February 2024 – The Romanian Energy Regulatory Authority (“ANRE”) has announced important amendments to the rules for connecting new power-generation capacities to the public network.
On 1 February 2024, ANRE released for public consultation a draft order (“Draft Order”) regarding the approval of the Methodology for capacity allocation of new power-generation capacities (the “Methodology”) as well as other amendments to ANRE Order no. 59/2013 approving the public grid connection regulation (the “Connection Regulation”). Comments to the Draft Order may be submitted to ANRE by 1 March 2024.
The main changes introduced under the Draft Order concern (i) a change of the grid connection process applicable to power-generation capacities above 1 MW by allocating the capacity based on a tender, and (ii) the introduction of a financial guarantee to be set up prior to the issuance of a grid connection permit (“ATR”), with a fixed percentage of 5% of the value of the connection tariff, irrespective of whether or not reinforcement work is required.
Many renewable energy projects in Romania face challenges with the grid connection. The tariff component related to the necessary reinforcement works represents one of the main obstacles for the development of new power-generation capacities. Under these circumstances, substantial changes were made to the Connection Regulation in the last years—the purpose of the legislative amendments being to unlock renewable energy investments by partially lifting the financial burden for network operators with regard to reinforcement costs.
Such changes refer to the obligations of users to share the reinforcement costs with network operators, including the user’s possibility to finance general reinforcement works included in the operator's development plan, if the operator is unable to carry them out by the date requested by the user; or to pay the costs to be borne by other users for the same general reinforcement works if the place of production is commissioned first. Following the amendments to the Connection Regulation, the template ATR was also amended by introducing additional information regarding the type of reinforcement works (i.e., general and specific reinforcement works), as well as the conditions for carrying out the reinforcement works by the network operator. Currently, the Connection Regulation distinguishes between: (i) specific reinforcement works determined by the need to ensure the technical conditions for the evacuation of power approved exclusively for the place of consumption and/or production, and (ii) general reinforcement works necessary to create the technical conditions for the connection of several places of consumption and/or production.
Tender for grid capacity allocation of new power-generation capacities
The Draft Order provides for the replacement of the current concept of obliging grid users to participate in general reinforcement works in power networks upstream of the connection point with a mechanism for power capacity allocation based on a tender (the “Mechanism”). Under this Mechanism, the amounts collected through tenders would be used by network operators for general reinforcement works.
The recent proposal appears to arise from the joint report of the Romanian Competition Council (“RCC”) and ANRE on grid access conditions (full Romanian-language copy of the joint RCC-ANRE report is available here) (the “Report”). One of the recommendations highlighted by the Report is to allocate grid connection capacities based on competitive procedures, to be carried out periodically, depending on grid development.
The Methodology is currently envisaged to be applied starting 1 January 2025 for the connection of power-generation capacities above 1 MW, with or without storage facilities.
In a nutshell:
- The allocation capacity requests must be filled with the transmission system operator, Transelectrica S.A. (the “TSO”), for projects with an installed power in excess of 50 MW, or with the regional distribution networks (“DSOs”) for projects with an installed power of up to 50 MW.
- The network areas for which tenders will be organised are established by the TSO.
- The development and administration of the tender platform and the organisation of the respective activity will be carried out by the TSO.
- The tenders are organised on a yearly basis, for a 10-year allocation period starting with the second year after the tender.
- The TSO shall determine and publish the available capacity for each zone of the transmission or distribution network for which no grid reinforcement is needed by 15 January of each year.
- Grid users shall submit capacity allocation requests between 16 January and 28/29 February of each year for a specific grid zone and year of the allocation period. The year requested for the allocation of capacity corresponds to the year of commissioning of the utilisation installation.
- Further on, the TSO will register all applications submitted in the tender platform and will develop a global solution study that will determine the necessary reinforcement works, total estimated value, and duration and year of commissioning. In addition, the TSO must publish the available capacity with or without reinforcement works for a specific grid zone and year of allocation period, the estimated value of the reinforcement works, the tender starting price, and the dates of the tender sessions.
- Daily tender sessions for allocating the available capacity in each year of the 10-year allocation period will be organised by the TSO starting with 1 July of each year.
- After receiving the confirmation of registration of the capacity allocation request, grid users must provide a guarantee for participating in the tender. The amount of the guarantee will be determined by multiplying the capacity requested by a grid user by 1% of the starting price of the tender, calculated based on the capacity auctioned by each grid user.
The annex to the Methodology also provides a template of the allocation contract. The contract shall include the capacity allocated to the grid user as well as the amount to be paid for that capacity. The first instalment representing 20% of the price must be paid within 30 days from the signing date, while the remainder of the price must be paid no later than four months from the signing date. The amounts collected according to the Methodology will be used by the network operators for the reinforcement works necessary for the connection of grid users, following the deadlines for the commissioning of the projects. In case such deadlines are exceeded, the grid operator may be obliged to pay grid users a percentage of 0.01% / day of delay, applied to the value paid by the user for the allocated capacity, until the necessary capacity allocated through the tender is provided.
Introducing a financial guarantee to be set up prior to the issuance of ATRs
Currently, developers must set up a financial guarantee for ATRs (the “Guarantee”) for a value set as a percentage up to maximum of 20% of the connection tariff (i) for power-generation capacities with installed capacity higher than 1 MW and (ii) for which the connection solution provides for reinforcement works. Recently, the deadline for setting up the Guarantee was extended from three to 12 months (i.e., until the conclusion of the grid connection agreement which must not exceed a 12-month term after the issuance of the ATR) through ANRE Order No. 4/2023. Failure to set up the Guarantee within the mentioned deadline causes the ATR to lose its validity.
The Report highlights that there are particular barriers to grid access, including the lack of disincentives against speculative investments. The Report identifies the market practice of developers getting projects to the “ready to build” stage only to sell them to other developers. This is considered speculative, as it could lead to blocking other, more credible investments, as new ATRs are very difficult to obtain, while previously issued ATRs are still valid (and many “speculative” projects eventually end up abandoned). Suggested deterrents against speculators in the Report include setting up execution guarantees or sanctioning developers’ passivity over extended periods.
Thus, the Draft Order intends to change the existing rules regarding the Guarantee and to introduce the obligation to set up a fixed Guarantee of 5% of the value of the connection tariff when applying for ATRs for all projects, irrespective of whether or not reinforcement works are required for the development of the new power-generation capacities.
The proof of setting up the Guarantee must be submitted with the grid operator prior to the issuance of the ATR, and it will be released after commissioning the power-generation capacity. In case the grid user (i) does not submit the application for signing the grid connection agreement, (ii) fails to pay the connection tariff within the deadlines under the grid connection agreement, or (iii) decides to drop the project, the network operator can enforce the Guarantee.
The new provisions regarding the Guarantee are envisaged to apply to all grid connection applications for which an ATR was not issued at the time of the adoption of the Draft Order.