CE Oltenia will play an important role in ensuring the security of the national energy system (SEN), by putting new capacities into operation and by keeping coal-fired capacities in technical reserve, said Lăcrămioara-Diaconu Pințea, member of the CE Oltenia directorate, in an exclusive interview for Energynomics. At the same time, the solar and cogeneration projects are in the approval phase, and obtaining construction permits will most likely take place in the first half of next year.
CE Oltenia will operate with the seven energy groups on commercial basis also in 2023. The Restructuring Plan provided for the closure of group 3 from Rovinari and group 7 from Turceni. However, it was decided that these groups should be placed in technical reserve. In other words, they will be kept in working condition and, at the request of Transelectrica, they can be put into operation, Lăcrămioara-Diaconu Pințea also said.
What are the company’s main investment plans and what is their status? What was achieved in 2022 and what are the plans for 2023?
CE Oltenia is currently implementing a business plan developed until 2030 and covered by the company’s restructuring and decarbonization period, until 2026. Eight photovoltaic parks with a total capacity of 725 MW will be built. Also, two natural gas plants will be built: a 475 MW block at SE Turceni, which will replace an existing 330 MW lignite capacity, and an 850 MW block at Ișalnița, which will replace blocks 7 and 8, both of 330 MW on lignite. In this way, the transition from coal to natural gas and renewable energy sources will take place and an energy mix with low carbon emissions will be ensured – emissions are expected to be reduced by approximately 38%. The adequacy of the National Energy System will be ensured by correlating the commissioning of the new capacities with the withdrawal and reduction of the installed coal capacity of CE Oltenia.
In the first stage of the restructuring plan, we chose the concept, initiated the authorization process, launched the approach to the banks to identify sources of financing, because a mix of financing is needed. At the moment we have the feasibility study and we are in the authorization process – urban planning approvals, environmental approvals. Obtaining Technical Approvals for Connection is in the final phase or has already been done for some projects. I estimate that obtaining construction permits will be done in the first half of next year.
The granting of state aid to EC Oltenia at the beginning of the year required the fulfillment of certain mandatory criteria, namely: undertaking the establishment of SPVs for new projects (gas groups and photovoltaic parks), receiving attractive offers from investors, preferably competitors, to attract them to our projects, as well as indicative offers from banks. Talks with the banks started last year, and now work is being done on structuring the financing. Banks go through the stage of environmental and social, technical and legal due diligence. The EC Oltenia and the banks’ teams are working in parallel so that the signing of the loan agreements takes place next year, in correlation with the signing of the EPC contracts for the execution of the projects. These are two syndicated loans for projects, whose investment budget amounts to ab overall 1.5 billion euros, of which bank financing could cover between 10 and 30%, depending on the project.
In the last year, work has been done not only on attracting banks, but also private investors for new projects. We managed to attract three investors, OMV Petrom, Tinmar and ALRO, for all 10 projects. CE Oltenia will build, in partnership with OMV Petrom, four photovoltaic parks with a total power of about 450 MW. The projects will be developed through four separate legal entities in a 50%-50% participation structure. The intention is that the electricity produced will be sold by these entities to the two partners, in equal proportion. According to current estimates, the parks will supply electricity to the national energy system starting in 2024.
In the process carried out for the selection of investors for the implementation of photovoltaic parks and natural gas power plants (CCGT), Tinmar Energy SA had been designated as the selected investor for four photovoltaic parks with a total maximum installed power of 280 MW and for CCGT Turceni, the natural gas group of 475 MW. The transaction documents resulting from the negotiations between C.E. Oltenia and Tinmar Energy, carried out since the beginning of the year, were submitted to the Supervisory Board of CE Oltenia and the General Shareholders’ Meeting, according to the competence provided by the company’s Articles of Association. The documents were not approved (initially – e.n.) by the Supervisory Board, and the Oltenia CE Oltenia General Shareholders’ Meeting adopted a decision according to which the transaction documents were not approved and, including, the establishment of joint-stock companies with CE shareholders was not approved Oltenia and Tinmar Energy. Currently, we are working on a solution to break the deadlock (at the time of the interview. In the meantime, the project was resumed with the participation of Tinmar Energy – e.n.).
ALRO was selected by CE Oltenia to jointly build the natural gas power plant in Ișalnița, with a capacity of 850 MW. CE Oltenia’s quota of the share capital of 59.9% represents a contribution of 65 million euros. Alro SA will participate with a 40.1% share of the share capital, representing a contribution of over 43.5 million euros. The total value of the project is estimated at 506 million euros. The deadline for commissioning the gas-fired power plant from Ișalnița is 2026.
It must be said that, without these projects, neither the CE Oltenia restructuring plan will be fulfilled, nor will Romania have the necessary capacities to ensure its energy security.
