B.E.L.I.E.V.E. Bound by Excellence, as Links in a Chain, we create Innovation from Enthusiasm and Value from Expertise.

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1 B.E.L.I.E.V.E. Bound by Excellence, as Links in a Chain, we create Innovation from Enthusiasm and Value from Expertise.

2 A legal perspective on the developments in the wind energy sector in Romania Delia Vasiliu September 25, 2014 Bound by Excellence, as Links in a Chain, we create Innovation from Enthusiasm and Value from Expertise.

3 CONTENTS The Romanian energy sector Developments in the Romanian legislation applicable to the wind energy sector Business environment (consequences, expectations, further steps)

4 THE ROMANIAN ENERGY SECTOR Operational data Sem. I 2014 Domestic net production TWh Domestic net consumption TWh Average hourly net consumption - 6,097 MWh Installed net capacity in renewable energy 3,718 MW Import of electricity 0,8% Electricity production breakdown Sem. I 2014 Hydro 30% Coal 25.5% Nuclear 17.5% Natural gas 14% Renewable 13%

5 THE ROMANIAN ENERGY SECTOR Source: National Statistics Institute, 2013

6 ELECTRICITY PRODUCTION Total production 7583 MW - Production in real time on :36 Hydro 1953 MW % Coal 1940 MW % Wind 1562 MW % Nuclear 1386 MW % Hydrocarbons 512 MW % Solar 166 MW % Biomass 64 MW %

7 MAP OF WIND ENERGY PROJECTS

8 RELEVANT LEGISLATION a system of mandatory quotas combined with the trading of green certificates was first implemented in Romania 2008-first major amendment -Law No. 220/2008 for establishing the promotion system for the production of energy from renewable energy sources (E-RES) July the promotion system under Law 220/2008 was implemented, following the EC s approval of the state aid scheme December as the EC s approval was conditional -Law 220/2008 was republishedand applicable from Dec until July 2013 July 2013 several important amendments to the scheme

9 RELEVANT LEGISLATION The promotion system applicable to wind power plants until July 2013 Incentive: a number of 2 green certificates (GCs) were granted to producers of energy from wind power plants for each MWhof energy produced and delivered into the grid, until 2017 and 1 GC/MWh starting with 2018 System:The GCs were issued to producers by the TSO and certain entities mainly suppliers of electricity to end consumers had the obligation to purchase every year a specific number of GCs set by the Romanian Energy Regulatory Authority (ANRE), based on a mandatory quota pre-determined for each year until 2020

10 RELEVANT LEGISLATION Applicability period: the promotion system required for power plants to be put into operation by the end of 2016; new wind power plants would benefit from the promotion system for 15 years Trading of the GCs: the GCs were traded on the centralized GC market operated by OPCOM (operator of the centralized electricity related markets) or through bilateral contracts, with the observance of the minimum and maximum GC trading values (EUR 27 and EUR 55) provided by Law 220/2008 for the period ; the trading values are indexed yearly by ANRE (EUROSTAT)

11 RELEVANT LEGISLATION The promotion system applicable to wind power plants starting with July 2013 Postponement of the trading of part of the GCs: during July 1, 2013 March 31, 2017, 1 GC out of the 2 GCs is not tradable; the deferred GCs will be tradable again starting January 1, 2018 affecting the producers accredited by ANRE prior to December 31, 2013 Reduction of the GCs number: the number of GCs was reduced to 1.5 GCs/MWhuntil 2017 and to 0.75 GCs/MWhstarting with 2018, due to overcompensation calculations affecting the producers accredited after January 1, 2014

12 RELEVANT LEGISLATION Exceptions from the applicability of the promotion system e.g. the quantities of electricity delivered by the dispatchable units in excess of the hourly notified quantities of electricity Cancellation of mandatory quotas of E-RES that benefit from the GCs promotion system from 2015 until 2020, the mandatory E-RES annual quota that benefits from the GC promotion system is not pre-determined anymore, but established annually and approved through a Government Dec. Reduced validity period of GCs -from 16 m. down to 12 m. Exemption from the obligation to acquire GCs up to 85% for big industrial consumers Restrictions in trading of GCs -trading of GCs through directly negotiated bilateral agreements is no longer possible

13 RELEVANT LEGISLATION Restrictions on PPAs allowed only to small projects (1 MW) Limitation of the accreditation of RES projects -in the event that the values mentioned in the National Renewable Energy Action Plan are reached, ANRE might cease accreditation Obligation to provide a financial guarantee in view of connecting to the electricity networks guarantee will be lost if the project will not be connected Obligation to cover the costs related to the reinforcement of the transmission and/or distribution grid Fiscal obligations related to special constructions -a tax of 1.5% applicable to special constructions (equipment, underground electric cables, electric stations and electric lines owned by the producer)

14 CONSEQUENCES AND EXPECTATIONS The changes in legislation affected financial models and expectations of developers, operators and financing institutions part of the investors looking to sell the projects Other investors intend to initiate arbitration proceedings against the Romanian State (individually and/or joint actions) Changes of the relevant legislation are expected after the presidential elections (November 2014) Private equity funds and sovereign funds might look to benefit from the current situation on the market Under the current draft of the Romanian Energy Security Strategy and considering the unrest in the region (see Ukraine neighbor country of Romania), wind energy is expected to become a priority for increasing the energy security

15 INVESTMENT ENVIRONMENT One of the most favorable wind conditions in Europe Significant capacities of hydro power facilitate balancing of wind power Renewable projects are priority dispatchers Business friendly environment with 16% flat profit tax Large scale projects developed by experienced independent companies are available Older coal power plants will be phased out

16 CONTACT 75 77, Buzesti St, 5 th floor Bucharest, Tel: delia.vasiliu@pachiu.com office@pachiu.com

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