In the context of global efforts to migrate towards a green economy, based on renewable energy, the Republic of Moldova aims to improve and complete the regulatory framework applicable to the use of energy from renewable sources.
Against this background, the Moldovan lawmaker is currently examining the opportunities to amend Law no. 10/2016 of February 26, 2016, on promotion of the use of the energy from renewable sources (Law 10/2016). These amendments are currently in the public consultation phase. Although the amendments are still publicly debated and have not been adopted yet, the proposed changes address actual practical issues for the renewable energy sector.
Current Issues Affecting Investments in Renewables
The sale-purchase contracts for electricity obtained from renewable sources do not include clauses regarding the reparation of damages caused to eligible producers of electricity from renewable sources in case of limitation of their access to the network. Any reduction of the capacity of eligible producers to supply their produced electricity in the network – and which affects the income of those eligible producers – should be correctly financially compensated.
Law 10/2016 does not provide the criteria that the Regulator must apply for the evaluation of the liquidity level of electricity on the market. And Law 10/2016 does not contain detailed rules regarding the content of the contract for the purchase of electricity from renewable sources. The draft contracts are developed and approved by the Regulator.
There are no mechanisms to protect the investor/producer from factors that might affect their cash flow. This creates a huge risk for investments in the renewable energy sector.
Any reduction in the eligible producer’s ability to deliver the electricity produced to the network may affect its revenues. Accordingly, from the perspective of creditors or investors, it is important that the eligible producers have the right to compensation for such limitations. Law 10/2016 does not establish any principles or mechanisms for establishing compensations for the limitations applied to the eligible producer. This generates additional risks related to these limitations and affects the viability of renewable energy projects.
In the context of the reform of the electricity market in Moldova, with the transition to competitive organized electricity markets, it is necessary to strengthen the function of the Central Supplier: to ensure an increased degree of its solvency and to ensure the continuity and reliability of the application of the support scheme in case of transfer of this function to other entities.
It is also necessary to ensure the transparency of the financing and payment mechanism for eligible producers within the support scheme, as well as to eliminate the risk of potential cross-subsidies between different activities provided by the central supplier.
To ensure a more efficient process of evaluation and selection of bids at auction, the guarantees must be high enough to discourage participation in the auction by individuals or entities that do not de facto intend to implement renewable energy projects. At the same time, guarantees should not be excessively high, where they become a barrier for renewable energy project developers in terms of participating in the tenders.
Benefits Arising from the Proposed Changes
First, increasing investments in the field of electricity produced from renewable sources, which will encourage financing institutions to provide financial support for the implementation of such projects.
Second, attracting a larger number of potential investors, who will want to benefit from the support scheme for the production of electricity from renewable sources.
Third, the establishment of clear and unambiguous contractual conditions, which will ensure the stability and long-term financial viability of the eligible producers, which will also lead to the reduction of the financing costs of renewable energy projects.
And fourth: improving the degree of implementation of renewable energy projects, which will help the government avoid the need to organize repeated tenders.
Against this background, the overall aim of these amendments is to increase the confidence of potential international and private investors in the energy sector, which would support the overall development of the energy system in Moldova.
By Sorin Dolea, Managing Attorney, and Alina Chirciu, Legal Intern, Dolea & Co.
This article was originally published in Issue 10.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.