ROMANIA'S RENEWABLE ENERGY MARKET SHOWS INCREASING

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
--------------

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
--------------

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
--------------

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.

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