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60900 4/18/2006 16:29 06BUCHAREST638 Embassy Bucharest UNCLASSIFIED//FOR OFFICIAL USE ONLY 06BUCHAREST638|06STATE36153 VZCZCXRO6617 RR RUEHAG RUEHDA RUEHDF RUEHFL RUEHHM RUEHIK RUEHKW RUEHLA RUEHLN RUEHLZ RUEHPB RUEHROV RUEHSR RUEHVK RUEHYG DE RUEHBM #0638/01 1081629 ZNR UUUUU ZZH R 181629Z APR 06 FM AMEMBASSY BUCHAREST TO RUEHC/SECSTATE WASHDC 4198 INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE RUEHZL/EUROPEAN POLITICAL COLLECTIVE RUCPDOC/DEPT OF COMMERCE WASHDC RHEBAAA/DEPT OF ENERGY WASHDC RUEHRC/USDA FAS WASHDC 0371 UNCLAS SECTION 01 OF 03 BUCHAREST 000638
SIPDIS
SENSITIVE SIPDIS
FOR EUR/NCE - WILLIAM SILKWORTH FOR OES/PCI - LYNN LEWIS
E.O. 12958: N/A TAGS: ENRG, SENV, PREL, TRGY, EINV, ETRD, EAGR, EU, RO SUBJECT: ROMANIA'S RENEWABLE ENERGY MARKET SHOWS INCREASING PROMISE
REF: STATE 36153
1. (SBU) SUMMARY. Romania's small but growing market for renewable energy will provide new opportunities not only for U.S. exporters and investors, but for cooperation with Europe in the energy field. In conjunction with its European Union (EU) aspirations, Romania has set aggressive targets for increased renewable energy production. After accession, in 2007 or 2008, Romania will gain access to additional EU financial support for renewable energy projects. U.S. companies should act quickly to gain a foothold in the Romanian market before European competitors, well-versed in EU funding rules and regulations, dominate the field. END SUMMARY.
MARKET OVERVIEW
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2. (U) Romania's renewable energy sources include hydropower, biomass, wind, solar and geothermal. Hydropower, primarily from large plants, dominates the field, meeting over one quarter of Romania's total electrical energy needs. Other renewable sources currently account for about one percent of output.
3. (U) A sampling of recent and future investments in Romania's renewable energy market include the following:
-- In March 2006, the Port of Constanta finished accepting bids for the construction of 12 wind turbines. A winner will be announced soon. An American firm is in the running for the contract.
-- A group of German companies and Sibiu County are discussing a EUR 138 M plan to build a bio-diesel refinery and develop nearby farms for rapeseed production. The county will contribute land to the project.
-- The Romanian company Rompetrol recently announced that it will produce 60,000 tons of biofuels by the year 2007. The cost of the project is approximately EUR 16 M.
-- GOR officials revealed that an undisclosed Dutch company is interested in launching a EUR 70 M bio-diesel refinery project.
-- In November 2005, a Hungarian company signed a EUR 36.5 M contract with one of Romania's state-owned power companies to convert a power plant in Zalau, Romania to biomass.
-- A September 2005 press report indicates a German company is interested in building a manufacturing facility in northeast Romania to produce wind turbine power plants.
-- In August 2005, the Portuguese company Biomart launched a EUR 47 M project to build a bio-diesel refinery in the town of Lehliu Gara, Calarasi County.
The European Bank for Reconstruction and Development's USAID- funded website on renewable energy projects (http://www.ebrdrenewables.com/sites/renew/de fault.aspx) tracks the latest developments in Romania's (and the region's) renewable energy market.
TARGETS AND INCENTIVES
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4. (U) In coordination with the European Union, Romania has set a target of 33 percent of gross domestic electricity consumption from renewables by 2010. Romania's gross consumption for 2005 was almost 50 million megawatt-hours (MWh). Although hydropower (mostly large units above 10 megawatts (MW)) currently provides on average 28 percent of the nation's electrical output, Romania must focus attention on other renewables to meet the 33 percent goal. To date, Romania has done so through its "Green Certificate" program.
