Renewable energy: sense and necessity

November 18, 2012 by  
Filed under Green Energy News

Romania offers one of the most substantial and, therefore, attractive support schemes for renewable electricity production in the European Union. Even though it took four years to pass the law governing this field, investors haven’t just been biding their time, but have spent a billion Euro on investments in the construction of wind farms, photovoltaic units, micro-hydropower and biomass plants

November 2012 – From the Print Edition

3 PhotosThe renewable energy “boom” began in Romania in late 2009, in the midst of the global economic and financial crisis. At that time – when many investors and speculators were counting the losses they had incurred through misfiring investments in real estate – wind plants with tiny installed capacity of barely 14 MW were in operation across the country. A small step, which in 2010 turned into a leap, propelling the wind turbines’ installed capacity to 462 MW. A year later, another 520 MW of wind power “sprang” out of the country’s soil, and in 2011 Romania reached 982 MW of operational wind turbines. By the end of 2012, the total capacity of operating turbines is estimated to reach approximately 1,500 MW, 350 MW less than the target of 1,850 MW set by the Government in the National Renewable Energy Action Plan (NREAP).
“This amount [i.e. 1,850 MW estimated by the NREAP] will probably not be achieved,” says Dana Duica, Executive Director of the Romanian Wind Energy Association (RWEA). According to Duica, wind plants with a combined capacity of 516 MW have been installed so far in 2012. Their commissioning required almost 900 million Euro of investment.
The wind power zone has so far been the most courted form of green energy production in the country – at least according to the National Energy Regulatory Authority (ANRE) and the power grid operator Transelectrica.
According to the latest available data, in 2013 wind farms with a combined capacity of over 1,300 MW are expected to be built. The largest parks are to be set up by Iberdrola (200 MW), PNW Wind (184 MW), Prowind-Global Strat Invest (150 MW), IMA Partners (132 MW) and Bogaris (124 MW).
But does Romania need so much wind and solar power? From the perspective of complying with international obligations, the answer is “yes”. Nevertheless, renewable energy sources seem to be invading Romania at an unexpected pace, taking by surprise both state authorities and companies.
“At the moment, there are Grid Connection Permits for no less than 40,000 MW in renewable units. The question arises as to whether such investment makes sense,” says Valeriu Binig, consultant at Deloitte Audit.
On the other hand, among the worst affected conventional electricity production units are the old thermal power plants, out of which 50 per cent have a lifespan of 20-30 years.
A study commissioned by the National Forecast Committee found that in 2020 the number of operational thermal power plants will decrease significantly, since wind and solar farms will be part of the national energy consumption to a large extent. For 20 years Romania has been confronted with the state’s inability to run the energy companies it controls. According to the quoted study, new investments in thermal power plants will be feasible only if the market price of electricity increases.
Thermal power plants provide 50 per cent of Romania’s electricity consumption and in order to upgrade them, it would take between seven and ten billion Euro of investment.
According to the study, the most important state-owned thermal power plants are Turceni, Rovinari and Craiova. The companies that have the lowest production costs are Hidroelectrica – now in insolvency – and Nuclearelectrica. The study requested by the National Forecast Committee found that the commissioning of an increasing number of renewable units is creating a problem in terms of the insufficient number of reserve capacities to go into production when renewable plants stop.
Problems arise neither from the installed capacity, nor from the reserve capacity to cover the peak demand, but from the reserve capacity required to compensate for the unpredictability of wind production, the study highlights. The authors of the study take the view that the developers of renewable energy, especially of wind, “should be interested in investing in their own reserve units.” Such a provision was considered for inclusion in the renewable energy law, but is missing from the final version adopted by the Government.
What about other renewable forms of energy? After wind, capturing solar power via photovoltaic panels is the second most sought after renewable energy source. But this is where the situation gets interesting, not to mention the fact that in 2010 Romania did not have one single MW installed in solar panels.
