Press release

1 Apr 2021 Bucharest, RO

EY Romania report: Renewables can accelerate the decarbonisation of the Romanian energy sector, but public initiatives must be synchronised with business intentions

The health crisis has amplified concerns on climate change and drawn more attention towards the rise of sustainability and environmental protection across the globe. The need for decarbonization has generated changes in global strategies of governments and companies in terms of energy efficiency and renewable energy sources across the globe. Globally, the major powers and, at the same time, the biggest polluters, China and the US are fighting for decarbonisation, while in Europe, the European Green Deal is engaging member countries towards a clean and circular economy.

In Romania, the decarbonisation of the energy sector is largely based on the support provided by the European Green Deal. The potential of renewable energy on the local market can become the engine of the decarbonisation of the Romanian energy sector, as long as public initiatives synchronize with business intentions, according to the analysis of EY - Decarbonisation of the Romanian energy sector through renewable energies.

Romania has a slight advance in terms of the share of renewable energy compared to the European Union average. At the same time we are at the top of the EU countries in terms of dependence on coal for electricity generation at an approximate cost. 50% above the average price in the energy market in 2020. Accelerating the transition to renewable energy is a necessary economic objective in the context of current CO2 prices, renewable technology prices, European funds, and a sustainable energy mix. EY supports this transition through its own contribution, EY is 'carbon negative' in 2021, but also through solutions offered to companies on decarbonisation, improving energy efficiency and attracting European funds to achieve these objectives.
Mihai Drăghici
Senior Manager, Consulting

Romania’s energy market

Romania reached its 2020 EU renewables target of 24% of final energy consumption coming from renewables several years ago. In order to reach its 2030 renewables target of 30.7%, Romania plans to add around 7 GW of new renewables capacity, of which around 3.7 GW is projected to be solar projects, according to the plan.

In terms of energy consumption, in 2019, little over of 24% energy consumption originated from renewable energy sources, placing our country on the 10th place in the EU and above the union’s average level.

In 2020, electricity production in Romania was comprised of 12.4% wind power, 3.4% from photovoltaic solar panels, while 27.6% of the electricity production was coming from hydropower. In total, renewable energy production (wind, photovoltaic and biomass) amounted to 16%.

Romania’s greenhouse gas emissions fell over 50% compared to 1990’s levels due to a  significant reduction in energy demand and industrial activity, increase in energy efficiency and gradual compliance to more restrictive environmental standards. Energy still represents the main source, accounting for 2/3 of national GHG emissions, followed by agriculture, industry and waste management[1].

In Romania, the energy transition to low carbon can be achieved by synchronising private and public initiatives

Romania has witnessed a decline in terms of renewable energy attractiveness, partly due to the lack of appropriate regulations and appropriate governmental support. According to EY latest Renewable Energy Country Attractiveness Index (RECAI), once among the top 40 most attractive countries in terms of renewable energy in 2015 (34th place), in 2020, our country has fallen below this top, being surpassed by European countries such as Poland, Greece and Austria.

However, in the context of the introduction of the European Green Deal, several multinational energy companies have assimilated the wave of changes and implemented the sustainability agenda in their business strategy. At the same time, they announced their intention to invest in clean energy projects at the local level.

At governmental level, last year Power Purchase Agreements were introduced, in order to boost investments in the renewables sector by deregulating the local electricity market, per EU commonmarket regulations, thus allowing investors to minimize transactions risks. Until this legislative change, all electricity transactions could be carried out solely on the centralized market in a transparent, public, competitive and non-discriminatory manner. This restriction on freely negotiated PPAs was seen as the main obstacle preventing investments in new generation capacities, especially in the renewable sector.

Moreover, a Contracts for Difference scheme is currently assessed at the Ministry of Energy level, with financial support from the EBRD, in order to support investors interested in developing clean energy projects in Romania. The New Electricity Law , where drafting process is currently ongoing and managed with support from EBRD, will include relevant provisions related to EU environmental legislation, system flexibility, increased interconnection and market liberalization that represent facilitators for the transition to a low-carbon economy.

