Renewable Energy by Silvia Furnea

Romanian Renewable Energy Overview 2012

A project by

Calea Mosilor Nr. 306, Bl. 56, Scara A, Etaj 2, Apt. 7, Sector 2, Bucuresti, Romania www.thediplomat.ro Publishers Adrian Ion adrian.ion@thediplomat.ro

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Editor-in-chief Dana Verdes dana.verdes@thediplomat.ro

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Contents 4. Editorial 6. Wind of change blows through energy market 8. Energy players hope to find answers blowing in the wind

28. Romaniaâ&#x20AC;&#x2122;s tortuous renewable energy scheme 32. Technology companies navigate legal challenges 38. Players negotiate regulatory maze 48. Consultants size up the renewable scene 53. GC scheme gets clarifications 56. Following the sun 66. Breaking down a biomass power plant investment 71. Tapping into water energy 74. Equipment and service providers ride renewable bandwagon

78. Global lenders give seal of approval 82. E-RES projects face financing frustrations 86. Firms fight for oversubscribed EU funds

88. Risky business

Renewable energy directory Key players in Romanian green power 92. Developers and producers 95. Technology providers 99. Consultants and service providers 102. Authorities and associations

Contents

Romanian Renewable Energy Overview 2012

Here comes the sun?

Editorial

ighty-three – this is multiplication factor of installed power in wind power plants between 2009 and 2012. The increase was from 14 MW to 1,165 MW of functional facilities, according to Transelectrica data. One of the biggest wind farm sites saw about 500 people working on it during the peak construction period. Of course the number of permanent employees will be lower once the wind farms are ready and operational, but the most important thing is that they have attracted investment and created hundreds of jobs. Confirmation that Romania is an attractive country for investment in renewable energy is evident also in the high position it occupies among a list of the top 40 most attractive countries for new developments of renewable energy projects. Finally – a league table where Romania does relatively well! According to the barometer, Romania is one of the 15 most attractive countries for the development of renewable energy projects. Depending on the future legislative strategy, authorities, investors and consultants all hope that it will climb even higher in this ranking. However, there are also some obstacles which investors should heed, such as the possible saturation of the green certificate market, financial difficulties and the limited capacity to connect to the network. While the wind energy domain is already mature, as of this year the biggest opportunity is in solar energy.

For this energy type, the biggest challenge is the legal one, while the biggest advantage is that each MW will receive six green certificates (GC) for the time being. In comparison, for wind energy, each MW gets just two. However, from 2013, the Romanian Energy Regulatory Authority (ANRE) plans to decrease the number of GC for photovoltaic plants, because the cost of the technology for obtaining solar energy has been constantly falling, and so if the numbers of certificates granted are not cut it will result in overcompensation for solar energy projects. So here are the first legal uncertainties. Investors who want to receive six green certificates for each MW should hurry to finish their projects by January 2013. Otherwise, these companies will qualify for fewer certificates under the new rules, probably four. There is also the danger of saturation on the green certificates market, because until now there have been connection contracts for about 13,500 MW and also technical notice for the connection of another 10,000 MW. This could potentially drag down the price of GCs to the minimum value, and even result in the loss of some certificates. But one of the biggest potential problems will be transporting the electrical energy generated. Transelectrica should build new transport lines for electrical power, in order to receive the renewable energy produced. However, the development

of the transport network is restricted by the firm’s financial problems, so reform of the regulatory framework will be necessary. According to the priorities of Romania’s new energy strategies, one way to find the necessary money to finance the development of the energy transport network would be to redirect the profit from Transelectrica’s other activities. Another major problem in the renewable energy domain is that the resulting energy values are not always constant. This necessitates other capacities in order to balance the entire system. And there are cases such as the Braila thermo power plant and Tarnita hydro power plant, projects which are currently delayed. Maybe attention should also be directed to the individual producers of solar energy, to cover these needs, but this domain remains largely unclear. So, the renewable energy domain is developing into a complex beast, with both advantages and challenges. It is important that each party finds the best solutions because, while Romania’s lofty position in international rankings is to be celebrated, such promise could be lost if the right decision is not taken at the right time. Dana Verdes, Editor-in-Chief, The Diplomat

Romanian Renewable Energy Overview 2012

We mean business EVENTS

Politics, economics and culture in a language you can understand www.thediplomat.ro

Wind

power players:

Wind of change blows through energy market The new law on renewable energy which came into force late last year provided some stability for the pioneering operators on this developing market. Major players on the wind power scene reveal how the new rules are shaping their plans, and what challenges and opportunities lie ahead.

Romanian Renewable Energy Overview 2012

Wind

espite the fact that its first wind farm projects were only erected a few years ago, Romania’s wind energy sector is currently undergoing a dynamic reshaping and is starting to play an increasingly important role.

The number of installed MW have consistently increased from just 14 MW in 2009, via about 460 MW at the end of 2010, to some 2,000 MW at the end of this year, say market specialists. Moreover, Romania is now among the ten most attractive countries for

“Energy Rose was the first company to secure project financing in wind power in Romania. The 6 MW project at Casimcea is 80 percent financed by UniCredit Leasing” Boaz Peled, Energy Rose

wind investments, up three positions, according to the Ernst & Young (E&Y) Country Attractiveness Indices, which include 40 countries. The country’s most dominant region in terms of generating wind capacity is Dobrogea, on the Black Sea coast. The incredibly dynamic growth in installed wind farm capacity is allowing Romania to make progress and get ahead of a number of European countries. The favorable environmental conditions, growing number of permits being issued and significant number of projects already underway ensure this market will continue to develop at a fast pace over the

Romanian Renewable Energy Overview 2012

Wind

coming years, say experts. The largest project to be implemented to date is the wind farm in Fantanele and Cogealac, which is being built by the CEZ Group and has a combined capacity of 600 MW, consisting of 347.5 MW at Fantanele and 252.5 MW at Cogealac. Other major wind energy projects can be found at three sites at Casimcea, Topolog and Daieni where IMA Partners and Verbund are building wind farms totaling 532 MW, Tulcea County, the base for Enel’s 174 MW wind power plant, the Moldova and Dobrogea areas which will host the 200 MW plant of PNE Wind, Mihai Viteazu where Iberdrola is building an 80 MW wind farm, Constanta County, also the headquarters for Enel’s 118 MW wind farm, Cernavoda where Renovatio/EDPR will have a 138 MW wind plant, Galati County where Renovatio/EDPR are erecting a 100 MW plant, Mitoc where IWE will also have a wind farm of 100 MW, Borsa where Alstrom will invest in a 56 MW unit, Topolog, where Land Power will put money into a 168 MW wind farm, and Casimcea, the site of the 40 MW wind power plant built by Martifer. Romania’s operational wind farms are mainly located in Dobrogea, on the Black Sea coast, where average wind speeds can reach 7 m/s at an altitude of 100 m. The region is flat and sparsely populated, which makes it possible to install a large number of wind turbines. There are also two other regions with a high wind power potential in Romania, namely Moldova and Caras Severin (Banat).

“The new regulations are lacking some key aspects, such as for instance the definition of a 125 MW plant, and my impression now is that there isn’t a clear answer” Mark Suer, Verbund Romania

In the beginning…

reveals that capital expenditure on property, plant and equipment amounted to EUR 39.8 million for its works in Romania on renewable projects. According to the document, the construction work for the first part (100 MW) of the Casimcea wind farm in Romania will soon be completed. The integration of the new 400 kV substation in the Romanian power grid represents a milestone for the planned activation, which is due to take place in the next few weeks, according to company officials. According to Suer, one important challenge for the company’s local operations is the legal framework. “We started the project when we had a complete legal framework available and then we decided to invest a lot of money in these projects. It is also very important to have the right partner as the field is quite complex and a lot of people have different interests. You have to have a reliable partner, who knows the culture, to guide you through,” said Suer. Regarding the legislative changes in force since October last year, the Verbund official finds the absence of some definitions and overcompensation issues the most pressing.

“The first wind turbine installed in Romania was the Iridex-Ecoprod one. It was in the Industrial Park Ploiesti and had a production license from December 2005. And the first wind turbine in commercial operation was the one in Baia, Tulcea County, with a production license from February 2006,” said Andrei Dinga, of Holrom Renewable Energy, of the beginnings of the local adventure of wind turbine investment. From that time things have been constantly changing. The market has been occupied by top international names in this industry with investments of several billions of euro. The list includes firms such as E.ON, Enel, CEZ, Verbund and Iberdrola.

Windy spring for Verbund The Austrian company is developing a 200 MW project on the local market in two phases. “Phase one will be 100 MW and will soon be completed, while for the second part construction began in the first half of this year. We expect to finish this phase in March 2013,” said Mark Suer, head of renewable project management at Verbund Romania. A Verbund report for Q1, 2012,

Structure of renewable energy sources – generated energy [TWh] Energy type

2005

2010

2015

2020

2025

2030

Tidal

Geothermal

Biomass

127

164

191

218

241

Solar

Wind offshore

146

204

276

Wind onshore

147

197

253

316

368

Hydro

307

323

332

339

349

335

SOURCE: European Commission

Romanian Renewable Energy Overview 2012

Passion. The greatest reason for giving it your best. We know quite a bit about wind, and have done for over 30 years. As one of the industry’s pioneers, Vestas is now a leader in the wind sector, and still keen to expand its technological lead. This is why we always offer our customers attractive investment prospects. In an age of scarce resources and constantly increasing energy needs, the future of electricity supply lies in wind. CO2-neutral, independent, and easily integrated into the grid, wind technology is a competitive and sustainable alternative for generating electricity. Focused on the commercial use of wind, over the past few decades the Vestas history is one of incomparable success. It is because of our experience and our technical expertise that one in three wind turbines across the world is a Vestas turbine. In research and development, manufacturing and service we work tirelessly to make our turbines the very best – always with the aim of reducing energy costs and creating a reliable and profitable investment. “Wind. It means the world to us” - there’s no better way of expressing what motivates us.

“The first wind turbine installed in Romania was the Iridex-Ecoprod one, in the Industrial Park Ploiesti, while the first in commercial operation was license from February 2006”

Wind

Andrei Dinga, Holrom Renewable Energy

“The new regulations are lacking some key aspects, such as for instance the definition of a 125 MW plant, and my impression now is that there isn’t a clear answer,” said Suer. He added, “Also, an interesting part is the overcompensation, which is a very smart solution from the authorities to check if everything that was assumed related to wind farm investments is correct and if there are differences in the end to reduce the subsidies. Even though I do not like it, it is a fair approach. But I don’t know how they will do it in practice.” Towards the beginning of the year, Ovidiu Pop, country manager at Verbund Romania, announced that the company had already initiated tests for the wind farm. “We believe that the key to the success of each project lies in the partners and the financing schemes. It is important to have the financing and the banks, but also to find the partners, lawyers and consultants,” said Pop.

CEZ Romania to finish wind projects by year-end 10

“CEZ Group’s main investment in renewable energy is now the Fantanele-Cogealac wind farms project, with an installed capacity of 600 MW. So far 387.5 MW is already in operation and by the end of the year the entire project will be fully operational,” said Ion Lungu, general manager of CEZ Trade. The company has announced that it has invested EUR 2 billion locally, of which EUR 1.1 billion went into renewable energy projects, and it is not stopping here. In April this year, CEZ representatives announced that the group was in advanced talks to acquire wind energy production projects in

Romania, Germany and Poland. “CEZ Group will continue its investment policy in Romania. This year, we plan to invest another EUR 400 million targeting development thought acquisitions in the electricity area, especially renewable energy,” said Adrian Borotea, corporate affairs manager at CEZ Romania. On the market ’s focus on renewable projects, Borotea said the key word in the energy system was balance. “We have a very good

Issues for the future LEGISLATION • Lack of clarity on wind farms above 125 MW and unclear procedures for requirements for notifying the EU • Green certificates have no floor price in reality • Exporting green certificates should be possible, but much work remains to be done • New regulations are needed to correct flaws in the renewables legislation • Local authorities are slow to adapt to best practices and new laws with inconsistent application of legislation between different parts of the country • Transitional provisions of new laws are often inadequate • New Civil Code includes significant new obligations on registration of land rights in the Land Book • There is a lot of confusion over best practice for Environmental Impact Assessments GRID • Uncompensated grid curtailment due to unspecified technical issues • Balancing capacity and compensation remain unresolved _____________ SOURCE: Continental Wind Partners

support scheme in Romania, while, in other European countries, the trend is to diminish this support scheme. I consider the estimated power production included in the national energy strategy, of 23,000 GW/h per year, utopian; 10,000 is a more realistic amount. Even in the event of oversupply, the authorities should develop a mechanism for transfer pricing policies if local production is exported. The EC advises that, in the event of overcompensation, the support scheme be changed with immediate effect,” said Borotea. He added, “There is also the issue of individual notification of the EC for projects exceeding 125 MW, as there is a practice of ‘hiding’ the amount by splitting it into several smaller projects. Therefore, a regulated definition of a wind farm seems to be a necessity.” On the challenges the company has had to face to see its renewable project reach completion, Borotea said that securing land for a renewable project is an invitation for litigation regarding property deeds. “It is challenging to conduct negotiations with multiple land owners, most of them speculative or hard to reach for discussions. It is vital for a wind energy project developer that the land provides access to the power network and so the land has to be secured through property deeds or succession. We collaborated very well with Transelectrica in order to get access to the power network,” said Borotea.

Three issues for Enel Enel Green Power (EGP) Romania reached an installed capacity of 269 MW at the end of 2011. The firm’s operational wind farms and projects are located in Dobrogea and Banat, and it has 202 MW of wind projects in execution between now and 2016, said Francesco Lazzeri, country manager of EGP Romania. The company’s wind farms and projects are located in Agighiol, Corugea, Valea Nucarilor (all in Dobrogea) and Moldova Noua (the Banat area). According to Enel officials, to finance its local projects the company

Romanian Renewable Energy Overview 2012

On the support scheme recently approved after a long process that started in 2008, Pignoloni, the former EGP Romania country manager who oversaw the project in its early days, said that three main issues remain. “First, the internal rate of return (IRR) monitoring must be implemented using well defined parameters that take into account all renewable generation issues. Furthermore, we’re concerned about the lack of a mechanism hedging the sale of green certificates in the event of an excess supply of those certificates,” said Pignoloni at the beginning of the year. “The third issue, which is equally important, is that the disconnection of renewable generators from the grid at dispatched orders will affect the production when the source is available, while according to EU directive 28/2009 for the promotion of renewable sources, such sources should be used at their maximum

availability, obviously under safe grid conditions.” According to Enel Green Power officials, the company is committed to keep investing in wind power plants in Romania – namely some 500 MW from local wind by 2016 – while analyzing other renewable options. “We are considering diversifying with other sources. We are studying many possibilities, especially hydro,” said Lazzeri.

GDF Suez Energy Romania on its first wind project A very significant target among GDF Suez Energy Romania’s priorities linked to energy efficiency is renewable generation for energy solutions and projects. For instance, in the middle of March the company announced the start of construction of a wind park near Braila County, in the Gemenele area, south-east Romania. “Basically, at the moment, we are finishing the foundations of the

Nearly 7.100 MW from wind, sun, water and the heat of the earth

Wind

inked a loan agreement with the Danish government’s Export Credit Agency (EKF) and Citigroup (as agent and arranger), for a 12-year financing line of EUR 112 million, while the European Investment Bank is another partner for the firm’s projects here in Romania. Even for the Italian giant, things haven’t run that smoothly. “It is a matter of long lead times for authorizations, not delays. Land rights are definitely the most important issue, due to ownership issues. On the other hand, we cannot say that the permitting process here in Romania is much longer than in other European states,” said Lazzeri. “We have already connected wind farms to the grid. The main issue was the grid itself because it has to be upgraded to allow proper access to green energy producers. There is a need for additional investments and these have to be properly planned with the grid owner in order to be properly implemented.”

Enel Green Power is the Enel Group company dedicated to developing and managing energy generation from renewable sources at an international level, with a presence in Europe and the American continent. It is among the industry leaders worldwide thanks to its 22.5 billion KWh generated from a well-balanced energy mix inclusive of water, sun, wind and geothermal sources. This is enough to meet the energy needs of more than 8 million households and avoid the emission of more than 16 million tons of CO2 into the atmosphere.

The company’s installed capacity amounts to, approximately, 7100 MW, produced by more than 650 plants in operation around the world. In Romania, Enel Green Power is one of the largest renewable players, with a 269 MW installed wind capacity operational at the end of 2011 in Dobrogea and Banat Regions.

Romanian Renewable Energy Overview 2012

“Currently, 80 percent of our projects are in Dobrogea, the area of Romania with the best wind potential. The other 20 percent of our investments are in Banat and in Moldova”

Wind

Sebastian Enache, Wind Power Energy

wind turbines that we are expecting to be delivered in July. Our target, ambitious as it is, is to put the turbines into place and into action by the end of November this year. We are working hard on it, as you can imagine,” said Eric Stab, chairman and CEO of GDF Suez Energy Romania and president and CEO at GDF Suez Energy Eastern Europe. The wind park near Braila is the first such park developed by the French company and it is estimated to have a total installed capacity of 48 MW, comprising 21 turbines of 2.3 MW each. The wind turbines will be delivered by Siemens while the civil engineering construction and electrical works will be done by Viarom and Energobit. “We believe that the scheme that has been put in place to support renewable projects locally is interesting enough to attract investments and is also a way to address some challenges that the country is facing, especially regarding the aging energy generation grid. Our plans are to carry on with our investments in the area of renewable, as we have some projects in the pipeline and we hope to find the right conditions in order to develop them.” Stab said. According to the manager, the local context and authorities should ensure the correct conditions for making these projects happen in terms of keeping a coherent and transparent regulatory framework, with credible rules put in place and then not tinkered with, which generates uncertainties and impacts business interest in projects. “For the Braila project, we are still working on the financing aspects. For part of it, the company will use cash from the parent

company. To some extent, this could be seen as a ‘sacrifice’ by distributing the company’s shareholders’ profits to development and renewable projects. But we are also seeking external financing for the Braila project. We are holding talks on this matter and more details cannot be provided at this stage of the discussions,” he said. Turning to wind potential in Romania, Stab noted, “To talk a little about the generation context, there is a major focus in Romania on replacing and modernizing the generation and distribution of an ageing nationwide grid. In this regard, any technology that comes to meet the need is welcome. In terms of choosing the technology, an investment should balance the revenues and business indicators of the technology. With the new legislation for renewable energy put in place and functional, also looked at within the European legislative framework, our belief is that, in the wind farms category, the opportunity is here.” He added: “Also, to be fair, Romania has very good wind power potential

Most attractive countries for wind farm projects________ 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

China Germany United States Great Britain India Canada Italy France Sweden Poland Ireland Romania

______________________ SOURCE: Ernst & Young

compared with other European countries and this is why we found the market attractive. We only need the market to go in the same direction as us in order to keep the investments ongoing – and to get the required technology. If the signal from the market is positive, this is enough for investors to make a decision. We are developing studies for other renewable projects which are at different stages. Among the renewable technologies, I can state that the company’s focus is on wind.” The GM of GDF Suez Energy Romania underlined the need to maintain a coherent legal framework for energy in Romania and keep the market moving in the same direction as its operators and investors. “We are holding talks at the moment with Parliament regarding the renewable energy legislation and harmonizing aspects in terms of investment. We are making a significant investment on a market which hasn’t reached maturity. It is getting towards maturity but there are still major aspects that need to be addressed, such as obtaining the building permits, the transition preceding the development of a wind farm and undertaking the technical risks of construction when building a wind farm. As developers in this segment, we need to feel comfortable with the legislation. Unless you have the feeling of a solid framework and, most important, that you can trust it, it is very difficult to make an investment decision,” Stab argued. According to him, aspects that a company usually addresses when deciding to make an investment include the local context and the company’s activities. As in any business, a company should cover the costs of investments, looking at the commodity costs, the legislative context and the business indicators of the investment. “Still, the Romanian market has a lot of potential in terms of decreasing the energy consumption, at both household and industrial level, by using new technologies and resources, such as renewable ones, in order to get the efficiency of a nationwide power supply and distribution grid,” Stab said.

Romanian Renewable Energy Overview 2012

“The fact that STEAG has been active in Romania for ten years as an expert engineering service provider and project developer was a key factor in the project development” Joachim Rumstadt, STEAG

Wind

Monsson Group has more in store

Monsson Group has a portfolio of projects with a total capacity of 2,400 MW. Of them, a combined 750 MW of projects have already been sold to various companies, such as Continental Wind Partners, CEZ, ButanGas and Petrom, according to Sebastian Enache, executive manager of Wind Power Energy, a member company of Monsson Group. “Currently, 80 percent of our projects are in Dobrogea, which is the area of Romania with the best wind energy potential. Furthermore, after extensive campaigns and long-term measurements we determined the best areas in Banat and in Moldova, where we are developing the other 20 percent of projects,” said Enache. And things aren’t stopping here. “Most of the projects are in the final stage of approvals. We want to build around 200-300 MW per year. So, recently, along with Vestas Denmark we started the construction of the Pantelimon wind park, in north Constanta County, which will have an installed capacity of 150 MW. Monsson Group aims to make all 50 wind turbines operational this summer,” he added. In his opinion, the crisis has made banks want more guarantees and more security, while making less money available. Also, he adds, in recent years the number of approvals has hiked, approvals have become much harder to secure because of project congestion while the land issue is getting more and more complicated. “No matter how strange it may sound, it has happened several times that land owners have five heirs, out of

whom two have gone in Spain, one to Italy and one was deceased. Consider the complexity of such a problem and how long it would take to solve,” said Enache. While the market’s regulatory authority recognizes costs of EUR 1.59 million for one installed MW, Enache considers the sum a bit low. “For instance, in a mountain area, where the foundations and turbine transport cost more, the total costs for one installed MW can be more than EUR 1.8 million. In these terms, the real time to recover the investment is up to ten years,” said Enache. According to him, growing grid crowding has been noticeable of late, so the system operator and investor must make certain investments. “We believe that Romania has to align

with Europe in terms of the grid too. Although we are interconnected with the European system, the smart grid – which aims to transform the electricity networks from simple ways to transport electricity into a true ‘smart grid’ that facilitates continuous communication between all those connected to it – has to be promoted more,” said Enache. He added, “The smart grid is one of the global priorities as it saves money by immediately detecting energy leakages or failure, protects the network against attacks and power outages and introduces alternative forms of power generation, thus significantly reducing CO2 emissions.” In his opinion, Romania should invest in smart grid research and development, as the current grid is old and must be modernized, not only for wind farms. Moreover, Maria Sabau, consumer manager at Monsson Energy Trading, said towards the beginning of the year that the latest changes in legislation had made the banks perceive a higher risk, and the firm believes that the legislation has to be adjusted from a technical point of view too. “For instance, there are producers

Ongoing wind farm projects Company

Location

Capacity (MW)

CEZ

Fantanele

347.5

Cogealac

252.5

IMA Partners and Verbund

Casimcea, Topolog, Daieni

532

Enel

Tulcea County

174

Constanta County

118

PNE Wind

Moldova and Dobrogea

200

Iberdrola

Mihai Viteazu

Renovatio/EDPR

Cernavoda

138

Galati County

100

IWE

Mitoc

100

Alstom

Borsa

Land Power

Topolog

168

Martifer

Casimcea

GDF Suez Energy Romania

Gemenele

SOURCE: Wind Energy in Romania 2011 Report

Romanian Renewable Energy Overview 2012

Current issues_ ______ LAND • Many very small land plots • Inaccurate cadastral drawings • Title deed verification is difficult • Locating land owners can be difficult • Communal boundaries sometimes change • Lack of any form of exclusivity until very late in the process • Notarial and cadastral system for land transactions often outdated

Wind

GRID • Grid capacity is over-allocated • Some grid connections are not viable while some projects that have grid connections are not viable • Process of cleaning grid connections underway by the ANRE and Transelectrica • Bank guarantee needed to secure the grid connection • Program of grid upgrades by network operator appears optimistic that choose to negotiate on price and they will have to pay for the imbalances in the system, since renewable resources usually fluctuate. We compared the production forecast that we made in 2010 with the costs of the imbalances. For us, the costs assigned to the imbalances in the system represent 30 percent of our total costs,” said Sabau.

E.ON targets greenfields 16

The main objectives of E.ON Group in Romania – since taking over the former state-owned companies Distrigaz Nord and Electrica Moldova in 2005 – are optimizing its activities and strengthening its position on the local energy market, say company officials. In 2010, to reflect ERO corporate governance, a new company, E.ON Regenerabile Romania, was founded, the purpose of which is to develop a range of energy production projects from renewable sources. “The company is already involved in the development of several wind energy projects, mainly located in Moldavia. E.ON Regenerabile Romania has been developing

wind energy projects, employing a rather conservative ‘greenfield’ approach, consisting of selecting, developing and monitoring projects from the very beginning of the project definition stage; out of the interesting development pipeline, the selected projects may involve an installed capacity of up to 200 MW,” said company representatives towards the beginning of the year. H oweve r, th ey s ay th e implementation of such capitalintensive projects largely depends on the economic conditions in Romania, as well as on the regulatory framework for these activities. A welcome signal in this respect is the adoption of the support scheme for renewable energy producers, which is a good incentive for investors in this field; however, there are certain areas of the regulatory framework that may be considered, on a case-by-case basis, unclear, insufficiently defined or liable to be amended. “Romania’s investment potential in renewable energy production projects is estimated at about EUR 5 billion for the next few years, but these investments require a stable, fair and predictable legislative framework, and also a friendly business environment,” say company representatives. While investments in this market rely on medium- and long-term financial projections, any modification of the support scheme in the next two or three years, such as the authorities have announced, will not bring the necessary funds to Romania for such projects, add the E.ON Group officials.

STEAG to install wind farm in Romania STEAG’s decision to build a 108 MW

wind farm signals a broadening of the company’s international commitment to wind energy as an industry of the future. The decision to invest around EUR 200 million in this enterprise represents the official green light for the project, and construction is scheduled to begin in mid-year. “The fact that STEAG has been active in Romania for ten years as an expert engineering service provider and project developer and has wideranging international experience of major projects was a key factor in the project development,” said Joachim Rumstadt, chairman of the STEAG board of management. The project was bought from Monsoon Group Romania. The Crucea Nord project, situated in Dobrogea, some 50 km north of the port of Constanta, will form part of a prospective wind farm complex with a total capacity of 600 MW. On an area of hitherto predominantly agricultural land STEAG will be constructing the Crucea Nord wind farm, which will have a total of 36 wind turbines, each generating 3 MW.

Iberdrola plans set back by ‘small formality’ Construction of a wind farm in Cogealac, Dobrogea, will begin this year, says Adrian Goicea, country manager of Iberdrola Romania. “In Cogealac we have to solve a small formality, but this year we will begin construction. It is a long project and the work will last up to two years,” he added. In addition to this 600 MW project in Cogealac, the Spaniards could complete work on their first investment in Romania, an 80 MW

“At the moment, we are finishing the foundations of the wind turbines that we are expecting to be delivered in July. Our target is to become operational by the end of this year” Eric Stab, GDF Suez Energy Romania

Romanian Renewable Energy Overview 2012

Petrom goes green with 45 MW wind farm Petrom announced the start of commercial operations at the Dorobantu wind park, on October 1 last year. The site has an installed capacity of 45 MW and is located in Dobrogea. It is equipped with 15 Vestas-V90 turbines with a capacity of 3 MW each. Subsequently, the necessary tests for turbine commissioning were performed with Vestas, the turbine supplier. Another series of tests were performed with Transelectrica in order to verify the integration of the park into the national power grid. “This investment reaffirms our commitment to supply energy in Romania,” said Hilmar Kroat-Reder, member of Petrom’s executive board,

“There is the issue of individual EC notification for projects exceeding 125 MW, as investors ‘hide’ the amount by splitting it. A regulated definition of a wind farm seems to be a necessity” Adrian Borotea, CEZ Romania

responsible for gas and power. According to company information, the resulting green certificates allocated to the power generation of this park will be mainly used to cover the regulated quota for the electricity consumption of Petrom Group (approximately 1 TW/year), while the difference will be traded on the Romanian market, as per applicable regulations. The total investments amounted to approximately EUR 90 million.

Energy Rose sees investments bloom By the end of 2013 Energy Rose, a group which develops, constructs and also acquires projects at different development stages, will have produced a capacity of over 40 MW in Romania from five wind farms, announces the company. “Equity financing comes from the group’s investors in Israel and Europe and debt finance from banks. Energy Rose was the first company to secure project financing in wind power in Romania. The 6 MW project at Casimcea is 80 percent financed by UniCredit Leasing,” said Boaz Peled, company co-founder and director. “Currently one park is producing (6 MW in Tulcea), one is in the final

Wind farm capacity in main Romanian regions Location

Capacity for the period 2009-2013

Dobrogea

2,789

Moldova

1,000

Banat

Different localities-already running

Total

3,862 SOURCE: Romanian Wind Energy Association

construction stages (10 MW in Galati) and the rest will be built next year. The capacity of the country to absorb renewable power as well as new conventional power depends on the quality and abundance of infrastructure – in the long run these are excellent investments to be made by all relevant parties,” said Peled. Regarding energy trading, he added, “The green certificate market is very strong and we expect it to be very strong in the near and distant future as Romania is still very far from achieving its renewable energy targets. Energy trading is perhaps more of a challenge as Romania, being a young wind market, has not yet maximized its wind projection capabilities, meaning that it is still challenging to predict the exact production on a day-ahead basis.” With respect to the current regulation, Peled adds that in comparison to other countries in Western and Eastern Europe it is quite solid – certainly sufficient for facilitating investment. “We think wind power is a strong and efficient source for Romania first and foremost as the leading country in the Balkans, but also for the other countries in the region in which we are looking for additional opportunities. Aside from Romania we are also developing large-scale parks in Poland,” said the director. He added, “In our view, Romania’s advantages of geography, skilled and well educated people with excellent linguistic and professional abilities, EU membership, and the abundance of renewable energy sources (wind, water, and sun) make Romania a prime destination for investment now and in the long run.”

Romanian Renewable Energy Overview 2012

Wind

wind farm located in the village of Mihai Viteazu in Constanta. “Of the forty 2 MW turbines that make up the project involved, twenty are already up. We will have around 80 MW of installed capacity,” said Goicea. Currently, the investment per one MW of wind energy is around EUR 1.5-1.7 million. Goicea added, “Although we ran an in-depth due diligence for the project, we faced many problems regarding the ownership of the land. Many owners had different demands regarding the purchasing price and so direct negotiations with them are mandatory. For each stage of the project, even if it is mapping a road or digging a ditch for cabling, there are always negotiations to get each small plot from speculators. It is true that the current law protects us through developers’ rights.”

call for clarity:

Energy players hope to find answers blowing in the wind Overcompensation, the support scheme change based on variations in the total investment value, priority access to the grid and electricity network development are just a few topics on which the Romanian Energy Regulatory Authority, Transelectrica, MPs and market associations are seeking clarification.

