Since the government altered the incentives for renewable energy producers in July, the price of green certificates has taken a nosedive, putting the brakes on a fledgling industry that thrived during the recession, attracting around EUR 4 billion in direct investments.
By Ovidiu Posirca
In the face of growing electricity bills for households and big industry, the government decided in July (through Government Emergency Ordinance nr. 57/2013) to defer the granting of some green certificates, in a last ditch effort to rein in prices. Renewable associations vigorously attacked the bill, calling it anti-European. In August, Czech utility firm CEZ filed a complaint with the European Commission, the executive arm of the EU. The company argued that the gap in certificates would create a yearly shortfall of EUR 66 million in its revenues. The utility company operates the largest onshore wind project in Romania, of 600MW.
“GEO 57/2013 created turbulence with severe effects on the market. All of a sudden, the government seems to have switched from a pro-renewable attitude to an anti-renewable attitude,” Cosmin Stavaru, partner at law firm Bulboaca & Asociatii, told BR.
All projects see certificate delays
Under the bill, wind would remain with one certificate and recover the deferred one from January 2018.
Until March 2017, small hydro producers will have to manage with two certificates as one is delayed, while solar plants will receive four certificates with two on the deferred list.
Renewable energy producers qualify for green certificates for each mega-watt they feed into the grid, accounting for around two thirds of their revenues.
The amendments have also made it harder for producers to predict future prices of the certificates, which can trade as high as EUR 58 this year. The industry had estimated the price of green certificates would gradually start to go down from 2016, when Romania should begin to meet its targets for the share of renewable energy in total gross energy consumption.
The price of one green certificate fell by 14.5 percent to an average of EUR 47 in the first semester of this year, according to data compiled from the energy stock exchange OPCOM.
Stavaru says the drop in prices is a result of the amended bill, turning the green certificate trading platform into a buyer’s market. Electricity was traded on the spot market at around EUR 31.8 per mega-watt, a price experts say underlines the low electricity demand and higher output from renewables.
“The drop in the green certificates’ price is clearly driven by the ascending number of such certificates traded on the market,” Bogdan Acatrinei, manager at the professional services firm TPA Horwath, told BR.
“We believe that owing to the legislative ambiguities and confusion that still exist on the market, following the enforcement of GEO 57/2013, the price (e.n. of green certificates) will start to go up in the coming period and stabilize close to the maximum price of the certificates established by law, contravening the government’s intention to reduce energy bills,” Ciprian Glodeanu, president of the Romanian Photovoltaic Industry Association (RPIA) told BR.
The legal inconsistencies affecting the renewable sector are also fueling banks’ mistrust in renewables, reckons Stavaru of Bulboaca & Asociatii, who adds that the government had put in place a favorable environment for renewables just two years ago.
“This inconsistency damages the trust of the banking sector in renewables more than the actual number of green certificates postponed or reduced,” says Stavaru.
He suggested lenders were likely to ask for a larger portion of equity when financing a renewable project.
“From our signals so far, there is a consensus that the financial calculations look rather bad and many projects are on the brink of insolvency or unprofitability. However, there may be significant differences between particular projects, due to variations in investment costs and/or productivity. Some projects may well still be profitable,” commented Stavaru.
Representatives of foreign investor communities have voiced their concerns following the changes to the renewable market.
“The suspension of the issue of green certificates risks creating grave economic imbalances, for both producers and consumers who will have to pay for the green certificates entering the market in 2017 and 2018,” Mauro Maria Angelini, president of Confindustria Romania, an association of more than 700 Italian companies active locally, told BR.
New projects suffer double whammy
In a draft bill published in late August, the Ministry of Economy proposed a reduction of incentives for new projects coming online next year, citing falling technology prices. The authorities will axe the support for technologies deemed overcompensated, where producers recover their investment faster.
They plan to cut 0.7 green certificates from small-hydro projects, which will end up with 2.3 certificates. Solar incentives will be slashed in half to three certificates.
Wind projects will lose 0.5 certificates through to 2017 and 0.25 certificates in 2018. They will receive 1.5 certificates through to 2017 and 0.75 certificates from 2018.
“The current version of GEO 57/2013 seems to combine the postponement with the cut for overcompensation, so new projects will be penalized twice, leaving them with few returns in the first few years of operation,” warns Stavaru. “In order for banks to finance such projects, they would have to agree to long grace periods.”
He commented that unless the bill was overturned by Parliament (it has already been approved by the Senate), any new project would become unfeasible.
“On short term, the number of traded green certificates will continue to increase as new power plants will be finalized and start operation. This will further push green certificates prices down as long as electricity consumption and demand will not vary significantly,” commented Acatrinei.