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Romania re-introduces PPAs to attract investors

  |   Solar, solar industry

The Romanian government has decided to re-introduce directly negotiated Power Purchase Agreements (PPAs) to boost investment in its renewables sector, but only projects commissioned after June 1, 2020 will be eligible.

The Romanian government has re-introduced long-term bilateral Power Purchase Agreements (PPAs) after banning them for almost eight years. The new rules were passed through an emergency ordinance on May 14 in a move to shore up investor confidence in the country’s renewables sector.

PPAs allow for long-term bilateral OTC contracts between buyer and seller of electricity, often with a duration of 15-20 years. Such contracts will enable investors to circumvent volatility risk on the Romanian Opcom exchange, where power prices have dipped by 20-30% since the outbreak of COVID-19.

One drawback with the new PPA framework is that it will only apply to new and not to existing projects, at least for now. This exclusion of existing projects is not in line with the EU regulation on the internal electricity market, which came into effect in January this year, Monica Cojocaru, a Bucharest-based partner with law firm Schoenherr told pv magazine.

“But the Government Emergency Ordinance will be put before the Romanian parliament in the next months and there is a chance it could be amended to also include existing power projects, in line with the internal market EU Regulation” said Cojocaru.

Romania is also drawing up a Contracts for Difference (CfD) framework whereby the government will guarantee a strike price for investors in new renewables projects. CfDs have proven to be a useful tool to attract investors in other countries, as illustrated by successful auctions in the United Kingdom and France.

“The Romania CfD scheme could realistically happen within two years. That – combined with the PPAs – would create a much more favorable framework for future renewables investment in Romania. It is really important to have a robust and stable regulatory framework in place,” said Cojocaru.

 2030 target

Romania reached its 2020 EU renewables target of 24% of final energy consumption coming from renewables several years ago. Solar – mostly from megawatt-scale PV plants – accounts for around 7% of installed generation capacity, compared with around 16% of wind power, 34% hydro, 18% gas, 17% coal and 7% nuclear, according to the 10-year energy and climate plan submitted to the European Commission. In order to reach its 2030 renewables target of 30.7%, Romania plans to add around 7 GW of new renewables capacity, of which around 3.7 GW is projected to be solar projects, according to the plan.

“Solar power is the easiest to integrate into the grid. But the government may put some restrictions on the use of agricultural land for solar projects. This happened under the green certificate system which expired for new projects in 2016. It would limit options for solar investments,” said Monica Cojocaru.

Nevertheless, several new solar projects are already underway. Power company CE Oltenia, for example, plans to build PV installations with a combined capacity of 310 MW across four sites at one of its coal facilities. Romgaz is also reportedly looking into the prospects of going big on solar. Moreover, a European Commission report on coal regions identified Romania as one of the nations where using coal mines to solar projects could be attractive.

The re-introduction of PPAs is part of the commitment Romania made to the European Commission to deregulate its electricity market as of January 1, 2021. This, combined with other measures, means Romania’s 2030 renewables target should be within reach.

“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,” law firm CMS said in a note.

By Andreas Walstad