Wind of change blows through regulations for renewable energy power plants

The new support scheme for renewable energy power plants – fully developed by the new Law 220/2008 – includes some significant positive changes. Law firms such as Tuca Zbarcea & Asociatii, Salans and DLA Piper have analyzed for Business Review the pluses, the minuses and the things which should have been revised in order to make the market more stable and trustworthy for investors. The new law is estimated to be published in the Official Registry in mid-July.

Dana Ciuraru

Positive changes in the renewable energy support scheme law

Irina Moinescu, managing associate with Tuca Zbarcea & Asociatii, which was directly involved in editing the amendments to Law 220/2008, and Ramona Volciuc-Ionescu, senior associate at DLA Piper, say that establishing annual quotas for renewable energy leads makes the market much more stable.

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• Mandatory annual quotas of electricity produced from renewable sources that benefit from the support scheme were increased, as follows: 2010: 8.3 percent, 2011: 10 percent, 2012: 12 percent, 2013: 14 percent, 2014: 15 percent , 2015: 16 percent, 2016: 17 percent, 2017: 18 percent, 2018: 19 percent, 2019: 19.5 percent, 2020: 20 percent.

• Allotting 3 green certificates (instead of 1) for each 1 MWh produced and delivered in the new hydropower plants, and 2 green certificates (instead of one) for each 1 MWh produced and delivered in the refurbished units

• Extending the support scheme for electricity from wind with 2 green certificates by 2017 and 1 certificate starting 2018.

• Allotting 6 green certificates (instead of 4) for each 1 MWh produced and delivered by energy producers from solar sources.

• Indexing the green certificate trading value with the inflation rate from the EU 27 published by Eurostat.

• Increasing the penalties paid by suppliers for each green certificate not acquired from EUR 70 to EUR 110, a sum also indexed with the inflation rate in the EU 27, published by Eurostat.

• Defining and using unitary notions in the law (such as compulsory annual quota of green certificate acquisition, mandatory annual quota of electricity produced from renewable sources which will benefit from the support scheme), to avoid confusion generated previously, both for investors and banks, by the unclear terminology.

• The producers can qualify step-by-step the energy capacities in order to apply the support scheme.

• Setting extra guarantees for renewable energy producers in case the energy transport operator or distributors want to take measures to limit the use of renewable energy sources. Thus, these limitations may be imposed only to ensure the security of the grid.

• Integrating into the national law of the stipulations the Directive no. 2009/28/CE of the European Parliament and the Council of 23 April 2009 on promoting renewable energy use, and subsequently amending repealing Directives 2001/77/EC and 2003/30/EC, published in the Official Journal of the European Union no. L140 of June 5, 2009, relating to transfer statistical amounts of electricity from renewable sources by another member state, as well as joint projects with other EU or non-member countries on the production of electricity from renewable energy sources.

• To eliminate the risk of using old equipment in generating energy from renewable sources, the law set the new power plant definition, under which a new power plant is the one put into operation after January 1, 2004, composed entirely of new equipment.

• Furthermore, isolated power plants will benefit from green certificates encouraging the installation of renewable energy for those units not connected to the grid.

• The minimum price of EUR 27 and the maximum price of EUR 55 per certificate will be applied by 2025 and starting from 2011, the annual price will be indexed with the EU 27 average inflation rate recorded in December the previous year by the National Energy Regulatory Agency (ANRE).

• Equal sharing of the connection costs between producers and system operator and distributors, if necessary.

“An important modification refers to the fact that the Law 220 sets a clear period for the scheme’s availability (including after 2025), which contributes to the increase of investors’ confidence in the system’s stability,” Claudiu Munteanu-Jipescu, partner with Salans, told BR.

Aspects not changed in the new law

The Tuca Zbarcea & Asociatii managing associate and the DLA Piper senior associate say that among the aspects of the law which were not modified although it would have been beneficial for investors is the fact that the losses of green energy through the national grid are supported by the investors.

• The main problem is that banks who are requested to finance the projects do not have the certainty that the green certificates issued to a producer will be entirely purchased in the future, as the excess of green certificates is not guaranteed to be bought.

• Another problem which may arise comes from the rule according to which green certificates are issued to the producers for the amount of electricity produced and delivered to suppliers and/or final consumers, this meaning that the producers will bear all energy losses in transmission / distribution networks, to the point of delivery. Unfortunately, the amendments proposed in order to fix this situation were not passed by Parliament.

“The amended law stipulates that the ANRE and the Ministry of Economy have to draft the secondary legislation in order to implement the support scheme adopted by Law 220. Other measures discussed and expected by investors, and whose implementation would promote investments in renewable energy investments, include the launch of the intraday market and adoption of special legislation on land expropriation and on construction of new transmission lines,” Ramona Volciuc-Ionescu, senior associate at DLA Piper, told BR.

Negative changes from the Law 220

Ramona Volciuc-Ionescu and Claudiu Munteanu-Jipescu believe that there are a few changes in the new law which cannot be labeled as being in the best interest of the investor.

• The law requires energy distributors to purchase the green energy at regulated prices for the renewable energy producers who have installed power plants with less than 1 MW, leaving an unclear situation for producers with installed capacity over 1 MW.

• Another unclear issue is related to ensuring financing, if their market sees green certificate inflation which will lead to the real price collapse. Although the law sets a minimum of EUR 27 per certificate, it is unclear from what sources that minimum amount will be ensured.

• An aspect that was cut from the law refers to the possibility of granting additional incentives to the renewable energy producers – for example, state guarantees for loans up to 50 percent for medium- or long-term contracts, providing financial contributions to the state budget for new jobs created, etc. However, this change was imposed because these facilities were likely to constitute state aid which would have slowed the approval of the support scheme by the EC.

• The amended law imposes some more burdensome obligations for electricity suppliers such as mandatory quotas applicable to the green certificates support scheme increasing gradually, reaching 20 percent by 2020.

“A change that could be seen as negative by potential investors that were intending to use second hand equipment in their projects, is the one according to which the promotion system shall be applied, in case of electrical capacities previously used in other countries (i.e. second hand equipment), only for 7 years and only if they are used in isolated systems not linked with the national grid and/or put into use before the amendments to Law no. 220/2008 but, in any case, not older than 10 years and also complying with environmental laws. The intention is obviously to protect the environment by using advanced technologies, but it affects those investors who have planned to develop projects using second-hand equipment and did not manage to commission them before the enforcement of the amendments to Law no. 220/2008,” Irina Moinescu, managing associate with Tuca Zbarcea & Asociatii, told BR.