Romania's Cernavodă Nuclear Power Plant Looking For New Investors As Partnership With China General Nuclear Power Corporation Terminated

• Published date: 08 July 2020
• Subject Matter: Government, Public Sector, Energy and Natural Resources, Energy Law, Oil, Gas & Electricity, Government Contracts, Procurement & PPP
• Law Firm: Gowling WLG
• Author: Mr Ahab Adbel-Aziz, Laura Van Soelen and Magdelana Hanebach

Romanian authorities unceremoniously ended the partnership with the previously selected state-owned Chinese company, China General Nuclear Power Corporation, to develop Units 3 and 4 of the Cernavodă Nuclear Power Plant ('C 3&4'). The decision was formalised on 12 June 2020 at the shareholders' general meeting of Romania's state-owned nuclear company.

This development comes at a time of important amendments to Romania's energy legislative framework. After a prolonged hiatus, there is momentum for long term bilateral power purchase agreements, as electricity producers can now conclude such agreements for electricity generated by production capacities commissioned after 1 June 2020. This may assist with the financing potential of new capacities, provided other obstacles are also overcome.

Further, Romania is contemplating a Contracts for Difference support scheme meant to encourage new investments in power generation capacities. The scheme is intended to set the stage for a wide range of new investments, including nuclear, but raises concerns in the latter context.

In this article, we review the history and status of C 3&4, and discuss the nuclear project financing challenges that, although not unique to the Romanian context, have proven insurmountable to date.

Background on the power sector in Romania

Romania is no stranger to the desire to achieve energy independence, aligning itself with policy objectives of the European Union; a desire intensified by Romania's geographical location and geopolitical considerations. For this and other reasons, the energy sector is more important than ever and is viewed by Romanian authorities as a catalyst for economic recovery in the aftermath of the Covid-19 pandemic. To this end, the Romanian government is taking measures aimed at attracting investment in new electricity generation capacity.

Romania benefits from a balanced electricity mix, combining traditional fuels (oil, natural gas, coal and nuclear) with renewable energy sources (mainly hydro, wind and solar). According to official data as of 28 May 2020,¹ Romania has an installed power generation capacity of over 20,000 MW (mostly dispatchable) with hydro (6,693 MW, 32.4% of total), coal (4,787 MW, 23.2% of total), hydrocarbons (3,210 MW, 15.5% of total), wind (3,023 MW, 14.6% of total), nuclear (1,413 MW, 6.8% of total) and solar (1,398 MW, 6.8% of total) accounting for more than 99% of the generation capacity.

The largest power producers in Romania are state-owned, generally not diversified in terms of production sources. They include juggernaut hydropower producer Hidroelectrica SA, nuclear power producer Societatea Națională Nuclearelectrica SA ('SNN')² and coal power producer CE Oltenia SA. Private investment generally has been directed toward power generation capacity from renewable energy sources (mainly wind and solar during the 2010-2016 period, as a result of a green certificates support scheme implemented by the state). This stream eventually dried up as the state drastically cut - what some have called an over-generous support scheme - which pushed power bills higher for end consumers, especially businesses in electricity intensive sectors.

There are significant opportunities for investment in the sector, as current infrastructure is a relic: the 20,000 MW installed capacity includes multiple coal-fired power plants that generate very expensive electricity because of environmental compliance costs, as well as other capacities that have either exceeded or are due to reach end-of-life in the near future.

As the days of coal seem to be numbered, nuclear is a logical choice going forward. Nonetheless, capital-intensive investments are also necessary to modernise the power transmission and distribution systems and enhance the flexibility and interconnection capacity of the national electricity grid.

Background on the Cernavodă Nuclear Power Plant

Romania's nuclear program was launched in 1968 during the communist era in what was to become the Cernavodă Nuclear Power Plant. In 1978, the Romanian and Canadian Governments agreed to cooperate in the field of peaceful uses of nuclear energy. A joint team prepared a feasibility study that supported the implementation in Romania of Atomic Energy of Canada Limited's ('AECL') CANDU 6 nuclear reactor design. Subsequently, ROMENERGO, the Romanian company dedicated to international trade in the power sector, concluded a CANDU 6 intellectual property license agreement with AECL as well as other contracts for the provision of engineering and technical services, equipment and materials procurement for the nuclear island for Cernavodă Unit 1 ('C 1'). In 1981, the contract for the conventional part was signed with...