The Romanian Renewable Energy market, after the new law: 5 “lessons” for one of the hottest Renewable Energy markets in Europe

Despite the political turmoil, the new law for renewable energy was voted in July. Many issues were clarified, while some others still demand our attention. The interest for Renewable Energy in Romania keeps on growing, as almost all European markets are considered “closed”.

I have participated as consultant in a PV project that has been constructed (and it’s entering the commissioning phase just as you are reading these lines). Also I was part of another 11 transactions and witnessed even more due diligence processes, as well as discussing with hundreds of people and experienced a number of interesting situations already. Summing all the above, there are 5 “lessons” that I have already obtained:

1. Too many people talk, but very few people act

Thousands of “market players” out there meet each other every day, full of ideas, proposals and potential agreements. Very few of them are materialized. Why? Many are bad professionals, while for the good ones the banks, the PPA and GCPA contracts and other issues are difficult obstacles to avoid.

2. Less than 20% of the “ready to build” projects are really ready to build

A project can be sold even if it is not “ready to build”. This is why I don’t understand why so many people lie about the status of their project. In order to resolve the issue, I hired an in-house lawyer to verify all documents in order to accurately inform my clients. We update our portfolio twice per month and I can assure you that more than 80% of the studied projects are not really as their owners have described them to be.

3. All constructors “can construct a project as well”. Very few really can

Tens of constructors claim that they can construct a project. Yeah, sure. If the investor does not choose an accredited constructor (EPC), he may end up having huge surprises. In Italy, Spain or Greece hundreds of projects are optimized as we speak. Why? Because they chose the cheapest solution, not the most efficient.

4. The options for equipment are not endless.

With tens of well-known manufacturers going into bankruptcy every month, you should be really skeptical about the option you will choose for the equipment in your project. I am also defensive when it comes to all these guys who propose “innovative, untested technologies”. I go “by the book” and suggest well-known companies, accredited, with all guarantees offered and competitive prices. Anything else might be too risky. Not today when you pay. But in the years to come, when you will expect to get your money back.

5. Important: Renewable Energy is a complicated investment. It is not so easy to reach your target. You should not look just at the attractive IRRs

• Romania has a country risk by itself, higher than many other European countries.
• The development of a project is not as easy as they tell you. Neither is the due diligence for one.
• There are tens of important parameters to take into consideration before choosing a project. Not just the location and the price.
• A wrong EPC may really damage you, plus your project may be delayed or not built as agreed.
• Banks usually offer “refinancing”, so your EPC should offer bridge financing at reasonable costs.
• Materials need to be chosen very carefully. Let’s learn by the mistakes of the others.
• PPA and GCPA are not easy (but we finally have options).
• Insurance, Operation and Maintenance, Security etc. cost more than you expect and define the future of your investment.

Just because you are wealthy does not mean that you can really transform your resources into a successful Renewable Energy project. If you are an experienced foreigner, you need a local person of trust, as you found in other countries as well. If you are a Romanian net worth individual (there are many more than you think, I work with some of them) you need experience, careful steps and very good assessment of the investment.

Romania has a clear horizon for 2013 and the interest is tremendous. But let’s not be so enthusiastic. The Real Estate past tells us that only careful, secure steps might lead to the expected result. It is not so difficult, but not that easy either.

What is your opinion?