At the European level, PPA (Power Purchase Agreement) contracts have begun to be concluded, which are essentially long-term partnerships between sellers and buyers of renewable energy. The contract can be concluded for 10-20 years, while the set price will be fixed for the entire period or, at most, indexed. This type of contract is still avoided in Romania, as there are currently only three such partnerships. There are several reasons why this lock-in exists in Romania, from the fact that we do not have a free market that provides price signals, to the fact that many companies are still affected by the ban on past bilateral contracts.

• In August, Orange Romania signed a VPPA (virtual power purchase agreement) with Engie Romania for 30 GWh of solar energy per year for six years.
• In addition, Ursus Breweries signed a PPA with Enery in July to commission a new 50 MW solar farm.
• In addition to these two partnerships, according to the participants of the Romanian Green PPA conference, there will be another partnership, and about 10 are in the negotiation stage.

Energy price restrictions are an obstacle

The biggest challenges for concluding a PPA are the lack of special legislation, the blocking of the transfer of guarantees of origin and the lack of information on the use of this contractual instrument, said participants present at the Romanian Green PPA conference. According to statistics presented at the event, the number of PPAs has tripled in the past four years at the European level, reaching a threshold of 180 agreements signed in 2022.

Ahem

PPA is a necessary tool for players in the energy sector, but it is difficult to use in Romania while prices are constrained and there are no market signals, said Corina Popescu, who is present at the conference as an energy expert. She also said that at the moment there are “a lot of unknowns” and there is a need for predictability. Corina Popescu also said that she does not think about the liberalization of the market next year, but it is necessary to have at least a perspective of what will happen in 2-3 years.

“A year ago, there was a shock in energy prices, which was very strongly transmitted in the political environment, which led to market regulation. I estimate that the market will not be liberalized in 2024, although the free market is more convenient than the regulated one, but the fear of fear will postpone this decision until 2025,” said Corina Popescu.

We remind you that the restriction-compensation scheme is valid until April 2025.

There are companies that believe they are prohibited from entering into bilateral contracts

Another reason for avoiding signing direct bilateral green energy contracts is the unjustified fear of breaking the law. It all starts with the fact that in 2012 such partnerships were banned due to harmful contracts concluded by state-owned companies with so-called “smart people” in the energy sector, explained Zoltan Nagy-Bege, director of Ciga Energy.

There were contracts concluded at a price lower than the market price, and volumes were resold by “smart people” at a much higher price. Then the authorities decided by law that all volumes of energy carriers should be traded on the stock exchange.

Zoltan Nagy-Beghe says that there is a perception among companies, however, that “they are not allowed to sign bilateral contracts”, although this has been allowed since 2020, when the European regulation 943/2019 came into force.

In addition, there is still an expectation on the part of the consumer that prices will fall. There are many projects financed by European programs and new production facilities are to be put into operation, “which should happen with a price reduction”, Zoltan Nagy-Bege also stated.

On the other hand, consumption growth is also expected, which should balance this avalanche of new projects. From the producer’s point of view, the calculation is difficult, it is difficult to determine at what price to sell energy in the long term, because after a few years he may discover that he made a mistake, and then all investments will be compromised, Zoltan Nagy-Bege believes.

Guarantees of origin in Romania have no value

The PPA must also provide a guarantee of origin that the energy comes from renewable sources. In Romania, guarantees of origin are not certified and their value is zero, said Zoltan Nagy-Bege. Guarantees of origin are issued by the National Energy Regulatory Authority (ANRE), but this body is not a member of the Association of Issuers (AIB).

NARE should become a full member of the Association of Publishers in order to allow the transfer of guarantees of origin within the EU.

Signing a contract for 20 years is a psychological barrier that is difficult to overcome

Matej Kruspan, commercial director of Resolv Energy, says there is a psychological barrier to overcome when entering into a long-term partnership.

“The main obstacle at the moment is that few companies in Romania have gone through the process and signed a PPA, and we should not underestimate the psychological barrier when you ask companies that have always bought electricity annually to sign a 10 or 20 year contract directly with the energy producer. It’s a big step that understandably makes people nervous, especially in times of fluctuating energy prices. This will change when more PPAs are signed, but we all have to accept that companies will be careful and it will take time to make a decision,” said Matej Kruspan, Commercial Director of Rezolv Energy.

Companies are still very cautious when making decisions to buy energy over long periods of time (10-20 years), says Delia Pachiu, senior energy expert at Pachiu&Associates law firm. + “Last but not least, large fluctuations in energy prices have raised concerns about the evolution of the energy market,” Delia Pachiu also stated

According to her, the PPA ban for 8 years has created certain behaviors in the energy market and “consumers need to be educated to help them navigate through this paradigm shift and create new market structures.”

Photo source: Franky | Dreamstime.com