Authors: Radu Dudău and Christian Egenhofer
Three line of energy policy stand out as particularly suitable to be promoted by Romania during its EU Presidency in 2019, says a policy paper published by Energy Policy Group, an independent think tank based in Bucharest. In order to be able to make a solid case for such priorities, Romania must prepare a robust and persuasive draft of the National Energy and Climate Plan for 2021-2030, which must be submitted by the end of 2018, advice EPG. The Plan must be consistent with EU laws and long-term commitments, and also delineate areas of substantive regional cooperation.
Key points and Recommendations
With the 2019 rotating Presidency of the Council of the European Union, Romania has the prospect of advancing the priorities of the country, as well as of those of the region. Precondition is a well-prepared Presidency, able to ensure the efficient functioning of the European Union’s legislative process. A critical point will be the quality of the Draft National Energy and Climate Plan, which will be due immediately before the Presidency starts. A credible Plan will enhance the authority of Romania in the EU.
A challenge for Romania until 2030 is to see that about 4,000 MW of old power generation capacities based on coal and natural gas that must be retired for technical and environmental reasons will be timely replaced with new capacities, clean and cost-efficient. New renewable energy sources (RES), natural gas, and nuclear capacity are the main contenders for investment. Natural gas, of which Romania has a significant potential, is a good, strategic complement of renewables in the electricity mix.
By expanding its domestic power and gas transmission systems, as well as grid interconnectivity, Romania has the potential to enhance regional cooperation and to play a significant role on the Central and South-East European (CSEE) energy markets. As such, the Presidency should emphasize the energy priorities of CSEE, notably by taking up where the Bulgarian presidency will leave off.
The government should start preparing the National Energy and Climate Plan so that a robust draft will be ready by the time of the EU Presidency. The Plan must square the country’s commitment to the EU’s (redefined) targets on greenhouse gas (GHG) emissions reduction, RES quota, and energy efficiency with the country’s own strategic concerns and priority in the energy sector: energy security, clean energy system, energy poverty reduction, competitive markets, and improved energy governance.
Against this background, Romania is well-advised to promote during its EU Presidency the following three lines of energy policy at European level:
- Mitigation of energy poverty
- Energy efficiency
- Digital energy
Mitigation of energy poverty
Protection of vulnerable energy consumers and energy poverty mitigation based on competitive energy markets and targeted social aid – with the longer-term (2050) view of eradication, is an issue of massive relevance in the entire CSEE region.
The more recent debate surrounding the Energy Union favors putting the alleviation of energy poverty and protection of vulnerable consumers high on the agenda. The topics are also a priority shared by the Bulgarian Presidency, so Romania could become the standard bearer once Bulgaria’s Presidency terminates on 30 June 2018.
For now, Romania still lacks coherent and effective means to address those problems. Depending on the specific indicator used, between 12 and 19% of Romanians are in a situation of energy poverty. Of all those, only about 30% are recipients of social support, which points to a major administrative and bureaucratic disconnect from social reality. On the continent, energy poverty is especially prevalent in Eastern Europe, where its causes evince a structural similarity. EU-wide, at least 50 million people strive to pay their energy bills on time and to secure proper heating, cooling and lighting in their homes. Energy poverty has major negative effects on a population’s health and wellbeing. Hence, addressing it effectively, especially in countries of high incidence, generates manifold positive results: less public healthcare spending, reduced air pollution, increased productivity and economic activity, etc.
Energy efficiency seems to have the characteristics of a magic bullet: it addresses the shortcomings of power generation and, more generally, concerns of supply security; it translates into GHG emissions reduction; and, importantly, it can make significant inroads into reducing energy poverty, by means of well-directed public programs.
In terms of policy, this is the least controversial field should be energy efficiency. Energy efficiency is one way of addressing the shortcomings of power generation, local pollution and climate change alike, at the same time, if intelligently implemented, it can tackle to an important extent the challenges of energy affordability and energy poverty. Such an approach is fully in line with the EU priority of “energy efficiency first.” Romania’s energy intensity (i.e. gross energy consumption per unit of gross domestic product) in 2013 was, in absolute terms, 75% higher than EU average. However, adjusted to purchasing power (PPP), Romania’s energy intensity falls slightly below the European average. For 2030, the PRIMES model run in 2016 projected for Romania a 30% decrease of energy intensity to 153 toe/mil € 2013.
Digitalization of energy is poised to be at the center of EU energy policy-making in 2018-19 and in the years to come. In particular, the forthcoming Communication on the Future of EU Energy and Climate Policy is likely to focus on new market opportunities that digital technologies offer for the energy sector. The digital transformation is empowering consumers via distributed generation, demand-side response, and allowing the entire market design to embrace full flexibility. Digital competence in the region should be seen as an opportunity for Romania and other Central and South-East European countries.
Digital technologies and big data are undermining conventional business models in the energy market, creating new opportunities for market players willing and able to embrace innovation. For companies and consumers to reap the benefits of digitalization in energy, a future-proof regulatory framework is needed to make sure that existing operators can adapt their business models, that start-ups and tech companies are attracted to the energy sector and that real incentives for innovative solution-providers are created. Romania has the opportunity to establish itself as a leader in the region by advancing digitalization of energy, given the remarkable development of its IT sector.
Other significant opportunities
Regional cooperation Although the Energy Efficiency Directive will have been adopted by the time Romania assumes the Presidency, CESEC (the Central and South-Eastern Europe Energy Connectivity initiative) and, more generally, regional cooperation approaches offer new opportunities for Romania to advance in these areas. CESEC has already agreed to widen its mandate to include energy efficiency and renewable energy sources, in addition to electricity markets.
Harnessing local skills In an attempt to capitalize on local talent, skills and entrepreneurial spirit, Romania, like other member states in the region, is attempting to foster innovation and start-ups with the aid of ‘start-up hubs’ in various cities. Yet the country faces the challenges of an immature start-up ecosystem and a scarcity of available capital. Given that cooperation on infrastructure development has been one of the successes of CESEC, similar cooperation on R&D and innovation could follow to strengthen the fabric of the region as a whole.
Radu Dudău is Director of the Energy Policy Group in Bucharest.
Christian Egenhofer is Associate Senior Research Fellow at CEPS and Director of the CEPS Energy Climate House.
The report presents the findings from a stakeholder roundtable organized on 31 October 2017 in Bucharest, by the Energy Policy Group (EPG) and the CEPS Energy Climate House.
The Energy Policy Group (EPG) is a Bucharest-based non-profit, independent and non-partisan think-tank on energy policy, market analytics and energy strategy, founded in February 2014.
About CEPS Energy Climate House
The Centre for European Policy Studies (CEPS) is among the most experienced and authoritative think-tanks operating in the European Union today. CEPS serves as a leading forum for debate on EU affairs, and its most distinguishing feature lies in its strong in-house research capacity, complemented by an extensive network of partner institutes throughout the world.