Ushering Change: Energy Distribution in Romania

20 August 2019

 

Romania’s power distribution sector was privatized in 2005 and 2006, when five distribution companies were acquired by large European energy firms and granted regional monopolies. The importance of this sector for Romania has been highlighted through a PwC study in 2018, which showed that the value added by the distribution sector to the GDP amounts to approximately €2,8 billion, roughly 1,42% of the GDP.

According to ACUE (Federation of Associations of Energy Utility Companies) the distribution network requires an investment effort of over €10 billion in the long run, in order to replace the obsolete infrastructure and reduce the gap compared to the EU average.

 

“There is great need for new investments in Romania’s ageing infrastructure – roughly 60% of networks are more than 40 years old. The state has been conducting maintenance works, and private companies had investment programs as part of the privatization plans, but the reality is that some of them need to be completely replaced.” Silvia Vlasceanu, President, ACUE.

 

Very large investments are difficult to undertake, however, because they run the risk of not being approved by ANRE (Romanian Energy Regulatory Authority. The reason? All investments get reflected in final tariffs and can become difficult to bear by final energy consumers. The appetite for investment was also affected by the state’s decision to lower the regulated rate of return (RRR) starting with 2019, which led to the dissatisfaction of many distribution companies. The RRR, which used to sit at 7.7% in the past, was initially reduced to 5.6% in 2018, and then increased again in April 2019 to reach 6.9%. “It is still far from ideal, but these modifications did send out a more positive message for the industry, by showing that the concerns expressed have been heard and that the dialogue has been effective to a certain extent.” commented Mihai G. Popa, Corporate Legal Department Director at E.ON Romania.

 

 

Investments Geared Towards Modernization & Digital Transformation

An area of particular focus in terms of investments is smart metering, widely regarded as the cornerstone for smart grids. Romania’s initial target was that 80% of distribution companies’ end consumers have smart systems installed by 2020, but progress has been very slow. Last year the law was changed and the deadline extended until 2028. 

 

“A distribution operator in Romania generally manages about 1 million consumers, and the investment required amounts to approximately €100 million, that consumers in that area will have to pay through tariffs over a period of me. The installation of smart metering systems must therefore be done in a rational way, aligned with the consumer absorption capacity.” Corneliu Bodea, CEO, Adrem

 

Still, there are many investments underway, covering modernization and expansion works and especially digital transformation. Delgaz Grid, for instance, has invested approximately €105 million last year in modernization works, the highest since the company entered the Romanian market. Frank Hajdinjak, General Manager noted: “We estimate that the annual investment budgets for the next few years will come out at a similar level (around €100 million/year) if no other major changes crop up.”

CEZ Group has also undertook significant investments in the past years. Speaking about what we can expect from the company in the near future, Ondrej Safar, Country Manager mentioned: “At this stage we are focusing more on digital transformation, including data collection, smart metering, mobile workforce management and generally a direction of being more and more effective when it comes to using both our equipment and our people. We hold a lot of the knowledge still in a paper format and this makes it difficult to retrieve and turn it into something meaningful.” This trend is likely to continue especially in light of disruptive trends such as that of prosumers, which bring about great challenges for classic transmission and distribution systems, and stress the need for smarter grids.



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