CEE MONEY-Romanian green energy U-turn threatens recovery

Fri Mar 22, 2013 3:00pm GMT

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* Government to lower generous subsidies for renewables

* Sudden changes, lack of detail unnerve investors

* Drop in investment a blow to struggling economy

By Luiza Ilie

BUCHAREST, March 22 (Reuters) - Plans by Romania's government to cut support for renewable energy producers have surprised investors and could undermine one of the few economic growth areas in the European Union's second poorest state.

Lured by profit-generating "green certificates", foreign-owned firms have ploughed billions of euros into wind, solar, biomass and hydro power projects, helping offset the impact of government budget cuts and the euro zone debt crisis.

But while the renewable glut has brought down wholesale power prices in many countries, subsidies have led to rising prices for consumers as the costs are passed down.

Even before violent protests over high power prices toppled the government in neighbouring Bulgaria last month, Romanian officials said they would cut the number of certificates they hand out free to investors in solar and biomass projects.

Now, just a year after launching the plan, government officials say they will also cut the upper range of the price renewable producers can earn from selling the certificates on to other companies, catching many investors off guard.

"We will change the green certificates law," Energy Minister Constantin Nita told a conference earlier this month. "Renewable energy investors must ... understand we are trapped in a vice."

But details on timing, price, and other crucial issues have been lacking. That has spooked energy firms who, after building 2,100 megawatts of wind projects in three years - more capacity than Romania's two nuclear reactors - are scaling back.

Romania's Wind Energy Association now expects up to 400 megawatts more wind power to come online this year, compared with a previous estimate of 1,500 megawatts.

That would slow investments that have brought in 3.4 billion euros ($4.4 billion) over the last three years, the equivalent of more than half of Romania's total foreign investment or 2.5 percent of this year's gross domestic product (GDP).

"This throws us into an area of major uncertainty," said Ionel David, director of the Romanian Wind Power Association.

"The market is frozen right now. And this won't hurt just renewables, word will get out to investors in other fields."

HIGHER PRICES

Other governments are having second thoughts about the cost of renewables, too. Spain, one of the world's leading renewable energy developers, has slashed renewable incentive schemes.

But Romania's move could put a further drag on the country's efforts to resume its race to catch up with living standards in western Europe.

It will also deal a blow to Romania's efforts to improve its dilapidated infrastructure and meet commitments to Brussels to shut down a third of its old power production sites by 2020.

"There is a massive investment need in the energy sector," central bank Governor Mugur Isarescu told Reuters last month. "Renewable energy has a cost, but it is a necessary effort for the Romanian economy."

Under the renewables scheme, the government gives producers the certificates that they then sell on to power suppliers and other companies who are required by law to buy them as a way of showing they are supporting the green drive.

The renewable investors profit again when they sell the energy they produce.

Belgium and Sweden also use green certificates to subsidise renewable projects, rather than feed-in tariffs which guarantee developers a fixed price for every kilowatt hour of electricity generated, irrespective of demand.

Green certificates have helped boost Romania's total installed power production capacity by up to roughly 10 percent - all in renewables - since 2009.

That has brought healthy income to foreign-owned energy firms such as Czech CEZ, Italy's Enel, Energias de Portugal, Austrian Verbund and others who have rushed to install turbines in the arid landscape of the southeastern Romanian region of Dobrogea and elsewhere.

But, once deemed too generous by the EU, the certificates accounted for nearly half of a 10 percent hike in households' power bills in January and have driven up consumer prices.

And it is Romania's 19 million people, whose wages average 350 euros ($450) a month, who will foot a final bill that power regulator ANRE estimates will reach 10 billion euros by 2020.

SLOWING, NOT STOPPING

In Dobrogea, where the wind averages 7 metres per second, scores of turbines loom at a CEZ wind park, Europe's largest on land, over the villages of Fantanele and Cogealac.

Many houses sport new red shingled roofs and new windows. CEZ pays rent to about 100 landowners, and has helped upgrade the local clinic, a church, school and kindergarten, even roads.

Here and elsewhere, wind energy investments have created at least 3,000 jobs, often in rural areas with high unemployment and few opportunities to escape.

CEZ managers say there is still plenty of scope for more projects before the grid runs out of room.

But investors say that until the government clarifies its plans, the renewables boom will be put on hold.

"It's the uncertainty rather than the level of subsidies that is causing problems," said Matthew Vogel, managing partner of renewable energy and agriculture developer Alternatif Investments, which decided last year not to invest here.

"It is important that the government, if changes are to be made, can regain the confidence of investors," he said.

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