The European Investment Bank (EIB) says the investment required to upgrade the Romanian energy sector and to place it on the energy transition path is significant. So, the financial effort must become a “joint-venture” between the public and private sector, altogether with an administrative framework that allows the effective absorption and allocation of funds.
“This investment effort cannot solely rely on public budget funds and EU grants,” a spokesperson from the EIB tells CEENERGYNEWS. “A great deal of private sector funds is also needed to fill the investment gap. In this context, the Modernisation Fund, InvestEU and the Just Transition Mechanism are key EU financing programmes that can accelerate climate action and energy transition in Romania. The harnessing and blending of this array of mechanisms and funding sources (for example, public and private, grants and loans) is very much dependent on the existence of a legislative and administrative framework that allows for the effective absorption and allocation of funds.”
Given the context, the Bank says one of the key objectives of the institution in the decade to come will be supporting Romania’s transition towards a greener economy. Besides the financing activities, the EIB has substantial funds available for advisory activities and technical assistance since delivering a solid project is the only way towards obtaining the needed funds.
During the last years, the EIB financial contribution was pivotal to the change of the Romanian energy sector, among the projects backed by the Bank being OMV Petrom’s co-generation power plant in Brazil or two of the largest wind farms in Central and South-East Europe (developed by CEZ and Enel).
“The EIB started operations in Romania in 1991 and is currently the largest multinational investor in the country with over 15,5 billion euro of financing,” the Bank continues. “It is expected that the EIB will continue to be one of the most significant investors. In concrete, Romania’s investment priorities, in particular with respect to the utilisation of the EU funds, will definitely shape what projects the EIB Group could co-finance. A key objective in the current decade will clearly be supporting Romania’s green transition.”
Last year, the EIB’s investments focused on climate action, innovation and access to finance to SMEs in Romania, but this year the market remains a bit unclear. The avalanche of EU funding is still a conundrum for local investors, so the need for clear rules is bigger than ever.
“The market is currently in a wait-and-see mood, anticipating a substantial amount of EU funds channelled to Romania, including from the Modernisation Fund and Just Transition Fund. The historical experience is that investments slow down in this run-up phase until investors have a clear idea of the priorities, conditions and procedures to seize EU funds opportunities. That is why it is important to have clear and transparent rules in place because it is key to generate business confidence.”
But no matter the financial option for each investment, one thing is clear. The money will come only to the ones who know how to prepare their projects and this, for Romania, is a huge challenge. After three decades of lack of investments, the people able to imagine and deliver such projects became a very exclusive club. Illustrative for Romania’s difficulties in implementing a project stands the scandal related to the Iernut power plant, o project financed by Romgaz, Romania’s state-owned gas producer, that should have been in place by 2019. Started in 2016, the investment in the new 430 megawatts (MW) gas-fired plant might be finished next year, due to several misunderstandings between the beneficiary and the contractor consortium.
The EIB says that the funds available for advisory activities and technical assistance are substantial.
“Preparing a project well is often the first step to make it bankable, and therefore interesting for investors,” adds the Bank. “Many of the projects that we finance benefit from this kind of advisory support before we make an investment decision.”
The EIB’s advisory capacity is not limited to project preparation, but also supporting the Romanian authorities to improve the regulatory environment.
“The EIB participates in the Climate Action Working Group organised by the National Bank of Romania with the participation of various government bodies and commercial banks. This Working Group aims to publish a document with specific suggestions to deploy Climate Action projects in the country. Furthermore, the EIB advised on the improvement of the energy efficiency legislation in Romania.”
Anyhow, the need for investments in the Romanian energy sector is huge. According to the data delivered by the Foreign Investors Council (FIC), a community that brings together over 130 multinational companies, covering a wide variety of goods and services, the need for investment in the next decade is over 70 billion euro.
“Of the 70 billion euro, 24 represents the investment needed in the gas sector, out of which the Black Sea is valued at 13 billion euro,” said Eric Stab, the president and CEO of ENGIE Romania, during an intervention in an event organised by FIC and also the chairperson of the Energy Taskforce in the FIC, together with Christina Verchere, the CEO of OMV Petrom. “Other 31 billion euro are needed for the power sector. For renovation, 13 billion euro are needed and some 3 billion euros for district heating.”
For Romania, gas seems to be essential in the energy transition road, but it also becomes harder and harder to finance.
“The EIB has reinforced its commitment to become the EU’s Climate Bank and we have aligned all financing activities with the principles and goals of the Paris Agreement since the start of 2021,” the EIB says. “Through its revamped Energy Lending Policy, the EIB support to the energy sector is aligned to the EU’s ‘net-zero’ GHG emissions pathway. It does this by focusing support on power generation technologies under an emissions threshold of 250 grams of CO2 per kilowatt-hour, and phasing out support to unabated fossil fuel energy projects such as large-scale heat production based on unabated oil, natural gas, coal or peat, upstream oil and gas production and traditional gas infrastructure.”
For Romania, this phasing out support to natural gas might be a challenge since the country relies on this local resource to move from coal to green energy.
“However, it does not mean that we cannot invest in countries that are still dependent on coal or gas. On the contrary, it is the Bank’s ambition to accompany the Member States in their endeavour to green their energy production. Consequently, we will continue to invest in energy efficiency, renewable energy, electricity transmission and the transformation of the existing energy infrastructure towards more climate-friendly energy generation.”
Furthermore, the EIB says that Romania’s road towards a greener power sector is not as difficult as the one Poland and the Czech Republic are facing, both countries being highly dependent on coal.
“Romania is less dependent on coal compared to Poland or the Czech Republic,” the Bank underlines. “According to Transelectrica, last year coal accounted for only 15,7 per cent of Romania’s electricity net production mix, down from 21.6 per cent the year prior. Both Poland (75 per cent) and the Czech Republic (40 per cent) rely on coal to a greater extent. In fact, Romania has a diversified production mix, with low carbon energy (renewables, hydro and nuclear) accounting for two-thirds of Romania’s net electricity production last year. Yet, there is a significant investment need with regard to the upgrade and extension of the electricity transmission network, as well as in new low carbon electricity production that would replace fossil fuel.”
Given this huge need for investments, Romania needs to address all the financing possibilities, with an improved administrative framework and a combined public and private effort.
Photo: courtesy fo EIB.