Energy Promotion System

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THE PROMOTION SYSTEMFOR PRODUCING ENERGY FROM RENEWABLE

SOURCES OF ENERGY


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30, Armoniei Street, 2nd Floor, Office 2&3

2nd District, Bucharest, ROMANIA

Phone +40743331745

@: [email protected]

Published by Tudor GEORGESCU Law Office 2010 Tudor GEOGESCU Law Office

No part of this publication may be used or reproduced in any manner withoutpermission from the publisher, except in the context of reviews


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Definition of terms, expressions and abbreviations

ANRE the National Authority for Regulating in the Energy Field (rom. Autoritate Nationala deReglementare in domeniul Energiei);

Annual compulsory quota of electric energy produced from RES which is eligible for the system ofpromotion by GC the share of energy generated from RES in the final gross consumption of electricenergy, for which the promotion system of compulsory quota is applied.

Annual Compulsory quota for acquizition of GC - the annual quota of GC that the suppliers ofelectricity are obliged to purchase from the producers of E-RES

Distribution Operators juridical person that holds, under any title, an electric grid for distributionand is the official holder of a distribution license according to which this person is responsible for theoperation, maintenance and, if necessary, for the development of the distribution grid in a certain areaand, where is applicable, the interconnection of this grid to other system, as well as ensuring, for thefuture, that the capacity of the system can respond to reasonable requests regarding the distributionof electric energy;

E-RES electricity produced from renewable energy sources;

Green Certificates (GC) document certifying the production from renewable sources of energy of acertain amount of electric energy. The GC is traded independently of the electricity generated.

Isolated grid systemlocal system for production, distribution and supply of electricity which is notconnected to the National Grid System;


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OPCOM S.A.the electric energy market operator

Implicit supplier of electricity (Franchise Supplier)the supplier that has the right and the responsibility tosupply electricity to the captive consumers, according to the license issued to him.

Captive consumerthe consumer that due to technical, economical considerations and regulatory norms,

cannot choose the supplier.

RES renewable energy sources;

Refurbished power plantpower plant that has an operation period of at least 15 years from the date that it wasput into function and was subject to a set of operations that comprise the replacement of outdatedtechnologies with newer technologies in order to improve production efficiencies, pollution reductions, loweroperational costs etc.;

Day ahead market (PZU) centralized market for buying and selling of electric energy in the supply day afterthe transaction day;

MW megawatt;

MWh megawatt hour;

New power plantpower plant that was put into function after 1 January 2004 and was built entirely with new

equipment;

Supplier of electricitythe company that holds the license to supply electric energy, providing electrical powerto one or more consumers under a supply contract.

Transport and System Operator (TSO) the juridical person that has the license to transport electric energyand for system services. The TSO in Romania is S.C. TRANSELECTRICA S.A.


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INTRODUCTION

The floods that devastated cities in many European Countries and the fire outbreaks in Russia in the

summer of 2010 constitutes only a small number of consequences of climate change and in the same time more

than sufficient reasons to turn our eyes towards changing the way we are not taking care of our planet. Due to the

fact that most of the time investments in facilities that produce energy from renewable sources are very expensive

and because most of the energy market is controlled by big corporations oriented of course towards profit, thisdesiderate can be made possible only by promoting the production of energy from renewable sources through the

creation of mechanisms that can support such investments.

The purpose of this documentation is to reveal a general overview of the promotion system for the

generation of E-RES, available in Romania. A tailored presentation will be provided by our experience legal and

financial team of consultants for every individual development project presented to us.


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EUROPEAN UNIONGENERAL REGULATORY SYSTEM

The European Union (EU) through it`s legislative bodies the European Parliament (PE) and EU

Council adopted in 2001 the Directive 2001/77/EC on promotion of electricity produced from renewable

energy sources. The main objective of this Directive was to establish the general regulatory framework

across the member states for promotion of electricity produced from renewable energy sources and, by

this, to determine immediate action against the under use of the potential for the exploitation of

renewable energy sources throughout the EU countries. This brave objective was based on the need to

reach Kyoto targets more quickly and by reasons of security and diversification of energy supply, of

environmental protection and of social and economical cohesion.

The approach that the EU had chosen in order to regulate the problem of investing securely into

renewable energy sources, resulted in that many corporations, companies and organizations acting in

the energy domain now orient more and more of their investment strategies into constructing and

managing power plants that produce energy from renewable sources.

The next step that EU had taken in this approach was to establish the general regulatory framework

for the use of energy produced from renewable sources. This is how the Directive 2009/28/EC came to be

adopted by the EP and EU Council. This new Directive has the purpose to modify the Directive

2001/77/EC and Directive 2003/30/EC and latter to abolish them.

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The mechanism in Romania

Starting with 2004 Romania adopted, through GD nr. 1892/2004, as mechanism to promote the

production of E-RES, the system of compulsory quota combined with the trading of Green Certificates.

In order to improve this system the Parliament passed the Law nr. 220/2008establishing the system

to promote the production of electric energy from renewable energy sources which created the legal

framework for implementing the mechanism of promotion for the production of electric energy fromRES. In compliance with Law nr. 220/2008 the Government of Romania decided, by adopting the GD nr.

1479/2009, to implement as mechanism for promoting E-RES the combination of compulsory quota

combined with the trading of GC instead of the mechanism of feedin tariffs.

Law no. 220/2008 was modified and supplemented by Law nr. 139/2010.

Observation:

For the promotion system to be applied it must be validated by the European Commission. In this respectany future modifications and/or amendments to the legal framework will not be done or shall not have anyeffect if not approved by the European Commission.


