How will CfD auctions help finance Romania’s renewable build-out?

Auctions, strikes, and the road to financed projects

When an investor sits at the financing table for a new Romanian solar park in 2025, the conversation rarely starts with panels or inverters – it starts with a single contractual question: which CfD (Contract for Difference) will back the project, and how will it be settled?

That question matters because a CfD can turn a project’s revenue stream from a rollercoaster into a predictable annuity. In Romania today, CfDs are no longer a policy concept on paper: they are live auctions, legal rules, and concrete contracts that decide whether projects get financed, built, and connected, or stall before financial close.

What already happened in Romania (and why it matters)

• The Romanian government put the legal framework for CfDs in place with Government Decision No. 318/2024 (published April 2024). That decision sets out the general rules for a CfD support mechanism for low-carbon technologies.
• The European Commission (EC) cleared a state-aid envelope of €3 billion for Romania’s CfD scheme (decision issued March 2024), effectively unlocking funding for auctions that target new onshore wind and solar projects. That EU approval was the green light for the program’s first rounds.
• Auctions are administered by the designated CfD operator CNTEE Transelectrica S.A. (the National Transmission System Operator), with OPCOM (the Romanian power market operator) acting as CfD counterparty for ad-hoc contracts. The first auction round took place in 2024; the second round’s indicative calendar was updated on 31 July 2025, with tender and contract stages scheduled across mid-2025.

Put simply: Romania has the legal tools, EU backing, a public operator, and an auction timetable – so CfDs are moving from “possible policy” to actual contracts that alter project bankability and investor decisions.

How a CfD actually works

A CfD is a two-way financial settlement that guarantees a strike price to the generator:

• If the market reference price (usually the day-ahead price) is below the strike, the CfD counterparty tops up the generator by paying the difference.
• If the market price is above the strike, the generator pays the excess back to the CfD counterparty.
• Crucially, the generator still sells electricity into the market as usual; the CfD simply swaps volatile spot exposure for predictable cashflows. Two technical choices change everything: (1) which market index is used for settlement and (2) whether the CfD settles on actual metered production or an agreed baseline – both create different, quantifiable risks.

A concrete, realistic example

Assume a PV project with expected annual production of 15.000 MWh (≈10 MW capacity operating factor). The CfD strike is 300 RON/MWh; the average day-ahead price is 250 RON/MWh.

• Gap = 50 RON/MWh → CfD top-up = 50 × 15.000 = 750.000 RON/year to the producer.
• If market price rose to 320 RON/MWh, producer would pay 20 × 15.000 = 300.000 RON/year back to the counterparty.

That math is straightforward. The hard work is modeling the when and where of those prices, the timing of settlements, and the contract clauses that assign curtailment or imbalance risk.

Why Romania went for CfDs – policy goals and the EU angle

Ioannis Kalapodas, Head of European Energy’s Romanian office, framed it succinctly:

The CfD scheme provides long-term price stability and financial certainty in a volatile market and is crucial to accelerate renewable investment.

The quote captures the scheme’s intention: unlock capital for immediate build-out while aiming to protect consumers from excessive short-term subsidy exposure.

In short: the government wanted a tool that (a) attracts finance to build capacity fast, (b) reduces merchant (spot-price) exposure for projects, and (c) does so within an EU-approved fiscal envelope.

The contract details that will decide whether CfDs deliver or disappoint

CfDs are not magic. A well-designed CfD makes projects cheap to finance; a poorly designed CfD creates hidden costs, basis risk, and political friction. Here are the levers to watch.

1. Reference price & basis risk

Which market price is the CfD tied to? Day-ahead zonal prices? A hub price? If your plant sells its power in a different market node than the CfD index, basis risk (the mismatch between the price you actually receive and the index) can be substantial. Lenders will ask: who absorbs it? If developers do, bankability is reduced. If the public counterparty attempts to absorb it, the fiscal cost can rise.

Why it matters: basis risk can wipe out the perceived stability CfDs promise unless explicitly modeled and mitigated.

2. Volume definition, curtailment, and balancing

Does the CfD settle on actual metered production or on a contracted/expected volume? If a plant is curtailed by the Transmission System Operator (TSO) or faces grid constraints, who bears the lost revenue? The contract needs clear rules for curtailment compensation and ties to balancing and imbalance charges.

Why it matters: curtailment is a real risk for new builds near constrained grid points – if the developer bears it, lenders adjust warranties and rates.

3. Duration, indexation, and inflation

Longer contracts (10–15 years or more) reduce risk but increase counterparty exposure. Indexation (Consumer Price Index – CPI or currency) influences whether the strike remains attractive in real terms.

