Mihaela Nyerges and Mihaela Spiridon,Nyerges & Partners

Article by Mihaela Nyerges, Managing Partner, and Mihaela Spiridon, Senior Associate at Nyerges & Partners

The Ministry of Energy has submitted for public debate a new legislative proposal for offshore wind energy in Romania. This law is eagerly awaited by the market, especially considering the lack of success in promulgating the two previous legislative drafts on the same topic.

The current proposal seeks to address the Government's criticisms of the previous proposals, such as lack of clear procedure for identifying the suitable offshore perimeters, lack of main concession terms, permitting responsibilities and lack of support schemes that would make such projects economically feasible and attractive.

The draft solely outlines the general framework for offshore wind activities. Further procedures and guidelines are yet to be enacted to enable the initiation of such investments. Considering the current timeline, it is projected that the first exploration concessions may be awarded only in early 2028, with the first projects potentially commissioned around 2037.

1. Offshore Wind Targets 

Black Sea area holds significant potential for offshore wind energy development, that was estimated in the World Bank's 2020 report to approximately 76,000 MW out of which 22 GW - fix structure and 54 GW - floating installations. However, the initial targets envisaged by the current draft are considerably more modest.

For 2035, a 3GW target of offshore wind is envisaged. Nevertheless, depending on the provisions of the Integrated National Energy and Climate Plan and the evolution of offshore wind development, the Ministry of Energy may propose the Government to further increase such target.

As regards the years 2040 and 2050, the Ministry of Energy will set out the applicable targets at a later stage.

2. Support Schemes

One of the primary criticisms of previous drafts was the lack of state aid measures to support offshore wind projects. The new proposal addresses this concern with the introduction of a Contract for Difference (CfD) scheme to underpin the implementation of the initial 3GW target. Future support schemes for the 2040 and 2050 targets are subject to further assessment by the Ministry of Energy.

3. Investment stages and selection process

The draft outlines a two-stage development process for offshore wind projects: exploration (in which to determine the energetic potential of the respective perimeters) and construction/exploitation. 

Each stage will be governed by concession agreements with the Ministry of Energy. Notable principles include organizing competitive processes for awarding concessions, providing the exploration operator a right of first refusal for exploitation concessions and simultaneous conclusion of CfD agreements with exploitation concessions. 

The exploration concession is awarded for 2 years and may be extended for a 1-year periods. As to the exploitation concession, such is awarded for 30 years and may be extended with 10-year periods. In case of refurbishment, 30-year extensions are allowed.

4. Key financial terms

   1. Exploration stage

The exploration operator must pay the Ministry of Energy a royalty per square kilometer for the respective perimeter, for the entire duration of the concession agreement. The value is not yet available in the draft.

As to the expenses incurred in the exploration activity, such will be (i) reimbursed within certain limits to be set out by the Ministry of Energy if the Government decides not to proceed with the exploitation stage, or (ii) considered in the exploitation stage, if the operator uses it preemption right to continue to exploitation activities or (iii) will be reimbursed by the exploitation operator if exploitation activities are carried out by a different operator. 

A good performance financial guarantee may be imposed. 

2. Exploitation stage

As for the exploitation concession, the operator must pay a royalty equal to 1% of the value of the energy production, which we assume to be calculated based on the CfD strike price. In addition, a fixed fee per square kilometer is due both for the concessioned perimeter, as well as for the area crossed by the connection cables.

The operator must establish a financial guarantee to cover decommissioning and environmental restoration obligations and must obtain insurance coverage for its activities.

5. Key Milestones and Timeframe

The draft sets out the key studies/regulations/guides to be issued and related timeframe which are based on the following key milestones:

1. within 24 months, the Ministry of Energy must perform a study for determining the suitable offshore areas, which will be subsequently approved by Government decision;

2. within 12 months from the Government approval, the Ministry of Energy will decide on the specific areas to be granted under concession for the development of the initial 3 GW target of projects;

3. by mid-2027, Ministry of Energy must approve the concession procedures;

4. at least 6 months thereafter, the concession announcement should be issued and, 6 months later, the concession awarding procedure should be launched. 

6. Permitting 

The draft designates the authorities having permitting responsibilities and deadlines for elaboration of the necessary permitting procedures and requirements. Few key permitting differences to onshore renewable projects are the following:

1. a special exploration permit will be issued at the time of concluding the exploration concession;

2. the construction works to be carried out both in offshore and onshore areas will be authorized by ACROPO (Regulatory Competent Authority for Offshore Oil Operations at the Black Sea);

3. a simplified archaeological permitting procedure is being implemented, meant to expedite the process; 

4. the endorsement of special authorities will be required, all of which should be issued within 30 days from application. 

A key principle to be considered by the investors is that the projects must be commissioned within 7 years as of concluding the exploitation concession agreement; This timeframe reflects the Government's concern that the 10-year deadline proposed in the previous legislative draft was excessively lengthy.

7. Grid impact

Starting 2024, TSO should start performing system studies to assess the impact of the offshore wind production on the electricity system. Also, when elaborating the TYNFP 2024-2033, it should incorporate the offshore wind targets envisaged by this draft. 

8. Local content requirements

The draft imposes local content obligations such: 

1. at least 25% of the total employees must be Romanian citizens with Romanian fiscal residency;

2. in cases of equal technical and financial qualifications, preference should be given to Romanian and EU providers/suppliers;

3. foreign subcontractors must establish a subsidiary in Romania.

9. Conclusions 

Romania holds a significant offshore wind potential that could play a pivotal role in achieving the country's E-RES targets. The legislative efforts to create a suitable framework for offshore wind investments have been ongoing since 2020, but encountered opposition from government and other involved authorities. The latest draft shows promising improvements as it addresses many of the criticisms raised against its predecessors. 

Nevertheless, the current draft is just the initial step towards the realization of offshore wind investments. It primarily lays out the general framework, and subsequent steps will involve additional studies, procedures, and guidelines, for which generous deadlines are provided in the current draft.