5. (U) Green Certificate Program: In 2003 and 2004, the GOR passed legislation establishing targets and incentives for electricity produced from all renewable energy sources except large hydroelectric dams. (For hydro, only dams 10 MW or less and rehabilitated after 2004 may participate.) Starting in 2005, all electricity distributors must purchase at least 0.7 percent of their electricity from renewable energy sources or pay fines. This target will gradually increase to 8.3 percent in 2010. As an incentive for renewable energy production, the GOR issues Green Certificates (GC) to renewable energy producers for each megawatt hour. Producers then sell their certificates to distributors on a centralized GC market. (The electricity is
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sold separately on the electricity market.) The extra income from GC sales compensates the producer for the higher cost of renewable energy production. To protect both producers and consumers, the government sets a minimum and maximum price for each GC. For 2005-2012, they are EUR 24 and 42. The GC market opened in November 2005 and is still rather new and volatile. More detailed information about the program can be found at www.opcom.ro, the website of Romania's electricity market operator (OPCOM). Additional information is also available at www.anre.ro (the national energy regulatory authority) and www.transelectrica.ro (the government-owned distribution network).
6. (U) In addition to Green Certificates, the GOR also exempts renewable energy from excise taxes. Minister of Economy and Commerce Seres recently reiterated that the GOR contemplates keeping the excise exemptions in place after accession. The GOR has other forms of EU-approved state aid that can cover 40 percent of eligible investment costs, but has yet to use them.
7. (SBU) In May, Romania will probably find out whether it joins the EU in 2007 or 2008. As an EU member, the country will gain access to billions of euros in structural funds. According to Romania's Ministry of Economy and Commerce (MEC), some of these funds will be used for both R&D and working projects in the renewable energy field. MEC is currently creating a database of potential projects and hopes to have a system in place by the end of 2006 to match projects with financing. By 2007, it should know how much EU funding will be available for these projects. An MEC official informed EconOff that there is significant interest from EU-based companies in Romania's energy field. These companies know how to work with EU structural funds and are waiting for Romania's accession to more aggressively move into the market. He advised U.S. companies to move quickly to gain a foothold prior to accession.
OPPORTUNITIES FOR U.S. COMPANIES AND INVESTORS
--------------------------------------------- - 8. (U) Hydro, biomass and wind energy are the most promising renewable energy resources in Romania. Romania has numerous rivers and mountainous terrain, its vast forests and agricultural lands are largely untapped or underutilized, and wind resources are particularly abundant along the Black Sea. The western parts of the country are well-suited for geothermal heat applications. Solar production is virtually non-existent but could receive more attention in the future. As energy prices increase, particularly for gas, and conventional sources decrease, energy-intensive sectors will look to alternative sources of supply.
9. (U) Potential investors in Romania's renewable energy market must keep a close eye on EU energy policies, targets and trends. With membership fast approaching, EU policies will be the main driver for the foreseeable future. For example, Romania has adopted the EU targets for the substitution of conventional fuels by alternative fuels in the road transport sector (5.75 percent by 2010; 20 percent by 2020). While the market for biodiesel production will likely be very difficult, ethanol is a different matter. There are numerous biodiesel projects involving Western European manufacturers, but very few with ethanol. U.S. companies may have the edge in experience here. Furthermore, Romanian refiners will have difficulty meeting the 5.75 percent target with bio-diesel only because diesel fuel properties begin to suffer above the five percent level. They will have to turn to gasoline blending, which means ethanol.
10. (U) Regarding specific sectors and strategies in the renewable energy market, one GOR official suggested that outside investors look at public-private partnerships, particularly for biomass projects. For such projects, local governments could supply the land. This same official also commented that the mayor of Panciu, a city in Vrancea County (eastern Romania), is looking for a partner to develop a wind project. Another official, from the Ministry of Environment, suggested approaching Romania's 300 or so mid-sized cities (20-30,000 inhabitants) with an integrated environmental plan that meets their energy and waste disposal needs. Such projects may be eligible for U.S., EU or multilateral financial assistance.
COMMENT
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11. (U) Although small, Romania's market for renewable energy will grow rapidly in the coming years as energy distributors scramble to meet GOR and EU mandated targets. In fact, demand for Green Certificates is far outstripping supply and alternative
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energy producers are receiving a premium for their GCs. However, U.S. companies and investors will face stiff competition from their European competitors, who are already making their presence known in Romania. Market entry will be more difficult the longer U.S. investors wait. Finally, at a political and strategic level, U.S. investment and support in the alternative energy sector can help forge closer ties with our European allies and contribute to the continent's energy independence, a strategic goal shared by both Washington and Brussels.
12. (U) AmEmbassy Bucharest's reporting telegrams are available on the Bucharest SIPRNet website: www.state.sgov.gov/p/eur/bucharest.
TAPLIN