Wind

he wind energy sector has had its share of adventures in recent years, as just from the legal framework point of view the secondary legislation needed two years of intense negotiations with the European Commission (EC) and, as with any new law, things arenâ&#x20AC;&#x2122;t yet crystal clear. There are some issues that leave room for interpretations such as, for instance, overcompensation and further changes to the support scheme for electricity producers from renewable energy sources (RES).

Do we want or need green energy?

Even before the adoption of the Law nr. 220/2008, the system for promoting energy production from renewable energy sources had attracted much comment, criticism and feedback that continues today and seems never to reach a conclusion. â&#x20AC;&#x153;After finally being adopted by Parliament and published in October 2008, the responsibility of notifying the European Commission began, as this support scheme is at risk of being defined as state aid. To dispel these fears, which come from the national authorities rather than the European ones, Parliament changed the law adopted in 2008 and initiated and approved a new law, law no. 139, published in July 2010,â&#x20AC;? said Silvia Vlasceanu, executive director of the

Romanian Renewable Energy Overview 2012

These rules and notification requirements apply to companies and to the possible distortion of competition by granting aid to some enterprises over others. But what competition or distortion of the competitive environment can apply in the case of individuals? Because it was not sufficient detailed the European Commission, Romania could imagine that the European authorities were opposing the application of the support scheme to promote renewable energy production in Romania for fear that the European energy market would be affected by a much too generous support scheme applied to local producers. “ The ruling – published approximately one month after the notification was received – merely stated that it is not state aid, which does not contravene to Romania’s commitments on electricity production from renewable sources and so the EC does not raise any objections,” said Vlasceanu. The issue was debated in the special committee of the Chamber of Deputies, a decision-making chamber, which resulted in the draft law approving the Emergency Ordinance Law nr.88/2011 amending and supplementing law nr.220/2008. The first changes and additions have already been made by senators. The deputies had to exercise their right of amendment regarding this project and favor one side: the authorities that based the law on data and information provided by operators in the energy market, or operators who have difficulty in developing their projects. It is no less true that whether from ignorance, indifference or disbelief, one party that has no say in this matter is the final customer, usually the public. The authorities’ forecasts on electricity price increases to end customers, thanks to the support scheme for producers of electricity from renewable sources, did not materialize, and instead of reaching EUR 6.7 per MW the increase was only RON 9. “Neither the achievement of all projects with technical contracts for connection to the transmission system nor a distribution network that would double current production capacity

is feasible, despite the optimism of investors or other concerned parties,” says Vlasecanu. Energy production is determined by the balance between supply and demand, and is characterized by simultaneous production and consumption and very low storage possibilities. Renewable energy suffers from the uneven distribution of each source over geographical areas, limited time and transport failures (except in the case of biomass), and these are problems that cannot find a technical solution that is easy, cheap and immediate, no matter how attractive, predictable and stable the legal framework is, say players.

GCs under scrutiny The overcompensation of wind farm developers has been a hot topic. Initially the EC demanded that developers opt for the green certificates (GC) support scheme, refundable funds from the state budget or nonrefundable money. “We proposed reducing the number of GC. For this we have established a formula for each technology used, which means the same investment return rate for all developers. Investors disagree, but in practice these return rates are guaranteed by law,”

Wind

Association of Companies for Energy Utilities (ACUE). Another year passed before, in June 2011, the mandatory notification for state aid authorization happened. However, there are arguments against the state aid classification. “The Romanian authorities have also committed, through the notification sent to the EC, that the support that will be given to individuals who invest in facilities to produce electricity from renewable sources, with installed capacity of up to 100 kW, from the Environment Fund, by applying penalties to providers who do not meet the quota of green certificates, will respect the regulations regarding de minimis aid,” said Vlasceanu.

Secondary legislation on the renewable energy production support scheme_ _____ • Rules of accreditation of electricity producers from renewable sources for the application of the green certificates system – Order of the President of ANRE no. 42/2011 (M.O. nr. 770/01.11.2011); • Rules for issuing the green certificates – Order of the President of ANRE no. 43/2011 (M.O. nr. 768/01.11.2011); • Rules of organizing and functioning for the green certificates market – Order of the President of ANRE no. 44/2011 (M.O. nr. 784/04.11.2011) • The methodology for establishing the annual green certificates procurement quotas – Order of the President of ANRE no. 45/2011 (M.O. nr. 769/01.11.2011) ______________________________ Source: ANRE

Romanian Renewable Energy Overview 2012

said Zoltan Nagy-Bege, GM of the regulations department in the energy efficiency field at the ANRE. Currently, for electricity producers that use wind power the internal rate of return (IRR) is between 10.7 and 12 percent. “We believe that these are reasonable rates even if the number of GC decreases. The calculations will be based on the investment costs which to some extent are linked with the actual investments. If the number of actual projects grows, the investment costs will decrease,” added Nagy-Bege.

Wind

Technology dictates support scheme Another issue flagged up by investors relates to the possible changes to the current support scheme for RES electricity producers, taking into account the investment modification depending on the technology used. “Here I must agree partly with investors. Again we are talking about a reduction in the number of GC, but also a reduction in investment costs as a result of technological advances in the field. It is an absolutely normal

“We proposed reducing the number of GC, by seting a formula for each technology used, meaning the same IRR for all developers, a return rate guaranteed by law” Zoltan Nagy-Bege, ANRE phenomenon that when interest is growing in a particular field, the relative cost decreases and already we can see this phenomenon,” said the ANRE official. He added: “We agreed before the EC that, depending on market monitoring of specific projects completed or going through a feasibility study, we will monitor these costs and when the rate of return increases by more than 10 percent compared to those benchmarks we have to step in and adjust the scheme.” At first glance, the specific investment for photovoltaic parks has decreased considerably since, say, 2010.

While initially it was around EUR 3.5 million per MW, currently the investment is estimated at approximately EUR 2.5 million. “So, we will first intervene for photovoltaic parks, most probably this year,” said Nagy-Bege. According to him, there is again uncertainty from investors’ point of view, but the ANRE can state that the authorities will never go under the benchmark IRRs. “Each investor must decide whether that IRR involves an investment that deserves to be made or not. On the market there will always be investments for which the IRR will be better or worse. What we are going to do is to aggregate-monitor each

The long road of the regulatory framework on renewable energy production

The European Commission authorized the support scheme for renewable energy production with Decision no. 4938 of July 13, 2011, and the EC decision was published in the Official Gazette of the European Union no. 244 on August 23, 2011. Afterwards came the authorization of the support scheme for electricity production from renewable sources (RES-E) established by Law no. 220/2008, republished, with subsequent amendments. The Romanian authorities have committed to amend Law no. 220/2008 with regards to the requirements expressed by European experts in the authorization process. Government Emergency Ordinance (GEO) no. 88/2011, amending and supplementing Law no. 220/2008, was republished, amended and supplemented. The main changes concern the introduction of specific provisions for: • Defining the mechanism of overcompensation (achieving an internal

rate of return higher than those shown in the calculations made for the permitting process), monitoring of the support and reduction of the green certificates granted if there is overcompensation; • Defining a possible mechanism for treatment of the cumulation of aid, namely the reduction of green certificates for recipients, maintaining a constant rate of return, as shown in the calculations presented to the European Commission, in order to avoid overcompensation of beneficiaries; • Providing a different number of green certificates (GC) for biomass, considering the diversity of technologies and raw materials, leading to different costs of energy production, namely: 3 GC for electricity produced from biomass/biogas/bioliquids from energy crops; 2 CV for electricity produced from biomass/ biogas/bioliquids, except those resulting from energy crops; 1 CV for landfill and sludge from waste water (based on fermentation technology); • Providing 1 GC for RES-E produced

in groups/power plants in the testing period; • Definition of multi-fuel power plant by granting GC if the power plant produces electricity using renewable and conventional energy in the same combustion plant, only if the energy content of conventional fuel used does not exceed 10 percent of the whole energy content; • In case of used power plants – granting GC just for wind power plants, because data were not available for other types of used power plants; • Inclusion in the law sanctions for breaches of legal obligations by the producers/suppliers/consumers; • Introducing the requirement for certification of the origin of biomass based on sustainability criteria for compliance with Article 17 and Article 18 of Directive 2009/28/EC • Rules for intergovernmental accords with member states and third countries regarding electricity produced from renewable energy sources

_______________________________________________________________________________________________________________________ Source: ANRE

Romanian Renewable Energy Overview 2012

Wind

resource investment cost and recovery rates and when for a certain resource it is noticed that the recovery rate has increased by more than 10 percent we will intervene,” said the official.

National renewable energy sources potential Source

Annual potential

To be used for:

Solar

60 PJ/year

Heat

1.2 TWh

Electricity

Grid expansion questioned

Wind

23 TWh

Electricity

Despite the impediments, investors’ interest is booming. Octavian Lohan, deputy general manager of Transelectrica, says that currently there are projects in electricity production from renewable energy sources of more than 10,000 MW. But Lohan asks: what certainty is there that all these projects will be finished to persuade players to invest millions of euro in over 1,000 kilometers of network, according to the latest statistics, in order to safely evacuate the energy? “We aren’t sure as we are still in a difficult period during which it is hard to obtain financing for such investments. Not everything will be built, because as the ANRE said we will change the scheme after we reach the quota we assumed before the European Union,” said Lohan. He added: “To safely integrate all these thousands of MWs we would have to make investments of EUR 500 million. Yet, for 3,000-4,000 MW, which we committed to record by 2020, the grid doesn’t require additional investments from our company.” According to him, Transelectrica has invested insignificant funds as interest in wind farms does not have a long history in Romania. “The interest in these farms appeared only from 2008 when law 220 came into force. Two years ago, in full recession, we couldn’t afford to grow – on the contrary, we just managed to finish what we had previously started, and for these new lines we have forecasted small amounts of money for studies, design and land acquisition, up to RON 2-3 million for each,” said Lohan. “The expansion plans are estimated to happen in the next five to ten years as we didn’t know that we would see such great interest in wind farms.”Meanwhile, Petru Lificiu, former vice-president of the ANRE, argues that within any market, the risk of a business is assumed by the entrepreneur, since there is no guaranteed business, and things function according to market

Hydro

6TWh

Electricity

of which under 10 MW

40TWh

Biomass and biogas

318 PJ

Geothermal

7 PJ

Heat Electricity Heat

NOTE: these are theoretical potentials; real usable potentials are much lower due to technological, economical and environmental limitations or restrictions. SOURCE: Economy Ministry

mechanisms. This simple principle also applies to the energy sector, including renewable energy. “Regarding the predictability needed in this segment, the issue is directly linked to the market mechanism. We should address the question of whether there is enough market to support the estimated production volume and this question should take into account the efficiency factor. For instance, other European countries, Germany especially, try to avoid oversupply in this segment, by addressing the production to the consumption and, also, to business indicators, such as efficient investments,” said Lificiu. In energy, any mistake can cost a business. Looking at the numbers, Romania is currently far from the consumption peak registered in 2009. Currently, 1,541 MW is the total installed capacity of wind energy locally, while photovoltaic projects make up a little more than 1 MW. The difference between the two amounts speaks for itself. Transelectrica and the distribution operators have signed contracts for connection to the transport network equal to 20,000 MW. Besides this, there are also connection notifications and demands for another 15,000 MW. “The national energy transportation network can sustain these capacities but the amounts and the projects should address the market principle of supply and demand. Who is going to consume this energy? Within the current market conditions in Romania, we are comparable to a European county with a 10 million population in terms

of production, while the consumption potential is equal to a county with only 5 million inhabitants,” said Ciprian Diaconu, manager of the technical division at Transelectrica. Within this context, the aspects regarding the costs involved in the power distribution network should be addressed. For instance, Transelectrica needs EUR 500 million in order to strengthen the distribution network and this amount doesn’t include the necessary financing for regular maintenance works. So far, the company has invested some EUR 100 million in reinforcement works on the distribution lines. “By 2018, as included in our development plan, the new 400kV line between Gadalin and Suceava will be completed. Due to the current consumption, the need for supplementary investment in network development is not a priority, like the modernization works on the power stations are. For instance, in Dobrogea there are several ongoing and announced projects. The maximum power that can be sustained by the national power network for Dobrogea is 3,000 MW. Also, in western and southwestern Romania, excessive power production can occur and our network cannot collect and deliver this volume without investment,” said Lohan.

Priority access Grid access is another theme to deal with when developing a wind farm project. “We are currently in discussions with investors and Transelectrica to find solutions that give them priority

Romanian Renewable Energy Overview 2012

Get yourself connected? Actual connection to the electricity transportation network comes with some obstacles. The technical connection notices (ATRs) involve network reinforcement costs of millions and even tens of millions of euro, especially for the Dobrogea area. According to specialists, the obligation to rehabilitate and reinforce

“To safely integrate all these thousands of MWs we would have to invest EUR 500 million. Yet, for 3,000-4,000 MW the grid doesn’t require additional investments from us” Octavian Lohan, Transelectrica

the grid falls to both Transelectrica and energy distributors. However, where there are more investors demanding to be connected to the network in a certain area the reinforcement investments must be made by the distributor/Transelectrica and the costs should also be supported by the interested investors. Unfortunately the law does not say to what extent the investment should be supported by the interested investor, nor who pays first or when these funds will be recovered from the other party. The lack of clear regulation on these matters leads to abuses from distributors, including Transelectrica, which has not paid its share for these investments, claiming that it had budgeted the costs, has no money to invest and leaves it up to the investor whether to make the investment or not, or to wait until it has the necessary funds.

Who’s paying for the GC surplus? On this topic, the ANRE official said that the authority does not think the maximum limit of 12 percent of electricity from RES will be surpassed this year. “This year we will not see GC supply outstrip demand and most likely the average price of a GC will be

Investment perspectives for E-RES in Romania Technical Connection Agreement (MW)

Total

Of which, with CC

Establishment permit

Producer license

Wind

17.000

8.700

1340

670

Hydro

295

105

Biomass and biogas

Photovoltaic

478

186

1 SOURCE: ANRE (December 2011)

very close to the maximum value,” said Nagy-Bege. Another aspect to be taken into account, say specialists, is what will happen in the future with the sale of electricity from renewable sources. Market players say that there are discussions to introduce a tax for renewable energy transactions. The question is how high this tax will be. However, Lohan does not think there will be a problem regarding the green certificates for the next two or three years. The law deals in percentages, as every power producer should have a certain percentage of produced green energy.

Wind

to deliver energy over other energy producers. It is also a learning process, as apart from hydro we do not have experience in renewable, particularly in wind. On this segment, the forecast will have a major influence,” said NagyBege. He added, “The green energy capacities which are currently operating do not produce large disturbances in the system. Yet, we expect to have some 1,000-1,500 MW installed by the end of the year, from about 700-800 MW currently. According to Transelectrica statements for up to 2,500 MW we should not have any problems.” According to the Transelectrica official, the legislation gives priority to those plants which receive GC, to the detriment of hydro power plants, which also produce clean energy but do not receive green certificates. “Practically, we can stop the power plants which have lakes, but the issue remains the power plants located on the water course, units which cannot be shut down. We will have to use clean energy in order to take on a larger quantity of electricity from wind farms. Also, we have the problem that there is no way to stock the electricity and also there was talk of a power plant with accumulation by pumping, but this will be realized when it is really necessary,” said Lohan.

RWEA calls for predictability Wind has dominated the ranking of renewable projects in the last year, as Romania has great potential and a reasonable support scheme, Dana Duica, the executive director of the RWEA (Romanian Wind Energy Association), said at the beginning of this year. After three years spent waiting for the energy law to be issued, some of the developers’ excitement has been dented, but the large companies with big projects in renewable, such as CEZ, Enel Green Power and others, are sticking with their local projects. At the beginning of 2012, according to data from the RWEA, approximately 805 MW had been installed in wind projects, double the amount in 2011, and most of these projects are being developed by large companies. For 2013, some new projects from Iberdrola and Verbund are also expected, with the 80 MW from Spanish company Iberdrola Renovables and 100 MW installed by Austrian Verbund, along with other smaller projects announced by other

Romanian Renewable Energy Overview 2012

system,” warned Duica. The RWEA has estimated that approximately 25 percent of the 16,000 MW announced in different projects will be finished in Romania, which fits the grid capacity and local consumption. The association manager outlines two major aspects to be taken into consideration regarding the local framework and investors in energy. First, there is the problem of predictability. “The ANRE wants to monitor producers and change the support scheme in order to avoid the overcompensation of green certificates, which may create problems for investors. Any investor and financing bank would expect to be able to forecast revenues on the medium and long term, within a constant existing legal framework. For those planning to initiate a project and a business plan this year, it is hard to predict the business indicators given the lack of knowledge about the support scheme that will be applied to

their future projects,” she added. The second issue on the local landscape is the prioritized access to the national grid. Legally, priority access has been correctly defined, according to European legislation, but the new GO issued on the law introduced a change to the previous framework, at the initiative of the ANRE and not requested by the European Commission. This ordinance splits access to the grid into two types, says the manager: guaranteed access for all renewable energy producers and prioritized access for producers of up to 1 MW. “Under this split by the ANRE, renewable energy is no longer guaranteed to benefit from prioritized access to the grid. The idea for a national energy system is to firstly distribute for consumption clean energy and after the polluting energy. In this form of the ordinance, this principle is no longer respected,” Duica said. Another aspect to be clarified is the

Wind

companies. The take-in capacity of 4,000 MW announced by Transelectrica or the 3,400 MW by 2020 as estimated by the ANRE (Romanian Energy Regulatory Authority), is a respectable target, according to Duica. The Dobrogea area remains in the spotlight of investments for wind developers and investors but, says the RWEA manager, Moldova is represented by projects announced for Galati, Iasi and Vaslui. Meanwhile, Caras Severin has significant potential, with wind power of approximately 8.2 m/s, even higher than Dobrogea records. “We shall see the evolution of the coming years, because, if these estimated MW are integrated at a constant pace and with increasing capacity, the system can function well. But, if there are no investments in back-up capacities, to produce more MW than required by the market, and with a lack of balanced demand, this will eventually create problems in the

Romanian Renewable Energy Overview 2012

“Neither the achievement of all projects with technical contracts for connection to the grid nor a distribution network that would double current production capacity is feasible” Silvia Vlasceanu, ACUE

solely on putting into order the land documentation in order to site a turbine,” said Duica. For bureaucracy, Romania still ranks within the European average, with 16-18 months taken to obtain all final permits for a project. Another barrier is the supplementary costs for an investment. According to Duica, the average estimated investment per MW is EUR 1.5-1.7 million. Still, there are projects that involve higher costs, up to EUR 2 million per MW, due to the financing costs of the

country, transportation of turbines as they are not produced locally, or even due to the supplementary investments made by investors in Transelectrica’s distribution grid. Besides Siemens, which builds different assemblies for turbines in local Siemens-certified production units, a couple of companies have stated their intention to build local production for turbines here if the market offers good perspectives in this respect, said the RWEA manager.

Wind

secondary legislation, which stipulates that produced capacities of below 1 MW benefit from a fixed tariff under the law. So far, this price has not yet been established. There are domestic projects of 0.3 MW or 0.5 MW, for hospitals or other kinds of institutions, even household projects which make up an increasing market that deserves the attention of the authorities and requires a clear regulatory framework, according to Duica. “The interest of the wind project producers that we represent is to invest within a clear and predictable legal framework that does not include new rules to be applied retroactively,” she commented. In Duica’s view, one of the main problems for wind parks developers is the land registry documentation, which currently includes significant obstacles in terms of fragmented properties, tough requirements, and lack of cadastral registries. “I have met developers that spent one year

Romanian Renewable Energy Overview 2012

eu grants or green certificates dilemma

Advertorial

ursuant to the enactment of the Government Ordinance no. 88/2011 amending Law no. 220/2008 establishing the promotion system for the production of energy from renewable energy sources (the “Law”), the concept of “overcompensation” has been introduced. Overcompensation is the situation when the internal rate of return (“IRR”) of a certain renewable energy project exceeds with more than 10% then the value considered by the Romanian State for the respective technology within the notification of the promotion system to the European Commission. The implications of overcompensation are relevant, inter alia, for producers of electricity from renewable energy sources (“E-RES”) which have applied for other state aid schemes and/or EU Grants. Since the green certificates (“GC”) are assimilated with state aid, the investors in E-RES projects which will be awarded with, for example, EU Grants will benefit from a double support from the State and thus their IRR could increase significantly. As per the provisions of the Law, the E-RES producers which register an overcompensation of their projects shall receive a lower number of GCs in order to bring their IRR to the level notified and approved by the European Commission. As such, by way of exception from the number of GCs set out in art. 6 (2) of the Law for each technology, the number of GCs to be received by E-RES producers benefiting from additional state aid shall be computed by ANRE by decreasing the reference value of the investment per MW with the value of the aid received per MW and in the same time maintaining the IRRs considered upon authorization by the European Commission of the promotion system. As provided by art. 20 (2) of the Regulation for the accreditation of the E-RES producers (the “Regulation”), the reduced number of GCs assures the maintenance of the same value of the IRR as in the case when the respective E-RES producer had not received any investment state aid. Further on, currently the following levels of IRR are set by the Regulation:

New Wind Power Stations: 10,9%; Used Wind Power Stations: 9,9%; New Hydro Power Stations with Installed Power < 10MW: 10,2%; Upgraded Hydro Power Stations with Installed Power < 10MW: 10,3%; Existing Hydro Power Stations with Installed Power < 10MW: 2,1%; Biomass – biologic residues and energetic crops – co-generation: 10,5%; Biomass – biologic residues – exclusively for electricity: 10,6%; Biomass – energetic crops – exclusively for electricity: 11,3%; Fermentation Gas – exclusively for electricity: 11,8%; Solar: 11,6%. Furthermore, by receiving EU Grants, an E-RES project might become significantly overcompensated since the IRRs notified to the European Commission have been already computed at a high level and any supplementary aid received will increase such IRRs. On the other hand, it is possible that in the mid-term future ANRE will revise the number of GCs and thus the ERES producers which declined EU Grants would end up in the same situation in terms of the number of GCs as in the case when EU Grants have been accepted. In order to assess the overcompensation of E-RES projects, ANRE has established a methodology for monitoring the ERES producers which benefit from the promotion system. Given the above, the main dilemma of the E-RES producers which are eligible for being awarded with EU Grants is whether to accept the EU Grants for the development of the project or to decline such non-refundable financial support in view of receiving the full number of GCs provided by the Law for each respective technology. The conundrum becomes even more complicated considering also the administrative burden of being the beneficiary of EU Grants. One should always balance the benefits of receiving non-refundable funds for the development of its project along with a lower number of GCs or the benefits of receiving the full number of GCs but the uncertainty related to the number of GCs which may be received in the future. At the end of the day, this will be a business decision which any investor in such a position should take by considering the

most conservative investment analysis of the two aforementioned options. However, since the price of the GCs paid by suppliers shall finally end up being covered by the end consumer, the absorption of EU Grants in Romania should be encouraged since this will be beneficial for the overall economy. In this respect, it is important not to lose the big picture and authorities should consider options on how to further encourage investments in this field without revoking the existing incentives and lead the investors towards EU Grants, thus bringing an infusion of new capital into the Romanian economy. Another positive sign also comes from the fact that Romania ranked 14 in the most recent Country Attractiveness Index issued by Ernst & Young in relation to the renewable energy environment worldwide. Radu Ionescu, LLM, Senior Associate, Platis Bazilescu LLLP

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Romania’s tortuous renewable energy scheme

Wind

New energy, old problems:

With production plants totaling 25.8 MW, the Romanian energy market still has a long way to go until biomass power plants match the momentum of wind farms, for instance. The Diplomat – Bucharest talked to biomass power plant producers about the challenges they face on the local market and the long road to completing this type of investment.

enewable energy sources are not an absolute novelty for Romania. One of the most important sources of electricity generation, which has not exhausted its potential, hydropower, exists in Romania where it has been used for almost 100 years. What is new is that the country has joined a movement which is gaining strength worldwide and which advocates for the increased use of this kind of source. “The international trend for greater

use of renewable energy over the last 30-40 years reflects several factors: the increase in consumption and the concern that fossil fuel sources will soon be depleted if demand continues to soar, care for the environment (as renewable sources are, largely, benign in their effect) and, essentially, technological progress which has made the use of sources such as solar power and bio-fuels more efficient nowadays,” says Valentin Mircea, vice-president of the Competition Council.

New kids on the block However, the new status of renewable energy has both supporters and foes, and the transformation of the energy production industry does not come without hurdles. Not everybody seems to be happy about the arrival of the newcomers in a Romanian energy market already faced with major and long-standing problems, from the old and obsolete assets in the coal-fired and hydropower units to the insufficient capacity of the national grid to absorb

Romanian Renewable Energy Overview 2012

energy generation, so that its growth and development are not slowed down or even put at risk. Romania is no exception to this trend and, after a more timid start in 2004, the Romanian Parliament passed a law in 2008 – Law 220/2008 – creating a whole support structure for renewable energy, aligned with the objectives set for Romania by the European Union: 24 percent energy produced from renewable sources by 2020 (according to a Government Decision issued in 2007 the targeted level is 38 percent, including hydropower generation units with a capacity higher than 10 MW, which are considered as renewable sources but not environmentally-friendly). “The main support intended by this law

was the introduction of a system of green certificates, with different values depending on the source of energy, which have to be purchased by the producers of energy from traditional sources,” says Mircea.

Wind

the quantities of electricity produced by the new sources. New investment in the old generation units is paramount and, before the newcomers were considered competitors on the energy market itself, they were competitors for the financing available for this industry. This kind of competition could be solved, of course, on a purely market basis, i.e. the most efficient energy project would win the race. “Unfortunately, renewable energy has two weak points in the eyes of bankers that put it at a disadvantage in its competition with the traditional sources of energy: the lower efficiency of the generation capacity in transforming wind power, solar energy or thermal energy into electricity and the lack of continuity of generation, especially for wind and solar energy. Due to the surge in demand for generation equipment for renewable energy sources worldwide, the prices of such equipment have soared in recent years and are likely to stay high for the foreseeable future,” says Mircea. In this difficult context, governments and legislators on all continents have weighed in and tried to ensure a level playing field for the new generation of

Teething troubles “The coming into force of the law was not the end but rather the beginning of another period of efforts – and, sometimes, struggles – to make it effectively applicable. The law has raised criticism and even opposition from the business community and even the public administration. Some of the opposition was justified by the fact that certain provisions of Law 220/2008 could not be applied as such and needed to be amended,” remembers Mircea.

“Romania must have a clear path in the development of its energy sources and avoid underinvestment and overheating due to too many non-viable projects” Valentin Mircea, Competition Council

Romanian Renewable Energy Overview 2012

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He added: “On the other hand, certain arguments against the new sources of energy were based on the failure to understand or even to accept that the advent of renewable energy is necessary for the energy market as it has increased the variety of the supply, in harmony and in addition to all the other sources – fossil fuels, nuclear power and large hydropower units.” The opposition to the state support of the renewable energy went as far as convincing the public that renewable energy will dramatically increase the prices of energy and that people and businesses will suffer the consequences. The likely price increase is true and the green certificates have their contribution to it, but these effects have been largely exaggerated. It seemed that renewable energy was an unwanted child for the energy industry in Romania.

which were supposed to be acquired by the old energy producers amounted to state aid. The main argument was the fact that a system of green certificates for renewable energy producers (one certificate for each MW, notwithstanding the source used) had existed in Romania since 2005, so prior to the coming into force of Law 220/2008. Eventually, it was decided that the green certificates scheme should be reported to the European Commission, as this is the only agency, within the European Union, entitled to assess whether a measure decided by the state constitutes aid or not.

The overcompensation concern The main issue raised during discussions with officials from the European Commission was the possible over-compensation of investors in the

Euro is the value of the penalty paid for each green certificate not acquired, payable to the environment fund “Unfortunately, no real debate on the pros and cons of the new renewable energy has taken place so far. Market specialists hope this will eventually take place, as Romania needs to have a clear path in the development of its energy sources and must avoid both underinvestment in this field and the overheating of the industry due to too many non-viable projects,” says Mircea. The Romanian Competition Council was not involved in the drafting of Law 220/2008 at the time of its enactment, but it has been involved in the administrative process necessary for making this law fully applicable, more specifically in the process for notifying and obtaining the approval of the European Commission on the stateaid scheme for the green certificates, alongside the National Agency for Regulation in Energy (ANRE) and the Ministry of Economy. It should be remembered that the Romanian authorities did not consider, initially, that the green certificates

renewable energy, should they receive more help than necessary to offset their disadvantaged position in respect to other projects in the energy sector. “This was not a simple issue, because the right level of compensation is different from one energy source to another (wind power from solar power, for instance). At the same time, other variables had to be taken into account, such as the investment rating for Romania in the context of the international financial crisis and the possible evolution of energy prices. The proper notification to the European Commission was lodged on June 6, 2011. As soon as the aspects pertaining to the Romanian authorities were clarified, the commission moved rapidly and on 13 July 2011 it approved the state-aid scheme (the European Commission was aware of the issue through a pre-notification lodged by Romania in November 2009),” says Mircea. The scheme approved by the EC amounts to a total of almost EUR 20

billion through to 2016 and covers generation capacities – hydropower units with a capacity of less than 10 MWh, wind energy units, solar energy units, biomass energy units – that are commissioned or refurbished by December 31, 2016. The number of green certificates will depend on the type of energy source (between one and six) and the duration will depend on the age of the production capacity, from 3 to 15 years. Changes may occur in respect of the number of the green certificates but the framework should remain unchanged until at least 2016 as investors and financing entities need predictability. The certificates are granted based on generation capacity not exceeding 125 MW/h, not the legal entity owning the project, said the CC official. Both small and medium-size companies and large companies may own assets which are eligible for green certificates. An important feature of the certificates is that that they may be sold during their validity (16 months) on the specialized centralized market for a price that may not be lower than the equivalent of 27 EUR/certificate and not higher than 55 EUR/certificate. Failure by the energy producers to acquire the appropriate quotas of green certificates is subject to a penalty of EUR 110 for each certificate not acquired, to be paid to the Environment Fund. The sums resulting from the penalties may be used only for financing investments in renewable energy capacities below 100 KW/h. These are also considered state aid measures but they are approved based on the “de minimis” rules of the European Commission.

Not the end of the saga… As far as one can tell, the new renewable energy sources have proved their “raison d’être” and their utility in supplying the necessary energy to the grid, as was evident during the severe drought during last year which seriously affected the generation capacity of the large hydroelectric units. It has become more evident that renewable energy has a future in Romania, although perhaps not an easy one.

