New restrictions on the electricity market and their effect on the RES producers
Loredana Vlăsceanu December 2022
New legal provisions
2022 has been a busy year for the Romanian legislator: many new normative acts have been enacted which streamlined (rather limited) the emerging market of green energy producers and energy producers in general.
Recently, on 23 November, the Deputies Chamber passed the Law for the approval (with amendments), of the renowned Emergency Government Ordinance 119/2022 (“EGO 119” and, respectively, the “Approval Law”), which has now been sent for promulgation. EGO 119 is famous, among others, for introducing as of 1 September 2022 the contribution to the Energy Transition Fund (i.e. the so-called “solidarity contribution”). EGO 119 was just a follow up of the Emergency Government Ordinance 27/2022 (entered into force in March 2022) which first capped the prices for end consumers and introduced an extraordinary tax for the energy producers.
This is not unusual as extraordinary measures have also been imposed at EU level through the Council Regulation 1854/2022 (the “Efficiency Regulation”) passed on 6 October in order to address the high energy prices.
The new enactments, primarily aiming to regulate solidarity measures for the end consumers faced with the continuously increasing energy prices, have nevertheless substantial impact on the green energy producers (as below detailed).
Solidarity tax
EGO 119 replaced the tax imposed on electricity producers under EGO 27/2022 (i.e. 80% on the sale prices exceeding 450 lei/MWh) with a contribution to the Energy Transition Fund (the "Solidarity Contribution") and imposed such Solidarity Contribution also on revenues obtained by the energy producers from trading activities on the wholesale market. Such Contribution is applicable (for the time being) for the period 1 September 2022 – 31 August 2023. If the Approval Law is promulgated under the current form, such period is extended until 31 March 2025.
Thus, as of 1 September 2022, energy producers will have to pay the Solidarity Contribution equalling the net sale revenues exceeding 450 lei/MWh.
Based on EGO 119, the net sale revenues are computed by deducting from the monthly gross revenues the monthly costs incurred with the acquisition of electricity for physical delivery transaction, including balancing costs and cost of CO2 certificates. Expenses related to the electricity production are excluded from the monthly costs.
Once the Approval Law will enter into force, the deductible costs will be the balancing costs, in a maximum percentage of 5% of the value of the electricity with physical delivery from own production, the expenses based on contracts with derivatives from the energy field (hedging) and the expenses with CO2 certificates related to electricity produced and sold under other conditions than through the mechanism preferred to under Annex 11 of EGO 27/2022.
It is important to mention that the Solidarity Contribution does not apply to capacities commissioned after 1 September 2022. In addition, following the entry into force of the Approval Law, also capacities commissioned between 1 April 2022 and 1 September 2022 will be exempted from this contribution.
Selling restrictions
As per the initial form of EGO 119, starting with 1 September 2022, energy producers were bound to sell all their available energy with delivery until 31 December 2022 based on directly negotiated bilateral power purchase agreements to suppliers of end consumers and to distribution and transmission system operators. Such provision was repealed on November 11.
The initial draft of the Approval Law, as passed by the Senate, contained the proposal to reinsert this obligation but removing the 31 December 2022 deadline and limiting to 70% the energy that the electricity producers are obliged to sell through directly negotiated bilateral PPAs. The final form of the Approval Law, as passed by the Deputies Chamber and sent for promulgation, no longer contains this restriction.
It is worth mentioning also that, in accordance with a recent amendment from July 2022 of the Law no. 123/2012 regulating energy and natural gas, a restriction was already enacted for electricity producers having capacities commissioned prior to 1 June 2020 which, according to said amendment, are already bound to sell at least 40% of their annual energy production through power purchase agreements entered on the energy markets, other than the day-ahead market - PZU, the intra-day market – PI - or the balancing market - PE.
Green Electricity Price Limitation
In order to limit the effects of the current energy crisis on the end consumers, the European Commission has capped at EU level the energy generation revenues for certain electricity sources, (including renewables) to 180 EUR/MWh. The limitation applies to the sale by the producers directly or through intermediaries and irrespective of (i) the market timeframe in which the transaction takes place and/ or (ii) whether the electricity is traded bilaterally or on a centralized platform.
