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CE Oltenia – In full green transformation

15 June 2021
Interviews

In the context of an increase in the price of carbon allowances by almost twice the projected level, CE Oltenia adapts its sales policy so as to stick within the key performance indicators provided by the budget. The complex is going through an extensive reorganization and restructuring process and is subject to constant attack by environmental organizations, which request acceleration of the coal phase-out process, but plans investments in the new gas and solar-powered capacities of over 2000 MW by 2026. “After the implementation of the Decarbonization Plan, CE Oltenia will have new production capacities, less polluting, with lower specific emission”, claims in an interview exclusively with Energynomics Lăcrămioara Diaconu-Pințea, member of CE Oltenia’s Management Board.

How did CE Oltenia handle the crisis generated by the pandemic, what was the volume of losses and the effects of the pandemic on power production?

Complexul Energetic Oltenia is a key supplier of electricity for Romania, so to ensure the smooth operation of the company we have implemented a protection plan, which we have permanently updated, depending on pandemic evolution. Also, given that we are a company with over 11,000 employees, we supported from the start the need to vaccinate the staff. Moreover, we were one of the first energy companies to ensure access to vaccination for employees. Today (in mid-May -Ed.), over 30% of the staff is vaccinated.

The activity of Complexul Energetic Oltenia in 2020 was different from the previous years, due to the pandemic. The company had a strong pressure on cash flow, amid a significant decrease in receipts, in conditions of lower demand for electricity, both regionally and locally, as well as a result of the need to cover the costs with CO2 emission allowances. This situation was balanced by the rescue state aid of EUR 251 that million CE Oltenia benefited from in early 2020, as well as by the support measures approved by the Romanian Government for companies affected by the pandemic.

What will be the effects of the increase in the price of carbon allowances on CE Oltenia’s results in the following years?

It is important to recall that we are holding discussions with European Commission experts to agree on the final form of the Restructuring and Decarbonization Plan proposed by us. With the risk of repeating, these processes are of the essence for keeping CE Oltenia alive and for streamlining the company.

With the implementation of the plan, by making investments in photovoltaic parks and high-efficiency gas-fired groups, specific carbon emissions will decrease, so we will buy fewer CO2 allowances. But, unfortunately, their price is on an upward trend that will continue, in the context of EU efforts to reduce pollution at the continent level, and this will put pressure on our activity.

While in the Restructuring and Decarbonization Plan notified in December 2020 we forecast a price of CO2 allowances of EUR 26-35, the current prices are much higher, exceeding EUR 50. It is obvious that, under these circumstances, our sales policy needs to be adapted to these realities so that we don’t exceed the parameters of the financial model.

How do you respond to accusations from environmental organizations on state aids and the coal phase-out plan?

We understand the concern of environmental organizations, but to have a realistic image of the status quo we need to take into account the whole context. CE Oltenia is a fundamental and safe player for the National Energy System, the company delivering over 20% of the electricity needs.

Romania cannot cover this volume from imports, and energy security would suffer if we depended on imports to such a great extent.

As a recent example, you see Transelectrica’s concern on the controlled shutdown of Unit 2 in Cernavodă on May 9, 2021, in the context in which alternative production capacities – Brazi, Elcen and even CE Oltenia – are withdrawn from operation for planned or accidental repairs.

What I would like the environmental organizations to understand is that the adequacy of the national energy system must be ensured every second. The cost of an energy blackout is immeasurable, impossible to assess and accept in economic terms, with a definite impact on national security and safety.

CE Oltenia and Romania have made a firm commitment to reduce CO2 emissions under the Restructuring and Decarbonization Plan. We gradually close lignite-fired production capacities, while investing in gas-fired groups and photovoltaic capacities.

But the transition from polluting to non-polluting cannot be done overnight and this is valid not only in our country but also in Germany or in Poland. So, a transitional solution should be found – and this is what we propose under the Restructuring Plan.

To give just an example, it was stated that after restructuring CO2 emissions of the complex would be higher. The statement is inaccurate because it considers as a benchmark the year 2020 when CEO production was low due to the pandemic. If it had been related to the previous years, when the company produced 14 TWh and had approximately 12 million tons of CO2 emissions, they would have realized that they were not right.

It is important to mention that the reduction provided in the restructuring plan is calculated for specific emissions. After the implementation of the Decarbonization Plan, CE Oltenia will have new production capacities, less polluting, with lower specific emissions (tons of CO2/MWh produced). Therefore, it will decrease from 0.82 t CO2/MWh in 2020 to 0.51 t CO2/MWh as of 2026, which is a reduction of approximately 38%.