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How it works

As stipulated by Law nr. 220/2008 modified by Law nr. 139/2010, the producers of electric energy from RES,after they received from ANRE the license to produce electric energy, must request also from ANRE to bequalified as beneficiaries of the promotion system of GC. In order to receive GC, the next step will be for theproducer of E-RES to register with TSO.

As soon as the producer of E-RES is qualified accordingly by ANRE, registered with TSO and startedproducing and providing E-RES to the electricity supplyer or/and to the final consumer, they will receive, onmonthly basis, from TSO the number of GC according to the type of RES used to produce electricity and to theamount of electricity provided.

The producer of E-RES can provide the electricity produced using the national grid system or, according toLaw nr. 220/2008 modified by Law no. 139/2010, also through an isolated grid system.

The quantity of electricity provided by the producer of E-RES to the electricity supplier or/and to the finalconsumer and the number of GC`s is determined by TSO according to the data collected from:

a) the producer of E-RES;

b) the Distribution Operator;

c) the producer of electric energy from RES for the electricity supplied directly to the final consumer onbasis of bilateral contract between the two parties.

In order for a producer of elctricity to benefit from the promotion system, it must use as fuel for the

generation of elecric energy the following renewable sources:a) Micro Hydro Power Plants (MHP) hydro powerd energy plants that have an installed cappacity of

maximum 10 MW ;

b)Wind;

c) Geothermal energy, biomass, bio liquid, biogas, gas resulted from waste processing and mudfermentation gas resulted from purification of used water;

d) Solar (photovoltaic).


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The producer of E-RES is eligible, for each MWh produced and sold to the supplier of electricity and/orto the final consumer, to a number of GC, as described in the table bellow:

In addition, for the electric energy produced in cogeneration of high efficiency in power plants thatuse as fuel geothermal energy, biomass, bio liquid, biogas, gas resulted from waste processing or mudfermentation gas resulted from purification of used water, the producer will receive an additional 1 GCfor each 1 MWh produced and supplied.


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The Law nr. 220/2008 modified by Law nr. 139/2010 obligates the electricity providers to buy fromthe producers of electricity from RES a number of GC equal to the result achieved by multiplying the

value of the annual compulsory quota of GC with the quantity of electricity, expressed in Mwh, provided

annually to the final consumer. ANRE must determine the compulsory quota of GC and publish it ontheir website, until the first decade of December. The determined compulsory quota will be valid for thefollowing year.

If the electricity provider dose not achieve the annual compulsory quota of GC for the electricityprovided to the final consumer it must pay double the maximum value of the GC 110 EURO, for everyGC that has not been purchased from producers of electric energy from RES.

The annual compulsory quota of electric energy produced from RES which is eligible for the systemof promotion by GC for the period 2010 2020 are included in the table below:

After 2020 the quota will be set by the competent ministry and approved by Government Decision,but the value shall not be smaller than the value set for the year 2020.

Observation

- please notice the difference between the annual compulsory quota of electric energy produced fromRES which is eligible for the system of promotion by GC and compulsory quota for acquisition of GC.


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For how long?

The Green Certificates will be issued, according to Law 220/2008 modified by Law 139/2010, for a period of:

15 yearsfor energy produced in new power plants;

10 yearsfor energy produced in refurbished micro hydro power plants with an installed capacity of lessthan 10 MW;

3 yearsfor electric energy produced in old unrefurbished micro hydro power plants;

7 yearsfor electric energy produced in power plants that were used for the production of electric energyin other countries if are used in isolated grid systems of if they are put into function prior to the date thisLaw is in force, but no older than 10 years and if they respect the environment protection norms;


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Trading of Green Certificates

Law nr. 220/2008 modified by Law nr. 139/2010 regulates the minimum and the maximum price ofthe GC`s applicable for the period of time between 2008-2025. These values are:

a)the minimum trading price is 27 Euro/GC;

b)the maximum trading price is 55 Euro/GC.

After 2025 the trading value of GC will be the value set by the centralized GC market, but it can notbe less than the minimum trading value applied in 2025, indexed according to the following paragraphs.

The RON value of GC shall be calculated taking into account the average exchange rate determinedby the National Bank of Romania (BNR) for the month of December of the previous year.

Also, starting from 2011 ANRE will index on annual basis, the prices mentioned above, according tothe average inflation index calculated at EU 27 level, officially communicated by EUROSTAT.

According to Law nr. 220/2008 modified by Law nr. 139/2010 producers and suppliers of electricityfrom RES can choose to trade the GC`s through the centralized market of GC`s or through bilateralcontracts between producer and supplier. This means that the producers of electricity from RES have theoption to negotiate the price of GCs ,within the margins legally regulated, directly with the purchaser ofGC (electricity provider) or to trade the GCs through the GC centralized market at the closing price forthe respective month. Both trading platforms are situated under the regulations and supervision of

OPCOM S.A.In this respect the producer of electric energy from RES in order to sell the GCs, either through the

centralized GC market or through bilateral contracts, received from TSO, must be registered withOPCOM S.A. and all transactions involving GC must be entered into the GC Register.

Another important aspect is that until Romania reches the national target regarding the share of E-RES in the final gross consumtion of electric energy (33% for 2010, 35% for 2015 and 38% for 2020) the GCmay only be traded on the internal market of GC.


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30, Armoniei Street, 2nd Floor, Office 2&3

2nd District, Bucharest, ROMANIA

Phone +40743331745

@: [email protected]

Documents

Energy Promotion System