Happy start of the year for the Romanian electricity market
The very last days of 2021 kept Government busy amending the Electricity and gas law no. 123/2012 (the “Energy Law”) by adopting Emergency Ordinance no. 143/2021 amending and supplementing the Energy Law, as well as amending other legal enactments (“GEO 143/2021”). GEO 143/2021 gives a pretty good start to 2022 for the Romanian electricity market.
Adopting GEO 143/2021 was a must for Romanian authorities as Romanian was much behind the European deadlines as regard the implementation of the European legislation part of the Clean Energy for all Europeans package. Although some of the new provisions are merely taking over existing principles from other Romanian legal enactments, some of the changes are highly important for all stakeholders of the electricity market. Below you may find few highlights of such changes.
1. PPA ban was removed
After a ban which lasted almost a decade, participants on the wholesale electricity market are again allowed to enter into directly negotiated power purchase agreements, irrespective the installed capacity or commissioning date of the power plants.
The PPA ban was one of the most controversial and disputed interventions of the Romanian legislator which significantly influenced the faith of the Romanian energy sector during the past decade. It contributed substantially to the failure of several important power generation projects for which the Romanian state was under advanced negotiations with foreign investors. It also caused lack of new investments in the sector.
The reason behind such strong impact was that securing financing for the development of new power plants depends on the execution of long term PPAs, as a guarantee for a stable cash flow. However, since PPAs could not be concluded outside OPCOM markets (on which only operational producers had access), developers had no possibility to enter conclude PPAs. Although, more than a year ago, OPCOM created a special platform dedicated to the execution of long term PPAs by developers of new power plants, such platform was a complete failure as no participants have been ever registered on such platform. Such made it even more clear that the direct negotiation of the PPA terms between the parties and the financing banks is essential for the successful execution thereof.
The pressure to eliminate the ban came from multiple sides. The need to replace old coal-based power plants combined with new ambitious mandatory E-RES targets imposed from EU level, made investments in Romanian power generation capacities a high priority. In addition, Regulation 2019/943 of the European Parliament and of the Council on the internal market for electricity, which became directly applicable in Romania starting from January 2020 imposed Member States the obligation to eliminate barriers to the execution of directly negotiated PPAs.
GEO 143/2021 requires, however, state owned/controlled producers to trade at least 40% of the annual electricity generated through contracts concluded on power exchanges, so as to increase the liquidity of the market.
2. ANRE remains competent to issue setting-up authorizations for building new power plants
According to the draft GEO 143/2021 submitted by the Ministry of Energy for public consultations, the issuance of the setting-up authorizations (which are necessary for building new power plants) was to be transferred from the competence of the Romanian Energy Regulatory Authority (“ANRE”) to that of the Ministry of Energy. In addition, such was to be issued before securing the right to connect the power plant to the power grid (through the issuance of the grid connection permit - ATR).
This proposed change showed a lack of understanding of the fundamentals of the permitting process of power generation capacities on the following main grounds:
- considering the limited capacity of the grid, a key milestone in determining a project’s feasibility is securing the right to connect to the grid. This is the reason why investments in such projects are kept to a minimum until the ATR is obtained;
- the issuance of the setting-up authorization is subject to a tariff of (i) 0.1% of the value of the project (for projects having a capacity below 100 MW) and of (ii) 0.05% of the value of the projects (for projects having a capacity above 100 MW); hence, the payment of such tariff should occur at a point where the feasibility of the project is a certainty; and
- the issuance of the setting-up authorization is conditional upon showing the availability of the funds; in the cases where external financing is sought, no financial institution would provide such financing before the ATR is secured.
Considering the above, the main industry associations in Romania sent an official letter to the Ministry of Energy explaining the problems that would be caused by such a change, if approved.
Fortunately, the final version of the GEO 143/2021 eliminates the above provisions, so that the issuance of the setting-up authorizations stays in the competence of the ANRE. ANRE must inform, though, the Ministry of Energy, on a weekly basis, regarding all applications received for the issuance of setting-up authorizations.
3. Trading mechanism suitable for small producers
OPCOM must implement trading mechanisms for the Day-Ahead market and the Intra-Day to allow offers of 500kW or less.
4. New provisions applicable to prosumers
The GEO 143/2021 introduces new principles meant to encourage investments by prosumers:
- it is increased from 100kW to 400kW the capacity of prosumers’ installations for which prosumers are allowed to sell to their suppliers the electricity thus generated;
- the commercial rules for such sale differ depending on the installed capacity of the prosumers’ installations:
(i) prosumers with installations of up to 200kW will benefit from quantitative compensation between the electricity consumed from the grid and that injected into the grid, with the electricity consumed in excess being invoiced and that injected in excess being available for consumption during the next 24 months; such rules apply only until December 31, 2030, after which the same rules set out below shall become applicable; and
(ii) prosumers with installations between 200kW and 400kW sell the electricity at the average weighted Day-Ahead Market.
- prosumers with installations not exceeding 400kW are exempted from balancing responsibilities, which are taken over by the suppliers.
Within 6 months from the entering into force of GEO 143/2021 (i.e. by the end of June this year), ANRE must amend the secondary legislation so as to align it to the new principles laid down by GEO 143/2021. Therefore, we should expect a very intense and interesting activity of ANRE in the next period.
We can only hope that GEO 143/2021 paves the way to a stable legal framework which is essential for the Romanian energy sector to attract the investments it desperately needs.
Mihaela Nyerges, Partner