Vol. XVIII No.1
January 2013



The development of a green economy is the engine for future growth. Furthermore, while international market players increasingly criticize government subsidies granted to the coal, oil, gas, and nuclear energy sectors as overly opaque, the green energy sector has largely escaped these criticisms. In fact, the green energy sector has earned a top place in the market and is projected to be a continuing force in the coming years.

Green energy is regulated at the EU level, thus EU energy policy, economic policy, and climate change policy must all be analyzed together. Once the EU’s current 2020 binding renewable targets run out, the 2030 policy should represent a more clarified consensus at the EU level. Renewable energy, including wind energy, is essential to ensuring energy security throughout the EU, especially when considered in light of the volatility of imported fossil fuel prices. Because most onshore wind renewable energy markets have already matured, market attention is currently focused on onshore emerging markets and offshore potential markets as sources for future electricity demands.

Started in 2010, Romania’s renewable wind energy sector has one of the fastest growth rates in Europe. In 2012, investments in wind energy projects represented one third of the direct foreign investments in Romania, a significant success even in times of financial crisis. While confronted with certain practical problems, the wind energy sector remains one of the most active and attractive in Romania. Because of the growing importance of the green energy sector, investors must be well informed on how to overcome prospective obstacles to achieving a profitable investment.
Legislative Overview

Law no. 123/2012
Finalizing an integrated European electricity market is an EU target which needs to be grounded on the liberalization of the electricity market and the connection of transnational networks between EU member states. For economic, social, and political reasons, achieving this target requires a complex approach and a thorough implementation of the applicable regulations in all EU member states. In 2009, a third legislative package was adopted at the EU level regarding internal electricity and gas markets; its implementation in EU member states was set for March 2011.

In its attempt to implement the EU directive, the Romanian Parliament adopted Law no. 123/2012 – i.e. the electricity and gas law (hereinafter referred to as the “Electricity Law”), transposing the provisions of the Directive 72/2009 directly into national legislation. According to the Electricity Law, the liberalization of the Romanian electricity market is set to occur in stages. For industrial consumers, the regulated tariffs were to be eliminated by September 1st, 2012, with electricity supplied under regulated conditions until December 31, 2013. For domestic consumers, regulated tariffs will be eliminated starting on July 1st, 2013, and full liberalization will start on December 31st, 2017.

The most contested provisions of the Electricity Law are Articles 23 ¶ 1 and 28 ¶ 1(c), which actually ban the use of power-purchase agreements and bilaterally negotiated agreements (known as “PPAs”). The initial interpretations of these provisions were divided between two schools of thought: those who claimed that the provisions restricted electricity trading on the wholesale market, and those who argued that this was not the real intent of the legislature and that the respective confusion triggered by the provisions would be fixed through proper secondary legislation adopted by the National Regulatory Authority in the Energy Field (“ANRE”). However, because the ANRE is not allowed to amend legislation through secondary legislative provisions of the law, no solution was found creating severe obstacles in the renewable energy projects market.

Law no. 220/2008
In order to comply with EU directives establishing targets for future renewable energy production, the Romanian Parliament adopted Law no. 220/2008 (the “Renewable Energy Law”). Since investments for renewable projects are much more costly than for conventional energy projects, the Renewable Energy Law establishes a support scheme to further incentivize investor interest in this sector. According to this scheme, investors in renewable energy projects are entitled to receive, besides the value of electricity sold on the Romanian electricity market, a certain number of green certificates / MWh. A green certificate is a document attesting that a certain quantity of electricity is produced from renewable sources of energy. For renewable wind energy projects, the support scheme provides for 2 green certificates per investor through 2017, and one green certificate from 2018 and onwards.

The Renewable Energy Law also provides that the ANRE shall continuously monitor the support scheme. Furthermore, if the ANRE ascertains that investors have too high of a profitability rate on their investment, then the number of green certificates granted through the support scheme may be reduced. In 2009, one year after the adoption of the Renewable Energy Law, the support scheme was pre-notified to the European Commission, and in 2011, the EC decided that the law was EU-compliant. Consequently, the Renewable Energy Law became effective in 2011 (3 years after its adoption by the Parliament), and a number of investors became qualified for the support scheme and began receiving green certificates.
Current Obstacles in Developing Renewable Wind Projects in Romania
As noted above, one of the most striking problems in the general Romanian renewable energy market is the ban on PPAs. According to the problematic legal provisions of the Electricity Law, “the electricity transactions will be carried on the competitive market transparently, publicly, centralized and nondiscriminatory” (Article 23 ¶ 1), and “the producers are obliged to publicly and nondiscriminatory offer on the competitive market the entire electricity quantities” (Article 28 ¶ 1(c)). As the business world could easily observe last year, these legal provisions generated problems for electricity trading and blocked investments in specific energy projects and in the entire Romanian electricity market.

