ELECTRICA Time of change

The Electrica Group is going through major transformations, meant to modernize companies, to unify them digitally, to increase efficiency and to optimize costs, for the benefit of shareholders, but especially of final consumers. In addition to the strategic investment programs, Electrica is preparing the merger of the three distribution operators, intends to participate in the acquisition of CEZ assets that fit the group’s core business and diversify its service portfolio with a focus on renewables and gas – considered the fuel of transition. Electrica went through the health crisis well, although there were critical moments, said Corina Popescu, CEO of the Group, in an exclusive interview with Energynomics Magazine.

Dear Mrs. Corina Popescu, a new project of the energy strategy is now available. How do you see this new project?

The energy strategy must contain the strategic directions of Romania, which must be aligned with the strategic directions of the European Union. We have to not put there all kinds of targets – they are part of the National Integrated Energy-Climate Change Plan (NECP). Logic says: we, as a country, first define the strategic directions, then include all aspects in the NECP – for green energy, efficiency, etc. The plan must show how those strategic directions are translated into effective projects. We are now working on a strategy that we really need in order to be able to access the Fund for Just Transition. In order to be able to implement the Green Deal in a bearable way, it is absolutely necessary to allocate, at European level, more money for each Member State. The starting position in the implementation of the Green Deal differs from one Member State to another. The Just Transition Fund would facilitate the transition to cleaner energy.

I think that we must have a strategy for Romania, with no political coloration, and it has to be sustainable. We should not add any strategic directions that are in opposition to those of the Union, because then we will not be able to access European money.

Do you think that we will be able to attract funds effectively, given the past experience – we have not been able to attract funds in the desired amounts either due to bureaucracy or lack of experts?

I am not an expert in European funds, but, given the recent experience of the last years, I never quite understood why Romania could not access more funds – I was told that it was because of corruption. It is true that accessing funds demands a certain rigor in carrying out projects. They must fit within the timeframe in which it was defined and then, within the monitoring period, you must prove that you have had the scheduled efficiency. We, Romanians, are not that familiar with doing things like that.

In my experience, projects can be written with your own employees; I did this at another company, and then again at Electrica, where the initial mentality was that there was enough money from privatization and no European funds were needed. Out of the desire to make investments, to do things and to take responsibility for them, we have prepared projects, we have accessed funds and we have many applications submitted, some of which are already accepted.

Talking about the authorities, for a better fluidization, I believe we need a project of digitization of all processes for accessing EU funds and for increased transparency of the way in which funds are allocated. I don’t believe Romania have no specialists, this is not a valid thesis. I believe that there must be more will and honesty, and if the projects are really needed, European funds will also be obtained.

Why is it very difficult to carry out projects with European funds? Because there is no coordination of the lines of action in Romania. As an example, many town halls have accessed European funds for the rehabilitation of public lighting installations, but there has been no discussion with utility providers on their concrete modernization projects. If this were to happen, the use of European funds would certainly be more efficient and would be visible – otherwise, I think there are many projects in which the money has been buried, with no efficiency gain whatsoever.

What are the development elements of the investment plan assumed by Electrica for the next period, 2020-2025?

The investment plan covers all the elements required by ANRE. In order to become efficient, Electrica needs, like the other operators, to digitalize itself, to standardize policies and all that happens inside the organization. We do not have an efficient asset management. We do not have a unitary concept for this – only now are we developing one. We do not have a unitary concept of smart metering – we are now developing it. We do not have GIS (geographic information system), now we are trying to develop it. GIS allows networks to be included in a computerized system and, in the event of a breakdown, the operator to know exactly where to go. These are very large projects that cannot be done overnight and require a large volume of investment.

In addition, we focus on grid investments, improving the voltage level, automation, implementation of SCADA, refurbishment of equipment. It is an ambitious investment plan.

When the regulatory framework changed and ANRE lowered the rate of return, most distribution operators reduced the volume of investments and limited some of them so as to reach that minimum investment threshold imposed by regulation. We went over the minimum threshold, with a consistent value of over 43%. I would like this money to succeed in ensuring the profitability defined in the project.

The rate of return is a tool, an incentive that those who carry out monopoly activities receive in order to invest in the network. The higher the rate of return, the higher the level of investment. It is important to find that break-even point between how much the rates can increase when you invest (which translates into the price paid by the final consumer) and what the real need for investment is.

Moreover, in the five years since the company’s IPO on the stock exchange, we have reached a total of approximately 3.4 billion lei invested, Electrica thus becoming the largest investor in Romania’s energy infrastructure.

Is the grid well enough prepared to assimilate electricity storage capacity?

Storage capacities contribute to increased energy security. The concept of storage goes hand in hand with that of renewable energy, where production is difficult to predict. It depends on how these projects will be built. We already have storage in Romania, but in the hydro segment. When we talk about storage, there are new technologies, with other costs. There was a time when there was an effervescence, when investments in renewables increased and green certificates were granted for energy sold and notified in the market. This was followed by a blockage, as storage capacities were not defined by law.

