Romania’s Energy System: From Oil, Gas, And Coal To Solar, Wind, And Biofuels

The national energy system, made up of oil, gas, and electricity, is vital to 21st century life. Unfortunately, it is also the system that causes the most environmental problems, including global warming, which is why the decision has been taken to replace polluting resources, i.e., fossil fuels, with renewable and environmentally friendly resources in the long term. But this is easier said than done. We cannot maintain modern living standards without fossil fuels, and replacing them with green energy is costly and much more problematic than it first appears. Let’s take a thorough look at the energy industry, covering three main topics: fossil fuels, electricity, and green energy.

By Aurel Dragan

Oil and natural gas: the fuels of modern society

Romania produced 2.79 million tonnes of oil equivalent (toe) of crude oil in 2023, 129,200 toe less (-4.4%) than in 2022, according to data compiled by the National Institute of Statistics (INS). Imports of crude oil last year amounted to 7.37 million toe, 1.33 million toe less than in 2022 (-15.3%). According to the latest Energy Balance Forecast, published by the National Commission for Strategy and Forecasting (CNSP), this year’s crude oil production was forecast at 3.05 million tonnes of oil equivalent, down 2.3% compared to 2022.

The CNSP reports that Romania’s crude oil production will be on a downward trajectory between 2023 and 2026, with an average annual rate of -2.2%, as a consequence of the natural decline of fields and the maintenance of existing production units. Production will reach 2.98 million toe in 2024 (-2.3% compared to the previous year), 2.91 million toe (-2.3%) in 2025, and 2.85 million toe (-2%) in 2026. On the other hand, for crude oil imports, the CNSP estimates an increase in the same period, at an average annual rate of 4.1%.

“While Romania remains one of the top European crude oil producers, a considerable part of local consumption is covered by imports. According to the National Prognosis Commission, this year’s production is estimated at 2.98 million tonnes of oil equivalent, while imports are expected to reach 9.65 million tonnes,” says Nicolae Banica, the CEO of Oscar Downstream.

Domestic oil production covers less than a third of consumption totals, with the rest being imported. Refineries have the capacity to produce enough gasoline to cover consumption—the main refineries are Petromidia, operated by Rompetrol Rafinare, and Petrobrazi, operated by OMV Petrom. However, diesel production is not so good: last year, we imported more than 3.1 million tonnes, amid increased exports to Ukraine and the overhaul of Petrobrazi.

The country is doing better in natural gas. Domestic gas production last year was 7.5 million toe, 1.5% higher than in 2022, according to INS. Romania had net imports of 2.11 million toe of usable natural gas in 2023, 6.2% lower than the previous year. According to estimates by the National Commission for Strategy and Forecasting, natural gas production is expected to rise at an average annual rate of 3.6% between 2023 and 2026, after a 1.1% decrease (to 7.34 million toe) in 2022.

In its latest Energy Balance Forecast, the CNSP forecasts an increase in gas production of 5.6% (to 7.75 million tonnes of oil equivalent) for 2023, 2.3% (to 7.93 million toe) for 2024, 2.7% (to 8.15 million toe) for 2025, and 3.8% (to 8.45 million toe) for 2026. As for natural gas imports, a sharp decrease of 23.1% is forecast for 2023, a trend that will continue until 2026, at an average annual rate of 2.2%.

Oil and natural gas are the main fuels for both population and industry. Replacing them entirely seems impossible at the moment, even as clear targets have been set at the EU and global level. Diesel consumption, for example, is driven by freight transport, both road and sea, and we won’t see electric engines capable of replacing diesel propulsion and being as efficient anytime soon. Natural gas remains the main heating fuel in Europe and the world, and replacing all gas-fired power plants won’t be easy, especially as it will be met with reluctance from end consumers. The same goes for industry, where many manufacturing sectors depend on natural gas.

