An extract from The Renewable Energy Law Review, 5th Edition
In line with European policy, Romania is progressing to a more affordable, secure and environmentally friendly energy system. The decarbonisation of the energy sector is largely based on the support provided by the European Green Deal. Significant funding through the National Resilience and Recovery Plan (NRRP) and the Modernisation Fund (MF) – corroborated by the political and business will to reform the energy legal framework – are reasons to believe that, once again, Romania may become a very attractive environment for the players active in the renewable energy sector. After placing 11th in the country attractivity index in renewable energy in 2011 according to Ernst and Young, in the same index issued in 2021, Romania was not even in the top 40, most likely due to legislative hiccups, delays in promoting the offshore wind legal framework or a lack of new supporting mechanisms for green energy.
In 2020, Romania reached its 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,2 achievable by adding 7GW in renewable capacity. However, recent statements by the Romanian authorities have revealed that Romania aims to raise this target to a 34 per cent share, as recommended by the European Commission.
According to the National Institute of Statistics, in 2021, production from wind power plants was 6,576.1 million kWh, a decrease of 378.7 million kWh compared to the same period of the previous year. Solar energy produced in photovoltaic installations in this period was 1,701.5 million kWh, a decrease of 1.5 million kWh compared to the corresponding period of 2020. The final electricity consumption during 2021 was 55,705.8 million kWh, 4.2 per cent higher compared to the corresponding period of 2020. Public lighting increased by 4.6 per cent and population consumption increased by 6 per cent. The export of electricity was 5,915.3 million kWh, an increase of 1,106.1 million kWh. Own technological consumption in networks and stations was 5,529.1 million kWh, an increase of 154 million kWh.3
According to a report by the Romanian Energy Regulatory Authority (ANRE),4 in 2021, the total share of renewable resources in electricity production was 45.47 per cent (hydro 30.28 per cent; wind 11.09 per cent; biomass 1 per cent; solar 3.09 per cent; and other renewable sources 0.01 per cent). The share of production delivered in networks by generators with dispatchable units from renewable sources was 44.82 per cent, of which hydro constituted 30.85 per cent, with wind, solar and biomass constituting the remainder. Nuclear made up 19.21 per cent and fossil fuels 35.96 per cent.
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.5
In 2016, 25.03 per cent of energy produced nationally came from renewable sources. By 2019, this level had decreased to 24.29 per cent.6 However, Romania ranked eighth in the European Union in 2020 in terms of the share of electricity obtained from renewable sources (43.4 per cent),7 which is above the European average.
As the second-largest power market in central and eastern Europe, Romania has the potential to attract significant investments in the years to come for new generation capacities based on low-carbon technologies. As regards policy, 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 reviewi Energy generation
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 2021, Romania fell below this, being surpassed by European countries such as Poland, Greece and Austria.
In 2020, important steps were 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 they had been banned for almost eight years. The amendments to Law 123/2012 on Electricity and Natural Gas (the Energy and Gas Law) allowed PPAs for power generation facilities 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. Until this legislative change, all electricity transactions could be carried out solely on the centralised market. This restriction on freely negotiated PPAs prevented investments in new generation capacities, especially in the renewables sector.
The project of updating the national legal framework in the electricity sector to transpose the provisions of Directive 2019/944/EU of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU into the Energy and Gas Law started in September 2020 and was finalised by the enactment of Government Emergency Ordinance No. 143/2021 (GEO 143).
The National Energy Climate Plan 2021–2030 (NECP)8 mentions that the Romanian total installed power capacity in 2020 was approximately 18.6GW. According to ANRE, as at 4 May 2022, the total installed power capacity is approximately 18.54GW.9 The NECP predicts that the total installed power capacity is projected to increase to 22GW in 2025 and to 25GW in 2030.
In terms of technologies, installed capacities based on hydro, wind, solar, nuclear and biomass are expected to increase in the coming 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: to stay with the old supply contracts and automatically pay the universal service prices, which will be 13–26 per cent higher than the free market price; or to conclude other contracts in the free market.
