Romania welcomes back PPAs

Romania

On 14 May 2020, the Ministry of Economy, Energy and the Business Environment announced the reintroduction of Long-term Bilateral Power Purchase Agreements (PPAs) after having been banned for almost eight years.

Through an Emergency Ordinance, which has not yet been published in the Official Gazette, the government passed amendments to Energy Law 123/2012 that allow PPAs for power-generation capacities that will be commissioned after 1 June 2020.

Production from these capacities will be sold both on and outside the centralised market at negotiated prices in compliance with competition rules. Producers will offer all remaining electricity publicly and without discrimination on the competitive market after fulfilling their obligations to sell electricity to last-resort suppliers. The only exception will be for electricity from energy-generation capacities commissioned after of 1 June 2020, which can be sold through freely negotiated PPAs.

These amendments are part of the commitment Romania made to the European Commission to deregulate its electricity market as of 1 January 2021 to stimulate investments in new electricity-generation capacities.

Until this recent legislative change, all electricity transactions could be carried out solely on the centralized market in a transparent, public, competitive and non-discriminatory manner. This restriction on freely negotiated PPAs was seen as the main hurdle preventing investments in new generation capacities, especially in the renewable sector.

In a subsidy-free era, such investments were lacking a route to market since long-term arrangements are deemed to need secure project financing. PPAs are usually signed for the long term (ten to twenty years) and can offer investors and lenders the necessary confidence to manage energy price volatility risk and counter-party risk. 

Romania has undertaken to achieve a quota of 30.7% for renewable energy from the total energy mix by 2030, according to the National Integrated Plan for Energy and Climate Change 2021-2030. This projection suggests additional capacities of about 6.9 GW will be built in comparison to 2015 levels. 

The new Government Ordinance includes provisions to prepare for market liberalisation as of January 2021. Specifically, in the period 1 July 2020 to 31 December 2020, the obligation of the producers to deliver to last-resort suppliers electricity for household consumption (against regulated tariffs) will only apply to producers operating "dispatchable" production units that are not benefiting from support schemes, and in ascending order of prices set by the competent authority for the entire amount of electricity needed by household consumers.

Also, according to the Ordinance, the selling prices of electricity delivered by producers to suppliers of last resort are established on the basis of the methodologies approved by ANRE.

This long-awaited change is likely to regain investor confidence in the renewables sector, especially as it is supported by recent regulatory measures to transpose EU common-market regulations in the electricity sector. 

For more information on this Ordinance and the Romanian energy sector, contact your regular CMS advisor or local CMS experts: Varinia Radu, Ramona Dulamea, Raluca Diaconeasa.