Introduction |
Last month, the Romanian Digest™ published an article regarding
forming and operating electrical facilities in Romania using renewable
energy (see: Creating Renewable Energy in Romania (
http://www.hr.ro/digest/200811/digest.htm)). This month, because new
and crucial legislative developments in the field have finally been
enacted, we return to the subject – but not the general legal framework
that we discussed last month; here we review the new incentives for
investors established by the new legislation. The new law, Law No.
220/2008 enacted by the Parliament of Romania on October 27, 2008, might
well represent the turning point for investors in doubt as to whether to
invest in renewable energy projects in Romania. Everyone is now holding
their breath to see how the law will be enforced and what subsequent
regulations will be enacted. Law 220/2008 was published in the
Official Gazette of Romania, Part I No. 743 of 03/11/2008, and came
into force on November 6, 2008. |
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Incentives |
The incentives introduced by Law 220/2008 cover electricity produced in
small hydro power plants with an installed power of no more than 10 MW,
electricity produced with wind, solar electricity, geothermal energy and
associated combustible gases; biomass; biogas; and waste fermentation
gas; and fermentation gas from sludge in waste water treatment plants,
all of which is delivered to the electric power network. Furthermore,
the new law expressly states that the export of electricity from
renewable energy sources that have benefited at production from green
certificates (described below), and also from the production of
electricity from imported industrial and/or urban waste, irrespective of
the installed power of the production capacity, do not benefit from the
incentives provided in Law 220/2008.
The purpose of the proffered incentives is to foster investment in
electricity production from the renewable energy sources described
above. Law 220/2008 offers support to investors by measures aimed at the
reduction of production costs for energy created from renewable sources,
an increase of profits through the increase of sale prices for
electricity produced from renewable energy sources and an increase in
sales, as further discussed below.
The duration of the incentives provided by Law 220/2008 for the
production of electricity from renewable energy sources (hereinafter “E-RES”)
is 15 years in case of electricity produced in new power plants; 5 years
for electricity produced by imported second-hand wind electric power
plants which have also been used for the production of electricity on
the territory of other states; 10 years for electricity produced in
refurbished hydroelectric power plants with a maximum production of 10
MW; 3 years for electricity produced in non-refurbished hydroelectric
power plants of maximum 10 MW output; and 10 years for thermal energy
produced from geothermal sources in plants of at least 5 MWth output.
Law 220/2008 provides that such terms are calculated from the date when
electricity producers start production and receive green certificates
for electricity, if the power plants have commenced operations or,
respectively, their renovations have been completed prior to the end of
2014.
The implementation of Law 220/2008 may encounter certain difficulties
due to unclear definitions of certain crucial terms. The Law is not
entirely clear on what exactly is meant by “new power plants” or
“refurbished power plants”. Clarifying the meaning of such terms also
has a great impact on the duration for which the incentives system is
applicable for the respective power plants, and therefore it has a
direct influence on the value of the support that investors will
eventually obtain.
“New electricity power plants” is, in fact, a key term used by Law
220/2008 because they receive the longest incentive term. According to
the law, electricity power plants are considered new if they were built
after 2004. However, the law does not mention if a change in the
ownership of such power plants that occurred after their construction
influences the period for which such power plants will benefit from the
incentive system. Since the law does not make such a differentiation,
one can only conclude that a change in ownership does not affect the
enforcement of the law, but there is no way of guessing how the
authorities will interpret this matter.
However, an even greater impact in practice is what is understood by
refurbished power plants and what exactly is to be considered to be the
difference between the refurbished and the non-refurbished power plants.
This is due to the fact that refurbished plants benefit from Law
220/2008 for a period of 10 years, whereas non-refurbished plants
benefit for only 3 years. Under the new law, a refurbished power plant
is a power plant with an installed maximum power output of 10 MW that
fulfills the following two conditions: it has an operational life of at
least 15 years from commencement of operations and it has undergone
significant revamping with modern technology to increase its production
efficiency; and such refurbishment must be completed before the end of
2014.