The European Green Deal calls for climate neutrality by 2050, which means no more fossil fuels, at least in large urban areas. The 2050 target is very ambitious, especially as we still have no viable alternative to high-powered diesel engines. Moreover, the question arises as to whether it is still necessary to invest in new production areas, such as offshore exploitation in the Black Sea, if we will no longer be using natural gas in as little as 25 years.

“As the green transition advances all over the globe, conventional fuel production and consumption will decrease accordingly. However, oil is a resource we will continue to use for at least several more decades, even if the decline in consumption continues,” Nicolae Banica argues.

Electricity: the power of comfortable life

In an ideal world, such as the imagined societies of the future, homes produce their own energy needs, usually from the sun. In our real society, things are not so simple. Even though Romania now has more than 100,000 homes that have installed photovoltaic panels and become prosumers, their production alone does not even cover their own energy needs¬¬—and not all homes can have solar panels on their roofs. Not even logistics warehouses or manufacturing plants that have installed panels can’t cover their full energy needs. To live off-grid, you still need a storage system, which is more expensive than PV panels. And for an efficient heating system, you also need heat pumps.

The national energy system still reaches all corners of the country. And at a time when we should be replacing fossil fuels entirely, it is imperative that the electricity production, transmission, and distribution system increases in both size and capacity.

The deadline for phasing out coal-fired power plants is 2030, according to decarbonisation plans. It’s a target that will likely be met, given that coal generation only still accounts for about 12% of total generation. But this transition is quite complex. A 10 MW coal-fired power plant will produce 87,600 MWh in a year without overhauls or repairs. A 10 MW solar plant will only generate 13,000 MWh per year.

The disposal of natural gas power plants is even more problematic. Gas-fired plants, which we are now investing in for what is called the “energy transition period,” also have a balancing role in the system and are much easier to start up than coal-fired plants. And if it’s dark and windless, solar and wind generation go down to zero, and hydrocarbon (gas, tar, etc.) generation has to be increased. Or hydro (water) if possible. In parallel, investments are also being made in storage capacity that can step in when needed.

Last year we saw the commissioning of new power plants, including 496 MW solar, 72 MW wind, and 56 MW hydropower, totalling an installed capacity of 624 MW. Compared to 2022, when 44 MW hydro and 25 MW solar were inaugurated, the newly installed capacity is almost ten times higher. Moreover, while at the end of 2022 there were only 40,171 prosumers with a cumulative installed capacity of 417 MW, at the end of 2023 the number exceeded 100,000, together reaching an installed capacity of around 1,500 MW.

“The fact that the new capacities commissioned in 2023 were almost 10 times higher than the previous year’s shows that Romania is increasingly attractive for investors in the energy sector, especially in the green energy segment,” said Energy Minister Sebastian Burduja. “We expect that by the end of 2024 the growth will be even higher, given that we have managed to complete the financing of the projects in investment phase 1 of the PNRR, which totals almost 1,700 MW. I expect a large part of these investments to be completed by the end of the year, based on the beneficiaries’ commitments,” he added.

Investment doesn’t stop at energy production. There are many issues related to the transmission grid, whether it’s the Transelectrica-operated national grid or the distribution grid, which is operated by private distributors. Consumers, for example, have to wait months before they can feed electricity into the grid, because special metering equipment is needed, as is a grid with the capacity to receive power, not just deliver it. An example of such an investment is Retele Electrice Muntenia (part of the PPC Group, formerly E-Distribution Muntenia), which has completed work to upgrade the North Power Station, the largest primary substation in the country. The value of the investment is about RON 70 million, coming from the company’s own funds.

“The modernisation of the North Power Plant was a large-scale project that required vision and customised engineering and construction solutions. A major challenge was ensuring that the works were carried out without interrupting the operation of the primary substation, which meant consolidating the building and replacing the electrical equipment, while maintaining the smooth supply of power to the approximately 73,000 customers,” said Mihai Peste, the general manager of Retele Electrice Companies.

