Romania’s renewable investors struggling with financial pressures

Newsroom 15/03/2016 | 11:03

For the past two years, the local renewable sector has been grappling with reduced incentives and unclear legislation, say investors, who warn that, on this backdrop, it will be difficult for the country to attract new projects. This stark outlook comes after years of booming growth, which has translated in around EUR 6 billion worth of investments.

Ovidiu Posirca


Most of the investments were made in the wind sector, which had reached 3.129 MW of installed capacities at the end of 2015, down from the previous year when the wind parks that received incentives stood at 3.220 MW. Solar was second, with 1.325 MW of installed capacities at the end of 2015


Players reeling from booming years

The depressed state of the renewable market has been described by both investors and companies that helped with the construction of projects.

Titus Loew, CFO at Siemens Romania, said during the seventh German & Austrian Investors Forum organized by Business Review in February, that the company had worked in the past on big energy projects, in the renewable sector, but because the incentives were cut, now the operations in these areas have “slowed down substantially”.

For instance, Monsson Group, the biggest developer of renewable projects in Romania, decided last summer to close down a wind farm, citing the changes in the green certificate support scheme. The farm had an installed capacity of 27 MW and was never put into operation although it had been finished in 2011. The company has developed 11 wind projects in the country, the biggest one being a 600 MW farm that was sold to Czech utility CEZ.

“We are talking about a collapse state for the renewable energy industry, a state in which the investments that have already been made run a real risk of bankruptcy, while the potential ones have been halted indefinitely,” representatives of the Romanian Wind Energy Association (RWEA) have told BR.

The association cited a recently published report which stated that the operation period for a wind park is of 20 years, while in Romania investors will need 33 years to recover their investments.

“This is a paradox which, together with the unpredictable legislation, practically blocks any new initiative in the sector. Last year, two companies controlling wind farms filed for insolvency. The message for any investor is negative and discouraging,” stated the RWEA representatives, adding that Romania will become “interesting” once again for investors only if we will have a predictable energy strategy.


Investors call for improvement of legislation

The association of wind investors stated that the industry got the biggest hit after the approval of Government Decision 57/2013, which was later ratified through law 23/2014. This bill included the deferment of trading for a portion of green certificates through to 2017, depending on the technology.

Moreover, starting last year, the big industrial consumers received exemptions of up to 85 percent for the acquisition of green certificates. The government moved to help large energy consumers, which argued that they had to pay a higher bill due to the incentives scheme. These companies said the higher electricity prices hit their competitiveness at an international level.

According to the data by the Ministry of Economy, among the companies that were granted exemptions there were aluminum maker Alro Slatina and cement makers Holcim and Carpatcement.

The ministry stated that the exemption of green certificates’ acquisition applied for roughly 7TW of electricity in 2015.

Although the government has increased the quota of renewable energy that is incentivized to 12.15 percent this year, from 11.9 percent in 2015, wind investors said this was not enough. The quota is computed as a share of the total gross energy consumption.

“The quota approved for this year maintains the same financial pressure and it is still below the amount initially mentioned in the law, on the basis of which all the business plans of current projects have been built. We are also talking about the constructions tax, which further burdens the industry”, stated the RWEA.

The ministry of Energy, Victor Grigorescu, said that Romania had one of the most generous schemes for renewable energy and, at the same time, the lowest target in the EU for increasing the share of renewable within the total energy consumption.

“And this discrepancy forced us some years ago to completely cut or dramatically limit the amount of aid for this sector. Today, we are in a process of returning to normality,” said Grigorescu, in early February, in an interview for RFI radio station, adding that he was seeking to secure balance in this sector.

“At the moment, there are solar installations that are linked to the grid and supply energy. Of course, I am worried when I see that wind mills generate a few thousands MWs during periods with strong winds, but these amounts disappear in a second when the wind suddenly stops. This is not a good thing. (….) I want the energy strategy to offer a framework that could stop these slippages,” explained the minister.

The Ministry of Energy is currently working on a new strategy, aiming to submit the finished document for the final vote in Parliament this year.


Foreign utilities have strong investment positions in Romania

Czech utility CEZ, Italy’s Enel and France’s Engie are among the big investors in Romania’s renewable sector, primarily in the wind segment.

At present, there are certain key elements in the renewable sector and the policy regarding green certificates that could be up for debate, suggested Martin Zmelik, the country manager of CEZ Group in Romania.

“The market for green certificates is defined by a series of parameters that could have an impact on the correct price of GCs: the value of the green certificates’ quota, the one year validity of the GCs which could generate a certain pressure for merchants, the floor price for a GC and the lack of guarantee principles when this level is reached, the exemption of certain large energy consumers from acquisition of GCs”, Zmelik told BR.

The head of CEZ in Romania added that the system is currently “out of balance” and that it needs a remodeling of the legal framework.

“A complete overhaul could be represented by the feed-in tariff”, stated Zmelik, who added that the future solution has to be stable and predictable for both energy producers and the clients.

Zmelik has pointed out that 2016 is the last year when energy producers can ask to be enrolled in the GC support scheme.

The CEZ executive has also underlined the role of the new energy strategy in establishing a balanced approach for all producers.

CEZ Romania currently operates a 600 MW wind farm in Dobrogea region and a network of four small hydro-plants with a combined capacity of 22 MW after the completion of a modernization plan.

Elsewhere, Enel had 543 MW renewable installed capacities in Romania at the end of 2013. The projects are controlled by Enel Green Power Romania; the renewable arm of the Italian utility Enel had 498 MW in wind farms and 36 MW for solar installations.

Engie currently operates two wind farms with a combined capacity of around 100 MW in the country.


Romania’s share of renewables in energy consumption exceeded EU average

The Eurostat, the statistics office of the EU, announced in February that Romania covered more of its energy consumption from renewable sources compared to the EU average. The data crunched by the European specialists has shown that in 2014, the local renewable sector generated 24.9 percent of the gross final energy consumption. This average figure for the EU stood at 16 percent in the same period.

In fact, Romania had already met its 2020 EU target for renewable energy two years ago. However, experts fear that going forward the country could see this share of renewable in total consumption diminish if new investments do not show up or if some operational activities go offline due to financial problems.

According to Eurostat, among the 28 EU member states, a third have already reached the level required to meet their national 2020 targets: Bulgaria, the Czech Republic, Estonia, Croatia, Italy, Lithuania, Romania, Finland and Sweden. Moreover, Denmark and Austria are less than 1 percentage point from their 2020 targets.

The countries that are the furthest away from their targets include France, The Netherlands, Ireland and the UK.

According to data by grid operator Transelectrica, renewable energy increased its share by 2 percent in the total generation mix.

Compared to 2014, the energy generated from renewable sources rose by 1.2 TWh due to extended generating capacities, while the amount produced from hydro sources decreased by 2.1 TWh, due to the droughts recorded in the third quarter of 2015.

The total installed capacity in renewable energy rose by 2.9 percent last year, or 124 MW, to 4.400 MW, according to Transelectrica. Out of the total capacity, wind had a share of 67.7 percent, while solar accounted for 29.6 percent, while biomass installation accounted for 2.7 percent of all capacities.

In 2015, renewable energy production accounted for 15 percent of the total output.

Box 1 renewable

Box 2 renewable

Box 3 renewable

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