Between September 2021 and March 2022, there were several measures taken by the Romanian government and Parliament with respect to protectionist measures against high gas and electricity prices. Between November 2021 and March 2022, a compensation mechanism was put in place so that the electricity and natural gas prices for household consumption would not aggravate the level of energy poverty. This compensation mechanism is due to end in April 2023 after having been extended.
In the context of increasing electricity prices, starting in November 2021 and due to end in April 2023 after having been extended, a windfall tax for electricity producers was introduced. Any additional income obtained by electricity producers resulting from the difference between the average monthly selling price of electricity and the price of 450 Romanian lei per MWh will be taxed at 80 per cent.10
The price on the balancing market is now freely determined by the supply-and-demand mechanism, and can reach negative values. Participation in 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 is moving to the unified balancing market model at EU level and a unique platform operated by Transelectrica has been available since June 2021. Changes are expected in regulations to accommodate the transitory period until the European interconnected balancing platforms are operational in 2022.
Currently, changes to Law 220/2008 for Establishing a System for the Promotion of Electricity Generation from Renewable Sources (the Renewable Law) are under way in Parliament, with the aim of improving some of the existing practical aspects, such as transfers of capacities and leases, and green certificates' rights. To address issues related to the extended deterioration of existing energy capacities and to help the transition to clean energy by transforming the energy mix with an increasing share of renewable energy sources, the Ministry of Energy has considered the introduction of a support scheme in the form of contracts for differences (CfDs), which would incentivise investments in new electricity generation facilities with low carbon emissions. It is expected that the CfD mechanism will be implemented in the coming years and the 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.ii Funds
The various European funds available to Romania are important to implementing the investments needed to reach the 2030 energy target.
The Just Transition Fund is targeting coal-reliant countries such as Romania and €4.4 billion is expected to be directed to Romania to support the transition to clean energy.
The MF is a dedicated funding programme to support 10 lower-income EU Member States in their transition to climate neutrality by helping to modernise their energy systems and improve energy efficiency. The beneficiary Member States are Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia.11 The MF is composed of the incomes from auctioning 2 per cent of all grants allocated to the market Member States under the EU emissions trading system (ETS) for the 2021–2030 period. Romania has been allocated 11.98 per cent of the 2 per cent of the total quantity of grants allocated to Member States through the EU ETS in this period, which can be used to finance investments.
The MF 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 in accessing such grants. The projects were mostly focused on solar energy, while a key sector was focused on gas as a transition solution.
According to a press release issued by the Ministry of Energy on 7 April 2022,12 the Minister of Energy declared that the Investment Committee had approved approximately €1.4 billion from the MF to finance important projects to modernise the Romanian energy sector. This included projects submitted by CE Oltenia (approximately €895 million from the MF) and Transelectrica (approximately €394 million from the MF) to produce energy from renewable sources. Also, €1.2 billion has been approved to modernise electricity distribution networks, of which over €100 million will be allocated in 2022.
The MF currently has an estimated allocation of over €15 billion (depending on the future quotation of carbon dioxide certificates), with its implementation period due to end in December 2030. On 31 May 2021, Romania sent its proposal to the European Commission for its NRRP, which included 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.
On 31 March 2022, Romania's Ministry of European Investments and Projects launched a platform for the submission of investment projects to be financed under the NRRP, the guidelines for which are based on the six areas covering Romania's needs and EU priorities: green transition; digital transformation; smart growth; social and territorial cohesion; health and resilience; and policies for the next generation. With the creation of this platform, the Ministry of Energy also launched a call for projects for the state aid scheme aimed at supporting investments for the installation of new electricity generation facilities, such as renewable wind and solar energy sources with or without integrated storage facilities. The total worth of the project call is approximately €595 million with approximately €497 million allocated for new generation facilities higher than 1MW.
According to the Minister of Energy, projects eligible for funding under this aid scheme aim to increase installed capacity to produce electricity from wind and solar energy, with or without integrated storage facilities, by approximately 950MW. The submission of proposals for renewable energy production projects under the competitive bidding procedure began on 31 March 2022 and will end on 22 June 2022.iii Transmission system changes
According to a Romanian gas and electricity market operator (OPCOM) press release from 8 June 2022, a flow-based market coupling mechanism in the core region has been launched to enhance the energy transition.
