SOFIA (Bulgaria), March 16 (SeeNews) – U.S.-based Continental Wind Partners, which has a project portfolio spanning several Southeast European countries, fears regulatory setbacks could scare off wind power investors eyeing the potential of Bulgaria and Serbia while leaving projects there that have already broken ground dangling, senior company officials said.
The project that Continental Wind Partners (CWP) is developing in Serbia will comprise of a 170 megawatt (MW) first stage to be executed in the municipality of Kovin with a second stage of 130 MW to be executed in the municipality of Panchevo, company chairman Mark Crandall told SeeNews in a recent conference call.
“The first stage should be permitted in less than one year, the second will trail by about 6-9 months.”
The company’s first project in Bulgaria is in Mirovci, just west of Varna. The wind farm will have a capacity of about 225 MW with a project cost of about 350 million euro ($488.6 million). “It is well advanced, seems not to face any large environmental hurdles, and we expect the planning cycle to be completed on time unless the new legislation derails our willingness to invest,” Crandall said.
CWP also is building a 120 MW wind park in Lika, in central Croatia, with a likely investment cost of 185 million euro. “It is far along in engineering, and major milestones are expected this year since we have completed the monitoring required for getting environmental approvals and the location permit, which is the immediate precursor to the building permit,” Crandall said.
All building permits are in place for the company’s Independenta wind park in Romania. The project has a grid connection agreement that was recently signed with the country’s power grid operator Transelectrica and it is essentially ready to build.
There is no shortage of renewables opportunities in Southeast Europe, where CWP is ready to explore options also in Bosnia, Montenegro, Macedonia, or Greece, but some of the governments in the region are having trouble putting in place the right regulatory environment.
Renewable energy regulation is a very complicated thing for a government to do well, Crandall said.
Faced with the common energy policy guidelines set by the European Union, countries like Germany and France have simply decided to support as many green energy projects as possible, even if that means overshooting their renewables targets. That is because they can afford to build out their grid infrastructure, Crandall noted.
“The regulatory difficulties in the newer bloc members and in EU hopefuls like Serbia stem mainly from concerns there about managing budget targets so they don’t want to overdo it, they want to do the exact amount of renewables.”
CROATIA HIGHLY FINANCEABLE
In Western countries, it is relatively straightforward to get 80% bank financing for wind projects so the sum of money that you will have to invest as equity is relatively small, Crandall said. “The money is easy to find if the regulatory regime is well set up. This is why legislation is so critical.”
He pointed to Croatia as a good example of an adequate legislative framework in the region so wind projects there are financeable without a problem.
“The government has made a commitment to connect to the grid everybody that wants to connect. They have said that as a target they would like a maximum of 1,200 MW of wind but we are so far away from that in real life that it is not really relevant.”
The only challenging thing that Crandall sees in Croatia is that the level at which the wind power feed-in tariff is set there is quite low compared to the amount of wind in the country.
Croatia pays 0.64 kuna ($0.12/0.09 euro) per kilowatthour (kWh) for electricity generated by wind farms with a capacity of up to and including 1.0 MW and 0.65 kuna/kWh for the output of bigger installations. The tariff for the output of solar power plants could reach up to 3.40 kuna/kWh.
The contracts that Croatia’s power utility HEP signs for the purchase of electricity produced by local plants using renewable energy sources are concluded for a period of 12 years.
SERBIA NEEDS TO FILL LEGISLATIVE GAP
Except for a decree that expires in 2012, Crandall said no framework exits in Serbia to do renewables but the Balkan country is on its way to remedy that, having recently fielded for public discussion a new energy bill.
The bill is now about to be circulated among the ministries for feedback, a process that will likely be complicated by a recent decision to merge the ministries of energy and infrastructure.
Estimates of the Serbian Wind Energy Association (SEWEA), where Crandall is among the co-founders, show that the country’s wind resources allow for wind farms of least 1,300 MW of installed capacity.
One critical flaw of the draft bill, Crandall said, is that it stipulates wind power developers can sign power purchase agreements only after they wrap up their project and only if the total wind capacity in the country is less than 450 MW.
SEWEA has proposed that developers get a three year 'reservation' on the ability to have a power purchase agreement and that the government raise the limit to 1,000 MW.
According to SEWEA, Serbia is one of just three countries in Europe that are yet to bring on stream a single wind generator.
BULGARIA MAY GET REGULATORY OVERHAUL WRONG
There is a framework under the existing Bulgarian legislation that, broadly speaking, works but in its recent rush to align domestic renewables rules to EU law while making it easier for the authorities to distinguish between serious and dodgy developers, the government has made some slight mistakes in how they are trying to go about it, Crandall said.
One of the main sticking points in the new legislation, which has been passed on first reading by parliament, is that it requires renewables project developers to write upfront a check of 25,000 euro per installed megawatt at the time of the signing of a preliminary grid connection agreement, a payment that is meant to help the respective distribution company finance the construction of the necessary link-up infrastructure.
The upfront payments are required only for renewables and do not apply to developers building nuclear or thermal power facilities which goes against the spirit of the EU directive that renewables must be given an equal chance, Continental Wind Bulgaria director Dimitar Enchev said.
According to Crandall, the EU is very unlikely to accept that. “It is almost a direct subsidy of the opposite of what the bloc is trying to do.”
In his view, the whole thing arises from the underlying problem that Bulgaria doesn’t have a hugely rich population and the investments that are needed to be made in the grid to connect large amounts of renewables are not forthcoming. “As soon as you try to allocate a scarce resource instead of trying to make this scarce resource more plentiful by spending enough money so that everybody can connect, then you have those allocation issues.
And although I applaud the government for attempting to address them, I think they way they have chosen to address will dissuade people from participating in the sector. I simply do not see even large companies that would want to build wind farms if to begin the process you have to write a non-refundable check with six zeros.’
Enchev also points out that since grid operators in Bulgaria are overstretched as it is and often hand over the link-up infrastructure with delays, most wind farm developers would like to build the connection themselves, meaning they would pay for it anyway but it would be quicker and would give them better control of the process.
Another two major failings of the proposed amendments is that they do not give a free pass to projects that are at some stage of their development cycle and make no provisions for the feed-in tariff afforded to renewables to be adjusted for inflation.
“You get a fixed price for 15 years which, for a country like Bulgaria, the poorest EU member state, is not a sensible way to set a preferential tariff,” Enchev said. Bulgarians are likely to be getting richer as the country catches up with the rest of the bloc so it would make more sense to charge them less now but more later.
Under the current rules, renewables tariffs are linked to electricity prices that track inflation.
Enchev is supportive of the drive to clean up the system but is apprehensive that the new legislation will raise the bar too high not only for the small investors but for the brawnier players as well. “I don’t think we are that far away from those issues getting fixed. I think that the ministry and parliament will realise the risk that these issues pose and hopefully they will fix them.”
(1 euro=7.3841 Croatian kuna)
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