Romanian Renewable Energy Overview 2012

Technology companies navigate legal challenges

Wind

wind savvy:

Romanian Renewable Energy Overview 2012

ith the regulatory framework cleared up, the number of installed MWs has increased consistently. The competition among technology providers has followed the market trend, with wind turbine producers putting on the table full services and high-tech products in their chase for clients.

Siemens Romania sees demand for turn-key solutions Last year was rewarding for the local energy market, especially the renewable sector, and for the players operating on it, including Siemens. Petru Ruset, manager of the energy division at Siemens Romania, said that the company had recorded in excess of EUR 200 million locally in new projects last year, while for 2012 it has ongoing projects of over 150 MW. Towards the beginning of the year, Siemens Romania signed three contracts, and another four-five are in the pipeline, exceeding 200 MW. “We think that the market evolution is upwards and we also see that we are operating on a more mature market now than it was few years ago,” said Ruset. “In the last few months, I have noticed that many investors have crystallized business plans following the clearer legislation and I expect things to evolve on a more structured market from now on.” The manager went on, “The maturity of the market can also be seen in the type of investors and companies operating here. Of course, like any market, it can receive different types of investors from different regions and different capabilities, but we should not forget that some prominent failures have been recorded in this field. Our strategy is to get as near as possible to our client in order to customize our solutions to its needs.” According to Ruset, the groups of companies which, over time, have developed integrated solutions that can be delivered for an investment will make up the market, as is already happening and will continue to do so. “The market still has different providers for different components of a project, some delivering the turbines, some delivering the construction operations,

Romanian Renewable Energy Overview 2012

Wind

Technology providers for wind farms say that the clarifications on the regulatory framework have boosted renewable energy projects. Wind turbine producers detail their sales targets plans and what challenges they are expecting on the local market.

Wind

some the financing and so on. The market trend is to deliver turn-key projects, comprising all the development stages and elements: financing, construction, maintenance,” said Ruset. As Siemens is a worldwide leader in providing solutions for offshore projects, says the manager, its target is to get as near as possible to the top ranking companies for onshore. An offshore project is more expensive in terms of the initial investment than an onshore one. “In my opinion, the local market will start to develop offshore projects too when the current market of onshore projects under development is saturated,” Ruset said. He believes that Romania has a larger wind potential than the local consumption and the investments and projects developed in this segment are directly linked to domestic consumption.

Romania has no chance, but the southeast has the right potential,” said the manager. With the potential energy production exceeding demand, the equation should include the exports factor. “We are operating within a European system based on the rules of supply and demand. The regulatory authorities should not interfere with exports, since the Romanian consumer is not affected,” Ruset argued. Romania gets 24-25 percent of its energy production from renewable, mostly wind, and by 2020 the target is to up it to about 36 percent. As Romania was close to attaining the goal of 1,000 MW installed last year, Siemens estimates that for 2012 the target could be exceeded, as the market conditions seem be favorable in this respect. At European level, Romania ranks

“Additional challenges will certainly appear and the products and services will have to comply with new requirements, which is why the competition is getting tighter” Catalina Dragomir, Vestas

“There is heated debate regarding the liberalization of the prices in energy locally and I think this is necessary,” he commented. The local market potential depends on several factors. One is domestic consumption, which, Ruset says, is growing slightly but remains far below the maximum potential of wind energy for installed capacity. According to data on the market, Romania has wind power potential of around 14,000 MW, and an energy-generating capacity of 23 terawatt-hours. The country’s wind power capacity that can be assimilated by the national transport grid is between 3,000 MW and 9,000 MW. The Dobrogea region, which consists of Constanta and Tulcea counties, has the second highest wind potential in Europe. “In terms of energy pricing policies, the eastern region of

highly for potential and installed capacities for offshore projects. Still, the turbine potential is not likely to be strong locally in the coming years, said Ruset. “Of course the assembly works are done using local industry, as Siemens is also assembling different turbine components at company-certificated production units in Romania.”

Vestas predicts market maturity At the end of 2011, data from Vestas Central Europe – which includes Veasta CEU Romania – show turbine sales total totaling 1,289 MW out of 7,396 MW for Vestas globally. According to company information, some of the 1,289 MW were sold in Romania. “At the end of 2011, according to official Veastas data, a total of 488 MW were installed for Romania. Moreover, the

company recently celebrated reaching 50 GW installed globally in the last 33 years. Vestas has reconfirmed its global leadership position, with 66.9 percent more MW installed capacity than the nearest competitor,” said Catalina Dragomir, sales director and country manager for Romania at Vestas Central Europe. According to Dragomir, the company’s strategy is to consolidate its market leadership by increasing sales and maintaining the pace for installed turbines. “Strengthening the local position by offering after-sales services and positioning the company closer to our customers through the partnerships we offer are elements that support the chosen strategy,” said Dragomir. The Vestas representative says that both platforms, 2 MW and 3 MW, are already sold and installed in Romania, in the form of the V90-3MW and V90-2MW. “Following the launch of a new product, the V112-3MW, a result of changing technology, for the following years we see a change in the sales profile and the appearance of wind farms developed for V112-3MW turbines,” she added. Given the targets assumed by Romania in promoting renewable resources in the coming years, the firm estimates a constant market level with a change of its profile, a maturing. “Additional challenges will certainly arise and the products and services will have to meet new requirements, which is why the competition is getting tighter. Thanks to our market position in terms of installations and relations with all market players, from developers to the authorities, financiers and investors, Vestas is well prepared to face the new demands of the market and contribute to its maturation, bringing international experience and extensively confirmed technologies,” said Dragomir. According to her, Romania has a large wind potential, and it is not confined to Dobrogea, which is why the local market has witnessed the development of wind farms in other geographical regions. “Based on geography and winds, there are other types of turbines that can be implemented in developing wind farms. Vestas has in its portfolio solutions for a mix for wind areas,” said Dragomir.

Romanian Renewable Energy Overview 2012

GE Energy puts focus on diversity and cooperation 2011 was a good year for GE’s energy business in Romania, providing customers with both technology and capability to produce energy more reliably and efficiently, more cost effectively and with greater environmental awareness, especially on the renewable energy side of business. “Obtaining investment capital was much more challenging. As a result, potential investors were more hesitant to approach large opportunities and focused on low capacity projects, making the progress towards a local sustainable and secure energy path slow,” said Cristian Colteanu, GE president & CEO for Romania, Bulgaria and Moldova. According to him, the energy landscape in the EU has also been transformed. Every member state has accepted national targets which, together, will realize the overall objective of the 2020-20 Agenda. Every member state is therefore committed to implementing ambitious energy efficiency action plans, also facilitated by a mature regulatory environment favorable to investment as it is in Romania. As an active player in the energy domain, both as a supplier of technology but also as an investor, GE sees this opportunity as important for the country’s competitiveness and future economic performance within the region, says Colteanu. What has happened in the financial

markets during the crisis in the past few years could happen in the world’s energy markets next, if building up energy diversity and cooperation is not made a priority. In order to achieve that, long-term policy objectives should be articulated, argues Colteanu. This will allow both the generation of integrated plans and the creation of appropriate mechanisms (national and regional development funds, public private partnerships, increased EU funds absorption). It is equally important that authorities ensure the development of energy infrastructure, so as to support growth in energy demand and an integrated regional energy market, adds the president. The energy strategy must also reflect state-of-the-art technology that maintains its applicability over time, so that all investment projects include efficient, productive and high-

technology suppliers for energy projects in Romania. With investors’ risk appetite understandably low in this period, the need for predictability in the legislative framework is the main condition flagged up by most players in energy segment locally. The company’s number one equipment supply contract was signed to provide CEZ’s wind farm in Cogealac with wind turbines. According to the GE Energy manager, renewable has always been the major interest area for GE. “Recently we finished our projects for Cogealac, the wind farm owned by CEZ, by the completion of all development stages,” Neagu said. The company has already signed contracts for all the 600 MW capacity estimated for the project, ranked as the largest offshore project in Europe. Also, GE Energy provides maintenance services for the installed

“With renewable energy investments at a significant financial level and with a longterm ROI and the current financial landscape, investors’ risk appetite is very low”

Wind

In the Vestas representative’s opinion, Romania has made important steps in implementing regulations necessary to achieve the targets imposed by the development plan. “The impact of regulations is visible in Dobrogea and has begun to be significant in Moldova as well. The fact that in the past two years the average annual amount of new wind farm installations was about 500 MW proves that these regulations are being implemented and offers an attractive business case for developers, investors and financiers. For Vestas, Romania is one of the countries with large potential, the proof being the presence of Vestas CEU Romania in the last four years on this market with ambitious development plans,” said Dragomir.

Carmen Neagu, GE Energy

performance equipment, that is also compliant with EU environmental standards. “For 2012, energy will remain the growth driver for GE locally. We will further focus on developing the wind and biogas segment, but industrial cogeneration, especially high-efficiency energy production, will be another area of interest. The strategy will therefore stay unchanged and we will continue to concentrate on long-term projects that help our customers gain a competitive position, while the Romanian economy evolves towards efficiency and performance,” said Colteanu. The need for investment in energy is major in Romania and the state’s role to ensure a legislative framework in this respect is the main priority, argues Carmen Neagu, region executive for South East Europe at GE Energy, one of the largest

turbines at Cogealac. “We have a team of 20 technicians specialized worldwide for this project. We, as a company, believe that Romania can become a regional hub for delivering such technical and maintenance services in energy,” Neagu said. The significant capacity of CEZ’s wind farm highlights two aspects of the local status of the energy market in Romania. “The existence of such a large project within the system shows that there is the room to integrate the capacity. 600 MW is a large amount and shows that at least the wind farm market in Romania has reached technological and commercial maturity,” said Neagu. The manager also cites the relationship with the national grid market operator Transelectrica. “The connection tests and the feedback of national transporter Transelectrica show

Romanian Renewable Energy Overview 2012

the maximum investment in renewable should come from flexible capacities, as there are in Romania, for example in hydro stations. Biogas engines, which are defined and qualified as a renewable energy resource by Law 220, can deliver both electric and thermal energy to the system. For instance, biogas can be derived from the waste of farm animals, from wastewater stations such as the one in Glina, in Bucharest. GE Energy has in fact supplied two engines for the Glina wastewater treatment plant, of 3MW each. According to the calculations of the GE Energy manager, the 6 MW of thermal power could supply a large Bucharest neighborhood, such as Titan, for instance. “Biogas can also be used as a solution in agriculture, by using, for instance, wastewater treatment sludges. Regarding the power capacity of a station

which uses biogas, the potential range is 300 KW to 3 MW, referring to the total installed capacity for such centrals,” added Neagu. Still, the GE Energy manager argues that the renewable segment in Romania is better represented in terms of projects because, in this segment, developers have embraced the investment more easily and faster but, besides wind, the complementarity of green resources must be part of a smart long-term national energy strategy. The more common model of 2.5 MW turbines used by GE Energy is, according to Neagu, the current model used for Europe, adjusted to the regional conditions that the continent imposes compared to America or China, for instance. “Europe is a more crowded continent than the others and this model is being used for wind areas

Wind

that the local power system has ways for the impact of renewable solutions and resources to be friendly and positive for the system,” she added. Last year also brought the development of several other smaller projects in wind, by smaller companies and Romanian developers, which keep on improving and getting more specialized and professional on this segment, the GE manager said. The main role of co-generation and the existence of a viable system is to permit the complementarity of resources. For instance, gas engines can supplement wind turbines. “The development of solar energy can also be a supplementary resource in generating power if it is being developed within a national strategy and based on the needs of the local system,” said Neagu. For instance, she added, about 30 percent of

What technology providers have to offer GE 2.5xl Rated capacity: 2.500 kW Cut-in wind speed: 3.5 m/s Cut-out wind speed: 25 m/s Rotor diameter: 100 m Swept area: 7854 sqm Hub heights: 75/85/100 m

Siemens Wind Turbine SWT-2.3-101 Nominal power: 2,300 kW Cut-in wind speed: 3-4 m/s Cut-out wind speed: 25 m/s Rotor diameter: 101 m Swept area: 8,000 sqm Hub heights: 80 m or site-specific

Vestas V90 Rated capacity: 3,000 kW Cut-in wind speed: 3.5 m/s Cut-out wind speed: 25 m/s Rotor diameter: 90 m Swept area: 6,362 sqm Hub heights: 65/80/105 m

_________________________________________________________________________________________________________________SOURCE: Companies

Romanian Renewable Energy Overview 2012

“The market still has different providers for different components of a project, some delivering the turbines, some delivering the construction operations, some the financing and so on” Petru Ruset, Siemens Romania

a credible legislative framework. While law 220 created a setting, it seems that the secondary legislation could contain several limitations and uncertainties, which is a serious signal for investors of lack of predictability. With energy investments being at a significant financial level and with a ROI estimated on the long term, combined with the current financial landscape, the risk appetite of investors is very low. The national energy strategy should also be free of government changes and any political involvement.” Regarding the certificates and the support scheme, which is available for 14 years after the capacity is installed within a project, the number of certificates for wind projects remains at two, until 2017, while other renewable projects get one certificate “Romania didn’t reach the renewable energy production to covers the quota that has been established at European level,” Neagu concluded.

Nordex targets double sales Another high-profile wind turbine producer, Nordex, has spotted opportunity on the local market. Nordex officials says two Romanian orders, totaling 20 MW, for its N100/2500 machines, are part of a wider push by the company into key Eastern European markets that also include Poland and Bulgaria. According to Thomas Annegg, senior sales manager of the EMEA East Europe sales team at Nordex Energy, four of the N100 2500 KW hubs, with a height of 100 meters, went to the Topliceni project, while another four are at the Grebanu wind farm. The Nordex N100/2500 kW is a 2.5 MW wind turbine specially configured for moderate and low wind conditions. “The N100/2500 is one of the largest turbines in the Nordex product line and

its yield rates are among the highest in its power class. With a rotor sweep of 7,854 sqm, this IEC-2 certified turbine operates particularly profitably in medium- and low-wind regimes,” said Annegg. The N117/2400 has been specially developed for low-wind sites. Thanks to a rotor diameter of 117 meters and a rotor sweep of 10,715 sqm, the N117/2400 is the highest-yielding IEC 3 turbine in its class, according to the official. In typical low-wind regions, it will achieve a capacity of over 3,500 full-load hours, thus exceeding other turbines in this category by 20 percent. This translates into a capacity factor of 40 percent. As a result, Nordex customers using the N117/2400 will be able to achieve high and steady electricity production in regions characterized by lighter winds, according to the company. The acoustic power level is a maximum 105 decibels, thus allowing the turbine to be used closer to residential areas and ensuring an optimum turbine array in the wind farm. The N117/2400 has also been designed with construction height limits in mind. Thus, with a hub height of 91 meters on the standard tower, it remains below the critical threshold of 150 meters. The company plans to double its sales on the local market. “Our target is to receive orders for 40 MW in total. We see a potential here as we estimate Romania will reach a total of 3,000 MW by 2015 and even get to 4,000 MW by 2020,” said Annegg. A significant challenge identified by the Nordex representative is the price fluctuations of green certificates. “We believe some clarifications are in order regarding the unpredictable pricing of green certificates and complicated sale of electricity on the day-ahead market based on wind forecasting,” he added.

Romanian Renewable Energy Overview 2012

Wind

of 7-8 m/s speed,” said Neagu. The company also locally promotes the new technology GE 1.6-100, a turbine that offers the highest efficiency in its class. Such turbines have a height of over 100 meters and a tower diameter of 80 meters, according to data from the company. Another model sold by GE Energy is the 2.75 MW, with variable tower heights ranking from 100-140 meters. “Transelectrica is perceived as a barrier in the way of renewable energy development. Of course, the owner of the transport network should be the partner of developers and investors in the renewable system. The integration of the system needs and the development of renewable resources in order to meet those needs are the essence of the good functioning of the energy industry,” said Neagu. Regarding the installed capacities and the demand for turbines, they are closely related to the number of projects to be developed locally in the wind segment and the limit will be determined by the system’s capacity to safely manage these capacities. A first development stage of 3,000-3,500 MW is feasible, after which, an analysis of the integration of these capacities in the system will be needed, while the secondary legislation will need supplementary decisions in order to permit the extension of investments above this limit. The European energy strategy for 2030 and even 2050 stipulates the creation of transport channels for maximizing the renewable resources in the Baltics and, also, the exploitation of the renewable potential in the Black and Adriatic Seas, off Romania, Bulgaria, Croatia and Serbia. “This year will be a year of consolidating what we call the available capacity in technical aspects, of wind and the development of this potential to the 2,500-3,000 MW announced by Transelectrica, without supplementary investments. By supplementary investments I mean the need to ensure adjustment for frequencies and power though flexible capacities,” said Neagu. As for the firm’s hopes for renewable, the manager detailed, “This year we would like to see, especially for renewable,

Legislation

legal layers:

Players negotiate regulatory maze The regulatory framework has always been a decisive factor for all the developers and investors ready to risk it in the field of electricity production from renewable energy sources. Lawyers outlined the main clarifications the law has brought and what challenges remain, from a legislative viewpoint.

n Romania the start of the promoting system for energy from renewable sources was established in 2003, with publication in the Romanian Official Gazette no. 288/2003 setting out the implementation of the new system by the Government Decision no. 443/2003 on promoting electricity from renewable sources. “Although the legislative framework was published in 2003, the first producers that benefited from the support scheme were only authorized and registered to participate in the green certificate market in September 2005. Since the renewable energy law became applicable in 2005, only one green certificate has

been granted for each MW of electricity produced and introduced into the national electricity grid, no matter the renewable source used for the production, so investors did not have great interest in

the renewable energy sector,” said Raluca Marinescu, senior lawyer at NH Cabinet de Avocat. According to her, in December 2008, when the European Union (EU) adopted

“There is no support system to cover the excess of GC. We will see something of a rebound from some clients, for which investments on the local market are on stand-by” Ciprian Glodeanu, Wolf Theiss

Romanian Renewable Energy Overview 2012

Regulatory framework beginnings At the time of implementation, wind, as a renewable source, accounted for around 4 percent of the EU’s total electricity supply. This share is expected to at least triple by 2020. It is clear therefore that the number of wind farm installations across the EU is likely to increase radically in the short to medium term. It will be important to ensure that such a rapid expansion is sustainable in all respects and is done in accordance with EU environmental

legislation. “Our office has advised interested investors, since 2009, in respect to changes in legislation, current possibilities and authorization processes. At that time, the main investors we assisted in the electricity field were mainly interested in the wind energy sector, which was then the most advantageous. We were involved in the active preparation and development of some of the first wind and photovoltaic parks in Romania,” said Marinescu. In July 2011 the EU Commission finally approved the support scheme given by Law no. 220/2008, as per the last amendments made in 2010 and the amendments suggested in the draft of the Government Emergency Ordinance (GEO). The EU Commission decision was published in the Official Journal of the EU on August 23, 2011 and was welcomed as a great breakthrough for the market. “However, limitations are still imposed by the overcompensation system and the actual method of calculating the number of green certificates granted to each investor, in accordance with the legal criteria based on the IRR factor,” said Marinescu.

Secondary legislation and further ‘adjustments’ Since the government emergency

Legal specifications “In 2011, the most important achievement in terms of legislation on E-RES is that the Romanian E-RES promotion system became applicable. Law No. 220/2008,

Romanian Renewable Energy Overview 2012

Legislation

an ambitious and far-reaching normative package on climate change and energy which, amongst other measures, commits the EU-27 countries to increase their share of renewable energy to 20 percent of Europe’s total energy production by 2020, the investors started the big investments for the production of electricity from renewable energy sources. “Romania intended to comply with the guidelines given by the EU and implemented Law no. 220/2008. But although this law was enacted, it could not be applied fully, as the green certificates granted for the production of energy from certain renewable sources were considered state aid, which made Law no. 220/2008 subject to approval by the European Commission (EC),” added Marinescu.

ordinance (GEO) was published in the Official Gazette, the main legal framework for the issuance of green certificates has been fully in force. Furthermore, most of the framework for the full application of Law 220/2008 has been approved by the Romanian Electricity and Heat Regulatory Authority (ANRE). “In March this year, the ANRE issued a very important order which helps to clarify the overcompensation situation. As the differentiation for the issuance of the green certificates was approved, depending on the sources, other sources have now also become a major point of interest for investors. The investors we’ve assisted have shown great interest in hydro power plants, photovoltaic plants, as well as biomass cogeneration plants. Their interest is motivated by the compensation with three green certificates for hydro, and six per 1 MW of solar,” said Marinescu. She added: “Another argument in favor of investing in producing energy from hydro and solar sources in Romania is the low maintenance fees and the possibility of lower authorization costs, if the location is chosen correctly.” Shortly after the entry into force of the main legislation on the E-RES promotion system, the ANRE issued most of the secondary legislation for the implementation of the provisions of Law No. 220/2008, namely: the regulation regarding the accreditation of E-RES producers for the application of the green certificates promotion system; the regulation regarding the issuance of green certificates; the regulation regarding the organization and functioning of the green certificates market; the methodology for determining the annual quotas for green certificates acquisition and the methodology regarding the monitoring of the green certificates ERES promotion system. In addition, the Romanian government issued Decision No. 1232/2011 for the approval of the regulation on the issuance and followup of the origin guarantees for E-RES. This secondary legislation implements the provisions of Law No. 220/2008.

“The technical connection notices (ATRs) involve network reinforcement costs of millions and even tens of millions of euro, especially for the Dobrogea area”

Legislation

Anca Velicu, Schoenherr & Asociatii

as amended in 2011, regulates an ERES promotion system combining the mandatory quota system with the trading of green certificates,” said Delia Pachiu, partner, head of energy practice at White & Case Bucharest. According to her, the promotion system will apply for a period of 15 years for the electricity produced in new power plants, and will apply to producers of ERES, including the electricity produced during the testing period, based on the accreditation decision of the ANRE, if the operation is started by the end of 2016. “For E-RES producers that benefited from green certificates prior to the application of the promotion system provided under Law No. 220/2008, as amended in 2011, the application period of the promotion system will be reduced accordingly by the periods for which they have had the certificates,” said Pachiu. Producers of wind energy, solar energy, hydraulic energy used in plants with an installed capacity of up to 10 MW, geo-thermal energy, biomass, bio liquids, biogas, landfill gas and sludge digester gas from wastewater treatment plants, on the basis of an accreditation decision by the ANRE and starting in the calendar month when the accreditation decision is issued, will benefit from green certificates for the electricity produced and delivered. For example, for each MW produced and delivered to the electricity grid, wind energy producers will receive two green certificates until 2017 and one green certificate as of 2018, while solar energy producers will receive six green certificates. Correspondingly, electricity suppliers are obliged to purchase a certain number of green certificates depending on the electricity that they supply annually to the consumers. For each year until 2020, the mandatory quotas for E-RES the suppliers

have to comply with are established by Law No. 220/2008 as follows: for 2012 – 12 percent; for 2013 – 14 percent; for 2014 – 15 percent; for 2015 – 16 percent; for 2016 – 17 percent; for 2017 – 18 percent; for 2018 – 19 percent; for 2019 – 19.5 percent; and for 2020 – 20 percent. “If the suppliers do not reach the annual mandatory quota, they will pay to the Environmental Fund Administration a penalty for each green certificate they were unable to buy. Currently, according to ANRE Order No. 4/2012 updating the thresholds for trading green certificates

What’s still unclear_ ___ Among other aspects which have always concerned market players and have not been clarified can be included: • The question whether there will be any state aid scheme applicable after 2016, the date until the green certificates promoting system provided by Law 220/2008 was authorized as a state aid scheme; • The scenario where the supply of green certificates on the market exceeds the demand. Law 220/2008 does not propose any solutions in this respect in favor of the renewable generators; however, there have been voices claiming that there should be regulated mechanisms by which excess green certificates should be acquired by a certain entity, in order to ensure full support to the renewable energy generators; • The manner in which the number of green certificates will be reduced in the event of additional state aid, since only the situation in which a project already benefits from other state aid scheme when it applies for green certificates is currently stipulated. _____________________________ Source: Nndkp

and the equivalent value of unpurchased green certificates, applicable for 2012, the penalty to be paid by suppliers in the event of failure to comply with the annual mandatory quota for 2012 is about RON 500, or EUR 115,” said Pachiu. She added, “Under Law No. 220/2008, as amended in 2011, and the regulation regarding the issuance of green certificates, green certificates have a maximum validity of 16 months as of the issuance date, after which they are cancelled if not used by the suppliers to prove the fulfillment of the annual mandatory quota, and are, therefore, considered consumed.”

Overcompensation In general, green certificates are issued on a monthly basis by grid operator Transelectrica and are traded on a parallel market, different from the electricity one, comprising a green certificates centralized market and a green certificates bilateral contracts market. “In order to reflect the requirements of the European Commission expressed during the negotiations for the authorization of the E-RES promotion system, the main amendments of Law No. 220/2008 are intended to avoid the overall overcompensation of one or more technologies,” said Pachiu. In this respect, the ANRE monitors the producers, beneficiaries of the promotion system, and prepares annual reports that are available to the public on its website. If, based on such reports, it results that the specific parameters for each technology are different from the ones taken into consideration for the calculation made upon the authorization of the promotion system, which may lead to overcompensation, the ANRE proposes measures for reducing the number of green certificates currently provided by Law No. 220/2008. Overcompensation is a situation where, taking into consideration the specific medium technical and economic indicators annually realized for each technology, from the cost-benefit analysis made for the set of production capacities using the same technology, the internal rate of return (IRR) is 10 percent higher than the value taken into consideration for the technology in question upon the authorization of the promotion

Romanian Renewable Energy Overview 2012

Legislation

system. Cost-benefit analysis means the economic analysis to determine the profitability of investments made in the production of electricity from renewable sources, carried out by using the updating technique applied to the investment costs, the exploitation costs and the revenues resulting from the operating life of the projects, whilst the IRR is the indicator resulting from a cost-benefit analysis expressing the profitability of an investment project, namely the updating rate for which the updated revenues are equal to the updated expenses. The methodology regarding the monitoring of the green certificates E-RES promotion system provides additional details on the overcompensation issue and states that, if, based on the performed analysis, it results that the system leads to overcompensation for one or more categories of technology, the ANRE re-evaluates the number of green certificates granted to each category of technology for producing energy from renewable sources, in order for the IRR for each category of technology, at aggregate level, to be equal to the IRR reference value for the relevant technology. The IRR reference values are defined as the values of the IRRs taken into consideration for each technology, upon the authorization of

“How the the internal rate of return (IRR) will be calculated is not yet known, and as such the investors who develop large projects are waiting to see how things evolve” Delia Vasiliu, Pachiu Associates

the promotion system, comprised in the Authorization Decision issued by the European Commission C (2011) 4.938 dated 13 July 2011. For example, the IRRs are 10.9 percent for new wind power plants and 11.6 percent for solar. However, Vasiliu, of Pachiu Associates, said that an aspect that seems problematic is the fact that there are no clear criteria indicating if a project is overcompensated or not. “How the IRR will be calculated is not yet known, and as such the investors who develop large projects are waiting to see how things evolve,” she said. Anca Velicu, lawyer at Schoenherr & Asociatii added, “There are practically two years in which GC diminishing due to overcompensation will not apply.” Additional secondary legislation has been enacted of late on the matter of

overcompensation through the issuance by the ANRE of the methodology for monitoring the green certificates support scheme. “One cannot say that all of the provisions of this methodology have brought clarifications to the market; quite the contrary, some of them have raised serious informal debates among the energy players and tempered the increasing interest showed by both existing players potentially and new entrants on the market,” said Monica Iancu, partner at PeliFilip. The results of the overcompensation analysis are included in an annual report to be published on the ANRE website each December, during the application of the promotion system. Furthermore, if necessary, the ANRE prepares a draft Government Decision for the approval of

Legal clarification for renewable energy investments___________________

Among the legal aspects clarified, completed or simply changed by GEO 88/2011 and the secondary legislation adopted for the application of Law 220/2008 are: • additional green certificates are granted for generation of electricity in high-efficiency cogeneration units as well as for generation of electricity from biomass produced from energetic cultures; • specification of conditions required to be met and the procedure to be followed in order to qualify for the green certificates support scheme; the generators of electricity from renewable sources have to be pre-accredited in accordance with a procedure detailed by the secondary legislation in order to be able to receive green certificates; • the period for which green certifi-

cates are granted is set for each type of energy source used for the generation of energy, with the limitation that each project must be commissioned by 2016; for the renewable energy producers who benefitted from green certificates prior to the application of the green certificates support system provided by Law 220/2008, the duration of the application period above will be diminished accordingly by the periods during which they had had green certificates; • the conflict between the green certificates support scheme and other state aid measures is clarified by granting the ANRE the right to set for projects benefiting from other state aid measures a reduced number of green certificates by reducing the reference value of the investment per MW with the value of the aid already received per MW and

maintaining the internal rentability rates taken into account in the notification of the green certificates scheme to the European Commission; • regulation of overcompensation for a certain renewable energy generation technology and the mechanism to be applied in order to reduce the number of green certificates in such situations; • projects with an installed capacity in excess of 125 MW do not benefit from the state aid scheme regulated by Law 220/2008 and must be notified individually for detailed assessment by the European Commission, with the observance of the provisions of item 160, letter b, sub-point iii) of the Community Guidelines relating to state aid for environmental protection, published in the Official Journal of the European Union no. C82 from 1 April 2008.

______________________________________________________________________________________________________________________Source: NNDKP

Romanian Renewable Energy Overview 2012

The trial period issue One aspect that should be not clarified but amended, in specialists’ opinion, is the qualification as a trial period of the entire period from the commissioning of the first generator group (for instance, the first turbine in a wind farm

consisting of several turbines) to the final completion of the generation facility that incorporates the said generator group, which means that, during the trial period, the relevant producer will receive a single green certificate per MW (instead of two green certificates per MW for wind, six for solar, etc.). In order to illustrate this problem, in the case of a wind farm of 50 turbines, this would mean that although, for example, the first 10 turbines are ready (they have been successfully tested for technical compliance and are perfectly operational, transmitting energy into the grid without any problems), the producer cannot receive two green certificates per MW for the energy generated by these 10 turbines, but a single green certificate, and will have to wait until the completion of the entire farm in order to obtain two certificates.