Together with 10 nominated electricity market operators, 16 transmission system operators (TSOs) of the core capacity calculation region (the Core CCR)13 introduced core flow-based day-ahead market coupling. Having a harmonised capacity calculation methodology in place in the Core CCR makes the European electricity system more efficient and robust. This harmonisation thereby improves the capacity allocation to the Core CCR and enables the European power grid to transport more electricity across borders, leading to lower overall cost. Furthermore, it allows for improved cooperation between all involved parties. Finally, market participants will benefit from further improved transparency of all capacity-related data. This new flow-based market coupling mechanism is another landmark step in the energy transition. It enhances the European grid's ability to manage fluctuations in the supply of wind, solar and other renewable energy, thereby contributing to sustainable value for society.iv Key economic trends
The European Commission forecasts a 4.2 per cent gross domestic product (GDP) growth in Romania in 2022, which would put GDP at 2 per cent below the 2021 level. Growth is expected to accelerate to 4.5 per cent in 2023.14
In terms of country statistics, the electricity produced in 2021 was 57.05TWh and the internal electricity consumption 56.22TWh. Also, in 2021, Romania exported 5.43TWh of its generated capacity and imported 7.62TWh. Electricity structure by primary sources (delivered by generators with dispatchable units) in 2021 was structured as follows: hydro 30.05 per cent; nuclear 19.21 per cent; biomass 0.37 per cent; wind 12.07 per cent; solar 1.53 per cent; coal 17.90 per cent; fuel oil 0.07 per cent; and gas 17.99 per cent.15
Regarding the field of mergers and acquisitions (M&A), we notice an increase in the flow of transactions with assets representing capacities of energy generation from renewable sources, but also an interest in greenfield investment, in particular in the generation of wind power provided that long-term energy sales contracts are concluded under merchant market conditions. Additionally, financial PPAs would be a plus in the local and regional trading markets.
In March 2021, the sale of Romanian assets was settled between CEZ Group and funds managed by Macquarie Infrastructure and Real Assets. The sale included a total of seven Romanian companies (Distributie Energie Oltenia, Ovidiu Development, Tomis Team, MW Team Invest, CEZ Vanzare, TMK Hydroenergy Power and CEZ Romania). The share purchase agreement was signed in October 2020, and the transaction was approved by the European Antitrust Authority and the Romanian Supreme Council of National Defence. CEZ remains present in Romania through CEZ ESCO Romania and CEZ Trade Romania.16 Other important companies to note involved in energy deals in Romania include ENEL, EDP Renewables,17 Electrica,18 Portland Trust, Alerion Clean Power,19 Hidroelectrica, Fondul Proprietatea and Nofar Energy.
The policy and regulatory frameworki The policy background
In June 2020, the Senate proposed for debate a draft law regarding the necessary measures for performing operations for offshore wind exploitation. Currently, this draft law is still awaiting endorsements from various parliamentary committees. The bill proposes that the rights to initiate and carry out offshore projects must be obtained from the Romanian state through the Ministry of Economy, Energy and the Business Environment, either through concessions or tender procedures, or by direct licensing (granted to interested parties showing relevant technical and financial capabilities). Offshore wind farms established in accordance with competitive tendering procedures are entitled to subsidies in certain circumstances.
Also 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, which are technology specific. The draft normative act for the implementation of the CfD was envisaged to be finalised in the first half of 2022 and is going through the stages of the public consultation process, according to the legislation in force. 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; and
- carbon capture and storage (CCS) and carbon capture and utilisation (CCU) technology for fossil fuel-based electricity generation facilities when they become commercially viable.
CfDs will be granted only for CCS and CCU installations or equipment in line with European state aid guidelines.
