Romania boasts a diversified and well-balanced mix of energy sources, which lends it the enviable status of Central and Southeast Europe’s country of lowest dependence on energy imports.
The energy sector accounts for 3.5% of the country’s GDP, but a robust energy sector is crucial for other reasons as well – especially in SEE, which is still relatively poorly interconnected with the rest of the continent and where the only source of import for natural gas is Russia. Energy security is therefore a fundamental pillar of the Romanian energy sector. Indeed, compared to its neighbors, Romania has a remarkably diverse and well-balanced energy mix, which confers it a sound level of energy security.
As a member state of the European Union, Romania plays by the EU objectives and rules on energy and climate. These are imposing tough targets on the member states for 2030: overall reduction of greenhouse gases emissions by 40% as compared to 1990; a 32% weight of the renewable energy sources (RES) in the total final energy consumption; and a 32.5% increase in energy efficiency compared to 2005. These are, at present, collectively, the toughest mix of energy-climate policy of the world.
Romania relies to a large extent on fossil fuels, as do all the other East European countries. As such the „clean energy transition” towards reaching those 2030 targets and, further on, towards virtually complete decarbonization by 2050 requires ample and costly transformation. This calls for rapid adoption of new technologies, but also of new mindsets.
The region is also a crucial passageway for natural gas volumes on their way to European markets. In its effort to bypass Ukraine as a conduit of Russian gas to Europe, Moscow is building the Turkish Stream pipeline, which will connect Russia with Turkey underneath the Black Sea. From the Turkish hub, the pipeline will continue through Southeast Europe to the Central European market, gripping Ukraine in symmetric pincers, whose northern jaw is the Nord Stream system. Besides, there is also the Southern Gas Corridor, due to ship Caspian gas all the way to Southern Italy, which will be a new source of gas for the Black Sea countries in the early 2020s. Considering also the potential transport of East Mediterranean gas through Turkey to Europe, the Southeast European vicinity of Romania looks like a hotbed of energy infrastructure development and rivalry.
Tackling an ageing infrastructure
The two main energy transport systems, Transgaz and Transelectrica, for natural gas and electricity, respectively, need urgent refurbishments and modernization. The main Transgaz project under construction is the BRUA interconnector (Bulgaria-Romania-Hungary-Austria), which will link the Southern Gas Corridor with the Central European Gas Hub at Baumgarten (Austria). BRUA, partially financed with EU funds, is also planned to serve as a conduit for the gas reserves of the Black Sea, assuming the main titleholders, ExxonMobil and OMV Petrom will make a final investment decision. At present, the Romanian gas grid is relatively isolated from the European gas market, with limited import and negligible export capacity.
As to Transelectrica, much of its high-voltage lines are old and in need of refurbishment. Fortunately, though, the company has moved forward with the implementation of major interconnectors, such as finishing the 400 kV line with Serbia (Resita-Pancevo), in 2018, and making tangible progress towards nishing the Romania-Hungary interconnection (Oradea-Bekescsaba). At the same me, Transelectrica is consolida ng the national power grid by building the 140 km-long Smardan-Gutinas 400 kV line in Eastern Romania, which will be essential to evacuate the nuclear and wind power from the Dobrogea region; and nearing the completion of the metropolitan high-voltage ring that will surround Bucharest.
The instability of the legal and regulatory environment, in general, is a major hindrance faced by new investments, and a primary factor in the overall investor risk assessment. One of the most controversial and disruptive pieces of legislation in the energy industry has been the notorious GEO 114/2018, which upended many of the norms and processes of the sector and brought uncertainty and discontent upon businesses and investors. On the electricity and gas markets, the GEO drastically curtailed several dimensions of the progressing market liberalization.
The government must address this liability by instituting substantive consultations with stakeholders and improving the quality of its regulatory process. As pointedly put by Petre Stroe, CEO of MET Romania Energy, ”Market liberalization has been a long and arduous process in Romania, and recent legislation appears to bring some winds of change in the opposite direction. I do not believe that ANRE is the ‘bad guy’, they are doing their job, but having a stable, reliable and predictable framework is crucial to doing business anywhere. I encourage further deregulation as I believe a free market stabilizes itself and is the best way to ensure both a welcoming business climate for investors, and the best price and services for the end consumer.”
The Only Way is Up
All in all, Romania is a country in full economic swing, with significant natural and human resources. It is situated in a geopolitical region of high stakes, at the eastern margins of NATO and the EU, which raises even further the salience of its energy security.
The main challenges of the country’s energy sector stem, one way or another, from the transformation required by the transition to a decarbonized economy. The severe constraints of the EU energy climate policies regarding the increase of renewable energy sources and energy efficiency are clashing with the immobility and vested interests of the incumbent energy producers. The record high price of the ETS permits is downright suffocating the coal companies, whom the government can barely subsidize any longer. Moving ahead, Romania needs bold, albeit realistic strategic planning on energy and climate. Its goals must be aligned with the EU 2030 targets for energy efficiency, renewables and emissions of greenhouse gases.
The expected transformation of the energy sector would go hand in hand with a future of clean transport, based on alternative fuels, circular economy, and overall efficiency in the use of water, materials and prime energy.
Not unlike other EU member states, Romania is still struggling to reach a workable level of consistency in its clean energy transition. But for the process as such, one thing is clear: the only way is up, that is towards deeper integration in the EU’s energy market and its structures of energy governance.
Radu Dudau, Energy Policy Group
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