An extract from The Renewable Energy Law Review, 4th Edition
Distributed and residental renewable energy
Mergers and acquisitions
Obtaining energy from renewable sources has become a reality in Romania over the past 10 years, starting from the need to gradually replace the energy sources that use finite and polluting raw materials. What had seemed to be a small segment of the electricity industry, electricity produced from renewable sources has become an essential one, and its role in the current and future energy mix dominates discussions regarding the legislation and policies in the sector. The emergence of this sector of electricity production required government support at first, to guarantee a satisfactory profit for investors, and Romania, in 2008, through Law 220/2008 (the Renewable Law), introduced a support scheme to promote electricity from certain renewable sources (giving renewable energy producers an additional gain supplementary to the energy sold on the market). Renewable energy producers (wind, solar, biomass and micro hydropower plants), through this mechanism, were certified by the National Energy Regulatory Authority (ANRE) and each month were entitled to receive a number of green certificates (GCs), issued according to the quantity of MWh of energy produced and delivered to the electricity network – either to the suppliers or directly to the final consumers.
As a result of promoting this support scheme, allied to the country's geographical advantages, Romania's renewable energy market has undergone an unexpected investment boom in the wind and solar energy sector. Thus, in 2011, Romania was the 11th of the 40 countries listed in the Country Attractivity Index in renewable energy, prepared by Ernst & Young.
In 2013, because of the support scheme, Romania installed more than 1GW of photovoltaic parks, placing the country in a category that includes global players such as Italy, India, Greece and the UK. Small, medium and large photovoltaic solar parks were built.
The support scheme has been applied only to the renewable energy production capacities put into operation before the end of 2016 and with a lifespan of 15 years from the date of commissioning. Since 2017, no renewable energy production capacity has been put into operation in Romania (except for very small photovoltaic parks).
In 2020, Romania reached the target of 24 per cent of total energy consumption from renewable sources. For 2030, the new target set by the Romanian government is 30.7 per cent, achievable by adding 7GW in renewable capacity. In 2020, the production of electricity in Romania came in the proportion of 12.4 per cent wind energy, 3.4 per cent from photovoltaic solar panels and 27.6 per cent from hydropower. In total, renewable energy production (wind, photovoltaic and biomass) accounted for 16 per cent of the total.
Romania's greenhouse gas emissions have fallen by more than 50 per cent compared to 1990 levels as a result of a significant reduction in energy demand and industrial activity, increased energy efficiency and gradual compliance with more restrictive environmental standards. At present, energy is still the main source of emissions, accounting for two-thirds of national greenhouse gas emissions, followed by agriculture and industry.2
Romania ranked seventh in the EU in 2019 in terms of the share of electricity obtained from renewable sources, according to data published by Eurostat, above the European average, with a percentage of 41.71. After 2016, when Romania reached a share of renewable energy of 25.03 per cent in the total energy produced nationally, by 2019 this level had decreased to 24.29 per cent.3
As the second largest power market in Central and Eastern Europe, Romania has the potential of attractive significant investments in the years to come in new generation capacities based on low carbon technologies. The country is currently setting up a new primary legislative framework meant to facilitate investments under merchant market conditions, as a result of a full liberalisation and alignment with the European Union (EU) electricity market reform. Policy wise, Romania has ambitious decarbonisation targets and is looking to implement reforms in the sector, to attract sustainable investments coming from the public sector and private power producers as well as institutional investors and various EU funds under the Green Deal agenda.
The year in review
In recent years, Romania has suffered from declining attractiveness in terms of renewable energy investments, in part because of a lack of regulation and adequate government support. According to the latest EY Renewable Energy Country Attractiveness Index (RECAI) ranking, despite the fact that Romania ranked among the top 40 most attractive countries in terms of renewable energy in 2015 (34th place), in 2020 Romania fell below this, being surpassed by European countries such as Poland, Greece and Austria.
In 2020, important steps have been taken to revive the renewable energy sector in Romania. In May 2020, the Ministry of Economy, Energy and the Business Environment announced the reintroduction of Long-term Bilateral Power Purchase Agreements (PPAs) after these having been banned for almost eight years. The amendments to the Energy Law 123/2012 allowed PPAs for power-generation capacities that will be commissioned after 1 June 2020. These amendments are part of the commitment Romania made to the European Commission to deregulate its electricity market as of 1 January 2021 to stimulate investments in new electricity-generation capacities.
Until this recent legislative change, all electricity transactions could be carried out solely on the centralised market. This restriction on freely negotiated PPAs was the main hurdle preventing investments in new generation capacities, especially in the renewable sector.
National Energy Climate Plan (NECP) 2021–2030, published in April 2020, mentions that the total installed power capacity of Romania in 2020 is of approximately 18.6GW.
According to NECP, the total installed power capacity is projected to increase to 22GW in 2025 and to 25GW in 2030.
In terms of technologies, the installed capacities based on hydro, wind, solar, nuclear and biomass are expected to increase in the next decade, while those employing solid fuel, natural gas, and oil and petroleum products are expected to decrease. The largest growths in terms of installed capacity are expected from solar power (from 1.3GW in 2020 to 5GW in 2030) and wind power (from 2.6GW in 2020 to 5.3GW in 2030), while solid fuel power plants will see a decrease in installed capacity from 3.2GW in 2020 to 2GW in 2030.