Renewable and green energy: the future that can’t wait

In 2015, energy production from coals and hydrocarbons accounted for 55% of the total. In 2024, after the first three months, coal and hydrocarbon production accounted for 28% of the total, half of what it was almost 10 years ago. Hydropower, like nuclear power, remained constant at around 30% and 7% respectively. Wind (now 15%), large solar (8%), and prosumers (7%) have all increased. The trend is clear: green energy production is increasing, with a target of 42.5% of the total in 2030. According to World Bank calculations, in order to make the system as sustainable as possible, it will be necessary to expand solar parks on an area that would not exceed 2-3% of the total agricultural land in Romania. Data from the latest World Bank report dispels fears that we will have to reduce agricultural capacity for the sake of energy. Moreover, “small solar,” i.e., photovoltaic panels installed by households and the private sector, take on a good part of the pressure put on the system and make use of land that’s already being used, namely the roofs of buildings.

“Prosumers strengthen the resilience of electricity supply at the household level in Romania, support the green transition process, and achieve a high degree of digitalization, which allows better management at each consumption point,” says Sebastian Burduja.

More than EUR 800 million of non-reimbursable funds are now available for investment in green energy projects, enabling companies to increase energy efficiency in factories or for new renewable energy production facilities. The Modernisation Fund provides companies with a total budget of EUR 815 million for investments in renewable energy, both in a scheme dedicated to consumption efficiency through the installation of photovoltaic panels (with an allocation of EUR 415 million) and in the production of green energy from various sources (with an allocation of EUR 400 million).

“This is a unique opportunity because the allocation is very generous and market demand is growing at a fast pace. Factories, retailers, and other consumers cannot miss this opportunity as the deadline for ending the energy price cap approaches. We are in talks for large and very large projects in green energy production and we are convinced that the money from the sale of CO2 certificates can put Romania on the map of Europe’s major renewable energy producers,” said Roxana Mircea, managing partner at REI Grup.

The Energy Ministry published the advisory guidelines for both calls (self-consumption and green energy production) in January, with most of the funds going to solar panel investments. But solar and wind are not the only sources for decarbonisation. Biofuels are also very important for decarbonising the transport sector; by adding biofuels to traditional fuels, CO2 emissions can be significantly reduced. According to the European Commission, biofuels come in many forms: solid, liquid, biogas or biofuels from different raw materials. Interestingly, biofuels could also be used after the ban on diesel and petrol, which would extend the life of internal combustion engines.

In Romania, from June 1, 2023, fuel stations sell petrol and diesel blended with bioethanol and biodiesel. Bioethanol in petrol comes mainly from corn, wheat, and sugar beet, while biodiesel is made from rapeseed, soy, and animal fats. This measure is part of the actions taken to ensure that Romania achieves its target of reducing greenhouse gases by at least 6%, as set out in Government Emergency Ordinance No 80/2018, and the target of at least 10% renewable energy used in all forms of transport, set out in Law No 220/2008. At the European level, the Commission has set a target of 10% of biofuel used in transport by 2020 and 14% of energy consumed in road and rail transport by 2030.

An investment that showed the growing interest in biofuels was OMV Petrom’s acquisition of 50% of the shares of the company “Respira Verde,” a local leader in the collection of used cooking oil. Completion of the transaction is expected to take place in the first semester of 2024, after certain conditions are met, including clearance by the Competition Council and the Foreign Direct Investment Review Commission. Used cooking oil is one of the main renewable feedstocks to produce sustainable aviation fuel (SAF) and biodiesel (hydrotreated vegetable oil – HVO). Their use in transport significantly reduces carbon emissions. CO2 emissions from commercial flights that use SAF are around 80% lower than those using conventional fuel.

“One of the goals of our 2030 strategy is for biofuels to account for more than 15% of total fuel production. With this transaction, we are taking a first step towards securing access to the feedstock needed to produce biofuels and opening up the prospect of integrating the circular economy into our core business,” says Radu Caprau, member of the OMV Petrom Management Board, responsible for Refining and Marketing.

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