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News 20111213 risks

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News 20111213 risks

News 20111213 risks

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  • 1. News December 13th , 2011 Eng. Paul Keisch Page 1 Alternative energies, a bet with many risks Who concerns the alternative energy investment as the new El Dorado overlook at least one detail: there are no miracles in business. Or are there, but the short term. The fact that Ernst & Young places Romania on an honorable 13th place in a European ranking of alternative energy potential for each country could be a strong argument for investors, apparently only. Because alternative energy field is one of very few certainties (read "green certificates", those incentives for green energy production) and with many issues: legal, educating the market players alike the preparation of regulating authorities. Even what is considered to be a constant, the present climate (which is in a heating process) may on a long time horizon to change. In late November, Forbes Power Breakfast debate conducted in partnership with Erste Private Banking, Private Financial Service’s division of BCR, tried to answer the question: is alternative energy the new El Dorado’s investment of Romania? The event was attended by contractors, consultants, lawyers, bankers and analysts in the field. For some participants the answer is positive – and we mean those who have already invested in this sector. Corneliu Pascu, owner of Iridex, founded a business that capitalizes biomass – was among the first in Romania. In turn, Jean Valvis believe that for Romania, energy from biomass "is the future". For Romania, "biomass development is a strategic option," says Valvis, after creating the brands Dorna and LaDorna, two of the most famous local brands of mineral water market and dairy, the sale of which won about €120 million, are now trying to bring up other businesses in the area of wine, agriculture and again, mineral waters. Share of biomass energy obtained in Romania, according to figures published by Transelectrica, the first 5 months of 2011, is only 0.119% of the total produced energy. Which is very little compared to wind turbines that, out of about 680 MWh (the same period), provided 84% of the total. Andrei Dîngă, co-owner and founder of the largest wind park in Romania, located in Dobrogea, doesn’t deny the fact that investment in wind yet is still in the return on investment phase (over 80% of costs). But he thinks "it isn’t likely that alternative energy will become a bubble" as the real estate.
  • 2. News December 13th , 2011 Eng. Paul Keisch Page 2 30% Thermal Deficit Note that, by the opinion of the European Commission's support scheme for renewable energy, a green certificate is given for each MWh produced and delivered in the national energy system. Valvis has also figures: Romania has about 30% thermal deficit, 2 million hectares still not worked, i.e. 15% of arable land, where biomass can be produced which costs 1.5–2 times cheaper than traditional energy. Regarding green certificates (alternative energy producers receive them and traditional energy producers are obliged to buy them) this is a subject of dispute. Dinu Patriciu, the richest Romanian, isn’t a supporter of them, though he has invested in this sector. According to Patriciu "renewables have created a bubble by subsidizing them. Research and development in the field should not be subsidized". Marius Cristescu, co-founder of Bega group of companies in Timişoara, is an investor in geothermal energy and also produces engines for wind turbines in Faur and by Bega Electromotor. He intends to develop solar parks in the near future on land he owns. He has contracts for geothermal drilling in Germany (by Dafora, as a minority shareholder). "Thermal energy has huge potential in Romania, only if a well would be drilled for thermal energy, the vast majority of cities in the country can solve the heat problem. In addition, it’d not require special licenses for drilling", says Cristescu. He sees a solution in the development of hydro energy. It should, in his opinion, be upgraded to operate at higher parameters. "With investment of €3 – €4 billion we’d not need energy imports," he adds. He has invested in geothermal, because it is a completely unused source. But a change of licensing regime, at least for this type of alternative energy, is absolutely necessary for geothermal energy production to be stimulated. "We can dig in Germany, but we need licenses in Romania", says Bega Group owner. The problem is how natural resources are licensed in Romania, and that "it takes 2 years to get a license, throws off an entire business strategy that involves both entrepreneurs and funders", added Gabriela Cacerea, a partner at the law firm NNDKP. For example, IFC - World Bank division, support such projects in Romania, states Ana Maria Mihăescu, head of IFC's mission in Romania. Golden Age of GAS For Dinu Patriciu, President DP Holding, long-term viability of these investments (except sapropelic mud – deposits resulting from decomposition of marine organisms) is the real problem. "I earnestly advise you not to put in it", daunting warns Dinu Patriciu. That although he has invested in 2 branches of alternative energies as well as 2 companies that produce propellers for wind turbines. He continues: "It’s fashionable and like any fashion, will set and you’ll certainly lose the invested money". He recommends investors to liquidize holdings as quickly. On the other hand, he believes in soil and sea depths there are unexplored resources that would deserve rather full attention: gas and sapropelic mud."We are in the golden age of gas", said Patriciu. The legislation and regulation section has also many drawbacks, starting with waiting period for license obtaining (even 2 years in some cases) to poor preparation of state officials. "The legislative framework should be clear, simple and quick to apply", says Gabriela Cacerea, specialist of the law firm Nestor Nestor Diculescu Kingston Petersen (NNDKP) in alternative energy sector.
  • 3. News December 13th , 2011 Eng. Paul Keisch Page 3 "The existing framework has nothing to do with field reality and does not take account of renewable energy projects specificity", adds Cacerea. To this, add the incompetence of civil servants related to the field. "You must struggle to bring existing legislation arguments to convince them", says Cătălin Micu, specialist of the law firm Zamfirescu Racoţi Predoiu on energy. Lack of legislative and conceptual skills impedes transactions development and thus the field. Marius Cristescu says that because of that "Romania cannot sell energy projects, such as SHP". Valeriu Binig, energy specialist of consultancy company Deloitte Romania, insists on infrastructure issues that alternative energies have throughout Europe: it is inability of existing networks to retrieve all energy production capacities announced by investors. And for network upgrades would be required very large amounts – impossible to obtain during the crisis. Alternative Investment According to General Manager Electric Romania, Carmen Neagu, - equipment supplier for this industry - what is missing is a new conception of the Romanian state regarding the alternative energy sector. "Romania urgently needs a different type of energy market mechanism and a long- term energy strategy, which don’t exist now", says Carmen Neagu. Eugen Voicu, president of investment company Certinvest, is somewhat more optimistic about the profitability of investments in alternative energy, "especially in solar and biomass, strategically speaking", he points. However, his optimism is limited and recognizes that he’s planning an exit from the sector over the medium term "to reduce risks." Analyzing, the alternative energy should be considered only as an alternative investment. In other words, this type of investment makes sense in a diversified portfolio. It’s a cash holders’ advice (only assets of BCR private clients, according to Division Director, Sorin Mititelu, totaling nearly €1 billion) that should take into account a verified fact: there are no miracles in business.

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