Challenges for 125 MW plants Another issue is the case of generation facilities of over 125 MW that were in an advanced stage of development, but were not operational yet upon the entry into force of Emergency Ordinance 88/2011. According to the current regulations, such generation facilities can only be accredited for the application of the promoting system after the individual authorization decision has been obtained from the European Commission, a procedure that can take longer than a year, which negatively affects the business plans of investors that have such generation facilities. “A solution to this problem – by the provisional accreditation of such facilities, followed by the adjustment, after the decision has been issued by the European Commission, of the green

“Investors would like to see the surplus of green certificates taken over by a national operator at a certain determined price/which can be determined, as was the case in Italy”

Legislation

the reduced number of green certificates, applicable to E-RES capacities that begin production of electricity after January 1 of the year following the issuance of the relevant decision, and valid during the application of the promotion system according to the law. This draft decision is transmitted for approval to the government, as provided by the law. According to the methodology regarding the monitoring of the green certificates for the E-RES promotion system, the first analysis on overcompensation will be made in the first semester of 2012 and have an effect on the capacities that begin production after 1 January 2013. In addition to the above mentioned mechanism, in line with the requirements of the European Commission and of the Romanian Ministry of Economy, Trade and the Business Environment and of the Ministry of Environment and Forests, Law No. 220/2008, as amended in 2011, provides that E-RES producers who have benefited from other forms of state aid will receive fewer green certificates. The reduction shall be made by decreasing the return reference value per MW by the value of the state aid received per MW and keeping the value of the internal return rates taking into account in the calculations submitted to the European Commission during the promotion system authorization process. Furthermore, it is not yet entirely clear whether there will be a “grace period” until the moment when the number of green certificates can be reduced for certain technologies due to cases of overcompensation. “We note that the first drafts of GEO 88/2011 provided for such a ‘grace period’ but it was dropped in the approved form of the GEO and currently the draft law for the approval of GEO 88/2011 seems to revert to the initial approach by providing such a period until the year 2014,” said Gabriela Cacerea, partner at NNDKP.

Claudiu Munteanu-Jipescu, Salans

“We believe that an exclusively technical concept (the trial period, which should have covered only the technical testing of the equipment for a relatively short period of time) has been transformed into a commercial concept with a significant impact on the promoting system,” said Irina Moinescu, partner at Tuca Zbarcea & Asociatii. Moreover, Laura Neacsu, senior associate energy specialist at Noerr, commented, “Regarding overcompensation, a subject on the ANRE’s agenda, the most impacted by the decision to reduce the number of green certificates will be investors in photovoltaic projects, as they will be the unlucky winners of fewer certificates. In my opinion, most investors would welcome a buffer period and, most of all, they would appreciate knowing in advance about the regulations and future likely plans for their sector.”

certificates granted to such generation facilities if the decision provides that the relevant generation facility is entitled to a lower number of green certificates per MW than currently provided by the law – is expected from the law currently being discussed in Parliament, which will approve Emergency Ordinance 88/2011,” said Moinescu. Furthermore, the Pachiu Associates official believes that the issue of projects over 125 MW which need authorization from the EC needs clarification. “The legislation is very unclear in this sense as the term power plant was translated from some European Directive with no correspondent in juridical literature and therefore there are some gaps in this matter. Even the ANRE does not have a unified opinion on this issue,” said Vasiliu. “And the notification procedure itself is not clear. The ANRE said the notification is made individually by each investor who

Romanian Renewable Energy Overview 2012

has such a development project via the Competition Council.” According to Glodeanu, investors are asking what a 125 MW power plant means: several projects totaling 125 MW or projects with 125 MW at the connection point. Specialist estimate that this boom will last up to four years at the most, after which additional greenfield projects are not expected on this segment, unless the technology prices have fallen considerably.

Legislation

Changes expected in number of green certificates

According to Pachiu, although the main concern of the regulatory authorities in relation to the legal amendments from 2011 was the overcompensation of the system, the aspects that remain unclear are still related to this issue. “First of all, as concerns the date of the first analysis on overcompensation, as mentioned above, the methodology regarding the monitoring of the green certificates E-RES promotion system provides that the first analysis on overcompensation shall be made in the first semester of 2012 and shall have an effect on the capacities that begin production after 1 January 2013,” said Pachiu. However, the draft Law for the approval of Government Emergency Ordinance No. 88/2011 for the amendment of Law No. 220/2008 on establishing a system for the promotion of electricity produced from renewable energy sources, as approved by the Romanian Senate in December 2011, provides that, in the event of overcompensation, the ANRE shall propose measures in order to reduce the number of green certificates, measures which “are approved based on a Government Decision and apply for E-RES producers that begin producing electricity after the entry into force of the decision, but not earlier than 1 January 2014”. The law, as approved by the Senate in December 2011, is not yet applicable; it will be analyzed and debated in the Deputies Chamber. The initial estimation was that the law would be applicable as of April 2012, but, unfortunately, it is still on the table of the Deputies Chamber, with no development since February 2012, when

it received approval from the Commission for Public Administration, Land Use and Ecological Equilibrium. “If the aforementioned Law as approved by the Senate is also approved by the Deputies Chamber, normally, we would expect that an eventual amendment of the promotion system, currently applicable, would not take place before 1 January 2014,” said Pachiu.

The GC excess In the White & Case official’s opinion, another issue which has not yet been solved is the issue of a possible excess of green certificates on the market. Although the authorities believe that it is too soon to discuss this issue, it represents an important aspect for potential investors. The current regulations do not take this aspect into account. Furthermore, the methodology regarding the monitoring of the green certificates E-RES promotion

estate & infrastructure practice at Wolf Theiss. “Unfortunately there is no answer to this question, and what’s more there is no support to implement a system to cover the excess of GC. We will see something of a rebound from some clients. For instance, we have had quite a few discussions with some Chinese investors for which this surplus was of prime concern and they said that for now the investments on the local market are on stand-by,” added Glodeanu. In his opinion, a guarantee would have been for the authorities to agree to buy the surplus of GC, an opinion shared by other lawyers. “Investors would like to see the surplus of green certificates taken over by a national operator at a certain determined price/which can be determined, as was the case in Italy. Obviously such a remedy always depends on the macroeconomic variations in a country,” said Claudiu

“Securing the land necessary to build, own and operate the capacity is not always clear due to the restitution laws enacted after the fall of the communist regime” Monica Iancu, PeliFilip

system specifies, “In the years when the quota of E-RES exceeds the mandatory quota provided by law, it is considered that the supplementary green certificates will not be sold, and for those years the average price of green certificates used in calculations shall be considered as a weighted average between the legal minimum price of green certificates, for green certificates likely to be sold, and the price of green certificates in excess that remained unsold, which is zero.” Although the producers’ associations have recommended various alternatives in order to solve this issue, the current legislation leaves it unsolved. “For 9 out of 10 clients, the discussion starts with a question: what happens if in 2014-2015 there is a surplus of green certificates? Who will buy, as GC give a product profitability and bankability?” said Ciprian Glodeanu, head of the real

Munteanu-Jipescu, partner at Salans. Specialists say that such clarifications would remove uncertainties over the financial future of the project. “Now that the GC market has new regulations, investors want to know what will happen with the surplus, but also what will happen if suppliers are not able to pay and declare insolvency or bankruptcy,” said Anca Velicu, lawyer at Schoenherr & Asociatii.

Land and planning issues Developers of renewable energy projects often run into difficulties relating to land and planning. “Securing the land necessary to build, own and operate the capacity is not always clear due to the restitution laws enacted after the fall of the communist regime. Planning difficulties arise as the process for obtaining the substantial number of permits and

Romanian Renewable Energy Overview 2012

Legislation

approvals needed is frequently opaque,” said Iancu. Also, grid availability raises concerns, because it limits generation capacity and because reinforcement works are often necessary, which impacts on a project’s overall feasibility and profitability. The actual connection to the electricity transportation network comes with some impediments. “The technical connection notices (ATRs) involve network reinforcement costs of million and even tens of millions of euro, especially for the Dobrogea area. I recently saw a case where this demand was a deal-breaker,” said Velicu. Iancu added, “These issues can be barriers to project finance as banks are unprepared or unequipped to cope with such risks. The legislative framework can be improved to answer some of these difficulties.

also have to provide support to the renewable energy generators notifying the European Commission of the power plant projects with an installed capacity of more than 125MW. Some guidelines in this respect have already been published on the ANRE website; however further clarifications will most likely be required, and of course assistance from specialized advisors,” said Cacerea. Another important aspect which needs analysis, say lawyers, is the limited capacity of the national energy system which is expected to be exceeded in the near future considering the number of envisaged renewable energy projects. In this context, solutions are necessary fast, in order to prevent potential limitations of projects due to the insufficient capacity of the network. “Based on public information it

“We believe that an exclusively technical concept (the trial period) has been transformed into a commercial concept with a significant impact on the promoting system” Irina Moinescu, Tuca Zbarcea & Asociatii

Also, after commissioning takes place, further challenges may arise from the as yet inadequate legal framework for electricity balancing. As new renewable energy capacity reaches commissioning and presumably the market matures, such challenges will call for prompt decisions and actions by the authorities. The Commercial Code on Wholesale Energy Market which is outdated in parts could bring more clarity on these technicalities concerning the functioning of the energy markets.”

Further clarifications Although most of the secondary legislation pertaining to the application of Law 220/2008 has been adopted, the further adoption of the Law for the approval of GEO 88/2011 must be a priority, as it brings certain necessary clarifications for the application of the green certificates support scheme, argues Gabriela Cacerea, partner at NNDKP. “The authorities will

would appear that the authorities are considering promoting new mechanisms allowing energy generators to provide support for investments regarding the extension of the capacity of the networks and for the network operators to have more and varied solutions to perform the necessary investments in order to meet the increasing demands of the generators seeking access to the networks,” said Bianca Pop, associate at NNDKP. One priority appears to be the completion of the legislative process for the amendment of Law 220/2008. “A law for the approval and amendment of the Emergency Ordinance no. 88/2011 is currently on the Parliament agenda and the Chamber of Deputies, as decisional chamber, is expected to consider, to debate and potentially amend and approve the ordinance, through a law. The other aspects mentioned above which have not been yet regulated

should be on the authorities’ agenda this year,” said Iancu. Another aspect to be taken into account, say specialists, is what will happen in the future with the sale of electricity from renewable sources. “We hear that there are discussions to introduce a tax for renewable energy transactions. The question is how high will this tax be?” said Glodeanu.

What are investors looking for? Lawyers say that first of all, investors are looking for a solid promotion system, which would allow them to perform analysis and calculations in order to substantiate the investment decision in such a project, and also to obtain the necessary financing. “It is desirable that the aspects related to such analysis regarding the overcompensation are regulated in order to allow investors to perform analysis, calculations and forecasts as close as possible to reality,” said Pachiu. Furthermore, as regards the excess of green certificates, the investors talk about a “buyer of last resort” that will buy the unsold certificates on the green certificates market if an excess of green certificates occurs. Alternatively, it has been proposed that, as regards the excess of green certificates, the ANRE issues an order which compels the suppliers also to purchase these green certificates at the minimum price provided by law for the previous year. This proposal has not however been accepted by the Romanian Senate. According to the NNDKP partner, investors are interested in the clarity and stability of the green certificates support scheme and the related legislative framework allowing them to make accurate projections for their investment in renewable energy generations. As such, solutions fulfilling these important criteria are needed. “Another matter which requires immediate solution is the network capacities. While it is very likely that not all aspects will find clarity in the near future, it is important to see that solutions are sought and discussed openly between relevant authorities and market players,” said Cacerea.

Romanian Renewable Energy Overview 2012

The renewable energy market and the finance world

he actual tendency of the Romanian renewable energy market is quite clear: investments in renewable energy projects slow down due to the questions surrounding the green certificates support scheme currently applicable in Romania. The relevant questions are holding back investments of millions of Euros in renewable energy generation projects and the most affected may be the wind energy developers which have already invested significant amounts in the development stage. But there is also good news: the analysis of the industry for identifying potential situations of overcompensation, to be performed by the Energy Regulatory Authority, is not expected to start producing effects before January 2014 for the photovoltaic industry and before January 2015 for the wind energy industry. Nevertheless, it is a hard context and the investors are currently facing a real challenge and must prove a good ability to convince the banks and other financial institutions to agree and proceed with project financing, despite all risks and other challenges of the local renewable energy market. Having the European and the global economic crisis in the background, most probably there couldn’t be a better time to talk about how renewable energy is or could be financed, and how changes in financing are affecting the entirety of a market that has matured at a rapid pace. Therefore, project developers, analysts, bankers and regulators may be standing before a quite complicated “crossroads”. What has worked for the past few years in renewable energy development and finance worldwide might not be working anymore and any of the players on the renewable energy markets, including Romania, might prove to be at least one of the collateral affected parties and may be obliged to change some perspectives and adapt rapidly. In this context, the difference between a „triple A” renewable energy generation project and a project with

quite reduced chances in the perspective of a sell down, could be represented by two contracts only: the existence of a signed power purchase agreement („PPA”) - between the developer of the renewable energy generation project and an established utility - and a green certificates purchase agreement („GCA”) - signed between the developer of the renewable energy generation project and a supplier of energy to end consumers. The mere existence of these two contracts may „mark the divide between a premium-valuation of the renewable asset and a deeply discounted valuation in an overcrowded market”, as a market specialist recently noticed. Therefore, generally speaking, we might be in the position to conclude that only in case a project has a PPA and a GCA signed in place, will there be an attractive bid for it. At national level, we may notice that international investors, including European high net worth individuals with experience in the renewable energy generation, as well as Asian firms looking to expand globally, seem to be very interested in the Romanian renewable energy industry, but are still hesitant because of the uncertainty surrounding the legislative instability and the lack of a long-term, well grounded and realistic national energy strategy. Moreover, the impending national elections to take place in October - November this year

and the permanent political disputes, will add intensity to discussions about the risks to be assumed in the perspective of project development and project financing in the renewable energy sector and to the other questions surrounding the green certificates support scheme. Nevertheless, promising signs and a valid cause for optimism still remain. The combination between the more important environmental regulations at European level and the fact that renewable energy is the key of the future economic development will push the renewable energy technologies forward. Furthermore, despite all impediments mentioned above, this might prove to be the right context and the right time for the latest speculative investment bubble in renewable energy to stop, imposing a healthy dose of investment and fiscal discipline that was probably lacking during the latest “go-go” days of recent years. Though at international level, credit is generally far tighter, and costlier, than it’s been, a clearer, more definitive line is being drawn. The market tearing is taking place based on more stringent evaluations of the operational and financial risk, but we are in the position to assume that companies which have proven essential know how during development, which have demonstrated success in developing projects and are commercializing new technologies, perfectly adapted to the specificities of a market, such as Romania, are rising to the top and are more secure in their ability to raise short - and longterm capital. Delia Vasiliu Partner Head of Energy Practice Group Pachiu & Associates

market commentary:

Consultants size up the renewable scene With renewable energy projects being the hot spot for investments on the local market, specialized consultants make an inventory of the main obstacles these projects face on the local market and predict where this investment pool could lead.

Consultants

n all European countries there is a difference in “investment speed” between public network operators, compliant with strict regulatory regimes, and network users, which develop capacities requiring grid connection. Such capacities chase the opportunities created by the same legislative and regulatory framework or by the support schemes derived from political commitments assumed at EU level and transposed at member state level. Romania is no exception, and the grid connection of new generators using renewable energy sources is an eloquent example. “While wind power capacities proliferate, stimulated by the support scheme for electricity from renewables, the new network elements that are supposed to allow grid connection and generated power evacuation are subject to the ‘conventional’ regulatory regime, based on return on

existing assets tariff methodologies,” said Valeriu Binig, director of financial services, energy & resources, at Deloitte Romania. He believes that the ongoing investments do not bring new elements to the network service supply tariff. In Romania public transmission networks are in the public domain and their realization often requires expropriation or complex permitting processes that in fact last too long anywhere in the EU. “The lower ‘investment speed’ for network elements, strongly influenced by the relevant operators’ access to financing sources, generates an everincreasing delay as compared to the penetration rhythm of the new generators using renewable energy sources,” said Binig. Even at the EU and European Commission level this is well known, and innovative solutions are

“While wind farms proliferate, elements that are supposed to allow grid connection and generated power evacuation are subject to the ‘conventional’ regulatory regime” Valeriu Binig, Deloitte Romania

sought for what is generically called “financing investment in security of energy supply”. Investments in conventional energy are stagnating. In the absence of clear economic signals for players (especially energy price trends), investors do not place their own financial resources at risk and choose to orient themselves towards unconventional/renewable energies that benefit from support schemes, more or less predictable and attractive.

Interest picks up “There is a continual increase in the size of the wind projects being implemented in Romania, something

Romanian Renewable Energy Overview 2012

Consultants

reflected in the extremely high rate of growth in capacity in 2010, compared with the previous year, of 1,071 percent. Meanwhile the period January-May 2011 saw capacity increase by as much as 162 percent over the entire year 2010. As a consequence, Romania is one of the fastest growing countries in the EU in this respect,” said Cristina Petrescu, partner at TPA Horwath. The promotion system for electricity from renewable energy sources, based on mandatory quotas and green certificates, has become a system that favors strategic investors, say some. Evidence for this, says Binig, can include the obligation of generators with an installed capacity of over 1

MW to trade energy outside regulated contracts, eventually through bilateral contracts or on the centralized markets, which requires experience in electricity trading, trained staff, investment in the infrastructure for acting on such markets, possible vertical integrations, market share, etc. “There is also the exposure of operators to the risks of the balancing market, which again requires experience with the trading platform, ability to forecast the next day’s output, adequate financial resources, etc. In addition, the impossibility or great difficulty in providing ‘project finance’ leads to the need to ensure ‘corporate financing’, which usually involves

financing with a mother corporate guarantee or sometimes a loan from the mother company – usually ‘recourse finance’. Strategic investors having preferential relationships with equipment (mainly wind turbines) suppliers can be favored regarding delivery terms, as compared to ‘first time developers,” added Binig. He also believes that the intention of the regulator to limit the value of the IRR for different types of technologies sensibly below 15 percent discourages many financial investors and creates a “familiar” background for strategic investors. According to market specialists, the 16-month period from the beginning

Romanian Renewable Energy Overview 2012

Investment cost structure Investment cost category

Expenditure in k EUR/1 MW

Proportion of total expenditure (%)

Wind turbines

1,368

Roads and foundations

119

Design costs

Grid connection costs

322

Internal power system

Insurance and other costs

Total

1,621

100

Consultants

SOURCE: TPA Horwath

of last year can be split into two distinct periods in terms of investors’ appetite for renewable energy projects. “In the first phase, from early 2011 until the entry into force of Ordinance 88 in November last year, both investors and banks were cautious and selective in approving financing for renewable energy projects. This prudence was explained both through the non-functional legal framework and through the danger of the disintegration of the euro zone, particularly acute in the second half of last year due to the sovereign debt

crisis,” said Robert Ghelasi, director, energy, at Capital Partners. He added, “The second phase – from November last year to date – is characterized by an unprecedented effervescence of most players involved: investors, developers, consultancy firms and insurance players. Banks have also become interested but only in projects up to 10 MW. For larger projects they are still quite reluctant to provide funding through syndicated loans alone, where the lead arranger is an international financial institution like the EBRD, IFC or EIB.”

According to Ghelasi, Capital Partners has inked exclusive mandates to attract investors for nine renewable energy projects in 2011 and 2012, projects which have a total installed capacity of 395 MW. “These mandates are still running and we expect to close the deals by the end of this year considering that currently the legal framework is functional and attractive and the investors’ appetite is at high levels due to the good macroeconomic situation Romania is currently in, such as its low inflation and low level of debt as a percentage of GDP,” said Ghelasi. Market specialists predict that after the regulatory framework is clarified, the market will begin processing the implemented projects. “I believe that many developers will remain with unsold and unfinanced projects on the medium and long run as a result of the lack of appetite from the banks and because many projects are of poor quality despite the selectiveness of banks and investors. Also, against the background of the European trend the support scheme will

Length of procedure_ _____________________________________________ Currently, wind energy investors in Romania are required to obtain some 85 permits and authorizations in order to initiate and implement a project. This excessive bureaucracy, as well as the long response times of the local authorities, means it takes twothree years to pass from the initiation phase of a project to implementation. The typical stages of developing and implementing a wind energy investment in Romania are: 1. Identification of the wind farm location; 2. Performance of the geotechnical study; 3. Performance of the pre-feasibility study; 4. Obtaining the ownership right or superficies right/right of use/usufruct, etc; 5. Registration with the Romanian Land Register; 6. Execution of the expropriation procedure (where applicable); 7. Development and authorization of

the PUZ; 8. Performance of the feasibility study (recovery, return on investment, etc); 9. Performance of the study on the electrical solution (choice for the location of the grid connection; the investment either stays in the ownership of the investor or becomes public property); 10. Development of the wind park – drafting the building plans; 11. Obtaining the project permits and authorizations: Urban Planning Certificate (PUZ approved by the local council); building permit; environmental impact report required in order to obtain a decision from the municipality concerning the environmental considerations of the investment. This stage includes public consultations on the neighboring areas if they are protected areas (biosphere reserves, national parks, Natura 2000 protected areas, etc); certificate stating the turbines are not located in areas that overlap with bird

migration corridors; 12. Obtaining the civil aviation permit; 13. Setting-up authorization and operation license issued by the ANRE; 14. Permit from the national system operator; 15. Connection to the national system operator: study of the grid connections solutions; approval of location; technical connection permit; establishing the terms and signing the agreement with the company that distributes and supplies the electricity; 16. Acquisition of equipment: performance of construction works; assembly; 17. Concluding the contract for the energy produced and service agreement; 18. Grid connection; 19. Commissioning; 20. Obtaining guarantees of origin for the electric energy generated from renewable energy sources and obtaining green certificates.

_______________________________________________________________________________________________ Source: Wind Energy in Romania 2011 Report

Romanian Renewable Energy Overview 2012

Cristina Petrescu, TPA Horwath

undergo adjustments – there is already talk of a support scheme adjustment for photovoltaic projects – with direct implications on the realization of projects. But even with a reduced support area the field will remain attractive given that we are talking about a sector of strategic importance and that is acyclical,” said Ghelasi.

Many come, few are chosen Many more players than envisaged have found that the new scheme

suits them: while Romania’s political commitments could be satisfied with some 2,500 MW of installed power and Transelectrica has announced that with the present secondary and fast tertiary control capacities of the national power system it could host up to 3,000 MW in new uncontrollable production capacities, there are over 8,300 MW with signed grid connection contracts and over 8,200 MW with grid connection endorsements. The system that was conceived to limit the number of newcomers seems

therefore to have failed in its mission and a much larger number of MW are to be connected to the grid than the amount needed to meet Romania’s political commitments within the 20/20/20 EU package. As Transelectrica and the regulator have not been able to identify suitable administrative barriers that would temper the enthusiasm of private investors towards one of the most attractive support schemes in Europe, the solution was to transfer to banks/ financiers the burden of performing a “natural selection” of renewable energy projects, by granting (or not) the necessary financing. “This is how the established authorizations have emerged as the last filtering system, and these authorizations have been linked to the proof of full project funding. Therefore, mainly banks (due to the specifics of the projects and their funding schemes) are called to select the most attractive and viable renewable energy projects. They play Consultants

“There is a continual increase in the size of the wind projects being implemented in Romania, reflected in the extremely high rate of growth in capacity in 2010”

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Romanian Renewable Energy Overview 2012

“I believe that many developers will remain with unsold and unfinanced projects on the medium and long run as a result of the lack of appetite from the banks and their poor quality”

Consultants

Robert Ghelasi, Capital Partners

a sanitation role by allowing only ‘good’ projects to reach maturity,” said Binig. As Ghelasi explains, in the renewable energy sector projects are not feasible by themselves, only with an existing support scheme. “As long as the support scheme is discretionary, depending on government decisions through the voice of the energy regulatory authority, the main concern of all market players is the possibility of changing the legal framework in the sense of diminishing the support scheme in all forms: certificate number, value, number of years that the scheme lasts, etc. The second major concern is the limited capacity of the grid operator, of 3,000-4,000 MW, to link new projects to the system,” said Ghelasi.

Financing gauntlet Leasing financing institutions are showing an appetite to provide financing to wind power projects, as wind turbines are equipment that can be recovered and re-used in the

event of failure to service debt. Among small hydropower plants, where civil works are a more significant part of the CAPEX, the leasing system has not proliferated. There have also been shy attempts to discuss project finance, but banks link any release of money to predictability of revenue. “Several traders have shown appetite for purchasing electricity generated by uncontrolled production capacities, at a serious discount for the balancing risks. The ‘hot game’ now is green certificate trading. If the electricity wholesale buyers are also suppliers, they can combine electricity and green certificate packages at discount prices, to the satisfaction of both sellers and buyers. Although the lifetime of green certificates is relatively low (16 months), experienced traders are attempting to build portfolios of potential buyers and potential suppliers of green certificates for long-term relationships that would hedge the risk of the demand/supply ratio,” said Binig.

Although at present the emphasis is on financing renewable energy solutions, the serious need for renewal of the power generation park and mainly for environmental retrofit has led in Romania to financing solutions that were common prior to EU accession – sovereign guarantees for loans dedicated to funding flue gas desulphurization units is critical for the power system of lignite-fired power plants. Although it is not yet clear how the competition authorities at national and EU level would react, as such investment has already been recognized as acceptable for regional state aid schemes (operational programs) in the past, maybe this solution would work in niche cases. According to Ghelasi, credit generally has suffered from the sovereign debt crisis and financing renewable projects has not remained immune to the phenomenon. “The key word in Europe is now deleveraging. The main mechanism of reflection of the state of EU economies in the Romanian economy is the financial sector,” said Ghelasi. “ The Romanian currenc y ’s depreciation from under 4.20 last summer to about a current 4.36 with gross nominal interest rates of 5 percent and over the deposit in euros are evidence that the mechanism of reflection or transmission path of the financial and banking crisis is in full progress,” he added.

What projects are available on the market for investors? 52

RES/ No. of projects

Installed capacity

Location

Wind farms – 2 projects

135 MW

Romania

35 MW

Dobrogea

Photovoltaic – 4 projects

Equity/Debt

Equity

100 MW

Moldova

Equity

120 MW

Romania

Equity

6,4 MW

South Muntenia

Equity

100 MW

South Muntenia

Equity

8MW

Transylvania

Equity

5.5 MW

South Muntenia

Debt

Micro hydro plants – 2 projects

3.72 MW

Transylvania

Equity

Cogeneration of high efficiency – 1 project

136 MW

Muntenia

Equity

Waste management – 1 project

National company

Romania

Equity SOURCE: Capital Partners

Romanian Renewable Energy Overview 2012

GC scheme gets clarifications

Green certificates

market mechanics:

Despite overcompensation, especially for photovoltaic projects, the authorities prolongued the aplication time for the current scheme until 2014, the green certificate market (GCM) is seeing prices decrease from the maximum value. What are the implications?

he administration of the Centralized Green Certificate Market (CGCM) and that of the Registry of the Green Certificate Market (GCM) participants is done by the Romanian electricity market operator, OPCOM. The amendments introduced in the second half of last year to the legislation promoting energy production from renewable sources required new procedures to be developed by OPCOM on the operation of the green certificate market or existing ones updated. â&#x20AC;&#x153;There are aspects such as the number of GCs given for different

technologies, the validity of GCs issued by the grid operator which was limited to a period of 16 months, a range of PCGC changes, modifying the tendering interval on the centralized market of green certificates, introducing the possibility to run multiple sessions and resume trading within a month, which will have consequences for the centralized market liquidity, in terms of green certificates traded and number of participants,â&#x20AC;? said Victor Ionescu, CEO of OPCOM. According to him, on the topic of the possible impact of the new system

to promote electricity production from renewable energy sources in terms of market trading mechanisms, the fact that only E-RES producers and owners of power plants with installed capacities lower than 1 MW can still sell at regulated prices, justifies OPCOMâ&#x20AC;&#x2122;s expectations of increasing liquidity in markets where energy is traded competitively closer to the time of delivery. This means on the spot market and the intra-day market, the latter as the final adjustment mechanism on commercial criteria of the production portfolio with delivery obligations.

Romanian Renewable Energy Overview 2012

“As we are in talks with several investors, interested in getting financed and developing projects in Romania, there is an urgent need for a steady regulatory framework regarding green energy” Hinrich Fischer, Erste Group

Green certificates

GC price expectations As on any market, supply and demand set the pace. Any shift in either will change the market balance and affect the quantity of goods traded. If the price is too high, the amount that producers want to sell will exceed the amount consumers want to buy, producing a surplus of goods and exerting pressure on block prices. Similarly, too low a price will see buyers rushing to take up capacity. “Applying this theory to our case, we can say that when the number of GC certificates issued exceeds the number needed to fulfill the quota requirements, providers will offer a lower price than the maximum. When exactly we will see this situation depends on the installed capacity in the coming years. And we should not forget that GEO 88/2011 stipulates that the promotion system established by this law applies to

producers of electricity from renewable sources if commissioning or upgrading power plants until the end of 2016,” said Ionescu. And things are beginning to change. “In the latest trading sessions, green certificates are no longer being traded at their maximum price. This trend started in March this year, when a large supply of green certificates was issued. Hence, the price of a GC decreased from RON 248.3 to RON 247.5 then RON 246.3, at the latest trading session. Currently, 90 renewable energy producers have registered on the centralized trading market for green certificates,” said Gherghina Vladescu, head of the certificate trading office at OPCOM.

Picking the fruit Petrom saw its first results this year, registering its first income from the wind power plant the company has

Current state of the green certificate market_______

year for the Euro zone, communiNumber of GCs issued for 1 MW: cated officially by EUROSTAT established by OUG 88/2011 Collection of penalties: Price limits applied: • Administration of Environment • EUR 27-55 Fund • exchange rate used: average Use of penalties: from the December of the previous • financing the investments in E-RES year established by the Romanian production by those who realize National Bank • indexed with the average inflation installations with capacity of up to 100 KW of the Euro registered in the previDuration of support scheme ous year for the Euro zone, commuapplication: nicated officially by EUROSTAT • 15 years for new installations Penalty for non-compliance: • 10 years for hydro power plants • EUR 110 • exchange rate used: average from with installed capacity of up to 10 MW, refurbished the December of the previous year • 7 years for power plants used established by the Romanian National before in other states commissioning/ Bank refurbishment until the end of 2016 • indexed with the average inflation of the Euro registered in the previous ___________________________________________________________________________Source: ANRE

developed. In January alone the company received over 1.6 million green certificates. In October last year, Petrom entered the renewable energy sector after it opened a wind farm with a capacity of 45 MW at Dorobantu in Constanta County through an investment of EUR 90 mln. Another company whose revenues from green certificates trading increased significantly earlier this year is CEZ. In January the Czech group made more than EUR 350,000 a day, a sign that the effects of the support scheme offered by the Romanian state are being felt. Last year the company received some EUR 40 million from green certificates.

