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The need for the predictable energy sector - Doing Business | DOINGBUSINESS.RO

  |  09.11.2012

The need for the predictable energy sector

Key word in energy is investment in a stable, predictable business environment. Latest development of renewable sources is a good example. Reaching EU quotas is binding for any member state

If we talk about green electricity, cheapest option for consumers is the wind one, which receives the smallest supporting scheme.

In terms of electricity itself, renewables are competing for the market price with all other classic technologies, difference in investment being covered by green certificates.

On markets, the electricity price is set by marginal producer, the most expensive to cover the electricity demand. If we have a look on centralized markets, we notice that thermal power producers are the marginal ones. So, we need either to replace them with cheaper electricity production, new and more efficient, including renewables and efficient cogeneration or to refurbish them, at high costs, emissions problems and questionable results.

But discussion is even more complicated. On top of technical issues, we have commercial ones. We have to respect signed contracts and put aside related electricity volumes, including correspondent production, no matter the source.

Lately, via new Electricity and gas law, bilateral contracts are forbidden, producers being allowed to sell electricity only on centralized markets. So, the most important factor becomes the market price, where demand and offer are meeting. This means cost is less and less important, price is the one to count.

• During years, national strategy in energy has changed too many times. Of course, adjustments should be done to cope with reality, but too often changes are scaring investors. A well prepared national strategy, to involve both state and investors, and to remain unchanged for few good years, would be not only realistic and successful, but have big chances to be followed by real investments.

After setting its priorities, state should not interfere too much, but only follow its interest and of course, support investors’ efforts via proper, specific legislation. Renewables are the only investments that happen lately in the electricity sector. Let them fly, but also more stimulate the cheapest solution for consumers (wind) and rather limit most expensive alternatives like solar.

For any new investment, in addition to proper legislative environment, you need also to have room within end-user electricity prices. Still regulated tariffs are low and do not allow new investments in production; reality is proving that. Not even with bonus for efficient cogeneration, such projects for power plants are not on the table.

• During current financial crisis, even with fair legislation for renewables, it became not so easy to convince investors to bring their money and invest. Even tougher are banks, especially due to many changes of legislation. Very important is that investors are optimizing their investments across countries. For example, if there is better supporting scheme for renewables and more legislative stability in Poland, guess where investor will put his money! On the other hand, there are many developers who are preparing projects, but stopping them before financing. This is the reason why only even less than one out of four projects is commissioned.

If we look to statistics, there are more than 20.000 MW in wind at initial connection to networks endorsement (ATR), out of these more than 10.000 MW are in advanced stage of connection contract (CR). For comparison, today there are only 1.600 MW commissioned in wind, with a forecasted 1.900 MW at end year.

On electricity distribution, still there is a lot to be renewed. Distribution tariffs are frozen from 2008 (capped), despite very high investments, at least within private companies. For example, CEZ Distributie continues investing every year into its network, 50 mio.Euro.

What it is imperatively needed in 2013 is an increase of distribution caps, with two advantages – sources to finance investments into grid and increase of investors’ trust. Grid regulations to welcome renewables and efficient cogeneration should be improved, also prioritization in dispatching. Market regulations should be revised following new Electricity and gas law.

• Romania, among other countries, faces the need to reduce the exposure to volatile energy prices. However, the renewable energy projects are estimated to transfer a higher final power price to end-consumers, since the energy suppliers transfer the costs of subsidies received by producers in the final price invoiced to end-user. How can price volatility be tackled under such circumstances?

According to law 134/2012, contribution to renewable energy is taken out from electricity tariffs and shown separately on invoices for each and every consumer. The number of green certificates per MWh is set and published by ANRE, price of green certificates is published by OPCOM, so entire process is transparent.

The competitive markets mechanisms for electricity prices didn’t change; it is the equilibrium point where demand equals offer. Commodity price volatility came for the last two years especially due to hydro dry period, requiring replacement with more expensive thermal production. Partially, this price increase was offset by renewables, which strangely have decreased electricity prices, forcing thermal units to bid lower.

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