The beginning of 2021 brought the complete liberalisation of the electricity market. This means that households will no longer pay prices set by ANRE. Households are now able to compare supply offers and choose accordingly. There are approximatively six million consumers who have remained in the regulated market and now have two options: they stay with the old supply contracts and automatically pay the 'universal service' prices, which will be 13–26 per cent higher that the free market price, or conclude other contracts in the free market.
The price on the balancing market is now freely determined by the supply-demand mechanism and can reach negative values. The participation of the balancing market is now voluntary, and the rules now provide for settling responsible-party imbalances by applying a single settlement price with an application date correlated with the implementation date of the 15-minute settlement interval.
Romania moves to the unified balancing market model at the level of the EU, and a unique platform operated by Transelectrica is available from June 2021. Changes are expected in regulations to accommodate the transitory period until the European balancing interconnected platforms is operational in 2022.
Currently, changes to the Renewables Law are under way in the Parliament, with the aim to improve some of the existing practical aspects such as transfer of the capacities and lease and of the green certificates' rights. In order to address the issues related to the extended deterioration of the existing capacities, to help the transition to clean energy and transforming the energy mix by an increasing share of renewable energy sources, the Ministry of Energy has considered the introduction of a support scheme in the form of the Contracts for Difference (CfD), which is deemed to incentivise investments in new generation electricity capacities with low carbon emissions. It is expected that the CfD mechanism will be implemented in the next couple of years and first auctions will be run in 2023.
Besides the progress towards a stable, concise and transparent regulatory framework, an important factor towards implementing the needed investments to reach the 2030 target shall constitute the various available European funds.
The Just Transition Fund is targeting coal-reliant countries such as Romania, and €4.4 billion are expected to be directed to Romania with a view to support transition to clean energy.
The Modernisation Fund is expected to cover renewables and energy-related projects with more than 70 per cent of its budget being allocated for such projects. In October 2020, more than 700 projects were submitted to the Ministry of Energy as an indication of the interest to access such grants. The projects were in their vast majority focused on solar energy while a key sector was focused on gas as a transition solution.
On 31 May 2021, Romania sent its proposal to the European Commission (EC) for the National Recovery and Resilience Plan (the NRRP) including all seven flagship areas of EU policies to be reached. This NRRP sets out the reforms and public investment projects that Romania intends to implement with the support of the Recovery and Resilience Facility (RRF). In total, Romania has requested €14.3 billion in grants and €15 billion in loans under the RRF.Key economic trends
The European Commission forecasts 3.3 per cent GDP growth in Romania in 2021, which would put GDP at 2 per cent below the 2019 level. Growth is expected to accelerate to 3.8 per cent in 2022.
The EC revised its estimate for Romania's GDP growth in November 2020 from a 6 per cent contraction projected in July to a milder 5.2 per cent decline in the autumn forecast. Standard & Poor's (S&P) made the same estimate in early December. Along with a smaller GDP contraction this year, the EC says that the recovery will also be slower in 2021 at only 3.3 per cent compared to the 4 per cent forecast in July. It is a conservative forecast as S&P sees a 4 per cent recovery in 2021. The EC's two revisions balance each other and, overall, this means the EC has not changed its forecast for Romania's GDP in 2021, estimated at 2 per cent below the 2019 level. The EC expects Romania's GDP growth to accelerate to 3.8 per cent in 2022.
In terms of country statistics, the electricity produced in 2020 was 53.74TW/h and the internal electricity consumption 53.59TW/h. Also, in 2020, Romania exported 4.58TW/h of its generated capacity and imported 7.38TW/h. Electricity structure by primary sources (delivered by generators with dispatchable units) in 2020 was structured as follows: hydro 29.1 per cent, nuclear 20.78 per cent, biomass 0.23 per cent, wind 13.63 per cent, solar 1.52 per cent, coal 16.55 per cent, fuel oil 0.11 per cent and gas 18.17 per cent.4
Regarding the field of mergers and acquisitions, we notice an increase in the flow of transactions with assets representing capacities of energy generation from renewable sources, but also an interest in investments of the 'greenfield' type, in particular in the generation of wind power, provided that long-term energy sales contracts are concluded under merchant market conditions. Additionally, financial power purchase agreements would be a plus in the local and regional trading market.
In October 2020, Macquarie Infrastructure and Real Assets (MIRA) announced that a consortium led by the Macquarie European Infrastructure Fund 6 (MEIF6) had reached an agreement on the acquisition of the Romanian CEZ asset portfolio from ČEZ Group. MIRA, the buyer of CEZ assets in Romania, offered the Czech group €1.1 billion for the Romanian energy distribution, production and supply business. The sale would include a total of seven Romanian companies, including the electricity distribution network, electricity supply and the largest onshore wind farm in Europe, from Fântânele – Cogealac.5
ENEL is one of the companies present in Romania which expressed the intention to decarbonise the energy mix to 2050, renewable sources replacing fossil fuels in in terms of production of electricity.
Hidroelectrica purchased Crucea Wind Farm (with a capacity of 108MW) and STEAG Energie Romania from STEAG GmbH, while Electrica purchased the Stanesti photovoltaic park.
Last but not least, 2021 is likely to bring the listing on the Bucharest Stock Exchange and the London Stock Exchange of Hidroelectrica, who announced investments of €26 billion by 2025 and full commitment to green energy.
