Renewable energy in Romania

The last three years put Romania back on the map of the RES investments with an unprecedented appetite from global investors (IPPs, PE funds, infra funds, institutional investors, utilities and developers) accounting to more than 30 GW of projects under development, some being among the largest in Europe in terms of panned size. This wave came on the back of an ambitious national strategy to increase the share of RES, the natural advantages and regional interconnections, the availability of EU grants and a legal framework aligned with the EU common market. Also, the implementation of a support scheme in the form of Contracts for Difference for onshore solar and wind, of potentially up to 10 GW by 2030 provided a positive signal to the generators. Also, the new hydrogen strategy as well as the newly adopted offshore wind legislation provided additional signals that the RES market development in Romania is strongly supported by the authorities. By the same token, important grid modernization and extension work have been announced by the national TSO, including the construction of an interconnector – high voltage direct current cable to be constructed alongside the existing gas interconnector will connect the country to Hungary and is estimated to be finalized in 2029. The power line is necessary to satisfy the needs to connect all the intended new RES capacities and increase the export potential.

Below we highlight the main features of the legislation for offshore wind and for CfD, respectively, with some commentary on the existing challenges for the RES generators.

2.1 The Romanian Parliament has recently enacted the draft Law on offshore wind operations in the Black Sea („the Offshore law”). This new law is providing for the general legal framework for the development of offshore wind energy investments in the Black Sea.

2.2 Three months after the entry into force of the Offshore law, the Ministry of Energy will initiate a study to identify the offshore blocks that may be put out to tender for exploration and exploitation and for the construction of offshore wind power plants, as well as the tender procedure. The Ministry of Energy will be the authority that will coordinate and organize the competitive tender process.

2.3 It is expected that by June 30, 2025, the Government will approve the offshore block list as well as the secondary legislation required for the implementation of the Offshore law. In line with the European practice, the Ministry of Energy has been designated as the single point of contact. The Ministry of Energy shall provide, to interested persons, upon request, with the support of the other competent institutions and authorities, information on the procedures to be followed for participation in the competitive procedure for the award of the concession contract, the commencement of exploration of the offshore wind perimeter, and the construction and operation of the offshore wind power plant.

2.4 According to the Offshore law, the Ministry of Energy may grant State aid in the form of a support scheme for the construction or operation of offshore wind power plants, provided that they are commissioned within a maximum period of 8 years from signing the concession contract. Such scheme is likely to be in the form of Contracts for Difference scheme, which is about to be enacted for several low carbon technologies.

2.5 The procedure for granting exploration, construction and exploitation rights is established in a single phase. The concession of offshore blocks is based on a concession contract concluded with the Ministry of Energy following a competitive award procedure. Economic agents interested in obtaining a concession to carry out the exploration, construction and operation of offshore wind power plants, whether or not this includes granting of a state aid scheme, shall meet the eligibility conditions set out in the Government Decision which will be issued by the end of 30 June 2025. The concession contracts will be granted for a period of 30 years, with the possibility of extension for another 10 years.

2.6 Furthermore, the exploration of the concessioned blocks is carried out on the basis of an exploration permit, issued by the Ministry of Energy at the conclusion of the concession contract. The exploration permit will be issued for a maximum period of 2 years, with the right to an extension of up to 6 months.

2.7 This new Offshore law derogates from the general legal framework by referring to the Competent Authority for the Regulation of Offshore Oil and Gas Operations in the Black Sea („ACROPO”) as the issuing authority of the building permit with regard to offshore works.

2.8 This long awaited Offshore Law comes in the context of a very effervescent renewables market, which enjoyed in the last three years a strong come back with over 30 GW of projects under development in onshore solar and wind, alongside new technologies such as hydrogen, CCS, BESS.

3.1 For the Romanian market, the most awaited support scheme for Contracts for Difference has been enacted, the first auction being underway. The first phase of the CfD mechanism will run until 2025 and is structured into two auctions, one in 2024 and the other in 2025. The total capacity envisaged by the first auction is 2 GW of renewables respectively, 1000 MW for onshore wind and 1000 MW for solar. For the second auction, there will be 1500 MW auctioned for onshore wind and 1500 MW for solar.

3.2 Taking into account the commitments made in the EU to promote decarbonisation and the development of low-carbon energy sources with a focus on renewable energy, all European Member States have implemented dedicated policies to promote renewable energy sources and / or decarbonisation of national energy sectors. In the energy sector, these policies have been developing for at least two decades.

3.3 With the European Green Deal aim of reaching climate-neutrality by 2050, the Romanian authorities have started making essential steps towards decarbonizing the energy sector which accounts for 75% of greenhouse gas emissions. The scheme has been developed with support from EBRD by a consortium of international consultants, where CMS has led the consortium in the design and implementation matters.