Sun starts to rise on renewable market Daniela Scripcariu, CEO at Tractebel Engineering, predicts that solar projects will be next in terms of development, as the developers and investors are hurrying to implement them, in order to benefit from the current support scheme of six certificates. “Solar projects are easier, both in terms of execution and project permits, than wind projects,” said Scripcariu. Issues surrounding the reduction of green certificates are being reconsidered, from the point of view of fair competition practices for conventional energy and renewable projects, especially for photovoltaic schemes. The Romanian Energy Regulatory Authority (ANRE) backs a four-green certificate support scheme for photovoltaic projects, especially as the investment per MW in this segment has decreased lately from a formerly estimated EUR 3.5 million per MW to at most EUR 1.5 million, specialists say. “Due to expensive technologies, renewable projects, including photovoltaic, involve high costs, and it is fair they be backed with a support scheme. Also, we should take into account the unfair competition on pricing, compared with conventionally-produced energy. At this moment, I believe that six certificates for 1 MW produced in photovoltaic centrals is rather exaggerated, and we suggest four. I must underline that, following the ANRE’s analysis of the over-compensation issue, there will not be fewer than four certificates for photovoltaic projects,” said Petru Lificiu,

Romanian Renewable Energy Overview 2012

GCs’ impact on funding Bankers consider the legislation change in terms of the number of green certificates for photovoltaic projects a source of uncertainty. “We certainly understand the ANRE’s fears that this source is seeing overcompensation, but we believe that changes to the compensation should be done with some concern for past projects with

“In the latest trading sessions, green certificates are no longer being traded at their maximum price. This trend started in March this year, when a large supply of green certificates was issued” Gherghina Vladescu, OPCOM

a certain degree of development. According to the authorities, the eventual change will affect projects that start next year, but what do you do with a project that is 99 percent developed but did not start in 2012?” said Mihnea Craciun, principal banker, power & energy utilities at the European Bank for Reconstruction and Development. In his opinion this reduction in the number of GCs makes a banker’s task even more difficult, an opinion shared by commercial bank officials. “As we are in talks with several

investors in renewable energy, especially wind energy, interested in getting financed and developing projects in Romania, we agree there is an urgent need for a steady regulatory framework regarding the local green energy segment. As there is no concrete data so far regarding the issuing of new regulations reducing the number of certificates, the impact on the decision to invest should be considered,” said Hinrich Fischer, executive director and head of energy & environment group infrastructure finance at Erste Group. Green certificates

former VP of the ANRE. Market specialists say that nowadays, the investment barely reaches EUR 1.5 million for solar technology, in some cases even less, EUR 1.3 million, in which case six certificates would result in unfair competition. Anyhow, the rethinking of the support scheme, even if the change comes in 2013 or 2014, will not affect the current investment in photovoltaic projects. At the time this guide was written, Romanian authorities decided to extent the aplication of the current support scheme for solar projects until 2014.

Romanian Renewable Energy Overview 2012

Solar

RAYS OF HOPE:

Following the sun After years in which wind farms have been the main attraction when it comes to investing in renewable energy projects, this year the market is seeing a boom for photovoltaic (PV) projects. The latest legislative change to prolong the aplication time for the current support scheme for solar projects until 2014 - namely six green certificates for 1 MW delivered in the system - is expected to boost investments in this field. For investors in PV projects the next snag is financing.

Romanian Renewable Energy Overview 2012

his year solar projects could be at the beginning of a new boom in renewable energy, on a market that in the past few years has seen wind energy attract investments of over EUR 1.5 billion, with Romania going from just 14 MW installed in more than 10 wind farms in 2009 to wind power plants which together reach more than 1,000 MW in total, more than a nuclear reactor from Cernavoda.

Solar

The current status

The number of green certificates for solar power will be reduced for some projects in the event of overcompensation, said Zoltan Nagy-Bege, general manager of the regulations department in the energy efficiency field at the ANRE, recently. “It remains to be decided how the reduction should be applied and if it will apply to projects that have already started production or whether it should target a certain development stage of a project. In my opinion, this reduction should not be applied to projects where production has already started or a supply contract has been signed, or for those projects that have already obtained the functioning authorization. Currently, there are some energy projects where the reduction scheme should be applied,” said Nagy-Bege. Petru Lificiu, former ANRE vicepresident, considers it obvious that, due to their expensive technologies, renewable projects, including photovoltaic, involve high costs, and argues it is fair they be backed with a support scheme. “Also, we should take into account the unfair competition on pricing, compared with conventionallyproduced energy. At the moment, I believe that six certificates for 1 MW produced in photovoltaic centrals is rather exaggerated, and we suggest four. I must underline that, following the ANRE’s analysis of the overcompensation issue, there will not be fewer than four certificates for photovoltaic projects,” said Lificiu. According to him, the investments

“We’ve observed increased activity on the RES-E market and a real commitment from investors in PV too. We expect over 200 MW to be installed in PV power production facilities this year alone” Ciprian Glodeanu,Romanian Photovoltaic Industry Association (RPIA)

per MW in photovoltaic centrals were formerly estimated at EUR 3.5 million, for which sum six certificates would have been the correct support scheme. Nowadays, the investment barely reaches EUR 1.5 million, in some cases even less, EUR 1.3 million, in which case six certificates would result in unfair competition. “Anyhow, the rethinking of the support scheme, even if the change comes in 2013 or 2014, will not affect the current investment in such projects,” added Lificiu. At the time the Romanian Renewable Guide was written the parliemntarians decided to prolong the current support scheme for photovoltaic projects - which stipulates that investors receive six green certificates for 1 MW delivered in the grid - until 2014.

What’s next in line? In April this year, at the launch event of the Romanian Photovoltaic Industry Association (RPIA), deputy Mugurel Surupaceanu said that the public authorities “have understood the message about the need for stability coming from the industry, and in this respect the changes that will be made to the approval Law of Order 88/2011 will include a stipulation that

the number of Green Certificates will not be reduced by 2014”. This period is essential for PV investors who were concerned by the potential reduction of the number of green certificates from 2013. The problem is that solar technology has become very much cheaper to build, falling from EUR 3.5 million per MW in 2010 to just EUR 2 million. Although the news should be good for investors, it has worrying implications because it will most likely lead to a rethinking of the support scheme after just a few months of implementation, a fact that is expected to have a significant impact on the financing of such projects. There are two schools of thought about overcompensation. The ANRE says that the number of green certificates will definitely be reduced next year. “Our intention is to cut the number of certificates from 2013. This is our proposal to the government and it will depend on whether it is approved,” said Nagy-Bege. But while lawmakers themselves admit that overcompensation is a problem, they suggest turning a blind eye in the name of the benefits that could be obtained in this field. “We are in a situation of

Top five most attractive counties in Romania for PV projects County

No. of projects

Capacity (MW)

Timis

32.1

Praova

42.8

Ialomita

33.2

Bistrita-Nasaud

13.7

Satu Mare

10.2

_______ SOURCE: Transelectrica (in May 2012; includes projects which had network connection contract to date)

Romanian Renewable Energy Overview 2012

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“We are now developing a 5 MW photovoltaic park project in Buzau County. We’re not developing this project with the intention of operating it; we want to sell it”

Solar

Corneliu Bodea, Adrem Invest

overcompensation as the investment can be recovered in four years instead of seven, but that does not mean we cannot close our eyes and give investors a chance to recover their money quickly. There will be income for the Romanian state, new jobs and new technologies,” said the Social Democrat Party (PSD) deputy Mugurel Surupaceanu, suggesting that the number of green certificates for solar could be reduced from 2014. Basically, investors in this area had only a few months of predictability from the regulatory framework. With the changes that may arise and the funding problems for the banks, they are being very careful about how they can recover their money.

RPIA seeks mix of technologies

Romania has always been concerned about climate change and was the first county specified in Annex 1 of the UNFCCC to approve the Kyoto Protocol by law. In accordance with the targets set by the first engagement period, Romania committed to reduce its greenhouse emissions by 8 percent over 2008-2012 in comparison to 1989. Following EU accession, says Ciprian Glodeanu, president of the Romanian Photovoltaic Industry A sso ciation (RPIA), Romania undertook to comply with the European legislation pertaining to climate change and, therefore,

established ambitious targets to reduce CO2 emissions, especially by promoting the development of clean technologies. Law 220/2008 regarding the green certificate support scheme is the most important tool by which Romania is taking steps towards the promotion of electricity production from renewable sources. In his opinion, since the law was enacted in October 2011, investors have shown interest in the support scheme and, as a consequence, “We have observed increased activity on the RES-E market. What we consider a sign of normality in the development of the RES-E market is the fact that, beside the investors in wind, we have noticed a real commitment from investors in photovoltaic too. We expect over 200 MW to be installed in photovoltaic power production facilities this year alone.” Glodeanu went on to urge, “Romania must develop a mix of technologies for RES-E production. The current state of the Romanian RESE market is far from optimum. This is mainly because before the enactment of Law 220/2008, all technologies qualifying for the green certificate support scheme were getting one certificate, irrespective of the technology. While some technologies, like wind, were satisfied with the level of the incentive and started to develop early, other technologies, like photovoltaic, could not develop because the level of the incentive

was not sufficient to sustain the high level of investments associated with the development of photovoltaic power production facilities. This fact led to a distortion of the E-RES market in Romania, principally because it favored the development of some technologies to the detriment of others.” The president added that despite the likely predicament caused by an early reduction in the number of green certificates, according to the recently adopted methodology for monitoring the RESE market and the green certificate market, such a reduction might be possible as of January 1, 2013, and that the investors seem to have enough experience to deal with rumors around the envisaged reduction level and legislative uncertainty. “Nevertheless, it is important to stress that uncertainty in the legal framework is the main cause for concern for all investors, especially for those who choose to invest on the long term as in the case of RESE power production facilities,” he added. As an association of the photovoltaic industry in Romania, the RPIA advocates for a mix of technologies in the RES-E market and for greater competition among these technologies. This will bring benefits for consumers and will significantly increase Romania’s overall energy stability, believes Glodeanu. “Such stability was put to the test last year when we were faced with low water levels and lack of wind, and technologies like hydro, nuclear and wind suffered a lot. Photovoltaic would have fit perfectly into the mix of RES technologies and this is because it has been proven over many years to be stable, reliable and efficient over its life cycle, which extends over twenty years,” said the president. In his opinion, to this end,

Evolution of solar projects in Romania Cumulated installed capacities

2010

2011

2012

2013

2014

2015

2016

2017

Solar (MW)

113

130

140

140 SOURCE: ANRE

Romanian Renewable Energy Overview 2012

Solar

Romania must keep its current support scheme with its existing green certificate allocations for at least two more years, in order to allow the development of a critical mass of MW installed for each technology that qualifies for the green certificate support scheme. “Only when such critical mass is established will we have a harmoniously developed RES-E market. Afterwards, a reduction in the subsidy for the overcompensated technologies will make sense,” said Glodeanu. On the same theme, Laura Neacsu, senior associate energy specialist at Noerr, said, “Regarding overcompensation, a subject on the ANRE’s agenda, the most impacted by the decision to reduce the number of green certificates will be investors in photovoltaic projects, as they will be the unlucky winners of fewer certificates. In my opinion, most investors would welcome a buffer period and, most of all, they would appreciate knowing in advance about the regulations and future likely plans for their sector.”

Ex footballer tackles wind energy

Former footballer Gica Popescu, 45, known in the business environment mainly for real estate development projects, said, “We are interested in this field. We own land in the best area in the country for solar in the southeast, and this summer we hope to make an investment decision. We are not interested in acquiring projects but to develop by ourselves.” Popescu joins a long line of investors lured by the promise of solar energy, which last year became the spoiled child of green in terms of

the support the Romanian state has undertaken to provide it. Similarly, Monsson Group officials said, “The company’s strategy is to have activities not only in wind but in solar and micro-hydro. To date, the company has several hydro projects, which are in early stages, and a small solar pilot project. Monsson Group has already installed 1 KW of solar power in a Dobrogea production facility that has been operating for over a year.” The group has the ability to develop projects from scratch so is interested in wind, solar and microhydro and can bring them to the “ready for construction” stage. “We believe that Romania has a great potential in the renewable energy sector and, even if access to finance is still difficult, investors are keen to start projects in the field,” said group officials.

Martifer Solar goes green with PV projects Martifer Solar recently announced that it was opening a new office in Romania. Pedro Pereira, the firm’s regional manager for the Mediterranean and managing director for Romania, commented, “With about 500 people working for Martifer Group-related companies in Romania, entering this market for us is like coming home. We know we can count on the support of highly skilled and experienced colleagues who will make our job much easier from the beginning.” Martifer Solar recently signed an EPC contract for the construction of a large-scale photovoltaic plant in Romania. Pereira added, “Based on our intense business development

Pros and cons of PV power production ___ Pros • favorable natural conditions in the country, especially in the northeast and south • green certificate scheme awards the highest number of certificates for PV (six certificates per MW) • clean form of energy production, reduction of CO2 emissions Cons • expensive technology • economically only viable in combination with support scheme • large usage of arable land • production fluctuations due to weather conditions ______________________ SOURCE: Hidroelectrica

activity in the Balkans, we are glad to be one of the first players entering the Romanian PV market with this deal.” At present, only 2 MW of photovoltaic installations are officially grid-connected in Romania.

PV projects for sale Others are already thinking of the sale. “We are now developing a 5 MW PV park project in Buzau County. We’re not developing this project with the intention of investing in it; we want to sell it,” said Corneliu Bodea, vicepresident of Adrem Invest. “We are in the design phase and have started getting the necessary notices. It is still laborious because 5 MW is about 10 hectares of land. These 10 hectares don’t belong to the same owner and we are currently in the process of merging properties.” According to him, the estimated price for one MW in a project which has to be developed is about EUR 80,000, for projects in an early development phase.

Top five PV projects due to be finished this year Investor

Location

County

Capacity (MW)

Studina Solar Bucuresti

Grojdibodu

Olt

9.9

Varokub

Berceni

Prahova

9.8

Varokub

Aricestii Rahtivani

Prahova

9.5

Vinju Mare Soalr

Vanju Mare

Mehedinti

9.34

Potelu Solar

Dabuleni

Dolj

7.5

_________________ SOURCE: Transelectrica (in May 2012; including projects which had a network connection contract to date and which are due to be finished this year)

Romanian Renewable Energy Overview 2012

For the online version of the Renewable Energy Overview 2012 visit

www.energyguide.ro

What makes the RES-E market in Romania so attractive?

Solar

he RES-E Romanian market is at its early stages of development. As a consequence, the potential for development is high. Taking into consideration the experience of other countries that put in place supporting schemes for renewable sources, we expect the sector to have a stable increase also in Romania. Apart from this, it worth mentioning that the green certificates (â&#x20AC;&#x153;GCâ&#x20AC;?) support scheme, which Romania has in place, is predictable and most of all brings yields that currently makes Romania one of the most attractive country in Europe in terms of investments in RES-E.

What do you think about the development of the RES-E market in the near future? The RES-E market in Romania has already proven to be a success story when given the right tools to develop. We have a good example in wind, where large institutional investors have already entered the market and in less that two years have managed to develop significant production capabilities. Given the fact that starting with October 2011 GCs are allocated differently for each RES technology, we are seeing an increased activity for the development of other technologies subject to the promotion scheme. To this effect, we observe that investors are actively looking at increasing the importance of PV in the mix of electricity produced from renewable sources. As a result, we expect that PV sector be the most dynamic sector, which will create benefits to the electricity market. What is the expected impact of the amendments brought to the EGO 88/2011? The draft of the law to approve the

EGO 88/2011 is generally viewed as an improvement of the current legal framework. The legislative makers seem to understand the need of the investors for stability and with the new provisions of the law are sending a clear message to the investors that Romania is a good destination for sustainable and long term investments in RES-E sector. Among the important changes to be enacted by the approving law it is worth mentioning (i) the suspension of GC reduction for solar PV until 2014 and for other technologies until 2015, (ii) the obligation imposed to the GC purchasers to meet their acquisition quota each quarter and (iii) simplified procedures for production facilities with installed power under 10MW. With the new amendments it is expected that financing will be unlocked since there would be a higher predictability of the sector. Are the RES-E targets realistic for Romania? Your question has undoubtedly only one answer, yes! Moreover, when analyzing the others western countries we see that such have gone even further by establishing ambitious targets. Romania can only follow its European path and, as consequence, we will advocate for a cleaner environment in Romania, where electricity must be produced in the near future more and more from renewable sources. Integration of clean technologies that use renewable sources for electricity producing must be a priority for any country. Romania should play its part in this puzzle by giving the chance to the investors to develop the renewable sector in a manner that is sustainable and environmental friendly.

Ciprian Glodeanu, President RPIA What is the role of RPIA in the development of RES-E market and how it can help the sector players? RPIA is founded by specialists in the renewable sector which are determined to put their knowledge to good use by providing relevant and correct information about the legal framework and about the economic environment in Romania. We try to become a reliable partner for investors looking at the RES-E Romanian market and relevant public authorities. RPIA always seeks to accommodate the specific investorâ&#x20AC;&#x2122;s needs when entering a new market. In addition to this, we are determined to create a business environment where companies with large expertise in the PV sector may come together and share their expertise and also develop business relations. We are confident that this kind of activities are valuable for the investors and therefore will give them confidence to enter the Romanian RES-E market with long term investments in the renewable sector.

For information about the PV market in Romania contact us:

Romanian Photovoltaic Industry Association Corporate Center (BCC), 58-60 Gheorghe Polizu Street Floor 13, Sector 1 RO - 011062 Bucharest www.rpia.ro

Romanian Renewable Energy Overview 2012

Biomass

Breaking down a biomass power plant investment planting a flag:

With production plants totaling 25.8 MW, the Romanian energy market still has a long way to go until biomass power plants match the momentum of wind farms, for instance. The Diplomat â&#x20AC;&#x201C; Bucharest talked to biomass power plant producers about the challenges they face on the local market and the long road to completing this type of investment.

Romanian Renewable Energy Overview 2012

fuel. Plants that are best suited to this purpose are willow, elephant grass, artichoke and poplar.

ntil now, wind power plants have stolen most of the thunder from power plants using other renewable sources such as solar, micro-hydro and especially biomass. According to the Romanian Energy Regulatory Authority (ANRE), at the end of March this year, four companies with projects totaling 28.5 MW in biomass projects had been licensed. The current Romanian support scheme for the production of energy from renewable sources stipulates that a biomass power plant will receive three certificates for each MW delivered to the grid. The main use of biomass will be heating (especially in rural areas), which will consume

80 percent of total production. The remaining 20 percent will be used for biofuel production (12 percent) and electricity (8 percent). All these estimates come from the Ministry of Economy and the NL Agency (from the Netherlands). While, currently, the main source of biomass for pellet production is timber waste, in the future energy crops are expected to play a greater role. This requires the cultivation of fast-growing perennial plants that are harvested every one or two years. The advantage of these cultures is that, besides the potential energy put into unused land, they avoid (or greatly reduce) the deforestation caused by the growing need for cheap

In May 2009, the Austrian company Holzindustrie Schweighofer opened in Radauti the largest local cogeneration power plant using biomass. The plant has a capacity of 22 MW of which 17 MW represents thermo energy and other MW electricity, with the initial investment reaching EUR 20 million. The heat produced is used to dry timber at the nearby Holzindustrie Schweighofer factory, but also to provide the heating for 7,000 apartments in Radauti, while the electricity is supplied to the national energy system. Meanwhile, the company has invested in two other units, one with half the capacity of the Radauti plant and the other which produces 8.5 MW of electricity. Gerald Schweighofer, owner of Holzindustrie Schweighofer, told The Diplomat – Bucharest that the company had invested EUR 70 million to date in these projects, 80 percent from its cash flow and 20 percent from loans. The company provides the raw material, the biomass, from its own sawmills in the form of bark or waste wood. In addition, it purchases biomass from forests and the woodworking industry. “We process approximately 50,000 tons per month in Sebes and Radauti,” said Schweighofer. According to him, the main challenges since the plant became operational are the inconsistent and confusing legislation and “too much bureaucracy.” “Regarding the latest legal development s involving the renewable support scheme, I believe that the legislation on what will happen to the surplus certificates or the purchase of surplus certificates at minimum price remains unclear,” said Schweighofer. His advice for anyone interested in investing in a biomass plant is “to establish a hot-water circle and the

Romanian Renewable Energy Overview 2012

Biomass

The pioneers

Estimated costs for biomass power plants to meet the 2020 scenario New power plants

Energy production 2020

Number

Unit capacity (MW)

Total costs (EUR million)

Systems based on solid biomass

478,000 tep

approx. 130

8…12 MW

500…550

Cogeneration from solid biomass

322,000 tep

approx. 100

1…5 MW

1,000…1,200

Cogeneration from biogas

253,000 tep

150…180

0.7…1.3 MW

800…850

Cogeneration from municipal waste

43,000 tep

6…7

8…15

200…250

Biomass

SOURCE: ANRE (March 31, 2012)

100 percent consumption of the hot water for maximum efficiency and to ensure the availability of biomass at reasonable prices.” Meanwhile, a brand-new biomass plant was inaugurated on the local market at Lunca Ilvei, towards the end of March this year, funded by the European Union. The plant, which is located at the Silvania International lumberyard factory in Bistrita, is equipped with state-of-the-art technology that does not pollute and that will produce both heat and electricity. “The plant produces heat and is linked to some consumers. We basically dry all the lumber. About EUR 2 million has been invested. The plant produces cheap thermo energy that we use in the business circuit. We have a partnership with the city in which the headquarters is based, and the surplus that we have we use to heat institutions here, some blocks, a nursery school and a gym,” said Emil Iugan, the timber plant administrator. Elsewhere, businessman Stefan Vuza built a power plant with an installed capacity of 9 MW at the Pulp and Paper Plant in Dej, following a

EUR 16 million investment. Biofuel use is represented by wood chips (sawdust and bark) which cannot be used in the manufacture of paper. “The investment will pay off quickly because part of the steam is used in the production cycle of the plant and does not have biomass transport costs,” said Vuza. Given these conditions, he estimates a profit of nearly EUR 2 million per year.

Upcoming projects The most prominent Romanian farmer, Culita Tarata, announced in March this year his intention to invest in a EUR 100 million biomass power plant in Big Island of Braila, where the businessman has leased some 56,000 hectares. According to him, the plant will operate with straw and energetic plants and it is estimated to be completed in the next two years. The 38 MW plant will be realized in conjunction with an Italian-American group. “We are about to strike a deal. The annual consumption of straw would amount to 175,000 tons,” said Tarata in March. According to him, the sum required for investment

“Several complications can sometimes appear, not only linked with the efforts to provide raw materials, but also regarding the biomass transportation and quality” Corneliu Bodea, Adrem Invest

will be provided by foreign investors and banks, while his contribution will be the land necessary for the construction and to provide raw material for the plant’s operation. Also, in December last year, it was announced that a bioreactor fed with biomass, which simultaneously produces electricity and gas, will be built in the city of Avrig. The plans were developed by the National Research and Development for Electrical Engineering (ICPE) in Bucharest, together with the City of Avrig. The innovative aspect of this project is the joint use of several techniques for generating energy from different sources at a single facility. The bioreactor could consume several types of biomass – waste from food and catering, and energy plants. One advantage of this power supply is that biomass energy is always available, and is not influenced by day-night temperature variations. After fermentation in the bioreactor, the product is rich in basic nutrients and can serve as manure in agriculture. Anaerobic fermentation of biomass will provide the methane gas. A central air vent, a wind turbine and a photovoltaic generator will be integrated into the bioreactor system, designed to produce electricity, and there will be a piece of thermo-solar equipment that will produce heat. ICPE data suggests that the optimum solution in terms of construction costs is a bioreactor with an interior diameter of 150 m and a volume of approximately 1.8 million cubic meters. Its biomass needs will be 15 million cubic meters annually.

Romanian Renewable Energy Overview 2012

In this version, the installation would produce 1.875 billion Nm3 of biogas with a methane content of 1.125 billion Nm3. As a secondary product, 5 million cubic meters of fertilizer will be obtained per year. The amount of electricity generated is estimated at 3,378 billion kWh, while the thermal energy would reach 2,955 billion kWh. Wind power integrated into the system would, in turn, generate 14.6 million kWhel.

In 2011, Adrem Invest created a green energy division, which has already started a project to build a biomass cogeneration plant in Suceava, which will be completed in two phases over a period of two years and is intended to provide the necessary heat for the residents of the town. “With the Suceava project we combine two major objectives. One is to make an investment in electricity production from renewable sources and the other is to solve a serious local problem, namely the heat supply for the population. So, the project in Suceava is more than a simple investment in renewable energy because besides producing electricity from biomass – a renewable resource – at the same time it will produce the thermal energy required for heating the city. I think it is a project of major importance for the city,” Corneliu Bodea, vice-president of Adrem Invest, told The Diplomat – Bucharest. He said that the company had chosen Suceava because there is plenty of biomass there. The Suceava biomass power plant will serve approximately 25,000

Gerald Schweighofer, Holzindustrie Schweighofer

apartments, 155 houses and 530 operators in an area with a population of about 60,000 inhabitants. In terms of production capacity, the heat that will be provided is about 320,000 Gcal per year and electricity produced and delivered to the system will reach some 152,000 MWh per year. The changes to the regulatory framework on electricity production from renewable energy sources create great potential here, considering the support scheme, according to the Adrem Invest official. “The opportunity arose after the City Council, along with Suceava Hall, launched a tender for the construction of a cogeneration plant, in which the authorities came with the land and access to utilities. We attended the auction, won and started to design the feasibility study for the power plant,” remembered Bodea. One of the difficulties of the EUR 45 million project, said the VP, was the decision of which technology to use. “We’ve passed through several stages of selection and optimization of the technical solution because here there are several technologies depending on the type of wood you use. We’ve considered several solutions, very

Romanian biomass power plants Company

Accredited power plant

RES

Holzindustrie Schweighofer

Sebes II

biomass

Sebes I

biomass

Bio Electrica Transilvania

Gerfor-Radauti cogeneration plant

biomass

General Energetic

Thermoelectric plant with biomass fuel

biomass

Iridex Import Export

Chiajna cogeneration plant

landfill gas

SOURCE: ANRE (March 31, 2012)

different, and in principle the thing that separates them is the relationship between system efficiency and cost. So if you want more efficient equipment, its cost is higher,” said Bodea. He added: “There must be compromises here as we have a partner, a bank from which we have a letter of intent, and we have signed a memorandum to finance 80 percent of this investment, but the bank’s financing capacity is not unlimited, especially during this period. We opted for a solution that costs approximately EUR 45 million. It consists of a standard solution, it is a furnace that burns biomass and then is coupled with a steam turbine to produce electricity.” According to him, the first equipment deliveries could come during autumn or winter. The company has the obligation to Suceava City Council to be ready with the heat deliveries in spring next year. The contract with the Suceava authorities runs for 30 years with the possibility to prolong it by another 19 years. Another important aspect to be considered when deciding to invest in a biomass project is the raw material supply. “We have signed some precontracts with several potential suppliers, from forests, the Diocese of Suceava and Radauti and other smaller producers. Complications can appear, not only linked with the efforts to provide raw materials, but also regarding the biomass transportation and quality. Depending on the technology used, we must ensure that the biomass moisture is at certain parameters, which means that the storage and processing prior

Romanian Renewable Energy Overview 2012

Biomass

The Adrem Invest saga

“Regarding the renewable support scheme, I believe that the legislation on what will happen to the surplus certificates or the purchase of surplus certificates at minimum price remains unclear”

Biomass

to the actual combustion of wood is a problem. The plant’s deposits will therefore be very complicated,” said Bodea. According to the Adrem Invest vice-president, one of the advantages of the project in Suceava is the fact that with the concession contract, Termica Suceava will also put at Adrem Invest’s disposal access to the electric station, which the company will have to modernize and develop, to be able to take the electricity which will be delivered to the 110 kV station, controlled by the energy distributor in the area, namely E.ON. “We have to be careful as there are various conditions to be met in order to receive the green certificates, and we rely a lot on the support scheme. Also the financial analysis takes into account the scenario in which the electricity is sold on the market. We believe that in the first two-three years of the support scheme availability, the certificate prices will be at the maximum, and towards the end of the period they will drop. Currently, the value of a green certificate reaches a maximum of EUR 50 and a minimum of EUR 27. The investment is estimated to be recovered in minimum nine years,” said Bodea. The Adrem Invest vice-president added that up until now the company has invested about EUR 1 million in forecasts and the expenses of the team that manages the project. The company estimates that about 100 people will work at the plant, in the entire business chain.

Cost structure of a biomass power plant* Technology costs

EUR 40 million

Projection

EUR 1 million

Electricity station modernization works

up to EUR 1 million

Works to connect to water distribution

Deposits

*Costs structure for the Adrem Invest investment in the Suceava biomass power plant SOURCE: Adrem Invest

the number of MWs of electricity provided by local biomass power plants at March 31, 2012 Future plans MPs have announced their intention to increase the minimum value of a green certificate for energy produc tion from biomass or biogas. “To sustain energy production from biomass and biogas, we are thinking of raising the minimum value of a green certificate for these renewable sources. Currently, the minimum is EUR 27 for a green certificate, but we expect to increase this value to EUR 45,” said Iulian Iancu, president of the Industries Commission in the Chamber of Deputies. “On the other hand, the maximum number of certificates that can be allocated will decline to 2.5 from currently 3 green certificates,” said Iancu. He said that the number of certificates will be different depending on the plant’s capacity and type of fuel used. “The maximum number of certificates will be given for 1.5 MW plants, optimal for this type of energy, and energy plants that were already used in agri-food,” added Iancu. The official said that at the current minimum price, the value of certificates and electricity obtained cannot cover the production of biomass and biogas, resulting in banks not providing funding for such projects. “We must promote this type of renewable source. Germany, for example, currently has about 6,000 installed MW in these power plants, while the surface cultivated in order to obtain energy plants reaches 860,000 ha. It is estimated that in 2020, Germany will cultivate some 2.8 million hectares for energy plants, from which about 10 billion cubic meters of gas could be obtained, the current production of Romgaz and Petrom put together. Romania currently has about 3 million hectares,

which have not been cultivated for 20 years. There is a huge potential,” said Iancu. He added that biogas, following a minimum investment, may be introduced in the gas distribution network to produce electricity and heat. “Biogas plants can also be used for balancing the electricity system. Wind and solar power plants introduce imbalances in the system – due to the non-existence in supply of the renewable source – imbalances that can be offset by biogas plants. In addition, biogas can be used in transport. Some analysis has indicated that a car can travel 70,000 km on the yield from one hectare,” said Iancu. The cost of setting up a biogas plant is EUR 3.5million, if the plant is 1.5 MW.

Market input In Romania, the price of energy willow is between EUR 35 and EUR 40 per tonne (valid values to a moisture content of 30 percent), and the trend is upwards: in Germany, for example, the price has reached EUR 110 per tonne. According to specialists, the introduction of energy plants into the culture will not restrict agricultural land cultivated with cereals. Energy willow grows best in wetlands located near water, which is not suitable for other crops. Romania has 450,000 hectares of such land, according to the Ministry of Agriculture. The costs of obtaining energy from biomass are relatively low: EUR 2.19 per GJ (gigajoule), more than half the cost of gas (EUR 5.68 per GJ) and almost four times less than if the same amount of energy were derived from coal (EUR 9 per GJ). Out of a ton of biomass, approximately 16 GJ of thermal energy can be obtained and greenhouse gas emissions are reduced by about 60 percent.

