Despite having made significant steps towards an accelerated development of its energy market, Romania still has a long road ahead, especially when it comes to establishing a more predictable legal framework.
The Romanian energy market has developed significantly in the past fourteen years and its legislation has been harmonised with the EU legal framework in the field. Some of the most significant privatisation processes in this sector have been carried out, respectively the privatisation of electricity, gas distribution and supply companies, as well as of one of the largest Romanian oil companies. According to the SEE Energy Handbook 2014 issued by NNDKP, the energy market has been, and continues to be, one of the most attractive sectors for investors, especially due to Romania’s remarkable potential for energy sources.
For example, The European Bank for Reconstruction and Development (EBRD), the largest institutional developer in the country, says that it is looking at energy efficiency investments in Romania over the next five years.
“That will be done through a number of products. Both through direct investments in companies with specific use of proceeds targeted at energy efficiency improvements and, hopefully, with the introduction of new products to be deployed through our partner banks,” said Matteo Patrone, EBRD director for Romania. However, Romania’s capacity to attract further investments depends a lot on offering stability in terms of legislation, he warned.
“We have been public in expressing our concerns regarding the change of legislation, in particular with reference to the retroactive effect of that legislation. That will hinder further investment in this sector. Our projects are still doing fine, but I can imagine that private investors in the sector will look at the market with some concern. And I can’t make any forecast for the future, but indeed, given the very strong potential that the country has in old and renewable energy alike, on the medium term, I am positive and I tend to be optimistic”. EBRD is the second largest shareholder of Electrica, after the Romanian state. In 2014, it invested EUR 75 million in the company’s IPO. The bank focuses its investments in Romania on four sectors: financial, energy, infrastructure and the corporate sector. Over the past four years, it has invested locally EUR 1.5 billion split “relatively balanced” across the four sectors.
Following its full liberalisation in 2007, the Romanian electricity market has been gradually developing. Whereas the complete liberalisation of the market has not yet been achieved, progress has been made and future legal changes are envisaged to align the Romanian market to European requirements.
At present, Romania benefits from significant potential in various renewable energy sources like wind, solar, hydro and biomass. While investors have focused mainly on wind in the past, things are different now that there has been a move towards solar projects. For example, the Romanian solar park developed last year with 350 additional MW, reaching 1,223 MW in total in 2014 while the generated solar energy counted for about 1.5 percent of the total power delivered to the local market. “The projects that have been developed so far in Romania consist mainly of generating units for retail and trading purposes. By contrast with other European countries, few companies or households in Romania have decided to install solar panels in order to cover their own consumption,” says Andra Ioan, senior project manager at Roland Berger Bucharest office, quoted by business-review.eu.
According to the same SEE Energy Handbook 2014, in promoting its resources, Romania was quick to adopt supporting mechanisms for all renewable energy sources consisting mainly of a system of mandatory quotas combined with green certificate trading. But there is some bad news on the market. At present, the green certificate market is collapsing due to a major reduction in the annual mandatory quota of electricity produced from renewable energy versus the values set out in Law 220:11.1 percent compared to 15 percent in 2014 and 11.9 percent compared to 16 percent in 2015. According to energy and gas market regulator ANRE, in late 2014 the total number of green certificates issued through the program was 12.7 million fewer than the quota estimated by the institution at the beginning of the year, i.e. 17.6 million. For 2015, ANRE estimates the issuance of 18.1 million green certificates, up 3 percent from the previous year.
And things don’t stop here. Monsson Group, the largest developer in the Romanian wind energy sector, decided recently to dismantle its windmills from CEE Targusor from Constanta. The decision is the result of the legal regulations adopted by the Romanian Government in the past two years and the uncertainty regarding the Romanian renewable energy market. “Unfortunately the major changes of the legal framework for renewable energy doesn’t allow our project to be in line with the initial economical parameters, becoming unfeasible from a financial perspective,” stated in a press release Sebastian Enache, business development manager at Monsson Group, earlier this year, quoted by Agerpres. The company has invested over EUR 200 million in building and operating wind and solar parks.
According to the same NNDKP report, the local gas market has registered significant changes in recent years due to its reorganisation and restructuring and the development of the regulatory framework. The restructuring of the natural gas sector is a consequence of the commitment of public authorities to adapt to the realities of the natural gas sector, as well as of the collaboration with European structures. The liberalization of the natural gas market, according to European requirements, implies the creation of an actual competitive environment, allowing consumers the possibility to choose their natural gas supplier and increasing investments in the gas sector.
As NNDKP analysis shows, the natural gas market is still divided into the competitive market and the regulated one. With the former, the prices for gas supply are formed freely, irrespective whether the transactions are wholesale or retail. The regulated market includes regulated activities such as transmission, distribution or storage, as well as regulated supply.
At present, the market involves certain major players, either at a global or regional level, such as ExxonMobil and OMV Petrom SA. The interest in Romania’s gas production capabilities has increased recently with the discovery of certain important reserves in the Black Sea, while the possibility of shale gas exploitation is also considered by certain companies.