The In-House Lawyer

Anna Rizova and Bryan Jardine discuss recent legislative changes in the renewable energy sector in Bulgaria and Romania, outlining the amendments to directives and regulations, and the effects to the electricity landscape

It has been a year since Wolf Theiss published its 'Guide to Generating Electricity from Renewable Sources in Central, Eastern and South-eastern Europe' (the Guide), which was received with great enthusiasm by the firm's clients and the renewable energy sector (RES)-electricity stakeholders generally. The Guide aimed to assist the renewable energy community explore untapped opportunities in central and eastern Europe (CEE) and south-eastern Europe (SEE), as well as to provide a practical handbook on the principal features of RES-electricity projects in the 14 jurisdictions covered by Wolf Theiss, namely Albania, Austria, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Hungary, Kosovo, Macedonia, Romania, Serbia, Slovak Republic, Slovenia and the Ukraine.

The Guide and its key contents were profiled in IHL179 (p3).

Now, a year after the first edition, several key legislative changes have been introduced and implemented in the jurisdictions covered in the Guide. In response, Wolf Theiss has decided to publish an updated second edition of the Guide for 2011.

The new edition will highlight the legislative changes that have occurred, including, for example, in the areas of permitting, licensing, promotion schemes (ie feed-in tariffs (FITs) or green certificates (GCs)), grid connections and carbon credits.

This article summarises the most significant legislative changes that have occurred in the past year, specifically in two key jurisdictions covered in the Guide - Bulgaria and Romania. Both of these countries witnessed dramatic updates in 2010 and a corresponding large increase of interest from stakeholders in the RES-electricity market.

The summary contained in this article is not exhaustive and for a more thorough understanding of the changes that have occurred in the past year in both Bulgaria and Romania (and indeed all of the countries that Wolf Theiss has surveyed in the Guide), the authors encourage readers to review the full 2011 issue of the Guide (see http://www.wolftheiss.com/index.php/res-guide.html).

BULGARIA

Background

For the relatively short period of its existence, the Renewables Act in Bulgaria has created significant investment interest. However, apart from this positive step, practice has demonstrated more negative tendencies that have actually slowed down development in the RES-electricity sector.

The grid operators' effective compliance with their obligation to provide capacity for connection of the intended power plants and to further develop the network has been blocked by the large number of applications for access to the grid, and applications largely outnumber the available capacity at most of the grid connection points. The relatively low and regulated end consumer prices have additionally hampered the sufficient amount of free funds to be allocated for grid development and connection of RES generators.

Amendment

Based on this situation and following its obligation to transpose the provisions of Directive 2009/28/EC (the Directive), the Bulgarian government has proposed a draft for the amendment of the Renewables Act, which was adopted by Parliament at the end of March 2011.

The draft amendment implements the Directive and proposes a clearer regime for RES stakeholders, grid operators, investors and authorities.

The draft amendment transposes the following Directive provisions:

• obligation for elaboration and reporting of a National Renewable Energy Action Plan (NREAP) (Article 4 of the Directive);
• statistical data transfers between member states (Article 6 of the Directive);
• joint projects between member states (Article 7 of the Directive);
• joint support schemes between member states (Article 11 of the Directive);
• simplified and less burdensome authorisation procedures, such as simple notification for smaller projects and for facilities not connected to the grid (Article 13, paragraph 1(f) of the Directive);
• requirements on information provision to the EC and training for the personnel involved in the RES project (Article 14 of the Directive);
• provisions with respect to the issuance, validity, transfer and schemes for the guarantees of origin of electricity, heating and cooling from RES (Article 15 of the Directive);
• sustainability criteria for biofuels (ie bioliquids and calculations), implementation measures, and reporting requirements and procedures (Article 17 of the Directive); and
• compatibility and compliance of draft amendment definitions with those of the Directive (Article 2 of the Directive).

In addition to transposing the Directive provisions, the draft amendment also introduces further improvements to the existing framework for renewable projects:

• Establishment of an Agency for Sustainable Energy Development, a body successor to the Energy Efficiency Agency, with extended functions to implement, manage, sustain and support the implementation of the state policies and incentives for the generation and consumption of electricity, heat and cooling energy from RES.
• Incentives for RES generators:
  • guaranteed grid access for RES energy; guaranteed transmission and distribution of RES energy;
  • ensuring necessary grid infrastructure for dispatching the electricity within the system;
  • priority dispatching;
  • buyout of the generated energy for a certain period;
  • fixing of the FITs for a certain period of mandatory buyout;
  • shift from 'shallow' connection approach to 'combined' connection approach; and
  • segmentation of regulation for households (<30kW), industrial (<1MW) and large power plants.
• Increased penalties for breach of the stakeholders.
• Requirement for RES investments to be preceded by a study of the available and forecast RES resource potential.
• Requirement for public buildings to use at least 15% of their heating and cooling energy generated by RES.
• Change of the licensing threshold from 5MW to 1MW of installed capacity.