The Efficiency Regulation nevertheless allows Member States to further limit the market revenues of RES producers or to decide that the limit applies only to 90% of the market revenues exceeding the cap.
In Romania, EGO 119, amended on 11 November 2022, and which will remain applicable until the entering into force of its Approval Law, capped the energy prices until 31 August 2023. The main applicable caps to the energy prices are the following:
-
- for household consumers, 68 lei/kWh (including VAT), in case of an average monthly consumption in 2021 up to 100 KWh; 0.80 lei/kWh in case of an average monthly consumption in 2021 between 100 and 300 kWh, applicable for the actual monthly consumption up to 255 KWh, while for the actual monthly consumption higher than 255 KWh a cap computed based on a formula included in the EGO 119 is applicable;
- for small and medium-size enterprises the cap is of 1 lei/kWh, for 85% of the average 2021 monthly consumption (at the consumption place).
The Approval Law extends the beneficiaries of the capped prices and the applicable period. As such, for the electricity sold between 1 January 2023 and 31 March 2025, the cap for the household consumers of 0.68 lei/kWh will apply mainly for an actual consumption below 100 KWh, the 0.80 lei/kWh cap will apply for an actual consumption between 100 KWh and 255 KWh, and a new cap of 1.31 lei/kWh will apply for a consumption between 255 KWh and 300 KWh or for the entire consumption if the monthly consumption exceeds 300 KWh. For the same period, the main cap of 1 RON/kWh for small and medium-size enterprises will apply for 85% of the monthly consumption (at the same consumption place) while the difference in monthly energy consumption will be invoiced at a capped price of 1.3 lei kWh.
In addition, the Approval Law has established that in case of household consumers, the cap will apply only for the consumer’s domicile or residence (and not for all consumption places owned by a consumer).
***
Even if numerous voices of the energy market are rightfully raising the problems caused by the recent amendments of the Romanian legislation in terms of taxation, selling restrictions, urbanism restrictions and permitting of renewable energy projects, one must point out that Romania remains one of the most attractive countries in Europe for RES investments. While we support the market efforts for improving the imposed legal framework, we must underline that efforts are continuously made by all stakeholders to encourage RES energy production in Romania.
New restrictions on the electricity market and their effect on the RES producers
Loredana Vlasceanu / December 2022
New legal provisions
2022 has been a busy year for the Romanian legislator: many new normative acts have been enacted which streamlined (rather limited) the emerging market of green energy producers and energy producers in general.
Recently, on 23 November, the Deputies Chamber passed the Law for the approval (with amendments), of the renowned Emergency Government Ordinance 119/2022 (“EGO 119” and, respectively, the “Approval Law”), which has now been sent for promulgation. EGO 119 is famous, among others, for introducing as of 1 September 2022 the contribution to the Energy Transition Fund (i.e. the so-called “solidarity contribution”). EGO 119 was just a follow up of the Emergency Government Ordinance 27/2022 (entered into force in March 2022) which first capped the prices for end consumers and introduced an extraordinary tax for the energy producers.
This is not unusual as extraordinary measures have also been imposed at EU level through the Council Regulation 1854/2022 (the “Efficiency Regulation”) passed on 6 October in order to address the high energy prices.
The new enactments, primarily aiming to regulate solidarity measures for the end consumers faced with the continuously increasing energy prices, have nevertheless substantial impact on the green energy producers (as below detailed).
Solidarity tax
EGO 119 replaced the tax imposed on electricity producers under EGO 27/2022 (i.e. 80% on the sale prices exceeding 450 lei/MWh) with a contribution to the Energy Transition Fund (the "Solidarity Contribution") and imposed such Solidarity Contribution also on revenues obtained by the energy producers from trading activities on the wholesale market. Such Contribution is applicable (for the time being) for the period 1 September 2022 – 31 August 2023. If the Approval Law is promulgated under the current form, such period is extended until 31 March 2025.
Thus, as of 1 September 2022, energy producers will have to pay the Solidarity Contribution equalling the net sale revenues exceeding 450 lei/MWh.
Based on EGO 119, the net sale revenues are computed by deducting from the monthly gross revenues the monthly costs incurred with the acquisition of electricity for physical delivery transaction, including balancing costs and cost of CO2 certificates. Expenses related to the electricity production are excluded from the monthly costs.
