Member Article

Currently Romania’s market is characterized by the implementation of two seemingly opposite sets of actions, one aimed at ensuring Romania’s transition to the market economy and the achievement of economic growth, while the other is targeting the environmental protection through promotion of energy efficiency and use of renewable energy sources for electricity generation. However, a closer look at the measures implemented in order to decrease the negative impact on environment of the activities in the energy sector, reveals that the actions adopted or which are to be adopted in the near future are all directed to achieving the same goal:
to ensure the premises for Romania’s economic growth and competitiveness on the European market.

The increased awareness regarding the depletion of energy sources in the context of a significant climate change due to greenhouse gas emissions, lead to the escalation of the number of those calling for the implementation of sound policies in order to achieve sustainable development at both national and European level. The most poetic argue that governmental officials should not ignore the fact that “we have not inherited the resources from our parents, but simply borrowed them from our children”, while the most pragmatic, find arguments in technical studies performed for the assessment of the climate change implications on the economy and, ultimately, on the day-to-day life of each individual.

At European level, the supporters of the sustainable development approach gained a new argument after the publication of the 2006 Stern Review on the Economics of Climate Change, a study performed in an attempt to quantify the economic implications of the climate change, while stressing the emergency to take action in dealing with this matter. In recent years, energy efficiency and harnessing renewable energy resources for electricity generation have gained an increased weight in defining Romania’s development and economic policies. Several factors contributed to this increase, including Romania’s efforts to accede to the European Union (EU) and to decrease the existing economic differences compared with EU Member States, as well as the obligations assumed through the ratification of the 1992 United Nations Framework Convention on Climate Change (UNFCCC)1 and of its 1997 Kyoto Protocol.

1. Romania’s strategic objectives in the area

During 2003-2005, in order to address the need to define state policies in the field, the Romanian Government adopted several national strategies, setting forth the general principles and targets on harnessing renewable energy sources, energy efficiency and climate change.

The National Strategy on Harnessing Renewable Energy Sources3 takes an overall look at the potential of renewable sources in Romania and sets forth the main objectives to be reached by the country in the near future. In defining such objectives, the Romanian authorities acknowledged the proposals advanced at European level, including the strategic goal of achieving at EU level a 12% penetration of the renewable energy sources in the overall consumption of primary sources by the year 2010, as set forth in the Commission’s 1997 White Paper for a Community Strategy and Action Plan on renewable sources of energy, as well as a 22.1% indicative share of electricity generated from renewable energy sources, in the overall Community electricity consumption by 2010, as set forth in Directive 2001/77/EC on the promotion of electricity produced from renewable energy sources in the internal electricity
market.

Based on the above mentioned guidelines, but also taking into consideration Romania’s renewable sources potential for solar, wind, water and geothermal energy, the said strategy establishes as target for Romania the generation of 33% of the overall electricity consumption from renewable sources by the year 20104. The main objectives set forth under the strategy refer to the integration of renewable energy sources in the structure of the national energy system, the promotion of private investments and facilitating the access of foreign capital on the renewable sources’ market, ensuring the independence of national economy’s energy consumption and the premises for Romania’s participation on the European green certificates market. The total estimated costs for achieving the investment projects proposed under the strategy amount to EUR 1,300 million for the period 2003-2010 and to EUR 1,400 million for the period 2011-2015.

The National Strategy on Energy Efficiency sets forth the objectives concerning energy
efficiency for the period up to the year 2015. The main purpose of the strategy is to identify the
possibilities and means to increase energy efficiency at all levels of the energy chain, by
implementing specific programs in order to reach its ultimate goal: the increase of primary
energy efficiency by 30% to 50% by the year 2015. Failure to implement a firm energy policy
promoting energy efficiency would increase the primary energy consumption associated with the
estimated evolution of the Gross Internal Product by 30% by the year 2015, which in turn would
lead to a decrease of Romania’s energy independence, evaluated in the year 2004 at 70%.
The strategy also attempts to identify possible financial sources for meeting the estimated
financial effort associated with the medium target increase of energy efficiency (40%), of EUR
2.7 billion. The savings in the acquisition of primary resources as a result of reaching the 40%
target increase in energy efficiency are estimated at EUR 3.4 billion, to which EUR 215 million
would add from trading carbon dioxide (CO2) emissions. The main public financial sources
referred to under the strategy, include allocations from the state budget and the local budgets, the
grant of financial incentives from the state budget and public-private partnerships.
The National Strategy on Climate Change for the years 2005-20076 is one of the most
important strategies to be adopted in the field. Although the strategy refers to a short period of
time (from 2005 to 2007) a longer perspective (until the end of the first commitment period
under the Kyoto Protocol scheduled for 2012) was considered in the evaluation of the strategy’s
impact.