The policy and regulatory frameworki The policy background
In June 2020, the Romanian Senate proposed for debate a draft law regarding the necessary measures for performing operations for offshore wind exploitation. Currently, this draft law is still in the parliamentary procedure awaiting endorsements from various parliamentary committees. The offshore wind bill proposes that the rights for initiating and carrying out offshore projects be obtained from the Romanian state through the Ministry of Economy, either through concessions, tender procedures, or by direct licensing (granted to interested parties showing relevant technical and financial capacities). Offshore wind farms established in accordance with competitive tendering procedures are entitled to subsidies in certain circumstances.
In 2020, the Romanian government approved a memorandum presenting the plan for a support mechanism in the form of a scheme based on paid-capacity tenders through CfDs and provisional annual budgets for the auctions, technology specific. The technologies considered as potential beneficiaries of a CfD scheme are:
- nuclear technology, for the construction of new units;
- technology for the use of renewable resources;
- carbon capture and storage (CCS) and carbon capture and utilisation (CCU) technology for fossil fuel-based electricity generation capacity, when they become commercially viable; and
- CfD will be granted only for CCS and CCU installations or equipment in line with European state aid guidelines.
Romania has undertaken to achieve a quota of 30.7 per cent for renewable energy within the total energy mix by 2030, according to the National Integrated Plan for Energy and Climate Change 2021-2030 (PNIESC).
The Ministry of Energy initiated in 2020 the process of amending the Energy and Gas Law, for the transposition of 2019/944 Directive. The updated version of the Energy and Gas Law, drafted with the support of the European Bank for Reconstruction and Development was published in April 2021 for public consultation and included relevant provisions related to EU environmental legislation, system flexibility, increased interconnection and market liberalisation, which are facilitators of the transition to a low carbon economy.
Romania is also putting in place a hydrogen strategy that will be part of the National Resilience Plan, focusing on new distribution networks capable of hosting a mixture of 10 per cent gas and hydrogen.
Since the promotion of the Energy and Gas Law in 2012, the law has suffered subsequent amendments while, notably, recent years have brought changes aiming to align the framework with the EU acquis.
On the other hand, the Renewable Law has been most significantly changed in 2017 bringing changes to the subsidies regime of GCs for the scope of final consumer protection. As a result of these changes brought to the primary legislation in the field of promotion of electricity produced from renewable energy sources, (which, over time, has undergone numerous amendments and completions such as GD No. 1892/2004, amended and supplemented by GD No. 958/2006, and Law No. 220/2008 was amended and supplemented by Government Ordinance No. 29/2010, Law No. 139/2010, GEO No. 88/2011, Law No. 134/2012, GEO No. 57/2013, Law No. 23 / 2014, Law No. 122/2015, Law No. 184/2018), ANRE elaborated and subsequently amended and supplemented the regulatory framework specific to this field, whenever necessary.
As a consequence, the legislative evolution has been marked by interventions on the support scheme related to the renewable energy sources (RES) investments, leading to a sentiment of instability with a negative market impact. As the GC scheme ended in 2016, the market went through a steep decline in investments. However, since the Fourth Energy Package was promoted and the Green Deal emerged, a series of legislative and policy measures have put Romania back on the renewables investments map.Green certificate support scheme (the GC Scheme) in Romania
For the RES projects commissioned until December 2016, in addition to the revenues obtained from selling the electricity output of a renewable energy project, a GC scheme is in place, under the promotion mechanism for renewable energy in Romania set out by the Renewable Law (the GC Scheme). The transmission and system operator, Transelectrica, issues GCs to producers on a monthly basis, for the 'green' electricity produced and delivered to the suppliers or final consumers.
Under the Renewable Law, as subsequently amended, the renewable electricity generators receive a number of GCs for each MWh delivered into the grid, depending on the technology. Electricity suppliers (and generators in certain circumstances) have the obligation to acquire GCs according to an annual mandatory quota established by ANRE.Setting the mandatory quota
The estimated yearly mandatory quota for the GCs acquisition is established by ANRE in December for the following year. The quota is calculated taking into consideration the estimated final energy consumption for the upcoming year and the medium impact on consumers that should not exceed €12.5 per MWh in 2019, €13 per MWh in 2020 and 2021 and €14.5 per MWh from 2022.
Additionally (as of 2018), ANRE will calculate by 1 March the mandatory acquisition quota for the previous year, the amount of electricity produced from renewable sources and the average impact on consumers that should not exceed €11.7 per MWh in 2018, €12.5 per MWh in 2019, €13 per MWh in 2020 and 2021 and €EUR per MWh from 2022.Green certificates
The number of GCs issued depends on the technology type of the renewable generation. The trading issuance of a share of the initial number of GCs has been suspended for some technologies for the period between 1 July 2013 and 31 March 2017, and further to 31 December 2020 for solar generation specifically. Thus, the number of GCs issued during this time period has been reduced by one GC for hydropower and wind energy and respectively by two GCs for solar power plants. The suspended GCs have been resumed for trading from 1 January 2021. This deferral of a certain quota of GCs applies only to renewable power plants which have received approval for production from ANRE until 31 December 2013.Obligation to acquire green certificates
Energy suppliers and generators (if applicable) are under an obligation to acquire every year a number of GCs equal to the value of the mandatory quota for acquisition of GCs established by ANRE for the respective year, multiplied by the total number of MWh:
- acquired by suppliers for their own consumption as well as invoiced to end consumers;
- used by generators for their own consumption (excluding technological consumption);
- delivered by generators to end-consumers connected to their generation capacities by direct lines; and
- generated in Romania and sold by the suppliers of certain consumers and suppliers outside Romania by electricity bilateral transactions in the states with which Romania has signed bilateral agreements.