Once the Approval Law will enter into force, the deductible costs will be the balancing costs, in a maximum percentage of 5% of the value of the electricity with physical delivery from own production, the expenses based on contracts with derivatives from the energy field (hedging) and the expenses with CO2 certificates related to electricity produced and sold under other conditions than through the mechanism preferred to under Annex 11 of EGO 27/2022.
It is important to mention that the Solidarity Contribution does not apply to capacities commissioned after 1 September 2022. In addition, following the entry into force of the Approval Law, also capacities commissioned between 1 April 2022 and 1 September 2022 will be exempted from this contribution.
Selling restrictions
As per the initial form of EGO 119, starting with 1 September 2022, energy producers were bound to sell all their available energy with delivery until 31 December 2022 based on directly negotiated bilateral power purchase agreements to suppliers of end consumers and to distribution and transmission system operators. Such provision was repealed on November 11.
The initial draft of the Approval Law, as passed by the Senate, contained the proposal to reinsert this obligation but removing the 31 December 2022 deadline and limiting to 70% the energy that the electricity producers are obliged to sell through directly negotiated bilateral PPAs. The final form of the Approval Law, as passed by the Deputies Chamber and sent for promulgation, no longer contains this restriction.
It is worth mentioning also that, in accordance with a recent amendment from July 2022 of the Law no. 123/2012 regulating energy and natural gas, a restriction was already enacted for electricity producers having capacities commissioned prior to 1 June 2020 which, according to said amendment, are already bound to sell at least 40% of their annual energy production through power purchase agreements entered on the energy markets, other than the day-ahead market - PZU, the intra-day market – PI - or the balancing market - PE.
Green Electricity Price Limitation
In order to limit the effects of the current energy crisis on the end consumers, the European Commission has capped at EU level the energy generation revenues for certain electricity sources, (including renewables) to 180 EUR/MWh. The limitation applies to the sale by the producers directly or through intermediaries and irrespective of (i) the market timeframe in which the transaction takes place and/ or (ii) whether the electricity is traded bilaterally or on a centralized platform.
The Efficiency Regulation nevertheless allows Member States to further limit the market revenues of RES producers or to decide that the limit applies only to 90% of the market revenues exceeding the cap.
In Romania, EGO 119, amended on 11 November 2022, and which will remain applicable until the entering into force of its Approval Law, capped the energy prices until 31 August 2023. The main applicable caps to the energy prices are the following:
-
- for household consumers, 68 lei/kWh (including VAT), in case of an average monthly consumption in 2021 up to 100 KWh; 0.80 lei/kWh in case of an average monthly consumption in 2021 between 100 and 300 kWh, applicable for the actual monthly consumption up to 255 KWh, while for the actual monthly consumption higher than 255 KWh a cap computed based on a formula included in the EGO 119 is applicable;
- for small and medium-size enterprises the cap is of 1 lei/kWh, for 85% of the average 2021 monthly consumption (at the consumption place).
The Approval Law extends the beneficiaries of the capped prices and the applicable period. As such, for the electricity sold between 1 January 2023 and 31 March 2025, the cap for the household consumers of 0.68 lei/kWh will apply mainly for an actual consumption below 100 KWh, the 0.80 lei/kWh cap will apply for an actual consumption between 100 KWh and 255 KWh, and a new cap of 1.31 lei/kWh will apply for a consumption between 255 KWh and 300 KWh or for the entire consumption if the monthly consumption exceeds 300 KWh. For the same period, the main cap of 1 RON/kWh for small and medium-size enterprises will apply for 85% of the monthly consumption (at the same consumption place) while the difference in monthly energy consumption will be invoiced at a capped price of 1.3 lei kWh.
In addition, the Approval Law has established that in case of household consumers, the cap will apply only for the consumer’s domicile or residence (and not for all consumption places owned by a consumer).
***
Even if numerous voices of the energy market are rightfully raising the problems caused by the recent amendments of the Romanian legislation in terms of taxation, selling restrictions, urbanism restrictions and permitting of renewable energy projects, one must point out that Romania remains one of the most attractive countries in Europe for RES investments. While we support the market efforts for improving the imposed legal framework, we must underline that efforts are continuously made by all stakeholders to encourage RES energy production in Romania.