ICIS Power Perspective: Romania’s Long-Term Energy Strategy shows low renewables ambition

27 September 2018 08:56 Source:ICIS

This story has originally been published for ICIS Power Perspective subscribers on 26 September 2018 at 11:55 CET. 

Romania’s Energy Ministry published its ‘Energy Strategy to 2030 with a 2050 Perspective’ on 19th Sep. It targets 29% RES in final energy demand by 2030, up just four percentage points from the 25% reached in 2016. The Strategy does not propose support schemes for new renewable capacity, instead highlighting the need for EU support to fund RES growth. At the same time, the Strategy supports expanding and building new nuclear and fossil fuel capacity.

Background

  • The Strategy will be debated by the Government and, if approved, will become part of the framework law of the energy sector
  • The last long-term Energy Strategy was published in December 2016 and covered the period 2016-2030. The next Strategy is due in five years

Energy Strategy Electricity Sector Forecasts to 2030

  • Increase in final electricity demand from 60TWh in 2017 to 73TWh in 2030

  • Increase in nuclear generation by 32% from 2017 levels through construction of two additional units at Cernovoda
  • Increase in the share of renewables from 39% in 2017 to 40% in 2030, mainly through wind and hydro
  • Net reduction in coal and lignite output by 20%, despite building a 600MW coal and lignite unit at Rovinari by 2020. Lignite mining continues and generation remains profitable until at least 2025
  • Romania remains a net power exporter and net exports increase from 3TWh in 2017 to between 7-11TWh by 2030. Interconnection capacity increases from 7% in 2017 to 15% by 2030
  • Net reduction in gas generation as ageing fleet outnumbers capacity additions. Planned additions include a 200MW CCGT in Craiova and a 400MW CCGT at Mintia. Gas price assumed at €19/MWh in 2030

Comparisons with final energy demand and EU targets

  • Final energy demand is forecast to rise from 254TWh in 2017 to 300TWh by 2030
  • Energy generation from renewables is forecast to rise to 86TWh in 2030, making up 29% of final energy consumption, below the 32% overall EU target

Main risks to forecasts

  • Share of coal: the Strategy assumes sustained high ETS prices of €40/tCO2 and gas prices of €19/MWh, which will lead to gas being competitive to lignite generation in 2030
  • Renewables costs: The Strategy assumes new wind and solar capacity will become competitive without subsidies, though the date by which this is achievable is unclear
  • EU funding needed: according to the Strategy, “Romania has one of the highest levels of capital cost in the EU28, which means that, for example, it is considerably more expensive to build a wind turbine in Romania than in Germany. In the absence of a European mechanism for guaranteeing investments in RES, Romania will be less attractive for new investments, slowing the growth of the share of RES.”
  • Grid upgrades: Current installed wind capacity of 3GW is “considered to be close to the maximum for safe operation of [the transmission system] in its current configuration”. The projected growth in wind capacity to 4.3GW by 2030 is therefore dependent on grid upgrades
  • New hydro ban: The Romanian Water Ministry proposed in August to ban new hydropower plants above 800 metres, which, according to Hidroelectrica, will stunt hydropower capacity growth. According to the Strategy, Hidroelectrica aims to add 200MW of new hydropower capacity by 2030
  • Renewables share in Heating and Cooling forecast to fall: Burning wood is currently the main fuel source for heating in rural areas, and a switch to natural gas will see the share of renewables in the Heating and Cooling sector drop from 27% in 2016 to around 23% in 2030

Analysis – only conservative growth in renewables

  • Overall, the Strategy shows low ambition for renewables growth. Its target for 29% of final energy demand by 2030 is ten percentage points below that envisioned by the ITRE committee in its draft report relating to a 35% EU target
  • However, this is an increase from Romania's 2016 Strategy, where the Ministry had forecast just a 27% RES share in 2030 demand
  • The Strategy stresses the need for EU support for renewables growth, pointing to high investment costs in Romania vs. other parts of the EU
  • However, the Strategy also emphasises that wind and solar costs will fall low enough to see growth without subsidy, which is an obvious contradiction
  • The fact that no additional state support for renewables is mentioned contravenes earlier plans between the Energy Ministry and ANRE to reform and improve its failing renewables support scheme
  • Under the terms laid out in the recently agreed Governance Regulation, we believe that the European Commission could put pressure on the Romanian government to increase its renewable ambition. However, this can only happen in the event that the combined plans of all member states are insufficient to meet the overall 32% EU target for 2030.
  • The Strategy emphasises growth in nuclear capacity and new lignite and CCGT capacity, which will bolster baseload generation

Anise Ganbold is Senior Analyst - EU Carbon & Power Markets at ICIS. She can be reached at anise.ganbold@icis.com

Our ICIS Power Perspective customers have access to extensive modelling of different options and proposals. If you have not yet subscribed to our products, please get in contact with Justin Banrey (Justin.Banrey@icis.com).

As an analyst, trader or regulatory specialist now is the time to equip yourself with the latest trends in the market. The ICIS Power and Carbon Seminar 2018  is the place for traders and analysts to discuss upcoming market developments.

By Staff Reporter