The Ministry of Energy initiated, in 2020, the process of amending the Energy and Gas Law to transpose Directive 2019/944/EU. This was finalised by the enactment of GEO 143. GEO 143, in force as of 31 December 2021, is still subject to a parliamentary approval procedure, which may result in either its approval without amendments or with amendments, or its rejection, resulting in the repeal of all provisions. GEO 143 includes relevant provisions related to EU environmental legislation, system flexibility, increased interconnection and market liberalisation, which facilitate the transition to a low-carbon economy, new concepts as active consumers, citizen energy communities and aggregators, and more facilities to prosumers, among other things.
Romania is also putting in place a hydrogen strategy that will be part of the NRRP, 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 was most significantly changed in 2017, bringing changes to the green certificates subsidies regime with the goal of final consumer protection. As a result of these changes,20 ANRE elaborated on (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 renewable energy sources investments, leading to a sentiment of instability with a negative market impact. As the green certificates scheme ended in 2016, the market went through a steep decline in investments. However, since the Fourth Energy Package was promoted and the European Green Deal emerged, a series of legislative and policy measures have put Romania back on the renewables investments map.Green certificate support scheme
For the renewable energy sources projects commissioned until December 2016, in addition to the revenues obtained from selling the electricity output of a renewable energy project, a green certificates scheme is in place under the promotion mechanism for renewable energy in Romania set out by the Renewable Law. The transmission and system operator, Transelectrica, issues green certificates to producers on a monthly basis for the green electricity produced and delivered to suppliers or final consumers.
The number of green certificates issued depends on the technology type used for renewable generation. The trading issuance of a share of the initial number of green certificates was suspended for some technologies between 1 July 2013 and 31 March 2017, and further to 31 December 2020 for solar generation specifically. Thus, the number of green certificates issued during this time was reduced by one green certificate for hydropower and wind energy, and by two green certificates for solar power plants. The suspended green certificates resumed trading as of 1 January 2021. This deferral of a certain quota of green certificates applies only to renewable power plants that received approval for production from ANRE until 31 December 2013.
Under the Renewable Law, as amended, renewable electricity generators receive a number of green certificates for each megawatt hour delivered to the grid, depending on the technology. Electricity suppliers (and generators in certain circumstances) have the obligation to acquire green certificates according to an annual mandatory quota established by ANRE.Setting the mandatory quota
The estimated yearly mandatory quota for the green certificates' 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 median impact on consumers, which should not exceed €12.50 per MWh in 2019, €13 per MWh in 2020 and 2021, and €14.50 per MWh in 2022.
Additionally (as of 2018), ANRE will calculate by 1 March of each year the mandatory acquisition quota for the previous year, the amount of electricity produced from renewable sources and the average impact on consumers, which should not exceed €11.70 per MWh in 2018, €12.50 per MWh in 2019, €13 per MWh in 2020 and 2021, and €14.50 per MWh from 2022.Obligation to acquire green certificates
Energy suppliers and generators (if applicable) are under an obligation to acquire a number of green certificates annually equal to the value of the mandatory quota for the acquisition of green certificates established by ANRE for the applicable year, multiplied by the total number of megawatt hours.
The mandatory quota for the green certificates acquisition for 2020 was established at the value of 0.449792 green certificates per MWh. For 2022, it was established at the value of 0.5014313 green certificates 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 the Renewable Law entered into force; and
- three years for the hydropower plants that have not been refurbished, with installed power up to 10MW.
Green certificates can be traded only on the centralised markets operated by OPCOM in a transparent and non-discriminatory manner between the operators that have, by law, an obligation to buy green certificates and 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 green certificates are traded together, as a package, in a competitive, transparent, public, centralised and non-discriminatory manner.
The selling of the green certificates is only allowed to producers of renewable energy. A green certificate 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 green certificates 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.Cogeneration bonus
In accordance with the provisions of the Government Decision (GD) 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 the greening of electricity production. The scheme aims to support electricity and heat producers as well as owners of high-efficiency CHP units or those who operate them to encourage new investments in cogeneration technology. The scheme also aims to encourage the replacement or refurbishment of existing installations.
