2014 the hardest year for green energy

At the end of 2014, the Government announced that the mandatory annual renewable energy quota would be set to 11.9 per cent share within the gross energy consumption in 2015, up from the previous level of 11.1 per cent established in 2014

2015-02-06 22:35:17 - From the Print Edition

This quota is already debatable among the producers of renewable energy who wish for a larger amount, and some of them are already thinking of 2016. In this context, however, none of the new projects involving green energy worked as planned.

PRODUCERS ASK SUBSIDIES FOR LARGER PRODUCTION

"In order to meet the goal of renewable energy production set for 2020, it is mandatory that the increase move from 11.9 per cent to a more realistic share starting with 2015 (to 14-15 per cent)," states Martin Zmelik, country manager and president of the Board at CEZ Romania, the company that operates the largest wind park in Romania, of 600 MW.

Why is this quota needed? Because the Romanian Government agreed with the EU to reach in 2020 a 24 per cent share of renewable energy from the total gross energy production. The European directives state that, between 2015-2016, this quota should reach 20.59 per cent. Therefore, why is the current level barely 12 per cent? Because the Government considers that "so far, the strategic objective has been met and exceeded." This yearly quota, established by the National Regulation Authority in Energy (ANRE) comprises also some costs attached to the renewable energy share within the total consumption. For instance, the impact of this quota in the energy bills received monthly by the Romanian consumers was of 35 RON/ MWh in 2014. The authorities say that in 2015, in order to reach the national objective, no supplementary efforts of consumers are asked and the impact in the invoices will be neither smaller or larger compared to 2014. In 2013, the yearly mandatory quota was of nine per cent.

The frequent changes in the energy legislation are explained by ANRE through the need to decrease the impact of green certificates in the end user's bill, citing the change, starting with 2014, of the calculation methodology for the yearly quota for the renewable energy producers benefiting from green certificates, based on the level of achievement of the national target regarding the energy produced from renewable resources, its share in the gross consumption and the impact of green certificates on the invoiced consumer. By changing the methodology, the quota established for 2014 diminished from 15 per cent (as regulated by the law before it has been changed through Law 23/2014) to 11.9 per cent, which led to an overflow of unsold green certificates on the market.

"Also, the meeting of mandatory yearly renewable energy quotas benefiting from the green certificates determines a proper functioning of market mechanisms and setting a trading pricing level for green certificates close to a minimum legally-set limit," according to ANRE. Sebastian-Petre Enache, Business Development Manager of Monsson Group, who also states that 2014 has been the year when the latest wind projects have been built and the latest photovoltaic projects have been completed. From this point of view, 2014 has been the hardest year, as both the development and the startup of wind parks have stopped. Monsson Group, controlled by the businessman Emanuel Muntmark, develops, builds, operates and provides service and maintenance for both wind and solar parks in Romania.

"From an economic perspective, all renewable energy producers stepped back both their investments and the spending. There are significant problems with the existing financing and some of the renewable production facilities have trouble paying the rates to the bank. 2014 was a black year. The support scheme considerably changed, bringing the revenues down to 30 per cent of initial estimations, a fact that triggered a rupture in the investments pace for all investors in this segment," Enache says. He adds that this happens because the support scheme has been retroactively applied and the entire industry has been shaken."

"The year 2014 was a particularly difficult year in the renewable energy sector. If we look at the new renewable energy quota set for 2015 and at the measures adopted to partly exempt large consumers from buying green certificates, conditions are met to foresee an even more dramatic year. As the stock of unsold green certificates will continue to grow, the situation will deteriorate further and it would be no surprise if the market starts to experience its first major insolvencies. This why urgent measures need to be taken by the government in order to restore confidence among investors," states Eric Stab, chairman & CEO at GDF SUEZ Energy Romania.

GDF SUEZ Energy Romania developed its own electricity and green certificate trading activities. All transactions are made via the platforms authorized by OPCOM. However, due to the imbalance between supply and demand, there has been practically no liquidity at all on the Green Certificate spot market for more than six months, Stab adds.

The green certificates are freely granted by the Romanian state to renewable energy producers who sell these certificates to energy suppliers who are forced to buy them, as a form of support for green energy. Hence, a producer of green energy earns money both from the sale of the energy and the sale of green certificates. The costs of green certificates purchase by the suppliers are transferred to the end users' energy bills.

On the other side, ANRE claims that Romania has met the national target obligations set by the EU, but at the same time this target is supported by all energy consumers in Romania. The authority adds that supporting new renewable energy production facilities' development through the green certificates scheme leads to supplementary and unjustified costs in the end users' bill, even if the access of the newly-built projects within this system of green certificates is not operable until 31 December 2016.