From an investors’ perspective, the ban of PPAs has made it impossible to create accurate business plans that are able to predict future revenue because financial institutions are more reluctant to provide the required financing for the development of renewable projects. Consequently, many investors have put their investments in Romania on hold until a solution to the legislative uncertainty can be found.

Another severe consequence of the interdiction on PPAs is the blocking of electricity imports and exports both on the Romanian market and abroad. Foreign electricity producers and traders need to be registered on the centralized market organized and managed by OPCOM, i.e. the electricity market operator; however, because Romanian companies can no longer use PPAs, they are effectively blocked from negotiating and working with foreign producers and traders.

These two severe consequences deriving from the prohibition on PPAs were perceived as a severe step back in the development of renewable projects in Romania. However, these problematic issues should be resolved soon and PPAs will once again be allowed under the law.

While the aforementioned obstacles affect developers of all types of energy projects, another pressure put specifically on developers of renewable wind projects comes from the grid infrastructure, especially as the demand for connection permits continues to rise. In this context, developers need to be properly informed and aware of the necessity to invest in the grid and build the required substations and connections, so that they can connect to the grid and deliver power into the system.

Last but not least, there is also pressure from the permit procedure required for the development and operation of wind farm projects in Romania. This burden, however, may be overcome by proper counseling and assistance for producers on the procedural requirements of the permit process.
Main Advantages of the Romanian Wind Renewable Energy Market
The fact that Romania currently has one of the fastest growth rates in the wind energy sector is not random. In fact, there are very specific reasons why investors were and will continue to be attracted by this investment area.

Perhaps the most obvious factor considered when deciding to invest in renewable wind projects is the fact that Romania has very good winds with average wind speeds of around 8m/s onshore and 10m/s offshore. Furthermore, there are specific areas in the country which are ideally situated to renewable wind energy projects. For example, because villages are often located far away from one another, there is ample space for the building of wind turbines.

Even more important than Romania’s geographic features, however, is the fact that Romania has one of the most appealing support mechanisms for wind power in Europe’s emerging markets. The green certificate support scheme – detailed above – is an effective incentive to invest in the Romanian market. Developers’ revenue comes from both the trading of green certificates – at a minimum price of 27 euros and a maximum of 55 euros per certificate – and electricity. This dual method of revenue generation is increasingly important since the ban on PPAs limits the sale of electricity on the centralized market to OPCOM, thus depriving investors from a significant part of their anticipated revenue. However, impending amendments to the current legal provisions are expected to re-allow the use of PPAs, thus unblocking the market and removing these impediments to investor development of Romanian wind farms.

In fact, the imminent solution to the current PPA situation is proof that Romanian authorities understand that PPAs are essential to unblock the system for both investors and financing institutions.

In times of economic crises, when all countries face financial shortages, financing institutions have found that the Romanian renewable wind market is sufficiently stable to merit financing. This is a significant step forward for the Romanian renewable market which should grant confidence to those who are still undecided about investment in this area.

Needless to say, the Romanian renewable energy market is not flawless, but what market is? The fact that the Romanian authorities have listened to criticism and found solutions to legislative problems related to PPAs shows an understanding and commitment from these authorities to solve existing problems and facilitate the construction of wind farms in Romania. Compared to other systems of law – some based on feed-in tariffs – where legislation was often changed overnight despite severe negative consequences on the business environment, Romania’s market is structured and well-functioning, and provides a forum for investors’ voices to be heard.

Furthermore, Romania is committed to complying with EU goals for renewable energy. Right now, Romania is within reach of the 4,000 MW objective set in the national renewable energy action plan. It is extremely likely that Romania will meet and even exceed these targets; all it needs to do is preserve the existing support scheme and invest in further grid infrastructure development. With this in mind, it is highly unlikely that Romania will adopt any new measures disrupting or otherwise impeding the renewable energy sector.
Admittedly, the Romanian renewable energy sector has flaws. On the other hand, it is equally obvious that the Romanian renewable energy sector has benefits and that those investors who have undertaken the risks of investing in this sector have remained active on the Romanian market. If properly informed and aware of both the national system and local specificities, those considering investment in Romanian wind farms may be able to successfully invest in renewable wind energy projects.
Editors Note: It is our policy not to mention our clients by name in The Romanian Digest™ or discuss their business unless it is a matter of public record and our clients approve. The information herein is correct to the best of our knowledge and belief at press time. Specific advice should be sought from us, however, before investment or other decisions are made.

Copyright 2013 Rubin Meyer Doru & Trandafir, societate civila de avocati. All rights reserved. No part of The Romanian Digest™ may be reproduced, reused or redistributed in any form without prior written permission from the publisher.

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