Power Generation, Green Certificates and Bankability of RES Projects In Romania

In this article we will limit ourselves to projects smaller than 10 MW. If you wish information about projects larger than 10MW then please refer directly to the author. (see below)

Since the LAW 220 on renewable energy was finally approved and in function as per 1-11-2011, many investors have been looking at the Romanian market for investing in renewable energy and Photovoltaic in particular.

The Romanian promotion scheme for renewable energy provides 6 certificates for each MWh generated by a solar plant. In terms of money this means, at the moment of writing of this article, a stunning 57,35 EURO per certificate resulting in  344,10 EURO. If you add the electricity price to it you come up with a 396,10 EURO per MWh generated by the sun.

But how profitable is generating green energy in Romania?

For answering that question we need to take a closer look to the promotion scheme, the practice of selling your renewable energy and the financial markets these days. First of all, the electricity generated from Renewable energy sources has a priority by law. This means that you have in fact an instant PPA if you like. The Romanian Law 220/2008 states that when you are a qualified producer of Green Energy that the electricity you generate will be injected in the grid with priority.

Each MWh generated by a renewable source has to be injected to the grid (SEN in Romanian) with priority and you wil be paid by the transmission system operator (TSO) the months after. However, this is only valid for projects smaller than 10 MW. If you project exceeds this capacity then you need to sell your electricity on the OPCOM or through bi-lateral contracts (a PPA). 

Besides the electricity price you also receive Green Certificates. Not less than 6 for solar energy! There are sold on the market where distributors and large consumers have to buy green energy according to their consumption. Though a market price, the maximum and minimum price is set in the law: Max. 55 EURO and Minimum 27 EURO. But what will be the price that you actually get as you need to know that for your businessplan and in case you want to attract finance in debts, and who does not?

How to predict the Price of Green Certificates?

The national regulator, the ANRE, predicts that there will be an oversupply of green certificates in the market in 2014, 2015 and 2016 with resp. 2%, 8% and 3%. This is because the quota do not increase with the same speed as the construction of new facilities, they say. If this really will be the case can be doubted because the construction of Wind Power had to be corrected already with -/- 400 MWp in 2011 and in 2012 it looks to become less than foreseen in 2008 as well. In the years that there will an oversupply, the ANRE predicts that the price goes from the maximum of 55 EURO (indexed 27.35 in 2012) immediately to the legal minimum price of 27 EURO (needs also to be indexed as well).

As soon as there is a shortage, the price will jump to the maximum again and stay there for the next 15 years, meaning that by 2030 the price will be 78 EURO per certificate, according to the ANRE.

Indeed a short market, where supply of TGCs is insufficient to meet demand, the assumption is correct that the price of TGCs is equal to the maximum price allowed according to the policy in place, less a discount. Where there is no explicitly stated maximum price, this is equal to the penalty price. There is no discount applied to this price, and recent TGC price data available from Opcom supports this assumption. We (Redpoint) do however discount the total expected remuneration of a project for the purpose of making investment decisions in our Reference scenario; this is set at 10% and represents the discount to the aggregate revenue streams that a generator may be willing to give in return for signing a long term PPA. The size of the discount is dependent partly on the contractual terms available and therefore higher discounts could be applied in reality. But in a long market (where the supply of TGCs exceeds demand) we assume that the price drops away from this maximum, according to a „ski-slope‟ function at not immediately to it minimum. This can be defined as follows : (Source: Redpoint) P is the price of a TGC TGCd is the demand for TGCs TGCs is the supply of TGCs Pmax is the maximum price parameter, and Pmin is the minimum price parameter. It should be noted that this is an assumption as to how prices would behave under these circumstances, and does not represent any explicit price control mechanism. Source: Redpoint

The fact that both electricity price and green certificates price are subject to the market mechanism makes projects that depend on selling on the market difficult to finance. Banks want security and the lack of historical data and two variable price components make it for them difficult to step into a financing agreement.

It would be different if the price could be set by a Power Purchase Agreement, a PPA. In Romania PPA’s for renewables are not so commonly available. We at RESbroker managed to arrange some contracts for clients with a large consumer but then the price is significant lower than the price one couldget on the market.

How to obtain finance?

As we just have seen is that projects in Romania are basically not really bankable. This does not mean that there is no finance at all available for RES Projects but it is still not easy. On request of its clients, RESbroker started to contact alternative sources for finance, i.e. not through banks but specialized funds or private banks and investors.

These sources seem to be less nervous to provide finance than banks. When you intend to buy a renewable energy project and you are looking for finance then RESbroker is interested to get in touch with you. When you are interested then please contact RESbroker Finance Advisory Service fas [@] resbroker.com

Read also: Be aware of Finance scam

Author: Markus J.B. Vrieling, President of RESBroker International and writer of the “Workbook Renewable Energy Romania” (ISBN  978-90-819211-1-4) and the industry report “Perspectives of Investing in Wind Energy in Romania” Click or scan the code to go to the Publications page The GC (TGC) Calculations are published with the courtesy of Redpoint: http://www.redpointenergy.co.uk The full report about the development of the electricity market in Romania can be obtained from Redpoint.

LAMARcompany or its webpublishers cannot and will not take any liability for the correctness of the tariffs and (interpretations of-) the Romanian laws and regulations. Investors are recommended to seek professional advise from experienced law offices and/or certified accountants to make calculations and strategies for investments. read also Disclaimer

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