Balancing the system

Balancing the system

A correct solution would have been that along with developing of the renewable energy a certain percentage of the support scheme to have been directed towards investment in transport networks and flexible units.

Domestic energy sectorand especially renewable energy subsector became in the last 5 months the most debated topics - conferences, round tables, exhibitions, seminars and articles on this topic are becoming more numerous,  exceeding by far the number any other area (1-2 events are held on monthly basis and articles on the subject abound in most newspapers and magazines).


Three mainfactors have generated this interest and fierce debates in the last five months, as follows:

·         Discussions andproposals for adjusting the support scheme for renewable energy; the possibility that this scheme to be changed putting face to face investors who want to invest or already have invested tens and hundreds of millions of Euros for projects in Romania with authorities frightened by the magnitude that has taken this phenomenon and large industrial companies threatened with closure if the energy bill will increase.

·         Decreased of the energy consumption at both national and European level.

·         high level of energy production generated by the wind and hydro power plants ;         


But what actually happened and how the three a/m factors have combined simultaneously?  The economic crisis led to a sharp decrease of the electricity consumption in the last five months (for example in May 2013 it was with 10% less vs May 2012), along with recording of a high level of cheap renewable energy production (energy that prevails in takeover to NES). Thus, the electricity prices fall down to  the survival limit of the thermo power plants, (especially coal fired plants)  being  thus unable to sell the electricity on the market (i.e. CE Oltenia case). Besides failing to sell the energy, the thermo power plants are responsible also for balancing the system, bearing also huge costs because they have to start and stop as the wind blows. Thus, we could talk for the first time about a “war” between the conventional energy sectorthat bear with high-cost the balancing system and  green energy production that is taken with priority in the system.


A correct solution would have been that along with developing of the renewable energy a certain percentage of the  support scheme to have been directed towards investment in transport networks and flexible units capable of balancing the system quickly. Or even to co-invest a certain percent in the so much desired - Tarnita-Lapustesti hydro power project. Another idea is to develop a capacity markets. This means some projects especially gas to quickly enter into operation when the system requires it and to come down on the energy dispatcher request.


Romania's energy system needs investments of EUR 30 billion to replace old power plants with new units. The problem is that nobody wants to invest in while the weight of renewable energy increases and the need for balancing the system is more acute.  Except with renewable energy sector there is  no  other interest for investments in energy for the time being. It is a European-wide problem and energy security issues. We are facing a vicious circle and an unprecedented dilemma that brings to light at the national level  - the lack of coherent strategy and reforms in the last 20 years in the energy sector and at  the European level -  the price paid by the ambition of the EU to fight alone against climate changes, no matter what the U.S. and China do,  through the excessive support for green energy that led to distortions in markets and  sacrificing the industry  without the  pollution of the planet to be reduced significantly.


Currently Europe, including Romania can no longer afford to ignore the shale gas considering the infinite environmental risks and to neglect the benefit of a new energy source. If Europe will hesitate too long America will be here and will shut down the entire chemical industry, someone said recently.

Thus, at the last European Council in May 2013 it was agreed that efforts will be made to achieve physical interconnections between countries, reassessing  the support schemes for renewable energies that were too generous and  support for indigenous resources (shale gas).


Thus, with the green light from the European Council to adjust the support scheme, the government approved last week the so much-debated draft for adjustment of the support  scheme, by issuing an emergency ordinance that promoted a series of  amendments designed to discourage investments in renewable sector, among the most important being:


·         Limiting values ??of annual installed capacity by type of renewable technology established by NPEAR, and if this level is reached the ANRE is going to stop the accreditation by the end of calendar year ; according to this  initiative the photovoltaic industry is  the most affected.


·         Temporary suspension of the support scheme for a period of 3 ½ years for some technologies that benefit form GCs. Thus,  the postponement for the  wind and small hydro sectors  is only for one GC,  while for the  photovoltaic  is for two  of six  GCs. This postponed GCs are  to  be recovered  after 1.1.2017 in a manner to be approved by ANRE through a secondary legislation.


·         The reduction of the number of GCs as effect of the overcompensation reports made by ANRE is going to be applied from this year and not from 01 January 2014 and 01 January 2015 as per the stipulation of the law 134/2012.


Current Opportunities in E-RES sector in Romania
However, in this framework with many uncertainties a question arises: what are the types of renewable projects in which still worth to invest ? I would mention the following:


• photovoltaic projects with an installed capacity of MW 5-7 MW that are now at Ready to Build (RTB) stage  with fluid connection solutions to medium voltage substations that  can be commissioned in about 5 months in order to get the generation license and  accreditation decision from ANRE latest by Oct-Nov 2013 (to be sure that the old formula of accreditation for  6 CV is obtained before the entry into force of any possible adjustments);


• wind projects at  RtB stage with fluid  and cheap connection  solutions  with a net capacity factor of over  35% (certified by wind studies made by top  international companies);  such projects resist to  any adjustment that can intervene in the support scheme (i.e.  a project with a total investment cost of about EUR 1.4 mln / MW, a capacity factor of 40% and reasonable operating costs can support the bank debt service on a period of 10 years without support scheme)


• small hydro projects with a total cost of investment of up to EUR 3 mio / MW and capacity factor of around 50% remain the most attractive because they are profitable even without support scheme (in this case investment is no longer pay back  in 3-4 years but in 8 or 10 years but due to the average lifespan of 40 or 50 years  these investments are fully justified );


• A final option is investment in high efficiency cogeneration power plants fueled by  biomass s in small and medium sized cities provided the heat to be able to be delivered  for domestic consumption (i.e. CHP project developed currently by ADREM Group  in Suceava). In the absence of an outlet for heating, the projects are not feasible;