10 + 1 conclusions after the conference for Romanian Green Energy market… Is it worthwhile to invest in Green Energy? (I would say yes, but carefully)
* the article was first published on the 1th of November 2011
The conference for Green Energy is closing today. After 2 interesting days, full of meetings and discussions, I think that we are able to extract some conclusions.
1. Romania has great potential
This is something that you usually hear for almost every country in this world, but Romania has several objective advantages. Its wind and hydro potential are among the top ones in Europe. From the biomass point of view… the sky is the limit. Solar is weaker compared to countries like Greece, Italy and Spain, but much better if we compare it to the North, to countries like The Czech Republic, Germany or even Denmark.
In addition, the subventions scheme offers attractive prices.
2. We are waiting for several documents that will resolve the issue: The regulation of all details
The new frame for subventions is interesting, but not yet 100% clear. We know almost everything, but there are still some details that remain to be settled. This is also what the representative of EBRD stated during the conference, describing also what is missing. I know 3 banks in Romania which are open to financing big projects but are waiting for these documents as well.
3. The new subvention scheme with green certificates. The first of its kind in Europe
Romania adopts the subvention scheme that the European Union proposed, becoming the first country which actually puts it into practice. This is completely different than the “standard feeding tariff” which almost every other country has. It is considered more stable and less risky for the state, but also less bankable, as the green certificates will be sold on the open market. (This is why I start my calculation using the minimum prices announced).
It is not by coincidence that the projects with capacity over 125 MW are going to be approved by the European Union as well, before they are accepted for subvention. The European Union is really involved in the Romania’s new scheme.
4. Just another 5 years of green certificates
The scheme that uses green certificates to pay the green energy producers will be active for another 5 years, until the end of 2016. As of 01.01.2017, the new green energy projects are not supposed to receive any subvention, but only the price for selling the produced electricity on the market. So in order for a project to receive green certificates, it has to be connected to the grid until 2017. This measure is decided in order to avoid an inflation of certificates (imagine more and more of them coming over the years, the price would be lower and lower).
In 2018 the green certificates for wind energy will be reduced from 2 to 1, another aspect that will help the market retain good prices.
5. (I would say that they will stop in 2 – 3 years)
But I don’t expect this scheme to last for five years. I can easily predict that the future government will stop it earlier. Why? Because once the system’s capacity will be reached, it will be useless for more projects to receive subventions. And I expect this capacity to be covered in the next 2 – 3 years.
(Important notice: When we say that the projects constructed after 2017 will not receive any subvention, this refers only to the projects connected AFTER that date. The projects connected before that date will continue receiving subvention for 15 years, according to the law)
6. Investments of hundreds of million Euro are needed in order to upgrade the grid’s capacity
Transelectrica announced that an amount of 500 million Euro is needed in order to upgrade its grid. Other experts refer to a larger sum. One thing is certain: This money does not exist today and no project will start during the next year either. This is why investors should only take into consideration the actual situation and not base their projects on “promising future scenarios”.
7. 8.000+ MW have received the authorization to connect to the grid. But just 3.000 of them are expected to be constructed
There are plenty of approvals for the connection to the grid. During the conference we heard that this number exceeds 8.000 MW. But this does not mean that all these people will really develop, produce energy and sell it to the system. The figure of the expected connections is described as low as “around 3.000 MW” (which is not low at all, compared to today’s situation).
8. The first ones who will construct will be the ones who will take a risk but also obtain a major advantage towards the competition
If one studies how the Romanian (under the directives of European Union) subvention scheme is designed, this is a game just for the first ones who will construct and connect their project to the grid. Only these investors will benefit from green certificates. So they will assume the risk to be pioneers, but they will be among the few ones who will receive subventions for many years to come.
Romania will need green certificates during the following decades. According to the new subvention scheme, just these first investors will provide them to the country.
9. As the crisis will be here next year as well, “financing” and “feasible projects” will be the 2 keys that open the “green energy paradise door”
The banks will remain being “in difficulty” during the following 1 year, at least. As the projects are many, only the ones who will manage to resolve the financing problem will be able to move on. But this is not enough. It is also necessary to choose a feasible project. And not all projects are. Many of them are not “designed to construct”, but just “designed to sell to the next stupid investor”. A careful due diligence is more than needed. It is mandatory.
10. The majority of many green energy project owners will simply see their investment depreciate.
This subvention scheme reminds me of the phrase “first comes, first served”. So if a project will not be constructed during the following 12 – 24 months, it will risk losing the subventions, as others will fill all the available slots in the grid. For example, there are so many thousands of MW with the status of “turn key project”. If their owners fail to sell (or to construct them), then they will remain owners of projects which should not rely on subventions. This sounds like watching your investment depreciating.
10 + 1. It is worthwhile to invest in the Romanian Green Energy market. But very carefully.
While most of the European countries face major economic problems and their green energy market is blocked, Romania offers an interesting alternative, with an attractive potential. At the same time, it is necessary for every investor to be careful, believe only in facts and confirm every single detail before he proceeds. But there is a big chance that this investment will pay back, so it is worth our attention (at least).
What is your opinion?