Romanian Renewable Energy Overview 2012

Tapping into water energy

Hydro

tidal wave:

Investments in micro-hydro power plants supported by the current renewable energy scheme have not got the attention they deserve so far, say players. Yet interest is rising, despite difficulties in financing, especially for micro-hydro power plants.

ince last year, German, Austrian and Czech investors have all expressed their interest in micro-hydro power plants. In February, Electrica approved some 20 technical notices for such investments. According to market specialists, this type of investment involves a substantial sum, but it is recovered in a relatively small period of time, and can be profitable. Most of the 20 notices approved by Electrica are still at the intention stage. Two hydro power plants have already been built at Valea Neagra and two others, at Dragomiresti and Suior, are in progress.

“At intent level there are plans for micro-hydro power plants on all rivers in Maramures, with big and small capacities,” said Ionel Pop, chief engineer at Electrica Baia Mare, towards the beginning of the year. Technical notices have been lodged to build three micro-hydro power plants on the River Lapus, four at Cosau, two on the River Mara, four on the River Repedea, as well as another four on the Valea Vaserului. Also, according to market insiders, there are plans for micro-hydro power plants at Ruscova, Poieni and Valea Viseului, including two to four units. Moreover, eleven hydro power

plants are now in the construction phase, and eight are going through authoriz ation procedures at Hunedoara County. Investments – from several private companies in the country – are shaping the beginning of a “new wave” in terms of getting quick profits from electricity. According to market specialists, quoted by media reports, until three or four years ago, small hydropower units, which were operational in Hunedoara County, could be counted on the fingers of one hand. Lately, however, investor interest in this field has increased considerably, which can be seen from the statistics.

Romanian Renewable Energy Overview 2012

invest EUR 29.9 million in upgrading the TMK-Resita micro-hydro power plants. At this point, CEZ aims to get functional the 600 MW wind farm it owns in Dobrogea. After completion of the entire project the wind farm will have a 600 MW installed capacity and will be the largest onshore wind farm in Europe.

“Initially investments of EUR 6 mln were forecast, but the investment rate has declined over the past three years due to delays in the entry into force of the promotion system for renewables” Roy Maybud, Energy Holding

Hydro

“In the last three years more demand for environmental notices from micro-hydro power plants has begun to appear. This form of energy is cheap, does not pollute, and operating costs are lower than for other renewable sources. The only downside is that sometimes such an arrangement may affect the ecosystem in that area, but we approve only those cases where the environment is affected to a very limited extent,” said Georgeta Barabas, director of the Hunedoara Environmental Protection Agency, at the end of Q1 this year.

Small projects, big bureaucracy The company owned by Costan Buzura plans to build a micro-hydropower plant on the city’s main water feed pipe. ”We are in negotiations with the watercourse administrator, in this case Apa Prod. We want to site a small hydro station upstream of the Hunedoara water treatment station. We’re talking about a unit of 220 kWh, meaning an investment of EUR 250,000. I believe this investment will be recovered within three years,” said the investor, quoted by media reports. Buzura complains about excessive red tape in the field. “We have two micro-hydro power plants in Salaj and Maramures Counties. It is quite difficult, especially when you come

with a project under a MW, because in Romania these types of projects do not get a lot of support from the authorities, while for instance in Scandinavian countries a 10 kWh hydro power plant is constructed and connected to the national grid” said Buzura.

Enel and CEZ on investors’ micro-hydro map Enel Green Power has announced that it wants to invest in microhydro power plants in order to reach production of 25 MW per year until 2016, said Roberto Deambrogio, director for Europe inauguration at Enel, recently. Meanwhile, CEZ Romania, a member of Czech group CEZ, last year completed the EUR 19.8 million acquisition of TMK Hydroenergy Power, which owned the hydroelectric system in Caras Severin, near Resita. The new company bought by CEZ has four lakes with dams at Trei Ape, Gozna and Secu, and four micro-hydro power plants, namely Crainicel I, Crainicel II, Grebla and Breazova. Total installed capacity reaches some 18 MW. “This new acquisition is in line with CEZ’s policy to focus on its core business in countries where it already operates. In addition, it is positioned in the area of renewable energy,” said company officials. CEZ Romania has announced it will

Energy Holding proceeds with plans In October 2004, Energy Holding acquired, through public auction, five hydro power plants located on the River Topolog, Arges, with a combined installed capacity of approximately 6 MW. The total investments in the safety of installations and buildings, including the replacement or modernization of equipment, reached some EUR 3 million, said Roy Maybud, Energy Holding president. “Although initially investments of some EUR 6 million were forecasted, the investment rate has declined over the past three years due to delays in the entry into force of the promotion system for renewables. Given the changes in the promotion system, we are currently working on the re-investment and restructuring program, based on new legal provisions applicable from November 2011,” said Maybud. According to him, the amount of energy produced and delivered to the network in 2011 by the company was 4,402 MW/h, the lowest in the history of the plants, and well below estimates during an extremely dry hydrological year. The total revenue from the sale of green certificates, RON 166,800, was also below the original estimate. “For 2012, provided turbine water flows are at the level of a normal hydrological year, energy production

Hydro E-RES projects in Romania Total installed capacities

2010

2011

2012

2013

2014

2015

2016

2017

Hydro – new (MW)

117

167

217

267

317

367

Hydro upgraded (MW)

109

134

159

Hydro – old (MW)

286

261

236

211

186

161

161 SOURCE: ANRE

Romanian Renewable Energy Overview 2012

the European Bank for Reconstruction and Development (EBRD).

Support scheme under investors’ scrutiny “The entry into force of the promoting system for electricity production from renewable sources – which is long overdue – meaning Law 220/2008 in November 2011, is certainly a positive factor, both designed to encourage investment in new power plants and the upgrading of existing ones,” said the Energy Holding president. However, adds Maybud, the promotion system still requires improvements.

“Micro-hydro projects are slightly complicated as they involve smaller sums and they could be a bit difficult to finance as the costs of the diagnosis and due diligence are relatively fixed. ” Mihnea Craciun, EBRD

of the European Commission’s recommendation, namely that placing wind turbines in the Danube Delta Natural Reserve would be a threat to wild birds, and we decided not to invest in such a project,” said the president.

Financing hydro One of the most impor tant aspects regarding micro-hydro power plants is compliance with environmental demands. In terms of financing, bankers say that meeting environmental demands is one of the key aspects in gaining approval. “Micro-hydro projects are slightly complicated as the investment is much smaller, form the point of view of the international financial institution and they could be a bit difficult to finance as the costs of the diagnosis and due-diligence are relatively fixed and consistent. Also, micro-hydro projects are much more complicated from the point of view of the environmental aspects that have to be respected,” said Mihnea Craciun, principal banker, power & energy utilities, at

One of the aspects that raise questions is that fact that the form of the promotion system recently adopted provides no definition of “uncontrollable priority production”. The obligation to bear the costs caused by imbalances in the market as a result of unpredictable nature leads to increased costs and, in many cases, questions the viability of energy production in such plants. “We refer especially to micro-hydro power plants, whose production is prone to interruptions. As they do not usually have storage capacity to enable active control of the plant’s flow, there is virtually no technical ability to realize a daily or hourly forecast of the tributary flows,” said Maybud. Electricity production, he adds, is strongly dependent on the size and variability of natural tributary flow, characteristics that cannot be controlled by the manufacturer. Therefore, the imbalances can be of the same magnitude as the energy produced.

“This approach inevitably leads to the waste of resources and the restriction or closure of activities. I think it would be useful to introduce legislation that power of groups under 1 MW or 3 MW in total installed capacity are exempt from payment imbalances or to pay reasonable fees commensurate with the energy delivered,” said Maybud. Another issue for him is the fact that Law nr.220/2008 sets a very low threshold of 1 MW of central capacity, as the manufacturer may opt to sell the E-RES unique type of technology at regulated prices (electricity sold at regulated prices does not get green certificates). “For plants with installed capacity above 1 MW, producers have only one option for the sale of electricity, namely on the competitive market at market prices, which means that many small power plants may not benefit from the price-regulated alternative,” said the president. In addition, currently there is no practical possibility to choose, as the regulated prices have not been disclosed. “At least in the case of hydro, we are considering raising the threshold; 1 MW / group or 3 MW per power plant would better reflect the common technical characteristics of production capacity of micro-hydro and provide real support to small producers,” added the Energy Holding president. In addition, he says that there is inconsistency in how Law. 220/2008 and the regulation for the accreditation of producers of electricity from renewable energy sources approved by the ANRE define a “new power group”, which he describes as harmful to revenues and business plans. Finally, especially for small p r o d u c e r s , M ay b u d “ f i n d s discouraging excessive bureaucracy is required, not only determined by Law no. 220/2008 but also by other legislation (the large volume of reports, memos, documents required, etc.), the same as for large producers, which generates disproportionate costs compared to revenues obtained from selling energy.”

Romanian Renewable Energy Overview 2012

Hydro

is estimated at about 7,700 MW/h, which may lead to revenues from green certificates of RON 1.4 million. The difference from the previous year is explained by the entry into force in November 2011 of Law 220/2008 regarding the system to promote energy production from renewable energy sources,” said Maybud. Not all Energy Holding’s plans for other projects in renewable energy came to pass. “Energy Holding intended, years ago, to develop a wind farm for electricity generation in Sulina, a project which did not materialize. We took notice

adjacent industries:

Equipment and service providers ride renewable bandwagon

General technology

Along with technology providers such as turbine developers or solar panel producers, other suppliers are also reaping the fruit of the solid development of renewable energy projects in Romania since the regulatory framework clarified many aspects which were slowing the field’s development.

F 74

or Tractebel Engineering, the engineering and consultancy services assigned for different renewable projects developed in Romania represent approximately 50 percent of its business. “As we address services especially for large energy infrastructure projects, we deliver engineering and consultancy services for power plants, transmission and distribution installations and projects for end-users,” said Daniela Scripcariu, CEO of Tractebel Engineering. For the company, 2011 was a good year, due to internal and external factors related to the renewable energy market. According to Daniela Scripcariu, the overall policies in renewable energy, especially the Renewable Energy Law which came into force in 2011, have boosted projects in this area. Even when the law was in the draft stage, the existence of its regulations underpinned

project intentions in Romania and this was mirrored in the activity of Tractebel Engineering, whose services cover both the pre-investment and investment stage of the projects. “For the pre-investment stage, we deliver market studies, feasibility studies , due diligence and tender documentations. For projects that have already started to be implemented, we provide basic and detailed design and, also, technical assistance to the projects,” Daniela Scripcariu said. In the investment stage of renewable projects and other private generation projects, the company’s CEO added that since 2006-2007, Tractebel Engineering hasprovided tailored services for various clients, as utilities, industrial consumers, developers, including risk analysis, grid connection studies and other specific pre-testing investment studies.

Due to the approval of Renewable Energy Law in 2011, the company’s services related to renewables have been extended from mainly wind, to solar, biomass and hydro. Meanwhile, Tractebel Engineering has served as a consultant for different financing facilities developed by the EBRD and EU. The CEO says that, so far, from a financing line of EUR 80 million assigned to energy efficiency projects, which started in 2007, some EUR 60 million of financing has been mobilized by the beginning of 2012, with the peak registered in 2011. Also, there is another financing line of EUR 60 million, targeting energy efficiency and small scale renewable projects for the Romanian small and medium enterprises, according to Daniela Scripcariu. Regarding the challenges in the local market, the CEO mentioned

Romanian Renewable Energy Overview 2012

General technology

the delay in specific legislation for the renewable segment and the grid connection aspects. “Within this market environment, mainly large groups were able to develop local projects, because their financing and credit worthiness was solid and therefore banks were more eager to lend them money for such projects than to smaller companies. On the other hand, the first come, first served principle for grid connection made the connection more challenging,” Scripcariu added. “These aspects were also reflected in our services, as we were asked to deliver engineering services in a shorter period of time than usually. We had to come up with temporary technical solutions to meet the urgent needs for commissioning of the developers.” From the Tractebel Engineering’s studies, within the investment in a wind project, the equipment share

represents 80-85 percent. “For small projects, the connection to the power distribution grid is usually based on a simple scheme and might represent 1-2 percent, while for larger projects, , with more complicated schemes and needs for strengthening in the network it could reach up to 8 percent, ” Daniela Scripariu outlined. The manager tips solar projects to be next in terms of development, as developers and investors are hurrying to implement them, in order to benefit from the current support scheme rate of six green certificates. Daniela Scripcariu noted that the investment in these projects is decreasing, as the technologies for solar panels have improved significantly and thus imply lower costs. “In the last few years, the cost of technology for solar panels has decreased by approximately twothree times,” said Daniela Scripariu.

According to the manager, solar projects, ranging from 100 kW to several MW, will be easier to roll out, both in terms of execution and project permits, compared to wind projects. In Romania, Tractebel Engineering has been present since 1997, following the 85 percent takeover of Trapec, a local engineering company. Trapec initially focused on infrastructure projects, but its services portfolio was rapidly broadened to include energy projects. These currently represent 55 percent of the business. In 2007, Tractebel Engineering became the sole shareholder of Trapec. In October 2009, the latter took over the former’s name and branding. Currently, Tractebel Engineering is a strong company, with 220 employees, addressing the Romanian market, as well as countries in the South-Eastern European region.

Romanian Renewable Energy Overview 2012

General technology

ICME ECAB sees Romania as an energy exporter

As a cable manufacturer, Cablel Group of Companies, formed of ICME ECAB, Hellenic Cables and Fulgor, is very much involved in renewable energy projects, providing solutions for connecting the power producer to the grid or to the final consumer, say company officials. “ The optimal solution for connection is critical due to some very important criteria: energy transport with the lowest investment cost, fewest electrical losses, highest reliability (zero down-time in operation, no maintenance), safety for the installers and for the personnel running the power plant and environmental friendliness,” said Eusebiu Muhti, commercial manager at ICME ECAB. The company has been a partner in wind farms such as Fantanele and Cogealac (CEZ), Casimcea (Verbund), Gemenele (GDF Suez) and Constanta (Eurovial). In terms of photovoltaic parks, it has worked on units in Scornicesti (Renovatio Solar), ICCO Park Industrial, Rooftop Bucharest and Timisoara, Urziceni, Lehliu Sat (Consplan Management), Giurgeni (Altius Fotovoltaic), Electroprecizia Sacele, Constanta (Eurovial) and Bucharest (Com Electro Construct). Muhti says that in Romania the renewable energy projects are being delayed in comparison with other European countries due to the late issuing of Law 220. Despite this, bold investors already have projects with technical approvals totaling more than 18,000 MW (with most of them at the blueprint stage). “Photovoltaic projects are more ‘flexible’ from the investor’s point of

“The delay in legislation meant that only large groups were able to develop local projects, because their creditworthiness was solid and therefore banks were more eager to lend them money” Daniela Scripcariu, CEO Tractebel Engineering

view, in the sense that they can be designed in a modular way, in various stages, and the lead time for receiving the equipment and the execution time is much less than for the wind parks. Therefore these projects are starting now, after the legislation was issued,” said Muhti. He added, “Given the natural potential, both for wind and solar, and with so many projects on paper, Romania can become a net exporter of green power, provided that the Romanian government, through legislation and through Transelectrica, finds ways to improve the regulatory framework and to invest in the grid, both internally and externally, towards the levels of our Western neighbors.” In his opinion, even without exporting power, Romania needs more production as no investor would come to a country where the consumption is close to the installed capacity and power failures are likely. “A lot of people are confusing the efficient way of consuming power (translated into how much money one can generate from 1 KW) with the fact that Romania has enough installed capacity (out of which much needs major upgrades) and they think that we don’t need extra capacity.

“If we’re talking about renewables, we have very good opportunities in Romania and we expect many more investments to come in the next three years” Saulo Spaolanse, Schneider Electric Romania

Romania needs more installed capacity (to attract more investors or to export it) and needs more efficient ways to produce, transport and use the power,” said Muhti.

Schneider Electric Romania awaits more renewable projects in the next three years Schneider Electric Romania’s business comes from society’s need to manage better the energy, say company officials, meaning governments, companies, institutions and families are more and more concerned about sustainability and energy costs. As a global specialist in energy management, Schneider Electric is focusing on two main drivers in Romania: renewables, meaning how the firm can generate green energy, and energy efficiency, or how it can optimize energy consumption. “If we’re talking about renewables, we have very good opportunities in Romania and we expect many more investments to come in the next three years. We provide equipment and solutions to connect wind and solar farms to the power grid,” said Saulo Spaolanse, president of Schneider Electric Romania. “And starting with the clarification of the renewables legislation in Romania regarding the green certificates for solar and wind, the country will continue to attract more investment for which Schneider Electric can provide very good solutions.”

ABB bets on a boost of solar projects Regarding renewable energy projects Peter Simon, country manager of ABB Romania, Bulgaria and Republic

Romanian Renewable Energy Overview 2012

Austria and Switzerland. These can pump up the water to a higher lake when surplus of electricity is available and it is used to generate electricity for peak loads.“ said Simon. In terms of results on the local market, the manager expects a slight increase for this year.

Redpoint Energy sees wind market grow with energy demand The Romanian market presents exciting opportunities for developers and investors, believes Phil Grant, director at Redpoint Energy. In his opinion, energy demand will grow strongly as the energy intensity of the economy grows, whilst the existing infrastructure is aging. Without investment in new generation capacity, the market could tilt from being over- to undersupplied, and

“Transelectrica has to continue to invest in the network but I think that if we compare the local grid with the one of other countries, Transelectrica has a very good situation” Peter Simon, ABB

bit on time pressure: “The investments for photovoltaic projects are currently under time pressure because end of the year it is expected that the law changes regarding the granted green certificates. Under this circumstance all investors and suppliers are in the situation that the projects have to be accomplished in an extremely short time.“ said Simon. Another aspect developed by ABB’s country manager is linked with Romania’s necessity for balancing units. “Romania is exporting electricity mainly from hydro and nuclear generation. Due to the fact that the renewable electricity production cannot guarantee the base load and the generated amount of electricity depends on meteorological conditions, there could be a surplus capacity which makes necessary the implementation of so called “pumping stations” like in

this would lead to upward pressure on prices. “Investors in wind power in Romania are exposed to market risk through the wholesale price and regulatory risk through the certificate regime. The exposure to market prices will attract a certain investor type, and with most markets in Europe offering full feed-in tariffs (i.e. little or no exposure to market prices), the Romanian market is differentiated in this respect. Having gone down this route, the incentive framework should now be enduring and transparent. Changes to incentive frameworks cause uncertainty and increase costs,” said Grant. He added, “We’ve seen in other markets that projects have been presented to banks and equity investors at very early stages in their

development. In some cases projects were little more than land rights and wind speed measurements, and this undermined lender confidence in projects. Whilst early dialogue with lenders may be helpful, developers do need to ensure they have well developed projects before seeking finance.”

CWP comes up against bureaucracy in renewables Red tape remains a problem, says CWP. “I think it will be a lot slower than many of the protagonists would like. There is a lack of companies willing to provide long-term and financeable power purchase agreements which are required to attract significant bank finance. While a few smaller projects can always be done, the larger ones are dependent on finance from multilaterals such as the EBRD and international banks,” said Mike Scholey, CEO of Continental Wind Partners (CWP), in an interview. In his view, the ongoing Euro/ economic crisis and deleveraging being forced by Basel III will massively curtail the appetite of the major commercial banks. “Therefore scarce bank finance will migrate to safer markets, i.e. not Romania. Now more than ever the flight to quality will hurt Romania unless it improves governance and consistency,” warned Scholey. Asked to define the key factors in maintaining ongoing investor confidence, Scholey replied that there has been progress in 2011 in the regulations governing the sector, but there are still details to be sorted out and there is still confusion and ambiguity. “ To m o b i l i z e l a r g e - s c a l e investment, investors look for certainty. The ongoing debate about the shape of the power sectors and the possible creation of a ‘national champion’ adds further uncertainty. Constant amendments to the planning regulations with poorly defined transitional provisions also add chaos to the project development/permitting process,” he added.

Romanian Renewable Energy Overview 2012

General technology

of Moldova considers that an issue is the delay of projects made by Transelectrica. “Transelectrica has to continue to invest in the network but I think that if we compare the local grid with the one of other countries, Transelectrica has a very good situation. It has yet to continue investing in order to adapt to the new situation. It is a big challenge now with all the renewables which make the flow of electricity quite different,” said Simon. ABB is also involved in the photovoltaic plants, providing the high voltage connections to the distribution network, also supplying the equipment for the Direct Current part – transformers and inverters, as well as the medium voltage swithchgears and transformers. “With our technology and equipment, we can reach up to 40 per cent of the whole photovoltaic plant value.“ In his opinion, these types of investments are a little

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future projects:

Global lenders give seal of approval Major global institutions such as the European Bank for Reconstruction and Development (EBRD) and the International Financial Corporation (IFC) have sent a positive signal to the local market by financing a 228 MW wind project. EBRD and IFC officials explain the main challenges of this project finance.

ast year was the first one when the EBRD and IFC jointly financed renewable energy projects in Romania. The lenders financed two wind projects by Energia de Portugal (EDPR) in Pestera and Cernavoda, totaling 238 MW, a transaction worth approximately EUR 300 million. “It’s a first: the first transaction was carried out in a renewable project finance regime in Romania,

as project finance does not have a very long history here. We believe this should be the rule not the exception for renewable energy projects. The projects that we are considering funding this year and beyond follow the same kind of project finance structure,” said Mihnea Craciun, principal banker, power & energy utilities at EBRD.

Background to the story “It was a challenging transaction. It took quite a while as the legislation at the time the financial contract was signed was not ready, which meant a more comprehensive legal due diligence and structural elements. Had we known, we would have arranged them otherwise. It’s funding that we did along with the banking sector,” remembered Craciun.

Romanian Renewable Energy Overview 2012

The discussions over the loan were linked with the financing structure and market evolution in general, and the discussions had a commercial basis, said Mircea Stoica, investment analyst at the IFC. “The IFC tries to get involved in projects that banks do not feel comfortable financing. For instance, with the EDP project, when we started discussions regarding the project financing it was unclear from when and how the legislation regarding green certificates would be applied. Despite the fact that the application norms came after the financing was inked, the risks were covered by the loan’s financing structure,” said Stoica. The traditional financing structure the EBRD uses and the most common type is an A-B structure, under which in practice the client signs a financing contract with the EBRD which consists of two parts: tranche A, which comes directly from the EBRD; and tranche B, which comes from commercial banks. “These tranches may have different

durations, but otherwise, in terms of pricing issues, the benchmark is linked with the B tranche. The EBRD never comes with conditions that could put us in a competitive position with the commercial banks in terms of price. Moreover, we cannot finance more than 35 percent of a project, which means that for the rest of the money we look at the sponsor’s contribution and at the commercial banks’ financing,” said Craciun. The general eligibility conditions from the IFC are related to the sponsor’s experience and commitment to the project, which can mean financial support. “After the IFC makes a first assessment of a proposal by an interested company, we sign a mandate letter which allows us to proceed with the duediligence process, estimated to last approximately one week. After the process is finished the IFC makes a proposal to the management, followed by the board. Only afterwards is the final contract inked,” said Stoica. According to the EBRD official, in

general, these are projects with longterm financing as financing a project requires an investment credit that is highly dependent on the market. “If the market can make a particular transaction over a certain period of time then it is a clear indication that the EBRD should do a little more. For example, if commercial banks can fund a project for 10 years, we can go up to 12-13 years with our tranche,” said the EBRD official. In his opinion, commercial banks had a revelation to some extent after the 2009 crisis, because the lender was largely perceived as a competitor for commercial banks, but in reality the EBRD is complementary to them. “If something has changed since the crisis it is the fact that we are now working much more closely. The element of competition is almost nonexistent, as when we fund a project we look at what the market can support and depending on this we structure the financial package for the client to have all the necessary funds,” said Craciun.

Romanian Renewable Energy Overview 2012

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Regarding the financing for the EDPR project, by the time the bank was ready to finance the project it was fully developed, as the shareholder had begun the project with its own funds. “What needed more clarification and took time were the number of parties involved and the legislation. In this regard we worked with 20 different types of compensation, the trading of green certificates, when the energy can be sold, the projections on how the market will react. In all these scenarios the variable was the wind,” said Craciun.

Conditions for investors

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According to Craciun, the project must be an effective one that can generate sufficient cash flow to be able to sustain debt. “A project finance structure is more tilted towards the debt than the contribution from the sponsors. For this reason the debt is up to 70 percent of the project and the contribution of sponsors 30 percent. It has to be a solid project which through its cash flow can safely support the debt. Secondly, the sponsor – the shareholder – must have the necessary capital, experience and capacity to sustain the financial obligations he or she has assumed. Thirdly, like any project finance

“A project finance structure is up to 70 percent and the contribution of sponsors 30 percent. It has to be a project which through its cash flow can safely support the debt” Mihnea Craciun, EBRD

structure it builds commercial contracts that support the supply,” explained Craciun. He added, “From this point of view the project must be commercially feasible in the sense of being able to sell production, to have enough contracts that will allow it to survive on this market. The EBRD focus on environmental issues is a bit stronger than that of commercial banks.” Green concerns are also a factor, added the analyst. “Almost all renewable projects are projects with an environmental impact, an impact that can be significant. The project must include a very detailed environmental study to identify adverse effects and the ways in which these effects can be reduced or removed. The project must commit to implement an environmental and

Financing challenges for renewable energy projects in Romania_ ________________________

Clarity and predictability of regulatory environment operations: • Curtailment risk: will projects with contracted output be compensated for the loss of GCs in the event of curtailment? Can a wind farm with no contracted output be dispatched and is it entitled to receive GCs? • Guaranteed dispatch: by guaranteeing dispatch only for the contracted output of the wind farms, projects will find it difficult to trade electricity on OPCOM and move towards PPAs. • Overcompensation: number of GCs is subject to change, if overcompensation is determined. How will the ANRE determine what projects, in development at the time of the decision, will be affected? • Oversupply: what happens to

GC prices if there are more GCs than required by the quota system? Permitting and the status of the distribution/transport network: • Environmental due diligence. • Projects developed in staged approach: EIA needs to assess full project including infrastructure. • Natura 2000 areas not well defined: EU is commencing infringement action against Romania. • Permitted projects developed by locals are being marketed to international companies: poor EIA could affect the project, as permits can be withdrawn or operators asked to reduce output. • Lack of cumulative assessments and ornithological studies. _____________________________ SOURCE: EBRD

social plan.” The EBRD official also said that the project must be advanced in terms of licenses and permits because the market is in a window of opportunity that will close in 2016, as every year the ANRE will review the thresholds for existing projects and future projects when compensation will be reduced, so one could question whether it makes sense to begin financing a project which is just beginning to be developed. “Perhaps from the point of view of investors it is even now too late. The market in terms of projects to be developed is almost saturated. I do not know financing institutions that would look at a project that is beginning to be developed today and has horizon commissioning in 2014 and 2015,” said Craciun.

Market concerns “There is also the fact that the number of green certificates could be reduced for projects that begin to operate in the future. You do a financial review based on six GC if we’re talking about solar, but in 2014 the project would receive only three or four certificates. This creates some difficulties as if a risk is left uncovered by not having a practical solution then the whole structure falls,” said Craciun. He added that there is also a problem in terms of green certificates on the market right now as the market is at the maximum level, but once the projects start operating it is possible that in 2015-2016 and even 2017 questions may be raised about the number of green certificates available on the market. There may be a surplus of certificates which cannot be capitalized.

Romanian Renewable Energy Overview 2012

Checklist for financing renewables in Romania__ Sponsor – developer/utility with a solid track record in renewable energy, able to contribute at least 30 percent of the total project costs; Wind resource – wind measurements for at least one year, performed by companies with sufficient expertise and track record; Land situation – the project should have registered rights over the land where it is sited; Environmental and Social Impact Assessment Studies and Environmental and Social Action Plan – based on EBRD’s ToR. Stakeholder Engagement Plan (SEP) and Non Technical Summary (NTS) to ensure meaningful public consultation on all projects; Grid connection – concluded connection contracts to connect to the

local or national grid; Technology – Wind Turbine Generators (WTG) with track record (no new, untested or experimental technology is acceptable). WTG Supply and LTO&M contracts to be in place by financial closing; Power Purchase Agreements – not a deal breaker, but given the legislation PPAs would enhance creditworthiness of projects; Green Certificates Off-Take Agreements – difficult to arrange until the GC scheme has more of a track record; if available it would greatly improve projects. Mandatory for PV projects, where the dependency on GC prices is substantial.

will be ready this year, projects started next year could be affected. I think it would be important to have more clarity in the way projects are affected by these changes,” said Craciun.

positive signals to the market regarding the financing of renewable energy projects. “We believe that the IFC will finance another one or two renewable energy projects, as afterwards from our point of view our role will be done and we expect banks to become more comfortable in financing such projects,” said Stoica. Financing renewable projects isn’t something new anymore, say bankers. According to them, the financial models are fairly well known. “For this year we are analyzing wind energy projects. We do not have any photovoltaic projects, nor hydro projects. For 2012 we see a greater interest for renewable projects coming from the perception that the crisis will not end this year and so both financial institutions and companies are turning to a financial institution that through its participation validates how the project was structured. There are a consistent number of projects which are rejected from an incipient phase. To be approved for financing there are two important criteria: to have a positive impact in Romania and to be sustainable,” said Ana Maria Mihaescu, chief resident representative for Romania, Bulgaria, the Czech Republic, Moldova, Poland, Slovakia and Hungary at IFC.

