“The energy practice has been rather fluctuating this year. Before the amendment of the support scheme, investor interest in the renewable energy sector had been extremely high, as they tried to buy or finance projects in various stages of development,” said Cosmin Stavaru, partner with Bulboaca & Asociatii law firm.
The government supports production of clean energy via a green certificate scheme. Each power producer using renewable sources gets a number of green certificates for free from the country’s national grid operator Transelectrica for the electricity generated and delivered to the grid and then sells the certificates on the market. The latest certificate price at the first trading session in November was 188.5 lei (EUR42).
Signals of a change first came at the end of last year, and investors waited to see what the authorities’ intentions were.
Early in June, the government decided to defer the granting of a number of green certificates depending on the type of technology used to generate electricity from July 1, 2013 through January 1, 2018.
“The modification of the support scheme severely troubled the market: the funding stopped pouring and buyers’ appetite declined. This is why many projects in their early stages were put on hold for the time being. There is quite a gap on the market now between the high supply of projects and relatively low demand, so closing a deal under these circumstances is rather difficult,” Stavaru added.
According to the government decision, wind power will get one green certificate instead of two and solar power will get four instead of six. New micro-hydropower plants will get two certificates instead of three. Solar farm and micro hydropower plant investors will be able to get their deferred certificates gradually between April 1, 2017 and December 31, 2020. Wind power investors will get theirs after January 1, 2018.
“Solar power has been this year’s favorite. There’s been greater short term interest in small and medium-sized operational solar power projects, which still get six certificates, two of which deferred, for which some banks are providing funding,” Stavaru added.
On the other hand, even on those segments still doing well in terms of investor interest, problems often arise during the transaction, as the solar power boom in the last few years attracted developers that did not provide the quality buyers are looking for.
“I’ve noticed a change in the structure of transactions or briefs I worked on this year, with a more significant deal break trend than last year. We’ve had more transactions in their final stages where buyers pulled out because of regulatory uncertainty,” said Monica Cojocaru, partner with law firm Schoenherr. She added the success rate of the deals went down.
This year’s trend will continue next year, she believes, especially in the first half.
There is still room for project development, especially for rooftop power generation facilities. Developers will show interest in it once the national energy regulatory authority ANRE reveals the regulated prices to be paid for the production delivered into the grid by the facilities of less than 1 MW, but it all depends on whether they can secure funding or not.
“We’ve had an uncontrolled solar power boom that started in 2011 and peaked in 2012. The boom was still substantial this year but the quality of work has not always been the best, for which reason many buyers decided to withdraw from the deal in the due diligence phase,” Cojocaru added.
Romania still has potential when it comes to the clean energy business and continues to attract investors either via programs conducted by the government to stimulate investments or through the potential for profit that private equity funds have noticed.
However, the market has not been without big surprises, such as the modification of the support scheme or the sudden insolvency of the country’s largest hydropower producer, state-run Hidroelectrica last year.
“We believe Romania’s special renewable energy potential will continue to attract investors, but not as many as until now. On the other hand, a market with a high growth potential is the energy service business, the energy efficiency and the cogeneration projects, where the high efficiency cogeneration bonus scheme remains unchanged,” Stavaru concluded.
Romania’s energy efficiency is one of the lowest in Europe, so its economy needs three times as much energy to produce the same gross domestic product unit as Germany, according to the latest Eurostat data valid for 2011.
Improvement of energy efficiency by 20% by 2020 is one of the goals EU member countries set to achieve, along with increasing reliance on renewable energy sources and reducing greenhouse gas emissions.
One of the most important projects in the energy sector this year, however, involved a conventional energy company. State-run natural gas producer Romgaz (SNG.RO) valued at EUR3 billion was listed on the Bucharest Stock Exchange after an initial public offering for sale of 15% in it, for which the government collected EUR391 million.
Romgaz’s IPO, the largest ever on the local stock market was conducted on two markets at the same time: the Bucharest Stock Exchange and the London Stock Exchange.
The law firms involved in the floatation of Romgaz out of those operating in Romania were Bulboaca & Asociatii and Clifford Chance Badea.
(English version by Loredana Fratila-Cristescu)