What are the benefits and what changes will the merger of the distribution companies within Electrica, recently assumed by the Board of Directors, bring?

The benefits will clearly exist! Other companies have made such mergers in their home countries a long time ago. Each company has a limited borrowing capacity – to borrow money in order to make investments. When we have at the level of a group three different legal entities, with their own systems and, in the next period, we have a major need to invest in digitalization and new solutions, we would be put in the situation to acquire a different system for each entity in part. For example, we should purchase three smart metering platforms, and then the degree of indebtedness at group level should cover each platform. It makes more sense to buy a single smart metering platform, to which to connect all the meters. Otherwise, we should buy three SAP platforms. It makes no sense for the Romanian consumer to pay for three different SAP systems, does it?

The merger project is not a short-term one, in which efficiency becomes visible at once, because the changes cannot be made overnight. But there are some portfolio effects that can produce medium and long term effects.

When the issue of IPO was raised, one of the conditions was to merge the companies. It doesn’t make sense to have three companies in the same country, three legal entities, doing the same business. Then it was said that it is too fast, that it is a long-term project. Only the supply companies in the Group merged, and after the IPO, the merger of the distribution companies was postponed for later. So we are talking about a project that should have happened a long time ago, with beneficial effects, including for our shareholders. All the other players have gone through this process before, because it is a project that makes business sense, from the perspective of cost optimization.

Will there be optimizations at the staff level as well?

We need staff and specialists, first of all, to work in the grids, in automation. There will probably be, in the medium and long term, a rebalancing, as the automation systems are implemented, between those who do certain manual operations today and the specialists we need and who have to go into the grids.

This project is quite related to another project that I have prepared within the Group, very dear to me, and which we will try to extend in the academic environment: we have four classes of dual education which we support. There are children who have now graduated the 9th grade, but also others who will believe in the profession of electrician, we hope. We need specialists, there will be no staff reduction. We will promote the best in the three companies to coordinate the activity, not at the level of their company, but at the level of the entire Group. There will be no immediate redundancies, these things cannot be done overnight and there will be no job losses. Things will happen gradually as we implement automation systems.

First of all, we want to really increase the quality of services, and then our structure must be a little different and because there are many things that can be developed as a unit.

We care about our employees. For example, in the difficult period we are going through, we decided not to send people into technical unemployment. We want to motivate employees, to keep them closer.

What can you tell us about participating in the acquisition of CEZ assets?

At the level of the Electrica group, it is a project that we treat as any other M&A project is treated. The offer is made on the same principles and it will be economically justified. We are interested in those assets that represent our core business today. We are interested in them because we try, based on the efficiency and effectiveness of the activity that CEZ has done, to make a faster roll-out and to become more efficient in what is our core business – power distribution.

What are Electrica’s diversification plans, what are the strategic directions?

We want to develop a mix of generation, with wind, solar and gas. Gas is an element of transition, until storage solutions will be able to ensure the balance of this portfolio, which is unpredictable. These are combined cycle gas (CCGT) plants that produce electricity. We try to optimize everything at Group level, in order to consolidate it based on what we have today.

In the long run I also see a division of R&D, storage, hydrogen, but these are projects for when the situation is very stable. In order to stabilize the situation, in order to be able to grow later, we need an integrated development. We really need production, we have entered the gas supply, we have a license and we want to become more active, especially with the liberalization of the market, which is a good opportunity.

The government has promised to define the vulnerable consumer before the end of the year…

It is an ambitious project, but in order to be implemented, digitalization is needed, there must be clear records and the consumer must really receive what he has to receive. A definition exists even since I was in the government, but the mechanisms behind it must be created, the budgetary source must be created for such a program to be supported.

How was the Electrica Group affected and how did it react during the pandemic, what social responsibility programs did you involved in?

We supported some of the hospital projects. We initially collaborated with the Red Cross, after which we went to the hospitals in the areas where we are present: Ploiești, Cluj, Bucharest, Brașov. We’ve had people who have been infected, even people in critical condition – and I’m glad they are at home today, I mean people we brought to Bucharest so we could save them. As a business I can’t say we were affected. It was, however, a team effort. There was indeed a delay in paying the bills, because many people do not use the online environment and the centers have been closed. However, we redirected the people from the front office to the back office and they advised the clients.

It was a hard lesson, we saw very scared people, but we had rules imposed, we had plans of actions on three scenarios. We even organized a support group, together with the union, for the families of our employees being sick or isolated. It was a team effort.

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This interview firstly appeared in the printed edition of Energynomics Magazine, issued in March 2020.

In order to receive the printed or electronic this issue of Energynomics Magazine, we encourage you to write us at office [at]energynomics.ro to include you in our distribution list. All previous editions are available HERE.

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Bogdan Tudorache

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