Priorities for the Romanian national energy strategy, report by Deloitte Romania

Romania does not have an energy strategy adapted to the imperatives of the present period (economic and financial crisis, penetration of renewable energies, new hydrocarbon finds, repositioning in competition of cross-border hydrocarbon infrastructure projects, electricity markets coupling, transposition of the acquis communautaire, mainly the energy-climate change package, etc)

A set of strategic actions has been proposed in the field of electricity, by means of a study commissioned by Transelectrica regarding perspectives of the National Power System. But there is yet no comprehensive document available that would guide the government, the local administrations, the investors, the economic agents in their efforts to align their commercial policy with the sustainable development of the Romanian energy sector.

Among the main challenges to be addressed by such energy strategy, one could quote:

1. Covering the primary energy demand and limitation/confining of import dependency at acceptable levels;

2. Reaching the established national targets according to the EU energy environment legislative package;

3. Reinforcing institutions that would regulate security of supply, energy efficiency, environment impact, and in general would ensure that the EU energy policy pillars are solid in Romania;

Sustainable development of the Romanian energy sector is still a far desiderate. Some present weaknesses, if not timely addressed, will become acute and may lead to major unbalances in the national economy.

Such weaknesses include:

- aging of power generation capacities and weak capabilities of replacing and environmentally retrofitting them;

- lack of attractiveness for private investors in the conventional power generation sector due to the market power of state owned entities;

- a too generous promotion scheme for electricity from renewable energy sources, that may lead to overcapacity in this subsector, thus affecting the stability and safety of operation of the National Power System;

- a weak culture with regard to energy efficiency, linked mainly to the long term policy of utilising the energy sector as an economic and social protection tool, dis-incentivising the economic agents to adopt competitiveness oriented measures and the population to become energy bill conscious;

- the above political line, a constant during the last two decades and more, has transposed into wrong energy price signals, both in the field of natural gas and in the field of hidden cross-subsidies.

Given the general context of the Romanian energy sector, one could identify some priorities that would be necessary to be addressed in the new energy strategy of Romania:

1. In the field of institutional reform and reinforcement: Institutions with authority and competencies in the energy sector need reinforcement regarding:

- Authority – legislation and governmental practice should grant the necessary access to resources (material, human, logistical, etc) and sufficient independence / autonomy in order to fulfil their role;

- Competence – energy sector specific institutions need empowerment through legislation in order to formulate/adopt decisions vitally necessary for the sector and they should be populated with the necessary competencies which allow a good understanding of the imperatives of the present and a good (informed and proportional) regulatory process;

- Reorganisation and creation/reinforcement of new functions to cope with the imperatives of the years to come (regulation of the thermal energy industry, of the nuclear industry, of the renewable energy sector, etc. another example is given by the granting of building permits on the continental shelf of the Black Sea or for the construction of off-shore hydrocarbon pipelines aiming at bringing the latter to the shore);

The case of the former agency for energy conservation is very relevant: it needs repositioning, empowering, legislative and regulatory framework, correct subordination, competence, affiliations, adequate human resources, adequate financial resources;

Romania’s representation in front of EU energy sector institutions seems to need reinforcement in terms of human resources and allocation of supplementary resources, eventually by utilising also the relevant lobby organisations – Romania’s voice should be better heard and Romania’s priorities should be more often on the agenda of European lawmakers.

2. Identification/definition of the primary energy mix and formulation of energy strategy and energy policy options:

- Organisation and clarification of the debate on the unconventional gas resources / reserves in Romania;

- Evaluation of the main infrastructure projects for hydrocarbons (pipelines, terminals, etc) in the region and formulation of correct options for the national primary energy mix;

- Formulation of strategic decisions regarding the future of extraction and utilisation of coal in Romania:

a. Hard coal

b. Lignite

- Correct dimensioning of the subsector of electricity generation using renewable energy sources with the corresponding investment efforts for the system balancing capacities;

- Correct / optimal dimensioning of the usage of renewable energies in Romania’ economy and households, considering the technological evolutions, the local potential, economic aspects and energy demand;



- Continuous evaluation of the progress towards reaching the politically assumed targets of the type 20/20/20;

- Definition of the optimal mixture of power generation capacities in Romania

3. Market reforms:

- Reforming the electricity market in order to meet the general policy objectives:

a. Correct remuneration of security of electricity supply;

b. Elimination of market distortions and promotion of correct / transparent competition;

c. Maintaining the environmental impact within politically and economically acceptable limits;

- Promotion of equity in energy prices, with a correct balance between investors and operators incentivising, protection of consumers interests and fulfilment of fiscal policy of the government:

a. This would include liberalisation of prices for end customers for electricity, gas, thermal energy;

b. This would include a revised policy regarding concessions and taxes with main focus on hydrocarbons;

c. An effort for identification of categories of consumers and of the vulnerable ones should be granted the appropriate resources, given the macro-economical and social implications;

- Integration in the internal energy market of the European Union:

a. Electricity markets coupling;

b. Creation of the framework for natural gas exports in parallel with the alignment of indigenous gas prices at international levels;

c. Monitoring the relevant evolutions of oil and oil products in the EU.