The mandatory quota for the GCs acquisition for 2020 was established at the value of 0.45061 GCs per MWh and the mandatory estimated annual quota for GCs acquisition for 2021 was established at the value of 0.4505 GCs per MWh.Term of the support mechanism
The support mechanism applies to the renewable power plants accredited by ANRE to have commissioned their generation capacities by the end of 2016. The term for application of the support mechanism is:
- 15 years for power plants using new equipment;
- 10 years for the refurbished hydropower plants with installed power up to 10MW;
- seven years for wind farms using second-hand equipment if installed in isolated areas or if commissioned before entering into force of the Renewable Law; and
- three years for the hydropower plants that have not been refurbished, with installed power up to 10MW.
GCs can be traded only on the centralised markets operated by the Romanian gas and electricity market operator (OPCOM) in a transparent and non-discriminatory manner between the operators that have, by law, an obligation to buy GCs and the renewable energy producers. The centralised markets operated by OPCOM are:
- the centralised anonymous spot market of green certificates;
- the green certificates anonymous centralised term market; and
- the centralised market for electricity from renewable energy sources supported by green certificates where electricity produced from renewable sources and the corresponding GCs are traded together, as a package, in a competitive, transparent, public, centralised and non-discriminatory manner.
The selling of the GCs is only allowed to producers of renewable energy. A GC may be the subject of a single transaction between the producer as seller and the supplier as buyer.
According to the Renewable Law, until 2032, the minimum price per GC is €29.4 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.Cogeneration bonus
In accordance with the provisions of the Government Decision No. 1215 /2009 regarding the establishment of the legal framework necessary for the implementation of the support scheme for the promotion of high efficiency cogeneration based on the demand for useful thermal energy, Romania has promoted high efficiency cogeneration systems of thermal energy and electricity (CHP) for greening electricity production. The scheme aims to support electricity and heat producers, owners of high-efficiency CHP units or those who operate them, to encourage new investments in cogeneration technology as well as in the replacement or refurbishment of existing installations.
The contribution for high-efficiency cogeneration is a tax collected from all electricity consumers in the country to support district heating power plants and was increased after a period in which it had decreased. Now, it is about 1.9 bani per KWh, without VAT, and was increased by 38 per cent at the end of 2018.
The scheme is to expire in 2022 and Romania intends to present the European Commission with a new support scheme for a period of at least 11 years, applicable also to new plants.
Transelectrica received the responsibility of administering the support scheme, having attributions related to a collection of contribution and payments made to eligible generators.Subsidies under the Offshore Wind Draft Bill
The draft bill (PLX No. 648/2020) on the necessary measures for carrying out operations for the exploitation of offshore wind energy (Draft Bill) is currently undergoing the legislative process within the Deputies Chamber, following its adoption by the Senate in October 2020. As part of the process within the Deputies Chamber, the Draft Bill is now subject to reviews by various parliamentary commissions that are entitled to propose amendments to the form adopted by the Senate.
The Draft Bill proposes that the rights for initiating and carrying out offshore wind projects are granted by the Romanian state through the Ministry, either through competitive tender procedures (concessions), or by direct licencing (granted to interested parties showing relevant technical and financial capacities).
Offshore wind projects established in accordance with direct-licensing procedures will – following their grid connection – be entitled to a premium of a maximum of €0.025 per kWh on top of the electricity-market price (limited to €0.060 per kWh). The premium must be proportionally reduced should the electricity market price exceed €0.035 per kWh. The premium shall be granted individually for each offshore wind project and shall consider a certain amount of electricity produced per project, based on a 30 per cent relevance or benefit of the wind element and 70 per cent surface.
In addition to the premium, compensation will be granted for the balancing of costs, amounting to €0.020 per kWh, for 20 years from the time the network is connected.
According to PNIESC, submitted to the European Commission in April 2020, the authorities are considering the implementation of pilot projects to promote the use of hydrogen in electricity production and in the industrial sector. Also part of the transition efforts, the Ministry announced upcoming legislation to promote investments in storage capacities linked to hydro, solar, wind and hydrogen production plants, to ensure continuity of supply and to facilitate the balancing of the national electricity system. Also, the energy efficiency support scheme is being revised and likely to be extended, under the state aid rules.
Societatea Națională de Gaze Naturale Romgaz SA Mediaș (Romgaz) plans to build an electricity plant by integrating electricity from renewable sources with hydrogen production, through a power plant using natural gas of medium size of 200MW located in Turnu Severin – Halanga.
In June 2020, Romgaz and Liberty Galați signed a memorandum for the construction of a gas plant and also wind and photovoltaic capacities, setting up a joint venture, with a view to developing greenfield investment projects, including the development of a natural gas-fired electricity generation unit and renewable energy production units, using both wind and photovoltaic technologies. The project is potentially one of the largest investments in Europe, worth €1.2 billion, over the next five years. It is a large investment that should make the Galati steel plant carbon neutral by 2030. The project involves the use of gas and then gas replacement with hydrogen.ii The regulatory and consenting framework
- Law 123/2012 on Electricity and Natural Gas;
- Law 220/2008 for establishing a System for the Promotion of Electricity Generation from Renewable Sources;
- Law 121/2014 on energy efficiency; and
- Government Decision No. 780 dated 14 June 2006 establishing a system for greenhouse gas emission allowance trading published in the Official Gazette No. 554 dated 27 June 2006.
