December 2016 – The European Commission announced on 19 December 2016 its decision not to raise objections to Romania’s intention to amend its green certificates support scheme for promoting electricity from renewable sources. The decision was issued on 16 December 2016, three weeks after the registration of the Romanian government’s notification, and should be made available on the Commission website after redaction of any confidential information.
Background information on the support scheme
Romania’s green certificates renewable energy support scheme was initially approved by the Commission in July 2011 through decision no. C (2011) 4938 and was intended as means of assisting Romania in reaching, by 2020, the mandatory renewable energy target of 20% set under Directive 2009/28/EC. In national legislation, the scheme was introduced through an amendment to Law no. 220/2008. According to the scheme, electricity producers are entitled to green certificates for each MWh generated from renewable sources such as hydropower, wind, solar, geothermal, biomass, landfill gas or sewage treatment plant gas. The state-issued certificates granted to producers are further sold to electricity suppliers on centralised markets operated by the Romanian Power Exchange (‘OPCOM’). Electricity suppliers have a legal obligation to acquire a certain amount of green certificates, determined each year by the National Energy Regulatory Authority (‘ANRE’). Green certificates are, at the end, invoiced by suppliers to end-consumers.
The support scheme, as approved initially, is believed to have attracted investments of over EUR 7 billion in local power generation capacities, the most substantial being the development by CEZ Group of a 600-MW wind farm in the Cogealac-Fântânele area of Dobrogea.
The support scheme is open until 31 December 2016, which is the time limit set for new beneficiaries to enter the scheme. All beneficiaries of the scheme were initially intended to receive green certificates during a support period of 15 years for new installations, 10 years for upgraded or refurbished hydro installations, 3 years for existing hydro installations and 7 years for second-hand installations. The initial budget estimated by the Romanian government for the support scheme was EUR 19.5 billion for its duration.
Further developments and amendments to Law no. 220/2008
In retrospect, one could say that the green certificates support scheme, in its initial version, was the victim of its own success. In its infant stage the support scheme attracted investments that exceeded all expectations, causing imbalances that translated into an excess of green certificates on the market and significantly increasing costs for end-consumers.
The adjusting measures later implemented proved too harsh and resulted in great losses suffered by investors, especially following depreciation of their assets. These measures mainly aimed (i) to limit the payments towards producers (e.g. by reducing the number of green certificates per MWh; temporarily suspending from trading some of the green certificates; reducing the validity term of green certificates to only 12 months following allocation or closing the loop for new operators) and (ii) to reduce the costs for end-consumers (e.g. by partially exempting energy-intensive users from the green certificates support scheme – a measure which, nonetheless, has led only to a redistribution of costs within consumer categories).
Latest changes approved by the European Commission
The latest changes to the support scheme are encompassed in the notification sent to the Commission in November 2016 and were cleared by the European governing body on 16 December 2016. The amendments to Law no. 220/2008 are expected to be introduced through a Government Emergency Ordinance (‘GEO’). A first draft of the GEO was published for public consultation by the Romanian Ministry of Energy in late October 2016, and a revised version was made available on the ministry’s website on 17 November 2016.
The changes to the support scheme aim to correct the imbalances encountered on the green certificates market while ensuring that prices charged to end-consumers remain at a bearable standard. The main changes include:
- a new way of determining the green certificates quota for a fair distribution of the burden held by end-consumers. The entire amount of green certificates estimated to be issued during the 2017-2031 period (also including the green certificates temporary suspended from trading during 2013 and 2014) will be divided by the number of years left until the end of the support scheme. This annual, static quota will be reviewed every two years;
- increasing the validity period of green certificates. Green certificates issued after 1 January 2017 will be valid until 31 December 2031;
- the extension of the temporary suspension from trading of green certificates until 31 December 2024 for solar technology. Also, the green certificates reinsertion period for wind and hydro producers will be extended to 8 years, starting 1 January 2018 until 31 December 2025, and the reinsertion period for solar producers will be extended to 6 years, starting 1 January 2025 until 31 December 2030. The green certificates reinsertion will be made in equal monthly instalments;
- green certificates will be registered in the accounts of beneficiaries only after being traded and no longer upon issuance. This measure is intended to prevent cash flow difficulties for electricity producers;
- electricity producers and suppliers will trade green certificates starting 1 July 2017 exclusively on a dedicated centralised market operated by OPCOM that will ensure the anonymity of parties involved. In addition, producers and suppliers will be forbidden from entering into additional acts to currently applicable bilateral contracts for the sale of green certificates in order not to circumvent the new trading rules. Violating these rules will be sanctioned with a fine between 1% and 5% of the turnover achieved during the year preceding the sanctioning decision;
- repeated transactions of green certificates will be prohibited (i.e. as a general rule, only one transaction per certificate is allowed) as a measure against market speculation;
- setting new minimum and maximum trading values for a green certificate to EUR 29.4 and EUR 35, respectively. Also, the penalty for electricity suppliers not acquiring the compulsory amount of green certificates each year will be lowered from EUR 110 to EUR 70 per green certificate; and
- introducing provisions limiting the medium impact on end-consumer invoices to EUR 11.1/MWh.
Preliminary reactions
The anticipated changes have been welcomed by investors in the renewable energy sector, most of whom recorded heavy losses following the initial amendments to Romania’s green certificates support scheme. These new measures could revitalise a sector that had initially drawn substantial foreign investment and made Romania one of the most attractive countries in the world for renewable energy projects.
Making the support scheme functional again is also paramount to attaining the objectives set by the Romanian Energy Strategy for the 2016–2030 period published in December 2016, where the 2030 target for the share of electricity generated from renewable energy sources in the final consumption of electricity is 27%.
Nonetheless, it is too early to tell how the new government to be formed after this month’s parliamentary elections will implement these changes and whether such measures have the potential of making Romania a hot-spot again in the renewable energy sector. Any decision to further alter the changes approved by the Commission would need to be notified again to Brussels before being enacted.
For more information, please contact Iustinian Captariu, Counsel, at +40 21 307 1643, , or Catalin Graure, Junior Associate, at +40 21 307 1668, .