4. Evaluation/assessment of financial resources available for financing

development of the energy sector in Romania:

- Assessment of investment needs for the sector / subsectors:

a. A special attention should be granted to investment in security of energy supply;

b. Participation in the EU effort for identifying innovative financing means for security of energy supply and active promotion of instruments suitable for Romania and the countries in the region;

- The dialogue with strategic investors active in Romania and identification of legislative and regulatory measures for attracting private investment in the sector, as well as of the economic impact of such investment;

- A more active promotion of Public Private Partnerships in the field of infrastructure for energy transportation. For instance the realisatio of oil / gas pipelines from the Black Sea drilling platforms to the shore could be performed in PPP. All these require among others transformation of the legislative and regulatory framework and sometimes work in common with the European Commission in order to address aspects such as state aid, monopolies regulation, competition regulation;

- The results of such analyses could impact also the decisions on privatisation or reorganisation in the sector. As such, building the energy complexes should allow finally the easier access to financing due to the increase of the credibility / creditability of the entities applying for loans – still such entities are created through the merger of some highly indebted companies, brought to the indebtedness limit and who did not solve yet the commitments for modernisation and reduction of environmental impact to the European standards. Similarly, the proposals on listing on various stock exchanges of strategic entities such as Transelectrica, Transgaz, Nuclearelectrica, Hidrolectrica, may have the merit of promoting the capital markets in Romania, but for sure will not solve the problems linked to the major chronic financing deficits of such entities.

5. Continuous promotion of energy efficiency efforts in the country:

- Transposition and implementation of the sector specific acquis communautaire;

- Revigoration and reinforcement of the institutional framework for the regulation and promotion of energy efficiency measures.




The major challenge for the Romanian power system at present is the rethinking and implementation of a perspective plan for the power transmission network which would accommodate the penetration of uncontrollable power generation capacities situated mainly in the South-East of the country. Implementation of such a plan is a huge task not only for Transelectrica but also for the entire country/society:

- Obviously, under the present legislative and regulatory framework, Transelectrica will not succeed to implement timely the new investment projects in new lines imposed by the expected configuration of the generation park in Romania;

- Besides the timing obstacle, the financial obstacle is almost undefeatable for Transelectrica. The recently finalized secondary public offer which has taken out of the state hands another package of shares, did not reinforce in any manner the accessibility of funds/loans for development; on the contrary, it has weakened the capacity of the company to attract financing for long term investment projects.

Moreover, the present regulatory model based on loans and their reimbursement based on a tariff increased only upon commissioning of the investment, will lead to impossibility of attracting new loans, given that Transelectrica has reached its maximum indebtedness degree;

- A reform of the regulatory framework for this investment process is needed, in order to allow early recognition in the Regulated Asset Base of ongoing investment, but also contribution of other factors (state, network users) is needed in this investment effort.

A second fundamental challenge generated by the penetration of uncontrollable power generation capacities using renewable energy sources is the investment in balancing capacities in the National Power System. Although Transelectrica used to have the responsibility of the safe operation of the National Power System, it does not have the necessary levies (regulation, incentives, etc) in order to encourage such investment. The actual program of commissioning new capacities which would assume balancing tasks contains two heavily delayed projects: the Braila thermal power plant and the Tarnita-Lapustesti Pumped Storage Hydro Power Plant. Absent those projects, more and more curtailments of wind power production, network congestions and other negative effects will be noticed/recorded.

A third fundamental challenge will be of social-political nature and will be linked to the increasing pressure towards creating a “safety net” – a “last resort buyer” for the green certificates produced in the country, but also towards maintaining the electricity prices for the end-users at an affordable level – only now the wind power production is significant and its effects in final invoices are felt, generating discontent of bill payers. Such pressure will reach the lawmakers and regulators, equalling in intensity the message of the lobby of the energy industry and of the providers of services, goods, works to the energy industry, and such interactions will finally lead to identification of the capacity that the Romanian people is really capable of subsidizing.

A permanent challenge is securing the optimal mixture of primary energies for the power generation with fulfilment of energy policy objectives such as minimising import dependence, reduction of the environmental impact up to an acceptable level compliant with Romania’s commitments towards the European communities. At present, the state is not any longer the main investor in this sector and has the duty to create a friendly and predictable framework / environment for private investment in renewal of the power generation park and even in the strategic infrastructure. Besides an intelligent regulatory policy, there is a need for a careful correlation between the foreign policy and the energy policy, as major energy infrastructure projects will approach crucial decision moments regarding routes, capacities, primary sources, final destination markets. In correlation with the external analysis, Romania has the duty to identify internal resources, conventional or unconventional and to reinforce its institutions capable of analysing and deciding in the field of authorising the exploration and exploitation of hydrocarbons/primary energies, building infrastructure components, etc.

Such considerations are very well framed in the general need of institutional reinforcement in the Romanian energy sector – specialised institutions have been the victims of the economic and financial crisis and the future of the sector depends massively on the solution of such institutional crisis.