PPA ban lifted
The Romanian Government has lifted the ban on directly negotiated PPAs (power purchase agreements) for new electricity production capacities commissioned after 1 June 2020. Government Emergency Ordinance No. 74/2020 (GEO 74) which amends the Energy Law was just published in the Official Gazette and entered into force. This amendment brings national legislation closer to the requirements of Regulation (EU) 2019/943 on the internal market for electricity.
Electricity production capacities commissioned after 1 June 2020 are exempted from the obligation to trade on the OPCOM markets, in a public and nondiscriminatory manner, the entire available production and can conclude negotiated PPAs. There are no limitations in GEO 74 for the negotiated PPAs and the parties are free to set the contractual terms (contract term, traded amount and delivery profile, price mechanism etc.). Also, new production capacities are not obliged to deliver electricity to suppliers in order to cover the demand on the regulated market (which will be in place only until the end of this year).
The PPA ban will still apply to existing production capacities. Producers operating both old and new power plants will have to split their trading activity between the OPCOM markets and directly negotiated PPAs depending on the source of the electricity produced. We expect this to be further clarified by secondary legislation to be approved by the National Energy Regulatory Authority (ANRE) within 30 days.
Background of the PPA ban
The Energy Law, approved in 2012, introduced a new market principle according to which transactions on the competitive market must be performed in a transparent, public, centralized and non-discriminatory manner. This means that until now, electricity could be competitively traded only using the centralized markets operated by OPCOM (the operator of the centralized electricity markets). Wholesale PPAs could not be concluded outside the centralized markets, except for a few limited exceptions, and negotiations between the seller and the purchaser were limited and permitted only in certain conditions.
The purpose of the PPA ban was to increase market liquidity, ensure equal access to electricity for all market participants and encourage stronger competition between producers and suppliers. The PPA ban also sought to prevent long term PPAs between electricity producers and suppliers as these were seen, in certain conditions, to be detrimental for producers and market competition.
Impact on the market of GEO 74
Considering the 30.7% renewable energy consumption target assumed by Romania for 2030, the decision to lift the PPA ban was absolutely necessary in order to allow investments to be made in both renewable production capacities and back-up production capacities (mainly gas). The ban on directly negotiated PPAs was a major issue for new projects since the OPCOM markets do not offer the kind of long-term contractual framework necessary for raising financing. The possibility to conclude negotiated long-term PPAs with strong counterparties will bring added flexibility when structuring projects and will allow banks to once again grant financings for new electricity production capacities.
Although the green certificate support scheme is no longer open for new projects and discussion for a new state aid support scheme are still in an early phase, Emergency Ordinance No. 74/2020 gives a strong signal to investors and market players to start investing in new electricity production capacities.
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