Renewable energy appeared to be an interesting idea in this context, but was considered expensive, unreliable and immature. Nevertheless, it is one of the sectors that recorded the highest global growth and spread during the last years, despite economic recession. According to Bloomberg New Energy Finance, US$ 240 billion were invested last year in renewable energy (excluding large hydro plants), of which wind and photovoltaic sources represent US$ 220 billion.
In Romania, there is 1.4GW of wind energy operating as at September 2012, representing a total investment of approximately EUR 2.1 billion (considering a price for MW of EUR 1.5 million).
Europe and the sun
In order to be promoted and made accessible, expensive technologies were supported by incentive schemes, German and Spanish governmental programs for photovoltaic energy in the mid 2000s boosting the development of solar parks. German market recorded 7.5GW installed capacity within one year. For a number of reasons, of which it is worth mentioning the debate around removing large areas of agricultural land from use for photovoltaic parks or grid stability, this expansion wave proved unsustainable.
As a result, starting 2009, Spain and Germany severely cut the incentive scheme and the drop in demand for photovoltaic technology could not be immediately and entirely offset by pick-ups in other countries. At the same time, numerous manufacturers of polysilicon raw materials, cells, inverters or modules, especially from Asian countries, entered the market, significantly increasing supply options.
Sun is powering Romania
Photovoltaic industry recorded impressive worldwide growth in the last 3 years, from 7.7MW installed capacities in 2009 to 29GW in 2011. While solar parks were not the focus point for developers in Romania, with only 5MW being operational to date, the spotlight is shifting, being propelled by the positive incentive scheme currently valid in Romania (6GCs/MWh, compared to 2GCs/MWh for wind technology), one of the most important in Europe for solar parks.
The price per module stabilized starting end of 2011, after decreasing by as high as 50% during this year only. Multicrystalline silicon modules have reached a factory gate price of approximately 1$/watt (there are also quotes as low as $0.7/watt). General opinion is that this level of costs is unsustainable for the majority of manufacturers, which also materialized in large number of mergers and bankruptcies, especially for the manufacturers located in Asia.
Towards the end of 2008, when the current incentive scheme was approved in Romania, spot prices of solar-grade silicon were higher than 100$/kg, reaching 30$/kg by the end of 2011. Support scheme of 6 GCs/MW was approved by European Commission, considered being adequate in that context. Moving forward to 2011 - 2012 period, characterized by extreme price competition for cells, modules and inverters, the incentive scheme looks very attractive.
Estimations of ANRE (National Agency for Regulations in Electricity) from June 2010 indicated that expected installed capacities by end of 2012 will reach 43MW and 78MW by end of 2013. The most recent data from Transelectrica, the grid operator indicated that 1.7GW of solar parks have connection permits as at September 2012 and 0.5GW have grid connection agreements. Establishment authorizations were granted for 90MW.
These figures reflect a rapid surge compared to practically non-existent activity around photovoltaic parks last year. Except for the positive incentive scheme of the Romanian government, the local market records a shift from wind energy, the highlight of the previous years, for a series of reasons of which most important are:
? solar irradiance estimation is more reliable and easier to predict compared to wind
? installations of photovoltaic modules take significantly less time to perform compared to wind turbines
? development process is less cumbersome
Guaranteed IRR for solar energy is 11.6%, as per current legislation, being the highest threshold for consideration of overcompensation in the series of renewable energy sources.
Romanian renewable energy environment, still cloudy
Important legislative changes applicable to renewable sector in Romania have deterred significant foreign investments to take place, situation being highly noticeable especially following July 2012. Furthermore, authorities have identified that considering recent global developments in this sector, the incentive scheme developed in 2008 may lead to over-support and have reserved the right to change the number of GCs/MW starting 1 January 2014 for solar parks.
Grid upgrade is a matter to consider closely, as the national strategy for energy does not directly specify clear terms or actions for envisaged upgrade of grid with a 400kv line. Adding to this, grid stability affects renewable energy producers as connections should be balanced by continuous energy supply. The most important project in this area, Tarnita-Lapusesti hydro plant with 1,000MW installed capacity is very expensive and project development is still very incipient. Thus, cutting off green energy producers may be an easy solution in this respect.
Despite decreases in prices, photovoltaic energy production is still very expensive and the costs are transferred to end users. Economic downturn would probably be a natural obstacle for high increase in price per MW and local regulator has the right to intervene to regulate prices.
There are several scenarios developed by different market players (utilities, regulators, financiers) that model the period when demand of GCs (quota) will be fulfilled, which would have direct implications on trading prices of GCs that have been kept close to the legislative cap. Amongst them, the pessimistic scenarios envisage the quota being reach as soon as 2014, with GCs trading close to minimum level starting end of 2015.
If you bet on debt
Global economic recession has put a burden on financing investments, which had a significant impact on development of renewable energy facilities in Romania. Debt financing became scarce, with conditions for corporate finance becoming difficult to fulfill. Good projects are defined through:
? full and correct permitting status
? strong sponsor
? good technical characteristics (high level of irradiation)
? secured sale of brown power and green certificates through off-take agreements
? minimum level of equity: 30%
? adequate technology
Project finance (non-recourse finance) was not a practice in Romania. Additionally, raising debt finance has become increasingly difficult starting July, when the newly approved law on electricity and gas (Law 123/2012) closed the possibility of concluding long term power purchase agreements (“PPA”) between private parties, thus removing one of the most important pre-conditions of the financing institutions. Current expectancies in the market, after strong support from all players involved in the local renewable sector is for the change of this aspect to occur so as to unblock financing.
Under these market conditions, potential investors with available funds for investments in renewable energy have a wide range of projects to select from. Additionally, major utilities developing their own renewable energy facilities would be privileged from the perspective of being able to circumvent the PPA.
For the remaining market players, debt raising is an area where innovation could be the only agent for moving forward. Having as example Poland, where significant investments in a variety of sectors was financed using pension funds and life insurance capital, local players could try entering capital markets as a resort for exiting the financing “trap”.
Solar power, in the spotlight for investors
Prices of modules will continue to decrease, based on continuous fierce price competition between manufacturers, despite the already unsustainable cost levels recorded by Asian manufacturers, mainly .
Local support scheme is very attractive for photovoltaic investments, with a large number of foreign investors speeding their entry into the market. Time is of essence, as potential downward change in number of GCs granted for solar energy may be approved after 1 January 2014 and solid development is the key for smooth project implementation.
Photovoltaic energy will access more widely the small businesses and household sector, becoming competitive with electricity price and facilitating savings, even without subsidies.