"In the latest report stating the progress met by Romania for 2011 and 2012 published by the Ministry of Economy, the global shares of renewable energy production in the final gross consumption considerably exceed the initial target of 19.04 per cent for these two years and reached 21.2 per cent in 2011 and 22.9 per cent in 2012," ANRE states.

"We hope to clarify the situation regarding how many GC will be unsold and we strongly believe the government should significantly increase the mandatory quota for the year 2016", says Zdeněk Sobotka, president of the Czech based company Solek Holding. The company was founded in 2010 in Prague and has invested in Romania around seven million Euro in nine photovoltaic parks with a total installed capacity of 8.5 MW.

According to Stab, the investments carried out in the past years in the renewable sector, amounting to more than six billion Euro, should have been guaranteed by the legislation in force. The failure to comply with such basic grandfathering rules has had a significant negative impact on the energy sector, with both medium and long term implications. "Unfortunately, those insufficiently-thought-through and excessive decisions led to massive value destruction", Stab states.

FORTUNE PRESENTS GIFTS NOT ACCORDING TO THE PLAN

The setup of renewable energy production facilities between 2011 and 2013 was as glorious as any heroic fairytale. This was possible because Romania needed to cope with its own promises of a green "spree" made to European Commission, but also, and most important, due to the more than generous support granted to renewable energy producers. For instance, a state aid of six certificates for each produced and delivered MWh, as in the case of photovoltaic projects, is an offer not to be refused.

However, starting in 2013, the energy consumers, especially industrial, started to reproach the authorities with the unbalanced support granted for green certificates that created the risk for many large consumers to encounter serious problems, including bankruptcy and plant shutdown due to the high costs of the green certificates. Eventually, the Government and ANRE started to listen to these signals and the support for green energy producers diminished from many points of view, starting with the reduction of green certificates number for each type of technology, to postponing the delivery of a certain amount of green certificates to producers.

These decisions were strongly mirrored in the negative evolution of investments in 2014. The estimates for 2014 initially comprised installation of 1,200 MW in wind parks and 750 MW in photovoltaic projects. Of this, at the end of 2014, barely over 400 MW in wind parks have been installed, three times less compared to estimates. The installed capacity in photovoltaic projects totalled less than 300 MW. Practically, instead of an estimated investment level of 2.7 billion Euro in green projects, only 1.3 billion Euro have been operated. Compared to 2012 and 2013, even the necessary investment for one MW in wind mills dropped from 1.55 million Euro to 1.46 million Euro, compared to two million Euro registered a couple of years ago.

According to data of Transelectrica available at 1st of January 2015, the installed power in wind projects was of 2,953 MW, while the installed capacity in photovoltaic parks was 1,223 MW. Together, the wind and the photovoltaic projects stand for 17.6 per cent of 23,703 MW, the total capacity in Romania. Transelectrica, the state-owned operator for the national energy distribution system, shows that Romania uses daily no more than 8,000-9,000 MW.

SALE OF GREEN ENERGY: PIECE OF CAKE, NO MATTER THE CRISIS

Even if 2014 was not the happiest year for renewable energy in Romania, the companies say that the sales of green energy went well but the PPA contracts prompted several issues. "We had no difficulties in the sale of electricity. We are in the same position as the other producers from renewable sources. Buyers are seeking producers of electricity for a good price but without GC. We closed bilateral contracts through the OPCOM for GCPA and PPA", says Sobotka, President of Solek Holding SE.

In Romania, the sale of energy is mandatorily operated on the energy stock exchange, OPCOM or BRM, while bilateral contracts (PPA) are forbidden, due to the unfortunate case of state-owned Hidroelectrica and its different clients. According to the Energy Law, the energy can only be traded on the competition market, through different energy exchanges. But the current background blocks the activity of investors and developers in the renewable energy sector, as they cannot finance their projects anymore, in the absence of the PPAs. These bilateral contracts represent the main finance resource for future projects, as they are the main criteria used by banks to grant loans.

"Unfortunately, since September 2014, it has been difficult for renewable producers to close new contracts via OPCOM. We are obliged as specified in PPA to deliver a constant amount of energy every month but the technology is unable to produce the same amount of energy", Sobotka adds, also noting that regarding the access on the market of green energy producers, the "Centralized Green Certificates Market" no longer exists as of June last year. Theoretically it is possible to sell less than one per cent of your offer via OPCOM. Any producer has two possibilities: sell GC at a discount using the other "service agreement" or close with off-taker both contracts GCPA and PPA. Unfortunately the PPA is deeply below the electricity market level.

