The energy sector in CEE has undergone unprecedented transformation since the beginning of Russia’s full-scale invasion of Ukraine in 2022, forcing governments and energy companies to align their economies, businesses, and strategies with energy security objectives, transforming energy landscapes, and keeping legal teams extremely busy. Law firms have found themselves at the center of energy market changes and the renewables revolution that shows no signs of slowing.
Indeed, our CEE offices have seen an explosive growth in renewable energy projects, particularly in Poland, Romania, Bulgaria, and Hungary. The first two are the champions in terms of large-scale renewable transactions, partly due to the relative stability of their electricity markets and investors’ interest in renewable energy auctions/capacity market schemes in Poland and a fresh CfD scheme in Romania. Both are also looking to develop massive offshore wind energy sectors.
Corporations have to comply and follow suit with the EU’s substantial drive to lessen its dependence on fossil fuels and to decarbonize various sectors of the bloc’s economy. As a result, power purchase agreements (PPAs) for the offtake of electricity by corporates are gaining traction in the region. With feed-in tariffs and other forms of state support schemes for renewables phasing out, corporate PPAs are now considered to be one of the key ingredients for bankability and financing of renewable energy projects, allowing to hedge the electricity prices for consumers and de-risk the projects’ cashflows for their sponsors and financing banks.
The activity in the renewable energy sector in CEE, in turn, generated intense demand for local and cross-border M&A and project or corporate finance advice, with investors acquiring projects at the development or operational stages and seeking corporate or bank debt to fund or refinance substantial portfolios across the CEE region.
However, due to the intermittency of renewable energy sources, wind and solar plants need to be balanced by a mix of more dispatchable types of generation that exist and fit a particular market. Several large-scale combined cycle gas turbine power plant projects are underway or planned in Hungary and Poland. The latter is also focusing on cogeneration combined heat and power projects. In Ukraine, we are focusing on building a new decentralized energy system away from large, concentrated gigawatt-sized power plants. It will be based on smaller distributed gas-generation, biomass-fired cogeneration plants, and battery storage.
Energy storage has emerged as a new type of business in Poland, Romania, Bulgaria, and Ukraine, leading to a new legal discipline. We had to learn a lot from our colleagues in more mature jurisdictions like the UK and Germany, but these days, terms like BESS “tolling” or “optimization” agreements no longer surprise us in CEE.
Data centres, often compared to small towns in terms of their energy consumption, are rapidly multiplying in CEE markets. Much like in Western Europe, CEE data centres are increasingly targeting carbon neutrality and aiming to offset their consumption with as much renewable energy as possible, leading to even more PPA mandates.
CEE is ramping up investments into sustainable biofuels and biogases, driven by both policy targets and local feedstock availability. Poland leads the way in biogas plants, Ukraine in biomethane ones.
We are also seeing a nuclear renaissance with the clients’ nuclear projects in Poland and Romania. The Czech Republic also recently took some steps to expand its nuclear program. Almost all CEE countries are actively exploring the potential of small modular reactors (SMRs), but we have yet to see the first SMR projects formally launch construction in Europe.
To our regret, we are seeing less activity in the upstream oil and gas sector in the region, but it is still considered to be key for energy security reasons, as many CEE countries are net importers of natural gas and oil. New upstream oil and gas projects have been launched in mature oil and gas provinces in Romania, Poland, Ukraine, and Bulgaria. Poland’s Wolin East 1 discovery in the Baltic Sea is one of the most significant new oil and gas finds in Europe in the past decade and marks a milestone for Polish upstream ambitions and energy security. There were also some new offshore oil and gas projects or discoveries on the Black Sea shelf in Bulgaria, Romania, and Turkiye. Major infrastructure projects have been launched to diversify supply and enhance energy security in CEE – Poland has expanded its LNG terminal in Swinoujscie and is developing a new Floating Storage Regasification Unit in Gdansk.
The European Union’s Critical Raw Materials Act and strategy to secure critical minerals are essential for the energy transition, digitalization, and advanced manufacturing in the region. The EU selected 47 strategic critical minerals projects, with nine located in CEE. Therefore, Eastern Europe may be emerging as a new hotspot for mining.
In my view, CEE energy markets show no signs of slowing down, so law firms can expect continued and robust client demand for transactional and regulatory support for energy ambitions in the region.
By Vitaliy Radchenko, Managing Partner, CMS Ukraine
This article was originally published in Issue 12.7 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
