Before the final of this year, the Ministry of Energy asks companies to express their interest in participating in CfD auctions to be launched in a new support scheme for boosting investment in new power generation capacities based on low-carbon technologies.
What is the CfD
The Contracts for Difference scheme is a two-way support payment which will be the difference between the strike price and market reference price. The generator is paid by the CfD Counterparty when the market reference price is below the strike price, while the generator pays the CfD Counterparty when the market reference price is above the strike price. The total revenue of generators per unit of electricity is given by actual sale price + (strike price minus market reference price).
Before 2023, June 30, all legislation for CfDs and the first auction will be launched, targeting around 750 MW in wind onshore, and 750 MW in solar PV. Authorities are working now on two fronts. The first of them is completing the needed documentation so that Romania notify DG Competition, as the support scheme will also involve financing from the Modernization Fund. At the same time, the authorities continue to refine the details of the CfD mechanism so that it answers to the market needs and ensures a successful launch in the next semester.
In a public event organized by the Romanian Ministry of Energy, the European Bank for Reconstruction and Development, CMS Romania, and Nera Economic Consulting, the latest details of the CfD scheme were presented, including the eligibility criteria. All information is still subject to amendments, as some of the details will be clarified after the state approval will be granted.
The overall objective of the CfD scheme is to support the Romanian energy transition, which means decarbonization based on secure and affordable energy for all. Thus, the scheme is designed so that it provides the possibility of bankable projects, but also predictable and transparent mechanisms of financing.
The Romanian CfD scheme is designed for a 15-year period of time, as a revenue stabilization mechanism to encourage private investment in new green power capacities. Among the key documents to be taken into consideration, there are the specific government decisions (which set out the legal basis for the implementation of the CfD scheme, the roles and responsibilities for auction administration and counterparty – Transelectrica and OPCOM, respectively, and the eligibility criteria), the CfD contract (which is a bilateral contract which will set out the detailed terms and conditions for the CfD support between a generator and the CfD counterparty), the auction initiation orders (which commences the auction process and sets timescales, sets key parameters for eligibility and auction and publishes the form of CfD contract for the relevant auction) and also a supplementary framework to set out the technical procedures which apply to CfD applications and auctions. From the auction initiation orders, the market will find out what are the capacities, the strike prices, and the deadlines for each session. The plan, at the moment, is to be launched four expressions of interest, before each auction in 2023, 2025, 2027, 2030. Depending on the market response, this schedule might be modified.
For the first round of auction, eligible technologies will be for onshore wind and solar PV projects, from 5MW each, with no maximum size, except if a maximum size will be established in the auction initiation order, based on the results of the consultations based on the expressions of interest from the companies. For this round, only new projects will be eligible, not existing projects, and not re-engineering projects. The auction will be open for parts of larger projects, but the capacity to be supported through the CfD scheme must be separately metered by the transmission operator, Transelectrica. An additional mandatory criterium to be observed will select strictly the projects which secured the TSO or DSO approval for connection to the grid (ATR). The first auction will also be open for projects in a development phase, given that they are not in the operational phase at the moment of signing the CfD contract. Finally, another important eliminatory condition is the deadline for commercial operation, which must be set before 2026, June 30, but can be later than the connection date specified in the ATR.
If state aid is already granted for a project, there are two options considered at the moment: a full reimbursement of the previously received state aid or a form of delaying the due payments under the CfD scheme until the amounts received under the state aid are met.
The plan is for the CfD Liquidity Fund to be supplied with money from the Modernization Fund, a first at the European level, subject to approval from the DG Competition. This is a unique combination of the CfD scheme with the Modernization Fund, with the latter functioning as leverage to attract private financing. CfD counterparty (OPCOM) will make payments and collect CfD payment differences with a surplus to be paid to the Liquidity Fund. The strike price will be established in lei, and indexed to annual inflation, with monthly settlements on the basis of the DAM price, for each specific technology.
“The time is tight”, stressed Munir Hassan, the global Head of the Energy & Climate Change Group at CMS. “There is no time for vagueness, so guidance will be provided based on the market requests”.
All interested parties are called to complete the Expression of Interest Form before the final of this year! Following the close of this call for expressions of interest, the Ministry of Energy will analyze the responses, summarize the views expressed and take into consideration the data for the auction design, timing and parameters.