 

Six recommendations for an integrated plan for the renewable energy transition

1.    Updates on policies and legislation are necessary to stimulate investments – the right mix of legal and regulatory framework will favor a sustained deployment of renewable energy capacities.

2.    At country level, strategic projects must to be defined, prioritized and tackled in the context of significant financing potential of Recovery and Resilience Facility and other EU Funds available

3.    Developing a resilient and flexible infrastructure shall be the centerpiece of renewables integration – a high degree of grid stability can smoothen the energy transition.

4.    Adopting new technologies for energy storage, improving energy efficiency and increasing decentralized generation will increase the share of clean energy to be installed.

5.    Specific market mechanisms need to be developed to ensure maximum benefits for participants and to harness the full potential of renewables integration.

6.    An agile-based approach can prove successful for achieving Green Deal targets – assessing current state, setting the objectives, tracking progress, receiving feedback from the sector and adapting on the go are the key steps of the transformation process.

 

What the European Green Deal provides

Climate neutrality has also been defined as a 2050 target for the EU, a desideratum stipulated within the Green Deal framework, a legal commitment which includes a set of initiatives that aims to smoothen Europe’s transition towards a clean, circular economy through efficient use of resources, restauration of biodiversity and cutting pollution in all forms.

By 2030, the European Comission proposed the greenhouse gases reductions to be at least 55% compared with 1990 levels.

One of the main ways through which the European Commission aims to achieve climate neutrality is decarbonizing the energy sector. Arguably, carbon trading or carbon offsetting/ reduction projects represent short-term solutions to a pressing problem. 75% of the EU’s greenhouse gas emissions come from the production and use of energy across economic sectors[2].

In order to decarbonise the energy sector and achieve the objectives set out in the agreement, several European financing mechanisms have been put in place. Of these, the main beneficiaries of the Just Transition Mechanism are Poland, Germany and Romania, given the high dependence on fossil fuels for energy consumption. Romania will be able to access up to €4.4 billion as part of this mechanism, which promises to support the transition to low-carbon energy and also to improve energy infrastructure and create new jobs in the green economy.

 

Great powers in the fight for decarbonisation - China versus the US

The leading economies of the world in terms of adopting renewable energy are, paradoxically, the largest polluters of the world: China, followed by the United States. China is the world's leading country in electricity from clean energy sources, accounting for 28.7% of global wind generation and 31.9% of global solar generation. US is the second largest producer from both wind and solar, accounting for 21.7% of global wind generation and 14.7% of global solar generation (2018 data).

In recent years, China has manifested its desire to invest in green energy infrastructure and has shown this commitment by doubling its new renewable capacity in 2020.  Nevertheless, energy demand in these two major economies remains highly dependent on fossil fuels.

For the United States, the last 4 years have been more complicated, marked by Trump’s presidency, a climate change skeptic. During his mandate, he has withdrawn the United Stated from the Paris Climate Agreement, key legally binding international treaty on climate change and has prioritized economic growth over reduction of CO2 emissions, claiming environmental regulations could harm millions of jobs.

After 4 years of zero-climate action, American citizens have turned to a very different leader, who has been outspoken about the importance of protecting the environment. On day

1 of his presidency, Biden rejoined the Paris Climate Agreement, revoked the permit for a new oil pipeline system and vowed to ensure the U.S. achieves a 100% clean energy economy and reaches netzero emissions no later than 2050 and reduce the carbon of US building stock with 50% by 2035.

On April 22, Earth Day, the United States will host a Climate Summit, where the leaders of the majorpolluting nations of the world will discuss about ambitious pledges in terms of decarbonization. Nevertheless, putting promises into actions, more precisely into

legislation and regulations may prove be harder than it seems, with a divided Congress and additionally, the lobbying influence of big fossil fuels corporations. China and the United States will ultimately play the largest role in the global fight against climate change.

 

[1] https://ec.europa.eu/clima/sites/clima/files/strategies/progress/docs/com_2020_777_en.pdf

[2] https://ec.europa.eu/commission/presscorner/detail/ro/ip_20_1259