Changes to Law no. 220/2008 on the establishment of the promotion system for the production of energy from renewable energy sources (“E-RES”)

(Emergency Ordinance no. 88/2011 regarding the amendment of Law 220/2008 regarding the establishment of the promotion system for the production of energy from renewable energy sources - published in the Official Gazette no. 736/19 October 2011 – the “Ordinance”)

The Ordinance introduces certain amendments and clarifications to the provisions regulating the (i) renewable sources which benefit from the promotion system, (ii) accreditation of E-RES producers, (iii) issuance of green certificates (“GC”), (iv) trade and price adjustment of GC, (v) fulfillment of mandatory quotas of GC acquisition, (vi) trade of E-RES and (vii) access to the grid. Additionally, the Ordinance established the contraventions and penalties related to failure to observe certain obligations provided by Law no. 220/2008. Below we shall highlight the main amendments and additions brought by the Ordinance.

Applicability of the Promotion System

The Ordinance provides that the promotion system shall also apply to for a period of 7 years for the electric energy produced in wind groups/power-plants which have already been used in other states, provided that such groups/power-plants are used in isolated systems or if they have became operational in Romania prior to the application of the promotion system. A new provision which benefits the producers is that the promotion system shall apply to E-RES produced during the trial period of the power-plants. However, the promotion system shall apply only based on the accreditation issued by Romanian Energy Sector Regulator (“ANRE”) and provided that the units become operational or are upgraded/refurbished before the end of 2016. Also, the accreditation by ANRE may be performed in stages in as each individual electric group becomes operational. In addition to the exclusions provided by the former version of Law no. 220/2008, the promotion system shall not apply to (i) electric energy produced from imported fuel resulted from biomass, industrial and/or municipal waste and (ii) electric energy produced in power-plants which use renewable and conventional sources in the same installation if the energetic content of the conventional fuel exceeds 10% of the overall energetic content. In case of E-RES produced in cogeneration, the producers must chose between either the support scheme for the promotion of high efficiency cogeneration or for the promotion system established by Law no. 220/2008. For E-RES producers which have received GC prior to the application of Law no. 220/2008, the duration for which the promotion system applies shall be reduced pro rata with the period for which they have benefited from GC. Producers which use biomass, bio-liquids or biogas shall benefit from provisions of Law no. 220/2008 only if they hold an origin certificate for the biomass used as fuel or raw material.

Accreditation of E-RES Producers In order to take advantage of the promotion system through GC, E-RES producers shall receive an accreditation from ANRE. Said accreditation shall be issued pursuant to a specific regulation to be approved by ANRE within 30 days as of the entering into force of the Ordinance. The E-RES producers which at the date of the Ordinance have operational power-stations must request ANRE their accreditation within 30 days as of the date of the Ordinance. Such E-RES producers shall receive GC only after the accreditation is received.

Green Certificates The system and transport operator shall issue GC to E-RES producers for the quantity of energy produced. Out of this quantity, the system and transport operator shall deduct producers’ own technological consumption. In the enclosed Annex we have mentioned the number of GC to be granted to E-RES producers as per the latest amendments brought by the Ordinance. The validity period for each GC shall be of 16 months. By way of exception to the number of GC granted to E-RES producers as per the Annex, the producers shall receive (i) only one GC for each MW produced and delivered during the trial period and (ii) when the producer also benefits from other types of state aid, the number of GC shall be established by ANRE by reducing the number of GC provided in the Annex, decreasing the reference value of the investment per MW with the value of the aid received per MW and maintaining the value of the internal rate of return considered in the computations submitted to the European Commission during the authorization process of the present promotion system. The Ordinance does not modify the price of GC which remained at a minimum value of EUR 27 and maximum value of EUR 55. These prices shall be valid until 2025. However, said values shall be adjusted on an annual basis by ANRE pursuant to the annual inflation index computed for the year before at the level of Euro Zone.

Reporting of E-RES Production E-RES producers shall notify on a monthly basis to the transport operator the necessary information required for establishing the quantity of E-RES for which GC are to be granted. The notification shall be supported by (i) a protocol signed together with the network operator confirming the measured values of the electric energy delivered/consumed and (ii) in the case of producers delivering energy directly to consumers, data regarding the quantities of E-RES produced and delivered to consumers, except for own technological consumption. The Ordinance also established the obligation to purchase GC in case of: electric energy purchased by suppliers meant both for their own final consumption and to selling it to final consumers; electric energy used by a producer for its own final consumption (other than own technological consumption); electric energy used by a producer to supply with electricity consumers directly connected to the power-station. Non-fulfillment of GC Acquisition Quota The energy suppliers and producers (which have the obligation to purchase GC) who fail to meet their mandatory GC annual acquisition quotas shall have the obligation to pay EUR 110 for each missing GC. The funds raised pursuant to this penalty shall be used by the Environment Fund Administration to finance investments in production of E-RES by natural persons who wish to set up energetic facilities with an installed power of maximum 100 kW.

