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Is Romania Getting Serious?

In Romania, investors in renewable energy sources (RES) may theoretically choose between European Union or national subsidy programs.

However, in spite of the highest wind potential in southeastern Europe and enviable solar irradiation, only 560 MW of wind power and 1 MW of solar power were installed by the end of 2010.

Although structural funds may ensure up to 70 percent of the capital expenditure of a power plant producing electricity from RES, the bureaucracy dominating the application procedure and, in some cases, the non-transparency of the selection process have proved to be an obstacle large enough to prevent Romania from becoming an attractive investment target in this sector. Thus, well in the second half of the implementation period of the Operational Programme Competitiveness and Economic Growth, the absorption rate can barely display a two-digit percentage.

On the other hand, the national subsidy scheme has not yet functioned since its implementation due to the stuttering of both legislator and enacting government. Almost three and a half years after the first regulation attempt in February 2008, the Romanian Government now awaits the final approval of the European Commission for the national subsidy scheme to be granted by the beginning of August this year, following the government’s official notification on June 7. In parallel, on June 3 the Romanian Energy Regulatory Authority (ANRE) published a draft emergency decree for the amendment and completion of Law 220, which in essence clarifies that the above mentioned two types of subsidy can only operate alternatively.

While most European countries have implemented a pragmatic feed-in tariff, Romania still struggles to enact a quota system with tradable green certificates. Law 220 compels energy providers to acquire green certificates in an amount corresponding to the minimum feed-in quotas of the electricity they supply to the final consumers. The quotas reach from 10 percent in 2011 and rise to 20 percent in 2020, whereas the gross final consumption in Romania passed 45 million MWh in 2010. However, ANRE remains entitled to adjust the quote retroactively for the preceding year until March 1, depending on the amount of electricity produced from RES and the final consumption. The draft emergency decree provides that the quote adjusted by ANRE may not exceed the respective quote stipulated in the Law 220. For 2011, the quote has already been adjusted from initially 10 percent to approx. 7.7 percent.

Law 220 grants for each MWh produced from RES for a period of 15 years a certain number of green certificates, which varies depending on the technology used. While photovoltaic plants receive six certificates, geothermal, biomass, bioliquids, biogas and gases from fermentation wastewater and waste processing are granted three certificates, as many as new hydropower plants with an installed capacity of less than 10 MW. Wind power is granted two certificates until 2017 and one certificate starting from 2018. The green certificates may be traded within a range of 27 and 55 euro until 2025, the mentioned values being linked to the average euro zone inflation index, according to the emergency decree.

While the euro denomination of the price range for the green certificates is likely to convince most investors that the currency risk is basically reduced to the market price of the electricity produced, which is obtained in addition to the green certificates, one serious question persists. Both Law 220 and the emergency decree remain silent as to whether a producer may redeem not-traded certificates to the minimum price applicable or otherwise benefit from the minimum price. This question has not yet been taken seriously by the Romanian authorities, probably because of the current market situation, the green certificates being traded close to the maximum price for the time being.

The government is currently revising the medium- and long-term guidelines of energy sector development. The Ministry of Economy, Trade and Business Environment submitted the draft Energetic Strategy for the Period 2011-2035 for public debate on June 10, which leaves the initial target of 260 MW from solar power by 2020 unchanged. The Energetic Strategy acknowledges that in practice, the utilization of RES is restricted by technological limitations, energetic efficiency, environmental restraints and the production costs that are still higher than in the case of nuclear and fossil fuels.

The latest government actions seem to call for investors’ attention and trust in Romania’s determination to efficiently subsidize investments in RES. However, the questions indicated above together with the country’s inefficient and lethargic administration are likely to continue to be an important barrier for serious investments. A recent study of the ALMA-RO Association, an initiative of a group of experts in public administration, has revealed that, depending on its location and certain other factors, a wind power plant may require as many as 85 approvals and authorizations.

The government has since released the emergency decree 43 / 2010, which simplifies the administrative procedure for power plants with a capacity of up to 1 MW, as long as such plants no longer require an establishment authorization.

The obtaining of the necessary permits often requires superfluous documentation and repeated personal presence at the issuing authority. Nevertheless, Romania’s still attractive income flat tax of 16 percent despite the recently increased VAT rate of 24 percent and the double taxation treaties with all major countries in force could contribute to the country’s attractiveness for future investments in RES. The major driver, however, may be the western European tendency to reduce the feed-in tariffs rather than the latest condensed governmental efforts to establish a solid ground for foreign investments in this sector.

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