The contribution for high-efficiency cogeneration is a tax collected from all electricity consumers in Romania to support district heating power plants and was increased after a period in which it had decreased. It is currently 0.02044 lei per kWh, without value added tax. The scheme will be in force until 2033 and Transelectrica has the responsibility of administering the support scheme, which includes collecting contributions and payments made to eligible generators.Subsidies under the Offshore Wind Draft Bill
The draft bill on the necessary measures for carrying out operations for the exploitation of offshore wind energy (the Offshore Wind Draft Bill)21 is currently undergoing the legislative process within the Chamber of Deputies, following its adoption by the Senate in October 2020. As part of the process within the Chamber of Deputies, the Offshore Wind 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 Offshore Wind Draft Bill proposes that the rights for initiating and carrying out offshore wind projects are granted by the Romanian state through the relevant ministry, either through competitive tender procedures (concessions) or by direct licensing (granted to interested parties showing relevant technical and financial capabilities).
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 €0.06 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 €0.02 per kWh for 20 years from the time the network is connected.Other developments
According to the National Integrated Plan for Energy and Climate Change 2021–2030 (PNIESC), approved by GD No. 1076 on 4 October 2021, the authorities are considering the implementation of pilot projects to promote the use of hydrogen in electricity production and in the industrial sector. Also, as part of the transition efforts, the Ministry of Energy 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 200MW power plant using natural gas located in Turnu Severin, Halânga. According to the Ministry of Energy, this pilot project has been accepted by the European Commission from a conceptual point of view. The land on which the plant will be built has been purchased and the feasibility study is being worked on.22
In June 2020, Romgaz and Liberty Galați signed a memorandum for the construction of a gas plant that also has 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, as it will be worth €1.2 billion over the next five years. It is a large investment that should make the Galați steel plant carbon neutral by 2030. The project involves the use of gas and then gas replacement with hydrogen.ii The regulatory and consenting frameworkLegislation
Primary legislation includes:
- the Energy and Gas Law;
- the Renewable Law;
- Law 121/2014 on energy efficiency; and
- GD No. 780 dated 14 June 2006 establishing a system for greenhouse gas emission allowance trading published in Official Gazette No. 554 dated 27 June 2006.
Secondary legislation includes:
- 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. 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 of 10 July 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.23 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 TSO is the sole operator of the electricity transmission grid. It is a joint stock company with a 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 169 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 enabled by the 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 the public grid.
The ATR is the offer of the grid operator to request connection submitted by the applicant. The grid operator issues the ATR in accordance with the approved solution study, and it contains all the technical and economic conditions for the connection to the grid. The grid operator also issues the technical conformity certificate, a prerequisite for the generation licence. The generation licence must be obtained from ANRE after the plant has been commissioned and before the commencement of commercial operations.
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 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.
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 is issued by the relevant competent local administrative bodies and, on average, requires approximately six months to be obtained;
- the grid connection permit applies for connection to the power network, transportation or distribution lines, as the case may be, and is issued by the applicable TSO or distribution system operator under certain conditions;
- the setting-up authorisation is issued by ANRE within 30 days of the submission of all the required documents and payment of the corresponding fee;
- the licence for commercial operation of electricity generation and energy storage facilities related to the form of generation is issued by ANRE after the submission of the complete documentation and payment of the corresponding fee; and
- the environmental authorisation is issued by the competent environmental agency, which is dependent on the project location, and is issued within a maximum of 90 days.
Renewable energy sources projects are subject to a project environmental screening by the competent environmental protection agencies (e.g., local agencies in charge of the applicable 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 and locations, and improvements of equipment, among other factors. 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 and archaeological authorities (among others), as well as public roads waivers and other such permits.