Trade of E-RES As provided before, E-RES shall be traded on the electric energy market at market price. The platform for trading energy is OPCOM and the market price being set by the Day Ahead Market. E-RES produced in power-plants with an installed power of maximum 1MW per plant may be sold to suppliers at regulated prices different for each type of technology. The energy produced as such shall not benefit from GC. The regulated prices shall be established by ANRE based on a methodology to be approved within 120 days as of the entering into force of the Ordinance.

Access to Grid The Ordinance eliminated the general rule establishing priority access to the grid to all E-RES producers and limited the wording to the fact that the connection to the grid shall be assured as long as the safety of the National Electro-energetic System is not affected. However, E-RES benefiting from the promotion system which is also traded on the energy market shall have guaranteed access to the grid#. Alternatively, the E-RES traded under regulated prices (produced in power-plants with an installed power of max. 1 MW) shall benefit from priority access. The transport and system operators and/or the distribution operators shall assure the priority dispatch of E-RES. Nevertheless, transport and system operators and/or the distribution operators have the right to limit or discontinue the production of E-RES based on regulations issued by ANRE or in extraordinary cases if the National Electro-energetic System is in jeopardy.

Authorization by the Commission of Major Projects Any producer developing an E-RES power-plant having an installed power of more than 125MW and which fulfills the conditions for the application of the promotion system, shall be required to prepare the documentation necessary for a detailed evaluation by the European Commission of the support measure. Such documentation shall be in line with the European legislation in the field of state aid for environmental protection. The abovementioned producers shall benefit from the promotion system only after the European Commission authorizes the respective project and only by using the production technologies mentioned in the authorization. Further to the European Commission’s authorization, ANRE shall be entitled to modify the number of GC to be received by the producer as per the European Commission’s decision. Notwithstanding the above, the E-RES producers which at the date of the Ordinance exploit power-stations with an installed power over 125MW shall receive accreditation from ANRE for a period of 24 months. However, within 3 months as of the accreditation, such producers shall need to prepare and send to the competent authority the documentation required for the detailed evaluation of the European Commission.

Monitoring ANRE shall monitor all E-RES producers benefiting from the GC promotion system. In case ANRE discovers differences between the actual data and the specific parameters for each technology considered upon authorizing the promotion system, such differences leading to an overall overcompensation of one or several technologies, ANRE shall be entitled to proposed measures for the reduction of GC.

Contraventions The following shall be considered contraventions: failure to provide ANRE with the data/information requested pursuant to Law no. 220/2008 or other secondary legislation or provision of incorrect or incomplete data/information; failure to pay, at the dates set by ANRE, the penalty for the GC which have not been purchased; trading GC for prices outside the range established by ANRE (min. EUR 27 – max. EUR 55); the unjustified refusal of the network operators to validate the measured values of electric energy delivered/consumed. The contraventions mentioned under letters a., c. and d. shall be sanctioned with a fine ranging from Lei 1,000 to Lei 10,000 for natural persons and Lei 10,000 to Lei 100,000 for legal persons. The contraventions under letter b. shall be sanctioned with a fine equal to the overall value of the GC not purchased multiplied by 3 where the minimum value of the fine shall be of Lei 10,000 and the maximum value of Lei 100,000.

Relevant Secondary Legislation The procedure for issuance of origin certificates for biomass shall be approved by order of the Ministry of Environment and Forests and Ministry of Agriculture and, respectively, the Ministry of Rural Development within 60 days as of the date of the entering into force of the Ordinance. The regulation with respect to the accreditation of the E-RES power-stations shall be approved by ANRE within 30 days as of the entering into force of the Ordinance. The methodology for establishing the regulated prices and trade regime produced in power-stations with an installed power of maximum 1MW shall be approved by ANRE within 120 days as of the entering into force of the Ordinance.

By Venkatesh Srinivasan, Partner – Head of Tax and Legal, Ernst & Young Romania

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