“Access to the grid” by The Diplomat – Bucharest

Connection to the energy grid, plans for the further development of the distribution network and changes to the E-RES support scheme were the main topics discussed by top managers from the largest energy and energy-related companies at the power breakfast event Access to the Grid, organized by The Diplomat – Bucharest and Transelectrica in partnership with Noerr and CEZ

Bucharest May 23, 2012

Predictability and timely access for investors to the authorities’ regulation plans for this sector, the combining of prompt responses and adjustments in the segment in a coherent national strategy, along with the significant impact of a potential reduction in green certificates on photovoltaic investments are of paramount importance to the main energy operators, investors, distributors and regulators. And these topics were duly raised and debated at the event.

Also under discussion was the predictability that can reduce the risk assumed by investors in all markets, especially in the energy sector where any wrong calculation triggers high costs and could even cost business.

Petru Lificiu, vice-president, ANRE
“Within any market, the risk of a business is assumed by the entrepreneur, since there is no guaranteed business, and things function according to the market mechanisms. This simple principle applies also 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 over-supply in this segment, by addressing the production to the consumption and, also, to business indicators, such as efficient investments.”
“Currently, we are working on regulating the status of smaller energy projects, those equal to and under 500 kW/h. I believe that there is a need to develop large energy sites but the market is also calling for smaller and more dispersed projects, which could result in useful revenue sources for consumers and regions of remote and widespread small towns.”

Hinrich Fischer, executive director and head of energy & environment group infrastructure finance, Erste Group
“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 with the urgent need for a steady regulatory framework regarding the green energy segment in Romania. As there is no concrete date so far regarding the issuing of the new regulations reducing the number of certificates, the impact on the decision to invest should be considered.”

The over‑compensation issue

Issues surrounding the reduction of green certificates are being reconsidered, from the point of view of fair competition practices of conventional energy and renewable projects. However, the Romanian Energy Regulatory Authority (ANRE) backs the four-green certificate support scheme for photovoltaic projects, especially as the investment per MWh in this segment has decreased lately from a formerly estimated EUR 3.5 million per MWh to at most EUR 1.5 million, specialists say.

Petru Lificiu, vice-president, ANRE
“It is obvious that, 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 1MWh produced in photovoltaic centrals is rather exaggerated, and we suggest four. I must underline that, following ANRE’s analysis of the over-compensation issue, there will not be fewer than four certificates for photovoltaic projects.”
“The investments per MWh 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.”

Ciprian Diaconu, manager of technical division, Transelectrica
“In energy, any mistake can cost a business. If we are looking at the numbers, we are currently far from the consumption peak registered in 2009. Today, 1,541 MWh is the total installed capacity of wind energy locally, while photovoltaic projects make up a little more than 1 MWh.”
“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 MWh. Besides this, there are also connection notifications and demands for another 15,000 MWh.”
“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 country with a 10 million population in terms of production, while the consumption potential is equal to a country with only 5 million inhabitants.”
“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, we have invested EUR 100 million in reinforcement works on the distribution lines.”

Laura Neacsu, senior associate energy specialist, Noerr
“The logical pattern of any functional system, as the energy system is, starts with investments, legislative framework and financing, before further talks on grid connection or technical details. That is why, based on the feedback of our clients, we consider the predictability of regulations and market updates in this segment, directly linked to financing, to be of utmost importance for keeping investors in the market and triggering new investments.”
“Regarding over-compensation, 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.”

Producing too much electricity?

The over-compensation situation would be avoided if the monitoring reports regarding renewable energy investors and their green certificates target could be done by trimester, and not yearly as now. Currently, Romania has a very generous support scheme for green energies but issues regarding over-supply in the segment should be considered.

Adrian Borotea, corporate affairs manager, CEZ
“The key word in the energy system is balance. We have a very good 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 GWh per year, utopia; 10,000 is a more realistic amount. Even in the event of over-supply, the authorities should develop a mechanism regarding transfer pricing policies if local production is exported. The EC advises that, in the event of over-compensation, the support scheme be changed with immediate effect. There is also the issue of individual notification of the EC for projects exceeding 125MWh, 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.”

Carmen Neagu, region executive, GE Energy for South East Europe
“We are in a system that functions in difficult conditions. Unfortunately, the idea of a national strategy has been replaced by tactics. It is vital to develop and adhere to a national strategy drafted for the medium and long term in order to establish the predictability that everybody relates to. We also need complex studies to determine to what extent the complementarity of renewable energy can be effected within one system, and how these resources can be integrated.”

Gherghina Vladescu, head of the certificate trading office, OPCOM
“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 green certificate decreased from RON 248.3 to 247.5 then 246.3, at the latest trading session. Currently, 90 renewable energy producers have registered on the centralized trading market for green certificates.”