Renewable investors cool towards Romania

By bne IntelliNews May 16, 2014

Clare Nuttall in Bucharest -


Romania’s once booming green energy sector has been hit by the government’s decision to slash incentives for renewable electricity generation. Both local and international investors are now drawing back from new and existing projects, citing uncertainty about the operating environment as well as lower financial returns.

A late starter compared to many European countries, Romania’s renewable energy sector took off between 2010 and 2013, with the government’s generous incentives drawing in investors from across Europe and Asia. Bucharest uses a “green certificate” incentive scheme that offers less stable but potentially higher returns than the feed-in tariff model employed in Western European countries such as Germany and Italy. 

But even before many of these projects got off the ground, confidence started to falter as rumours of plans to cut incentives spread. The government acted in June 2013, announcing cuts to the number of green certificates issued to generators of wind, solar and small hydropower plants put into operation after January 1, 2014. Some incentives for older plants were also suspended by the government’s emergency ordinance.

Renewable energy producers receive the tradable certificates for each megawatt of electricity they produce, while traditional power producers and major industrial companies are ordered to buy the certificates. However, power generators have complained that the number of certificates they must buy is too high, resulting in higher power prices for consumers.

In a populist move in the run-up to the November 2014 presidential elections, President Traian Basescu signed off legislation approving the government’s cuts to green certificates in March. “I have passed today the law approving the ordinance and I look forward to seeing lower electricity prices,” Basescu said, according to Agerpres. “I think it is also what the population wants, they expect lower prices, according to government statements.” Bucharest has also faced pressure from the European Commission to reduce incentives in line with other countries like Germany, Spain and the UK.

Stranded assets

However, the cuts have been bad news for the emerging renewables sector. “Projects have been cancelled,” Ciprian Glodeanu, president of the Romanian Photovoltaic Industry Association, tells bne. “Even some projects that were close to being commissioned have been put on hold after several years and millions of euros worth of investment. The changes have affected both small local companies and larger international investors.”

Munich-based REC Solar EMEA, which has a small solar park near Bucharest as well as selling solar panels to the Romanian market, currently has no concrete investment plans in the country “due to the many uncertainties in this market”, according to Luc Grare, senior vice president sales and marketing.

“Definitely, our plans were affected by the government’s decision to reduce incentives for renewable energies. But even more impact have the many uncertainties and a lack of stable conditions, which are indispensable for financing long term projects like solar installations,” says Grare.

“The Romanian solar market might be nevertheless of interest... But stable conditions are indispensable to capture this potential,” he adds.

Czech power company CEZ has also announced that it is considering the sale of a minority stake in its Fantanele and Cogealac wind farms. The company did not give a reason for the planned sale, raising speculation that it is connected to the cut in incentives.

However, according to Domenico Pastia, business development director of renewable energy developer Sunshine Solar Energy, it is the smaller players that have been disproportionately affected, with many now being forced out of the market. Although projects can still be profitable, the returns have shrunk. Pastia tells bne that the “dramatic change” in incentives “also changed the return profile of investors and the investor landscape... What we see now is that the investors are usually also the providers of technology. In terms of the players that are competing in the market, only the big guys can play a role, especially the very largest companies that can finance projects from their own balance sheets.”

This is not to say that everyone is abandoning the market. Despite the cuts, EDP Renováveis announced on March 27 that it had secured €30m of project finance to build 50 megawatts (MW) worth of solar parks in Romania from the European Bank for Reconstruction and Development and the Black Sea Trade and Development Bank.

Meanwhile, Spain’s Iberdrola, which sold its Polish wind farms in 2013 and has been looking to sell its Romanian assets, recently indicated it is in no hurry to quit the market. A spokesperson for the company told Wind Power Monthly that it would sell its Mihai Viteazu wind farm only if it received a “good enough” offer.

Land, sea and air

In terms of terrain, Romania has high potential for renewable generation. The 2013 ‘Eastern Wind’ report from the European Wind Energy Association notes that the Dobrogea region in particular is “ideal for large wind energy projects”. While wind was the first type of renewable energy to gather momentum, solar gained ground later, partly because lower incentives in Western Europe forced major companies to seek better returns elsewhere.

On the demand side, rising incomes are expected to drive demand for electricity, and Bucharest is also looking to become a regional exporter to markets such as Albania and Turkey.

While the incentive cuts have called a halt to the rapid expansion of the market, this may not be the end of the story. Firms and industry associations, while lacking the clout of Romania’s large industrial companies, are stepping up their lobbying efforts in the hope of either a partial reversal in the cuts or the introduction of a new incentive model acceptable to both producers and consumers.


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