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 the 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 continuing throughout 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 2019.24
During 2013 to 2017, 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 and 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 in procuring or investing 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 trialling 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.25
With an offshore potential of 76GW, Romania is attractive and a strong 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 MF. Recently, the government approved an emergency ordinance that establishes the institutional and financial framework for the disbursement of grants under the MF, which has a national budget of approximately €13 billion by 2030.26
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.ii Power purchasePPAs
Before 2012 when PPAs were banned, PPAs were concluded between renewable generators and suppliers. Now, as 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 PPAs with renewable generators. On 19 May 2020, through Government Emergency Ordinance No. 74/2020 amending the Energy and Gas Law, PPAs were reintroduced after having been banned for almost eight years, but only for power generation sources that would be commissioned after 1 June 2020.
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.27
With the enactment of GEO 143, the conclusion of bilateral PPAs by electricity producers is no longer restricted, regardless of the commissioning date of the power generation capacities.
Long-term bilaterally negotiated contracts can be concluded with physical delivery or can be financial instruments deemed to address volatile market risks on a long-term basis. There is one limitation on state-owned electricity producers, which are obliged to trade a minimum of 40 per cent of their annual production via contracts concluded on exchange platforms other than the day-ahead market (DAM), intraday market (IDM) and the balancing market.
Until this recent legislative change, all electricity transactions could be carried out solely on the centralised market (i.e., OPCOM).
The centralised markets that are presently functional are:
- the DAM;
- the centralised market of bilateral contracts with extended auction mechanisms, with continuous negotiation mechanisms and with fuel processing mechanisms;
- the IDM;
- the centralised market with double continuous negotiation for electricity bilateral contracts;
- the large consumers mechanism;
- the centralised market for universal service; and
- the centralised market for awarding long-term electricity contracts.
The corporate power purchase market is a new concept in Romania but, starting with the reintroduction of PPAs, it appears that there is a strong interest from investors and big corporations have started to look into 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 and 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.28NRRP
Through the NRRP, €1.62 billion will be allocated under the energy component between 2022 and 2026 for investments in wind and solar energy production and storage capacity; green hydrogen production capacity; cogeneration; investments in the whole value chain of batteries, cells and photovoltaic panels; and ensuring energy efficiency in the industrial sector. For Measure I1, aimed at investments in new renewable energy production and storage capacities, the Ministry of Energy published the State Aid Schemes and Specific Guidelines for funding in February 2022.
Also, under the NRRP, Component 5 (Wave of Renovation) provides for €2.2 billion in grants for investments in increasing energy efficiency in residential and public buildings. According to the NRRP timetable, the first calls for these investments should be launched by 30 June 2022.29 The main measures taken at national level to date to promote the increase of energy produced from renewable sources, taking into account the indicative trajectory to achieve the objectives of renewable energy sources, are also stated as legislation including:
- the system for promoting the production of energy from renewable energy sources through green certificates (accreditation was allowed until the end of 2016 and the validity of the support scheme for accredited operators expires in 2032);
- the development of electrical transmission and distribution networks for ensuring the evacuation of electricity produced by power plants using renewable energy sources (RET and RED Perspective Plan 2018–2027);
- increasing energy efficiency and safety of supply in the context of combatting climate change by updating the Sectoral Operational Programme Increasing Economic Competitiveness, Priority Axis 4,;
- promoting clean energy and energy efficiency to support a low-carbon economy through the Large Infrastructure Operational Programme, Priority Axis 6 (Objective 6.1, in particular, aims at increasing the production of energy from less exploited renewable resources such as biomass, biogas and geothermal energy);
- support transition to a low-carbon economy through Regional Operational Programme Priority Axis 3; 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 over 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. This left development, construction, operations and maintenance to international actors.30 Of course, foreign investors bring value and the means to build larger projects, but it is essential for Romania to encourage the development of local entrepreneurship, particularly in creating a national supply chain.iii Non-project finance development
An alternative renewable energy financing structure 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). For example, Raiffeisen Bank, the Romanian subsidiary of the Austrian group Raiffeisen, raised approximately 400 million lei in a senior green bond issue.31
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.32
In addition, Erste Group has issued €500 million in bonds with a seven-year maturity to finance green real estate projects in Austria and Romania. This issue was also oversubscribed and the bonds were issued at a spread of 35 basis points 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 long-standing activities in the environmental, social and governance area.33
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 16.36 million lei. The issue was oversubscribed and completed in advance after the first 10 days of launch. According to the offer document, the offer's value was 15 million lei, with the possibility of supplementation.34
Distributed and residential renewable energy
As of 1 January 2019, any Romanian final customers 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 an accredited electricity supplier.