Licensing and grid connection

According to the amendment, the 5MW threshold that currently applies to RES-electricity projects requiring a license will be reduced to 1MW. Currently, it is not clear from the draft whether this requirement would apply to the existing RES-electricity power plants.

The draft amendment also significantly amends and supplements the provisions regulating the process for RES generators connection to transmission and distribution grids. The 'shallow' approach, where the majority of the costs, obligations and related risks were allocated to the grid operators, is replaced by a more balanced approach, known as a 'combined' approach, where the main costs, obligations and related risks are allocated in a more leveraged manner between the grid operators and the investors.

A cornerstone of the improved RES policy is the development of ten-year transmission grid development plan. Based on this plan, each year prior to 30 April, the grid operators should provide a forecast to the State Energy and Water Regulatory Commission (SEWRC) and the Ministry of Economy Energy and Tourism on the maximum electricity power capacitates that could be connected in the following 12-month period, considering areas, voltage levels and types of RES. Such forecasts should account for the NREAP, preliminary connection contracts, resources potential, forecasted consumption, grid capacities and possibility to generation balancing.

SEWRC should approve no later than 30 June each year the maximum RES power capacities to be connected to the grid during the following 12-month period.

Investors in new or extensions to existing power plants need to apply for connection before the respective grid operator in the area. Participation guarantee at the amount of 5,000BGN/MW (approximately €2,556) is due along with the application. The operators should then review and either accept or reject the connection application. The procedure and criteria will be further provided in an ordinance for connection to the grid.

Investors are required to make an advance payment of 50,000BGN/MW (approximately €25,565) of planned installed capacity when concluding a preliminary connection contract with the grid operator. No such fee applies for energy facilities with planned installed capacity of less than 1MW.

The advance payment is part of the connection price. Connection price should cover the operators' costs for connection facilities, including the grid extension and modernisation. Should the investor fail to construct the energy facility within the term agreed in the connection contract, the advance payment will remain with the grid operator. In case the transmission company fails to connect the generation facility within the co-ordinated term, a penalty at double the amount of the advance payment will be due.

The grid connection procedure will not apply for facilities with installed capacity below 1MW (households and industrial), or in case a RES generation company declares that it will not use FITs but will participate on the free market.

Projects for generation of electricity from RES with a final connection contract will follow the current connection order. Projects with a preliminary connection contract will follow the current connection order if they, within three months from the new law, provide to the grid operator:

1. an advance payment amounting to 50,000BGN/MW (approximately €25,565) or a guarantee in case the investor has the existing obligation to construct the connection facilities;
2. evidence on acquired property rights for the project; and
3. a design visa or enacted detailed development plan (PUP) for the power plant as per the Territory Spatial Law, excluding the connection facilities.

Opinions of available capacity for connection provided before the new act would be null and void if, after its enactment, no application for conclusion of preliminary connection contract has been made.

New balancing procedure

Explicit regulations on the balancing obligations applicable to RES-electricity producers were adopted with the new Electricity Trading Rules.1 A specially designated renewable energy balancing group is to be established for RES generators and will be managed by a co-ordinator appointed by the SEWRC.

The balancing regime applicable to RES-electricity producers is more favourable to the one for producers of conventional energy, in view of:

• permitted deviation of RES forecast up to 20% - such deviation will not be charged to RES-electricity producers;
• national electricity companies and electricity distribution companies are required to pay the amount of total electricity measured according to the measuring devices, regardless of production forecasts; and
• in case of surplus or deficiency, a producer would pay 50% of the price of the settlement of a deviation only in case of an overall positive or negative imbalance of the RES group in the same direction as the personal imbalance of the producer.

Financial liability for imbalances towards the Electricity System Operator (ESO) will be borne by the designated RES balancing group co-ordinator. The registered co-ordinator of the RES balancing group should be a licensed participant at the energy market (trader, generator or end-supplier), and should meet the criteria set by the law.

The co-ordinator enters into balancing agreements with the members of the balancing group. Members of the group provide the co-ordinator with a forecast for their production on an annual, monthly, weekly and daily basis. The co-ordinator then provides it to ESO. Membership in the RES balancing group is directly related to the FIT application to the off-takes of energy.