- the Technical Code of the energy transmission network;
- the Technical Code of the energy distribution networks;
- the Code for electricity metering;
- Order No. 12/2015 on the approval of the regulation for granting licences and authorisations in the electricity sector;
- Order No. 77/2017 for the approval of the regulation on the organisation and functioning of the green certificates market;
- Order No. 80/2013 for the approval of the general conditions associated with the establishment authorisation and the general conditions associated with the licence for the commercial exploitation of the electricity production capacities and, as the case may be, of the thermal energy produced in cogeneration;
- Order No. 78/2014 on the approval of the regulation on modalities for the conclusion of electricity bilateral contracts through extended auction and continuous negotiation and by processing contracts;
- Order No. 82/2014 on the approval of the regulation of organisation and functioning of the electricity day-ahead market in compliance with the market coupling mechanism through price and the amendment of certain normative acts regulating the electricity day-ahead market;
- Order No. 64/2020 for the approval of the regulation on the manner of concluding bilateral electricity contracts by extended auction and the use of products to ensure trading flexibility; and
- ANRE Order No. 160/10.07.2019 for the approval of the regulation regarding the functioning of the centralised market for electricity from renewable energy sources supported by green certificates.
The electricity generation sector is mainly state owned (i.e., 89 per cent of the national electricity output is generated by state-owned generators). In addition to the state-owned generators, OMV PETROM, a former state-owned company, currently controlled by the OMV Group, has commissioned an 860MW combined cycle gas turbine generating station (the Brazi Gas Turbine Generating Station) which is expected to provide up to 9 per cent of Romania's electricity demand.
The Transmission System Operator (TSO) is the sole operator of the electricity transmission grid. It is a joint stock company with the majority stake (approximately 59 per cent) owned by the Romanian state through the Ministry of Public Finances. The other stakeholders are Fondul Proprietatea (13.5 per cent) and private entities (approximately 28 per cent).
OPCOM is a joint stock company 100 per cent owned by the TSO. It is responsible for providing an organised, viable and efficient framework for trading on the wholesale electricity market and green certificates market in a transparent and non-discriminatory manner.
Five out of the eight distribution operators are privatised and, since its liberalisation in 2007, the supply market currently has 189 licensed suppliers registered with ANRE. The majority of the suppliers are active in both the retail and wholesale electricity markets.
The Environmental Protection Agency implements environmental rules and policies, and is the main regulatory body with permitting attributions.
The connection to the grid (grid connection permit, ATR) of the generation facilities is regulated by ANRE Order No. 59/2013 for the approval of the regulation for the connection of users to public grid.
The ATR is the offer of the grid operator to the request for connection submitted by the applicant. The grid operator issues the ATR in accordance with the approved solution study and contains all the technical and economic conditions for the connection to the grid.
In addition, the grid operator issues the technical conformity certificate, a prerequisite for the generation licence.
ANRE issues the setting-up authorisation, which is independent from the building permit and is required for the construction of energy plants with an installed power capacity above 1MW.
The generation licence must be obtained from ANRE after the plant has been commissioned and before the commencement of commercial operations.
The Environmental Protection Agency issues the environmental authorisation and establishes the conditions and parameters of operation of an existing activity or a new activity with a possible significant impact on the environment.
The balancing market, dedicated to offsetting deviations from the programmed values of the production and consumption of electricity, is organised and operated by Transelectrica, which trades electricity with electricity producers who operate dispatchable production facilities and with end customers to provide real-time balance between production and consumption.
In order to develop a renewable project, the following permits, approval, certificates and authorisations are customarily required; however, the list is not exhaustive and may vary or may be extended on a case-by-case basis:
- the building permit shall be issued by the relevant competent local administrative bodies, and it requires about six months to be obtained, on average;
- the grid connection permit applies for connection to the power network, transportation or distribution lines, as the case may be, issued by the respective TSO or Distribution System Operator (DSO) under certain conditions;
- the setting-up authorisation shall be issued by the Romanian Energy Regulatory Authority. This authorisation is issued by ANRE within 30 days from the submission of all the required documents and payment of the corresponding fee;
- the licence for commercial operation of electricity generation capacities and energy storage facilities related to the generation capacity issued by ANRE. The licence is issued in 30 days by ANRE after the submission of the complete documentation and payment of the corresponding fee; and
- the environmental authorisation issued by the competent environmental agency, which is dependent on the project location. It is issued in a maximum of 90 days.
RES projects are subject to a project environmental screening by the competent environmental protection agencies (e.g., local agencies in charge of the respective administrative region) to determine the requirement for an impact assessment or adequate assessment. Following the screening, the environmental authority may decide to issue the environmental agreement, which would govern the project throughout the development stage. Many of the projects undergo multiple changes prior to the building phase, determined by changes of technology, locations, improvement of equipment, etc. Any such changes are subject to notification and assessment by the environmental authority. The first environmental permitting requirement is typically listed within the preliminary documentation for the building permit. Accordingly, the urbanism certificate, a mandatory permit for securing the building permit, lists the required environmental approvals, alongside various other permits secured from aviation authorities, archaeological, public roads waivers, and so on.
