Romania has not done much to accelerate the absorption of European funds, said Kurt Weber, Managing Director, Horvath & Partner. Funds totaling 90 billion euros encourage a radical process of economic transformation through which Romania can regain its economic competitiveness. “We can not miss the opportunities offered by a full use of European funds,” Kurt Weber told us.
Dear Mr Kurt Weber, how do you assess the absorption capacity of Romania’s European funds today? Has it improved in any way compared to 2021?
If we consider only the energy sector, Romania has the unique chance to attract approximately 90 billion euros through 3 main programs: NRRP, the Modernization Fund and the Operational Program for Sustainable Development.
A year ago, at a public event dedicated to this topic, we pointed out that we have a great challenge in being able to benefit from this money and spend it for the defined purposes – we should multiply the efficiency of attracting funds from 4 to 5 times. Unfortunately, in the meantime, 12 months have passed and only a minimum of measures have been taken, for example, the decentralization of the decision on structural funds to regional entities. But it is clear that this measure is not enough.
More is needed to increase the absorption of these funds. There must be sufficient clarity, transparency as to the type of state aid, how it is intended to act and what is the investment effect produced. This requires well-designed, mature projects that are thoroughly analyzed and trusted by investors. This would increase the absorption of funds. In other words, I believe that new projects must be designed holistically and integrated into the business model, to produce the expected benefits and thus to obtain non-reimbursable financing.
What are the main developments that you have identified in the efforts of Romanian cities to identify ideas and build projects that can be financed with European money?
There is a lot of interest in areas that are now essential in the green transition to a sustainable future and sustainable development: renewable energy production, transportation without pollution, waste management and there are ideas and projects for hybrid / distributed district heating, gas cogeneration without fossil origin, even green hydrogen or passive buildings, all supported by the digitization of public institutions/services. What seems to be missing is an integrated strategy on what the green transition means for each local community, an integrated concept especially adapted to the specific needs of the place. The simple list of areas shows the complexity of this transition. We are among the promoters of an approach that starts from these needs of the community, taking into account existing local resources, but we cannot say that there is really a demand for this type of advice.
Beyond transport infrastructure, hospitals and nurseries, there are at least three key directions in the European Green Deal: decarbonisation, increasing energy efficiency and using renewable energy. Has Romania advanced in any way in the last year?
We still have a long way to go, if we think about these three areas. The installed capacity of renewable energy in Romania has not increased in recent years, moreover, we must prepare for the integration of variable renewable production in the national energy system. Energy efficiency must exist both for consumers, who are implementing their measures under the effect of price pressure, and for transmission and distribution networks, as well as for producers. Energy efficiency should be more than a market-driven effect, we need to think about the future in terms of limited and increasingly expensive fossil resources.
And decarbonisation means virtually de-fossilizing the entire hydrocarbon-based industry by replacing fossil fuels with renewable energy sources, but it is also very important to replace fossil fuels with emission-neutral products, such as recycled ones in a circular economy system. In these areas, our country is just beginning to initiate projects.
Energy security was a specialists only topic just a few months ago. Now it seems that we will have to identify urgent solutions to cover our domestic needs (heat, fuel and primary resources for electricity generation) without relying on imports of hydrocarbons into Russia. What are these solutions?
Europe is heavily dependent on energy resources imported from Russia: 40% of natural gas imports, 49% for coal and about 30% for hydrocarbons. Such a degree of dependence on resources in a global economy gives these resources the quality of a strategic weapon. In response, we must have a plan to replace resources that are uncontrollable, depletable, and polluting. Although Romania is the third least dependent country on the import of energy resources in the EU (and the second if we refer to natural gas), it must act precisely on the pillars of the European energy strategy and the Green Pact: energy efficiency to reduce national consumption, electrification instead of gasification and massive development of renewable energy capacities.
The speed of development of renewables is essential because economically it is the most profitable of these directions. The sun and the wind are local, inexhaustible and non-polluting resources.
