Support Schemes for Renewable Energy – what to do
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Renewable Energy appears to be one of the most favoured words used by politicians these days in the context of energy policy. On the one hand, it does not really threaten consumers, as your washing machine runs just as well with wind generated power as it does with coal or gas generated power, on the other hand the entire discussion is – at least in Romania – still on a very abstract level. While the new Energy Act (Official Gazette, Part I no. 51 from 23/01/2007) leaves it to secondary legislation (a yet to be enacted decision of the Romanian Government) to set up a support schemes for energy from renewable sources. Certain sections of the Energy Act already point to support schemes in the form of accelerated depreciation and priority in off-take agreements.
No doubt, the new Energy Act has formally implemented the requirements of Directive 2001/77/EC on electricity from renewable energy sources which are designed to ensure stable investment conditions for electricity from renewable energy:
1) the implementation of attractive support schemes, which should be as efficient as possible,
2) the removal of administrative barriers,
3) the guarantee of fair grid access,
4) the issuing of a guarantee of origin.
Most member states have implemented a support system for renewable energy. These take the form of feed-in tariffs, quota obligations and/or green certificates. National reports show that appropriate financial mechanisms are not enough. In several cases, take-off is blocked by complex licensing procedures, poor integration of electricity from renewable energy in regional and local planning and opaque grid-connection procedures.
In Romania, the question will arise whether the support schemes will – as in the past – rely on green certificates rather than on feed-in tariffs.
Feed-in tariffs exist in most of the Member States. These systems are characterised by a specific price, normally set for a period of several years that must be paid by electricity companies, usually distributors, to domestic producers of green electricity. The additional costs of these schemes are paid by suppliers in proportion to their sales volume and are passed through to the power consumers by way of a premium on the kWh end-user price. These schemes have the advantages of investment security, the possibility of fine tuning and the promotion of mid- and long-term technologies. The downside in these schemes is the intervention of the regulator in the market and its (possible) distortion by such measures. Nevertheless, this scheme is used in most EU countries.
Green certificates do not directly interfere with energy prices as energy from renewable sources is sold at conventional power-market prices. In order to finance the additional cost of producing green electricity, and to ensure that the desired green electricity is generated, all consumers (or, as it is the case in some countries, producers) are obliged to purchase a certain number of green certificates from producers of energy from renewable sources according to a fixed percentage, or quota, of their total electricity consumption/production. Penalty payments for non-compliance are transferred either to a renewables research, development and demonstration (RD&D) fund or to the general government budget.
While a green certificate based support scheme is apt to work in mature, developed energy markets, the Romanian Government at this point should consider to follow the example of most EU member states, namely to start-up renewable energy production by a feed-in tariff based system with guaranteed, foreseeable cash-flows, thereby easing the financing of investments in renewable energy production capacities. The green-certificate based support scheme should be implemented once renewable energy production resources have been put into operation.*
* This article serves to give its readers a short overview of selected aspects of Romanian financial law only. It is not meant to substitute legal advice on any of the matters touched upon herein.
Markus Piuk
Managing Partner,
Schoenherr si Asociatii SCA
m.piuk@schoenherr.at
Bucharest, Bd. Dacia no. 30,
4th floor; Tel + 4021 319 67 90; Fax + 4021 319 67 91
www.schonherr.ro