It was only in 2011 that the first eight MW came into being. In 2012 the amount has slightly increased, reaching about 13 MW. The reason for the slow pace is the high cost of installing the solar panels, the uncertainties related to the support scheme granted by the Government, as well as the large area of land required for panel assembly. Unlike wind turbines, particularly those built in Dobrogea, Moldavia and Banat, photovoltaic panels can be installed almost all over the country, provided there is no shade. For a single MW to be installed in solar panels, two hectares of land are required. But the reward is worthwhile: while the state grants two green certificates for one MW produced in wind plants, for one MW generated by photovoltaic installations it grants no fewer than six green certificates.
Investors in solar energy are smaller but no less numerous than those in wind farms. Investments are generally made by Romanian companies, and the announced projects range between 0.1 MW and nine MW. An exception is South Korean corporation Samsung, which intends to build two parks with a total capacity of 45 MW in Giurgiu county.
According to data provided by Transelectrica, 27 companies are planning to install almost 100 MW in photovoltaic panels next year – a substantial capacity compared to the existing figure of about 13 MW. The projects by the 27 companies are scattered through 11 counties, mainly focusing on Giurgiu, Timis and Ialomita.
Micro-hydropower plants, amounting to 400 MW this year, must not be neglected. Most of them were bought by various investors from Hidroelectrica, but there are also companies that have implemented green-field projects in this sector. Last but not least, biomass plants currently amount to 38.5 MW. Yet, for the coming year, Transelectrica data show that very few projects are close to completion, hardly amounting to 4.5 MW.
According to the latest data provided by Transelectrica, this year renewable energy production units (i.e. wind, photovoltaic, micro-hydropower plants and biomass) amount to an installed capacity of 1,951 MW, i.e. 8.7 per cent of the total 22,000 MW at national level.
The ANRE President, Nicolae Havrilet, claims that photovoltaic parks with a combined installed capacity of 150 MW are currently under construction, while another 150 MW are pending. “In 2013 we should have about 300 MW in photovoltaic panels,” said Havrilet.
Figures vary by source. Robert Cruceru, Executive Director of the Romanian Photovoltaic Industry Association (RPIA), says that, at the moment, solar parks of 50-60 MW are under construction, and expected to be completed by December 31. The future sounds even better. “If the law were normal, like in any other normal country, we might even reach an installed capacity of 500 MW,” says Cruceru. According to recent information, South Korean giant Samsung has set its sights on Romania and wants to invest in solar parks of about 60 MW.
The wind turbine suppliers on the Romanian market are Vestas (Sweden), General Electric (USA), Siemens (Germany), Gamesa (Spain), Enercon (Germany) and Suzlon (India).
According to RWEA data, the winner of multiple contracts for wind turbine delivery is the Swedish company Vestas. Some 918 MW of the total amount is to be produced by Vestas turbines.
Companies such as Renovatio (339 MW), Global Wind Power (172 MW) and Monsson (155 MW) are among Vesta’s largest customers.
The second largest supplier of turbines on the Romanian market is the US conglomerate General Electric, with contracts for turbine delivery amounting to 795 MW. GE’s largest client is the Czech Group of utilities CEZ, which has contracts for the purchase of 575 MW turbines from the American company.
In third place is Gamesa, with contracts worth 274 MW. Its largest clients are Enel (174 MW) and Iberdrola (80 MW). One of the newcomers is Indian Group Suzlon, which has recently signed a contract for the delivery of eight wind turbines, with a combined capacity of 25 MW.
The above mentioned contracts involving Vestas, General Electric and Gamesa cover the period 2010-2013.
According to the NREAP, 2,450 MW of wind turbines are expected to be whirling in Romania in 2013, about 1,000 MW more than this year. For the photovoltaic sector, the coming year will mean the commissioning of 78 MW in photovoltaic panels and 57 MW in biomass plants.
Generally, the Romanian Government has been generous to investors. When it comes to renewable energy, it has also adopted a protective attitude.
“Solar energy is a new opportunity, and the development of new parks is already a reality. We are open to all investors, ready to ensure the predictability of business plans in this field and, obviously, striving to minimize administrative bureaucracy that might hinder such investment,” says Rodin Traicu, Secretary of State in the Ministry of Economy, Commerce and Business Environment.

