News December 13th
Eng. Paul Keisch Page 1
Alternative energies, a bet with many risks
Who concerns the
investment as the
new El Dorado
overlook at least
one detail: there
are no miracles in
business. Or are
there, but the
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.
News December 13th
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
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
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
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.
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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.
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.