Romania Changes Course on Renewable Energy
BUCHAREST — With more wind turbines already built than any of its neighbors, Romania has gained a reputation as a prime location for green energy investors. Yet proposals now to cut subsidies for clean energy producers have deeply alarmed foreign companies drawn to its market.
In recent years, the country has been host to a boom in renewable projects. Wind farm generating capacity in particular soared to 1,794 megawatts last year, from just 13.1 megawatts in 2009.
Under legislation enacted in 2008 and implemented in 2011, energy distributors have been required in the past two years to purchase “green certificates” for every megawatt hour of power that they sold. The certificates are issued to wind, hydro and solar power producers who can sell them directly to distributors or trade them on the state-owned power market, Opcom. Distributors can — and do — pass on the cost of buying certificates to their customers.
With more than 2,000 megawatts of all forms of renewable production capacity now installed and about as much under construction, Romania is already near its goal, agreed upon as a member of the European Union, of meeting 24 percent of its energy needs from renewable sources by 2020.
In a climate of optimism, the international consulting firm Ernst & Young placed Romania at No. 13 on a list of 40 nations ranked by their attractiveness for investment in renewables, as recently as February this year.
Yet even as Ernst & Young published its ranking, the government started to circulate ideas for clawing back some of the incentives available to investors, in a bid to hold down rising power bills.
Draft proposals in a consultative document announced this spring included a steep cut in the issuance of certificates.
Moreover, where the national energy regulator, known by its initials A.N.R.E., had proposed a reduction in issuance of certificates for future projects starting in 2014, the government went further. It proposed a suspension in issuance, until 2017, of as many as half of the certificates due under current incentive arrangements, effective starting July 1 and applicable retroactively to existing projects as well as new ones.
“The influence of green certificates in the cost of products made in Romania, as well as on households, has started to be very big,” Constantin Nita, the minister for energy, said in a radio interview last month after announcing the government’s proposal. The cost of certificates, passed on to customers, would account for almost half of a 10 percent increase in electricity tariffs this year, he said.
According to the market operator Opcom, the market price averaged €56.44, or about $72, per certificate last year. A.N.R.E. said it estimated that the added cost to consumers was now about €11.50 per megawatt hour.
“So here we are caught in a vice between, on the one hand, domestic and industrial consumers, and on the other hand, the investors who risked and invested in this area,” Mr. Nita said.
In one of the poorest countries in the Union, where the average monthly wage is €340, reducing utility bills certainly resonates with voters. But investors were caught off guard by the announcement, especially since the program had been in place for little more than a year.
“Everybody is affected; there are people panicking, really panicking,” Markus Vrieling, chief executive of RESbroker International, a wind and solar projects broker in Romania, said in a telephone interview this month. “You have no clue about what your green certificate will bring, you have no clue about how many green certificates you have.”
“I think it is the task of a government to be clear with investors and to define a framework within which they can operate safely,” he added.
Since the government’s change of direction, CEZ, the Czech energy company that built a 600-megawatt wind farm in Romania — the largest in the country — has said that it will concentrate future investment in Poland.
“In Romania, there are no other investment plans at the moment,” Barbora Pulpanova, a spokeswoman for the company, said in an e-mail. “In general, we are actively monitoring all the business opportunities and following the natural logic, we wouldn’t invest a big amount of money to the projects where we would not have a guarantee of the financial return.”
“Suspending green certificates would be an incredible mistake, and there is no legal or economic justification for it,” said Ciprian Glodeanu, president of the Romanian Photovoltaic Industry Association, which represents companies like Enel, of Italy, and Samsung.
“There was a system that was approved by the European Commission, and suspending certificates doesn’t exist anywhere in what the commission approved,” he said. The government, he said, “should leave the system to function,” limiting subsidy reductions to those proposed by the energy regulator, in compliance with E.U. rules.
Romania is not alone in reviewing its support for green energy producers. Spain, once a renewables champion, has also cut subsidies for alternative energy technologies, upsetting foreign investors, some of whom have pledged to sue the government for breaking the terms of their investments. Germany is also struggling to control a surge in the electricity tariffs attributed to the high cost of subsidized green energy.
In Romania, the green certificate program clearly drew huge foreign investor interest — the country attracted 7 percent of global renewable energy projects in 2011, according to areport by The Financial Times.
“The year 2011 saw a spectacular increase” in green energy investment following implementation of the certificate program, said Zoltan Nagy-Bege of A.N.R.E. Mr. Nagy-Bege said the regulator this year had proposed cutting subsidies at the same time the government did — but for different reasons.
“We proposed cuts because there is overcompensation” for the extra cost of clean energy production, he said. “The minister, however, wants a visible result in decreasing the bill for consumers.”
“I think such a proposal will destroy the entire renewable sector,” he said. “Banks and investors get their information from the press, and all kinds of rumors have been appearing for weeks. There is no financing and the parties shy away from signing contracts.”
Subsidies, moreover, are not the only issue troubling the Romanian energy market. Aureliu Leca, an engineer and specialist in energy at Politehnica University of Bucharest, said in an e-mail that power generation in Romania today was in a “critical and unbalanced situation.”
The country has some of the most polluting coal-fired power plants in the European Union; the state-owned Hidroelectrica, the major hydro power generator, is in insolvency; and there is no clear government policy regarding the future of Cernavoda, Romania’s only nuclear power plant.
“The only sector that has been disproportionately developed was represented by renewable units, especially wind and photovoltaic,” Mr. Leca said, adding that this had created further problems, including strains on an inflexible national grid.
The eastern Dobrogea region is host to most of the wind farms and Cernavoda’s two nuclear reactors, with a combined 1,400 megawatts of capacity, weighing heavily on the grid when production from all sources is at maximum.
“In my opinion, the current situation shows that Romania does not have a coherent strategy for the development of renewables,” Mr. Leca said. “The Romanian energy sector has many accumulated problems that need urgent and fundamental decisions.”