GEO 143 defines the prosumer as the final customer:
- who carries out activities in his or her own space, situated in a certain area or in other spaces in his or her immediate vicinity;
- who produces electricity from renewable sources for his or her own consumption;
- whose specific activity is not the production of electricity; and
- who consumes and can store and sell electricity from renewable sources produced in his or her building, including an apartment building, a residential area or a shared service location that is commercial, industrial or in the same closed distribution system, provided that, in the case of autonomous non-household consumers of energy from renewable sources, these activities should not be their primary commercial or professional activity.
The balancing responsibility shall not apply to prosumers with an installed power generation capacity of less than 400kW. The balancing responsibility lies with his or her supplier, according to ANRE regulations.
According to GEO 143, prosumers operating electricity production facilities from renewable energy sources of up to 400kW per consumption location can sell the additional produced electricity – and deliver into the grid – to the electricity suppliers with whom they have concluded electricity supply agreements according to ANRE regulations. The electricity production limit increased from 100kW to 400kW with the entry into force of GEO 143.
GEO 143 brings even more facilities to prosumers, including but not limited to the following:
- Local public authorities that have the ability to produce electricity from renewable sources (put together partially or totally from structural funds) benefit from the suppliers with whom they have electricity supply contracts in place and upon request, from the financial regularisation service between the delivered energy and energy consumed from the grid.
- Prosumers operating electricity production capacities from renewable energy sources of up to 200kW have the possibility to request their energy supplier:
- to apply to their invoices a quantitative settlement between the amount consumed and the amount produced and delivered into the grid; and
- to report in the prosumers' invoices (if the amount of electricity produced and delivered in the network is higher than the amount of electricity consumed) the difference between the amount delivered and that consumed and, in this case, the prosumers can use the amount of carried-over electricity within a maximum period of 24 months from the invoice date.35
Prosumers, individuals, legal entities and local public administration authorities who own power plants that produce energy from renewable sources, as well as the natural or legal persons who own units for the production of electricity from renewable sources, are exempted from the obligation of annual and quarterly acquisition of green certificates,36 other than the own technological consumption of the power plant.
Quantitative compensation for consumers with installations with a power of up to 200kW will be granted until 31 December 2030, in the context of measures and actions related to meeting the commitments on the share of renewable energy in 2030 specified in the National Energy and Climate Change Plan, according to an ANRE methodology. After this period, the applicable prosumers can sell the electricity produced under certain conditions for prosumers with an installed capacity of between 200kW and 400kW.
ANRE estimates that Romania will have approximately 30,000 prosumers by the end of 2022.37 The applicable legislation allows both natural persons and companies to become prosumers, provided that energy production activity is not their primary commercial or professional activity. For example, large commercial spaces or production halls that have activity, especially during the day, and large areas of roofs can substantially reduce their energy bills by installing photovoltaic systems.
The rooftop lease arrangement is currently becoming more popular, under which the generator leases the roof and installs its own solar equipment, then sells the electricity generated to a utility company under the terms of a PPA.
Enel X Romania is developing several photovoltaic systems for retailers such as Selgros with an installed capacity of more than 900kWp (2,000 photovoltaic panels) for two Selgros supermarkets in Mures and Timis.38 Another example of such a project developed by Enel X is 1,840 photovoltaic panels with an installed capacity 818.8kWp project to be developed for the Albacher beer factory in Sebes in 2022.39
Mergers and acquisitions
Renewable energy supply chainsi Programmes
The year 2021 marked the launch of the RESInvest in Romania programme,40 dedicated to the development of the renewable energy sources supply chain in Romania to encourage local production of technology used in the green sector and create investment opportunities based on EU funds. The year 2022 marks the launch of the MF in Romania, which will also be important in the development of the Romanian renewable energy supply chain.
