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2011 and especially 2012 were special. The drought affected the production of large hydro power plants. Moreover, Hidroelectrica entered insolvency and couldn’t respect some of its contracts. Romania depends a lot on these large hydro power plants, both because they provide relatively cheap energy and because they are used to balance the country’s electricity system.

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NAGY ZOLTAN

NAGY ZOLTAN

MEMBER OF THE BOARD at AUTORITATEA NATIONALA DE REGLEMENTARE IN DOMENIUL ENERGIEI

 

Q: How do you comment on energy prices in 2012 and what are your expectations for this year?

Zoltan Nagy - Bege: 2011 and especially 2012 were special. The drought affected the production of large hydro power plants. Moreover, Hidroelectrica entered insolvency and couldn’t respect some of its contracts. Romania depends a lot on these large hydro power plants, both because they provide relatively cheap energy and because they are used to balance the country’s electricity system.

 

In 2010, the country produced 33% of its energy consumption from Hidroelectrica’s large hydro power plants, which was a record within in the last 20 years. The percentage decreased to 22% in 2012, which was reflected in the energy price. In a certain measure, the decrease of hydro-based energy included in Romania’s energy basket was replaced by wind power energy. At the end of last year, the total wind power  capacities amounted to over 1,500 MW. However, most part of Hidroelectrica’s production within the energy basket was replaced by energy provided by the large coal power plants, which is more expensive.

 

It is difficult to come back to the level recorded in 2010, but we can be close to normality. Reservoirs are almost full due to snow melting and many hydro power plants produce to full capacity. Even the wind-power energy can be considered cheap, although its production cost can be seen in consumer’s final bill. Wind power producers, which receive two green certificates that are sold for a total of EUR 80 to EUR 100, can afford to sell electricity with EUR 25 to EUR 30, instead of a market medium price of EUR 40 to EUR 45.

 

This can balance the market to a certain extent. We have higher expectations for 2013. Prices within the first four months of the year were below the medium of 2012. However, we need to consider that summer will lower water levels in lakes and winds will slow down, which will lower hydro and wind power production. These expectations can already be seen in the energy market, where the short-term contracts have smaller prices, while longer-term contracts, due towards the end of the year, have higher prices.

 

I expect that, overall, energy prices will be lower this year compared to 2012, but not at the same level as in the first part of the year. This is due mostly to Hidroelectrica’s comeback, to wind production and also to solar production, which will generate approximately 500 MW by the end of the year, compared to only 20MW at the end of 2012.

 

Q: Why has the ANRE decided to decrease the number of green certificates given to renewable energy producers and how has the market reacted to it?

Zoltan Nagy - Bege: I don’t think that ANRE’s decision has surprised the market, because it has been known since 2011 that we will periodically analyze the support scheme for different technologies, to see  whether they are overcompensated or not. Overcompensation implies that the IRR (internal rate of return) of a certain technology is 10% percent higher than the one approved by the commission, which ranges between 10% and 12% for the main technologies.

 

We made a first analysis last year, for 2011. We noticed overcompensation for solar and hydro energies. We proposed then a decrease from 6 to 5 certificates for solar energy and from 3 to 2.6 certificates for hydro. However, in the end, we didn’t make any changes because that analysis was based only on the last two months of 2011.

 

We made a second analysis for 2012, which was published in March this year. It showed there is overcompensation for solar, hydro and wind power energies. Our proposal is to cut from 2 certificates to 1.5 for wind, from 3 certificates to 2.3 for hydro, and from 6 certificates to 3 for solar energy. We proposed the government to apply this reduction for projects that will be functional starting with January 1, 2014.

 

The European Commission decided to apply any reduction for future projects only and not retroactive, for already existing projects.

 

Regarding the certificate cut, we need to mention that the necessary investment for the production of 1MW based on photo-voltaic sources has decreased from EUR 3.5mn to less than EUR 1.5mn, even if we include the protection tax for panels imported from China. So it was normal to reduce the compensation scheme.

 

Investors expected our decision and we tried to announce it in advance, nine months before it is due.

 

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