The EU strives to become carbon neutral by 2050. This objective has been formally regulated through the EU Climate Law[i] and is enshrined in the European Green Deal[ii], being also in line with the EU’s commitment to global climate action according to the Paris Agreement[iii] and Glasgow Climate Pact[iv].
Having such objectives in mind and struggling to plan for a post-COVID 19 economic recovery, offshore wind power could represent a useful tool for EU countries to observe their commitments on net-zero greenhouse gas (GHG) emissions by 2050. As highlighted in the EU Strategy on offshore renewable energy[v], Europe is home to some of the world’s most significant offshore wind resources and the Black Sea is an integral part of the EU’s strategy in this respect.
While one may consider that Romania is rather late to the “offshore party”, the offshore sector is about to become one essential power source to ensure energy transition. First steps were taken with the enactment of the Offshore Gas Law[vi] in 2018, which aimed at providing a clear and seamless path for investors in this sector. At least this was the initial intention.
In 2020, the Romanian Senate approved the first version of a new law regulating the development and operation of offshore wind farms (the “Offshore Wind Law”)[vii]. While the draft law is still under parliamentary review pending final approval from the Chamber of Deputies, it is envisaged that it will present new opportunities for investors.
Aside from ensuring the required additional power for national consumption and representing a step towards complying with EU goals, the development of offshore wind farms could also aid and have a major impact on other key sectors, for example through direct electrification using renewable energy. Moreover, offshore wind complements onshore wind and solar power by offering high full-load hours, high operating hours, rather low variability and, consequently, greater predictability, including correspondingly lower forecast errors and balancing power requirements[viii].
Another potential benefit from developing the Romanian offshore wind sector could be the boosting of green hydrogen[ix] production, by evacuating the electricity produced by offshore wind farms directly to such production facilities. Such model would also help to address one of the main issues for the offshore sector, namely congestion of the Dobrogea grid. In order to close the circle, adequate measures to enhance and support demand for green hydrogen are necessary in a coordinated and circular economy. In this respect, the NRRP[x] provides that one key reform envisaged is to amend the existing legislative and regulatory framework by introducing measures to support and facilitate the deployment of green hydrogen, with a focus on the transport and energy (gas and electricity) sectors. In particular, the reform shall develop a National Hydrogen Strategy and a Strategy Action Plan, setting the timetable for the implementation of the measures in the strategy. At present, Romania does not yet have in place a hydrogen strategy.
In light of the above, it would seem that the enactment of the Offshore Wind Law should represent a priority for Romania. Recognizing that the draft law is still under parliamentary procedure and being hopeful that many changes are still possible, we will endeavor to pinpoint below a few aspects that could be of interest to investors.
1. Available procedures
The current draft law provides two methods for obtaining the right to develop an offshore wind project in the Black Sea: (i) a Competitive Procedure and (ii) an Open Procedure.
The Competitive Procedure entails a bidding for a concession agreement to develop and operate an offshore wind farm, with the specifics being provided from the start, such as the location and capacity of the project. Each bidder will have to observe the minimum economic, financial and technical requirements set forth in the tender book. The concession will be granted to the project with the lowest requirement for subventions. This selection criterion is in line with the general principles of European competition law regarding aid granted in the energy sector.
The concession agreement concluded between the state and the applicant will cover in detail matters regarding regulatory documents, subvention regime, grid connection, poor performance, transfer, liability and compensations for delayed grid connection. Following the execution of the concession agreement, the applicant will also be granted a license for preliminary investigations and a license for building the wind farm. A generation license and generation authorization must be further on obtained when the construction starts.
We note that it is not clear whether the concession regime will entail the payment of any royalties by the concessionaire to the state.
In an Open Procedure, any interested person can submit a licensing request, on its own initiative, specifying the envisaged location of the wind farm and its capacity. In this scenario, the state will not enter into a concession agreement with the applicant, but the applicant will have to apply for each type of key-license, as the project is being developed.
2. Rights of way & other rights in the offshore area
Offshore and adjacent onshore areas are highly regulated sectors, where various private and public interests intersect and must be harmonized. Offshore wind infrastructure will be built and will invariably cross areas with different legal regimes, including concession blocks of other investors exploiting other natural resources or other wind parks.
The draft Offshore Wind Law fails to address most of the key aspects regarding construction and operation of an offshore wind project. The only provisions addressing the matter grant developers some rights of way, but these are still to be perfected and are clearly insufficient for the scope of such projects and related infrastructure. The extent of the developers’ rights over the offshore area and related procedures for using/crossing various sectors should be further developed and regulated, for both the Competitive Procedure and the Open Procedure.
This matter should be carefully considered for an updated draft of the Offshore Wind Law and also correlated with the maritime spatial plan to be developed, given that actual and legitimate interests and activities of existing investors in offshore oil & gas projects and those of future investors in offshore wind projects need to be harmonized. Existing rights granted pursuant to oil & gas concessions must be observed by all parties and the state must plan accordingly when deciding on the strategies for further development of the offshore wind sector.
Depending on the procedure used for the project, i.e., the Competitive or Open Procedure, the value of the subvention will be determined through different mechanisms.
- Competitive Procedure – offshore wind farms developed following such procedure will be able to benefit from Contracts for Difference (CfD).
Note: In Romania there is no CfD mechanism currently in force. In June 2020 the Government approved a memorandum on the general principles for implementing Contracts for Difference. In accordance with the NRRP, the plan is to finalize the regulations regarding CfDs by 2023 and the first CfDs would be signed in the second quarter 0f 2023 for at least 1,500 MW in new generation capacities.
- Open Procedure – offshore wind farms developed pursuant to this procedure will have the right to a fixed premium amounting to 0.025 EUR/kWh on top of the electricity market price; the method for determining the premium is provided by the draft law, with the total value of the premium and the market price of electricity not being able to be higher than 0.060 EUR/kWh. In addition to the fixed premium, a 0.020 EUR/kWh compensation for “balancing the costs” will be granted for 20 years from the moment the project is connected to the network.
4. Grid Connection
There seems to be a significant difference in the costs for the connection to the grid between the Competitive Procedure and the Open Procedure, with a clear advantage for the Competitive Procedure.
For projects developed pursuant to the Competitive Procedure, the developer will be responsible only for the internal network of the wind farm, up to the network connection point, and the TSO[xi] will be responsible for the transmission infrastructure from the offshore network connection point up to the shore. On the other hand, in projects developed following the Open Procedure the license holder will bear the costs with the infrastructure required for transporting the electricity from the offshore connection point up to the shore.
However, in the case of both procedures, it is not clear whether the investors will have to bear any costs related to the development and/or potential reinforcement of the existing transmission network onshore.
The TSO is liable for damages incurred in case it does not observe the deadline for performing the network connection works.
5. “Local content” requirements
A key point of concern under the draft Offshore Wind Law is that, in Open Procedures, developers of wind projects located closer than 16km from the coast lines are under the obligation to grant an option for acquiring 20% of the project to local residents having their homes (i) within 4.5 km from the wind farm or (ii) in a locality having coast lines within 16 km from the project. Aside from the fact that the provisions are extremely unclear, the actual implementation thereof will generate many difficulties and it may even block the development of the projects.