Expectations According to the EBRD representative, project finance is a solution that allows small projects to be realized. “It’s easy if you are a utility company to completely finance a loan through a corporate loan or capital, but it’s harder to build a project to be able to finance itself. We believe that the market should have room too for smaller developers and the projects that we are currently analyzing are from this category. This means projects that are over 50 MW and go up to 100-120 MW,” said Craciun. Moreover, the IFC official added that the international financial institution will keep on sending

“A consistent number of projects rejected from an incipient phase. To be approved for financing the projects has to have a positive impact in Romania and to be sustainable,” Ana Maria Mihaescu, IFC

_____________________________ SOURCE: EBRD

Romanian Renewable Energy Overview 2012

€ International banks

Another issue identified by Craciun is related to the permits, licenses and the network’s capacity to support renewables. “Transelectrica estimates that it can take up to 3,000 MW or even a bit more. Through a grant the EBRD funded a study – carried out two years ago – on the ability to connect that found that more than 2,000 MW might be difficult to connect to the grid without further investment in doubling and strengthening the lines. The volume of investment needed is substantial,” warned Craciun. He believes that some elements have remained unclear about the system’s ability to take in the energy and what happens if the energy cannot be taken in. “The legislation basically says the law guarantees access to what is contracted. This means that if you have a PPA you have guaranteed that production will be taken into the grid. What we do not know is what happens if something happens and production has to be reduced or stopped and the company does not get GCs. In this case, the company is being compensated only for the loss of not selling the energy, as the law stipulates that GCs are given only for the energy that enters the grid,” said Craciun. He went on, “Another uncertainty is related to reserves, production units to replace supply if the wind stops. This is a matter of investment policy. We do not see many investments in natural gas or hydro which would have a quick capacity to enter the system in a power deficit situation.” Another unclear aspect, in the view of the EBRD specialist, is the fact that after the first scheme review, which

Financing

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Challenges: 82

E-RES projects face financing frustrations With an imperfect regulatory framework to deal with, commercial banks and leasing companies with operations on the local market say that some of the most important aspects that put a brake on renewable energy project financing are the uncertain value of green certificates, balancing issues and the stability of the support scheme.

inancing renewable energy projects on the local market has been a saga for most investors in recent years. Good projects had to face bankersâ&#x20AC;&#x2122; reluctance on a market where the regulatory framework did not offer the necessary clarifications. However, towards the end of last year the Romanian authorities shed light

Romanian Renewable Energy Overview 2012

EUR 22 million for renewable energy projects up to now, funding 26 MW of such projects to date, Cosmin Calin, executive director of corporate banking at Banca Romaneasca, told The Diplomat – Bucharest. Meanwhile, UniCredit Leasing approved its first loans for two wind farms totaling 23 MW last year. According to Dan Constantinescu, directorate vice-president at UniCredit Leasing, the value of the financial support reached EUR 20 million. CEC Bank is also paying more attention to financing the energy sector, especially electricity generation from renewable sources. “The largest loan granted by CEC Bank to a company from the energy sector was aimed at realizing an investment in electricity generation from photovoltaic sources,” Radu Gratian Ghetea, president at CEC Bank, told The Diplomat – Bucharest.

on the support scheme for renewable energy projects, since when the financing tap has been turned on to some extent. “I believe 2011 was a great year for renewable energy, as besides the fact that clarifying legislation was enacted towards the end of the year, developers had time to refine their projects, take the banks’ feedback into account and get a clear view of the outcome of their projects,” Ioana Gheorghiade, executive director of the project finance division at Banca Comerciala Romana (BCR), told The Diplomat – Bucharest.

Local banks get lending BCR currently has a portfolio of approx 113 MW of financed renewable projects,

in different development phases, of which 50 MW represents wind farms and the rest micro-hydro projects. In April 2011, BCR approved a EUR 23 million financing agreement with the industrial group Martifer to develop a 42 MW wind park in south-eastern Romania. “Both in 2010 and 2011 we had discussions with developers of some 40 micro-hydro projects and 30 wind farm projects, and this year we can see an increased interest in solar projects over which we have had talks with at least 30 developers interested in financing,” said Gheorghiade. Banca Romaneasca has provided both bilaterally and through club arranged facilities of approximately

The CEC Bank official added that the bank prudently analyzes every RES (renewable energy source) project, taking into account several aspects. “We look at studies on the energetic potential, status and limitations imposed by the required permits and authorizations needed and the connection and electricity supply in the grid. Last but not least, we consider shareholders’ experience in implementing and operating this type of project,” said Ghetea. The UniCredit Leasing official told The Diplomat – Bucharest that its financing product is based on the group’s tradition of renewable projects on markets such as Germany, Austria and Italy, and it is a project-finance type of approach. “Basically, we are looking for projects that can the self-generated cash flow, so we look carefully at how the project is developed both from a technical standpoint – what is the degree of certainty of achieving volume production? – as well as from the economic and financial point of view – in what ways is production converted into revenue? Of course, there are important issues that must be mitigated – such as construction risk, financial risk period of the loan

Romanian Renewable Energy Overview 2012

€ Financing

Financing conditions

Financing

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– and we can draw on the expertise that UniCredit Group in Romania has,” said Constantinescu. Although UniCredit Leasing has financed only wind projects in Romania so far, the company is also looking at other technologies that have potential. “Of course, the particularities of each technology must be taken into account. Wind is less predictable and requires efforts to balance production. Solar energy has a lower yield, which involves high dependency on the support scheme. Micro-hydro has a great lifespan, representing the ‘mature’ technology in this regard, though such projects are perhaps more complicated than in other cases. Therefore we believe that the details are what make the difference between a financed project and one cannot obtain funds,” said the UniCredit Leasing official. On the same theme, the BCR representative highlighted some essential elements for project financing in the renewable energy field. “First of all, the investor has to be a reputable one, determined and ready to bet some of its own capital on the project. The investor’s contribution

“We look at studies on the energetic potential, status and limitations imposed by the required permits and authorizations needed and the connection to the grid” Radu Gratian Ghetea, president at CEC Bank

is on average 30 percent, but it may vary depending on the type of resource used,” said Gheorghiade. The BCR official added, “There also has to be a clean legal and technical due-diligence. Here we have been faced with many issues when securing the land. Also, the project has to be environmentally friendly. The technology supplier is a very important aspect, as it has to have a track record and be able to provide the necessary warranties.” Besides the average 30 percent contribution, the investor has to cover the additional costs, such as for instance those of the due-diligence. “Funding is granted for an average of 10 years, a term which includes

construction, which is considered a grace period. Only then does the investor begin to repay the financing,” said Gheorghiade.

What’s still unclear?

Bankers and officials from financing institutions report that the current preoccupation in this domain is Hinrich Fische stability. According to them, the current rector and head legislative framework provides more vironment gr clarity and transparency compared to the assumptions of an investorture finance or financier who in 2009 considered entering this segment, and is likely to count in the decision to invest or finance a renewable energy project. “Even if the legislation could be optimized – for example, by clearly

Financing specifics________________________________________________

Market players say that each project is analyzed on a case-by-case basis, but essential elements are: • The existence of all necessary permits for construction, commissioning and operation of the project • Technical and capacity forecast issued by an accredited specialist, on which the project business plan is based • Developer’s expertise, especially in projects in Romania • The technical solution chosen (with the equipment used) and the reuse of such solutions in other projects in Romania – such technical solutions are preferred in order to have a benchmark of the efficiency • The commercial strategy for production capitalization (both MW and green certificates) as well as counterparties to which production is estimated to be sold to

• The funding varies from project to project, sized as a percentage of the total budget approved by the financing bank, but in general the financing is structured according to the accomplishment – based on various simulations of the business plan – of financial ratios generally tested every six months (such as debt service coverage over a given test period, internal rate of return on the project, projected coverage of associated debt service) throughout the duration of the financing. Generally, the funding term considered is up to 10 years. The funding is scaled from project to project but the basic elements are: • Estimated yield – expressed as an annual percentage or number of estimated hours of operation per year • Technical solution and specifications (for example, the wear and impact wear in annual production

output, the maximum useful life of equipment, operating both during warranty and service provided by the supplier, guaranteed power curve by the supplier) • Estimated barriers to entry on each renewable source segment and analyzing the evolution and prospects of development of investment in each segment • The estimated payback period for each type of renewable source and correlated barriers (economic, legal) and the internal rate of return of each project • Simulation for each business plan to project the price sensitivity of production and the number of green certificates assigned to each project and to determine the equilibrium point of each project • Risk optimization strategies to balance production

__________________________________________________________________________________________________________ Source: Banca Romaneasca

Romanian Renewable Energy Overview 2012

“All the legislative difficulties make the financial model more sensitive to any variation, like production, electricity prices and green certificates, which have variable prices,” Ioana Gheorghiade, Banca Comerciala Romana be maintained throughout the entire support scheme. “All these legislative difficulties make the financial model more sensitive to any variation, like production, electricity prices and green certificates, which have variable prices. This is why financing is more difficult to achieve, which leads to a higher demand for equity and financing costs which reflect a higher risk,” said Gheorghiade. The BCR official believes that when it comes to biomass projects, banks demand a vertical integration of the project elements. “This means the land on which the raw material is produced , has to be secured. Also, the technology provider is very important. Yet these types of investments are not as advanced in Romania as wind farms, for instance,” she added. In solar projects the BCR official has identified a high dependency on the state’s support scheme. “We will approach these projects selectively. Some investors are still awaiting clarifications on the regulatory framework and there is also the matter of securing the land, which has to be purchased. Another issue is the low operational time, the lowest of all renewable sources, and as such the support scheme which will be applied

“We are currently in the structuring phase of several syndicated loans to finance several wind parks of 50 MW, loans which come to more than EUR 55 million,” Cosmin Calin, Banca Romaneasca

is very important,” said Gheorghiade. Another uncertainty raised by the BCR official is the balancing capacity for wind projects, as Transelectrica has inked connection contracts of more than 8,000 MW, despite the same company having announced that it can connect – without major investments in balancing capacities – some 3,000 MW. “This fact represents a difficulty for a banker. What happens to the project being financed now? On this issue the authorities should present a point of view ,” said Gheorghiade.

Trends in financing RES projects Banks remain open to financing renewable energy projects, say lenders. “We are currently in the structuring phase of several syndicated loans to finance several wind parks of 50 MW, loans which come to more than EUR 55 million,” said Cosmin Calin. The BCR official told The Diplomat – Bucharest, “In the coming months there are serious chances of our closing a new micro-hydro project and we are pretty advanced with discussions over another wind farm project.” And the UniCredit Leasing directorate VP added, “This year we plan to hike the financing value for RES projects. Currently, we are discussing with investors who have projects ready for implementation and we are optimistic that we will finance new projects by the end of the year.” The CEC Bank president sees “an increase of investment in electricity generation projects from renewable sources on the medium run, taking into account the support scheme and the assumed obligations through the EU strategy.”

Romanian Renewable Energy Overview 2012

€ Financing

defining the mechanism to prevent an excess of green certificates – I think the most important thing is to keep the support mechanism finally completed in November last year in operation. The predictability of the entire system is very important for both investors and financiers,” said the UniCredit Leasing official. T h e B a n c a R o m a n e as c a representative believes that like any market segment in full flow, “corrections and additional clarifications are to be expected, especially in determining the number of green certificates for each project, taking into account the type of renewable energy used, as well as how to guarantee the financing of projects and benefit from subsidies through various support programs.” er, executive di-Meanwhile, the CEC Bank president says that one of the major challenges d of energy &facing en- the support scheme is the green roup infrastruccertificates. e at Erste Group“The fact that the market for green certificate trading is not yet a mature one in terms of the supply of certificates, in conjunction with the few completed investments in electricity generation from renewable sources on the medium and long run, means the green certificates trading values may change as projects are implemented and a large quantity of certificates are traded,” said Ghetea. Other bankers ask an important question: what will happen if green certificates flood the market, a likely scenario if most of the announced investments are completed. According to them, this raises fears of a volatile future cash-flow. Gheorghiade of BCR argues that it is vital that once a project is launched, financed by a certain number of green certificates, that this number

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cash Challenges:

Firms fight for oversubscribed EU funds 86

With financing solutions few and far between, the European Union funds available for electricity production from renewable energy sources offer companies some hope. However, not all called are chosen, as the available funds cannot cover the hundreds of projects analyzed by the Romanian authorities.

t a time when the regulatory framework restricted banks to financing projects involving electricity production from renewable sources because of unclear and incomplete legislation, European Union (EU) funds offered companies a glimmer of hope. The Intermediary Body for Energy (IBE), part of the Romanian Economy

Ministry, is the institution that handles this type of financing. Cristian Georgescu, public manager at the IBE, told The Diplomat – Bucharest that to date the body has organized two calls for projects, one in 2008 and another in 2010. In 2008 the IBE contracted 14 projects, and around 60 projects from the 2010 call are in the contracting phase. The IBE also has a very large

reserve of projects which could not be covered by the available budget.

Available funds One of the issues when appealing to EU funding is the investor’s choice between the support scheme and EU funds. “There has been no withdrawal by anyone who implemented projects presented at the 2008 call. Some 15

Romanian Renewable Energy Overview 2012

million Euro represents the maximum value which can be cofinanced using European funds

firms that were in the contracting phase decided to go with the support scheme instead of EU funds,” said Georgescu. According to him, for 2007-2013 the initially available structural funds for renewable energy projects reached EUR 263 million. “We have found the operation a success as many projects were submitted and so the budget has received an additional EUR 100 million and then another push of EUR 100 million in November last year,” said Georgescu. The IBE official says the projects have a large combined value, though there are some stipulations. “One of the conditions for a project to receive financing is that the value mustn’t pass EUR 50 million, including VAT. The maximum value of co-financing cannot be larger than EUR 20 million,” said Georgescu. He told The Diplomat – Bucharest that after the call in 2008 three local authorities received approval for EU funding – Alba-Iulia and Topoloveni for photovoltaic projects and Beius for

a geothermal one – while for the 2010 call the IBE signed the contracts with the Roman and Neamt City Halls, for a micro-hydro and a photovoltaic project respectively. Micro-hydro projects cannot surpass 10 MW in installed capacity.

Dash for cash The IBE official says that from 52 project proposals in the 2008 call, in 2010 the figure rose to 420. And the rise was not only a quantitative one. “We saw an increase in quality between these two calls for projects. For the 2010 call, the project passed if it received more

“We have seen an increase in the quality of projects. In the 2010 call, the project passed if it got at least 60 points. Currently, there are more than 230 projects with such a score and which will receive finance if the budget allows it” Cristian Georgescu, Romanian Economy Ministry

Romanian Renewable Energy Overview 2012

€ Financing

than 60 points after the evaluation. Currently, there are more than 230 projects with such a score and which will receive finance if the budget allows it,” said Georgescu. According to him, one problem preventing companies accessing the funds was the large number of projects presented. “The IBE currently has some 50 people handling this program and not all the positions are occupied. In 2008 the evaluation was done in-house, while for the 2010 call we outsourced this service to independent firms,” he said. Besides organizational issues, one of the main challenges is the difficulty of ensuring co-finance, as it is very hard to obtain so-called comfort letters from banks. “Up until now, a vast majority of the projects proposed for financing have asked for a delay to obtain the necessary funds. Delays of no more than 50 working days are allowed. Usually it is approximately one year between the time of the call and the signing of the contract,” said Georgescu.

Risky business the best policy:

As renewable energy schemes expand on the Romanian market, the thoughts of developers and investors have turned to their projects’ risk insurance. The Diplomat – Bucharest talked to Marsh Romania, First Title and Aon Romania to find out which particular risks in the renewable area can be insured against and how policies are structured.

Insurance

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Romanian Renewable Energy Overview 2012

“Managers from the renewable sector are some of the most astute insurance buyers. Understanding their exposure, they put coverage at the top of their selection criteria when buying insurance” George Dragne, Marsh Romania

the lawyers involved in the legal and planning due diligence.

Wind farms blow hot and cold As Romania is one of the top five most attractive destinations in Europe for investors in renewable energy and ranks the 13 worldwide from the same perspective, according to an Ernst & Young study released last year, it is natural that companies like Aon Romania has a strong focus on this industry. “This is not the only reason, but also the fact that the risks associated with these projects are quite significant. We believe that in the coming years, the development of the green power industry will determine an exponential horizontal development of other services, including risk management and insurance,” Valentin Tuca, CEO Aon Romania told The Diplomat-Bucharest. According to him, the total estimated investments in such projects is in the range of about EUR 1.5 billion, so “only the property insurance policy premium would mean about EUR 4-5

Renewable energy project insurance structure Other aspects which have always concerned market players and have not been clarified include: • The question whether there will be any state aid scheme applicable after 2016, the date until the green certificates promoting system provided by Law 220/2008 was authorized as a state aid scheme; • The scenario where the supply of green certificates on the market exceeds the demand. Law 220/2008 does not propose any solutions in this respect in favor of the renewable generators;

however, there have been voices claiming that there should be regulated mechanisms by which excess green certificates should be acquired by a certain entity, in order to ensure full support to the renewable energy generators; • The manner in which the number of green certificates will be reduced in the event of additional state aid, since only the situation in which a project already benefits from other state aid scheme when it applies for green certificates is currently stipulated. _______________________________Source: Nndkp

Romanian Renewable Energy Overview 2012

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n recent years, Romania has emerged as one of the leading destinations for investors looking to develop projects in the renewable energy sector. “Romania may look back on the summer of 2010 as a pivotal moment that initiated the country’s transformation into a significant player in the European renewable field. In July 2010 the Romanian Parliament finally enacted the country’s renewable energy promotion law — first drawn up in 2008 but stuck in the legislative mud since then — which removed what many saw as a serious obstacle to investment in major renewable projects,” Andrew Jackson, CEO of First Title CEE, told The Diplomat – Bucharest. While the number of planning applications for renewable projects and especially for wind farms – the Romanian Wind Energy Association is confident the wind sector is poised for a period of strong growth with a potential for 5 GW of installed capacity by 2020 – continues to rise, so too does the volume of responses, objections and issues identified by

Insurance

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million, plus other funds for other lines of liability.” Investment has always been risky and renewable energy is no stranger to risk, but a healthy approach to it can keep costs under control and create opportunities for healthy growth, say players. “If the renewable energy business objectives have been established, the bridge between strategic thinking and risk management approach for new projects is a strength for the company,” George Dragne, business development coordinator at Marsh Romania, told The Diplomat – Bucharest. The most recent Marsh study, entitled “ E xcellence in Risk Management”, published this year, concluded that senior management’s interest in risk management increased in 2011 and 2012. In Romania, the demand for risk consulting services also rose and the renewable energy sector is one of the main beneficiaries of Marsh’s risk consulting team involvement. “Managers from the renewable energy sector are some of the most astute insurance buyers. Understanding their exposure, they put coverage top of their selection criteria when buying insurance. It is

“Title insurance can not only protect cash flow by title risk transfer, but can improve its viability by enabling turbines to be installed in optimal locations” Andrew Jackson, CEO of First Title CEE

true that a limited and cheap policy costs more when an uncovered claim occurs. Their preferred solutions have come from the international insurance market which has developed specific products,” said Dragne. In his opinion, the renewable energy sector faces a diverse palette of risks, including transportation, design, construction and testing, environmental, strategic, market, financial, operational, political and regulatory, plus weather-related volume. “Before talking about insurance solutions for renewable energy projects, and when it comes to cost budgeting, understanding and evaluating the Total Cost of Risk (TCOR) is an essential stage in the risk management process,” said Dragne.

TCOR means having a complete evaluation of your costs related to risk, both insurance costs, as well as those related to uninsured risk damage, delays, financial or contractual penalties, loss experience or expertise, legal costs, investigation time, loss of reputation, management time and the cost of capital associated with volatility. Once a risk assessment report is done it will have a positive impact on the next insurance quotes too. There is a golden rule for insurance: the better the risk is described and understood the better insurers will quote.

Risk management Lawyers acting for wind farm developers and investors in these projects must offer the full spectrum of risk management advice, say

Types of facilities available for renewable schemes_____________________

Aon Romania outlines several types of facilities available for renewable energy projects: contractors’ all risks (CAR) and/or erection all risks (EAR) insurance; principal’s advance loss of profits (ALOP) insurance; property damages (PD) and business interruption (BI); machinery breakdown (MB) insurance; machinery loss of profits (MLOP) insurance; civil engineering completed risks (CECR) insurance; general third party and public liability, contractor’s liability, professional indemnity and employer’s liability. For example, a CAR/EAR policy may be concluded by the principal or by the contractors engaged in a project, including all subcontractors. CAR/EAR insurance provides an “all

risks” cover – every hazard which is not specifically excluded is covered – against loss or damage in respect of the contract works, erection of machinery, plant and steel structures, construction plant, equipment and machinery, as well as against third-party claims in respect of property damage or bodily injury arising in connection with the execution of a construction/erection project. The premium is based on: • Conditions on and exposure of the site (e.g. atmospheric and tectonic conditions, such as the probability of windstorm, earthquake, flood, inundation, fire hazards) • Design features and building materials

• Construction techniques • Safety factors considered in the construction time schedule • Measures provided to ensure safe execution of the project • Technical specifications of the relevant project, the contract price, the value of the main items to be erected • Information on the experience of the erection contractor with similar projects • A flow chart of the production process, a layout plan • The geological, hydrological and meteorological data • The supply and erection time schedule, details on pre-storage facilities • Guard services, fire-fighting facilities.

_________________________________________________________________________________________________________________ Source: Aon Romania

Romanian Renewable Energy Overview 2012

Wind farms: major types of risk_______________ There are four broad categories of title risks pertinent to developers of wind farms. Firstly – and by far the most commonly encountered category of title risk – is lack of adequate title rights to facilitate access for the commissioning, decommissioning and servicing of wind turbines and lack of rights for the installation of grid connection services. Secondly, in rural locations there is often uncertainty as to the legal ownership of the land plots upon which the turbines are erected. The basis of the title frequently commences with an ownership certificate, but the document supporting

the entitlement to this certificate is often missing, leaving the door open to a third-party challenge or restitution claim. Thirdly, historic disposals of the land plots upon which the project is based are often flawed, enabling a third party to mount a challenge. Lack of spousal consent, plus defective power of attorney and corporate resolution are just a few examples. Finally, the title to the land could be burdened by restrictions which prevent the disposal of the land within a ten-year period. This will often be breached, leaving the land title open to a challenge and the superficies right being declared null and void.

________________________________________________________________________Source: First Title

will often be breached, leaving the land title open to a challenge and the superficies right being declared null and void.

Controlling costs and protecting income Although these risks are not specific to wind farm sites, it is essential that a title insurance policy that covers risks associated with these projects accurately captures the exposure of the project operator, say industry insiders. “With investment costs for a 3 MW wind turbine ranging anywhere from EUR 1.5 million to EUR 2 million, it is not surprising that project developers and their investors would prefer to offload or transfer their title risks entirely rather than simply seek to minimize them,” said Jackson. “A policy must therefore cover not only the value of the turbines but also the idiosyncratic losses of

“In the coming years, the development of the renewables will determine an exponential horizontal development of other services, including risk management and insurance” Andrew Jackson, CEO of First Title CEE

grid connection costs, electrical installations and structural costs associated with renewable projects. The policy will cover the insured during their period of ownership and can be structured to cover the developer’s exit strategy and most importantly make the project bankable. It can cover certain contingent losses arising from premature decommissioning of the turbines as a result of the challenge.” As the project developer’s interest is typically an easement to use the land (most common in Romania as “superficies rights”), care must be taken to ensure that the owner has the requisite locus to grant the easement and, if not, that any potential risks are covered by the policy.

Looking ahead In the coming years, this relatively new area of law will become increasingly sophisticated and is likely to increase in complexity as technology and designs are enhanced. Title insurance will be an important mechanism for overcoming many of the initial obstacles faced by project developers and players say it will undoubtedly assist lawyers, in this increasingly competitive legal market, to deliver the best possible risk management advice to their clients.

Romanian Renewable Energy Overview 2012

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players. Title risks constitute a significant proportion of the overall project risk. “An increasingly common method for mitigating these risks is to invest in appropriate legal indemnity insurance. Title insurance can not only protect the project cash flow by effective title risk transfer but can also improve project viability by enabling wind turbines to be installed in optimal locations that may be affected by title defects,” said Jackson. According to him, there are four broad categories of title risks pertinent to developers of wind farms. Firstly – and by far the most commonly encountered category of title risk – is lack of adequate title rights to facilitate access for the commissioning, decommissioning and servicing of wind turbines and lack of rights for the installation of grid connection services. Secondly, in rural locations there is often uncertainty as to the legal ownership of the land plots upon which the turbines are erected. The basis of the title frequently commences with an ownership certificate, but the document supporting the entitlement to this certificate is often missing, leaving the door open to a third-party challenge or restitution claim. Thirdly, historic disposals of the land plots upon which the project is based are often flawed, enabling a third party to mount a challenge. Lack of spousal consent, plus defective power of attorney and corporate resolution are just a few examples. Finally, the title to the land could be burdened by restrictions which prevent the disposal of the land within a ten-year period. This

DEvelopers and producers Below is a list of developers and producers of renewable energy projects in Romania, with information supplied by companies or from company sources. Some developers are also active in green power consultancy and equipment supply, while others are branching out into green energy from their core business.

Alinso Group Country of origin: Belgium Address: Ploiesti-Targoviste National Road Km. 8, Piramida Street n°2, Piritex Building, Room 122, Ploiesti, Prahova County Website: www.alinso.eu Email: contact@alinso.eu Most senior representative in Romania: Ivan Lokere, CEO Alinso Group & Director Alinso Business Park, Ivan.lokere@alinso.eu

Services offered: development of solar, wind, hydro plants, development of energy efficient buildings, advice and financing of energy projects Activity in Romania: We have developed several energy efficient buildings in Ploiesti West Park. Moreover we are currently developing a 5 MW project in Ploiesti.

Directory: Developers & Producers

CONTINENTAL WIND RO Country of origin: Romania Address: 30 Vasile Lascar, 2nd floor, 020502, Bucharest Website: www.continentalwind.com Email: office.ro@continentalwind.com Most senior representative in Romania: Continental Wind Ro, Project Manager: Cristian Cristea; Continental Wind Partners, Representative for Romania: Mike Scholey Services offered: CWRo’s main activity is the development of wind energy projects, from the prospecting stage, wind monitoring and micrositting, authorizations and permits, up to the point where the wind farm is ready to be built.

CWRo develops its projects to the highest international standards, in conjunction with the local community and authorities, and with great respect for the environment. Activity in Romania: Independenta, a 232 MW fullpermitted project, is Continental Wind Partner’s second assignment in Romania. The project compromises 113 turbines, one substation and one Main Transformer Station, allowing for connection to 400 kV line. Independenta benefits from favourable wind resources and terrain characteristics, as well as proximity to a major road network and Galati harbour.

ELECTROPUTERE SA Country of origin: Romania Address: Calea Bucuresti No. 80, 200440, Craiova, Romania Website: www.electroputere.ro Email: electroputere@electroputere.ro

Representative clients in company’s portfolio: Transelectrica, Enel Romania, Eon Romania, Alstom Romania, Voith Siemens, CN Cernavoda, PPC Greece, Nepco Jordan, Metka Greece, ABB Greece, Siemens Greece, Cecgo Jordan, Terna Greece Services offered: Electroputere is one of the biggest power transformers, motors and generators suppliers in South-East Europe with a history of over 62 years of continuous existence and production. We are offering a large array of services

including engineering, manufacturing, acceptance testing, transport, erection, commissioning, testing at site, training, after sales services. Activity in Romania: Our experience has come from producing good and reliable products at the highest technical level for the electrical energy production in nuclear, thermal (based on oil, gas and coal), hydro and wind power plants for power generation, transmission and distribution of electricity. Our innovative technologies and production capacities, power transformers of up to 440 MVA, motors and generators up to 7 MW, together with the high flexibility in producing suitable products for your needs, have allowed us to be in a close relationship with our partners.

Energy Rose Group Country of origin: Cyprus Website: www.energyrose.com Most senior representative in Romania: Boaz Peled Activity in Romania: The company is active in wind power development and investment in CEE countries, predominantly Romania and Poland. In Romania the company is focusing

on the development of small and medium wind farms. The Group owns a portfolio of 40 MW in Romania, the first parks of which are producing while others are under construction or at the final stages of development. In Poland the company is developing large scale wind farms. The company has successfully secured capital from large financial institutions enabling it to rapidly construct and commission its wind parks.

Romanian Renewable Energy Overview 2012

ENEL GREEN POWER ROMANIA Country of origin: Italy Address: 62-64 Buzesti str., 6th floor, 1st District, Bucharest Website: www.enelgreenpower.com Most senior representative in or for Romania: General Manager, Mr. Francesco Lazzeri Location of offices in Romania [if this is the case]: Bucharest, Tulcea, Moldova Noua, Constanta

(installed capacity: 70 MW) and MOLDOVA NOUA (installed capacity: 25 MW)

Activity in Romania: The wind projects developed during 2010 and 2011 by Enel Green Power Romania were: AGIGHIOL (installed capacity: 34 MW), SALBATICA 1 (installed capacity: 70 MW), SALBATICA 2 (installed capacity: 70 MW), CORUGEA

Services offered: Enel Green Power Romania (EGPR) is the local subsidiary of Enel Green Power, the Enel Group company dedicated to developing and managing energy generation from renewable sources worldwide.

Energy Holding

Services offered: SC Energy Holding SRL Energy Holding is one of the most important private electricity suppliers in Romania and, at the same time, an active supplier in South East Europe. The company was the first Romanian

member of the World Business Council for Sustainable Development. Activity in Romania: SC Energy Holding SRL has acquired five small hydro power plants located on the Topolog River to become one of the first private green energy producers in Romania. Shortly after the acquisition, the company started to implement a rehabilitation and modernization program. The company is considering several power projects, using various resources, including renewable energy.

E-Star Alternative Country of origin: Hungary Address: central office in Romania: str. Revolutiei nr.1, cam 110, Tg.Mures; central office in Hungary: str. Székács nr 29, Budapest Website: www.e-star.ro Email: mures@estar.ro Location of offices in Romania: Gheorgheni, Tg. Mures, Zalău Most senior representative in Romania: Soós Csaba, CEO Services offered: Efficient heating and district heating supply, based on the use of the optimal mix of fossil and renewable energy sources tailored to local needs and circumstances.

Representative clients in company’s portfolio: Up to 100 institutions and more than 10,000 households use district heating provided by our company on E-Star’s three Romanian Project sites Activity in Romania: E-Star is continuing its activity according to initial plans on all three project sites. In 2011 the company changed its name and image in Romania from RFV to E-Star. An important step during the last year was the connecting of more than 1,000 consumers to the system in Tg-Mures.

Monsson Group Country of origin: Romania Address: 158 Mamaia Bvd., 7th -9th Floors, 900534, Constanta Website: www.monsson.eu Email: office@monsson.eu Location of offices in Romania: Constanta Most senior representative in Romania: Andrei Muntmark, Commercial manager Services offered: Monsson Group has developed 2.4 GW of onshore wind projects, of which 1.7 GW are fully permitted and 850 MW have already been sold. Project portfolio of wind farms developed by Monsson Group: 2010: Fantanele and Cogealac wind farm- 600 MW, 400 MW already in operation, second stage to be completed and operational in 2012, Galbiori and Silistea

2 wind farms – 10 MW, Mireasa 2 wind farm-10 MW, Corbu 2 wind turbine- 600 kW; 2011: Silistea 1 wind farm – 25 MW. Activity in Romania: Monsson Group offers a full range of services for wind farms including: development, construction, due diligence, wind power forecasting, security and video monitoring, consultancy services, wind farm communication infrastructure, aviation lights for wind turbines, commercial and administrative operation, technical operation of WTGs, technical operation for medium and high voltage equipment, maintenance and service for WTGs and electrical equipment, WTGs rotor inspection and repair. Monsson Group also acts as an electricity trader on the Romanian and Hungarian markets.