Why it matters: shorter or poorly indexed CfDs may not materially lower the cost of capital for developers; overly generous indexing can create large fiscal liabilities.

4. Counterparty credit & guarantees

Who guarantees the top-ups? Romania has designated CNTEE Transelectrica as operator and OPCOM as counterparty for some ad-hoc arrangements, but the ultimate credit profile (state-backed vs special-purpose vehicle) dictates lenders’ comfort and the pricing of debt.

Why it matters: lenders typically require strong counterparty credit or specific escrow/guarantee mechanisms before they accept CfD-backed cashflows.

5. Change-in-law and termination clauses

What happens if a law changes or new taxes are introduced? Who pays if the CfD is terminated early? The presence (or absence) of robust change-in-law and termination protections can change the interest spread on project debt.

Who wins, who loses – a pragmatic distributional view

• Likely winners (if design is sound): developers (bankability improves), debt providers (predictable cashflows), and corporate buyers using virtual CfDs / Virtual Power Purchase Agreements (VPPAs) as hedges.
• Potentially exposed parties: taxpayers and consumers if strikes diverge from fundamentals; small market players if auction design favours incumbents; grid operators if curtailment rules shift unexpected costs.

The policy aim – accelerate capacity while controlling fiscal and consumer impact – forces a balance between competing interests. Romania’s public auctions, €3bn envelope, and chosen operators aim to manage that balance, but implementation details will tip outcomes.

Three scenarios for Romania

1) Optimistic path: clean design + active risk management

Auctions run cleanly; index choice minimises basis risk; curtailment rules are fair; the state offers clear escrow/guarantee mechanisms. Result: lower cost of capital, faster financing, and rapid build-out with limited short-term subsidy shocks.

2) Middle path: partial gains, operational friction

Auctions bring capacity but pockets of basis risk and curtailment disputes require ad-hoc credit enhancements. Result: slower but steady build-out; some projects need extra liquidity support.

3) Pessimistic path: design flaws & fiscal strain

Index choices and counterparty weakness create mismatches and litigation; financing costs rise and fewer projects reach financial close. Result: political backlash, paused auctions, and expensive retrofits to the scheme.

Romania’s first auction in 2024 and the updated 2025 calendar are early indicators – the outcomes of these rounds will signal which path the market is heading down.

Lessons from elsewhere – what Romania can borrow (and adapt)

Countries such as the UK have used auctioned CfDs to drive offshore wind and scale up renewables, and many corporate buyers use virtual CfDs / VPPAs to hedge price exposure. The lesson is not to copy rules verbatim, but to learn the implementation patterns: clear auction rules, transparent strike-discovery, robust counterparty guarantees, and mechanisms for handling basis/balancing issues.

Romania’s context – transmission constraints, local market liquidity, and the state-backed envelope – changes the arithmetic, so adaptation is key. (For Romania, the EU’s €3bn approval and recent auctions provide an early testbed.)

For Romania to successfully build and integrate its renewable energy capacity, developers, investors, energy producers, grid operators, and policy makers must collaborate effectively. 

Developers and investors initiate and fund projects, while energy producers and grid operators ensure the smooth delivery of clean energy. Meanwhile, policymakers establish the regulatory framework that supports this progress. The success of Romania’s renewable energy growth depends on how these groups make the decisions.

With careful implementation, Romania can become a regional model, demonstrating how well-designed policies can transform the renewable energy sector into a powerful, sustainable, and competitive economic driver.

Glossary of Key Terms

1. Counterparty
   The entity that guarantees the payment of the difference between the market price and the CfD price. This is typically the government or a utility.
2. Curtailment
   The reduction in energy generation due to external factors, such as grid limitations or market conditions. The CfD may specify who bears the financial responsibility for lost output during curtailment.
   
3. Reference Index
   The market price used to compare against the CfD price. This is usually the day-ahead market price for electricity.
   
4. Bankability
   The ability of a project to attract financing based on its revenue certainty. CfDs help make projects more bankable by guaranteeing stable revenues.
   
5. Financial Close
   The point at which all financing for a project is secured, and construction can begin. The project is considered fully funded at this stage.
   
6. TSO (Transmission System Operator)
   An entity responsible for operating, maintaining, and expanding the electricity transmission network. In Romania, CNTEE Transelectrica is the designated TSO.
   
7. CPI (Consumer Price Index)
   An economic indicator that measures changes in the price level of a basket of consumer goods and services. In CfD contracts, CPI is often used for indexation to adjust the CfD price in line with inflation.

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