific mandatory quota of GC (which will increase from 3.74 in 2007 to 8.3% in 2010).

The value of GC is determined by the market, however within the limits established by law. The minimum price is imposed in order to protect the E-RES producers and the maximum price to protect the consumers and the suppliers. For the period 2005-2012, the annual minimum value for GC is EUR 24/certificate and the maximum value EUR 42/certificate.

Conclusions  

All the same, it should be noted that since renewable electricity generation is usually not situated in the same places as conventional electricity production, not to mention that renewables have a different scale of generation, E-RES generators wishing to feed electricity into the grid, have to be connected. This may require expensive installations, especially for the wind electricity, often located in areas remote from the grid. In this way, the grid connection costs represent a significant part of the total investment in an E-RES installation than for a normal conventional plant. In any case, E-RES may be confronted with a lack in the grid infrastructure.

Therefore, the EU Directive requires Member States to put in place a legal framework and to require transmission system operators and distribution operators to share part of the costs for connections and grid reinforcements, necessary to integrate E-RES producers.

It is important to mention that, while the EU Directive does not suggest, that connection costs of E-RES generators should be borne by the grid operator, the EU Commission recommends in its report on the support for electricity from renewable energy sources that the costs associated with grid infrastructure development should be covered by the grid operators.

This is necessary to ensure a level playing field for all existing and potential producers of electricity, in order to avoid that connection and grid system costs become unfairly prohibitive.

About the Author:

Prof. Dr. Jörg Menzer is Managing Partner and Head of the Bucharest office of NÖRR STIEFENHOFER LUTZ. He is also responsible for the coordination of the CEE practice of Nörr Stiefenhofer Lutz for international clients. He specializes in advising M & A transactions and concentrates on structuring major foreign investments in Romania and extending the client base for Nörr Stiefenhofer Lutz in Romania. He has experience in acquisitions, privatizations and Greenfield Investments, based on his good knowledge of the business and legal environment in CEE. In addition, Prof. Dr. Jörg K. Menzer worked on many restructurings, private equity investments and capital measures as well as for publicly listed companies. In the last years our corporate and M & A team coordinated by Prof. Dr. Menzer has handled some of the major transactions in Romania and advised internationally known investors entering the Romanian market.

Legal framework:

According to Law 220/2008, the producers of E-RES will receive:

  • green certificate for each 1 MWh produced and delivered in the electric power network from new hydroelectric stations/groups or from refurbished hydroelectric stations/groups with a maximum output of 10 MW;
  • green certificate for each 2 MWh delivered in the electric power network from hydroelectric stations with an installed power between 1 and 10 MW, which do not fall under the provisions of the previous paragraph;
  • two green certificates for each 1 MWh delivered in the electric power network from hydroelectric stations with an installed power of up to 1 MW/unit;
  • two green certificates, until 2015, and a green certificate, starting from 2016, for each 1 MWh delivered in the electric power network by the producers of electric power from wind energy;
  • green certificates for each 1 MWh delivered in the electric power network by the producers of electricity from biomass, biogas, bioliquid, waste fermentation gas, geothermal power and associated combustible gases;
  • green certificates for each 1 MWh delivered in the electric power network by the producers of electricity from solar power.

Producers who generate renewable energy must be denominated as “priority producers” by the NAER in order to obtain green certificates, and this is achieved by applying, on an annual basis, for registration with the transport and system operator, i.e. CN Transelectrica SA. Following the successful registration, the transport and system operator has the obligation to issue, on a monthly basis, green certificates to registered producers for the quantity of electricity produced from E-RES and effectively delivered through the electric grid to consumers.

Suppliers of electricity, i.e. the entities dealing with purchasing electricity from the producers and supplying it to the end consumers, have the obligation to purchase, on an annual basis, a certain number of green certificates equal to the result obtained from the multiplication of the value of the mandatory target established by the NAER for the respective year with the quantity of electricity, expressed in MWh, annually supplied to end users.

The supplier that does not fulfill the annual mandatory target regarding the number ofgreen certificates it is obligated to purchase is required to pay the counter value of the non-acquired green certificates at a fixed price of €70 for each certificate that it has not acquired, annually adjusted by the consumer price index for Romania, calculated in lei at the average value of the foreign exchange rate established by the National Bank of Romania for the month of December of the previous year. This amount will be used by the NAER to facilitate the access of producers from renewable sources to the transport/distribution network.

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