The current state of the renewable energy market: after heavy winds, follow the sun

The second half of the year 2012 brought the enactment of two important laws in the energy sector, relevant especially for the renewable energy field

The second half of the year 2012 brought the enactment of two important laws in the energy sector, relevant especially for the renewable energy field. On the one hand, Law 134 as of July 18, 2012 entered into force on July 26, 2012 and approved the Government Emergency Ordinance No. 88/2011 which, in turn, modified and supplemented the Law 220/2008 setting up the support scheme promoting energy production from renewable sources (Law 134) and on the other hand, Law no. 123 as of July 10, 2012 for electric energy and natural gas (Law 123), came into force on July 19th, 2012.


Romania was one of the first candidates to the European Union that transposed the European Directive 2001/77/CE related to the subsidy system for energy produced from renewable energy sources by the Governmental Decision no. 443/2003, modified by the Governmental Decision no. 958/2005. However, the subsidy system has been developed with the enactment of Law 220, whereby as a result of major amendments brought to the a.m. law in 2010, Law 220 was republished. The latest amendments in this field have been brought by the enactment of the two above mentioned laws.

In order to promote the production of renewable energy, Romania adopted from the beginning a support scheme based on green certificates to be received by the eligible power producers from renewable sources for each produced MWh and injected into the grid. At present, the promoted renewable energy sources are, according to Law 220 as amended, the following: hydraulic power in plants with an installed capacity of maximum 10 MW; wind energy; solar energy; geothermal energy; biomass; bioliquids; biogases; sewage treatment plant gas and waste water treatment sludge gas, whereas the number of green certificates (varying from 1 to 6) to be received for each 1 up to 2 MWh was amended in the process of implementing the Law 220; this made the Romanian E-RES market more attractive for both local and foreign investors. But the increased number of green certificates could not be allotted for a long period of time due to the lack of secondary legislation. This favoured investments in the wind sector, a technology not as expensive as the photovoltaic. Wind was the first big wave of investments in the E-RES sector, as the official reports showed.

The support scheme applies for different time periods, depending on the type of the energy production technologies: 15 years for electricity produced in new generating plants; 10 years for the electricity produced in refurbished hydropower plants with an installed capacity of at most 10 MW; 7, respectively 5 years for electricity produced in wind plants that have been used for the production of electricity in other countries, provided that they are used in isolated electricity systems or were put into service in Romania before the application of the supports scheme; 3 years for electricity produced in non-refurbished hydropower plants, with an installed capacity of maximum 10 MW.

A report published on the website of the Romanian Energy Regulatory Authority (ANRE) about the renewable energy sources already installed as of the end of 2011 shows wind power as the winner of the last year’s installed capacity structure.


Even if from 2005 to 2009 an important market share was hold by the power generation from hydroelectric plants (S.C. Hidroelectrica S.A. during 2005-2007 and S.C. Elsid S.A. during 2008-2009), starting 2010 the power generation from wind plants surpassed the other energy producers and has won a market share of 36 percent in 2010 and 41 percent in 2011 (S.C. Tomis Team S.R.L.). ANRE published in the said report, as seen in attached Figure 3.3., the market shares of the companies that have benefited in 2011 from the support scheme for energy produced from renewable sources.


Recent years have seen an increased interest in the production wind power. Although the legal framework is still not crystal clear, according to a report by Transelectrica -- the Romanian Transmission and System Operator -- about the concluded grid connection agreements for wind power, as of August 27, 2012 agreements for about 14,045 MW were signed, the highest value of all renewable energy sources. However, even if wind power seems to be one step ahead of the other renewable sources, the forecasts for the coming years indicate a boost of the photovoltaic industry. These predictions are based especially on the generous support scheme for this kind of renewable energy source, for which every produced MWh is granted with 6 green certificates. According to the same report, as of August 27, 2012, 522 MW worth of grid connection agreements of photovoltaic power have been concluded. Since the beginning of 2011 only about 2MW of photovoltaic plants had been put into operation, it appears that the photovoltaic industry is about to make a long leap forward.