Reducing the cost of technology makes solar and wind technologies currently the cheapest methods of producing energy, in the context in which the price of raw materials (coal, gas) and emissions make energy from fossil sources extremely expensive, without getting us a horizon for a significant reduction in their use.
Last but not least, Romania suffers from a problem with the structure of the market: we are the only country in the EU that has an energy mix organized based on technologies. This, combined with the principle of pricing based on merit, leads to the prices we see today, regardless of the marginal cost of production of each technology. All the energy produced in the country (whether renewable, hydro or nuclear) is sold at the price of the most expensive technology, which until recently was coal. Now, amid the explosion in the price of natural gas, this is the technology that closes the order of merit, but the massive influx of renewables will cause the marginal price to close on increasingly cheaper technologies. For the penetration of these much cheaper renewable technologies to have the expected impact on the economy, two issues need to be addressed: the capacity of the transmission and distribution networks to take over the energy produced from variable sources and the issue of balancing the national energy system. The solutions to these problems are at hand and are being worked on: investments in increasing network capacity and storage solutions, which are also becoming more competitive in terms of cost.
The first information about the establishment of new value chains in new fields appears – I am thinking of electric battery factories that would be built in Romania. What are the prospects for the other relevant areas: the renewable energy sector, hydrogen, nuclear, natural gas?
All these key areas of importance for the green transition need to be developed based on national strategies, aligning national strategic objectives with financial resources (national budget, European budgets and private funding), skilled labour training and development, business models that capitalize on specific competitive advantages.
For example, private initiatives aimed at developing battery production facilities will benefit from funding through NRRP, but they must be sized according to market expectations, they must be located in areas where they will exist or where specialized skills will be developed, respectively ideally in areas close to the place of use, to ensure that the carbon footprint of the product by long-distance transport does not cancel out the effect obtained. All these dependencies should be thought of and anticipated by strategies for the top-level fields.
We are still in the last position in an EU ranking of innovation and we are the only country that has seen a decline in this indicator (EU Innovation index) in recent years. To overcome this situation, we need to think about strategic horizons.
Do you expect significant repositioning in the European energy-related industries, with an impact on Romania, given the new geopolitical and military context?
The geopolitical context is very volatile and the changes have been undergoing major changes in the last two years. We had a decrease in consumption during the pandemic, now there is an unexpectedly strong return of demand, at the same time it was the period in which the main provisions of the European Green Deal were finalized. These influences lead to a shortening of supply chains, but also to inflation beyond expectations, induced by the energy price crisis. At the same time, the authorities’ reaction has been to turn to market regulation models, which, if not properly defined, can deepen long-term imbalances.
Companies are looking to redefine their business models, to reposition themselves, for example from the exploitation of fossil fuels to the sustainable processing of recycled raw materials and the production of renewable energy.
We expect some international players to leave markets such as Romania, to consolidate their position in traditional markets, where there is less risk. In energy, we expect the success of new business lines such as energy solutions integrated into the residential and small and medium business segment, ESCO companies that provide such services. New technologies and products will have increased economic justification in response to the explosion in the price of natural gas, e.g. heat pumps. Emission-free transport, especially electrified, is slowly entering the market, but we expect renewable (green) or carbon-captured (blue) hydrogen to be another fuel used in many applications. Without the decarbonisation of transport, Romania will not be able to achieve its emission reduction targets, and there is still a lot of work to be done in this respect.
Romania’s chance is to rethink and revitalize its industry, in this context, for example, petrochemistry, chemistry, plastics, textiles, etc. Abandoned or much restricted industrial platforms could be transformed into small production centers that are functional on the principles of the circular economy, of course, if there is enough investment interest encouraged by the non-reimbursable financing programs we were talking about.
In conclusion, if we want to regain Romania’s economic competitiveness, we are not allowed to miss the opportunities offered by full use of European funds, which are at an unprecedented value precisely to support a radical process of economic transformation.
This interview first appeared in the printed edition of Energynomics Magazine, issued in March 2022.
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