Energy Strategy and Renewables Cosmin Stăvaru, Partner13 May 2013

2 I. Strategy Sets Foundation Policy making pyramid in the energy sector: Strategy Regulation Compliance

3 I. Strategy Sets Foundation An Energy Strategy should be: Adopted by consensus at Parliament level; Designed on long term in accordance with EU policies; Stable, but flexible to change of circumstances; Based on accurate assessment of available resources; A map for shaping the regulatory framework of the sector.

4 I. Strategy Sets Foundation Key objectives of an Energy Strategy: Thorough analysis of the energetic system and integration with overall macroeconomic and social indicators; Define the desirable generation mix (e.g. classic sources versus alternative sources) and investment needs of the sector; Define the approach for financing and operation of the sector (e.g. privatization versus private management); Develop the internal energy markets and interconnection with external markets.

5 I. Strategy Sets Foundation Energy Strategy documents adopted so far: Romania’s energy strategy for approved by Government Decision No. 1069/2007; Road map for energy sector in Romania approved by Government Decision No. 890/2003; National Action Plan in the Renewable Sources Sector approved by the Ministry of Economy; National Plan for Energy Efficiency approved by the Ministry of Economy.

6 II. Regulation Builds On Regulation to define means to achieve the Strategy objectives: Regulation to encourage development: Rules and incentives for building new capacities (permitting, grid access, support schemes); Rules on operation and control of the market players; Strong institutions to implement the rules. Energy Law No. 123/2012 has aligned legislation to the EU requirements and created a competitive and liquid market; Renewable Energy Law No. 220/2008 has put in place a predictable long term support scheme.

7 But development requires predictability and stability: The Energy Law put a general ban on bilateral PPAs; The Government to suspend the support scheme for renewables and put an annual cap for new capacities benefitting from GCs after only one year of application. II. Regulation Builds On

8 III. When Regulation Shakes Foundation (Renewables Story) Abrupt cut of the scheme after 1 year of full operation is troublesome for investors and financiers alike; The support scheme itself already ensured a mechanism to reduce excessive incentives.

9 The need for reducing support is debatable: The support level per unit of electricity consumed (MWh) and the share of electricity receiving support are rather close to EU average; Renewables reduce the physical energy price on the wholesale market by replacing expensive coal-fired energy; On long term, renewable energy is the most sustainable type of energy. III. When Regulation Shakes Foundation (Renewables Story) Most of the EU countries reducing the incentives did not affect operational projects.

10 III. When Regulation Shakes Foundation (Renewables Story) The sudden cut of the support may generate court cases against Romanian State based on alleged breach of: Fair and equitable treatment principle under the Energy Charter Treaty; Similar protection of investment clauses under the bilateral treaties concluded by Romania and foreign investors’ resident countries; Principle of legal certainty and legitimate expectations. Some court cases were successful in other jurisdictions: Challenging the cut of incentives for solar power in UK; Challenging new grid charges for renewable power plants in Bulgaria.

11 But real life is often a compromise: Support for solar is indeed disproportionate to technology costs incurred; Impact of GCs to energy-intensive industries is indeed sizable; There are limited cases where other EU countries have reduced incentives for operating projects - Greece, Czech Republic, Bulgaria. III. When Regulation Shakes Foundation (Renewables Story) Lesson to learn: “Incentives here today, gone tomorrow” policy must be abandoned; There should be an Energy Strategy adopted in Parliament to avoid political distortions of the Regulation.

Cosmin Stăvaru Partner Bulboacă & Asociaţii SCA Phone: (40-21) Mobile: (40) Fax: (40-21) Website: UTI Business Center, 9 th floor 31 Vasile Lascar Street, District 2, , Bucharest, Romania THANK YOU!