2011 was the year when the concept of overcompensation was codified by the Government Emergency Ordinance No. 88. Nonetheless, a lot needs to be clarified about the application of this concept. For one thing the investors’ excitement, especially in the photovoltaic industry, has been dimmed by the uncertainty of the timeframe of the first overcompensation analysis, which could bring a reduction of the number of granted green certificates. According to legal provisions, overcompensation can be ascertained following a cost-benefit analysis to be carried out by ANRE across all energy producing facilities of the same technology, indicating a rentability rate 10 percent higher than the value considered for that technology when the support scheme was authorized. Based on the annual average of specific technical and economic indicators for each technology, if overcompensation was established, the possibility of reducing the respective number of green certificates granted will be considered.

The expected clarifications related to the timeframe have been brought by the enactment of Law 134. For solar power the overcompensation analysis will not take place before January 1, 2014 and according to some authorities’ representatives it is expected that the number of green certificates will be reduced from 6 to 4. For power generated from other renewable energy sources the first overcompensation analysis will be applied one year later, starting with January 1, 2015.

Together with the postponement of the overcompensation analysis, Law 134 has brought also further amendments, from which we will mention only the ones related to (i) the quarterly reporting obligation of the energy producers and suppliers of the fulfilment/non-fulfilment of the mandatory purchase quota of green certificates (and the corresponding sanctioning by ANRE), (ii) the quarterly purchase obligation of green certificates for the purpose of complying with the mandatory purchase quotas, which is supposed to allow a better predictability of the cash flow of E-RES producers on medium and long term and (iii) the increase of installations’ power for which simplified authorization procedures are to be applied (up to 10 MW).




Although investors must have felt relieved after the postponement of overcompensation analysis, the enactment of Law 123 brought forth several other unclear issues. They are to be clarified by ANRE through the power supply regulation that must be approved within 60 days as of the Law 123’s entry into force and the secondary legislation for the adjustment of the entire regulatory framework in the electricity sector.

According to Law 123 it seems that the conclusion of power purchase agreements (PPAs) as regulated under the old legislation has been banned. As Law 123 has it, all electricity transactions are to take place exclusively on the competitive market (Pia?a concuren?ial?) managed by the Romanian Power Market Operator (OPCOM) in a transparent, public, centralized and non-discriminating manner. All energy producers – including those of renewable energy, as Law 123 does not differentiate – must offer the entire electricity available on the competitive market in a public and non-discriminating manner. It is thus clear that with the entering into force of the Law 123, PPAs can no longer be concluded outside the OPCOM-operated centralized market. Even if the said obligation is incumbent upon all electricity producers as of July 19, 2012 (since the legal provisions of the Law 123 are imperative and immediately enforceable), because there is no trading platform for such bilateral agreements (especially for the electricity producers not yet holding an electricity production licence and thus unable to register on the OPCOM-operated centralized market), their implementation will have to await for the secondary legislation to come in place.

The Law 123 does not take into consideration the impact of the new regulations upon the private sector and especially on the producers of electricity from renewable energy sources, who are thus left without a crucial pillar for the bankability assessment of their projects: the PPAs. In order to compensate this, the competent authorities envisage the creation of a special trading platform on which even future producers – those not yet holding a production licence – might be able to conclude bilateral agreements with respect to the power to be generated in their electricity production facilities.

Thus, on the one hand the Romanian legislator gave new hope to the investors in this field by encouraging them to invest in this sector, since the first overcompensation analysis will be applicable beginning with January 1, 2014 for solar and with January 1, 2015 for the other renewable energy sources. But on the other hand this made it difficult for the investors to get their projects financed, since PPAs can no longer be concluded in an early project stage – that is to say, prior to holding the electricity production license. This must be disquieting for investors and bankers alike.

Nevertheless, as the renewable energy production promises to be a dynamic market in the coming years and investments in solar parks that start injecting energy in the grid until December 2013 will still benefit of 6 green certificates per each MWh of electricity produced and supplied into the grid for a maximum 15 years time period, investors should keep an eye on this market.