Bilaterally negotiated Power Purchase Agreements, May 2020

As a direct consequence of the COVID-19 outbreak and the consequent measures implemented by the Romanian State, the economic growth process has experienced a short to medium term slowdown, impacting the labor market and subsequently household income.

Nowadays, the Romanian Government claims that a declining tendency has been noticed regarding wholesale prices for electricity, especially in the short term. This trend follows the basic principle according to which prices are influenced by demand and supply. When supply remains constant, but demand decreases, prices will naturally go down. In our case, the reduction of demand incurred due to the effects of the restrictive measures adopted for limiting the spread of the SARS-CoV-2 Coronavirus.

In order to address this issue, inter alia, the Romanian Government enacted Government Emergency Ordinance no. 74/2020 for the amendment and supplement of the Law on electricity and natural gas no. 123/2012 (“GEO 74/2020”), published in the Romanian Official Gazette no. 416 as of May 19, 2020.

The two main legislative changes generated by GEO 74/2020 are aiming to:

• stimulate investments in new electricity production capacities, with a direct positive impact on the economy and the functioning of the national electricity system in the medium to long term;
• maintain the commitments assumed by Romania towards the European Commission for regulating the electricity market as of January 1, 2021.

Given the above, GEO 74/2020 focuses essentially on regulating the long expected bilaterally negotiated Power Purchase Agreements (“PPAs”), as well as National Energy Regulatory Authority’s (“ANRE”) obligation to regulate the selling prices of electricity delivered by producers to suppliers of last resort.