What investments is the group preparing for this year and for a medium-term?

We are talking about investments in the context in which the Restructuring and Decarbonization Plan is approved by the European Commission. We consider the development of new capacities – based on gas and photovoltaics – to make the transition to non-polluting energy sources. By 2026, we plan to reach an installed capacity of over 2000MW (the 2 gas-fired power plants with a capacity of 1300MW and the completion of the 8 photovoltaic parks in 2023 – 2024, with a capacity of 725MW, built on tailings dumps and landfills of slag and ash within the power plants).

We want to attract partners supporting this effort and we are discussing, in this respect, with banks and other companies on possible formulas of financing and/or collaboration. In parallel, projects were started and, after preparing the feasibility studies since last autumn, specific project activities are being carried out: obtaining the necessary permits, the Owner’s Engineers selection. These are technical consultants who will assist our project teams to prepare tenders for general contractors until the commissioning of projects. I was happy to find at the CEO a high level of competence in investment activities, but where we invest RON 1.4 billion in technologies other than those existing in the company, we must make sure that we have those people with us who have built dozens of such power plants anywhere in the world.

We want to make sure that we have both the financing and the human resources and experience necessary to comply with the project timetable, this being an essential aspect for the company and for the energy sector in Romania.

How do you see, in the light of the Green Deal, the development of CE Oltenia, how will you adapt?

CE Oltenia transformation takes into account the targets set by the EU under the Green Deal, but as you mentioned energy transition involves time and stages. In the following years CEO will continue to need state aid for the payment of CO2 allowances, as well as for the implementation of restructuring measures – streamlining the activities by activity restriction, centralization, operational excellence, digitization.

Transition to less polluting energy sources is in fact an extensive process of economic transformation. In the coming years there will be important financing for the energy sector, but also hundreds of projects that require a very good coordination and therefore CEO will resort, as mentioned, to technical consultants who have the necessary know-how and experience to successfully implement major investment projects, from design to operationalization.

What is, in your opinion, the most suitable energy mix for Romania, given the new Green Deal policy, for the periods 2020-2030 and 2030-2050?

It is clear, at European level, that transition to clean energy involves huge investments. In Romania we estimate that it will be an annual percentage of 5-7% of GDP only for energy investments; added to these are also those in the rest of the company; because energy transition also involves an extensive economic transformation.

While for financing there are quite many dedicated funds, plus a significant increase in private investors’ interest in investment projects related to Green Deal, their destination is equally important.

For the period 2020-2030 we believe it is reasonable to gradually diminish the production of energy based on lignite and diversify, at the same time, energy sources. In the restructuring plan we propose gas-fired and solar power units, which will have a total installed capacity of over 2000 MW. Although in Europe gas, as a transition fuel, is called into question, energy transition without gas-fired power plants is not possible in Romania. But we need investment decisions for such projects in the energy sector to be made in 2020 at the latest, otherwise financing from sources such as the Modernization Fund or from international financial institutions risk no longer being available.

In parallel, other technologies, such as storage, and other resources, such as hydrogen will make their way. In the case of hydrogen, it will gain an important role as we have access to that information that allows us to determine a business case (availability as source and cost, including transport, support scheme if necessary etc. to determine the impact on the profitability of our investments). In this regard, I would also like to say that CE Oltenia wants to implement gas capacities that are 30% Hydrogen-Ready, which will simplify the transition to hydrogen.

Probably the energy mix that we will have around 2030 will be the one that will be defining for the following period, until near 2050.

How do we solve the issue of vocational retraining of miners?

Vocational retraining is an extremely important chapter, because we are a company with almost 12,000 employees. There will be retraining programs for transition from coal to gas, process which will involve thousands of workers in the construction phase of power plants, as well as an important number of human resources in project management, site supervision activities and other typical project activities. After commissioning new services will be required, which will contribute to the creation of jobs.

We have also discussed this issue with the authorities in the county and the regional ones, we are participating in a working group with other players of the business environment, so that we can find together ways to support the transition process. The Territorial Transition Plan will soon be completed by each County Council in the affected areas and I expect to find many answers there on new activities, other than those related to CE Oltenia, which can be financed from the Just Transition Fund and which will lead to the creation of many jobs. One thing is certain, we have and continue to have an active role in ensuring a future for people within CE Oltenia communities, together with local and central authorities, as well as with the business environment.

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This interview firstly appeared in the printed edition of Energynomics Magazine, issued in June 2021.

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