Please see Section IV.ii for further detail on the current state of the renewable energy supply chain in Romania.ii Guarantees of origin
A guarantee of origin is a tracking instrument defined in Annex 1, Article 5 of Directive 2019/944/EU. 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 renewable energy sources 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 EU Member States. The transfer of guarantees of origin shall take place separately or together with the physical transfer of electricity.
ANRE recognises guarantees of origin issued by the 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.
Other key considerationsi Renewed interest
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 European climate neutrality targets.
Projects commenced by the 2017–2018 period are now progressively being reactivated with increased interest from new investors for the acquisition of these ready-to-build projects, and development is expected within the next two to three years. The projects, including older projects developed before 1 June 2020, are now more bankable as PPAs are now allowed and generators will be able to secure their outputs through physical or virtual PPAs. There is an increased tendency for major non-energy companies to have a free carbon footprint, which translates into an expectation for the first corporate PPAs. Utilities are now more engaged and confident in participating in renewable energy sources projects.ii Energy transition
Romania is a traditional country where conventional energy (especially coal) has historically 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.
There is a need to update, reshape and harmonise the entire set of legislative measures pertaining to the energy sector. Efforts are under way to ensure that the legislative framework follows the most recent policy measures, indicating an accelerated path for decarbonisation. Such updated and harmonised legislation is paramount to facilitate much-needed investments in various technologies that are intrinsic to the transition.
In the coming years, it is anticipated that the government will promote and foster the decarbonisation of economy, industry and business by supporting the introduction of new technologies such as hydrogen and fuel cells to reduce emissions and protect the environment.
Over €18 billion will be available between 2022 and 2030 for projects in the renewable energy sector in Romania through the calls launched through the NRRP and the MF.41Hydrogen
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 industry.
According to the 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.Nuclear
An 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.
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 Directive 2019/944/EU and Regulation 2019/943/EU – and a new target under the PNIESC of a 30.7 per cent green energy share in total consumption by 2030, Romania has taken steps to adopt 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 to cost approximately €22 billion in overall investments, including some dedicated to grid development and conventional capacities, especially for gas-fired power plants.
In Romania, the impact that renewable energy projects could have on the local market goes beyond energy supply and enters the sustainability agenda. Investments in renewable energy could allow a substantial reduction in carbon dioxide emissions, reaching up to 17 per cent of the 2030 national contribution target committed to through the Paris Agreement.42
In 2022, Romania has defined an encouraging electricity market reform as part of the NRRP, which includes:
- the phasing out of coal and lignite power plants by 2032;
- the introduction of CfDs as one of the main support mechanisms for investment in renewable energy generation;
- the direct negotiation of PPAs by all power generators;
- the simplification of licensing and authorisation procedures for renewable investments;
- the establishment of shorter and binding administrative response times and procedures for unnecessary delays; and
- the introduction of a specific support framework for offshore renewable energy investments in currently under-exploited regions.43
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 will enter the Romanian market, but this enthusiasm will have to be corroborated by articulate and stable legislation, coherent public policies reactive to the business environment, and the decarbonisation targets. The capacity of the system to take over the new projects will also require an increase in interconnection capacity, as well as the development of networks over the entire country.
Romania is phasing out coal and part of the nuclear capacity is unavailable for some years because of refurbishment. While Romania is phasing out coal, worldwide, coal power generation rose by 9 per cent in 2021 to 10,042TWh, marking the biggest percentage rise since 1985.44 However, for 2022, the Romanian Strategy and Forecasting Commission forecasts production of 2.935 million tonnes, down 2.8 per cent, and imports of 270,000 tonnes, down 27 per cent. Thus, the market data shows that Romania needs more generating capacities very soon, being now a net electricity importer.
The latest steps related to energy policies and the legal sector framework seem to sustain positive conditions for such new investments. Given the latest changes to the primary legislation as a result of the transposition of Directive 2019/944/EU and the upcoming CfD support scheme for low-carbon technologies, supported by the enthusiasm 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, institutional investors, EU grants and state-owned companies. It 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.