July 2014

Energy & Natural Resources 2014

EXPERT GUIDE

ExpErt guidE: EnErgy & natural rEsourcEs 2014

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2013, the Government issued Government Decision no. 994/2013 (GD 994/2013) effective starting 1 January 2014 and providing for a reduction in the number of GCs for projects accredited by the Romanian Energy Regulatory Authority after 1 January 2014. Thus, as of this date, projects relying on aforementioned technologies will receive a reduced number of GCs as follows:

• Hydro – 2,3 green certificatesfor each 1 MWh generated and supplied, provided that the hydroelectric power plants are new or2greencertificatesforeach1MWhgenerated and supplied, provided that hydroelectric power plants are refurbished, for the electricity generated in hydroelectric power plants having an installed power of maximum 10 MW;• Wind – 1.5 green certificatesby2017and0.75greencertificatesstarting 2018, for each 1 MWh generated and supplied by producers of electricity from wind energy;• Photovoltaic–3greencertificatesfor each 1 MWh generated and supplied by producers of photovoltaic energy.

ThecorroborationofGEO57/2013and GD 994/2013 gave rise to a certain degree of confusion among investors considering that the text ofGEO57/2013failedtoexpresslystate that a postponement of the granting of GCs was only valid in the case of projects accredited by the Romanian Energy Regulatory Authority by 31 December 2014. In this case, one may construe that a postponement of GCs will overlap the reduction in the number of GCs which would significantly bringdown the return of investments in this sector.

In December 2013, the Romanian ParliamentadoptedalawapprovingGEO 57/2013 which broughtabout a series of clarifications andamendments to the initial text of the ordinance. The Law approving GEO 57/2013was subsequently referredby the President to the Parliamentfor re-examination purposes. Following re-examination, the Parliament adopted the law onceagain under its initial form and referred it for promulgation. On 13 March2014,theRomanianPresidentpromulgated the law and on 14 March

Radu Ionescu

013 was a turning point for the renewable energy support system for the production of

electricity from renewable energy sources established in 2008 via Law no. 220/2008 (the Law). After a long period during which this Law was virtually unenforceable, since 2010, following changes to the support system, Romania has been witnessing a considerable increase in investments into the renewable energy sector. This increase was mainly triggered by supplementing thenumberofgreencertificates(GC)and also reducing support schemes in other European countries with a long tradition in this sector (e.g. Spain, Germany).

Since most miracles are short-lived, early in 2013, the Romanian Government initiated discussions for a change of strategy in terms of the renewable energy support system. Due to downward pressure from large industrial consumers that claimed an increase in production costs as a result of the extensive advantages provided by the support system set out in the Law, the Government proceeded to the re-examination of

the system. Thus, in the summer of 2013, the Government issued EmergencyOrdinanceno.57/2013(GEO57/2013)whichprovidedfor,inter alia, a deferral from granting a certain number of GCs for the 1 July2013–1March2017period,asfollows:

• 1GCfornewhydropowerplantswith a maximum installed power of 10 MW;• 1GCforwindfarms;• 2 GC for photovoltaic powerstations.

AsperGEO57/2013,suchGCswillbe gradually recovered by producers starting 1 April 2017 for hydro and photovoltaic projects, whereas for wind projects, GCs will be recovered starting 1 January 2018.

Furthermore, in March 2013, the Romanian Energy Regulatory Authority published a report revealing overcompensation in the renewable energy sector and as a result recommended that the number of GCs for hydro, wind and photovoltaic projects be reduced. To this end, in December

2Status of the Support System for the Production of Electricity from Renewable Energy Sources Following Approval of Government Emergency Ordinance no. 57/2013

radu.ionescu@ro.ey.com+40 21 402 41 00

By Radu Ionescu

Romania

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2014 it was published in Official Gazette no. 184, thus becoming Law no. 23/2014 approving Government EmergencyOrdinanceno.57/2013amending and supplementing Law no. 220/2008 setting out the support system for the production of electricity from renewable energy sources (Law approving GEO 57/2013).

The Law approving GEO 57/2013provided for an important clarification, namely that thepostponement of GCs only applies to projects accredited by 31 December 2013. Thus, renewable energy producers covered by the postponement of GCs (i.e. hydro, wind and photovoltaic), accredited by 31 December 2013, will not be impacted upon by the provisions of GD 994/2013 and will not have their number of GCs reduced. Furthermore, another important amendment is that GCs for projects accredited by 31 December 2013 will be postponed for trading and not granting purposes as initially providedforinGEO57/2013.

As regards the mandatory annual

quotasofelectricityfromrenewablesources benefiting from the GCsupport system, the Law approving GEO 57/2013 states that, starting2014, the Romanian Energy Regulatory Authority will monitor the annual quotas achieved on ayearly basis. Depending on the degree of achieving the national target and the impact on the end user, the Romanian Energy Regulatory Authority will estimate and inform the Government on the level of the mandatory annual share of electricity from renewable sources benefitingfrom the support system over the following year. The mandatory annual share will be established on a yearly basis and will be approved by Government Decision pursuant to the proposal of the Department for Energy, within 60 days as of its notificationtotheRomanianEnergyRegulatory Authority.

Contrary to the initial version of GEO 57/2013, electricity suppliersand renewable energy producers (under the obligation to purchase GCs),willbe required topurchaseon a yearly basis (not quarterly) anumber of GCs which is the product

Romania

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Radu provides extensive legal support in the area of energy, M&A, corporate, company and commercial. He conducts due diligence reviews over companies acting in various sectors of industry from renewable energy producers to food and beverages.

His energy law practice involves advising clients during M&A assignments. Radu has conducted full scope due diligence reviews over renewable energy projects of more than 400 MW. He has also published several articles on renewable energy issues in the Guide of Energy Legal Consultants, the Diplomat Magazine and the Expert Guide - Energy and Natural Resources 2013 published by Corporate Livewire.

Additionally, Radu has taken part in several restructuring projects such as mergers and spin-offs in a wide range of industries from renewable energy, consumer goods to financial services. Furthermore, Radu provides significant legal support in the area of insolvency legislation, being involved, inter alia, in lecturing Romanian entrepreneurs on insolvency procedure within an EU funded program aimed at educating young entrepreneurs on business reorganization processes. Separately, he has assisted clients during the attempt to acquire or during the acquisition of assets from insolvent companies.

Radu is proficient in English.

of the value of the mandatory annual quota for the acquisition of greencertificates for that year and theamount of electricity, denominated in MWh, supplied to end users.

It is also important to note that the validity term of the CV was reduced from 16 to 12 months.

On the effective date of the Law approving GEO 57/2013 a newfacility will be granted to developers of projects with an installed power of maximum 1 MW per producer, as well as to producers of electricity derived by high-efficiency cogeneration from biomass running projects with an installed power of maximum 2 MW. In this respect, by way of exception from the rule of

centralised trading, such producers will conclude bilateral sale-purchase agreements for electricity and GCs negotiated directly, however solely with suppliers of end users.

In the aforementioned, we have summarised a part of the amendments brought about by GEO 57/2013 via the approvinglaw. At this point, one can only hope that the effect envisaged by the Government through the deferral of GCs and the implementation of the other changes to the renewable energy support system, will take form and that the cost of electricity for consumers will drop without discouraging investments into the renewable energy sector.

Romania