Bad news

Yet, too good to be true. After four years of working towards preparing the renewable energy law, players had breathed a sigh of relief and either started projects or continued with those they had already launched. And then came a problem: the energy law contained a provision that made many investors and developers in the field of renewable energy reluctant to carry on with their projects. The energy law stipulates that all producers of energy, renewable or not, are required to trade it on specialized platforms, such as OPCOM, Romania’s power exchange.
Many developers and investors are unhappy, since in order to gain access to OPCOM, an electricity generation license is required. To enter OPCOM trading floors, such companies should already be generating. But many of them have just started investing in generation capacities. Besides this impediment, banks have become reluctant to finance renewable energy generation units, due to the lack of guarantees. So the avalanche of wind and solar projects may run out of steam in 2013.
“It is hard to estimate how many photovoltaic parks will be commissioned in the coming year because we do not know if the Energy Law, which in its current version is blocking market access for the newcomers, will be amended. The key solution lays in unlocking it and finding financing sources. Banks are reluctant, and for newcomers it is practically impossible to sign a PPA contract. There are lots of projects on the market and lots of investors familiar with the way this market works and ready to invest. If the law is amended, 2013 will be a very interesting one in terms of photovoltaic projects. If the law is not amended, certain projects will keep on running, provided new financing ways are identified,” says Robert Cruceru, executive director of the Romanian Photovoltaic Industry Association (RPIA).
Adrian Borotea, corporate affairs manager of CEZ Romania, shares this point of view. During a workshop on renewable energy, he said that renewable energy needs long-term contracts. “Public trading [via OPCOM] is good, especially in the historical context, but we need long-term contracts for renewable energy financing,” said Borotea. The historical context refers to the preferential contracts signed over the last decade by the management of state company Hidroelectrica with the so-called “smart guys,” various energy traders and producers including Alro and ArcelorMittal.
“Authorities should give way to PPAs. We are not talking about new smart guys, but private companies should be allowed to sign PPAs off OPCOM, while state companies trade within OPCOM. Now, in order to have access to OPCOM, one must be a producer with an already built wind or photovoltaic farm. The law, in its current version, affects players with projects under construction, not those who are already producing. We do not think the law was drafted as such in bad faith. We rather think it is more of a lack of foresight, in the sense that effects have not been assessed properly,” adds Cruceru.

And a happy ending

It seems that a solution to this issue has already been found, and was even included on the agenda of Prime Minister Victor Ponta. The ANRE has recently announced that renewable energy producers will receive provisional licenses to trade electricity via direct contracts until the investments in production units are completed. However, after commissioning the production capacities, ANRE will compel the producers to trade via OPCOM, in a similar way to which state-controlled energy producers do.
“Private renewable energy producers will receive provisional producer licenses, valid until they complete their works and start up the actual production of electricity. However, they have to deal via OPCOM afterwards,” says Havrilet.

Too many renewable sources or too few conventional power plants?

The invasion of renewable energy projects has at least two explanations. The first is that Romania, like any other European Union member state, has committed itself to reducing CO2 emissions by 20 per cent by 2020, compared to 1990 levels, to ensure renewable sources make up a 20 per cent share of energy from estimated consumption and decrease by 20% the use of primary energy through increased energy efficiency. The second is the generosity of the state-granted support scheme. A third might be the fact, that until 2009, Romania lacked such opportunities, which made it a virgin land full of possibilities.
What is the point of view of Transelectrica, the national power grid operator, which holds the right of life and death over any energy project, in the sense that, without its approval, no unit – conventional or renewable – can commence production?
Besides the contribution of renewable sources to reaching the 20/20/20 target, there are some negative effects, too. Consumers’ electricity bills will increase because more and more green certificates will have to be paid for, as more and more units commence production and consumption. According to ANRE estimates, electricity consumers in Romania will see their bills rise by ten billion Euro by 2020, to support investment in renewable sources. Another risk is an excess of renewable energy, with a direct impact on green energy producers.
“Renewable energy producers will be able to produce only to the extent that the energy can be consumed. If the energy taken into the system increases, there will be extra green certificates which will lower the price towards 27 Euro or, if a black market emerges, even below the minimum price,” warns Octavian Lohan, Deputy General Director of Transelectrica.
To put it another way, a sharp drop in the price of green certificates might render the support scheme insufficient. Conventional producers of electricity – through coal, natural gas, fuel, oil or water – will also be affected, some of them risking withdrawing from the market, mainly due to high production costs and obsolete technologies.
“Transelectrica has to provide the necessary infrastructure, i.e. transmission networks able to take over increasingly more energy. It would be desirable for storage equipment to be as close to production areas as possible. Thus, the amount of investment in networks decreases. Theoretically, to a certain extent, thermal power plants might go,” says Lohan.
Most renewable energy is unsustainable in the absence of balancing capacities, given its dependence on weather conditions. Various Romanian governments have promised to invest, with foreign partners, in the Tarnita hydropower plant and reactors 3 and 4 at the Cernavodă nuclear power plant. Both projects might significantly help system regulation and facilitate the input of many more MW of renewable energy into consumption.
“Not all of them [i.e. renewable energy producers] will be operating because there are too many, but in 15 years’ time consumption will increase or new investment will be put into operation, capable of storing energy (pumping plants, batteries, etc.). Moreover, transmission network lines will be built, allowing large amounts of energy to be traded between southern, eastern, western and northern Europe, depending on where the wind blows,” says Lohan.
For the time being, pressure incurred by the increasing number of renewable capacities is affordable, but costly.
“Currently, we have enough reserve groups for 2,000-3,000 MW of renewable energy. But to keep such groups on standby, maintenance should be paid,” says Alexandru Săndulescu, General Director of the Energy Department within the Ministry of Economy, Commerce and Business Environment. â– 

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