​Investments in contracts for differences in energy are much more profitable than in government bonds, says Rezvan Nicolescu, an energy expert, after comparing them. “The state’s generosity is surprising, given that several thousand MW have been installed over the past two years without this guarantee scheme,” says Nicolescu.

“In photovoltaic projects guaranteed by the state, you generate about three times more”

What Rezvan Nicolescu writes, comparing investments in CFDs with government bonds:

“In March, the state offered investors two objects for investing their funds, objects with a similar risk profile: Fidelis government securities in euros for five years, with a guaranteed annual interest of 5%, and contracts for the difference in energy carriers for those. which invest in photovoltaics with a guaranteed price of 91 EUR/MWh for 15 years.

Below I will try to find out which of the two institutions with a similar risk profile is more profitable.

Suppose there is an investor who wants to invest 1 million euros in government bonds. The state guarantees him an income of 50,000 euros annually for five years. Apart from the initial investment, there are no operating costs, inflation is borne by the investor, and the investment is exempt from income tax.

If you want to invest €1 million in PV production capacity, then you can install 2 MW, which will produce approximately 2,600 MWh per year for 25 years. At a price per MWh, which could be 91 euros, the investment income would be 209,300 euros per year. Operating expenses of approximately 10,000 euros are deducted from them. The state is willing to guarantee you an income of approximately €200,000 for 15 years, an income that is adjusted annually for inflation and on which you pay income tax after depreciation of approximately €60,000 per year.

If with government securities you generate a guaranteed return of €250,000 over five years, with government-guaranteed PV projects you generate about three times that over the same period and still have 20 years to run.

Conclusions:

• 1. Investing in government-guaranteed PV contracts is much more profitable than government securities, even in a situation where the government-guaranteed price would be 70 EUR/MWh instead of 91 EUR/MWh.
• 2. The state’s generosity is surprising, given that several thousand MW have been installed over the past two years without this guarantee scheme. Essentially, with government securities this is a necessity that I don’t have with CFDs. The profitability does not correspond at all to the need for investment objects proposed by the state in March.

The concept and philosophy of the contract for difference, invented by the British, was to encourage investment in the nuclear sector at a time when it had reached a dead end.

The role of the state in the economy should decrease, not increase, through various schemes of intervention.”

What are contracts for difference

At a time when investment in renewable energy is in full swing, the European Commission has approved a new €3 billion financing scheme for Romania for new solar and wind energy projects. This is money that will fund contracts for difference (CfD), which will keep the price of electricity fixed for 15 years. In essence, this is a guaranteed energy price for 15 years for the lucky beneficiaries.

Regardless of how the European market with which we are connected will develop, this price will be indexed only to the level of inflation in the Eurozone. The financing scheme will be reflected in the accounts over this 15-year period.

Several auctions will be held with separate bids for wind and solar power, for capacities of 5,000 MW (up to 7 nuclear reactors), in which beneficiaries will also bid the execution price in addition to the project.

The maximum initial price will be €91/MWh for PV and €93/MWh for wind. This is even higher than what was estimated in September 2023, when they were already considered too high.

According to HotNews.ro, the aim is to reach an estimated price of around 80 EUR/MWh after the auctions, which is a high price when compared to the fact that long-term bilateral contracts such as PPA (Power Purchase) . agreement), from 62 euros/MWh.

In September 2023, HotNews.ro revealed that the strategists behind the implementation of the mechanism were thinking of a maximum initial price of €88/MWh for PV and €92/MWh for wind turbines, much higher than in Great Britain, which has a similar scheme, with €56/MWh for photovoltaics, respectively €60/MWh for wind turbines.

For more information, also read:

• Why a €3 billion support scheme could disrupt Romania’s energy market for 15 years / What contracts for the difference