The environmental agreement allows a window of opportunity of five years to start the development stage, which then implies an environmental permit.
Various project locations contain certain protected areas of national and community interest. In case of an activity that can significantly affect protected natural areas, the competent environmental authorities are required to consult the representatives of the National Agency for Protected Natural Areas or administrators of the protected areas of national and community interest.
Renewable energy project developmenti Project finance transaction structures
Renewable energy investment reached US$322 billion in 2018, with modest growth seen to continue through 2019. However, the pace must accelerate considerably for the world to meet internationally agreed climate goals. Following the outbreak of the covid-19 pandemic, renewable energy investments saw a 34 per cent decline in the first half of 2020, compared with the same period in 2019.6
During 2013 to 1017, private investment actors represented the main source of financing for renewable energy projects. Investments were mainly from project developers and private equity.
With the expectancy of a revitalisation of investment, the market appears to now be attractive for a wider range of investment types from non-energy-producing companies (corporate actors), commercial financial institutions, households, to institutional investors and private equity, venture capital and infrastructure funds.
The Romanian market has opened to self-generation projects by non-energy companies interested to procure or invest in the self-generation of renewable energy for their own operations.
Globally, institutional investors favoured wind more strongly as this technology has accounted for the largest share (45 per cent) of direct institutional investments in renewables over the 2009 to 2018 period while trailing solar in terms of total renewable energy investments over the same period. This is predominantly because wind power is considered a more established technology and transaction sizes are often quite large.7
With an offshore potential of 76GW, Romania is attractive and institutional funding appetite is also expected, especially considering the investment announcement by Romania's power producer Hidroelectrica. Hidroelectrica has outlined plans for what could be the country's first offshore wind farm, and the first project of its kind to be installed in the Black Sea. The offshore wind farm, planned to be built by 2026, will have a capacity of between 300MW and 500MW.
Companies active in the production of electricity from renewable sources in Romania have submitted new projects amounting to several billion euros and with a total installed capacity in excess of 1,000MW to be financed from the European Union's budget under the '10 d' mechanism – the Modernisation Fund.
The German company WDP has proposed the largest number of big projects, mostly wind farms combined with cogeneration plants (heat and electricity), and photovoltaic parks as well. In total, WDP's projects add up to €860 million and will have an installed capacity of 730MW.
Enel Green Power, Elawan Energy, Verbund IWE and Siemens-Gamesa are among the companies interested in developing green energy projects with EU funding also.ii Power purchase
Before 2012 when PPAs were banned, PPAs were concluded between renewable generators and suppliers. Now, after PPAs are permitted again for new power plants commissioned after 1 June 2020, we are expecting utilities, industrial companies and offtake customers to conclude corporate PPA with renewable generators.
For example, as of 1 April 2020, all electricity needed to conduct Vodafone Romania's operations comes from renewable sources as a result of renegotiating contracts with electricity suppliers and the company has ensured that all electricity needed for its operations, including electricity consumed in leased space, comes from renewable sources. Since 2019, the company has also started installing photovoltaic panels at its locations and is currently exploring the use of wind installations.8
A Guarantee of Origin is a tracking instrument defined in Annex 1, Article 5 of the EU Directive 2019/944. A guarantee of origin labels electricity from renewable sources to provide information to electricity consumers on the source of their energy.
In Romania, guarantees of origin are issued by ANRE at the written request of a producer of electricity for the electricity produced from RES and delivered in the energy networks during the period for which guarantees of origin are requested. The period for which the energy producer claims guarantees of origin may be one month, one quarter or one semester.
Only one guarantee of origin may be issued for each unit of electricity.
The guarantees of origin are valid for a period of one year from the date of production of the electricity to which they refer.
Guarantees of origin may be transferred between participants in the power market of the Member States.
The transfer of guarantees of origin shall take place separately or together with the physical transfer of electricity.
ANRE recognise guarantees of origin issued by authorities of other EU Member States at the request of a participant in the power market, but only in a specific format provided by the applicable legislation and only to provide information to electricity consumers on the source of their energy.
On 19 May 2020, through the Emergency Ordinance 74/2020, amending the Energy and Gas Law, the PPAs were reintroduced after having been banned for almost eight years, but only for the power-generation capacities that would be commissioned after 1 June 2020.
Until this recent legislative change, all electricity transactions could be carried out solely on the centralised market (OPCOM).
The centralised markets that are presently functional are:
- DAM (Day Ahead Market);
- CMBC (Centralised Market of Bilateral Contracts with Extended Auction mechanism (EA), with Continuous Negotiation mechanism (CN) and with Fuel Processing mechanism (FP));
- ID (Intraday Market);
- CM-OTC (Centralised Market with Double Continuous Negotiation for Electricity Bilateral Contracts);
- CM-LCM (Large Consumers Mechanism); and
- CMUS (Centralised Market for Universal Service).
Also, at OPCOM, from September 2019, the centralised market for electricity from renewable sources supported by green certificates has become functional (CME-RES-GC). And also at OPCOM, from April 2020, the Centralised Market for Electricity Bilateral Contracts – Extended Auctions Mechanism (CMBC-EA-flex) became functional.
In addition at OPCOM, from September 2020, the centralised market for long-term electricity contracts (LTCM) became operational.