What are the main changes in the market following the conflict in Ukraine? How have the costs of raw materials and subassemblies, operations and speed of projects been affected? Have you resorted to bank loans?
Like other countries, Romania is facing an increase in energy prices, which is mainly due to the increase in demand for energy – in particular, for natural gas – all over the world, in the context of economic recovery. The situation is amplified by the difficult context caused by the armed conflict in Ukraine, which affects the security of energy supply in Europe. I estimate that prices will remain high beyond 2023. Thus, we have to face several challenges. First of all, the security of the National Energy System, and here CE Oltenia will play an important role by putting new capacities into operation and by keeping the coal capacities in technical reserve. Increasing energy efficiency is another challenge, as is increasing domestic gas production by exploiting Black Sea fields.
The increase in the prices of energy products had a direct impact on the entire chain, from the producers of raw materials, materials, products and subassemblies needed for the coal mining and coal-based electricity generation sector, but also for the service providers’ sector. Ensuring the material basis for carrying out the maintenance works on the mining and energy aggregates was a priority for the company, so that the energy capacities could support the National Energy System. No dedicated bank loans were used to meet these price increases.
At the same time, we want the EPC tenders we will launch to allow us to stay within the budgets set for our projects in both PNRR and the Modernization Fund funding.
What are the main barriers to the development of CEO projects in Romania? What can be done? What should the Romanian state do to facilitate the acceleration of investments and to ensure our energy independence?
As mentioned above, the economic and geopolitical context is complicated, with direct effects on the energy market. Obviously, it is not the most favorable context for the implementation of the Restructuring Plan of EC Oltenia, because we are attentive to the needs of the Romanian energy system. CE Oltenia carries out its activity in accordance with the national policies for maintaining the security and adequacy of the National Energy System. And, currently, this need involves exceeding the targets included in the business plan and, hence, the challenge of ensuring that we fulfill our commitments and respect the deadlines included in the Restructuring Plan, but also the implicit obligations in Romania.
We are in dialogue with the Government and the European Commission and we have agreed, in principle, that we can implement a series of temporary measures, such as the increase in production or some expenses that this increase will incur. But, any change in the structure of the business plan can be made temporarily and to the extent that additional state aid is not required. Thus, CE Oltenia was able to decide to supplement electricity production, increase coal production by 1 million tons/year in 2022, temporarily employing 600 people. We have also established temporary measures regarding the closure schedule of mining perimeters or fossil fuel-based electricity production capacities.
The good news is that Romania has an energy mix and each source in this mix can be the solution. In the short term, coal may be one of the solutions. Therefore, the closure of certain production units will be at the disposal of the “Transelectrica” National Company, the Transport System Operator, and they will be kept as a technical reserve. However, I don’t think coal can be the only solution, also taking into account the technical limitations of production. Everyone has some flexibility, but ultimately it will be a mix of solutions. It’s a bit more difficult when it comes to regional and global gas availability. For energy from renewable sources, if there is enough installed capacity, then the chance increases that when there is sun and wind we will have additional production.
I think we should be very concerned, beyond the temporary solutions, on how we accelerate the commissioning of new production capacities. It is true that, at the present time, we are facing challenges in the energy field, but we must not postpone or forget the acceleration of those projects that will ensure an energy mix.
Which coal groups remain in the state reserve? What will happen, in the long term, to them, following the adoption of the new decarbonization law?
The Energy Sector Decarbonization Ordinance, which was recently passed, provides for the cessation of lignite and coal-based electricity production by December 31, 2032 by decommissioning, closing and conserving the total installed capacity of lignite and coal-based electricity of 4,920 MW. The closure of certain units will be at the disposal of Transelectrica, the Transport System Operator, and they will be kept as a technical reserve. The transfer to the technical reserve is made by order of the competent minister, at the request of the national transport and system operator, and is used at its order to ensure the adequacy of the National Energy System, in various situations of need or crisis.
CE Oltenia can adopt temporary measures in difficult times, but to the extent that additional state aid is not required. So there is flexibility, and now the discussions have been around coal in the context of the energy crisis. CE Oltenia will operate with the seven energy groups on a commercial basis also in 2023. The Restructuring Plan provided for the closure of group 3 from Rovinari and group 7 from Turceni. However, it was decided that these groups should be placed in technical reserve. In other words, they will be kept in working condition and, at the request of Transelectrica, they can be put into operation. As long as the company does not request an increase in restructuring aid, CE Oltenia can operate on commercial terms with these groups.
In the long run, following the adoption of the new decarbonization law and according to the EC Decision approving the restructuring aid, the creation of a separate subsidiary of CE Oltenia is being considered, which will include and exploit the existing energy blocks on lignite and related assets that are not intended for the transition to gas or renewable sources. This could be the solution for these energy capacities to remain in the technical reserve as long as needed, for the security of the National Energy System.