3.4 A CfD is, typically, a private agreement between a “buyer” and a “seller” on the two-way support payment which will be the difference between the strike price and market reference price. The generator is paid by the CfD Counterparty when market reference price is below the strike price and the generator pays the CfD Counterparty when market reference price is above the strike price. Total revenue of generators per unit of electricity is given by: Actual Sale Price + (Strike Price – Market Reference Price).

3.5 The other entities involved are: (i) the CfD Operator - Compania Națională de Transport al Energiei Electrice "Transelectrica" S.A. which, among other responsibilities, manages and conducts the CfD auction; (ii) the Ministry of Energy - which, among other responsibilities, ensures that the CfD liquidity fund has at all times sufficient funds to enable the CfD counterparty to discharge its payment obligations to CfD beneficiaries in full; and (iii) Autoritatea Națională de Reglementare în Domeniul Energiei - which, among other responsibilities, issues secondary legislation in respect to the CfD, including the methodology used by the CfD counterparty to calculate the reference price.

3.6 The CfD mechanism is incentivising investments in energy production assets, by providing stable prices over a long period of time with a clear set of rights and obligations. One of the main advantages of a CfD contract is the removal of wholesale electricity price exposure by providing a fixed strike price, thereby stabilising project revenue. The CfD generators benefit from early certainty and security of support levels in the project development process embodied in contractual provisions that protect the value of the CfD contract (e.g. change in law clause). In addition, a CfD contract will improve the financing conditions by providing comfort to lenders regarding achievable project revenues.

Other aspects related to the eligibility of the CfD scheme that should be considered by project developers are (i) the location of the projects bidding for a CfD must be within the territory of Romania; and (iii) the applicants can apply from the minimum capacity of 5MW.

As some of the projects in ready-to-build stage are actively seeking offtake arrangements, the local market has been slow in entering long term bilateral agreements (PPAs). On the corporate side, the local industry offers a limited number of buyers and also, such potential buyers have not been incentivized to look on a long-term plan as long as they are protected by the Government capping prices mechanism, which currently is due to last until 2025. Most of the reported power purchase agreements in the last couple of years were virtual or financial PPAs, often with buyers from outside the local market. Alongside this endeavour the possibility to transfer the Guarantees of Origin (GO) arose. 

As a background, the Romanian GOs regulatory framework stems from the Government Decision no 1232/20115 approving the Regulation on Guarantees of Origin (the “Regulation”) and the Emergency Ordinance no 163/2022 which entered into force on 6 December 2022 and expressly imposes the amendment of the Regulation within the following 6 months. According to unofficial sources, a new government decision is currently in working with respect to the implementation of an internal market for trading of GOs.

GOs are defined in the Regulation as an electronic document with the unique purpose of providing a final consumer with the proof that a certain quantity of energy was produced from renewable sources. GOs are issued by National Energy Regulatory Authority (ANRE) at the request of an electricity producer for the electricity produced from renewables energy sources and delivered to the electricity grid and are transferred electronically through a unique Register of GOs.

GOs issued are valid for a period of one year from the date of production, for each unit of electricity (1 MWh) produced from renewable energy resources and delivered to the electricity grid and/or final consumers.

GOs can be transferred electronically:

1. from one producer to another producer;
2. from a producer to a supplier of electricity; or
3. from a supplier holding GOs to another supplier.
4. among any market participants within the common EU market.

Regarding the national framework, one particular issue is raised by the transferability matter. Although the Regulation has been drafted in accordance with RED I and it provides for the possibility of transferring GOs together with the physical power or separate, in practice there are a number of difficulties related to the interpretation of this provision by ANRE.

According to the interpretation of ANRE’s officials, only a transfer of GOs together with the physical delivery of electricity would ensure traceability of the source of electricity and avoid double counting of the energy from renewable sources, which represent prerequisites of RED I. The GOs are considered used in the situation where an electricity supplier uses them, at the request of a final customer, to prove the correctness of the information contained in the label of the electricity supplied.

Although they have no monetary value attributed by law, in practice they became a valuable instrument for off-takers willing to implement and showcase their sustainability goals in consuming green energy and so such instruments became a valuable market commodity. The current interpretation of the Regulator is hindering the ability of the generators to pass the GOs in the financial PPAs, which currently are the likely choice to secure a long term arrangements which are highly important in securing project finance. 

Another hurdle is the fact that even if in practice the GO transfer would work for international offatkers, Romania is not a member of the AIB, which again is an inhibitor to other EU market participants to be more active in the local PPA market.

This matter is likely to be settled in the near future by the Government, with solutions including potentially the possibility to trade GOs on dedicated centralised markets.