Besides the existing centralised markets, still pending are bilateral negotiated contracts concluded before the entering into force of the law, as well as export and import contracts.
The corporate power purchase market is a new concept in Romania but starting with the reintroduction of the PPAs, it appears that there is a strong interest from investors and it appears that the big corporations have started to look into these corporate PPAs.
Derogations are granted by law to market participants that mix the electricity produced by several energy sources or the loads of several clients may conclude bilateral contracts with the owners of those sources, respectively with the suppliers of the clients whose loads they mix.
The same law stipulates the possibility of concluding negotiated bilateral contracts between non-dispatchable producers from renewable energy sources and public authorities holding power plants from renewable energy sources with installed capacities of up to 3MW per producer and the suppliers of final consumers for the sale of electricity or green certificates.9iii Non-project finance development
An alternative renewable energy financing developed recently in Romania is the issuance of 'green bonds' (i.e., capital market debt instruments specifically for financing renewable energy or other sustainable carbon dioxide reduction projects).
Raiffeisen Bank, the Romanian subsidiary of the Austrian group Raiffeisen, raised about 400 million lei (€80 million) in a senior green bond issue, Ziarul Financiar reported.
The bonds, denominated in local currency and having a five-year maturity, were issued at the yield of 3.086 per cent – some 50 basis points above the government bonds' yield curve. The issue was 1.6 times oversubscribed. The bank's officials say that the money will be used for eligible projects that will ensure the transition to a sustainable and durable economy.10
In addition, Erste Group has issued €500 million bonds with a seven-year maturity to finance 'green' real estate projects in Austria and Romania.
The issue was oversubscribed, and the bonds were issued at a spread of 35bp above the mid-swap. The bonds have a fixed coupon of 0.125 per cent.
With the placement of its very first sustainability bond on the capital market, Erste Group announces that it has reached another milestone in its longstanding activities in the environmental, social and governance area.11
Restart Energy, one of the largest independent suppliers of electricity and natural gas on the local market, successfully concluded a green bond offer conducted between 20 January and 3 February 2021, obtaining financing of 16,361,200 lei, oversubscribed and completed in advance after the first 10 days from launch. According to the Offer Document, the offer's value was 15 million lei, with the possibility of supplementation.12
Distributed and residential renewable energy
As of 1 January 2019, Romanians can produce and inject into the grid energy produced by the sun and captured by means of a photovoltaic panel system (prosumers). Energy produced by the sun is converted into electricity needed to cover personal consumption, and the energy surplus produced can be sold to one of the accredited electricity suppliers, at a price of 196.56 lei per MWh.13
The prosumers with a maximum of 100kW installed power are exempted from payment of income tax and social contribution taxes for income obtained from the sale of their generated electricity to suppliers, and also are exempted from the obligation to buy green certificates for electricity generated and used for their own consumption. This does not apply to technological consumption in a factory or plant they may own.
According to the Transelectrica website (consulted on 26 May 2021), it appears that around 5,878 grid connection permits have been issued by the grid operators to the prosumers.
The applicable legislation allows both natural persons and companies to became prosumers, provided that the energy production activity is not their primary commercial or professional activity. For example, large commercial spaces or production halls, which have activity especially during the day and large areas of roofs, can substantially reduce their energy bills when installing their photovoltaic systems.
The rooftop lease arrangement is currently becoming more popular. In this case, the generator leases the roof and installs its own solar equipment on the roof, then sells the electricity to a utility company under the terms of a power purchase agreement.
Enel X Romania, part of Enel X, the advanced energy services division of the Enel Group, implements two projects for the development of photovoltaic systems for the retailer Mega Image (part of Delhaize Group) with an installed capacity of over 500 kilowatt-peak (kWp).14
To stimulate the future development of photovoltaic panels, the Environment Fund Administration (AFM) will grant financing incentives to beneficiaries, within the limit of 20,000 lei to install a system of at least 3kW, being covered up to 90 per cent of eligible expenses in the programme.
Renewable energy manufacturing
Renewable energy supply chains
In 2020, renewable sources for electricity in Romania came in the proportions of 12.4 per cent wind energy, 3.4 per cent photovoltaic energy and 27.6 per cent hydropower. Altogether, renewable energy production (wind, photovoltaic and biomass) accounted for 16 per cent of the total production of electricity.15
One of the most attractive incentives in the production of renewable energy in Romania is currently represented by the non-refundable European funds for the period of time 2021–2027.
The main measures taken at national level, so far, to promote the increase of energy produced from renewable sources, taking into account the indicative trajectory to achieve the objectives of RES, are also stated as legislation, inter alia:
- the system for promoting the production of energy from renewable energy sources through green certificates (accreditation was allowed until the end of 2016, the validity of the support scheme for accredited operators expires in 2032);
- development of electrical transmission and distribution networks for ensuring the evacuation of electricity produced by power plants using RES (RET and RED Perspective Plan 2018–2027);
- updating the Sectoral Operational Programme Increasing Economic Competitiveness, Axis 4 – increasing energy efficiency and safety in supply in the context of combatting climate change;
- Large Infrastructure Operational Programme (POIM), Priority Axis 6 – promoting clean energy and energy efficiency to support a low carbon economy. Specific objective 6.1, increasing the production of energy from less exploited renewable resources (biomass, biogas, geothermal);
- Regional Operational Programme (ROP) Priority Axis 3 Support transition to a low carbon economy (national fund environmental); and
- putting on the market only biofuels and bioliquids produced from raw materials that meet the defined sustainability criteria and the obligation to verify compliance with these criteria.
