Extended deadline for financial guarantees in the E-RES connection process: a blessing or a double-edged sword?

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The Romanian Energy Regulatory Authority (ANRE) announced an important amendment to the rules for connecting the new power generation capacities to the public grid: the deadline for setting-up the financial guarantee was extended from 3 to 12 months.

Currently, if the grid connection permit (ATR) conditions the connection of the envisaged project by the performance of grid reinforcement works, the investor must issue a financial guarantee within 3 months from the ATR issuance. Observing such deadline is of outmost importance, as ATR ceases to be valid if the deadline is exceeded.

The reason for imposing this obligation in the first place was to eliminate situations where the grid capacity is being blocked by developers with no financial capability for implementing the projects. Such legislative solution was based also on the experience of the first wave of renewables when, out of almost 30,000 MW of ATRs issued, only approximately 3,000 MW were actually built.

Therefore, this measure has an overall positive impact on the grid connection process.

However, sometimes in practice, meeting the 3-months term raised challenges also for investors committed and financially capable to implement the projects.    

Thus, the wording of the guarantee must be agreed beforehand both with the issuing bank and with the grid operator, which may be a time-consuming process. In some cases, we received different views on the wording from various departments of the same operator, which delayed even more the process. Also, if the bank guarantee is issued by a local bank based on a counter-guarantee of a foreign bank, such internal bank process triggers even more delays.  

In other cases, if extensive deadlines for grid reinforcement works are being estimated in the ATR (as it becomes more and more the case), the investors prefer to wait with the execution of the connection agreement towards the end of the maximum allowed period (12 months from ATR issuance), to have more visibility on the grid reinforcement deadlines to be undertaken by the operators. Or the 3-months deadline imposes a financial commitment much earlier. Also, such financial commitment can be substantial since it can reach up to 20% of the connection tariff (the exact percentage being decided by the grid operator through the ATR).

On a different note, correlating the financial guarantee deadline with that of the connection agreement execution eliminates the existing uncertainties regarding the enforcement of the guarantee: can it be enforced only if the investors (i) do not submit to the operator the application/documentation for the connection agreement (as it is specified by connection rules) or also (ii) if, after having submitted such documentation, the investor does not actually sign the connection agreement (which is a subsequent step, occurring after having agreed with the grid operator the wording of the connection agreement).

From the above perspective, the extension may be a blessing. On the other hand, such a generous deadline may artificially create pressure on the grid capacity due to projects that will never see sun light. This, in its turn, will increase the grid reinforcement requirements and costs in future ATRs. In fact, such artificial blockage of grid capacity has been for some time now one of the main complaints in the industry.  

As regards the timeline for the application of the new provisions, ANRE order is expected to be published shortly in the Official Gazette and will enter into force (most probably) upon its publication.

Also, as ANRE has positively accustomed us (unlike other legislative authorities), specific provisions will be inserted in the order addressing the impact of the new rules on ongoing applications. Hence, the extended deadline will apply not only to future connection applications, but also to connection applications that are ongoing. Such express provisions are highly praised, leaving out any contradictory interpretation regarding its applicability.