A different proposal to reduce the cost of Renewable Energy for industrial consumers and households

Last week I presented to you the situation regarding the proposed Government’s Emergency Ordinance on 2^nd of April initiated by the minister of Energy Constantin Nita. You may read the actual status of the industry, the proposal of Mr. Nita and the market’s first reaction here.

However, while the majority of media focuses only on the surface of this debate, very important things are happening in Romania during the last weeks, practically changing the ground of discussion:

1. In April 2013 the price of green certificates transactioned at OPCOM dropped to 44,5 Euros! This is 20% less than the maximum price, below all calculations by authorities, below the analyses of all critics.
2. The price of energy has dropped since last year, more than 30%!
3. As new capacities enter in the system, the prices have entered in an aggressive downward trend.

So just by reaching the above-mentioned situation, we should experience a lower cost of energy during the following months, no? Who knows…?

Problems – reality – solutions

Let us check one by one the problems that Mr. Nita constantly presents (and some media happily promote as well).

1. “Romanians pay too much, this was not the plan”

Reality: The official budget for the subvention of Renewable Energy submitted to European Commission mentioned a total payment of almost 13 billion Ron (almost 3 billion Euro). Last year the total subvention cost was some 300 million Euro, 10 times less. (5,5 million certificates X 55 Euro / certificate).

This does not mean that there is not a problem for the population and the large consumers. By just closing our eyes in front of the problem, we just make things worse.

On the other hand, Romania is member of European Union, the subvention of Renewable Energy is not something “negotiable” with the Europeans, plus any country which sanctioned the sector, lost in the courts and now pays billions back to the producers.

In addition, let us not forget that the traders insist that they have 0 profit from transacting the green certificates, so this means that they just wish to buy the certificates they are obliged by the law.

Solutions: In order for the consumers to pay less, there are solutions to be implemented, following the existing law:

1. Initiate the large consumers to buy green certificates directly from the producers, without having a trading company and without being able to resell these certificates.

It is not difficult to establish a clear, transparent procedure controlled by ANRE and any consumer to be free to buy certificates from the producers at lower prices. Right now, he needs to have his own trading company for this, or to work with a trader and pay the OPCOM price. But I know tens (if not hundreds) of investors who would be happy to sign directly with a large consumer and sell their certificates at a price much lower than the market, securing a contract for 5 years or more. So this will be a “win-win” agreement, large consumers will pay less, investors will secure better their income.

With this measure the cost of certificates can lower by 15 – 30%, without destroying the sector.

2. Let the Power Purchase Agreements free to be signed at any capacity

The Power Purchase Agreements (PPA) were banned last year, due to the problems with the “smart guys” and their “special contracts with state owned energy producers. But why did the private sector have to suffer too? Now the draft emergency ordinance of Mr. Nita restores the order a bit, allowing the existence of PPA up to 5 MW. Still, an investor of a bigger project would prefer to sign at lower price and secure his income for many years. Why don’t we allow him to do so? Large consumers may buy low cost energy, plus traders can do the same and offer to households lower prices.

With this measure, the cost of energy can lower by 10 – 20%, without destroying the sector.

2. “Too many projects are built, we should respect PNAER and don’t accredit green certificates all of them”

Reality: The National Action Plan for the Energy sector from Renewable sources was approved by Romania in 2010. You may find it here:

In order for you not to search in the 206 pages it contains, you may go directly to the pages 200 and 201. There you may check the quota of each technology, as it was proposed back then.

So far, wind energy projects have reached their quota, while photovoltaic projects have an extremely low quota to deal with. The other sources of energy are still under the quota and I don’t really think that they will surpass it during the following years.

In case we go on with this approach, we simply misjudge the photovoltaic sector. I am sure that the Romanian Photovoltaic Industry Association will act accordingly to present its approach. But still there is an issue here…

Solution: Assuming that PNAER is an important tool to work with, we need to add predictability to the sector and not just “inform an investor if he will be accredited with green certificates or not once he invested his millions”.

This is why ANRE could publish annually (until 15^th of January of each year) the status of Renewable Energy in Romania and the capacities of new projects that can have secured accreditation of green certification for the year ahead.

With this measure, the investors can plan their investments and the country will not find itself having more projects than it can offer subvention to.

3. “Too many ATR (connection terms) issued, blocking the national grid, without real intention for all of them to be built”

Reality: Many “developers” have obtained connection terms for “projects”, which in reality they have 0 chances to be built. Then they go out in the market and search for the “hero” who will buy their papers and make them rich. But the national grid suffers, because almost all substations have in papers “potentially overload capacity”. 25.000 MW of wind projects have ATR and more than 2.000 MW of photovoltaic ones as well, in a country with grid that can support 12.000 MW of production.

Solution: The proposal of Mr. Nita is correct, introducing some kind of guarantee in order to issue the connection terms (ATR) for a project. But this has to be a specific one, for example 50.000 Euro / MW, not just “any figure that someone will think about”. Like this, we will see that 80% of all existing “projects” will simply disappear and the grid will become again available to host the REAL investments, at lower costs. The national grid of Romania is not something to play with.

With this measure, the country will clean up the situation of its grid and the investors will know that if they are not serious, they should proceed. In addition, the authorities will be able to study better the real situation, predict the real future needs and reduce the cost of units that are supposed to be available to balance the potential future Renewable Energy projects. This leads to lower cost for balancing, so lower cost to be charged to the consumers.

These are 4 solutions I suggest to reduce the cost of energy for households and the large consumers, without destroying the Renewable Energy sector.

What is your opinion?

PS. (Next week we will discuss about how to reduce the cost of heating by 30 – 50% for the following 25 years!)