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Solutions for producers of electricity from renewable sources, from the Ministry of Energy

28 October 2016
Biomass
energynomics

The Ministry of Energy has put into public debate the draft of the emergency ordinance for amending the Law 220/2008. The document is long awaited by the companies operating in electricity generation from renewable resources, given that the changes in primary and secondary regulation in recent years have drastically reduced the income of the producers. Repeatedly, the representative associations from the renewable energy industry have warned about the imminent collapse threatening the sector, without some sort of balancing measures.

In the background note accompanying the draft E.O. the main envisaged changes are listed:

  • setting the annual obligation to purchase a constant number of CV, for a period of 15 years, starting from 2017, called a static amount of CV. According to estimates, at this moment this number is 17.257.720 CV;
  • revising at every two years the static amount of CV that is taken in the market. By definition this proposal is based on estimating the total number of CV which will be issued and / or reinserted for a period of 15 years. Being an estimate over a long period of time, it is necessary that it will be periodically reviewed every two years.
  • modifying the method of calculating the quota alone, taking into account the amount of static CV and final consumption of electricity, while maintaining the annual quota obligation for the suppliers, including a corrective action early next year;
  • changing the valability period of the CV, which will be from the date of issue until December 31st, 2031, compared to 12 months, as it is in present. Through the proposed change there will still remain a number of untraded certificates; the surplus of CV can be sold throughout the validity period of the support scheme at an estimated low price.
  • the extension of the deferral until December 31st 2017, for wind and micro-hydro technology and the extension of the deferral until December 31st 2024, for the solar technologies. Postponing the trading of the green certificates is necessary to ensure a better rate of selling the CV for the market participants. For the photovoltaic based technologies, the deferral term is until 2024, because analyzing the internal rate of return we can see there is a major discrepancy between the IRR’s of the SRE producers. The biggest difference can be seen in 2013, the year when the overcompensation led to diminishing the number of certificates fot the producers who would have to obtain theor accreditation in 2014-2016.

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  • increasing the period of reintegration for producers from wind and hydro sources, at 8 years starting on January 1st 2018 until 2025, the reinsertion being made in equal monthly installments;
  • increasing the period of reintegration for the photovoltaic manufacturers at 6 years, from 1 January 1st 2025 to December 31st 2030, the reinsertion being made in equal monthly installments; The periods of reintegration for all technologies have been increased to provide a linear introduction of the CV, in order to reduce the impact on the final consumer and to protect the green certificates market.
  • CV will gain value at the time of trading and not at the time of issue, since it is not a financial instrument. This measure is designed to change the way the CV are registered in accounting, especially as through the proposed amendments, the CVs will be available for selling for a few years from issuing / reintegration. Currently, the CV are recognized as income before being sold, which can lead to cash flow problems for the producers.
  • prohibiting the repeated trading of the CV, with the exceptions for the cases with CV deficit at the producer. This measure is needed because the state aid measure introduced by Law no. 220/2008 as supplemented and amended, targets the E-SRE and not any possible speculations in the CV market.
  • Introducing the obligation for the provider to not invoice to the final consumers, at the time of regularization, a higher price of the CV than the average price of transactions in the centralized market of CV from the previous year. By this provision it is intended to limit the impact in the consumer’s invoice.
  • modifing the minimum and maximum price for selling a CV, so that the changes in this normative act to not lead to a significant increase of the impact upon the consumer.
  • reducing the penalty for the failure of the quota to the value of 70 Euro / CV, as the maximum value of the CV price was diminished.
  • estimating the average impact upon the final consumer for the year 2017 at 47 lei / MWh – compared to 42 lei / MWh in 2016. According to the calculations carried out in an independent study, that will be the maximum impact for the whole period of validity of the scheme. The estimated impact to the consumer is to decline for the period of validity of the support scheme, given that there is a surplus of allowances in the market of CV, until the closure of the support scheme in the year 2031.
  • introducing a provision in order to ensure a maximum effort in the consumer invoice of 11.1 Euro / MWh. To ensure that this effort will remain stable, it is proposed that, at the moment of regularization of the CV acquisition quota, to be taken into account that the impact upon the invoice must not be more than 11.1 Euro / MWh. Thus, to the extent that at the time of regularization, ANRE finds that the impact for the final consumer is greater than the maximum threshold, the mentioned authority recalculates the rate downwards and the number of CV representing the obligation for the supplier to purchase will be recalculated according to the new reduced quota. This measure, together with the minimum and maximum price modification will limit the occurrence of trading the CV at the maximum price, reducing the possibility of increasd effort from the final consumer.

The elements outlined above took into account the general public interest and constitute an urgent situation with an extraordinary character, of which regulation cannot be deferred, thus requiring immediate measures by the means of an ordinance, it is also mentioned in the background note.

The decisions in this draft E.O. resulted from the discussions of the “competent authorities in the field (Ministry of Energy, the Competition Council, the National Energy Regulatory Authority (ANRE), OPCOM, Ministry of Finance) and the producers of energy from renewable sources (RWEA PATRES, RPIA etc) and consumers (ABIEC, Uzinsider, InfoCons) in order to achieve fairness between producer-consumer”. The debates were based on a study performed by the Economic Consulting Associates and made available on the ministry’s website.

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