Romanian Real Estate 2007 vs. Romanian Green Energy 2012. 5 major differences between 2 “golden periods”

Last week I participated at the “Wind Power Romania” event, one of the most important conferences for Green Energy in Romania and the Balkans. I was impressed by the quality of speakers and their presentations. I consider it a “training” by some of the top experts in Green Energy today in Romania and Europe.

It was clear that the interest is very strong for Romanian Green Energy, especially in the wind and solar segments (hydro and biomass will move as well, but not as fast). Hundreds of investors want to enter the market, reminding me sometimes of the “golden period of Real Estate properties”. But now things are totally different. Let’s check together why:

1. Nowadays no deal is signed without a proper, thorough due diligence

5 years ago there were thousands of transactions which were not carefully checked. Sometimes lawyers did not have time even… to meet together and agree on the contract terms. Owners were forcing the clients to move fast, everyone was in a hurry. We all know the results of this situation.

Today everything is checked “upside down” before the pen inks the paper. Plus there are specialized companies that undertake due diligence processes, having the necessary time to finish them. Everyone is careful and this is good.

2. Back then there was just “the prospect of income”. Now the income is real

In 2007 people were dreaming of becoming rich overnight. Profits were estimated through hopes and “optimistic” studies. This is why many investors are blocked, having bought a piece of land which requires expenses (for property taxes etc.) but brings 0 income.

Green Energy is a totally different story. Romania is the first country in E.U. implementing the new directives from the European Commission for Green Energy. Even if we disagree on the green certificates’ forecasted price, there is still income to be made. Even with the minimum prices, projects have cash flow, every month.

3. In 2012 the real players are very few. In 2007 it was literally everyone…

Just before the Real Estate bubble burst, you could easily check that everyone in Romania was involved in the business. From taxi drivers to professionals and from doormen to experts, every resident in Romania (and not only) tried to get in the business and make some easy, fast money.

Many people attempted to enter Green Energy as well, trying to earn some easy money and exit fast. But they abandoned the race when they realized that it is difficult and complicated. The market is controlled by just some hundreds of players all around the country.

4. Once more it’s a “beat the clock” game. But now it is a buyers’ market

During the “golden age” of Romanian Real Estate everyone was in a hurry to buy “something”, because they were sure that tomorrow it would be more expensive. This pushed the levels of prices to incredible heights. It was a “beat the clock” game and sellers were almost… worshiped for selling their property.

We are also running against against the clock today, but for the opposite reasons. We know that the ones who will not construct and connect to the grid during 2012 – 2013 could risk remaining out of the 3.000 – 3.200 MW which will receive subventions. So we try to combine seriousness, careful steps and accuracy with some speed as well. But now the buyers set the rules.

5. Financing. So easy in 2007. So difficult in 2012…

Just 5 years ago, banks were almost… harassing you in order to sell to you one of their products. Financing was easier than ever, even for projects that sound ridiculous today. Liquidity looked unlimited back then, allowing everyone to dream of his “piece of cake”. Loans were “fast and generous”.

Just 5 years after… the situation is completely different. The Romanian banking system is protected due to the excellent work of Mr. Isarescu and his team at BNR. But financing is very difficult, even for Green Energy. No more than 5 banks really finance projects and this happens after long procedures.

Let’s draw a line: Taking into consideration that all the above mentioned parameters are correct, who can really be the investor who will earn profits in Romanian Green Energy? I would say the one who will:

·         Know very well what he is doing and why.

·         Secure the financing of his projects.

·         Insist in crosschecking every detail of the deal.

·         Choose the right professionals to be by his side.

·         Don’t believe in fairytales, but remains optimist and conservative.

What will happen to the rest? God is generous, this is what I learned in school…