The law provides that the quantity of electricity produced in a
refurbished hydroelectric power plant for which incentives may be
granted is to be established by the National Regulatory Authority for
Energy (hereinafter referred to as “NAER”). For such an operation, NAER
must take into consideration the net production of electricity obtained
in the past 10 years prior to the refurbishment and the net production
of electricity obtained after such refurbishment. |
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Green certificates |
A
green certificate is a tradable commodity proving that certain
electricity is generated using renewable energy sources. Typically one
certificate represents the generation of 1 MWh of electricity. The main
characteristic of a green certificate is that it can be traded, distinct
from the quantity of electricity it represents, on a special market
organized for this purpose. In this manner, producers of E-RES that
obtain green certificates on the basis of the quantity of E-RES they
feed into the grid are able to sell them and, thereby obtain extra
income in addition to income generated by the sale of electricity.
Suppliers of electricity are obligated to purchase and supply to end
users a certain percentage of E-RES from the total of the electricity
they provide. They prove that they have complied with this obligation by
the number of green certificates they hold. Therefore, in order to
fulfill the number of certificates they need, the suppliers of
electricity must buy green certificates from the market for green
certificates. At the European level, certificates are traded freely for
states that are part of the European System of Green Certificates.
Within this system there is a single market of green certificates that
can then be sold in any of the states that have affiliated to the
system.
The primary incentive in Law 2002/2008 is provided through a system
which allows producers of E-RES to obtain more green certificates than
they were able to until now. The trading of green certificates
represents one of the mechanisms that support the production of E-RES in
Romania. Because the green certificates actually represent the core of
the incentives system, the conditions in which they are issued and
traded are essential and have a significant impact especially on the
activity of producers and suppliers of electricity.
According to Law 220/2008, the producers of E-RES will receive:
- a green certificate for each 1 MWh produced and delivered in the
electric power network from new hydroelectric stations/groups or
from refurbished hydroelectric stations/groups with a maximum output
of 10 MW;
- a green certificate for each 2 MWh delivered in the electric
power network from hydroelectric stations with an installed power
between 1 and 10 MW, which do not fall under the provisions of the
previous paragraph;
- two green certificates for each 1 MWh delivered in the electric
power network from hydroelectric stations with an installed power of
up to 1 MW/unit;
- two green certificates, until 2015, and a green certificate,
starting from 2016, for each 1 MWh delivered in the electric power
network by the producers of electric power from wind energy;
- 3 green certificates for each 1 MWh delivered in the electric
power network by the producers of electricity from biomass, biogas,
bioliquid, waste fermentation gas, geothermal power and associated
combustible gases;
- 4 green certificates for each 1 MWh delivered in the electric
power network by the producers of electricity from solar power.
Producers who generate renewable energy must be denominated as
“priority producers” by the NAER in order to obtain green certificates,
and this is achieved by applying, on an annual basis, for registration
with the transport and system operator, i.e. CN Transelectrica SA.
Following the successful registration, the transport and system operator
has the obligation to issue, on a monthly basis, green certificates to
registered producers for the quantity of electricity produced from E-RES
and effectively delivered through the electric grid to consumers.
Suppliers of electricity, i.e. the entities dealing with purchasing
electricity from the producers and supplying it to the end consumers,
have the obligation to purchase, on an annual basis, a certain number of
green certificates equal to the result obtained from the multiplication
of the value of the mandatory target established by the NAER for the
respective year with the quantity of electricity, expressed in MWh,
annually supplied to end users.
The supplier that does not fulfill the annual mandatory target regarding
the number of green certificates it is obligated to purchase is required
to pay the counter value of the non-acquired green certificates at a
fixed price of €70 for each certificate that it has not acquired,
annually adjusted by the consumer price index for Romania, calculated in
lei at the average value of the foreign exchange rate established by the
National Bank of Romania for the month of December of the previous year.
