CfD soon to be launched in Romania
Mihaela Nyerges, Managing Partner at Nyerges & Partners

Article written by Mihaela Nyerges, Managing Partner at Nyerges & Partners

With a slight delay from the initial announcement made by authorities at the end of last year, the Ministry of Energy has just submitted for public consultations the much-awaited draft of Government decision approving the Contracts for Difference (CfD) scheme. An information note for bidders summarizing the key elements of scheme and the next steps was also published.

The scheme, inspired by UK model, will support onshore wind and photovoltaic projects with a total capacity of 5000 MW split in two auctions, (i) a first auction in 2023 for 2000 MW and (ii) a second auction in 2025 for 3000 MW, each auction equally split between the two technologies.

In order for the scheme to be launched, several pieces of legislation are to be adopted and EU approval must be obtained. Nevertheless, the calendar for the 2023 tender is quite ambitious, with final objective to sign the CfD contracts by the end of this year. 

The estimative calendar is the following:

  1. publication of the Auction Initiation Order: 2-4 weeks

  2. 2 rounds of clarifications from interested bidders: September – October 2023

  3. submission of bids: 13 – 17 November 2023

  4. signing of CfD contracts: 25 – 29 December 2023

The bidders must include in their bids the target commissioning date, the installed capacity and the strike price.

  1. Project eligibility requirements

The eligibility requirements will be set out in the Auction Initiation Order. Nevertheless, based on the Information Note, the following project related eligibility requirements are expected: 

  1. projects with storage capacities behind the meter are not eligible;

  2. project benefiting from other support schemes (for example National Recovery and Resilience Plan or Modernization Fund) will not be eligible;

  3. minimum project capacity of 5 MW, with maximum capacity to be set out in the auction initiation order. Nevertheless, considering the total 1 000 MW capacity allowed for each technology for the first auction, we expect that the maximum capacity to be quite low, in order to allow for multiple successful bidders in the scheme;

  4. ATR must be already obtained, with connection date no later than December 2026;

  5. projects for which the EPC contracts or equipment supply contracts were concluded are still eligible to the extent such contracts were concluded after July 20, 2022.

A positive change is that the Information Note no longer includes the setting-up authorization among the project eligibility requirements as previously considered by the Ministry of Energy. 

  1. Bidders Selection Criteria

The selection criteria are not yet available and will be set out in the auction initiation order. 

According to previously announced principles, the ranking is done solely based on strike price offered. In case of tied bids, the ranking is done based on the following criteria:

  1. offered capacity (larger prioritized);

  2. target commissioning date (earlier prioritized);

  3. application date (earlier prioritized);

  4. random draw.

  1. Key Financial Principles

Few important changes to the financial principles have been made as compared to the principles previously announced. The key financial terms as the following:

  1. the strike price will be submitted by bidders as an EUR/MWh price not exceeding the maximum strike price to be set out in the Auction Initiation Order. A RON strike price had been previously considered by the Ministry of Energy;

  2. the market reference price is the average monthly weighted day-ahead market price for the respective technology to be calculated based on a methodology to be approved by ANRE;

  3. of great importance is that the CfD beneficiaries will not receive the CfD payment for the time intervals where the market reference price is negative. This severely affects the stability given by the CfD contract and its bankability, especially considering that we have already seen negative prices earlier this year and such cases are expected to become more frequent once new capacities are commissioned;

  4. the strike price will be subject to annual indexation based on the Euro Area Consumer Price Index;

  5. the CfD payments will be calculated in EUR and paid in RON using the RON/Euro exchange rates published by the National Bank of Romania;

  6. the CfD payments are made as of the date the bidder obtains all necessary connection and operation licenses and authorizations and at least 80% of the awarded capacity is commissioned;

  7. a participation guarantee and a good performance guarantee will be required. The values thereof are not yet available and will be set out in the Auction Initiation Order. 

  1. Sale of electricity

CfD beneficiaries are allowed to sell their electricity based on their own trading strategy (e.g. OPCOM markets, PPAs).

  1. Key contractual timeframe

The duration of the CfD contract is of 15 years, which is quite positive from a bankability perspective.

The target commissioning date (Target Date) must not be later than December 2026. Despite a contradiction between the Romanian and English versions of the Information Note, should the CfD beneficiary reach commercial operation after Target Date without exceeding 24 months thereafter, such period shall be deducted from the CfD contract duration. Should the delays exceed 24 months, the CfD contract is terminated, and the good performance guarantee is executed.

  1. Funding of the scheme

The CfD scheme is planned to be financed both from the Modernization Fund (subject to obtaining the approval of the Modernization Fund Investment Committee), as well as through a levy payable by the final consumers collected by suppliers (similarly to the green certificates price). The levy is implemented starting January 1, 2024. 

No details are yet available regarding the weight of these two financing sources in the scheme budget and the manner of calculating such levy, so no information is currently available on the estimative financial impact on the final consumers.

  1. Conclusions

The CfD scheme is a long-awaited support mechanism benefiting from huge interest from the investors in renewables and financing banks. It can significantly contribute to easing the financing process at a time when banks look with interest but also with cautious to the energy market and when PPA market lacks liquidity. 

The CfD scheme is highly positive for Romanian state as well, since competitive CfD schemes tend to lower the cost of supporting low-carbon generation over alternatives, such as green certificates or feed-in tariffs, due to competition in determining strike price and lower revenue risks for beneficiaries. 

Nevertheless, the terms of the CfD contract and the related pieces of legislation to be adopted will be very important in assessing all legal and financial implications for bidders. 

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