Romania’s energy sector loses steam

Romania has traditionally been an electricity exporter in the region over the last couple of decades, as its Communist-built power industry was large and diversified.

But commentators warn the situation is about to change due to output troubles generated by lack of investment, poor management and bad regulations.

Last year, Romania was still an electricity exporter, but the amount of exports was much lower than in previous years. But in the first quarter of this year the country became a net importer, left reliant on large imports to ensure the power needed by its businesses and households.

According to official data, Romania imported 1,125.5 million kWh over January-March 2019 and exported only 862.6 million kWh, putting the country’s electricity balance into the red. Electricity exports halved (down by -52.9 percent) in the first three months of this year, while imports rose by 78.5 percent.

This reliance on imports was due to a slump in power output, which was down by 10.8 percent compared with January-March 2018, associated with a slight decline in consumption, of 1.6 percent, during the same period. But the situation remains tense as Romania continues to rely on imports to cover its electricity needs.

Regulations

Transelectrica data seen by BR show that even on a calm day like May 28, Romania imports electricity due to weak wind power output. Experts blame regulatory and tax measures.

“Romania has bigger problems with ensuring its real power production capacities. Causes? The regulatory and tax framework. We must quickly drop the obligation to trade energy produced by new capabilities on the stock exchange futures market. This regulation creates major problems with the financing of new investments,” said Razvan Nicolescu, a former energy minister and now energy consultant at Deloitte.

Large electricity imports are due to output troubles and to the electricity production structure. Romania has a diversified output structure but its coal electricity producers – all state-owned – are generating losses and need investments to stay in business. At the same time, almost all coal power capacities built during the communist era are outdated and need to be modernized.

Due to these problems, Romania relies heavily on its hydropower and nuclear energy suppliers, Hidroelectrica and Nuclearelectrica, both state-owned. But the two electricity sources cannot meet the whole consumption. The other available sources are gas-based power and wind and solar power.

The total power of the local wind turbines is 3,029 MW, but production from this type of power sources is very volatile in a country located far from the planet’s oceans and prevailing winds.

In eastern Romania, close to the Black Sea coast – where most of the local wind turbines are installed – wind is not constant, which means that wind power could fall from a peak to nothing in a couple of hours. However, some experts say that doubling the production capacity of wind power could solve some of the problems Romania is now facing.

Taxing problems

The most stable and profitable energy producers in Romania, Hidroelectrica and Nucleaelectrica – which produce the cheapest electricity in the system – have been hit this year by the emergency ordinance 114/2018, which imposed a special tax of 2 percent on turnover and capped the profit margin at 5 percent for the energy supplied to households. Both companies need investments valued at billions of euros in order to ensure long-term electricity output.

But beyond taxes, Romania’s power producers, almost all state-owned, have faced other challenges. Running out of revenue sources, the government has forced the energy companies to pay extra dividends over the last couple of years to curb its large budget deficits, leaving the firms without money for investments.

Romania defers once again the EUR 1 bln coal fired power plant project

The shareholders of the Oltenia Energy Complex (CEO), more precisely the Romanian Government that holds the majority stake, refused to mandate the company’s management for starting negotiations for the construction of a new coal-mining group in Rovinari, Economica.net reported. The project is supposed to be developed under a public-private partnership with a Chinese group.

This is not the first postponement. China Huadian Engineering won the tender to build a 600 MW coal-fueled power plant in Romania, at Rovinari, in 2012. The cost of the project is estimated at EUR 1 billion. The first negotiations began in 2012, the talks were interrupted in 2016 and resumed at the end of last year.

The European Commission has recently urged Romania to revise the integrated energy and environment plan sent in its first form to Brussels and increase from 27.9% to 34% the targeted share for renewable energy in the country’s energy consumption in the horizon of 2030. However, the case for renewable energy does not invalidate the need for replacing the thermal power plants, a recent forecast by global consulting company ICIS suggests.

Romania’s thermal generation capacities will decrease rapidly toward the middle of the next decade, due to the high emissions costs and the capacities approaching the end of their lifetime. ICIS forecasts a 60% drop in installed capacity in coal-fired power stations and 45% in gas plants in Romania. Renewable generation capacities will develop slowly, given that the Government has set a low target, ICIS warns at the same time.

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