The strategy’s objectives include: (i) meeting the commitment assumed by Romania
under the Kyoto Protocol, (ii) the approximation and implementation of the EU directives on
emission allowance trading and (iii) ensuring a legal and institutional framework for dealing with
climate change and participating in the flexible mechanisms regulated by the Kyoto Protocol,
while increasing awareness of the risks entailed by climate change.
Romania was the first UNFCCC’s Annex 1 Party to ratify the Kyoto Protocol in 2001,
and, thus, committing itself to reduce greenhouse gas (GHG) emissions by 8% in the first
commitment period 2008-2012 comparing with the base year (1989). This commitment threshold
also allows Romania to meet its obligations under the EU directives regarding the decrease of
GHG emissions.
The strategy also establishes the adoption of a National Action Plan on Climate Change7.
In drawing both the strategy and the National Action Plan on Climate Change, Romania received
assistance from the Danish Environmental Protection Agency. The Action Plan contemplates
detailed analysis on the requirements for meeting each of the objectives provided by the strategy,
including costs estimates for each action.
In addition to more firmly defining its policies in this sector, Romania has recently
started to build the legal and institutional frameworks necessary for implementing certain
mechanisms designed by the international and European communities in order to get the market
players involved in achieving the national strategies’ general objectives. Below is a brief analysis
of the main mechanisms currently available for reaching the strategic objectives adopted by
Romania that impact on energy efficiency, the promotion of renewable energy sources and
climate change.

2. Mechanisms promoting electricity generation from renewable sources

Starting with 2003, Romania adopted various regulations for promoting electricity
generation from renewable sources. The regulations apply to both energy generated from
renewable sources (such as wind, geothermal, hydro, biomass, waves) and energy generated
from hybrid plants, using renewable and conventional sources. In order to benefit from the
facilities provided by law, the generators using renewable sources have to obtain a certificate for
the guarantee of origin attesting the provenience of the electricity.
The regulations provide the principle of non-discriminatory access to networks of
generators using renewable sources and the operators’ obligation to guarantee the transmission
and distribution of the electricity generated from renewable sources, in so far as such does not
endanger the networks’ viability and safety.
In addition, the priority production is introduced on the regulated wholesale energy
market with preference.

In order to meet the demand for electricity generated from renewable sources, the
regulators have established a system of mandatory green quotas, representing the proportion of
electricity generated from renewable sources out of the aggregate gross domestic electricity
consumption combined with the trading system for green certificates. All electricity suppliers
have the obligation to acquire electricity from renewable energy sources (referred to as priority
production) at least in the quotas indicated by law. The mandatory quotas have been established
until 2010 in line with the target assumed by Romania during the negotiations for EU accession,
starting from 0.7% for 2005 and ending at 8.3% for 2010-2012. Such annual quotas may be
amended during 2005-2007, in the first decade of December, in case the capacity in the facilities
for generation of electricity from renewable sources cannot cover the demand of green
certificates, as set forth by law. Indeed, the Romanian Energy Regulatory Authority (ANRE)
approved a reduction of the mandatory quota to 2.65% of the annual quota for 2005 and to
2.38% of the annual quota for 2006.

In case suppliers fail to acquire the certificates in order to meet the mandatory quotas,
they will be required to pay 1.5 times the maximum amount provided by law for each nonpurchased
certificate for the period 2005-2007 and twice said amount starting from 2008
(currently, the maximum value of a green certificate is of EUR 42). For generators using
renewable resources, the advantage of the green certificates mechanism consists in the fact that
the amounts obtained from the suppliers are used by ANRE for acquiring the certificates issued
to the generators and not traded or are redistributed to generators based on the number of green
certificates issued and type of technology used in the generation process.

This article was first published in Romanian Busines Digest, 2007 edition.