Romanian power sector awaiting strategy

Newsroom 03/10/2011 | 12:23

Opinion, Valeriu Binig

As usual, private investors are waiting for the Romanian policy making institutions to outline the options clearly:

What path for nuclear technology in Romania? While European countries reconsider their position on nuclear energy, some of them closing operational plants and abandoning advanced new developments, others restating public acceptance of the nuclear option and planning new investments, it is time for Romania to make a decision on its second nuclear power plant. The first one seems on the right track, with an excellent operational track record, high level of public acceptance and units 3&4 seeing the prospect of some Asian funds. But the second one needs a serious locational study, an early decision and the securing of land. The future power generation mix will be heavily influenced by such a decision;

The future of lignite and hard coal exploitation. As we write, coal makes up over 40 percent of the country’s electricity, and lignite clearly has the potential to be a sustainable primary energy source for Romania. As lignite-fired power generation could be cheaper than hydrocarbon-based generation, the intended volume of the lignite industry on the long term in Romania will guide developers of CCGTs in assessing their market share;

How will “overcompensation” for electricity from renewable energy sources be assessed? After the good news of the European Commission’s clearance for the Romanian support scheme for electricity from renewable energy sources, a cold shower has generated nervousness among private investors – the message that the ANRE will monitor the IRRs and apply correction mechanisms in the event of excessive values for such benchmarks has again persuaded strategic investors to withhold their investments until the regulatory framework is clear. What type of reporting and monitoring will be used, how will projects’ IRR be calculated, and what will the real correction mechanism be? Such questions divide investors into “bullish”, those will be ready when the scheme is really applied, and “bearish”, those who will wait until the regulation texts are on paper under ANRE President order seals;

How will Transelectrica cope with the need for investment in the transmission network development generated by the penetration of the new generators? The Dobrogea region might be threatened by network congestion as all power generated there should be transmitted to the rest of the country via the Cernavoda and Isaccea nodes. The 400 kV Suceava-Gadalin line has been proven necessary for the reinforcement of the National Power System given the penetration of the wind power generators. The new Tarnita-Lapustesti pumped storage hydro power plant will need new connections to the transmission grid. The changing landscape invites the question whether the speed of investment of Transelectrica is adapted to the speed of investment in new (especially renewable energy) power generators, and whether its financing model is adapted to the current economic climate. The whole European Union has acknowledged the need for and is preparing for increased investment in Trans-European Networks in order to cope with new challenges to the security of the energy supply, and is analyzing the financing resources and mechanisms available;

The heat supply to households both in urban and rural areas has remained an unsolved problem, with enormous problems not sufficiently tackled and coming to the attention of the public only when the heating season starts or a municipal heating plant is unable to provide service due to interruption of the fuel supply for non-payment of bills. Local energy concepts are not yet developed and not subject to local political consensus before asking for centralized support in the form of know-how and guarantees;

These are just a few of the discussion topics for a coherent energy strategy that is expected to trigger/guide private investment in the Romanian power sector over the next decade.

More on the local power sector at the Business Review event on October 4 at the Howard Johnson Grand Plaza.

Valeriu Binig is the director of financial advisory services/energy & resources/corporate finance at Deloitte

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