Romanian Renewable Energy Overview 2012

Directory: Developers & Producers

Country of origin: Romania Address: Str. Paris, nr.24, sector 1, Bucuresti Website: www.energyromania.com Email: office@energyromania.com Most senior representative in Romania: Mr. Roy Maybud, President

ICME ECAB Country of origin: Romania Address: 42 Drumul Intre Tarlale Street, 3rd Sector, Bucharest Website: www.cablel.ro Email: info@icme.vionet.gr Most senior representative in Romania: Michalis Trakadas, General Manager Representative clients in company’s portfolio: Eon, Enel, Cez, Fise Electricaserv, Snlo, Siemens , Alstom, Energobit, Ansaldo, Uti, Elcomex, Electroprecizia, Tiab Vinci, Icco Electric, Proimsat, Marsat, Simco Services offered: ICME ECAB has more than 50 years experience in the Romanian and international cable industry. Our group of companies (HELLENIC CABLES, ICME ECAB and FULGOR) is offering the widest range of cables starting

from data cable and fiber optic, to HV/EHV and submarine cables, according to international standards, certified by most reputable institution in the world (KEMA, CESI, IPH, VDE, IMQ). For wind parks we offer complete services for installation of HV cables (circuits optimization, installation of accessories and tests). For solar parks we offer halogen free cables according to the top international specs, metallic structures and we can offer turnkey solutions. Activity in Romania: wind: Fantanele, Cogealac (CEZ), Casimcea (Verbund), Gemenele (GDF Suez), Constanta (Eurovial); solar: Scornicesti (Renovatio Solar), ICCO Park Industrial, Rooftop Bucharest and Timisoara, Urziceni, Lehliu Sat (Consplan Management), Giurgeni (Altius Fotovoltaic), Electroprecizia Sacele, Constanta (Eurovial), Bucuresti (Com Electro Construct)

Directory: Developers & Producers

PROWIND Country of origin: Germany Address: Lengericher Landstrasse 11b, 49078 Osnabrueck, Germany Website: www.prowind.com Email: info@prowind.com Tel: +49 541 600 29 0 Services offered: The Prowind group of companies - with the head office in Osnabrueck, Germany - specialises in the acquisition, planning, permitting, financing, construction, and operation of renewable energy power plants. Prowind

operates worldwide, concentrating on wind power and also sales wind parks and ready-to-build projects. Activity in Romania: Prowind successfully negotiated a 300 MW Grid Connection Agreement and secured land for a total of 800 MW in the county of Vaslui. Prowind is developing five wind projects in this region: Deleni (122,5 MW), Bogdanesti (56 MW), Viisoara 1 (47,5 MW), Viisoara 2 (20,8 MW) and Viisoara 3 (52,8 MW) with turbine erection planned for 2013. Further wind projects are currently under study.

Tresoil Biofuels Address: 91-93 Calea Victoriei, Scara B, Et.2, Apt 4, Sector 1 Bucuresti 010067 Tel: 00 40 21 314 1469 Mobile: 00 40 723 030 662 (English), 00 40 732 409 029 Email: rpreston@btinternet.com

Activity in Romania: Tresoil Biofuels SRL renewable energy is a developer engaged in all aspects of building biomass power

plants and solar farms in Romania. Services offered: Tresoil is looking to attract the equity partners needed to bring the biomass power plants and solar farms project to fruition in Romania. In addition to the recent approval of the scheme to promote renewable energy (Law 220/2008), Tresoil already has the backing of several key stakeholders in Romania.

WSB Energie Verde Country of origin: Romania Address: Strada de Nord nr. 10 A, Iași, 700373 Tel: 00 40 21 314 1469 Mobile: 00 40 723 030 662 (English), 00 40 732 409 029 (Romanian) Website: www.wsb.ro Email: office@wsb.ro Most senior representative in Romania: Stefan Hain Activity in Romania: SC WSB Energie Verde SRL has a pipeline of more than 20 projects in Romania, in different stages of planning, development or execution, reaching more than 600

MW. The construction phase for the first project developed in Romania will start in 2012 (quarter 3). Services offered: SC WSB Energie Verde SRL is the Romanian affiliate of German group WSB Neue Energien GmbH. The group established its affiliate in Romania in 2008. WSB group as well as the Romanian subsidiary – SC WSB Energie Verde SRL - is successfully implementing projects in the renewable energy domain (mainly wind farms and photovoltaic power plants). Its main activity is to provide complete solutions in the development of wind energy projects (planning, realisation, sale and operation management) from one source.

Romanian Renewable Energy Overview 2012

Consultants and service providers Below is a list of companies which offer purely consultancy or provide servicing and maintenance for renewable energy projects. All data is supplied by the respective companies.

Aon Romania Broker de Asigurare Reasigurare SRL

Activity in Romania: Aon’s team in the renewable energy and power sector has extensive experience in providing services to major projects. We have a fully dedicated team in London, which works closely with our local team of professionals, and our services include, but are not limited to: developing new insurance carriers to drive competition in the market for our clients; negotiating and designing risk and insurance clauses and schedules for finance agreements, turbine supply agreements and project contracts; designing and placing bespoke, bankable insurance programs for renewable energy projects while satisfying all contracting parties. Aon has significant

relationships with renewable energy developers and operators globally. Services offered: Depending on the stage of the project development, the types of insurance products we negotiate for our clients are: - construction phase (construction, testing and handover): full value construction all risks (CAR), delay in start-up (DSU) with likely indemnity period of 12 months, full value marine cargo and associated DSU with likely indemnity period of 12 months, third party liability with an each and every loss limit dependent on contractual obligations and exposures, including an employer’s liability cover, title insurance, terrorism cover - operational phase: operating all risks including mechanical and electrical breakdown, business interruption, third party liability with an each and every loss limit dependent on contractual obligations and exposures, including employer’s liability cover, terrorism cover

CAPITAL PARTNERS Country of origin: Romania Address: 56 Dacia Blvd., Sector 2, Bucharest, Romania Website: www.capitalpartners.ro Email: office@capitalpartners.ro; robert.ghelasi@capitalpartners.ro Most senior representative in Romania: Doru Lionachescu, chairman Services offered: Capital Partners is one of the largest Romanian independent investment banking companies, www.capitalpartners.ro. being the exclusive Romanian member of M&A International, the largest mid-market M&A network in the world. The network gathers 45 member firms and accounts for transactions over USD 20 billion per year - www.mergers.net. Over the last six years, Capital Partners has closed transactions in excess of EUR 1.7 billion in the fields of M&A, Corporate Finance and Banking Advisory across a number of industries: Infrastructure, Financial Services, Energy, Technology, Agriculture and Real Estate. On the financing side we are specialized in the arranging and structuring of all forms of senior debt facilities, project financing, syndicated loans, large scale refinancing, subordinated debt and other forms of mezzanine financing. Our main areas of expertise in debt raising include, but are not limited to, energy,

real estate, infrastructure. On the M&A side we deliver merger, acquisition and divestiture services to growing mid-sized private companies and their investors. We apply our extensive knowledge of finance and management consulting to structure the most favorable terms, and always provide unbiased advice to ensure that our clients are comfortable with the transaction structures chosen, while permanently driving to create lasting wealth for the shareholders. Our goal is to understand each client’s needs, and give these companies and their investors the tools and support needed for all stages of growth, investment and transition. With a focus on superior analysis, breadth and depth of coverage, and forward thinking, we create value for our buy and sell-side clients while also consciously addressing the ethical dimension in deal development. Activity in Romania: During 2011 and 2012 we have secured capital and debt raising mandates for 10 energy projects (see the table detailed below) with an aggregate installed capacity of 395 MW covering the entire spectrum of renewable energy – wind, solar and small hydro – high efficiency cogeneration and waste management. The selling/debt raising processes are expected to be finalized for all 10 projects in 2012 considering the very attractive ERES legal framework in force in Romania since November last year.

Romanian Renewable Energy Overview 2012

Directory: Consultants and Service Providers

Country of origin: USA Address: Victoria Center, Calea Victoriei 145, 7th Floor, Bucharest, 010072 Website: www.aon.ro Email: office@aon.ro Most senior representative in Romania: Valentin Tuca, CEO Location of offices in Romania: Bucharest, Cluj, Timisoara

CEC Bank Country of origin: Romania Address: Cal. Victoriei 11-13, sect. 3, Bucharest, 030022 Website: www.cec.ro Email: office@cec.ro Most senior representative in Romania: Radu Gratian Ghetea, chairman

Location of offices in Romania: over 1,100 local units (branches and agencies) Services offered: The main purpose of activity of the Bank is other activities of money intermediation and the main line of business is money intermediation

Cube engineering Country of origin: Romania Address of headquarters: Breitscheidstraße 6, 34119 Kassel, Germany Website: www.cube-engineering.com Email: romania@cube-engineering.com Tel: 00 49 561 288 573 10

Directory: Consultants and Service Providers

Most senior representative in Romania: Stefan Chun, general manager

Representative clients include: ALTUS New Energy, Blue Planet, CEZ, Electroalfa, EP Energy Projects (ROM), E-Power Holding, EUROPP ENERGOCONS, Global Wind Power, OMV Petrom, Plambeck New Energy, RWE Innogy, SIFEE Wind Energy, Vestas, Wien Energy Services offered: Site Identification, wind measurement campaigns (>15 sites), wind studies and energy yield calculations (>50 sites), wind mapping, layout optimisation,

transport studies, tendering and contract negotiations, noise and shadow flicker analyses, solar energy assessment studies, services for photovoltaic projects (35 MW), owner’s engineer services (>650 MW), due diligence services (>2,200 MW), management consulting. Activity in Romania: CUBE Engineering is currently active as owner’s engineer at the wind farm construction site Fantanele/Cogealac (600MW) and has completed construction services for a 45 MW windfarm. The company has advised investors during due diligence processes for wind farms and provided wind studies for many sites. Additionally CUBE has elaborated solar energy assessment studies for several locations.

Deloitte Consultanta SRL (Deloitte Romania) Country of origin: United Kingdom Address of headquarters: 4-8 Nicolae Titulescu Road, East Entrance, 3rd Floor, Sector 1, 011141, Bucharest, Romania Website: www.deloitte.ro Email: abinig@deloittece.com Tel: 00 49 561 288 573 10 Fax: 00 49 561 288 573 19 Most senior representative in Romania: Hein van Dam, Partner in Charge, Financial Advisory Services Location of offices in Romania: Bucharest, Cluj-Napoca, Timisoara Representative clients include: Hidroelectrica, Nuclearelectrica, Eximprod, Transelectrica, MVM, Enel Green Power Romania, Global Wind Power, CEZ, EGL, TMK Europe, Turceni EC, Rovinari EC, Craiova EC, Electrica Activity in Romania: 2011 - ongoing, Eximprod, Sell-side advisory in selling the 100% in special purpose vehicles totalising 274.2 MW installed power wind power projects; 2011, Transelectrica, Study regarding the development plans of Romanian power system for 2011-2035; 2010 -

ongoing, Hidroelectrica, Sell-side advisory to Hidroelectrica in attracting investors for Tarniţa-Lăpuşteşti 10,000 MW pump storage hydro power plant; 2010, TMK Resita, Support in valuation of a set of assets including 18 MW hydro power plants and an internal distribution network; 2010, Electrica, Support in assistance for the Client in deciding on the acquisition of a 45MW wind power plant project Services offered: Deloitte is a leader in provision of investment banking services in Central and Eastern Europe, and its credentials from Romania contribute to such standing among first tier investment banking services providers in the region. The Financial Advisory platform provides a comprehensive range of multi-disciplinary advisory services including: Corporate finance & Advisory, M&A Transaction Services, Business Modeling & Valuations, Post-Merger Integration, Project Finance, Equity & Debt raising, Public Private Partnership (PPP), Advisory, Tax Structuring, Corporate Restructurings

Romanian Renewable Energy Overview 2012

FIRST TITLE INSURANCE Country of origin: United Kingdom Address: Szent Istvan Ter 11/b, 1051 Budapest, Hungary Website: www.firsttitleinsurance.eu Email: andrew.jackson@firsttitle-cee.com; oana.visoiu@ firsttitle-cee.com Location of offices in Romania: sales offices located in Budapest but local representative (Oana Visoiu) can be found via e-mail or mobile phone: +40 722 381 325 Most senior representative in Romania: Andrew Jackson and Oana Visoiu Representative clients in company’s portfolio: banks, real estate developers and investors, investors in agriland and forest land, developers or investors in green energy (mostly wind farms)

Services offered: First Title offers two types of policy for insuring ownership of an interest in land in Romania: Owner’s Policy, insuring the owner of the title, and Lender Policy, insuring a mortgage lender. Cover is for the period of the insured’s ownership, or the life of the insured mortgage. The cost is a “one off premium”, approximately 25-100 basis points calculated on the insured value, which is the Gross Development Value (land + improvements) for Owner insurance, and the Mortgage debt for Lender insurance. However this is dependent on the risk profile of the matter being insured.

Country of origin: USA Address: Floreasca Business Park, Corp A1, et. 3, Calea Floreasca, Nr 169A, Cod 014459, Sector 1, Bucuresti Location of offices in Romania: Bucuresti, Timisoara, ClujNapoca Most senior representative in Romania: Cristian Fugaciu (CEO) Representative clients in company’s portfolio: over 500 corporate clients and 11 of the top 20 companies in Romania Services offered: Marsh Broker de Asigurare – Reasigurare SRL is the Romanian subsidiary of Marsh Inc., part of Marsh & McLennan Companies group. Marsh combines risk consulting know-how with local and international

insurance brokerage services in order to help its clients to transform risk to opportunity. Activity in Romania: Marsh, a global leader in insurance broking and risk management, teams with its clients to define, design, and deliver innovative industry-specific solutions that help them protect their future and thrive. We are pioneers in offering insurance placement services on both local market and international ones. We cater for complex risks on an industry specific basis like renewable energy, chemicals, oil&gas, financial institutions, etc. Some of our most innovative projects offer protection through comprehensive programs or provide additional profit through affinity programs like Vodafone handset insurance, F64 photo camera insurance or bancassurance programs.

MEGAJOULE Country of origin: Portugal Address: Phoenix Business Center, Str. Buzesti Nr. 75-77, Etaj 9, Sector 1, Bucuresti 011013 Website: www.megajoule.pt Email: carlos.pinto@megajoule.pt Most senior representative in Romania: Carlos Pinto

and Energy Calculations; Pre-construction Noise and Shadow Flicker Assessment; Independent Wind and Solar Resource Assessment, Energy Production and Uncertainty Analysis; IEC Site Assessment; Independent Due Diligence; Wind Farm Performance Evaluation and Power Curve Measurement; Mesoscale and CFD Wind Flow Modelling.

Representative clients in company’s portfolio: EDP Renewables, Martifer Renewables, Infusion, RP Global, GDF Suez, IMA Partners, Continental Wind Partners, Enercon, European Bank for Reconstruction and Development (EBRD), European Investment Bank

Activity in Romania: Independent Auditing and Followup of wind measurement campaigns; Support to Developers in Layout Definition and Energy Calculations; Pre-construction Noise and Shadow Flicker Assessment Studies; Independent Wind and Solar Resource Assessment, Energy Production and Uncertainty Studies; IEC Site Assessment Studies; Independent Due Diligence for Banks; Active Presenter at Wind Energy Conferences.

Services offered: Independent Wind Measurement Campaigns; Support to Developers in Layout Definition

Romanian Renewable Energy Overview 2012

Directory: Consultants and Service Providers

Marsh Broker de Asigurare Reasigurare (Marsh Romania)

SPIEGELFELD INTERNATIONAL Country of origin: Austria Address: Strada Herastrau nr. 5, Sector 1, Bucharest Website: www.spiegelfeld.ro Email: daniel.fuchs@spiegelfeld.ro, office@spiegelfeld.ro Most senior representative in Romania: Daniel Fuchs, MRICS Representative clients in company’s portfolio: Multi-National Companies, Investment Funds, Equity Investors, Private Investors, Rea Estate Developers, RES-Developers, RESInvestment Funds, Banks Services offered: Real Estate Services: Consulting, Valuation & Brokerage in the field of commercial real estate, comprising:, Commercial & Residential Development Properties, Investment Products, Residential, Office & Retail Lease Transactions,

Apartments, Buildings & Villas for Sale & Rent; Renewable Energy Services: RES-Projects for Sale (Wind, Solar, Hydro), Consulting & Transaction Services for RES-Investors, Consulting & Transaction Services for RES-Developers, Financing & PPA Activity in Romania: Spiegelfeld International is an internationally active commercial real estate agency with a special focus on Central & Eastern Europe. The firm has been established on the Romanian market since 2004. Beside Real Estate Transactions & Consulting, Spiegelfeld has specialized in Renewable Energy Projects since 2009, mainly offering Transaction & Consulting Services for Wind, Solar and Hydro Projects. Spiegelfeld provides a large portfolio of investment opportunities in both, Real Estate & Renewable Energy.

Directory: Consultants and Service Providers

TPA Horwath Country of origin: Austria Address: 46 Grigore Cobalcescu Street, sector 1, Bucharest, Romania Tel: 00 40 21 310 0669 Fax: 00 40 21 310 0668 Website: www.tpa-horwath.ro Email: info@tpa-horwath.ro Most senior representative in Romania: Jan Glas, Managing Partner; Cristina Petrescu, Audit & Advisory Partner; Claudia Stanciu Stanciulescu, Tax & Accounting Partner

in the renewable energy sector were: transaction support, tax and accounting advice and audit.

Representative clients in company’s portfolio: Financial and tax due diligence on wind farms with targeted capacity varying from 7 MW to 150 MW. The total targeted capacity of the projects on which due diligence work was carried out in 2010 and 2011 was 560 MW. Financial and tax due diligence for a project developing small hydro power plants with annual production estimated at 6,000 MWh. Most important services

Activity in Romania: TPA Horwath is one of the leading tax and audit companies in Austria and Central and Eastern Europe. Our core services include accounting, payroll, IFRS reporting, auditing, financial and tax consulting, legal consulting, all of which are provided by a young and dynamic team of 85 specialized consultants.

Services offered: As a result of a significant number of clients in the areas of transaction services, accounting and audit for operational or under development wind farms, TPA Horwath Romania published an extensive report on Wind Energy in Romania. You can download a copy of the report via the link below. Weblink: http://www.tpa-horwath.ro/wp-content/ uploads/2011/09/Wind_Energy_Report_2011.pdf

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Country of origin: Romania Address: Alexandru Constantinescu 6 – 011 473 Bucharest – ROMANIA Tel: 00 40 31 224 8101 Fax: 00 40 31 224 8201 Website: www.tractebel-engineering-gdfsuez.com Email: engineering-ro@gdfsuez.com Most senior representative in Romania: Daniela Scripcariu Representative clients in company’s portfolio: Transelectrica, Electrica, Enel, EoN, CEZ, Hidroelectrica, Nuclearelectrica, Termoelectrica, Electrocentrale, GDF SUEZ Energy Romania, Roads administrations, Waterways administration, Municipalities, International Donors such as EBRD, BEI, Phare, RAEF and General Contractors Activity in Romania: During the last two year, Tractebel Engineering in Romania has been involved in major

energy and infrastructure projects with high impact on the economy development. They addressed power generation, including renewables, electricity transmission & distribution, end-use, as well as large infrastructures, such as motorways, roads, waterways and municipal water & wastewater networks. Services offered: Tractebel Engineering (GDF SUEZ) is a leading international engineering consultancy company, and offers state-of-the-art engineering and consulting solutions for the energy and infrastructure markets. The regional company of Tractebel Engineering in Romania provides tailored solutions from site selection, conceptual and feasibility studies, basic and detailed design to complete project management and supervision of the commissioning.

Romanian Renewable Energy Overview 2012

TECHNOLOGY PROVIDERS Below is a list of technology providers for the renewable energy sector, with information directly supplied by the companies.

ABB Country of origin: Switzerland-Sweden Address: ABB SRL, Floreasca Business Park, 169A Calea Floreasca, Building A, 014459 Bucharest Website: www.abb.com.ro Email: abb.office@ro.abb.com Tel: 00 40 372 158 200 Most senior representative in Romania: Peter Simon - Country Manager Romania, Bulgaria, Rep Moldova, Nicoleta Turiac - Executive Director Sales, Dumitru Sodolescu - Executive Director Operations

Representative clients in company’s portfolio: Romanian state-owned and private companies in the power and automation domains. Services offered: ABB is a leader in power and automation technologies that enable utility and industry customers to improve performance while lowering environmental impact. The ABB group operates in around 100 countries. In Romania ABB plays an outstanding role, supplying state-ofthe-art energy efficient solutions. Activity in Romania: Substations, wind projects, robotics

General Electric International (GE) Country of origin: USA Address: Floreasca Avenue 169 A, 1st District, Bucharest, Romania Website: www.ge.com/ro Most senior representative in Romania: Cristian Colteanu, GE President & CEO for Romania, Bulgaria and Moldova Location of offices in Romania: Bucharest Representative clients in company’s portfolio: CEZ Romania, Petrom S.A., Coca-Cola Hellenic Bottling Company S.A, Nuclearelectrica Services offered: GE has been active in Romania since 1984, when the company registered the local representative office and hired only two people. Since then, all GE businesses lines have entered the Romanian market, hence the number of employees exceeds 250 people today and it is continuously growing. GE addresses challenges as a solutions provider in multiple domains from energy, to health and home, to transportation and finance. Currently, GE local presence consists of seven registered legal entities, including Unison Engine Components Bucharest SA, the only manufacturing unit for aircraft engine components GE has in South East Europe, and GE Medical Systems Romania Srl, helping healthcare professionals provide patients with earlier diagnosis and treatment equipment. As an investor, GE has also partnered for the development of two industrial logistics centers operating under the “Olympian Parks” brand. GE is also a good corporate citizen locally initiating educational programs for students and their teachers.

Activity in Romania: GE’s story on the local market begins with the building of units 1 and 2 of Cernavoda Nuclear Power Plant back in 1984, for which GE supplied the turbo-generator units. Since then, GE has provided full maintenance and repair services, and it has recently signed a new eight-year agreement. The 600 MW Fantanele & Cogealac project owned by CEZ, is the largest onshore wind farm in Europe. It is being developed in southeastern Romania with GE equipment. The 2.5 xl units selected for the project represent GE’s advanced wind turbine technology in terms of efficiency, reliability and grid connection. GE Energy is building one of the region’s largest gas – fpower plants (860 MW) at Petrom’s refinery located in Brazi, near Ploiesti. The project includes two Frame 9 FB gas turbines, a GE D 11 steam turbine, three hydrogen – cooled generators, two heat recovery steam generators and a Mark Vle integrated control system. The Frame 9 FB gas turbine is the newest member of GE’s fleet of F - class technology. In line with a major EU emission reduction initiative, GE Energy, the Coca-Cola Hellenic Bottling Company S.A. and the energy development company Contour Global joined efforts to build a new cogeneration plant at Coca-Cola Hellenic’s Ploiesti bottling facility. The Romanian gas-based cogeneration plant is the first of the 15 combined heat and power (CHP) plants to be installed at Coca Cola Hellenic’s facilities in 12 European states.

Romanian Renewable Energy Overview 2012

Directory: Technology Providers

Location of offices in Romania: Bucharest head office and Cluj-Napoca

Siemens - Energy Country of origin: Germany Address: Strada Preciziei, nr. 24, Corp H3, 062204 Bucuresti, Romania Tel: 00 40 (21) 629 6355 Website: http://www.siemens.ro/ Email: siemens.ro@siemens.com Most senior representative in Romania: Cristian Secosan, CEO Siemens Romania; Petru Ruset, Head of Energy FWXT Representative clients in company’s portfolio: Enel Green Power, GDF Suez Energy Romania, Energobit, Eximprod Grup, Energie Verde, Elcomex, BlueLine Energy, Holrom, E.ON, CEZ, Transelectrica

Services offered: Siemens offers wind turbine generators, both geared and direct drive platforms, for all types of sites and wind conditions, including transport, installation and commissioning. Full EPC scope and financing support are offered to a selected few solar PV and wind power projects. From a broader perspective, energy transmission, distribution and automation solutions are offered to all kind of renewable energy projects.

Directory: Technology Providers

Vestas CEU Romania Country of origin: Denmark Address: S-Park Business Center, 11-15 Tipografilor St., Building B3, 3rd Floor, 013714 Bucharest, Romania Website: www.vestas.com, http://worldofwind.vestas.com/ Email: vestas-romania@vestas.com Most senior representative in Romania: Catalina Dragomir, Country Manager & Sales Director Vestas Romania Location of offices in Romania: Bucharest, Constanta, Medgidia and Barlad Representative clients in company’s portfolio: Local and international developers, utilities, IPPs

Services offered: With the industry’s largest global market share and most advanced technologies, Vestas is the world’s leading supplier of wind energy solutions. Vestas’ core business is the development, manufacture, sales, marketing, wind park construction and maintenance of wind turbines that use the power of the wind to generate electricity. Activity in Romania: Wind Energy market leader globally and in Romania (12.7% global market share and 43% in Romania); in RO 192 delivered turbines or 488 MW, 16 projects; 1st EPC project in RO (Erection, Procurement, Construction): Pantelimon, 50 turbines or 150 MW; Over 40 employees in Romania.

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Romanian Renewable Energy Overview 2012

AUTHORITIES AND ASSOCIATIONS Below is a list of relevant authorities and associations for the renewable energy sector in Romania

ANRE (Romanian Energy Regulatory Authority) Address: 3 Str. Constantin Nacu, Sector 2, 020995, Bucharest Website: www.anre.ro Email: anre@anre.ro Tel: 00 40 21 311 2244

Mission: An independent body with a mandate to create and implement the appropriate regulatory system to ensure the proper functioning of the electricity, heat and gas markets. ANRE works with central and local public administration, electricity, heat and gas initiatives and with international organisations in the field so that interests of all the sector players may be harmonised and the transparency of the regulatory process assured. ANRE is an autonomous body which is part of the Ministry of Economy.

Address: 1 Piata Presei Libere, corp D1, Sector 1, 013701, Bucharest Website: www.consiliulconcurentei.ro Email: forum@consiliulconcurentei.ro Tel: 00 40 21 405 4530

Mission: The Competition Council is an autonomous administrative body aimed at protecting and stimulating competition to ensure a normal competitive environment, with a view towards consumer interest. The Competition Council’s role has two major dimensions: a corrective dimension – restoring and maintaining a normal competitive environment; and a preventive dimension – monitoring markets and observing the behaviour of the actors participating in such markets. The board members of the council are approved by the Romanian President at the proposal of the Government.

Directory: Technology Providers

Competition Council

Ministry of Economy, Commerce and the Business Environment Address: 152 Calea Victoriei, Sector 1, Bucharest, 010096 Website: www.minind.ro Email: dezbateri_publice@minind.ro Tel: 00 40 21 202 54 26

Mission: Romania’s Ministry of Economy, Commerce and the Business Environment is responsible for the country’s energy strategy as well as the exploitation of its mineral resources. The Ministry also oversees the disbursement of European Union structural funds for the renewable energy sector.

Opcom (Romanian power market operator) Address: 16-18 Blvd Hristo Botev, 030236, Sector 3 Bucharest Website: www.opcom.ro Email: secretariat@opcom.ro Tel: 00 40 21 3071 450

Mission: Opcom administrates the electricity market by providing transparent transactions and regulating the fulfillment of commercial contracts. Opcom administrates the day-ahead trading of power, performs settlement operations for the day-ahead market and the balancing market. Opcom administrates the centralised market for bilateral contracts in the energy sector. The institution also administrates the green certificates market and the greenhouse gas emission certificates trading platform. Opcom is an independent body which is part of the Ministry of Economy.

Romanian Renewable Energy Overview 2012

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Ministry of the Environment and Forests Address: 12 Blvd Libertatii, Sector 5, Bucharest Website: www.mmediu.ro Email: srp@mmediu.ro Tel: 00 40 21 316 02 15 Mission: The Ministry of the Environment and Forests promotes a unitary and coherent environmental policy, including the integration of the environment requirements in the sector strategies. The Ministry oversees the closure

of waste storehouses that do not comply with EU requirements, aids the renewal of the technology of the central heating systems and in the increasing of energy efficiency, promoting renewable sources of energy and the ecological rehabilitation of the historically polluted areas and coastal erosion. It is also the guardian of biodiversity in Romania. The Ministry implements a â&#x20AC;&#x153;polluter paysâ&#x20AC;? principle and finances green projects through the Environment Fund, including those for renewable energy.

Romanian Photovoltaic Industry Association (RPIA)

Directory: Technology Providers

Country of origin: Romania Address: Bucharest Corporate Center (BCC), 58-60 Gheorghe Polizu Street, Floor 13-14, Sector 1, Bucharest Website: www.rpia.ro Email: magda.ion@rpia.ro Most senior representative in Romania: Ciprian Glodeanu, President Members of the Association: Austrian Enviro Technologies, Cappelo Group, Conergy, Egnatia ROM, Enfinity, FinansInvest, Hanwha Solar, Helios Strategia, IBCOenerg, ICMEecab, ISPE, Monsson Group, Schoenherr, Siemens, Skysolar, The Diplomat, Tractebel GDF Suez, UpSolar, Vinci, Vis Solaris, Vitalis Consulting, Wolf Theiss

Services offered: Lobbying, networking, event organizing, raising awareness and being a reliable source of information for the Romanian PV industry. Activity in Romania: RPIA was recently established by a group of exceptional specialists in RES-E advisory, and endeavors to represent the interests of all the investors engaged in developing PV facilities for RES-E production in Romania. The purpose of the association is to create a networking business environment for Romanian and international authorities and all the other foreign and Romanian companies involved in the PV supply chain.

Romanian Wind Energy Association (RWEA) Address: 3A Strada Moeciu, Sector 1, Bucharest Website: www.rwea.ro Email: contact@rwea.ro Tel: 00 40 720 555 613

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Mission: The Romanian Wind Energy Association is a selffinancing independent body which promotes the benefits of wind energy through public awareness campaigns and through the establishment of the best legal framework for the development of this industry in Romania, including the promotion of a fruitful cooperation between players behind the development of wind power in Romania. Members include major companies in the renewable energy market and related industries.

Transelectrica Address: 2-4 Str Olteni, Sector 3, 030786, Bucharest Website: www.transelectrica.ro Email: office@transelectrica.ro Tel: 00 40 21 303 5822 Mission: Transelectrica is the Romanian Transmission and System Operator (TSO) which oversees the power grid. The company manages and operates the electricity transmission system and provides the electricity exchanges between Central and Eastern European countries as a member of the

European Network of Transmission and System Operators for Electricity (ENTSO-E). Transelectrica is responsible for electricity transmission, system and market operation, grid and market infrastructure development ensuring the security of the Romanian power system. It also serves as the main link between electricity supply and demand, always matching power generation with demand. Transelectrica is majority owned by the Ministry of Economy with a minority listing on the Bucharest Stock Exchange (BSE).

Romanian Renewable Energy Overview 2012