Energy Strategy and Renewables Cosmin Stăvaru, Partner 13 May 2013

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I. Strategy Sets Foundation

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Policy making pyramid in the energy sector:

Strategy

Regulation

Compliance

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I. Strategy Sets Foundation

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An Energy Strategy should be:

• Adopted by consensus at Parliament level;

• Designed on long term in accordance with EU policies;

• Stable, but flexible to change of circumstances;

• Based on accurate assessment of available resources;

• A map for shaping the regulatory framework of the sector.

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I. Strategy Sets Foundation

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Key objectives of an Energy Strategy:

• Thorough analysis of the energetic system and integration with overall macroeconomic and social indicators;

• Define the desirable generation mix (e.g. classic sources versus alternative sources) and investment needs of the sector;

• Define the approach for financing and operation of the sector (e.g. privatization versus private management);

• Develop the internal energy markets and interconnection with external markets.

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I. Strategy Sets Foundation

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Energy Strategy documents adopted so far:

• Romania’s energy strategy for 2007 - 2020 approved by Government Decision No. 1069/2007;

• Road map for energy sector in Romania approved by Government Decision No. 890/2003;

• National Action Plan in the Renewable Sources Sector approved by the Ministry of Economy;

• National Plan for Energy Efficiency approved by the Ministry of Economy.

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II. Regulation Builds On

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Regulation to define means to achieve the Strategy objectives:

Regulation to encourage development:

• Rules and incentives for building new capacities (permitting, grid access, support schemes);

• Rules on operation and control of the market players;

• Strong institutions to implement the rules.

• Energy Law No. 123/2012 has aligned legislation to the EU requirements and created a competitive and liquid market;

• Renewable Energy Law No. 220/2008 has put in place a predictable long term support scheme.

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But development requires predictability and stability:

• The Energy Law put a general ban on bilateral PPAs;

• The Government to suspend the support scheme for renewables and put an annual cap for new capacities benefitting from GCs after only one year of application.

II. Regulation Builds On

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III. When Regulation Shakes Foundation (Renewables Story)

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• Abrupt cut of the scheme after 1 year of full operation is troublesome for investors and financiers alike;

• The support scheme itself already ensured a mechanism to reduce excessive incentives.

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The need for reducing support is debatable:

• The support level per unit of electricity consumed (MWh) and the share of electricity receiving support are rather close to EU average;

• Renewables reduce the physical energy price on the wholesale market by replacing expensive coal-fired energy;

• On long term, renewable energy is the most sustainable type of energy.

III. When Regulation Shakes Foundation (Renewables Story)

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Most of the EU countries reducing the incentives did not affect operational projects.

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III. When Regulation Shakes Foundation (Renewables Story)

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The sudden cut of the support may generate court cases against Romanian State based on alleged breach of:

• Fair and equitable treatment principle under the Energy Charter Treaty;

• Similar protection of investment clauses under the bilateral treaties concluded by Romania and foreign investors’ resident countries;

• Principle of legal certainty and legitimate expectations.

Some court cases were successful in other jurisdictions:

• Challenging the cut of incentives for solar power in UK;

• Challenging new grid charges for renewable power plants in Bulgaria.

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But real life is often a compromise:• Support for solar is indeed disproportionate to technology costs incurred;

• Impact of GCs to energy-intensive industries is indeed sizable;

• There are limited cases where other EU countries have reduced incentives for operating projects - Greece, Czech Republic, Bulgaria.

III. When Regulation Shakes Foundation (Renewables Story)

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Lesson to learn:

• “Incentives here today, gone tomorrow” policy must be abandoned;

• There should be an Energy Strategy adopted in Parliament to avoid political distortions of the Regulation.

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Cosmin StăvaruPartnerBulboacă & Asociaţii SCA

Phone: (40-21) 408 8910Mobile: (40) 722 178 464Fax: (40-21) 408 8911Email: cosmin.stavaru@bulboaca.comWebsite: www.bulboaca.com

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