ROMANIA

Background

Romania currently supports RES-electricity through comprehensive legislation that introduces a combination of tradable GCs, together with the obligation of electricity suppliers, to purchase a pro rata of the GCs issued. Romania is one of the only countries in the CEE and SEE region using a GC, rather than a FIT, support scheme (Poland being the other notable GC country).

Legislative regime

Law 220/2008, the primary legislation to promote RES-electricity in Romania, was amended and supplemented in July 2010 by the adoption of Law 139/2010. Law 139/2010 aims at improving the existing GCs system and sets a target for gross domestic consumption of electricity from RES at the following levels:

1. 8.3% for 2010;
2. 16% for 2015; and
3. 20% for 2020.

To promote the production of RES-electricity, Law 220/2008, as amended and supplemented by Law 139/2010 and subsequently republished, provides for a quota obligation system (ie the obligation of the supplier to acquire and hold a specified number of GCs), coupled with tradable GCs or a 'fixed price' system.

The system implemented for the stimulation of RES-electricity and the procedural details related thereto should have been detailed in a government decision to be issued within 90 days from the date of enactment of Law 220/2008. This time period lapsed on the 4 February 2009, without the relevant government decision having been issued. However, according to the draft of the government decision, which is currently under public debate, the principal characteristics of the present RES-electricity stimulation procedure will be maintained (ie the quota obligation system coupled with the GC).

Under Law 139/2010, the definitions have been harmonised and completed to be consistent with those provided by the Directive, such as:

• 'annual mandatory quota of energy from renewable sources' and benefits from the support scheme mean a given proportion of energy from RES within the gross final consumption of energy to which the mandatory quota system will be applicable (except of energy produced in hydropower plants with an installed power exceeding 10MW);
• 'annual mandatory quota of GCs to be acquired' means the annual quota of GCs that shall be acquired by the suppliers of energy;
• 'guarantee of origin' means an electronic document that has the sole function of providing a proof to a final customer that a given share or quantity of energy was produced from renewable sources;
• 'support scheme' means any instrument, scheme or mechanism that promotes the use of energy from renewable sources by reducing the cost of that energy, increasing the price at which it can be sold, or increasing, by means of a renewable energy obligation or otherwise, the volume of such energy purchased - this includes, but is not restricted to, renewable energy obligation support schemes (such as those using GCs), investment aid, tax exemptions or reductions, tax refunds and promotion schemes (such as the obligation to buy energy from renewable sources); and
• 'isolated energy system' means the local system of production, distribution and supply of electricity that is not connected to the national grid.

Awarding GCs

As far as the scheme's availability on the promotion of the use of energy from RES is concerned, a new period of seven years has been introduced for the electricity produced by the plants that have already been used in other countries if such plants have been used in isolated energy systems or have been put into operation no longer than ten years previously.

The number of GCs received by the producers, depending on the RES that they use, has been amended as follows:

• three GCs for each 1MWh produced and delivered by the new hydropower plants, and two GCs for each 1MWh produced and delivered in the refurbished plants;
• until the end of 2017 two GCs and one GC from 2018 for each MWh generated using wind power;
• six GCs for each MWh generated through solar power; and
• for each 1MWh delivered in the electricity grid by the producers from biomass, biogas, gas of waste fermentation and geothermal energy, the producers of electricity through high efficiency cogeneration plants will supplementary benefit of one GC.

Trading GCs

As per Law 139/2010, the period for which the value of the GC will be traded on the market has been increased from 2008 through 2025 (instead of 2014) and, as of 2011, the trading value of these GCs will be indexed with the €27 average inflation rate recorded in December of the previous year by the National Energy Regulatory Agency. The value of the GCs, which will be traded on the market, has been preserved from the Law 220/2008, namely within a band with a minimum trading value of €27 and a maximum trading value of €55 per GC. GCs can be traded on the GC centralised market or on the GC bilateral contracts market and the penalty for electricity suppliers not purchasing their pro rata share of GCs is €110 per GC.

CONCLUSION

The CEE and SEE region continues to be an active one for RES-electricity in 2011.

As RES-electricity continues to change the landscape and the future of the CEE and SEE region, prudent stakeholders should rely on all relevant resources, including the Guide, to stay abreast of the key RES-electricity developments and opportunities present in this region.

By Bryan Jardine, managing partner (Bucharest), and Anna Rizova, partner (Sofia), Wolf Theiss.

E-mail: bryan.jardine@wolftheiss.com; anna.rizova@wolftheiss.com.

1. Promulgated in State Gazette, issue 64, 17/08/2010.