An ailing energy producers’ infrastructure that delivers cheaper energy on one hand but also, higher costs due to the need of revamping and the supporting scheme of the Government for renewable projects.
A healthy, but somehow less spectacular, immediate measure that Romanian regulatory authorities could consider in this respect is simply taking a step back from the political and regulatory game, think things through and decide what to do next. The approach should address problems at a number of multiple levels such as: social (e.g., How to address fuel poverty? How to integrate miners working in mines which are no longer financially viable?), environmental (e.g., Which are the costs of closing down facilities not viable anymore?) and last but not least economic (e.g., How to address demand with fewer generation capacities? Will there be a price spike or can renewables fill in the gap left by closing down nonviable capacities? Could the money spent for keeping these capacities working be better spent by supporting e.g., costs of grid reinforcement, thereby reducing the costs of RES-E projects).
INVESTORS CALL FOR A NATIONAL STRATEGY
The volatility of the electricity prices on the Romanian market is first of all generated by the lack of a transparent electricity market, the limited de facto liberalization of the electricity market and the inefficient conventional electricity generation capacities. The subsidies awarded to RES-E projects are still limited at this point as the lack of financing in the current context limits the number of projects making it to the operational phase.
There is no silver bullet or panacea that will solve in the short run all the problems which built up over the last two decades in the energy sector. The fast track cannot be a means of addressing the complexity of the economic and social implications generated by the operation of the energy sector. The sector desperately lacks a long term perspective and consistency in implementing short/medium/long term strategies. One cannot help but notice how these two shortcomings of the regulatory process are close to becoming obsolete as they are constantly being “preached” by public figures, companies and consultants, be them private or international public organizations. Nevertheless, it is precisely these two concepts which are not being implemented by the Romanian regulatory authorities.
In recent years, the constant call to generating a coherent national strategy in the energy industry has been voiced both by investors that have already developed local projects in renewable segment and also by companies that are looking for local investment opportunities. A national energy strategy would lift the fog within the sector, and there are a number of main aspects to be included in the national energy strategy, but in my opinion, the top six issues to be addressed would be:
1. Investments in the electricity grid (together with the operator’s obligation to contribute to this process) – which would help Romania import less electricity and rather contribute towards Romania exporting more electricity;
2. Bringing electricity to the remote areas of Romania – Romania lags behind on this point in the EU;
3. Private investments in the conventional electricity generation sector (with or without the strategic partnership with the Romanian authority) – private sector may prove better at managing strategic projects, considering Romania’s current institutional capacity;
4. District heating – after twenty years there is still no solution for this sector which is so efficient in other countries in the EU, and which has an amazing potential considering Romania’s densely populated cities;
5. Biomass – there should be an integrated approach between Romania’s forestry and energy strategies;
6. Transparent electricity market, where prices are set in a transparent way.
The local and regulatory authorities should first ask the “which are our most stringent needs?” question in an informed manner and then trade the spectacular (and rather inefficient) decisions against those which would rather qualify under the “small but confident steps” policy.
If the methodology for overcompensation analysis will be applied in a transparent and challenge free manner, the decrease in green certificates may not necessarily be described as “badly impacting” RES-E projects but rather correcting a situation whereby certain technologies/projects are rewarded beyond a fairly reasonable IRR, therefore reducing the “easy money over a limited period of time” perspective
SHOULD WE TALK ABOUT A BUBBLE EFFECT IN THE SECTOR?
As energy projects are so heavily regulated in Romania, it is debatable to what extent one can discuss about a potential “bubble effect”. The trial and error occurs fairly early in the development chain, as RES-E projects basically stand the market test upon executing the grid connection agreement/applying for the set-up authorization. That is not to say that there is not a speculative element in the whole construction of the permitting of the development of a RES-E project in Romania. The speculation occurs specifically because of the possibility of consecutively extending payment schedules under grid connection agreements, thus keeping blocked grid capacity for those investors which are not necessarily financially viable.