This amount will be used by the NAER to facilitate the access of
producers from renewable sources to the transport/distribution network. |
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The trade and commercialization of green
certificates and E-RES |
According
to Law 220/2008, green certificates are traded on a centralized market,
as well as a bilateral contracts market, where producers and suppliers
of electricity from E-RES have entered into trading contracts for green
certificates. As mentioned above, suppliers are required to annually
purchase a certain number of green certificates relative to the amount
of electricity annually supplied by them to their consumers.
The law also provides for the trading of green certificates on the
market until 2014. Afterwards these values will either change, or if it
has achieved its purposes the green certificates system will be
abolished. Therefore, the minimum trading value is of €27/certificate,
while the maximum trading value is of €55/certificate. The trading
values are to be annually adjusted by the consumer price index for
Romania. The certificates are thus sold on the market at the market
price which cannot be lower than €27, but cannot exceed €55.
At the moment, Romania is not affiliated with the European System of
Green Certificates due to the fact that the Romanian energy market has
not as of yet met European standards. However, as soon as this happens
and Romania enters the European System of Green Certificates, Romanian
energy producers will be able to sell their green certificates on the
European market, while Romanian energy distributors will be allowed to
buy green certificates on the same European market.
Electricity producers of renewable energy are able to sell the
electricity they produce on the wholesale market at that market price.
However, electricity produced in electric power stations having an
installed power of less than 1 MW, may only be sold to suppliers that
are licensed in the areas in which the electric power stations are
located at regulated prices set by NAER at the national level. |
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Facilities for investors and access to the
electricity grid |
Meant to encourage investments in the field of E-RES exploitation, Law
220/2008 sets forth the facilities to be granted to investors for
strategic projects in the field: guaranteeing to a maximum of 50% the
value of any medium and long term loans; ensuring the transport
infrastructure and utilities necessary for the initiation and
development of the investment; ensuring access and the refurbishment of
the existing infrastructure; exemptions from the payments of certain
taxes and duties or reductions for reinvested profit for a period of 3
years from the start of the investment; and granting of financial
contributions from the state budget for newly created jobs. Investors
may also benefit from the following facilities: tax and duty exemptions
or reductions for reinvested profit for a period of 3 years from the
commencement of the investment; and the grant of financial contributions
from the state budget for newly created jobs. However, the conditions
and the period for granting such facilities are subject to a Government
Decision to be adopted within 90 days from the effective date of Law
220/2008.
Producers of E-RES are granted priority access to the
transport/distribution electric grid unless such priority affects the
safety of the National Energy System, which is formed by all the grids,
installations, equipment and plants. Therefore, the network operators
(i.e. transporters and distributors) must draft regulations, which are
to be periodically reviewed, regarding the costs for technical
adaptations, connections to the network and network consolidations
necessary for the link to the network of producers of electric power
from renewable sources. The network operators must provide each new
producer of electric power from renewable sources wishing to connect to
the network with a detailed estimate of the costs related to such
connection. |
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Conclusions |
The
fact that the Romanian Parliament felt the need to issue a law detailing
incentives for the production of E-RES, attests to Romania’s commitment
to encourage an increase in renewable energy development. The nation has
set a requirement that 33% of Romania’s production and supply of
electricity be from renewable energy by 2010, 35% by 2015 and 38% by
2020. While these may not be easily achievable goals, the nation does
seem serious about realizing them. Still, Law 220/2008 uses certain key
terms that will have a great impact on the effective activity of
potential producers or suppliers of electricity from E-RES, and those
terms still need to be further clarified. At this point, the
participants in this field await the regulations to be issued by the
president of the NAER that will detail and clarify such terms, and set
forth the proper enforcement of the law – which will further demonstrate
Romania’s long-term commitment to promoting the production of E-RES
electricity. |
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Editors Note: It is our policy not to mention our clients by name in
The Romanian Digest™ or discuss their business unless it is a matter of
public record and our clients approve. The information herein is correct
to the best of our knowledge and belief at press time. Specific advice
should be sought from us, however, before investment or other decisions
are made.
Copyright 2008 Rubin Meyer Doru & Trandafir, societate civila de avocati.
All rights reserved. No part of The Romanian Digest™ may be reproduced,
reused or redistributed in any form without prior written permission
from the publisher.
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