In his turn, Zmelik, the country manager of CEZ Romania, says that last year, the changes operated in the support scheme for green certificates and especially the postponement of granting them until 2018-2020, as well as the establishment of a mandatory quota under the real level led to maintaining the price of green certificates to a legal minimum level and to delaying approximately 35 per cent from revenues. However, for CEZ Romania, the sale process of green energy produced by the wind parks and the small hydro-centrals proceeds with no problems.

Instead, the frequent legislative changes in the field of renewable energy prevent the completion of the permit process for wind parks Fantanele Vest and Cogeleac by DG COM, while the temporary accreditations are expired. The company is still confident that DG Competition will authorize the support scheme for these projects, "sustained by the authorities."

"However, in spite of difficulties in the legislative area, our efforts regarding the largest wind park in Europe (Fantanele, Cogeleac, Gradina) and the hydro-power facility on Barzava Superioara focused around the operational excellence by optimizing the internal processes and ensuring the technical support to the highest level," says Zmelik. According to the manager, since the Law of energy and natural gas comprises the exclusive sale of power on the centralized markets and the business model implemented by CEZ is according to the law. Therefore, the company sold the produced green energy only on the platforms managed by OPCOM, respectively PCCB, PZU, intra-day and OTC.
Head of GDF SUEZ Energy Romania, Eric Stab, says that the company, like all other renewable energy producers, has been facing difficulties in selling its green certificates. Moreover, the very low quota had side effects on the electricity wholesale market in general, as it contributed to lower wholesale power prices. This is detrimental to all electricity producers, whether from renewable or conventional sources.

"Renewable energy producers have experienced a critical economic situation following the strongly negative effects of the amendments to the Law 220/2008 and the drastic reduction of the renewable energy quota for 2014. As a consequence of these changes, the green certificate market is now unbalanced due to a lack of demand, which is affecting not only the green certificate prices that dropped to the minimum level prescribed by law, but also the sellable volumes, as a significant stock of green certificates will remain unsold and be lost," according to Stab.

Stab adds that, more generally speaking, long-term predictability and stability as well as permanent dialogue with market players are of essential importance to Romania and sine qua non conditions for future investments, a prerequisite for an economic revival contributing to a healthy and wealthy society. Should the Government adopt major measures without prior consultation of key stakeholders, Romania will harm trust and face adverse consequences as to the investors' appetite to spend their capital here.

NEW INVESTMENTS? OK, BUT DIALOGUE AND TRUST ARE NEEDED

GDF SUEZ Energy Romania will continue to invest in its core business activity of gas distribution. The modernization process of the gas distribution network has led so far to important investments of close to 500 million Euro, but there is still some way to go to ensure security of supply and best in class quality of service for the future. Regarding power generation, the company is much more reserved as a result of the latest development in terms of renewable energy legislation and regulation, which dealt a very severe blow to investors that invested billions of Euro and lost their trust in the predictability and stability of Romania's energy policy.

"Before we commit to further investment projects in this area, confidence will have to be restored. Before committing to new investments, in particular in the electricity generation area, I think that positive signals should be sent by the authorities towards the investment community. I really hope that 2015 will bring the decisions that renewable energy investors expect in order to have a fair return on their investments," Stab adds. GDF SUEZ Energy Romania invested close to one billion Euro in Romania since entering the market in 2005.

For 2015, Monsson Group plans to consolidate the position of Emon Electric company in Campina on the transport and distribution market and also to expand its operations in all the areas in which it developed projects. Last year, Monsson acquired the majority stake of Emon Electric, a company that delivers services and turn-key projects for transport and distribution of energy. Among the projects involving Emon Electric is the electrification of a segment for the underground infrastructure in Athens, Greece, according to the company release. "Monsson Group expanded in 2014 into five countries and two more continents, marking the opening of subsidiaries in New Zealand, South Africa, Qatar and several countries in Europe, such as Sweden, Germany and UK. Through this, Monsson plans to become a leader within the new markets by offering construction, operation, service and maintenance for the electricity infrastructure and for the renewable energy centrals," Enache states.

Also, according to Zdeněk Sobotka, President of the Czech based company Solek Holding, companies are waiting for new regulations for PV plants up to 0.5MW, and if the feed in tariff "is interesting", Solek could start to build new PV parks in Romania. "Currently we have a strong focus on Chile where there is the best solar radiation in the world and great electricity prices", Sobotka adds.