The first wave of renewables development that started more than 10 years ago brought associated investments of more than €8 billion. However, the Romanian business environment was not yet ready to capture a significant share, as most of the components were imported, leaving development, construction and the operations and maintenance side to international actors.16 Of course, foreign investors bring value and the means to build larger projects, but it is essential for our country to encourage the development of local entrepreneurship, particularly in creating a national supply chain.
2021 marks the launch of the RESInvest17 in Romania programme, dedicated to the development of the RES supply chain in Romania to encourage local production of technology used in the green sector and create investment opportunities based on EU funds. RESInvest will be launched by the Romania Wind Energy Association (RWEA) in October 2021. RESInvest in Romania comes with recommendations of good practices for the sector's development, including projects for the integration of new professional activities on the labour market, updating curricula and job security.
Other key considerations
There are positive market signals for the 'second wave of renewables'. Romania is starting to adopt a more stable and investment friendly legislative framework to support the European climate neutrality targets. Since 2020, the PPAs are again allowed for new capacities installed after June 2020, after being banned for more than eight years. The Energy and Gas Law is in the process of being amended to ensure transposition of Directive EU 2019/944. The draft bill provides for a free and competitive market with bilateral long-term supply contracts negotiated freely, with enhanced consumer rights and the introduction of new concepts of active consumers and energy communities.
The projects commenced by 2017–2018 are now progressively reactivated with increased interest from new investors for acquisition of these ready-to-build projects, and development is expected within the next 2–3 years. The projects are now more bankable since PPAs have been allowed and generators will be able to secure their output via physical or virtual PPAs. There is an increased tendency for major non-energy companies to have a free carbon footprint, which translates into the expectation of the first corporate PPAs. Utilities are now more engaged and confident of participating in RES projects.
Romania is a traditional country where conventional energy (especially coal) has been at the core of production (alongside hydro) covering 20 per cent of the production. The transition to green energy would imply transitional methods where gas is expected to be the 'transition commodity'.
In 2018, Romania signed the Hydrogen Initiative. By signing this proposal, Romania committed to continuing research and innovation into how it will use hydrogen as an energy source for the future. Hydrogen and its associated technologies are being explored for use in the electricity storage sector, the transport sector and in industry.
According to PNIESC, Romanian authorities are considering the implementation of a number of pilot and demonstration projects to promote the use of hydrogen in the production of electricity and in the industrial sectors.
Strong investment of billions of euros has been made in nuclear power at Cernavoda; the construction of reactors 3 and 4, and the refurbishment of Unit 1 in Cernavoda have also been announced following an intergovernmental agreement signed in 2020 with the United States.
Over the next few years, it is anticipated that the government will promote and foster the decarbonisation of the economy, industry and business by supporting the introduction of new technologies such as hydrogen and fuel cells, to reduce emissions and protect the environment.
There is a need to update, reshape and harmonise the entire set of legislative measures pertaining to the energy sector and these efforts are underway to ensure the legislative framework follows suit with the most recent policy measures indicating an accelerated path for decarbonisation. Such updated and harmonised legislation is paramount for facilitating much-needed investments in various technologies that are intrinsic to the transition.
Conclusions and outlook
Romania reached its 2020 target for green energy but investments have slowed down significantly over the past five years. More recently, as a result of the Green Deal, the Fourth Energy Package, especially EU Directive 2019/944 and EU Regulation 2019/943 and a new target under the National Integrated Plan for Energy and Climate Change of 30.7 per cent overall share of green energy from the total consumption by 2030, the country has made some steps in adopting a legal framework that is deemed to attract the necessary investments for it to reach its decarbonisation goals. Although Romania proposed one of the largest green targets in the region, the European Commission recommended a target of at least 34 per cent for Romania to meet the accelerated post-pandemic EU transition goals for 2050. Under the current proposed target, it is estimated that 6.9GW in wind and solar are needed by 2030 to meet this goal, estimated at about €22 billion overall investments, including some dedicated to grid development and conventional capacities, especially for gas-fired power plants.
In Romania, the coming years are likely to bring many green energy production projects that will become operational and many international players in the renewable energy sector that will enter the Romanian market, but this investors' enthusiasm will have to be correlated with coherent public policies reactive to the business environment and the decarbonisation targets undertaken. The capacity of the system to take over the new projects will also require an increase of the interconnection capacity, as well as the development of the networks over the entire country.
Given the context already described, Romania is phasing out coal and part of the nuclear capacity is unavailable for a couple of years because of refurbishment. Thus, the market data shows that our country needs more generating capacities very soon, being now a net electricity importer. The latest steps related to energy policies and sector legal framework seem to sustain the positive conditions for such new investments. Given the latest changes to the primary legislation as a result of the transposition of the EU Directive 2019/944 and the upcoming CfD support scheme for low carbon technologies, doubled by the effervescence in the M&A market for both operational and ready-to-build projects, we note signs of a bold investment cycle to come. This 'second wave' is expected to attract massive investment from private sources, from institutional investors, EU grants and state-owned companies, and will benefit from a mature, experienced market and from a greater awareness from all stakeholders of the importance of sustainable 'green' investments towards the accelerated programme of a zero-carbon-emissions economy.